COURT FILE NO.: CV-21-00657210-000 DATE: 20220328 ONTARIO SUPERIOR COURT OF JUSTICE
IN THE MATTER OF AN APPLICATION PURSUANT TO RULE 14.05(2) OF THE ONTARIO RULES OF CIVIL PROCEDURE, R.R.O. 1990, Reg.194 AND SECTION 241 OF THE CANADA BUSINESS CORPORATIONS ACT, R.S.C. 1985 c.C.-44
BETWEEN:
ROSE ALCAMO, WAYNE FRIAS, ATIF SIDDIQUI, MARINA SILOV-MARCAN ESTATE TRUSTEE FOR THE ESTATE OF ZELJKO MARCAN, SRINIVASA DONKENA and FRANCIS HARTMAN Applicants
- and – JOHN WALT, also known as JOHN GORDON HOWARD WALT, SYLVIE TREMBLAY, also known as SYLVIE TREMBLAY-WALT and ENEIGHBL INC. Respondents
Corey Bergstein for the Applicants J. David Keith for the Respondents
HEARD: February 22-23, 2022
PERELL, J.
REASONS FOR DECISION
A. Introduction
[1] Rose Alcamo, Srinivasa Donkena, Wayne Frias, Francis Hartman, Zeljko Marcan, represented by his widow Marina Silov-Marcan, and Atif Siddiqui are the Applicants.
[2] Mr. Marcan passed away after the commencement of this Application, and Ms. Silov-Marcan, the Estate Trustee for the Estate of Zeljko Marcan is not pursuing any claim.
[3] The Applicants are the shareholders of Eneighbl Inc., a closely held corporation incorporated in 2017 pursuant to the Canada Business Corporations Act by Steve Johnson and the Respondent John Walt.
[4] The Applicants sue Eneighbl, Mr. Walt, and Mr. Walt’s wife, Sylvie Tremblay for: (a) damages for misrepresentation and fraudulent misrepresentation; (b) damages for breach of fiduciary duty; (c) damages for misappropriation and conversion of funds; (d) an oppression remedy; (e) damages for negligence; (f) disgorgement for unjust enrichment; and (g) damages for breach of contract with respect to Mr. Walt’s promise to redeem the Applicants’ respective shareholdings in Eneighbl.
[5] In particular, Ms. Alcamo sues for: (a) $50,000 for her shareholding; (b) $20,500 for repayment of a personal loan to Mr. Walt; (c) $1,100 for reimbursement of expenses incurred for Eneighbl; (d) $250,000 for disgorgement; and (e) $250,000 for punitive damages.
[6] Mr. Donkena sues for: (a) $10,000 for his shareholding; (b) $100,000 for damages; (c) $100,000 for disgorgement; and (d) $100,000 for punitive damages.
[7] Mr. Frias sues for: (a) $72,500 for his shareholding; (b) $13,667.28 for repayment of a personal loan to Mr. Walt; (c) $3,562.28 for reimbursement of expenses incurred for Eneighbl; (d) $250,000 for damages; (e) $250,000 for disgorgement; and (f) $250,000 for punitive damages.
[8] Ms. Hartman sues for: (a) $20,000 for her shareholding; (b) $100,000 for damages; (c) $100,000 for disgorgement; and (d) $100,000 for punitive damages.
[9] Mr. Siddiqui sues for: (a) $10,000 for his shareholding; (b) $1,500 for repayment of a personal loan to Mr. Walt; (c) $100,000 for damages; (d) $100,000 for disgorgement; and (e) $100,000 for punitive damages.
[10] For the reasons that follow:
a. I dismiss the Application against Ms. Tremblay with costs.
b. I award Ms. Alcamo a judgment without costs of $70,500 against Mr. Walt and a judgment without costs of $1,100 against Eneighbl both with interest to be determined by a motion in writing.
c. I award Mr. Donkena a judgment without costs of $10,000 against Mr. Walt with interest to be determined by a motion in writing.
d. I award Mr. Frias a judgment without costs of $86,167.28 against Mr. Walt and a judgment without costs of $3,562.28 against Eneighbl both with interest to be determined by a motion in writing.
e. I award Ms. Hartman a judgment without costs of $20,000 against Mr. Walt with interest to be determined by a motion in writing.
f. I award Mr. Siddiqui a judgment without costs of $11,500 against Mr. Walt with interest to be determined by a motion in writing.
[11] By way of overview:
a. There are no proven claims against Ms. Tremblay.
b. The only proven claims against Eneighbl are Ms. Alcamo’s and Mr. Frias’ claims for reimbursement.
c. But for Mr. Walt’s oral and written promises to repay the Applicants for their shares, the sorry history of Eneighbl is a humpy-dumpy affair of a start-up business that fell off the wall at the get-go. The Applicants made their own decision to invest and to move forward despite glaring warning signs. The business could never be put together again. Decision regret is not a cause of action. The only proven claims against Mr. Walt are:
i. Ms. Alcamo’s, Mr. Frias’ and Mr. Siddiqui’s loan claims; and,
ii. The Applicants’ respective claims for breach of oral and written contracts that Mr. Walt breached when he failed to redeem their shares at their original purchase price.
B. Dramatis Personae
[12] Rose Alcamo resides in Aurora, Ontario. She owns 20 shares of Eneighbl, which she purchased for $50,000. She is a self-employed management consultant. By 2017, she had almost thirty years experience practising human resources and organizational change management. Her undergraduate degree is from the University of Western Ontario in psychology, and she has certifications in both human resources management and as an organizational change practitioner. She serves on the executive of the Change Management Institute Canada Chapter where she was pursing accreditation as a “change master.” She was practising organizational change management at Research in Motion, where she met Mr. Walt who was another employee.
