Court File and Parties

COURT FILE NO.: CV-20-633741

DATE: 20220816

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 10720143 Canada Corp. and Shaun Hendricks, Plaintiffs

AND:

2698874 Ontario Inc., 2708257 Ontario Inc., Verdant Prime Corp., Sean Hedmann, Agozzino Law Professional Corporation, Antonio Agozzino, and 2682638 Ontario Inc., Defendants

BEFORE: W.D. Black J.

COUNSEL: Judy Hamilton, for the Plaintiffs

Michael Gayed, for the Defendants

HEARD: May 10, 2022

ENDORSEMENT

Overview

[1] The plaintiffs noted the defendants in default on November 25, 2020, and now bring this motion for default judgment.

[2] The defendants move to set aside the noting in default. Oddly, the defendants’ counsel, who confirmed he is representing all defendants on these motions, also moves to be removed as counsel of record for some of the defendants.

The Underlying Claim

[3] A determination of these motions requires a review of the details of the underlying claim, as well as a review of the somewhat complex procedural history of this case.

(a) The Plaintiffs

[4] The plaintiff Shaun Hendricks is an officer and director of the plaintiff 10720143 Canada Corp. (“107”). Mr. Hendricks and his wife own 107 and use it as a vehicle for personal investments.

[5] The facts underlying the action which, it should be noted, come from the largely uncontroverted affidavit evidence of Mr. Hendricks, began when Mr. Hendricks first met the defendant Sean Hedmann at a gym in Burlington, Ontario, sometime prior to February of 2019.

(b) Initial Discussions about Investments

[6] The two men got to know one another. Over the course of a number of meetings, they began to discuss Mr. Hedmann’s involvement and business plans in the cannabis industry.

[7] Mr. Hedmann told Mr. Hendricks that he was the CEO, director and sole shareholder of Verdant Prime Corp. (“Verdant”), which he described as an up-and-coming Canadian company licensed to produce cannabis and hemp.

[8] After a number of discussions, Mr. Hedmann advised Mr. Hendricks that he was looking for a partner to invest in Verdant “at the ground level”. Mr. Hendricks in turn advised Mr. Hedmann that he had been looking for the right business opportunity for a safe and secure investment.

[9] In response, Mr. Hedmann provided Mr. Hendricks with what he purported was Verdant’s business plan and prospectus. Mr. Hendricks deposed that he was interested in the potential investment given the rapid growth of the cannabis industry and the growth in the value of the company that the business plan predicted. As Mr. Hendricks put it, he “felt comfortable because Hedmann was known to me and lived in the same neighborhood as I did.”

[10] Mr. Hedmann continued to assure Mr. Hendricks that he was knowledgeable and experienced in the cannabis industry and that Verdant had the necessary license and government approvals to cultivate cannabis and carry on business in the industry.

[11] Mr. Hedmann also provided Mr. Hendricks with a copy of a joint venture agreement dated June 20, 2019, purporting to demonstrate that Verdant was already active in the cultivation of hemp (the “Verdant JVA”). Specifically, Mr. Hedmann advised Mr. Hendricks, and the Verdant JVA appeared to confirm, that Mr. Hedmann/Verdant had engaged cash crop farmers John and Samantha Chamberlain to grow hemp on Verdant’s behalf and that Verdant was entitled to 80% of the profits from the crop. Mr. Hedmann sent photographs to Mr. Hendricks of the Chamberlains’ farm. The pictures showed that cannabis was being grown on the farm and that it was a substantial operation. Mr. Chamberlain was in one of the pictures.

(c) JVA Falsified

[12] In the spring of 2019, Mr. Hendricks was persuaded into making various investments in ventures encouraged by Mr. Hedmann.

[13] Many months later, largely through discussions with Samantha Chamberlain, Mr. Hendricks learned that the Verdant JVA was not a genuine document but was in fact an altered version of a JVA between Chamberlain Farms (the company formed by John and Samantha Chamberlain), and another company Mr. Hedmann was connected to, Axion Health Care Inc. He also learned that the profit share between the joint venture parties was to be 50-50 in favour of Verdant, and not 80-20 as the (falsified) Verdant JVA purported. Ms. Chamberlain confirmed that the Verdant JVA was a falsified document and showed Mr. Hendricks (and his counsel) a copy of the actual JVA that had been altered. By that point, Mr. Hedmann had also reneged on his agreement with the Chamberlains and had duped them into advancing to him $56,000, which had not been repaid.

