Court File and Parties

Court File No.: CV-19-629366 Date: 2021-07-05 Superior Court of Justice - Ontario

Re: George Gale and George Gale Medicine Professional Corporation, Plaintiffs -and- Rothbart Centre for Pain Care Ltd., Silver Medical Group Centre for Pain Care, Dufferin Doctors Group, Dr. Peter Rothbart, Dr. Ali Kajdehi, John Doe Director, 2066959 Ontario Inc., 2179452 Ontario Limited, 2561404 Ontario Limited, John Doe Numbered Company, Stan Swartz, Alan Sloan, Jerry Paskowitz and Carmella Serebrynay, Defendants

Before: Justice Edward Belobaba

Counsel: Kenneth Kraft, Chloe Snider and Meredith Bacal for the Defendants Dufferin Doctors Group, 1066959 Ontario Inc., 2179452 Ontario Limited, 2561404 Ontario Limited, Stan Swartz, Allen Sloan, Jerry Paskowitz and Carmela Serebryany / Moving Parties Jonathan Roth for the Defendant Dr. Ali Kajdehi / Moving Party Andrew Monkhouse and Walter Yoo for the Plaintiffs / Responding Parties No one appearing for the Defendants Rothbart Centre for Pain Care Ltd., Silver Medical Group Centre for Pain Care or Dr. Peter Rothbart

Heard: June 8, 2021 by Zoom video

Motions to Strike, Stay and Dismiss the Second Action

[1] When his 2015 action for wrongful dismissal was thwarted by the bankruptcy of the employer, the dismissed employee filed a second action in 2019 adding more defendants and alleging more causes of action including oppression and common employer.

[2] The defendants added in the Second Action (also referred to as “the 2019 Action”) bring these motions to strike, stay or dismiss the Second Action under Rule 21.01(1)(b) (“no reasonable cause of action”), Rule 21.01(3)(c) (“another proceeding”) and Rule 21.01(3)(d) (“abuse of process”).

[3] At the conclusion of the hearing, I ruled in favour of the moving defendants and permanently stayed the Second Action for abuse of process. I advised counsel that my written reasons would follow shortly.

[4] These are the reasons.

Background

[5] The 2015 Action. Dr. George Gale says that in September 2015 he was wrongfully dismissed by the Rothbart Centre for Pain Care after more than 20 years of employment. In December 2015, Dr. Gale and his professional corporation (together “the plaintiff”) commenced a $3 million wrongful dismissal action against five defendants: the Rothbart Centre for Pain Care, majority shareholder Dr. Rothbart, part-owner and accountant Stan Swartz and two other staff members. In a March 2016 court order, the 2015 Action was dismissed on consent and without costs as against Dr. Rothbart, Mr. Swartz and the two other staff members. The 2015 Action continued but only as against the Rothbart Centre for Pain Care.

[6] The 2015 Action was never tried. In March 2017, the Rothbart Centre made an assignment into bankruptcy and the 2015 Action was stayed under s. 69.3(1) of the Bankruptcy and Insolvency Act (“BIA”).[^1] The plaintiff filed a proof of claim in the bankruptcy proceeding and his lawyer attended the first creditors’ meeting. The bankruptcy trustee reported that the Rothbart Centre pain care clinic would continue to operate albeit through a different company and that most of the former employees would be offered employment. The successor company is the Silver Medical Group Centre for Pain Care.

[7] The trustee in bankruptcy was discharged by court order in February 2019. The 2015 Action was no longer stayed.[^2] Instead of proceeding with this first action, the plaintiff decided to file the Second Action.

[8] The 2019 Action. The plaintiff commenced the Second Action in October 2019. This time he sued not only the bankrupt Rothbart Centre and two of the defendants in the 2015 Action against whom that action was dismissed in 2016 (Dr. Rothbart and Mr. Swartz), he added eight new defendants — four corporate defendants: Dufferin Doctors Group, 1066959 Ontario Inc. (incorrectly identified as 2066959 Ontario Inc.), 2179452 Ontario Limited and 2561404 Ontario Limited, and four individual defendants: Alan Sloan, Jerry Paskowitz, Carmella Serebrynay (spelled correctly as “Carmela Serebryany”) and Dr. Ali Kajdehi. The newly added individual defendants are alleged to be officers and/or directors of the named corporate defendants.