[13] Srinivasa Donkena resides in Stouffville, Ontario. He owns 4 shares of Eneighbl, which he purchased for $10,000. Mr. Donkena is a self-employed IT consultant through his incorporated private corporation. He has an engineering degree and an MBA in marketing. He has PMP and MSP certifications for professional project management and programming management. He has almost three decades of experience in software implementation. Mr. Donkena met Mr. Marcan and Mr. Walt while Mr. Donkena was working on a project for the City of Toronto.
[14] Wayne Frias resides in Toronto, Ontario. He owns 29 shares of Eneighbl, which he purchased for $72,500. Mr. Frias is employed as a project manager. He has a diploma and a degree in electronic engineering and a post-graduate diploma in global business management from the Humber Business School. Mr. Frias worked as an IT project manager at Aecon Group. Mr. Frias first met Mr. Walt when Mr. Walt worked on a project for Aecon for approximately one month.
[15] Francis Hartman resides in Guelph, Ontario. She owns 2 shares of Eneighbl, which she purchased for $20,000. Through her privately held corporation, Ms. Hartman is a self-employed consultant in organizational design and change management. She has an MBA and is a certified human resources licensed professional. Her family has an entrepreneurial history, and it owned a variety of businesses including grocery stores. Ms. Hartman was introduced by a friend to Mr. Johnson who, in turn, introduced Ms. Hartman to Mr. Walt initially to be an employee of Eneighbl which would offer change management consulting services.
[16] Steve Johnson was Mr. Walt’s business partner from the incorporation of Eneighbl in June 2017 to the end of the year, when Mr. Johnson was ousted from the corporation. During his six month tenure with Eneighbl, Mr. Johnson acted as the corporate governance secretary and he was in charge of the business, financial, and banking records of the company.
[17] Marina Silov-Marcan, is the Estate Trustee for the Estate of Zeljko Marcan. The late Mr. Marcan passed away after the commencement of this application. His estate is not pursuing any claim. He was the owner of 6 shares of Eneighbl, which he purchased for $15,000.
[18] Atif Siddiqui is a resident of Mississauga, Ontario. He owns 4 shares of Eneighbl, which he purchased for $10,000. He is a self-employed software consultant and project management professional. He has a degree in computer science from Ryerson University and numerous certifications in software applications. While working on a project for the Toronto Transit Commission, Mr. Siddiqui met Mr. Walt.
[19] Sylvie Tremblay resides in Georgetown, Ontario. She is the spouse of John Walt. She is a certified meeting professional with fifteen years experience in event and conference planning.
[20] John Walt resides in Georgetown, Ontario. He was born in 1962. He has a college diploma in computer science and visual software development. For a time, in 2010, he worked at Research in Motion, where he became acquainted with Ms. Alcamo. Mr. Walt also worked for Aecon, a construction company, for approximately one month, where he met Mr. Frias. Mr. Walt met Mr. Donkena and Mr. Marcan while they were working together on a project for the City of Toronto. Mr. Walt met Mr. Siddiqui while they were working on a project for the Toronto Transit Commission. Mr. Johnson introduced Ms. Hartman to Mr. Walt. They discussed whether she might work on the Eneighbl project.
C. Procedural and Evidentiary Background
[21] On February 12, 2021, the Applicants commenced their Application. The applicants supported their Application with the following evidence: (a) affidavits of Ms. Alcamo dated May 31, 2021 and July 30, 2021; (b) affidavit of Mr. Donkena dated May 31, 2021; (c) affidavit of Ms. Hartman dated May 31, 2021; (d) affidavit of Mr. Frias dated May 31, 2021; and (e) affidavit of Mr. Siddiqui dated May 31, 2021.
[22] The Respondents responded to the Application with the following evidence: (a) affidavit of Ms. Tremblay dated July 9, 2021; and (b) affidavits of Mr. Walt dated July 15, 2021 and February 3, 2022.
[23] On October 13, 2021, Mr. Walt was cross-examined. On October 14, 2021, Ms. Alcamo and Mr. Frias were cross-examined. On October 15, 2021, Mr. Donkena, Mr. Frias, Ms. Hartman, and Mr. Siddiqui were cross-examined. Ms. Tremblay was not cross-examined. There were no other witnesses summonsed for the Application.
D. Facts
[24] In the spring of 2017, Mr. Walt was working at Aecon Group, which is a construction company. He worked there for approximately one month as an IT project manager. As noted above, while at Aecon, Mr. Walt met the applicant Mr. Frias.
[25] In April 2017, Mr. Walt’s employment came to an end. Then, on June 5, 2017, he and Mr. Johnson incorporated Eneighbl Inc. pursuant to the Canada Business Corporations Act. Mr. Johnson was designated as the original director. This was a mistake that was corrected so that both Mr. Johnson and Mr. Walt were the initial directors, officers, and shareholders of Eneighbl. Mr. Johnson had the backroom responsibility of maintaining the corporate books and records. At the outset, Mr. Walt had 55 of Eneighbl’s 100 common shares. Mr. Johnson had a minority interest in the company.
[26] Mr. Walt’s plans for the business were that it would establish a relationship with InEight Inc. and resell its software and provide it with consulting services in project and change management.
[27] InEight was developing a suite of software specially designed for the construction industry. As acknowledged by Mr. Frias during his cross-examination, InEight’s software for the construction industry appeared to be a very good concept to fill an unfulfilled need of the construction industry around the world.