(d) Plaintiffs’ Investments and Loans

[14] The investments Mr. Hendricks made included, initially, a purchase of 10% of the shares of Verdant for a purchase price of $50,000, with an option to purchase further shares.

[15] They also included a “short term business loan” of $300,000 that Mr. Hedmann had persuaded Mr. Hendricks he needed for a period of 45 days, allegedly to allow Verdant to complete the purchase of shares in a company, 2645038 Ontario Inc. (“264”). Mr. Hedmann told Mr. Hendricks that 264 was about to purchase a property at 18509 Keele Street in Newmarket (the “Keele Property” and the “Keele Transaction”, respectively).

[16] Later, Mr. Hedmann reported to Mr. Hendricks that certain events had occurred, allegedly leading to delays in the closing of the Keele Transaction and in turn to an extension of the time for Mr. Hedmann to repay Mr. Hendricks’ $300,000 loan. Mr. Hendricks was then persuaded to purchase an additional 10% of Verdant’s shares for a “discounted” price of $30,000, with the discount allegedly given in recognition of Mr. Hendricks’ willingness to loan the $300,000 for the purchase of the Keele Property.

[17] Finally, in anticipation of the upcoming extended closing date for the Keele Transaction on August 9, 2019, Mr. Hendricks agreed to advance a further $6,000 to Mr. Hedmann as a personal loan.

(e) Keele Transaction Not Real

[18] As it turned out, the closing of the Keele Transaction never took place — at least not the closing involving 264, the shares of which Verdant was allegedly to acquire.

[19] The Keele Property was in fact purchased by another Ontario corporation, the defendant 2682638 Ontario Inc. (“268”), on June 20, 2019. This was after Mr. Hedmann had obtained the $300,000 loan from Mr. Hendricks on the basis that those funds would be used to help Verdant complete the Keele Transaction, and before the alleged delays in the closing of the Keele Transaction.

(f) Share Purchase Not Genuine

[20] While these events were happening, from time‑to‑time Mr. Hendricks asked when Mr. Hendricks would receive the share certificates for his acquisition of the Verdant shares (in two tranches of 10% each). Mr. Hedmann gave various excuses for why the delivery of these share certificates was delayed. Mr. Hendricks never did receive any share certificates.

(g) Verdant Not Licensed

[21] Mr. Hendricks also later learned, through his counsel in this case, that contrary to what Mr. Hedmann repeatedly represented to him, Verdant in fact does not hold any license to cultivate cannabis under the Cannabis Act, S.C. 2018, c. 16, nor to cultivate hemp under the Industrial Hemp Regulations, SOR/2018-145.

(h) Involvement of Mr. Agozzino and his Firm

[22] It is also important to understand the very concerning role in this matter of the defendants Antonio Agozzino and Agozzino Law Professional Corporation (“Agozzino Law”).

[23] On May 1, 2019, when Mr. Hendricks transferred the $300,000 loan to Mr. Hedmann in connection with Verdant’s purported purchase of the shares of 264, on the instructions of Mr. Hedmann, Mr. Hendricks made the bank draft for $300,000 payable to Mr. Agozzino in trust, and in fact, together with Mr. Hedmann, deposited these funds into Mr. Agozzino’s trust account.

[24] To the knowledge of Mr. Hendricks, at the time the funds were deposited into Mr. Agozzino’s trust account, Mr. Hedmann sent an email to Mr. Agozzino’s assistant/wife, Rocky, with a customer copy of the transaction record for the deposit and the message, “Here is the deposit directly in your account by draft no holds”.

[25] Mr. Hedmann explained to Mr. Hendricks, and Mr. Hendricks accepted at the time, that the “no holds” language was because the funds were to be used for the closing of the Keele Property, which Mr. Hedmann said was imminent.

[26] As mentioned above, Mr. Hedmann later represented to Mr. Hendricks that the closing of the sale had been repeatedly delayed. At that point, Mr. Hedmann told Mr. Hendricks, among other things, that there had been a formal assignment of the agreement of purchase and sale for the Keele Property, which Mr. Hedmann had signed on behalf of Verdant. Mr. Hedmann also told Mr. Hendricks about various extended closing dates, each of which came and went without the Keele Transaction closing.

