COURT FILE NO.: CV-18-76363
DATE: 20211130
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
KERRI SEABROOK, STEVEN SEABROOK, 1702712 ONTARIO INC., TRUDY MULLIGAN, JOHN KINNEY, THANE WHITE and TIM SNELLING
Plaintiffs
– and –
BRUCE DONALD MURISON, MICHAEL DUNLEAVY, ROBERT LASSIG, FRANK FERRARI, 2123388 ONTARIO INC., MURISON FAMILY TRUST, SCOTT MURISON, STANDARD INNNOVATION CORPORATION, OBOTICS INC. and EXIA BIOMEDICAL INC.
Defendants
Michael S. Hebert and Cheryl G. McLuckie, for the Plaintiff
Peter N. Mantas, Nabila Abdul Malik and Gabrielle Cyr, for the Defendants Bruce Donald Murison, Michael Dunleavy, Robert Lassig, Frank Ferrari, 2123388 Ontario Inc., Murison Family Trust, Standard Innovation Corporation and Exia Biomedical Inc.
Pierre Champagne and Ginger Warner, for the Defendants Obotics Inc. and Scott Murison
HEARD: October 12, 2021
reasons for decision
R. Smith J.
[1] The Defendants Scott Murison, Obotics Inc. (“Obotics”), 2123388 Ontario Inc., (“212”) Exia Biomedical Inc. (“Exia”) and the Murison Family Trust (“MFT”) seek to strike the claims made against them pursuant to a Rule 21.01 motion.
[2] At the hearing, the parties agreed that the claims against Scott Murison would be struck without costs and I so order.
Legal Test
[3] Rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (“the Rules”), states that a pleading may be struck out if it does not disclose a reasonable cause of action.
[4] The Supreme Court in Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959 and in R. v. Imperial Tobacco Canada Ltd, 2011 SCC 42, held that the test to apply on a Rule 21.01 motion is whether it is “plain and obvious” that the claim has no reasonable prospect of success.
[5] The court must take the facts alleged in the statement of claim as true, unless they are patently ridiculous or manifestly incapable of being proven. The court must also give the statement of claim a generous reading.
[6] No evidence is permitted on a Rule 21.01 motion, but documents specifically referenced in the statement of claim can be considered as held by the Court of Appeal in Web Offset Publications Limited v. Vickery, [1999], O.J. No. 2760 (ONCA).
[7] In Dawson v. Rexcraft Storage & Warehouse Inc., 1998 CarswellOnt 3202 (ONCA), the Court of Appeal held that a plaintiff's allegations will not be substantially adequate if they do not come within a recognized cause of action or the allegations do not plead all the elements necessary for a recognized cause of action.
[8] In Fragomeni v. Greater Sudbury Police Service, 2015 ONSC 3937, the court held that it was insufficient to allege what are effectively conclusions of law, without the necessary factual underpinnings. Allegations in the nature of assumptions or speculations are not to be taken as true. Bald allegations unsupported by pleading material facts in support are not taken to be proven.
[9] In BCE Inc., Re, 2008 SCC 69, the Supreme Court held that to establish a claim in oppression, the claimant must plead facts that establish the following elements:
(a) That the claimant had a particular, specific expectation and that this expectation was reasonably held. This is an objective inquiry, informed by such case-specific factors as general commercial practice, the size, nature, and structure of the corporation in question, the mechanisms available to the complainant to protect the interests said to be harmed, representations and agreements, and past practice; and
(b) That the complainant's reasonable expectations were violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest.
Factual Background
[10] The plaintiffs were former minority shareholders in Standard Innovation Corporation (“SIC”), a manufacturer of adult intimate devices. They allege oppressive conduct by the defendants Bruce Murison (“Murison”), Michael Dunleavy (“Dunleavy”), Robert Lassig (“Lassig”), Frank Ferrari (“Ferrari”), 212, and the MFT.
[11] The moving parties acknowledge that except for 212 and the fact that MFT is a trust and is not a legal entity that is capable of being sued, sufficient material facts have been pleaded to support a claim for oppression against the remaining defendants listed in para. 10 above.
Should the Claims Made Against the MFT be Struck?
[12] In Spencer v. Riesberry, 2012 ONCA 418, the Court of Appeal held that a trust was a form of property holding and stated that “it is not a legal entity or person”. A trust operates through its trustees. As such, the claim and paragraphs supporting the claim against MFT are struck, as it is plain and obvious that the claim against MFT has no possible chance of success.
[13] I grant leave to amend the statement of claim within 30 days to plead the material facts setting out the actions of the trustees of the MFT that may support a claim for oppression.
Alleged Oppressive Actions
[14] The plaintiffs allege that the defendants listed in para. 10, above, acted oppressively by: (a) allowing SIC's assets and resources to be misappropriated by Obotics and Exia; and (b) by selling all of the shares of SIC, including the plaintiff’s shares, to a third party at below their true value.