[9] The 2019 Action repeats the same wrongful dismissal claim as in the 2015 Action and seeks the same relief, repeating almost verbatim many of the paragraphs of the 2015 Action. However, the Second Action also advances claims challenging the propriety of steps taken in the bankruptcy and alleging fraudulent conveyance, unjust enrichment, oppression, the common employer doctrine and piercing the corporate veil. The plaintiff explains in his factum that he issued the 2019 Action because “the Moving Defendants had conspired to declare the bankruptcy of the Rothbart Centre for Pain Care in order to avoid liability for the 2015 Claim”. And further, that “the 2019 Action is an attempt to go after numerous other entities to the extent of their personal liability in law relating to Dr. Gale.” Counsel for the plaintiff describes the 2019 Action as an “enforcement action” even though the 2015 Action was never adjudicated.

[10] The amended 2019 Action. In a supplementary factum filed on these motions, the plaintiff attached some last-minute amendments to the 2019 action. He explained that the “[t]he claims against Silver Medical remain the same as in the initial claim” and that any damages award in in the 2015 Action “would be offset from damages from the 2019 action”. He noted that the proposed amendments to the 2019 Action were intended to remove the allegation of fraudulent conveyance and “any claims related to a challenge to the bankruptcy proceedings”.

[11] However, as the defendants correctly point out, the amended claim does not achieve its intended purpose. It is true that the fraudulent conveyance claim is removed. But the amended claim continues to allege that the defendants, including the moving defendants, acted in bad faith by planning the Rothbart Centre’s bankruptcy in order to avoid being found liable for the plaintiff’s wrongful dismissal. The proposed amendments continue to attack the propriety of the Rothbart Centre bankruptcy and explicitly assert that “the declaration of bankruptcy was not legitimate”. The paragraphs that continue to challenge the propriety of the bankruptcy are set out in the attached Appendix. I will say more about this shortly.

[12] I note that Justice Sanfilippo was originally scheduled to hear these motions. In February 2021, he adjourned the motions so that the parties could provide a “more thorough and extensive briefing” on the “impact” of the Rothbart Centre bankruptcy and the BIA “on the 2019 Action”.[^3] Because of scheduling issues, the motions were assigned to me.

[13] I also note that Dr. Kajdehi, one of the moving defendants, is represented by separate counsel and that no one appeared on these motions for Dr. Rothbart, the Rothbart Centre or the Silver Medical Group Centre.

Focus

[14] In my view, it is Rule 21.01(3)(d) and “abuse of process” that provides the most appropriate basis for staying or dismissing the Second Action. I discuss this in detail below. Although I am also inclined to agree with the defendants’ “no reasonable cause of action” submissions, I make no formal ruling in this regard. It is sufficient for the purposes of these motions that the Second Action is permanently stayed as an abuse of process.

Discussion

[15] The Second Action abuses the process of this court in at least two ways. First, it tries to circumvent the bankruptcy proceeding and the rules and procedures set out in the BIA for challenging improprieties in the transfer of assets. Secondly, it attempts to circumvent the protections provided to parties under the Rules of Civil Procedure.

(1) Circumvention of the BIA

[16] Even if this court accepts the plaintiff’s last-minute amendments to the 2019 Action, the core complaint — the improper transfer of assets to the successor company — is a matter that falls within the bankruptcy proceeding. As already noted, I have attached the paragraphs from the amended 2019 statement of claim that continue to advance this complaint and provide ample support for the defendants’ submission that the Second Action is still aimed at the improprieties in the bankruptcy proceeding.

[17] The BIA provides a comprehensive regime for the reorganization of a failing debtor’s assets and for the equitable distribution among creditors in accordance with established legal priorities and procedures. The bankruptcy process “is intended to be a single forum for creditors”.[^4] One of the concerns in the legislative design is to prevent creditors from “jumping the queue” and extracting an inequitable distribution.[^5]

[18] The plaintiff should have challenged the transfer of assets from Rothbart to Silver Medical in the bankruptcy proceeding. In his report to creditors, the trustee made clear that the new successor business was already operating and that “the new business has been able to continue to offer the same, or similar, clinical service to a large number of Rothbart’s former patients in need of continued uninterrupted care.” The plaintiff’s solicitor attended the creditors’ meeting and received a copy of this report. The plaintiff did nothing to question or challenge this report. The filing of the Second Action is not only unfair to other creditors but an abuse of the rules and requirements of the bankruptcy proceeding.