[27] Mr. Hendricks deposed that all the while, he believed his $300,000 advance was protected, because he understood that the funds remained in Mr. Agozzino’s trust account and would only be used in connection with the purchase of the Keele Property (which Mr. Hendricks had been repeatedly told was being delayed for one reason or another).

[28] One alleged extension of the Keele Property closing was to August 21, 2019. After receiving assurances about this date being a firm one, Mr. Hendricks exercised the option to purchase an additional 10% of the Verdant shares for $30,000.

[29] When the Keele Transaction did not close on August 21, 2019 — the date that Mr. Hendricks had been assured was “firm” — Mr. Hedmann told Mr. Hendricks that there was an encumbrance or some type of registration on the Keele Property that was delaying the closing, but that the vendor would be removing the encumbrance so that the deal could close.

(i) Mr. Hendricks Seeks Assurance re Deposit

[30] Finally, after further delays, and after trying and failing to meet Mr. Hedmann in person on a number of occasions, on October 5, 2019, Mr. Hendricks asked Mr. Hedmann to have Mr. Agozzino confirm that his $300,000 was still being held in trust and to confirm the new closing date.

[31] What Mr. Hendricks received in return was merely a copy of a letter from Mr. Agozzino to Mr. Hedmann stating that his instructions were to negotiate and complete the purchase of the Keele Property. The letter also said that a meeting with the vendor of the Keele Property was scheduled for October 8, 2019. Mr. Hendricks deposed that this led him to understand that the acquisition of the Keele Property was still pending. Mr. Agozzino did not provide any confirmation that the funds advanced by Mr. Hendricks were still being held in trust.

[32] On November 19, 2019, in response to Mr. Hendricks’ inquiry on the meeting with the vendor of the Keele Property, Mr. Hedmann told Mr. Hendricks that he was still “working on it” and that he would have an answer “by end of week”.

(j) Deal to Refund Amounts to Plaintiffs

[33] Nothing more was reported on that front until Mr. Hendricks finally managed to meet with Mr. Hedmann in person on November 25, 2019. Mr. Hendricks expressed his frustration to Mr. Hedmann, resulting in an agreement that, rather than proceeding with the various investments for which Mr. Hendricks had advanced funds, Mr. Hedmann would instead reimburse the $300,000 loan for the Keele Property and return the amounts paid by Mr. Hendricks for the Verdant shares, including interest.

[34] Specifically, the two of them agreed that by December 3, 2019, Mr. Hendricks would be repaid a total of $407,805, representing the $300,000 for the Keele Property loan, the $80,000 for the purchase of the two 10% tranches of Verdant shares, and the $6,000 loan from Mr. Hendricks to Mr. Hedmann on the eve of one of the failed alleged closing dates for the Keele Transaction, plus interest. Mr. Hendricks sent an email to Mr. Hedmann confirming this repayment agreement and the evidence shows that Mr. Hedmann sent a copy of Mr. Hendricks’ email to Mr. Agozzino.

[35] When December 3, 2019 came and went without any payment, Mr. Hendricks sent Mr. Hedmann a text asking if he had Mr. Hendricks’ money, to which Mr. Hedmann answered, “Most of it”.

[36] Later in December of 2019, Mr. Hedmann told Mr. Hendricks that all of the money would be repaid by February of 2020.

(k) No Amounts Repaid

[37] It perhaps goes without saying that to date, no amounts have been repaid.

[38] In December of 2019, Mr. Hendricks retained his counsel in this matter.

(l) Searches by Counsel and Results

[39] Among other steps, soon after being retained, Mr. Hendricks’ counsel performed various property and other searches.

[40] These searches revealed that Verdant was not licensed to cultivate cannabis.

[41] They also revealed the sale of the Keele Property to 268 on June 20, 2019. Interestingly, the searches disclosed that Mr. Agozzino had acted for 268 on the June 20, 2019 transfer of the Keele Property. In other words, while Mr. Hedmann and Mr. Agozzino (at least by omission) were leading Mr. Hendricks to believe that the Keele Property was about to be acquired by 264/Verdant, another client of Mr. Agozzino’s had in fact already purchased the Keele Property on June 20, 2019. Accordingly, it appears that Mr. Agozzino’s communications about pending meetings and negotiations with the vendor of the Keele Property after June of 2019 were deliberate misrepresentations.

