COURT FILE NO.: CV-21-00657045-0000 DATE: 20210806
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
1051214 ONTRIO LIMITED and VITO FERA Plaintiffs
– and –
VIVO PIZZA PASTA FRANCHISE INC., PINO TRICHILO, ALSO KNOWN AS JOSEPH TRICHILO, DAOUST VUKOVICH LLP and GASPER GALATI Defendants
David Marcovitch, lawyer for the Plaintiffs
Idan Erez, lawyer for the Defendants, Vivo Pizza Pasta Franchise Inc. and Pino Trichilo also known as Joseph Trichilo
HEARD: In Writing
ENDORSEMENT
DIAMOND J.:
Overview
[1] The defendants Vivo Pizza Pasta Franchise Inc. ("Vivo") and Pino Trichilo ("Pino") (collectively "the moving defendants") bring this motion to strike pursuant to Rules 21.01 and 25.11 of the Rules of Civil Procedure. Specifically, the moving defendants submit that the following claims should be struck out from the Statement of Claim without leave to amend:
(a) the claims for statutory rescission under the Arthur Wishart Act (Franchise Disclosure) 2000 S.O. 2000 c.33 ('the Act");
(b) the claims for misrepresentation;
(c) the claims for common law rescission;
(d) all claims against Pino personally including breach of contract, breach of fair dealing/good faith, and unjust enrichment, and
(e) any allegations of intentional wrongdoing on the part of the moving defendants.
[2] The plaintiffs resist the relief sought and submit that, inter alia, the contents of the Statement of Claim set out all the material facts necessary to defeat the moving defendants' motion, as it is not necessary to "name every cause of action or legal theory" upon which the plaintiffs rely.
[3] The moving defendants' motion proceeded before me in writing. I have reviewed the contents of the Statement of Claim, together with the Facta filed by the parties.
Summary of Material Facts
[4] A review of the Statement of Claim discloses the following allegations which the Court must take to be true on this motion:
The individual plaintiff Vito Fera ("Vito") is the officer, director and shareholder of the corporate plaintiff 1051214 Ontario Limited ("105").
On or about May 17, 2017, 105 (as franchisee), Vito (as guarantor) and Vivo (as franchisor) entered into a franchise agreement.
105 carried on business from a property subleased from Vivo (who had leased the property from its owner).
Both the franchise agreement and the sublease were terminated by Vivo on August 18, 2020.
Prior to entering into the franchise agreement and sublease, Vito had experience as a restaurant operator, and was familiar with the operations and procedures of Italian restaurants in particular.
Pino sought Vito's advice and assistance with the establishment of the Vivo franchise system, and represented to Vito that in exchange for his assistant, Vito would have the right to operate a Vivo franchise without having to pay any franchise fees or royalties. It is unclear from the Statement of Claim whether this representation was made orally or in writing.
Pino advised Vito that the cost to build out and renovate the restaurant at the property was approximately $650,000.00. Vito provided those funds as requested, and 105 began operating from the property in or around March 2017. The plaintiffs allege that it was not until May 2017 when Pino requested that 105, Vito and Vivo enter into the franchise agreement and sublease.
Despite having allegedly agreed with Pino that the Vivo restaurant franchise would be operated without any fees or royalties, the franchise agreement and sublease were signed. The plaintiffs allege that Pino advised them that they could not operate the restaurant without signing the said agreements.
The required statutory financial disclosure under the Act was not delivered prior to the franchise agreement being signed.
After the franchise agreement and sublease were executed, Pino attended the property on a weekly basis to observe and examine operations. During those visits, Vito advised Pino that he no longer wanted to be bound by the terms of the franchise agreement, and told Pino that the franchise should be sold.
Vito alleges that he did not know that he was able to rescind the franchise agreements. In response, Pino agreed that he would sell the franchise, and that he would help Vito find a buyer for the franchise, but "first want to maximize the return for all parties by building up the restaurant's sales".
The plaintiffs allege that Pino made the above offer with the intent to "delay the plaintiffs beyond the rescission period". This is a confusing statement, as it is not clear from the Statement of Claim whether the plaintiffs are seeking statutory rescission under the Act, or the common law remedy of rescission as a result of an alleged breach of contract.
By August 2020, the restaurant was earning over $1,200,000.00 in annual sales. 105 changed its operations from a Vivo "green franchisee" to a "red franchise" in 2019. Red franchises are offered different items than those offered to green franchises, with a different physical layout as well.