[15] The defendants Dunleavy, Lassig, and the trustees of the MFT controlled a majority of the shares of SIC. Ferrari controlled 212 which held 2.76% of SIC’s shares. Bruce Murison was a beneficiary of the MFT.
[16] The defendants Bruce Murison, Dunleavy, Lassig and Ferrari were directors of SIC at the material time.
[17] Bruce Murison founded Obotics and is a director of Obotics along with Ferrari. Scott Murison was a director of Obotics until March 13, 2017. Obotics was a competitor of SIC.
[18] The defendants MFT, Dunleavy and Ferrari are, or have been, shareholders of Obotics.
[19] Dunleavy is a director and shareholder of Exia.
[20] The plaintiffs claim that SIC's assets and resources were used by Obotics and Exia without adequately compensating SIC.
Analysis
Should the Claims Made Against 212 be Struck?
[21] In Coronation Minerals Inc v. Guyana Goldfields Inc, [2008] OJ No 5799, 58 BLR (4th) 246, 2008 CarswellOnt 246, relief for oppression was sought against another minority shareholder, the court noted that it had not been referred to any case in similar circumstances. For oppression to occur, the oppressor must be capable of such conduct. With only 2.76% of SIC's shares, 212 did not have the capability to oppress other minority shareholders, one of which owned a greater number of shares in SIC. The plaintiffs have not pleaded any material facts to support oppressive or other tortious conduct by 212.
[22] In Brant Investments Ltd. v. KeepRite Inc. (1987), 60 O.R. (2d) 737 (H.C.) the High Court held, and the Ontario Court of Appeal confirmed that shareholders do not owe fiduciary type duties to other shareholders. The plaintiffs have not pleaded any material facts to support a legal or fiduciary duty by 212 to the other minority shareholders.
[23] The plaintiffs have sued 212, which was controlled by Ferrari, because it held 2.76% of the shares in SIC. 212 was a minority shareholder in SIC that owned fewer shares in SIC than the plaintiffs owned collectively and less than the 4.751% of the shares of SIC owned by the plaintiff Thane White. The plaintiffs have not pleaded any material facts to describe how 212 acted oppressively towards them, owed them any duty or engaged in any tortious conduct. For the above reasons, it is plain and obvious that the claim made against 212 has no chance of success.
Should the Claims Made Against Exia be Struck?
[24] In Brunette v. Legault Joly Thiffault, 2018 SCC 55, at para. 25 and 27, the Supreme Court held that the right of action of a corporation belongs to the corporation itself. “The corporate veil is impermeable on both sides; Just as shareholders cannot be liable for faults committed by the corporation, so too are they barred for seeking damages for faults committed against it.”
[25] In Brunette, at para. 51, the Supreme Court stated that shareholders cannot bring a claim for harm done to a corporation unless they can demonstrate a breach of a distinct obligation to them; and a direct injury to them that is distinct from the harm suffered by the corporation. In Brunette, at para. 53, the Supreme Court stated that it was open to the shareholders to bring a derivative action under the statute, however, they could not advance a derivative action under the guise of an oppression remedy.
[26] The Supreme Court added that the plaintiff carried the burden of clearly pleading a sufficient and proper interest to assert the oppression remedy:
The existence of a sufficient interest is not presumed by the court. It must be established by the claimant, who must allege the necessary facts to underpin the sufficiency of his or her interest. […] Vague and general allegations of fact are insufficient. The claimant must rather provide a precise statement of facts, as required by the general rules concerning written pleadings…
[27] In Rea v. Wildeboer, 2015 CarswellOnt 7602, 2015 ONCA 373, [2015] O.J. No. 2651, 126 O.R. (3d) 178 (ONCA), at para. 33, the Court of Appeal stated: “the impugned conduct must harm the complainant personally, not just the body corporate, i.e., the collectivity of shareholders as a whole.” At para 40-41, the Court of Appeal stated that: “the misappropriation of corporate property that establishes losses to the corporation is a loss to the collectivity of shareholders, not to any particular shareholder. Under these circumstances the claim must be advanced as a derivative action, not as an oppression remedy.”
[28] SIC may have a cause of action against Exia for misappropriating its assets, for breach of contract or negligent misrepresentation regarding the investment or development agreements they entered. Investment funds and resources were allegedly provided, by SIC to Exia pursuant to agreements and as a result, products were developed by Exia. However, if the investments or resources SIC provided to Exia have caused or resulted in harm or losses being suffered by SIC, then the claim for damages would be SIC’s to make. A claim on behalf of SIC against Exia would have to be advanced by way of a derivative action and not by individual shareholders in their personal capacity.
[29] If Exia received any improper benefit from SIC, then any claim for damages would belong to SIC, and not to the individual shareholders of SIC. As a result, there is no legal nexus between the plaintiff shareholders and Exia other than through SIC.