[42] The searches also led to the discovery that during August to October of 2019, while Mr. Hendricks believed that his funds were in Mr. Agozzino’s trust account waiting to be deployed in the acquisition of the Keele Property, Mr. Agozzino acted for two other companies, apparently controlled by Mr. Hedmann, in the acquisition of two other properties.

[43] On August 9, 2019, the defendant 2708257 Ontario Inc. (“270”), the sole officer and director of which is Mr. Hedmann, purchased a cannabis growth operation located at 268‑288 Green Mountain Road in Stoney Creek, Ontario (“the Green Mountain Property”). Media reports have linked this property to problematic marijuana growth operations and to incidents of gun violence.

[44] On October 24, 2019, the defendant 2698874 Ontario Inc. (“269”), again the only officer and director of which is Mr. Hedmann, purchased a residential property at 217 Pondcliffe Court in Kitchener, Ontario (the “Pondcliffe Property”).

[45] Before hiring his current counsel, Mr. Hendricks had called Agozzino Law on a number of occasions trying to confirm that Agozzino Law still held his $300,000 advance in their trust account. Mr. Hendricks deposed that representatives of Agozzino Law refused to provide him with any information.

(m) Mr. Hendricks Learns that No Money Held in Trust

[46] Accordingly, Mr. Hendricks had his real estate lawyer, Aly Ayoub, call Agozzino Law to make the inquiry. Mr. Ayoub was told by Mr. Agozzino’s wife/assistant Rocky that Agozzino Law had no monies held in trust with respect to Hedmann or Verdant.

[47] Mr. Hendricks then feared, with good reason, that the funds he had advanced for the purpose of the Keele Transaction had been misappropriated and used instead in connection with the purchases of the Green Mountain Property and the Pondcliffe Property, and/or to pay off other debts.

Commencement of Action and CPLs Obtained

[48] On January 17, 2020, Mr. Hendricks brought an ex parte motion and succeeded in obtaining from Master Jolley (as she then was) a certificate of pending litigation (“CPL”) and an amendment of the statement of claim herein to add 268 as a defendant. The CPL covered the Keele Property, the Green Mountain Property and the Pondcliffe Property.

Procedural History

[49] Turning now to the procedural history, current counsel for all defendants, Mr. Gayed, served a notice of intent to defend on behalf of all defendants on February 11, 2020.

[50] Thereafter, there were some discussions between counsel about a potential resolution. However, a fair reading of the correspondence relative to those discussions (albeit of course without the details of any proposals exchanged) suggests that the parties never got close to completing a settlement.

(a) Ongoing Requests for Defence

[51] On many occasions, the plaintiffs’ counsel, Ms. Hamilton, asked that Mr. Gayed deliver a statement of defence on behalf of the defendants.

[52] During the first half of 2020, there were a number of email exchanges between Ms. Hamilton and Mr. Gayed in which Ms. Hamilton repeatedly demanded a statement of defence. Mr. Gayed responded that he was not obliged to file a statement of defence because the timelines for doing so had been suspended pursuant to Emergency Order 73/20 (related to COVID-19). Mr. Gayed refused on several occasions afterwards to deliver a defence, relying each time on the emergency order.

(b) Mr. Gayed’s First Suggestion that Some Defendants Retaining New Counsel

[53] On June 9, 2020, Mr. Gayed advised once again that the defendants were not in default given the emergency order. At this point he also advised that Mr. Agozzino was going to retain new counsel.

[54] Near the end of September of 2020, following the reinstatement of the filing deadlines that had been suspended due to COVID-19, Ms. Hamilton advised Mr. Gayed, who was still on the record for all defendants, that she had already attempted to note the defendants in default and that she would attempt to do so again as soon as she was permitted. Mr. Gayed advised by email that he objected to any noting in default without notice. Ms. Hamilton responded to his email to disagree with Mr. Gayed’s suggestion that she had not provided notice, but advised that she would allow one final chance for the defendants to file a defence by October 16, 2020, after which the defendants would be noted in default.