[28] In short order, Mr. Walt’s plans were advanced. On June 12, 2017, Mr. Walt had Eneighbl sign a Master Services Agreement with InEight. On June 19, 2017, Mr. Walt had Eneighbl sign a Software Resale Agreement with InEight. Mr. Johnson knew Ms. Hartman and Mr. Walt had Mr. Johnson reach out to her to possibly hire her to provide change management services, which was to be part of the consulting services that Eneighbl would be providing. Months later, Ms. Hartman would become a minority shareholder in Eneighbl.
[29] Having secured for Eneighbl contracts with InEight, Mr. Walt attempted to attract investors for this start-up business. Mr. Walt and Mr. Johnson themselves did not capitalize the business, although it appears that Mr. Walt spent money to protect the business name, and to incorporate the business. To capitalize the business, between June 2017 and September 2017, Mr. Walt contacted Ms. Alcamo, Mr. Frias, Mr. Donkena, Mr. Marcan, and Mr. Siddiqui to encourage them to be a shareholder, but it took time for these initial contacts to be solidified.
[30] Mr. Walt’s efforts to attract investors continued, and a small group gathered together on October 7, 2017 for a meeting at Mr. Walt’s house. In attendance were Mr. Walt, his wife Ms. Tremblay, Mr. Johnson, Ms. Alcamo, Mr. Frias, and Mr. Siddiqui. Ms. Tremblay was not involved in the business part of this meeting. It was her home; she provided the food and beverages.
[31] At the meeting at his home, Mr. Walt made enthusiastic and grandiose statements about Eneighbl’s business prospects. At the meeting, the group was given copies of the InEight Master Services Agreement and the InEight Software Resale Agreement. Messrs. Johnson and Walt provided the group with a sales forecast for Eneighbl that had been prepared largely by Mr. Johnson extrapolating from information that they had received from InEight. The sales forecast predicted profits for Eneighbl of multi-millions of dollars in the first five years.
[32] Mr. Walt said he would be operating the company, but that the shareholders would be on the Board of Directors with prospects of earning part-time salaries and ultimately enormous dividends. They all were going to be very rich.
[33] Ms. Alcamo, Mr. Frias, and Mr. Siddiqui were recruited. They signed a Shareholders Agreement dated October 7, 2017.
[34] Subsequently, Mr. Walt made similar presentations and grandiose representations to Mr. Doneka, Ms. Hartman, and Mr. Marcan, and they were recruited as shareholders. Eventually, the shareholdings in Eneighbl were: Mr. Walt – 33 shares; Mr. Frias – 29 shares; Ms. Alcamo – 20 shares; Mr. Marcan – 6 shares; Mr. Donkena – 4 shares; Mr. Siddiqui – 4 shares; Ms. Hartman – 2 shares; and unallocated – 2 shares. In the aggregate, the six Applicants (including Mr. Marcan) invested $175,500 for 65 shares of Eneighbl’s 100 common shares.
[35] I find as a fact that none of the investors were taken in by what was said by Mr. Walt to recruit shareholders. The case for investment was quite simple. It appeared that InEight was in the process of completing the development of specialized software for the construction industry. There appeared to be a worldwide need for this software. If the software caught on in the construction industry, there was a great deal of revenue to be earned. Eneighbl had secured agreements with InEight to resell the software and had planned to ride on the coattails of InEight’s prospects. The investors were being asked to invest relatively small amounts of money, which apparently they could afford.
[36] For the purposes of suing Mr. Walt, it is risible for the Applicants to portray themselves as unsophisticated. In the sales pitch presentation that the Applicants made to InEight, they portrayed themselves as: “Collectively, the Executive Team has 189 years of proven success stories and international experience. Collectively, we [the Executive Team] have designed and managed over $30 Billion in initiatives and solutions!”
[37] I find as a fact that this group of very well-educated, well employed, apparently successful middle-aged businessmen and businesswomen with senior executive positions as employees or as self-employed businesspersons made investments of $10,000, $10,000, $15,000, $20,000, $50,000 and $72,500 without putting themselves in any financial peril and based on their own business acumen. I find no recklessness by Mr. Walt. The Applicants just speak the revisionist history of decision regret.
[38] But perhaps more to the point, the Applicants knew that InEight’s software had not yet obtained a secure market share, that the source of the sales forecast was InEight’s data, that a great deal of marketing would be required for InEight to succeed, that Mr. Walt had no experience in selling software to the construction industry, and that the future business prospects of Eneighbl were all speculative. Further, as will be seen from the narrative that follows, the Applicants had numerous occasions to meet with and deal directly with InEight’s representatives and officers to satisfy themselves about future business prospects. Some of the Applicants increased their investment in shares after their meetings with the InEight representatives. There was a three-day training session in Toronto, where some of the Applicants met InEight representatives, including Mike Paul, the person who had prepared InEight’s business forecasts. There two trips to Scottsdale, Arizona to meet InEight representatives. There was the Applicants’ preparation and the presentation of the sales pitch to InEight where they exalted their own expertise and experience. There was the Applicants’ preparation of account readiness assessments that were sent to InEight. There were direct telephone communications between the Applicants and representatives of InEight.
[39] Moreover, as will also be seen from the narrative below, the Applicants in very short order knew that Mr. Walt was prone to the outlandish statements of a person suffering from a mental illness and the Applicants knew that their start-up business was in enormous difficulty from the get-go.
[40] I appreciate that Mr. Walt may have mistakenly represented that Eneighbl had an exclusive territory from InEight, but that this was a misunderstanding was patently obvious from reading the contracts between InEight and Eneighbl, which were there to be read, and were read by some of the shareholders. In what I regard as a meritless submission, the Applicants argue that Mr. Walt’s recklessness in describing the agreement as exclusive was tantamount to fraud. I find, however, that there was no recklessness, no intent to deceive, no inducement, no being suckered-in to a business fraud scheme. InEight’s software had the real potential for success and the Applicants kept trying for the next two years to get Eneighbl off the launch pad. I find that there was no reasonable reliance on Mr. Walt’s overly enthusiastic statements about future fortunes to be made. The Applicants were or ought to have been skeptical about the forecasts. None of the Applicants wanted for business acumen. None of the Applicants wanted for common sense. None of the Applicants were taken in by Mr. Walt’s grandiose predictions.