[19] Under the statutory regime set out in the BIA, there are only two ways to establish that property in the possession of others is property of the bankrupt: (i) an action by the trustee pursuant to s. 30(1)(d), or (ii) an action by a creditor pursuant to section 38 of the BIA.

[20] Section 30(1)(d) of the BIA confers power on the trustee to bring, institute, or defend any action or other legal proceeding relating to the property of the bankrupt. This provision operates in conjunction with s. 71 of the BIA which provides that all property of the bankrupt vests in the trustee, subject to the rights of secured creditors.

[21] Here, if the plaintiff as creditor wanted to pursue a claim in respect of the return of the bankrupt’s property and the trustee declined to do so, the proper procedure would have been for the plaintiffs to bring a motion under s. 38 of the BIA to seek an assignment of the claim. A creditor is obliged to use s. 38 of the BIA if he seeks to bring an action on behalf of creditors if the trustee will not because all property of the bankrupt vests with the trustee under section 71 of the BIA. There is no other process to bring a claim on behalf of creditors to challenge transfer of the bankrupt’s assets. As this court noted in Marco v Levy,[^6] “[T]he proposition that there is a procedural avenue other than section 30(1)(d) by the trustee or section 38 by a creditor is inconsistent with the whole concept of the orderly disposition of the property of a bankrupt.”[^7]

[22] Accordingly, in order to make any allegation about improprieties in the bankruptcy, the plaintiffs must still rely on section 38. The plaintiff’s attempt to circumvent the BIA by pursuing a claim in the wrong forum is not only unfair to other creditors, it is a collateral attack on the bankruptcy and insolvency process in which the plaintiff knowingly participated.

[23] The plaintiff has not satisfied the conditions of s. 38(1) of the BIA. He has not sought an Order allowing him to take action against Silver Medical and the other defendants in his own name. Nor is there any likelihood that the plaintiff would be entitled to such an Order having never requested the trustee in the Rothbart Centre bankruptcy to take the proceeding that he now advances.

[24] The plaintiff argues that s. 38 of the BIA does not apply because the trustee has been discharged. This is incorrect. Section 41(10) of the BIA provides that the trustee remains as trustee for the performance of duties incidental to the full administration of the estate, notwithstanding his discharge.[^8] Nothing in s. 38 prevents its use by a creditor following the discharge of the trustee.[^9] Indeed, the plaintiff could re-engage the trustee as necessary even to establish the wrongful dismissal claim as against Rothbart Centre.

[25] The plaintiff also submits that s. 38 of the Act is not available to him because he is not a “creditor” within the meaning of the Act. Not so. A “creditor” is defined by the BIA as any person having a claim provable under the Act. Unliquidated damages for breach of an employment contract – the damages asserted by the plaintiff herein – are a provable debt.[^10] Indeed, the plaintiff himself has already advanced the position that he had a provable claim.

[26] In short, the BIA prescribes a comprehensive procedure for the adjudication of the plaintiff’s claims of impropriety in the transfer of the assets to the Silver Medical Group. The circumvention of this prescribed procedure by the commencement of the Second Action is an abuse of process.[^11]

(2) Circumvention of the Rules of Civil Procedure

[27] Separate and apart from the BIA issues, the commencement of the 2019 Action is an abuse of process because of its circumvention of the Rules. Starting a new action and attempting to add the moving defendants as defendants to a fresh proceeding rather than seeking to add them as parties to the 2015 Action deprives the moving defendants of the opportunity to argue under Rules 5.04(2) and 26.02(c) that they should not be added as defendants.