Vito proposed a number of potential purchasers to Vivo, but Pino refused to consider any of them. Pino then told the plaintiffs that the premises needed to be reconfigured back to a green franchise, with a $70,000.00 reconfiguration fee required.
The plaintiffs paid the reconfiguration fee and assisted with the reconfiguration of the property.
On July 16, 2020, after reconfiguration of the property was complete, Vivo served the plaintiffs with a notice of default under the franchise agreement. The plaintiffs allege that this was a deliberate, planned attempt by Pino and Vivo to take control and ownership of 105's business without making any payments.
The notice of default alleged, inter alia, the use of the property for improper purposes, bookkeeping/accounting issues, the use of an unauthorized suppliers, products and services, and a failure to maintain minimum inventory and proper permits.
The plaintiffs allege that the contents of the notice of default were either concocted, or waived by Vivo over time.
The plaintiffs allege that none of the provisions of the franchise agreement were in fact engaged to invoke Vivo's right to serve and rely upon the notice of default.
On August 18, 2020, Vivo delivered a letter of termination to 105 stating three reasons: (1) unapproved sale of shares (by Vito to a co-owner), (2) the use of unauthorized products, and (3) a failure to purport gross revenue.
The plaintiffs deny any and all allegations set out in the notice of default and/or termination letter. Vivo terminated the sublease as well and took possession of the premises at the same time it terminated the franchise agreement.
Pino is allegedly personally liable for the damages suffered by the plaintiffs as Pino is "the directing mind of Vivo and has a personal animus against Vito". The claim further alleges that Pino "used Vivo as his instrument to damage the plaintiffs, knowingly and directing Vivo to do all the damage as alleged" in the Statement of Claim.
Motions to Strike
[5] The test to be employed on a motion to strike is well known. As held by the Supreme Court of Canada in Hunt v. Carey Canada Inc. 1990 CanLII 90 (S.C.C.), assuming that the facts as stated in the Statement of Claim can be proven, I must decide whether it is "plain and obvious" that the claim discloses no reasonable cause of action as against the moving defendants. As the pleaded facts are presumed to be true, I can only strike out a claim which has no reasonable prospect of success.
[6] As held by the Court of Appeal in Addison Chevrolet Dealer GMC Limited v. General Motors of Canada Limited 2016 ONCA 324, the test under Rule 21.01 requires a moving party to show that it is plain and obvious that the pleading discloses no reasonable cause of action, or that the claim has no reasonable prospect of success. Pleadings may be defective when they fail to allege the necessary elements of a claim that, if properly pleaded, would constitute a reasonable cause of action.
[7] In Salehi v. Professional Engineers Ontario 2014 ONSC 3816, Justice Myers held that a claim is to be read generously with allowance for mere drafting deficiencies. The test on a motion to strike is no doubt a stringent one as I must be satisfied that the claim, or a radical defect therein, is certain to fail.
Claims against Corporate Officers and Directors
[8] A corporation only operates through the actions of its individual officers, directors and/or employees. As held by the Court of Appeal in Normart Management Ltd. v. Westhill Re-Development Co. 1998 CanLII 2447 (ONCA), absent allegations of fraud, deceit, dishonesty or want of authority on the part of officers, directors or employees of a corporation, those individuals will be protected from personal liability unless a pleading properly sets out the actions or omissions of the individuals (a) to be themselves tortious, or (b) exhibit a separate identity of interest from that of the corporation so as to make the impugned act or conduct their own. Simply put, there must be some activity that takes the individuals out of their role of directing minds of a corporation.
[9] In the absence of a factual underpinning to support allegations that individuals acted outside their capacity as officers, directors or employees of a corporation, those individuals cannot be held personally liable for the actions of corporations they can control, direct or work for at the relevant time. That factual underpinning must relate to the actions or omissions of an individual that fall outside of his/her authority, exhibit a separate identity of interest, or were independently tortious and actionable.
[10] As held by Justice Dietrich in Libfeld v. Patica Corporation 2018 ONSC 3373, latitude for drafting deficiencies is less liberal when the Court assesses the adequacy of claims against corporate representatives. This approach finds support in the Court of Appeal for Ontario's decision in Piedra v. Copper Mesa Mining Corp, 2011 ONCA 191 where the Court concluded that allegations in a pleading that the acts and omissions of a director are allegedly tortious must withstand a high degree of scrutiny.
