241 Pizza (2006) Ltd. v. Moore Management Inc. and George Moore

COURT FILE NO.: CV-19-00623876

DATE: 20210611

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

241 PIZZA (2006) LTD.

Plaintiff

– and –

MOORE MANAGEMENT INC. and GEORGE MOORE also known as GEORGE M. MOORE

Defendants

COUNSEL:

James Quigley, for the Plaintiff

No one appearing for the Defendants

HEARD: June 10, 2021

VERMETTE J.

[1] The Plaintiff brings a motion for summary judgment as against both Defendants, and seeks certain relief in relation to the service of the Statement of Claim on the Defendant Moore Management Inc. (“MMI”).

Factual Background

[2] On February 13, 2012, the Plaintiff entered into a franchise agreement with MMI as franchisee and George Moore as guarantor (“Agreement”). At the time, based on representations included in the Agreement, Mr. Moore owned 100% of MMI’s shares and was its sole director. He signed the Agreement both personally and on behalf of MMI. The Agreement granted to MMI a franchise to operate a Pizza 241 outlet at 5550 Ferry Street in Niagara Falls, Ontario (“Premises”) for a period of 10 years commencing on February 13, 2012.

[3] Pursuant to the Agreement, MMI agreed, among other things, to pay a weekly “Royalty Fee and Telephone Service Fees” in the amount of $250.00, and a weekly “Advertising Fee” in the amount of $75.00. The Agreement states that all amounts owing to the Plaintiff under the Agreement bear interest from and after the due date until paid in full at the rate of 24% per annum. The Agreement also provides that if it is established that MMI has breached any of the terms and conditions of the Agreement, MMI and Mr. Moore “agree to pay all costs and expenses including legal fees (on a solicitor and his client basis) that may be incurred or paid by the Franchisor in enforcing its rights and remedies under this Franchise Agreement.”

[4] Pursuant to the guarantee provisions included in the Agreement, Mr. Moore agreed to irrevocably and unconditionally guarantee payment, observance and performance to the Plaintiff “of all present and future obligations of any nature at any time owing by” MMI to the Plaintiff. The guarantee is a continuing guarantee of all of MMI’s obligations.

[5] Also on February 13, 2012, MMI signed a sublease, as sublessee, with a numbered company controlled by the Plaintiff, as sublessor, with respect to the Premises. Mr. Moore signed the sublease as guarantor. It was agreed that MMI would pay rent directly to the head landlord.

[6] After the execution of the Agreement and the sublease, MMI commenced operating a Pizza 241 outlet in the Premises and continued to do so until November 2018. During that period of time, MMI paid the “Royalty Fee and Telephone Service Fees” and the “Advertising Fee” on a weekly basis. Until 2018, if any questions or issues arose regarding MMI, the Plaintiff contacted Mr. Moore.

[7] In October 2018, the head landlord communicated with the Plaintiff to inform them that MMI had failed to pay rent and that the rent owing under the sublease was in arrears. When the Plaintiff contacted Mr. Moore to inquire about the rent, he advised for the first time that he had sold his shares in MMI to Arulini Ragulan back in 2015, and that MMI was now Mr. Ragulan’s business. This transfer of shares, which occurred without the consent of the Plaintiff, was in breach of the Agreement. The Plaintiff knew Mr. Ragulan as an employee or agent of MMI.

[8] MMI did not pay the rental arrears and, ultimately, the head landlord terminated the head lease in November 2018 and re-entered the Premises, effectively putting MMI out of business. MMI ceased paying the “Royalty Fee and Telephone Service Fees” and the “Advertising Fee” the week starting November 5, 2018.

[9] Pursuant to the Agreement, the following constitute “events of termination” entitling the Plaintiff to terminate the Agreement: (a) if MMI fails to pay when due any amount owing under the Agreement and such default continues for a period of 5 days; and (b) if MMI ceases operation of the franchised outlet.