[28] The attempt to circumvent these Rules is particularly serious in this case, given the limitation arguments that would be available to the moving defendants on such a motion. The underlying events occurred in September 2015. This action was started in October 2019 – more than four years later. Adding new defendants based on the same underlying facts arguably causes real prejudice that could not be compensated by costs or an adjournment.[^12]

[29] As the Court of Appeal noted in Maynes[^13], the adding of new defendants in a second duplicative action “circumvented the requirement in rule 26.02(c) to obtain leave of the court to add a non-consenting party to an action after pleadings are closed.” By starting the new action for the purpose of naming the added defendants, “the plaintiffs effectively circumvented the express procedural requirement in rule 26.02(c) that leave of the court be obtained to add a non-consenting party to the proceeding after pleadings have closed. This was an abuse of process.”[^14]

[30] Further, because the 2015 Action had been set down for trial, the plaintiff would have needed leave under Rule 48 to amend the statement of claim. In order to obtain leave, the plaintiff would have had to show a substantial or unexpected change in circumstances such that a refusal to grant leave would be “manifestly unjust”.[^15] This hurdle was avoided by filing the Second Action.

[31] I agree with the moving defendants that the plaintiff’s decision to start a new proceeding rather than seek to amend the claim in the 2015 Action is abusive of the court’s process and is prejudicial to the moving defendants. It deprived the moving defendants of important procedural rights that would have been available to them in the 2015 Action.[^16]

[32] The fact that the plaintiff added new claims of oppression or common employer in the Second Action does not change its essential character. The approach of the Court of Appeal in Maynes[^17] applies here as well:

The plaintiffs submit that the motions judge was wrong to strike the entirety of their statement of claim as an abuse of process because while Claims One to Five are already being litigated in the Ongoing Actions, Claim Six has never been asserted before and could not have been raised when the statements of claim for the Ongoing Actions were filed […] During oral submissions, counsel for the plaintiffs submitted that Claim Six may stand on its own even if Claims One through Five are struck as an abuse of process.

In addition to avoiding a multiplicity of actions, the doctrine of abuse of process seeks to uphold the integrity of the administration of justice […] In the present case, the plaintiffs’ assertions in Claim Six are intricately linked to Claims One through Five, which are already being pursued in the Ongoing Actions. The plaintiffs should have sought leave of the court to name the Added Defendants in the Ongoing Actions and to amend their pleadings to plead any relief they had not already claimed, either pursuant to rule 26.02(c) or rule 26.01.[^18]

[33] The same reasoning applies here. The plaintiff’s allegations against the moving defendants (that they are directors and officers of the Rothbart Centre and/or the related defendant companies) are intricately linked to, and are an extension of, the same underlying facts and transactions. As was true of “Claim Six” in Maynes, it is immaterial that the plaintiff could not yet assert these allegations against most of the moving defendants when they commenced the 2015 Action.

[34] The plaintiff relies on Ricco v. Ryan[^19] for the proposition that it is not an abuse of process to commence an action after the discharge of a trustee in bankruptcy where the original claims were never determined by a court. In Ricco, however, the plaintiffs never commenced an earlier action prior to the defendants’ assignment in bankruptcy.[^20] Accordingly, the court (correctly) concluded that it was not an abuse of process to later commence a claim for the first time. Because the original action in Ricco was never commenced, there was also no issue with respect to the requirement to seek leave of the court to add new parties to an existing action.

[35] Here, the plaintiff in this proceeding did commence an earlier proceeding – the 2015 Action – and that action had proceeded through discoveries, mediation and pre-trials. The reasoning in Ricco does not apply.

[36] While supporting and repeating the analysis as set out above and advanced by the other moving defendants, counsel for Dr. Kajdehi adds another point in relation to his client. The plaintiff mentions Dr. Kajdehi in only one paragraph of the statement of claim. He alleges that Dr. Kajdehi was a corporate director of one or more of the corporate defendants. However, the uncontroverted evidence before this court (adduced in support of the “abuse of process” motion) is that Dr. Kajdehi is not, and has never been, a director, officer or shareholder of any of the defendant corporations. I therefore agree with his counsel that Dr. Kajdehir has the additional argument that the claim against him is clearly unmeritorious and thus frivolous, vexatious or an abuse of process.[^21]

[37] The claim against Mr. Swartz also deserves specific mention. Recall that the 2015 Action against him was dismissed on consent and a consent court order issued. I agree with the moving defendants that the Second Action against this same defendant is a collateral attack on this court’s consent order. Abuse of process protects against collateral attacks that “attempt to impeach a judicial finding by the impermissible route of re-litigation in a different forum.”[^22] Collateral attacks abuse the court’s process by violating the principles of judicial economy, consistency, finality and the integrity of the administration of justice.[^23]

[38] In this case, not only was there no motion to set aside the 2016 consent dismissal order under Rule 59.06(2)(a), there is no pleading that sets out the grounds upon which such a consent order could be set aside.[^24] It appears that the plaintiff simply ignored the existence of the consent dismissal order despite the many written attempts by the moving defendants to bring this matter to his attention.