[41] I find as a fact that all of the Applicants exercised their own business judgment and made their own investment decisions without any fraud or inducement or reliance on Mr. Walt’s representations. They paid what they thought the shares were worth. There is nothing nefarious about Mr. Walt as the corporator allocating to himself shares at no consideration or in selling his shares to persons prepared to pay for them.
[42] Pausing here, I digress to deal with one of the complaints that the Applicants make about Mr. Walt’s management of Eneighbl that they submit was oppressive and contrary to their expectations. They complain that Mr. Walt has not accounted for the banking records of the corporation and that he cannot explain and justify his expenditures with receipts. They allege misappropriations and conversions. However, upon examination of the evidence, this complaint is both meritless and peculiar.
[43] After the incorporation of Eneighbl, it was Mr. Johnson who controlled the bank accounts until his departure near the end of 2018. It was during the period when Mr. Johnson was managing the bank account, which was before the business had been capitalized by the Applicants funds that Mr. Walt ran some personal expenses for legal fees for estate planning through the corporation’s accounts. This may not have been inappropriate given that Mr. Walt was doing work for Eneighbl and had incurred incorporation expenses and was not receiving a salary. The payments were approved by Mr. Johnson, the co-director and minority shareholder at the time. During this period, Mr. Walt was obviously not using the Applicants’ money, and the Applicants always knew that Eneighbl had never earned revenues and was not paying salaries. Mr. Johnson was dismissed in January 2019, and thereafter the Applicants controlled Eneighbl’s bank account and controlled Mr. Walt’s expenditures, which they approved.
[44] The persistence of this grievance against Mr. Walt into this Application is peculiar, amongst other reasons, because: (a) it involved events before the Applicants were involved; (b) it was more about Mr. Johnson than about Mr. Walt; and (c) as will be seen, the accounting for Eneighbl’s first six months of existence was the subject of investigation in December 2017 after which Mr. Walt, who was then suspended as CEO, was reinstated. The complaint about the banking records, however, reappears five years later as part of this Application. In short, I find no merit to this part of the Applicant’s case against Mr. Walt.
[45] Returning to the history of Eneighbl, as will appear from the discussion below: (a) by January 2018, Mr. Johnson no longer had an interest in Eneighbl: (b) by January-February of 2019, Mr. Walt held a 1/3 minority interest in Eneighbl, and the Applicants held a 2/3 majority interest; and (c) the Board of Directors was comprised of Mr. Walt, Ms. Alcamo, and Mr. Frias. Thus, from a corporate governance point of view, the Applicants were the majority, also from the get-go of this start-up business.
[46] In November 2017, Mike Paul from InEight Inc. came to the Hilton Hotel in Toronto to provide software training. Ms. Alcamo, Mr. Donkena, and Mr. Frias attended the training sessions. It is worth mentioning that Eneighbl was not in a position to earn revenues until it had a sales force trained in the software that Eneighbl was promoting.
[47] Between December 6-9, 2017, Ms. Alcamo, Mr. Donkena, Mr. Johnson, Mr. Marcan, Mr. Siddiqui, and Mr. Walt travelled to Scottsdale, Arizona, to meet with the InEight representatives. Mr. Frias participated in the meetings by telephone. Ms. Hartman was not involved in this trip.
[48] In their affidavits, the Applicants went on at some length about Mr. Walt’s bizarre and manic behaviour during the visit to Scottsdale and during the month of December. Ms. Alcamo deposed that Mr. Walt told her that he had refused an offer to purchase Eneighbl – which it may be noted had not started generating any revenues – for a billion dollars. Mr. Walt’s behaviour at a restaurant overspending and over-tipping and overdrinking was noted. Mr. Walt’s presentation to InEight was rambling, disorganized, and alienating. Mr. Frias mentions a bizarre conversation he had with Mr. Walt around December 14, 2017, when Mr. Walt told him that after a $500,000 donation, the Trebas Music Institute had named a wing of the school after Mr. Walt’s alter ego “Johnny Suede”. Despite these alarming warning signs about Mr. Walt’s mental health and capability to manage the business, the Applicants pressed forward. Despite these warnings, the Applicants blame Mr. Walt for souring the relationship with InEight so that it never worked.
[49] There were more warning signs. A few days after the return from Scottsdale, on December 11, 2017, Mr. Walt suffered a psychotic episode. He was involuntarily hospitalized from December 11-15, 2017 at Trillium Health Partners, a hospital in Mississauga. He was diagnosed as suffering from a Bipolar I disorder with manic features and grandiose delusions. He was prescribed Olanzapine and Quetiapine, which are antipsychotic medications.
[50] The Applicants were aware of Mr. Walt’s incapacity. Mr. Walt was temporarily suspended as CEO and Mr. Frias, who was the COO, took over as acting CEO.