Decision
[11] I will now address the various alleged causes of action being challenged by the moving defendants.
All Claims against Pino Personally
[12] In my view, there is nothing in the Statement of Claim that draws a distinction between the alleged acts and omissions on the part of Vivo and those of Pino. Only Vivo is a party to both the franchise agreement and sublease. At all material times, the Statement of Claim alleges that Pino was acting as the officer, director and shareholder of Vivo, and presumably not in his personal capacity. Even reading the pleading generously and liberally as I am mandated to do, the underlying factual matrix supporting any alleged cause(s) of action against Pino appears to be duplicative, and cannot be said to demonstrate the necessary "sufficient uniqueness" required by the governing jurisprudence.
[13] The plaintiffs have not established a separate identity of interest with respect to the claims advanced against Pino. None of the allegedly unlawful conduct is alleged to have been carried out by Pino in his personal capacity. The only theory advanced by the plaintiffs in support of a finding of personal liability against Pino is (a) he made false representations regarding the requirement to (not) pay franchise fees/royalties in exchange for assistance in establishing the Vivo system, (b) he is the directing mind of Vivo with a personal animus against Vito; and (c) he knowingly and deliberately directed Vivo to cause damage to the plaintiffs. None of the acts or omissions complained of by the plaintiffs were allegedly carried out to benefit Pino personally, and as such none of the above alleged facts are sufficient to ground the causes of actions against Pino personally.
[14] Accordingly, and subject to my disposition of the remaining issues, the claims against Pino in his personal capacity are struck out with leave to amend.
Statutory Rescission under the Act
[15] The moving defendants submit that, to the extent that the Statement of Claim seeks statutory rescission under the provisions of the Act, it must be struck out without leave to amend as the claim for statutory rescission was issued more than two years after the signing of the franchise agreement. Section 6(2) of the Act is clear that a franchisee may seek to rescind a franchise agreement, without penalty or obligation, no later than two years after entering into the franchise agreement in the event no financial disclosure was ever provided by the franchisor. The Statement of Claim alleges that Vivo did not comply with its disclosure obligations under the Act, yet this proceeding was clearly issued more than two years after the parties executed the franchise agreement.
[16] In response, the plaintiffs in their factum submit that their "claim for rescission is not made under the Act". This concession, while appreciated, is anything but clear from a review of the Statement of Claim. Why did the plaintiffs made mention at all of Vivo failing to comply with its disclosure obligations under the Act if the plaintiffs were not seeking any remedy under the Act?
[17] In any event, on the face of the Statement of Claim, and the admissions made therein with respect to the timing of the franchise agreement, it is plain and obvious that no claim for statutory rescission could be maintained. Accordingly, to the extent that the Statement of Claim does seek statutory rescission (and the plaintiffs' concession in their factum places that position into doubt), that claim must be struck out without leave to amend.
Misrepresentation
[18] I agree with the moving defendants that the Statement of Claim does not specify what type of misrepresentation is being alleged - innocent, negligent or fraudulent. Unlike the tort of fraudulent misrepresentation, negligent misrepresentation requires that a duty of care exists based upon a special relationship between the parties.
[19] If the plaintiffs are alleging fraudulent misrepresentation (and they may need to do so in order to support their claims for common law or equitable recission as discussed hereinafter), the necessary elements of the tort of fraudulent misrepresentation are:
(a) the defendant must have made a representation;
(b) the representation made by the defendant was false;
(c) the defendant knew that the representation was false or made the representation recklessly without knowing whether it was true or false; and,
(d) the representation induced the plaintiff to act to his detriment/prejudice.
[20] The Statement of Claim requires further particulars as to the nature of the misrepresentation(s). For that reason alone, the plaintiffs' claims for misrepresentation must be struck out with leave to amend.
[21] The plaintiffs argue that the facts set out in their pleading are both obvious and implied – there was a misrepresentation, relied upon by the plaintiffs, and they suffered resulting damages. Regrettably, the relevant jurisprudence does not render the art of drafting a pleading as simple as the plaintiffs would think.
[22] The express representation set out in paragraph 17 of the Statement of Claim is that Pino represented to Vito that Vito would have the right to operate a Vivo franchise without having to pay any franchise fees, royalties or other payments. Vito relied upon that representation, and claims that he would not have provided his assistance to Pino otherwise. Yet even though the plaintiffs allege that they had an existing (oral?) agreement with Pino and Vivo, a franchise agreement was nevertheless required and ultimately executed.