[39] In sum, the Second Action’s circumvention and denial of the protections provided by the Rules is sufficiently serious to constitute an abuse of process. When this circumvention of the Rules is combined with the even more serious circumvention of the BIA, the abuse of process is indisputable.

Conclusion

[40] As already noted, it is sufficient for the purposes of these motions to stay the Second Action for abuse of process. Although I am inclined to agree with the moving defendants’ detailed submissions that the oppression, common employer, unjust enrichment and piercing the corporate veil claims should also be struck under Rule 21.01(1)(b) (“no reasonable cause of action”), I make no formal ruling in this regard.

[41] I shall, however, remain available to the parties. Given my familiarity with the subject-matter, defence counsel has asked that I remain seized should any pleading motions be brought with respect to the 2015 Action. This is a sensible request and I am pleased to oblige.

Disposition

[42] The Second Action — that is, the 2019 Action — is permanently stayed for abuse of process.

[43] I shall remain seized to hear any pleading motions relating to the 2015 Action.

[44] The moving defendants are entitled to costs. If the parties are unable to agree on the appropriate amounts, the moving defendants should forward brief submissions within 14 days and the plaintiffs within 14 days thereafter.

Signed: Justice Edward Belobaba

Notwithstanding Rule 59.05, this Judgment [Order] is effective and binding from the date it is made and is enforceable without any need for entry and filing. Any party to this Judgment [Order] may submit a formal Judgment [Order] for original signing, entry and filing when the Court returns to regular operations.

Date: July 5, 2021

Appendix

Paragraphs in the Proposed Fresh as Amended Statement of Claim Attacking the Bankruptcy

(Emphasis added)

30. The Plaintiffs plead that the Defendants, Rothbart Centre, Dufferin Doctors Group, Dr. Peter Rothbart, Dr. Ali Kajdehi, 2066959 Ontario Inc., 2179452 Ontario Limited, 2561404 Ontario Limited, Stan Swartz, Alan Sloan, Jerry Paskowitz and Carmela Serebryany, had planned the bankruptcy of Rothbart Centre in order to obtain the benefit of a stay of proceedings against Rothbart Centre in bad faith.

31. The Plaintiff, Dr. George Gale pleads that the conduct of the Defendants, Dufferin Doctors Group, Dr. Peter Rothbart, Dr. Ali Kajdehi, 2066959 Ontario Inc., 2179452 Ontario Limited, 2561404 Ontario Limited, Stan Swartz, Alan Sloan, Jerry Paskowitz and Carmela Serebryany during Dr. Gale’s wrongful dismissal and the subsequent declaration of bankruptcy to avoid liability for same was conduct that is burdensome, harsh and wrongful. The Plaintiffs plead that this conduct was a marked departure from the standards of fair dealing.

32. The Plaintiffs plead that the conduct of the defendants, Dufferin Doctors Group, Dr. Peter Rothbart, Dr. Ali Kajdehi, 2066959 Ontario Inc., 2179452 Ontario Limited, 2561404 Ontario Limited, Stan Swartz, Alan Sloan, Jerry Paskowitz and Carmela Serebryany both in the manner of Dr. Gale’s dismissal and the decision to sell the assets of Rothbart Centre to an affiliated corporation and file for bankruptcy, was unfairly prejudicial and unfairly disregarded the interests of the Plaintiffs.

33. The Plaintiffs plead that the directors of Rothbart Centre, 2066959 Ontario Inc., 256104 Ontario Limited, 2179452 Ontario Limited, Dufferin Doctors Group, and Silver Medical have personally benefitted from their decision to have Rothbart Centre sell its assets to an affiliated corporation and declare bankruptcy.

34. The Plaintiffs plead that the transfer of assets between Rothbart Centre, Silver Medical, 2066959 Ontario Inc., 256104 Ontario Limited, 2179452 Ontario Limited, and Dufferin Doctors Group, and Rothbart Centre’s subsequent declaration of bankruptcy was entered into for the sole purpose of avoiding the liability arising out of the Plaintiffs claim for damages stemming from their wrongful dismissal. Rothbart Centre’s declaration of bankruptcy was not legitimate.