[51] Around the same time as Mr. Walt’s suspension, Mr. Frias and Mr. Walt had been discussing Mr. Johnson’s involvement in the company and about auditing the financial records for the first six months of Eneighbl’s business endeavors. Mr. Walt had accused Mr. Johnson of misappropriations and wanted Mr. Johnson ousted from the business. On December 16, 2017, with Mr. Walt’s pre-approval, Mr. Frias sent the following email message to the Applicants and Mr. Johnson:
Hello Executive Team,
As acting CEO/COO, and the second largest shareholder at Eneighbl Inc, please halt all communication regarding financial statements, expenses to date and share payments or anything to do with Eneighbl Inc's finances. On the suggestion of our former CEO, [Mr. Walt] we are going to hire an inexpensive auditor who will perform the following: 1. Retrace the entire banking set up, incorporation, and deposit history. 2. Perform a forensic financial investigation into all transactions. 3. The whole entire shareholder including payments to John Walt and Eneighbl [sic]. I am currently performing an investigation into the events of Monday evening. I would like to have a one on one with Steve, and then John during the week of Dec. 18. I will have a decision on these events by Thursday Dec. 21 when we will have our next executive team meeting. Please be available for a meeting on Thursday. […]
[52] On December 20, 2017, Ms. Alcamo and Mr. Frias directed Mr. Johnson and Mr. Walt to attend a meeting at Network Reporting Services in Mississauga. The purpose of the meeting was to discuss Mr. Walt’s mental health and capacity to run the business, the financial records, and Mr. Johnson’s role with the business. Mr. Johnson and Mr. Walt were interviewed separately. Mr. Walt brought his medical records from his admission to the hospital in Mississauga to the meeting.
[53] On December 21, 2017, there was a meeting of Ms. Alcamo, Mr. Frias, Mr. Siddiqui, Mr. Marcan and Mr. Donkena and the shareholders decided to reinstate Mr. Walt as CEO and to dismiss Mr. Johnson. On January 2, 2018, Mr. Johnson was dismissed.
[54] In January 2018, there was a second trip to Scottsdale, Arizona. In attendance were Mr. Walt and Mr. Frias. He was being introduced in person to InEight’s representatives. This time, Mr. Frias witnessed Mr. Walt’s erratic and outlandish behaviour at a restaurant. There was another poor performance by Mr. Walt at the meeting with InEight’s representatives.
[55] As already noted above, the Applicants blame Mr. Walt for in effect destroying Eneighbl’s prospects with InEight because after the two meetings in Scottsdale no business materialized. Without hearing from InEight’s representatives, it is not possible to determine why it did no business with Eneighbl, but assuming that the Applicants’ explanation for the business failure is correct, then the Applicants knew within three months of becoming shareholders that their expectations and reliance on what Mr. Walt was telling them were just fantasies. In any event, it is only with the benefit of hindsight that the Applicants can blame Mr. Walt for the business’ failure to launch because after the meetings in Scottsdale, significant efforts were made by the Applicants to do business with InEight.
[56] In February and May 2018, Ms. Alcamo loaned Mr. Walt, $22,500 for personal purposes. The loans were evidenced by promissory notes with the specified the interest rate of 10% per annum. Mr. Walt admits this loan indebtedness.
[57] After the trips to Scottsdale, there were no resales of InEight’s software, and by April 2018, Messrs. Donkena and Marcan wanted to end their involvement with Eneighbl. The enthusiasm of the other shareholders was also waning, and there were thoughts about suing Mr. Walt. He, however, encouraged them all to stay. It was at this juncture that Mr. Walt made the first of many oral promises that he would personally guarantee repayment of their investment in Eneighbl’s shares.
[58] In May 2018, Mr. Walt followed up on his oral promises that he would repay the Applicants for their shares. He prepared what was called the “Shareholder Guarantee.” He signed it on May 28, 2018. The agreement stated:
SHAREHOLDER GUARANTEE
I, John Howard Walt of […] do hereby guarantee 67 preferred shares in the corporation ENEIGHBL Inc. through my proceeds of 25% of SES Generators Inc which was purchased by MARMEN Inc. I personally guarantee said shares at the rate that they were purchased at and not at current face value. 2 shares were purchased at $10,000 Canadian, the remaining 65 shares were purchased at the rate of $2,500 Canadian. Total guarantee is $182,500. The guarantee funds will be placed in trust by Lockyer and Hein LLP […]
Conditions:
- Shareholders in ENEIGHBL Inc. will diligently pursue active work, leads and billable opportunities.
2 John Walt will be accessible within reason to help continue the forward movement of ENEIGHBL opportunities.
Funds will be returned to John Walt under any of the following conditions: a. ENEIGHBL receives their grant from O.C.E. b. ENEIGHBL performs software sales directly or indirectly where the gross margin greater than $182,501. c. ENEIGHBL were to seek funding from a Venture Capital firm or loan permitting any of the shareholders from generating a salary.
Through any of the items listed in number 3, ALL preferred or common shares remain within ENEIGHBL and none of the proceeds in those options be used to reimburse the initial investment.
Signed, “John G.H. Walt”
[59] I pause here to say that, strictly speaking from a legal perspective, the Shareholder Guarantee was perhaps misnamed to be a guarantee, which is a secondary liability for another’s indebtedness. Mr. Walt’s oral promises and this document was rather a primary liability, an agreement by him personally to redeem or purchase the Applicants’ respective shares in Eneighbl at their original purchase price.
[60] In any event, Mr. Walt never honoured the Shareholder Guarantee. He never deposited funds with Lockyer and Hein, LLP. There is no truth or merit to Mr. Walt’s allegation that he was discharged from his promise because the Applicants did not honour the conditions of the Shareholder Guarantee. I find as a fact that the Applicants diligently pursued work, leads and billable opportunities. Mr. Walt admitted as much during his cross-examination. Mr. Walt and the Applicants continued looking for business for Eneighbl for at least another year. However, nothing came of their efforts.
[61] In May 2018, Mr. Frias loaned Mr. Walt $12,882.50 for personal purposes. The loan is evidenced by a promissory note that specified the interest rate at 3% per annum. In May 2018, Mr. Siddiqui loaned Mr. Walt $1,500.