[10] On December 19, 2018, the Plaintiff’s lawyers sent a demand letter to MMI and Mr. Moore stating that both were in default of their covenants and obligations to the Plaintiff pursuant to the Agreement and Mr. Moore’s personal guarantee contained therein. The letter asked for payment of the fees owing under the Agreement to the end of the term of the Agreement. No payment was received from the Defendants and this action was commenced.

[11] The Corporation Profile Report of MMI indicates that it was the object of a voluntary dissolution on June 22, 2017, and that Mr. Ragulan was its sole director and officer starting on July 1, 2015. The address included in the Corporation Profile Report for both MMI and Mr. Ragulan is the address of the Premises (i.e., 5550 Ferry Street in Niagara Falls). Neither MMI nor Mr. Ragulan can be found at this address now.

[12] The Plaintiff relies on section 242 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 to bring this action against MMI.

The Action

[13] The Plaintiff commenced its action on July 17, 2019. It claims the sum of $53,300.00 against MMI and Mr. Moore on account of the “Royalty Fee and Telephone Service Fees” and the “Advertising Fee”. This amount is calculated based on there being 164 weeks from the last payment under the Agreement until February 12, 2022, i.e. the date on which the Agreement was due to expire ($250 x 164 + $75 x 164). The Plaintiff submits that it is entitled to the payments it ought to have received from MMI if it was not in breach of the Agreement. Pursuant to the Agreement, the Plaintiff also seeks costs as well as pre-judgment and post-judgment interest at the fixed rate of 24% per annum.

[14] Mr. Moore served a Statement of Defence on August 8, 2019. While he admits many of the facts set out in the Statement of Claim, he alleges that the Plaintiff became aware of the transfer of the ownership of MMI from Mr. Moore to Mr. Ragulan shortly after June 27, 2015. He also argues that “[t]o allege a breach based on the aspect of change of control is now statute barred as over two (2) years has elapsed since the Plaintiff became aware of the change of control.”

[15] MMI has not defended the action. The Plaintiff purported to serve the Statement of Claim on MMI on July 26, 2019 by leaving a copy with Mr. Moore. However, as acknowledged by counsel for the Plaintiff, Mr. Moore was no longer a director or officer of MMI at that date. While it is possible that Mr. Moore shared the Statement of Claim with Mr. Ragulan, service on Mr. Moore was not service on MMI. When the Plaintiff became aware of the service issue, they served the Statement of Claim and Mr. Moore’s Statement of Defence on MMI by sending a copy by e-mail to Mr. Ragulan at his last known e-mail address on April 19, 2021. The e-mail was successfully sent and was not returned to the sender. The Plaintiff has not heard back from MMI or Mr. Ragulan and the time to serve a Statement of Defence has elapsed.

[16] No other steps have been taken in this action.

The Motion

[17] The Motion Record of the Plaintiff was served on MMI and Mr. Moore by sending a copy by e-mail to the last known e-mail addresses of Mr. Ragulan and Mr. Moore on April 22, 2021. Neither MMI nor Mr. Moore filed responding materials, and neither of them contacted the Plaintiff or its counsel after receiving the motion materials. Counsel for the Plaintiff advised that his assistant sent the Zoom link for the hearing of the motion to Messrs. Moore and Ragulan, but neither of them participated in the hearing. I note, however, that someone joined the Zoom hearing approximately 20 minutes after the start time of the motion, but the person confirmed that he was there to observe and was not a party to the action.

Validation of Service

[18] As mentioned above, by inadvertence, the Statement of Claim was served on MMI by leaving a copy with Mr. Moore at a time where he was no longer an officer or director of MMI. While the Plaintiff sought to correct this by sending a copy of the pleadings to Mr. Ragulan in April 2021, this was done more than six months after the issuance of the Statement of Claim, contrary to Rule 14.08 of the Rules of Civil Procedure. However, there is no evidence of prejudice before me and there is a strong likelihood that Mr. Moore would have made Mr. Ragulan aware of the action. As a result, I conclude that it would be fair and just to extend the time for service of the Statement of Claim on MMI.