[23] Paragraph 27 of the claim states that Pino told the plaintiffs that the Vivo restaurant could not operate without the franchise agreement and sublease being signed. Is that a representation relied upon by the plaintiffs? If so, did they rely upon it to their detriment, and did that representation cause the plaintiffs resulting damages? Further, did the minimal financial disclosure (ie. whatever was provided by Pino and/or Vivo) amount to a further misrepresentation? The Statement of Claim is devoid of any particulars in that regard.
[24] Clearly, the Statement of Claim needs to be revised in order to properly set out the specific representations made by Pino and/or Vivo, including who made them, what they were, when they were made, how they were relied upon, and the causal connection between the misrepresentations and the resulting damages.
[25] For these reasons, the plaintiffs' claims for misrepresentation are struck out with leave to amend.
Common Law/Equitable Rescission
[26] As set out above, the plaintiffs' claims for statutory rescission have been struck without leave to amend. As the Statement of Claim does not specify what type of rescission is being sought by the plaintiffs, the remaining claims for "rescission" must be addressed.
[27] To begin, I do not agree with the plaintiffs that "entitlement to a remedy is a cause of action". A cause of action entitles a party to seek a remedy against another party. A cause of action must be proven before a party is entitled to seek a remedy to redress the wrong suffered.
[28] As such, the Statement of Claim must specify whether equitable or common law rescission is being sought by the plaintiffs. Where a party is induced to enter into an agreement by fraud or duress, common law rescission is an available remedy. Where a party is entitled to seek rescission, they may treat the agreement at an end. Obviously, rescission is a unique remedy whereby parties are restored to their original positions prior to the contract being executed.
[29] In the case of equitable rescission, once the Court decides that the underlying agreement has been breached, not only does equitable rescission allow the parties to be restored to their original positions, but the Court is also bestowed an additional flexible discretion to make other adjustments and allowances to ensure that an equitable result is achieved.
[30] As previously held, it is unclear whether the misrepresentation advanced by the plaintiffs is fraudulent or not. To seek rescission, the misrepresentation must be fraudulent in nature, otherwise rescission is not available at common law or equity.
[31] To the extent that the Statement of Claim does plead the doctrine of duress, I agree with the moving defendants that the pleading is nevertheless lacking particulars insofar as the pressure applied to the plaintiffs allegedly leaving them with no other choice but to submit to the will of Pino and/or Vivo. In addition, such pressure must be alleged to have been illegitimate in nature.
[32] For these reasons, the claims for common law and/or equitable rescission are struck out with leave to amend.
The Remaining Claims
[33] The balance of the relief sought by the moving defendants on this motion relate to the claims for breach of contract, breach of fair dealing/good faith and unjust enrichment against Pino personally. I have already struck all claims out against Pino for the reasons set out above. Pino was never a party to the franchise agreement or the sublease. If Pino was not a party to any underlying agreement, it is unclear how he could be liable for a breach of the duty of good faith and/or fair dealing in the lead up, execution and implementation of those agreements.
[34] The plaintiffs may seek to amend their Statement of Claim to spell out exactly how these remaining causes of action can be advanced against Pino personally. They are all therefore struck out with leave to amend.
Costs
[35] I would urge the parties to exert the necessary efforts to try and resolve the costs of this motion. If those efforts prove unsuccessful, they may serve and file written costs submissions, totaling no more than five pages including a Costs Outline, in accordance with the following schedule:
(a) the moving defendants may serve and file their written costs submissions within ten business days of the release of Endorsement; and
(b) the plaintiffs may serve and file their responding written responding costs submissions within ten business days of the receipt of the moving defendants' written costs submissions.
Diamond J.
Released: August 6, 2021
COURT FILE NO.: CV-21-00657045-0000 DATE: 20210806
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
1051214 ONTRIO LIMITED and VITO FERA Plaintiffs
– and –
VIVO PIZZA PASTA FRANCHISE INC., PINO TRICHILO, ALSO KNOWN AS JOSEPH TRICHILO, DAOUST VUKOVICH LLP and GASPER GALATI Defendants
ENDORSEMENT
Mr. Justice Diamond
Released: August 6, 2021