[62] I pause in the history of Eneighbl to address the three personal loans made to Mr. Walt. He admits these loans were made and are unpaid. In this Application, which was commenced in 2021, Ms. Alcamo, Mr. Frias, and Mr. Siddiqui claim repayment of the loans but Mr. Walt alleges that the claims are statute-barred.
[63] Having reviewed the evidence, I find as a fact, that Ms. Alcamo, Mr. Frias and Mr. Siddiqui have not respectively rebutted the presumptive two-year limitation period of the Limitations Act, 2002 for their loan claims; nevertheless their claims are not statute-barred because of the acknowledgement provisions of s. 13 of the Limitations Act, 2002 which states:
Acknowledgments
13 (1) If a person acknowledges liability in respect of a claim for payment of a liquidated sum, the recovery of personal property, the enforcement of a charge on personal property or relief from enforcement of a charge on personal property, the act or omission on which the claim is based shall be deemed to have taken place on the day on which the acknowledgment was made.
Liquidated sum
(8) Subject to subsections (9) and (10), this section applies to an acknowledgment of liability in respect of a claim for payment of a liquidated sum even though the person making the acknowledgment refuses or does not promise to pay the sum or the balance of the sum still owing.
Restricted application
(9) This section does not apply unless the acknowledgment is made to the person with the claim, the person’s agent or an official receiver or trustee acting under the Bankruptcy and Insolvency Act (Canada) before the expiry of the limitation period applicable to the claim.
Same
(10) Subsections (1), (2), (3), (6) and (7) do not apply unless the acknowledgment is in writing and signed by the person making it or the person’s agent.
Same
(11) In the case of a claim for payment of a liquidated sum, part payment of the sum by the person against whom the claim is made or by the person’s agent has the same effect as the acknowledgment referred to in subsection (10).
[64] I, therefore, conclude that Ms. Alcamo, Mr. Frias, and Mr. Siddiqui should have judgments against Mr. Walt for their personal loan claims.
[65] I also conclude that Ms. Alcamo has proven her $1,100 claim against Eneighbl for reimbursement of expenses and that Mr. Frias has proven his $3,562.28 claim against Eneighbl for reimbursement of expenses.
[66] Returning again to the narrative of the history of Eneighbl, nothing of significance occurred between May and September of 2018.
[67] The next significant event occurred on September 9, 2018, when Ms. Alcamo, Mr. Frias, Ms. Hartman, Mr. Siddiqui, and Mr. Walt, signed a new Shareholders Agreement. The agreement had been prepared by Ms. Alcamo’s brother, who is a lawyer. Messrs. Donkena and Marcan were not included in the new agreement perhaps because it was anticipated that they would no longer be involved or perhaps because they had not been included in the original Shareholders agreement.
[68] However, ultimately nothing very much turns on the September 2018 Shareholders Agreement apart from it being some evidence that the Applicants were still engaged in trying to make a success of Eneighbl and that Mr. Walt’s promises of repurchasing their shares or their own false hopes of success were keeping the Applicants from departing.
[69] The next event of note also ultimately has little legal significance. In October 2018, there were discussions about Mr. Frias ending his involvement with Eneighbl. Mr. Walt prepared a document called General Liability Waiver pursuant to which Eneighbl would redeem Mr. Frias’ 29 shares for $101,500, reimburse him for expenses of $3,562.28, and pay Mr. Walt’s personal loan of $12,882.50. In return for these payments, Mr. Frias would release his claims. This agreement which was signed by Mr. Walt and Mr. Frias, however, was stillborn. No payments were ever made under this agreement. At most, it is more evidence of Mr. Walt’s promises to redeem an Applicant’s investment in Eneighbl.
[70] What is significant in October 2018, is that a manifestly out-of-control Mr. Walt, despite Ms. Alcamo’s and Mr. Frias directions not to do so, had Eneighbl make a commitment to invest $400,000 in Emercomm Business Consultants Inc. Eneighbl almost immediately breached its commitment to Emercomm, and Eneighbl and its Directors were exposed to significant litigation risk. This was all too much for Ms. Alcamo and Mr. Frias who decided to resign as directors.
[71] As further evidence that Mr. Walt was emotionally out-of-control, in November 28, 2018, Mr. Walt told Mr. Frias that he owned the late Kurt Cobain’s guitar from the rock group Nirvana and was going to sell it for $500,000 and use the proceeds to pay back the Applicants for their shares. In all this turmoil, on December 6, 2018, Mr. Walt advised the Applicants that he planned to put Eneighbl up for sale. In his email message to the Applicants, he wrote:
[…] Out of all the start-ups I have been a part of, this one seems to be the only one that was not successful. I would welcome a call or meeting to further discuss the sale of ENEIGHBL. I even tried to sell one of my very rare guitars in an attempt to buy you all out but even that fell through today. Hopefully the new owners can make this company work. With deep regrets, John
[72] On December 14, 2018, Ms. Alcamo and Mr. Frias officially resigned as directors of Eneighbl.
[73] By the end of 2018, colloquially speaking, Eneighbl, which had never managed to launch from harbour, was dead in the water. The year 2019 was spent in a salvage operation where the Applicants were pressing Mr. Walt to honour his promises and he was attempting to sustain the pipe dream and find an alternative to honouring his promises. In January 2019, Mr. Walt made more promises that he would pay back the Applicants for their investment in Eneighbl.
[74] On February 28, 2019, Mr. Walt removed Ms. Alcamo and Mr. Frias as Directors and appointed Ms. Tremblay and Michel Gagne as their replacements. Ms. Tremblay was unaware of this appointment and did nothing with it. Mr. Gagne was a business acquaintance of Mr. Walt from Quebec, who had experience and contacts in the construction industry that Mr. Walt hoped would be helpful to Eneighbl.