35. There is no juristic reason for allowing the Defendants, Rothbart Centre, Silver Medical, Dufferin Doctors Group, Dr. Peter Rothbart, Dr. Ali Kajdehi, 2066959 Ontario Inc., 2179452 Ontario Limited, 2561404 Ontario Limited, Stan Swartz, Alan Sloan, Jerry Paskowitz and Carmela Serebryany to enjoy the benefit at the expense of the Plaintiffs because the bankruptcy was entered into for the sole purpose of conferring this benefit onto the Defendants.

36. The Plaintiffs plead that the Defendants, Dufferin Doctors Group, Dr. Peter Rothbart, Dr. Ali Kajdehi, 2066959 Ontario Inc., 2179452 Ontario Limited, 2561404 Ontario Limited, Stan Swartz, Alan Sloan, Jerry Paskowitz and Carmela Serebryany engaged in large distributions of dividends to shareholders in the years prior to the bankruptcy of Rothbart Centre in order to prepare for the bankruptcy and obtain a stay of proceedings as against the Plaintiffs.

37. The Plaintiffs plead that the distributions of dividends leading up to the bankruptcy of Rothbart Centre are subject to recovery for the purposes of satisfying any judgment that occurs with regard to the Plaintiffs claims against the Defendants Rothbart Centre, Silver Medical, Dufferin Doctors Group, Dr. Peter Rothbart, Dr. Ali Kajdehi, 2066959 Ontario Inc., 2179452 Ontario Limited, 2561404 Ontario Limited, Stan Swartz, Alan Sloan, Jerry Paskowitz and Carmela Serebryany.

[^1]: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3. [^2]: Ibid., s. 69.3(1.1), discussed further below. [^3]: Endorsement of Sanfilippo J. dated February 8, 2021. [^4]: Walchuk Estate v Houghton, 2016 ONCA 643, at paras 9-10. [^5]: Honsberger, Debt Restructuring: Principles and Practice, (2020), chaps. 8:2101 and 8:2102. [^6]: Marco v. Levy, [2001] O.J. No. 1310. [^7]: Ibid., at paras 8, 10. [^8]: BIA, supra, note 1, s. 41(10). [^9]: Gladstone v. Bronson Granite & Marble Ltd., 2003 36904 (S.C.J.). [^10]: Houlden et al, The 2020-2021 Annotated Bankruptcy and Insolvency Act at 720 and 808; Gray v. Standard Trustco Ltd. (1994) 1994 7472 (ON SC), 29 C.B.R. (3d) 22 (Gen. Div.); and Noble v. Principal Consultants Ltd. (2000) 2000 ABCA 133, 187 D.L.R. (4th) 80 (Alta. C.A.) [^11]: See generally Dowdell (Trustee of) v Rinzema, 2001 28462 (S.C.J.) [^12]: Where an amendment is sought after the expiration of a limitation period, prejudice is presumed and the party seeking the amendment must lead some evidence to explain the delay and rebut the presumption of prejudice: Sarokin v. Zhang, 2020 ONSC 1839 at paras. 17-18; 1588444 Ontario Ltd. v. State Farm Fire and Casualty Co., 2017 ONCA 42 at paras. 26, 36-38 and 44. [^13]: Maynes v Allen-Vanguard Technologies Inc., 2011 ONCA 125. [^14]: Ibid., at paras 2, 35-39, 40 and 46. [^15]: Denis v. Lalonde, 2016 ONSC 5960 at para. 23. [^16]: 1588444 Ontario Ltd. v. State Farm Fire and Casualty Company, 2017 ONCA 42 at paras. 25 and 36. [^17]: Maynes, supra, note 13. [^18]: Ibid., at paras. 37-38. [^19]: Ricco v. Ryan (2007) 2007 44181 (ON SC), 42 B.L.R. (4th) 265 (S.C.J.) [^20]: Ibid., at para. 3. [^21]: Salasel v. Cuthbertson, 2015 ONCA 115 at para. 8. [^22]: Toronto (City) v C.U.P.E. Local 79, 2003 SCC 63 at para. 46. [^23]: Ibid., at para. 37. [^24]: Constantinos v Papadopoulos, 2018 ONSC 3248 at para 13.