[19] Given that the registered address of MMI and its only director and officer is the address of the Premises, documents sent to that address will not come to the attention of MMI. Based on the evidence before me, in particular the fact that the Plaintiff has communicated in the past with Mr. Ragulan at his private gmail address, I am satisfied that documents sent to that e-mail address will come to the notice of Mr. Ragulan, the last registered director and officer of MMI. Therefore, the service of the Statement of Claim to that e-mail address is validated.

Summary Judgment

[20] A party moving for summary judgment has the evidentiary burden of showing that there is no genuine issue requiring a trial with respect to a claim or defence. However, each party must put its best foot forward to establish whether or not there is an issue for trial. The Court is entitled to assume that the record contains all the evidence that the parties would present at trial: see Toronto-Dominion Bank v. Hylton, 2012 ONCA 614 at para. 5. A responding party cannot rely on allegations or denials in the pleadings, but must present evidence demonstrating that there is a genuine issue for trial: Sylvite v. Parkes, 2020 ONSC 5569 at para. 16.

[21] I agree with the Plaintiff that this case is well-suited for summary judgment. The case is not complex, and the key facts are not in dispute. The Plaintiff’s affidavit evidence makes out its case. The only defence raised by Mr. Moore is unsupported by any evidence and, ultimately, irrelevant. In my view, the evidence adduced by the Plaintiff shows that it did not know about the transfer of shares of MMI from Mr. Moore to Mr. Ragulan until October 2018. In any event, the limitation period argument raised by Mr. Moore in his Statement of Defence is based on a wrong premise, i.e. that the transfer of shares in 2015 is the default on which the claim for damages is based. The default that is relied upon in this action is not the transfer of shares, but, rather, the failure to pay fees under the Agreement. This default did not occur until November 2018.

[22] As a result, I am satisfied that there is no genuine issue requiring a trial and that it is appropriate to grant summary judgment in this case. I am also satisfied that pre-judgment and post-judgement interest should be at the rate specified in the Agreement: see subsections 128(4)(g) and 129(5) of the Courts of Justice Act, R.S.O 1990, c. C.43 and Lundy’s Regency Arms Corp. v. Niagara Hospitality Hotels Inc., 2016 ONSC 4199 at paras. 12-13.

[23] As stated above, the Agreement provides that the Plaintiff is entitled to be paid for “all costs and expenses including legal fees (on a solicitor and his client basis) that may be incurred or paid by the Franchisor in enforcing its rights and remedies under this Franchise Agreement.” In light of this, the Plaintiff requests costs on a substantial basis in the amount of $11,460.00 (including HST and disbursements). I have reviewed the Plaintiff’s costs outline and, in my view, the hourly rates and the time spent (for both the action and the motion) are reasonable. In light of the factors set out in Rule 57.01(1) of the Rules of Civil Procedure, including the amount of costs that an unsuccessful party could reasonably expect to pay in relation to both the action and the motion, I find that the substantial indemnity amount claimed by the Plaintiff in his costs outline is fair and reasonable.

Conclusion

[24] In light of the foregoing, I grant the following relief:

a. the time for service of the Statement of Claim is extended to April 21, 2021;

b. the service of the Statement of Claim on MMI, performed by sending a PDF copy of the Statement of Claim by e-mail to Mr. Ragulan on April 19, 2021 to his gmail address, is validated;

c. MMI is noted in default of this action;

d. MMI and Mr. Moore are ordered to pay to the Plaintiff, jointly and severally, the sum of $53,300.00 plus pre-judgment interest at the rate of 24% per annum, for a total of $84,985.20 as of June 10, 2021;

e. post-judgment interest at the rate of 24% per annum; and

f. MMI and Mr. Moore are ordered to pay to the Plaintiff costs in the amount of $11,460.00 within 30 days.

Vermette J.

Released: June 11, 2021