[75] On May 7, 2019, there was a teleconference meeting with the Applicants and Mr. Walt in which he says that Eneighbl will pay them back for their shares if Eneighbl secures a government grant or earns sufficient revenues but if all that fails, he would redeem them personally. Ms. Alcamo and Mr. Frias state that Mr. Walt is morally but not legally obliged to redeem the shares. Mr. Walt says he will redeem their investment because they are all friends and he does not want bitterness.
[76] Meanwhile, Mr. Walt has another psychotic episode. He is admitted to the hospital on June 22, 2019 and again on July 2, 2019 and again on July 21, 2019. The admissions are involuntarily Mental Health Act admissions to a psychiatric facility because of the psychiatric illness of a bipolar disorder.
[77] On July 17, 2019, between his admissions to the psychiatric facility, Mr. Walt sends the Applicants an email message.
Subject: Share repayment
HIGHLY CONFIDENTIAL
Dear Shareholders:
When we last spoke (on Tuesday, May 7th), I shared that ENEIGHBL would purchase back each of your respective shares for the original price paid; and that there might be a few ways to affect that purchase. Since then, I’ve been very busy, tending to numerous business obligations, among them ENEIGHBL, BRP, and my newest acquisition UNIKUB. Given the pace and volume of my work, I resigned from BRP 3 weeks ago; however, I still managed to succumb to exhaustion and was hospitalized at the end of June. In speaking with [Ms. Alcamo], I’m now proposing that September 30th, 2019 be the buy out date. At that time, I will need to ensure that you provide your written resignations as Officers and Directors where applicable. Then, when we meet on September 30th, 2019 in the private boardroom at the Ritz Carleton Toronto, I will have you sign a Share Purchase Agreement and Mutual Release. In return, I will provide each of you with a certified cheque equivalent to the original purchase price of your shares. I will share all of these documents in advance should you wish to review them. I apologize for this delay as I know you’ve been waiting patiently. Please let me know if you have any questions. All the best, John.
[78] After his discharge from the hospital, Mr. Walt’s driver’s licence was cancelled. Ms. Tremblay deposed that due to his mental illness, he has not been able to work and that she has been caring for him. She is the sole provider for the family.
[79] In September 2019, Mr. Walt repaid Ms. Alcamo $2,000 and he promised to repay the balance of her loan.
[80] On September 28, 2019, Mr. Walt sent the following email message to the Applicants:
Subject: Re: Share repayment
Hello All, Unfortunately my investment group and I taking over Unikub did not occur and as such ENEIGHBL is not in a financial position to buy anybody out. I would recommend that we close ENEIGHBL or discuss its future as I will no longer be focusing my attention on it. Bill is no longer involved either which ceased all work on the grant. I am willing to work on the grant in my spare time with one or more of you. As previously mentioned ENEIGHBL is not legally obligated to buy back the shares. I was hoping ENEIGHBL would do so from a moral or ethical perspective. I wish I had better news for everyone. I am willing to meet over a phone call to discuss the future of ENEIGHBL and the next steps. Regarding the shareholder agreement I will attempt to locate it and send it to you. I believe everyone already had their copy. Thanks, John
[81] The Ritz Carleton meeting that Mr. Walt had scheduled for September 30, 2019, did not take place and the Applicants were never paid any money for their shares.
[82] Eneighbl never transacted any software sales or consulting. It never earned any revenue.
[83] Ms. Alcamo, Mr. Donkena, Mr. Frias, Ms. Hartman, Mr. Marcan, and Mr. Siddiqui did not receive anything for their investment in Eneighbl’s shares.
[84] Several concluding notes about my findings of fact follow.
[85] I do not believe any of the Applicants that they were not aware until the latter part of this sorry history that Mr. Walt was suffering from a serious mental health condition because Mr. Walt had explained his bizarre behaviour as a mood swing caused by diabetes. I do believe that Mr. Walt did try to downplay his mental health as symptomatic of a physical and not psychiatric problem. What is not believable is that the Applicants believed him.
[86] The Applicants knew that Mr. Walt had been involuntarily institutionalized because of his mental health issues. They saw his bizarre behaviour in Canada and in Scottsdale. They saw him babbling incoherently in his hospital bed. They knew that from time to time and right from the outset that Mr. Walt was delusional, manic, with grandiose fantastical business plans. Disingenuously, they were prepared to ignore all this to allege that Mr. Walt, the minority shareholder of the corporation that they controlled, had treated them oppressively and that he had the intent to defraud them.
[87] The Applicants had more business credentials and acumen than Mr. Walt. They made their own investigations, made their own decisions, and exercised their own judgment to take on the risks. They were in command, and with eyes wide open, they took on the risks of a start-up enterprise, which right from the get-go set off alarms.
[88] As issues of fact, I conclude that the Applicant’s claims for fraudulent misrepresentation and misrepresentation fail. No actionable false statements were proven. There was puffery and false-hope statements but no false statements. There was no deception, no inducement, no reasonable reliance on what Mr. Walt represented.
[89] As an issue of fact, the Applicants’ claims against Mr. Walt for breach of fiduciary duty fail because there was no fiduciary relationship. In this Application, the Applicants feigned unsophistication and pretended naivety and vulnerability, but they were not overmatched by Mr. Walt. They overmatched him.
[90] Further, the Applicants failed to prove misappropriation or any misuse of funds by Mr. Walt. There was no unjust enrichment. There is no basis for a claim for disgorgement. If the Applicants are restored their initial investment in the shares, no damages consequent on Mr. Walt’s behaviour have been proven by the Applicants.