[30] Exia received investment funding from SIC. Exia was an arms length business that had one director and shareholder in common with SIC, namely Dunleavy. The plaintiffs have not pleaded any material facts that would support a finding of wrongful oppressive or tortious conduct by Exia. Absent any material facts being alleged supporting some oppressive or tortious conduct by Exia, it is plain and obvious that the claim by a minority of individual shareholders of SIC against Exia for oppression has no chance of success.
Should the Claims Made Against Obotics be Struck?
[31] As part of their claim for relief from oppression, the plaintiffs seek an accounting for the money, assets, and resources that were received by Obotics and Exia from SIC. They also ask the court to order that these two corporations issue shares to the plaintifs in the same proportion that they held in SIC.
[32] The plaintiffs allege that Obotics retained ownership of 17 patents in circumstances where SIC provided the resources to fund their development between 2012 and 2017. The plaintiffs claim that the patents should have belonged to SIC, but for the oppressive conduct of the defendants listed in para. 10.
[33] SIC and Obotics entered into a Development Agreement whereby, it was agreed that Obotics would become the owner of any patents that were obtained as a result of the research and development it conducted. Obotics’ ownership of the patents is as a result of the Development Agreement it signed with SIC. The plaintiffs may have a valid claim for oppression against the directors or officers of SIC for entering into the Development Agreement with Obotics, or terms which favoured Obotics to the detriment of SIC’s minority shareholders.
[34] However, the plaintiffs have not pleaded any material facts against Obotics that would support a cause of action against it for oppression or some other tortious conduct. The plaintiffs have sued Obotics because they allege it has reaped the financial benefit of the Development Agreement it entered into with SIC. This is not an allegation of wrongful conduct by Obotics. In fact, they ask the court to award them shares in Obotics in the same proportion as their previous holdings in SIC. The other shareholders in Obotics would have to be given notice in order to allow them to respond to such a claim.
[35] The plaintiffs claim that as a result of the oppressive conduct by the directors, officers and a majority of the shareholders of SIC, that assets and resources of SIC were unfairly transferred to Obotics, namely the 17 patents that have been registered in Obotics’ name.
[36] The plaintiffs have not pleaded any material facts that allege any wrongful, tortious or oppressive conduct by Obotics, other than that it became the owner of patents pursuant to the Development Agreement, that the plaintiffs allege should have belonged to SIC.
[37] In Maynes v. Allen-Vanguard Technologies Inc., 2011 ONCA 125, at paras. 75 – 80, the Court of Appeal held that where the plaintiffs did not plead a cause of action against the “added defendants” (“Obotics”) and did not assert any basis on which they had a reasonable expectation that the “added defendants” would protect their economic interests, it was plain and obvious that there was no basis in law to impose a constructive trust over the “added defendants” escrow fund as an oppression remedy against the “original defendants”. The claim was struck in its entirety.
[38] The situation before me is similar to that in Mayne. Here, the plaintiffs have not pleaded any material facts to support a finding that they had a reasonable expectation that Obotics would protect their interests. In fact, they have not alleged any oppression by Obotics but rather are claiming a constructive trust against Obotics as a remedy for oppressive conduct by the defendants listed in paragraph 10.
[39] As a result, absent the pleading of any material facts alleging some oppressive or tortious conduct by Obotics, it is plain and obvious that the claim against it has no chance of success and the claim against Obotics is struck.
[40] In the case of Obotics, I will grant leave to amend to plead material facts, if any, to support a cause of action against Obotics, because it has received the bulk of the assets that the plaintiffs’ claim should have been the property of SIC.
Disposition
[41] For the reasons given above, the claims against 212, Exia and Scott Murison are struck without leave to amend: The claims against MFT are struck, as the trust is not a legal entity, with leave to amend within 30 days. The claim against Obotics is also struck with leave to amend within 30 days.
Costs
[42] The moving parties may make submissions on costs within 15 days. The plaintiffs shall have 15 days to respond and the moving parties shall have 10 days to reply.
Released: November 30, 2021
COURT FILE NO.: CV-18-76363
DATE: 20211130
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
KERRI SEABROOK, STEVEN SEABROOK, 1702712 ONTARIO INC., TRUDY MULLIGAN, JOHN KINNEY, THANE WHITE and TIM SNELLING
Plaintiffs
– and –
BRUCE DONALD MURISON, MICHAEL DUNLEAVY, ROBERT LASSIG, FRANK FERRARI, 2123388 ONTARIO INC., MURISON FAMILY TRUST, SCOTT MURISON, STANDARD INNNOVATION CORPORATION, OBOTICS INC. and EXIA BIOMEDICAL INC.
Defendants
reasons for decision
R. Smith J.
Released: November 30, 2021