[91] I find as a fact that the claims for an oppression remedy fail. The expectations of the Applicants were fanciful and driven by their own greed. They had no reasonable expectations. They knew from the outset that Mr. Walt’s statements made about the business’ prospects were a pipe dream.
[92] I find as a fact that within weeks of having purchased their shares in Eneighbl, the Applicants knew for themselves that there were serious problems for Eneighbl. The total business failure of Eneighbl was foreseeable from the outset, since Eneighbl was totally dependent on Eneighbl’s business relationship with InEight and within months of purchasing shares, the Applicants knew that the relationship with InEight ranged from disappointing and dismal to doomed.
[93] I find as a fact that from a corporate governance point of view, through most of this start-up misadventure, the Applicants were not an oppressed minority. They were the majority. They had more shares than Mr. Walt. They were always aware of Mr. Walt’s mental health problems and if the business was mismanaged, then the fault lies more with them than it does with Mr. Walt who was a minority owner whose employment was, pun intended, at the sufferance of the Applicants.
E. Discussion and Analysis
[94] It is not necessary to discuss the application of the well-established and well-known law about negligent misrepresentation, fraudulent misrepresentation, negligence, fiduciary relationships, corporate governance, misappropriation, conversion, unjust enrichment, disgorgement, and oppression remedies. Based on my findings of fact all of these claims fail.
[95] In the sections below, I shall discuss the remaining causes of action against Mr. Walt, Eneighbl and Ms. Tremblay. Once again, based on my findings of fact, the discussion does not need legal analysis and can be brief.
F. The Case Against Mr. Walt
[96] As just noted, my findings of fact, set out above, dispose of all of the claims against Mr. Walt save and except the claim in contract based on his numerous oral and written promises to redeem or repurchase the Applicants’ shares at their original purchase price.
[97] Mr. Walt repeated this promise often. He made it in consideration of the Applicants not suing him or Eneighbl and in exchange for their ongoing efforts to generate revenue for Eneighbl. Those efforts were made, although everybody’s efforts to generate revenues, including Mr. Walt’s, proved futile.
[98] Mr. Walt has no substantive or technical defence to the Applicants’ claim for breach of any number of contracts to repurchase their shares at the original purchase price.
[99] Mr. Walt’s technical defence based on the Limitations Act, 2002, was without merit. Some of his contractual promises were made within two years of the commencement of this Application and for the earlier promises, the presumption that the Applicants’ claims had been discovered has been rebutted because having regard to the nature of the loss or damage, a proceeding would not yet have been the appropriate means to seek a remedy against Mr. Walt.
[100] Mr. Walt has no substantive or technical defence for Ms. Alcamo’s, Mr. Frias’, and Mr. Siddiqui’s claim for repayment of the personal loans they respectively made to Mr. Walt.
[101] Accordingly, I award the judgments described in the Introduction to these Reasons for Decision.
G. The Case Against Eneighbl
[102] My finding of fact, set out above, lead to the conclusion that the only viable claims against Eneighbl are Ms. Alcamo’s and Mr. Frias’ claims for reimbursement.
[103] Accordingly, I award the judgments described in the Introduction of these Reasons for Decision.
H. The Case Against Ms. Tremblay
[104] The Applicants have no case against Mr. Tremblay. She had no ownership interest in Eneighbl. She held no executive or managerial positions with Eneighbl. She never was actually employed by Eneighbl although she did provide some catering and made some travel arrangements and was passed off by Mr. Walt, to the knowledge of the Applicants, as having something to do with Eneighbl. She was not a shareholder. Ms. Tremblay had no genuine position with Eneighbl. She received no salary. She had no authority and power. She was appointed a Director without her consent and without her knowledge and did nothing as a director. She made no representations to the Applicants. She acted as a host to serve for meetings at her home and she helped her husband make travel arrangements for the first trip to Scottsdale. She had nothing to do with the management of Eneighbl.
[105] Ms. Trembly should never have been sued.
I. The Matter of Costs
[106] In this Application, Ms. Tremblay was successful. She is entitled to the costs of her successful defence with the scale of costs to be determined. Her costs may include some portion of the costs associated with her co-Defendants’ unsuccessful defences.
[107] In this Application, the Applicants were successful, but I shall not award them costs.
[108] The Applicants were disingenuous about Mr. Walt’s mental health, relying on his grandiose statements as fraudulent misrepresentations and relying on his out-of-control behaviour to portray him as an incompetent and irresponsible manager, while at the same time denying that they knew he was suffering from a serious mental illness that would explain his aberrant behaviour. They blamed Mr. Walt for Eneighbl’s immediate business failure in December 2017 but continued being business partners with him for two more years. The Applicants never took an adult’s responsibility for their own investment decisions and always blamed Mr. Walt.
[109] The Applicants made serious allegations of fraud and to impugn the moral character of Mr. Walt, which they did not prove. They Applicants failed on all of their causes of action save for the claim for breach of contract and they were never forthcoming that they were the governance majority who were ultimately responsible for controlling Mr. Walt.
[110] I exercise my discretion to not award a successful party costs. I had contemplated awarding costs against the successful Applicants but that would award and excuse Mr. Walt who is liable for his numerous breaches of his promises and whose substantive and technical defences were without merit.
J. Conclusion
[111] For the reasons set out above, I grant the judgments described in the Introduction of these Reasons for Decision.
[112] If the parties cannot agree, the Applicants shall have twenty days from the release of these Reasons for Decision to bring a motion in writing to determine the interest component of their judgments and Mr. Walt shall have a further twenty days to respond to the motion.
[113] If the parties cannot agree, Ms. Tremblay shall have twenty days from the release of these Reasons for Decision to make costs submissions in writing followed by the Applicants’ costs submissions within a further twenty days.
Perell, J.
Released: March 28, 2022