[55] On October 15, 2020, the day before the deadline imposed by Ms. Hamilton, Mr. Gayed asked that Ms. Hamilton prepare and forward settlement documentation, which she proceeded to do. After more than a month thereafter, during which Mr. Gayed represented from time to time that he was in the process of receiving instructions from each of the defendants, Ms. Hamilton expressed to Mr. Gayed that she was concerned the request for the settlement proposal was merely tactical, to further delay the proceedings. Ms. Hamilton again demanded a statement of defence.

(c) Defendants Noted in Default; Motion for Default Judgment

[56] When no defence was forthcoming, Ms. Hamilton proceeded to ask the court to note all defendants in default on November 25, 2020.

[57] In early May of 2021, the plaintiffs served their motion for default judgment.

[58] In a letter sent by email on May 12, 2021, Mr. Gayed wrote to Ms. Hamilton acknowledging receipt of the Plaintiffs’ requisition and motion materials for a default judgment. He took issue with the noting in default, which he maintained had been done without proper notice. Astonishingly, given Ms. Hamilton’s repeated requests over the preceding months for the defendants to deliver a defence, Mr. Gayed suggested that rather than noting the defendants in default, “this could have been resolved by a simple request for a Defence”.

(d) Mr. Gayed’s Second Proposed Removal (Different Defendants)

[59] Mr. Gayed also said that he could not file a Defence at that time as his office would be bringing a motion to be removed as the lawyer of record for Mr. Hedmann, 269, 270, and Verdant. He asked the plaintiffs to agree to set aside the noting in default and also to agree on a date for the defendants to file a statement of defence after Mr. Gayed’s motion to be removed as counsel was determined.

[60] I note that it is odd that, having alerted Ms. Hamilton 11 months earlier that Mr. Agozzino wished to retain new counsel (which never happened), Mr. Gayed now claimed that it was Mr. Hedmann and his companies (the “Hedmann Defendants”) whom he could no longer represent.

[61] On June 16, 2021, the parties attended a case conference before Justice Vermette. Her Honour ordered that the plaintiffs’ motion for default judgment be adjourned to a further case conference to be scheduled by the plaintiff and attended by all counsel and any self-represented parties. She also ordered that Mr. Gayed was to bring his motion to be removed as lawyer of record forthwith.

[62] Mr. Gayed served a notice of motion to be removed as lawyer of record for the Hedmann Defendants two weeks later, on June 30, 2021, with a return date for the motion of September 24, 2021.

(e) Case Conference Before Dow J. in September 2021

[63] On September 17, 2021, the parties attended a further case conference before Justice Dow. His Honour directed that Mr. Gayed’s proposed motion to set aside the noting in default be scheduled as quickly as possible and that Mr. Gayed was to serve materials for that motion on or before September 28, 2021. Justice Dow noted that Mr. Gayed’s motion to be removed as lawyer of record was scheduled for September 24, 2021, and also noted that a Mr. Martin Zatovkanuk was in the process of being retained by some of the defendants (presumably the ones for which Mr. Gayed would no longer act if his motion succeeded — although one has to wonder, if that was the case, why a removal motion would be required at all).

(f) Five Months After Noting in Default, Defendants Serve Motion to Set Aside

[64] On September 24, 2021, the scheduled date for Mr. Gayed’s motion to be removed as lawyer of record, both Mr. Gayed and Ms. Hamilton attended on a Zoom call for the motion. For some reason, they were not admitted to the virtual courtroom, so the motion did not proceed. Mr. Gayed advised that he would write to Justice Dow to seek an Order for the removal.

[65] On September 28, 2021, Mr. Gayed served his motion record seeking to set aside the noting in default. The motion was scheduled for February 16, 2022. The defendants’ motion to set aside the noting in default was therefore first served just over five months after the defendants had been served with the plaintiffs’ motion for default judgment. As such, in preparing their materials delivered September 28, 2021, the defendants must have been aware of the various allegations made by the plaintiffs about the conduct of the defendants. This becomes important when I come to analyze the evidence offered by the defendants in the motions before me.

[66] Despite having said on September 24, 2021 that he would write directly to Justice Dow to seek removal, as of September 29, 2021, Mr. Gayed had not done so and Ms. Hamilton wrote to him to follow up.

[67] On October 1, 2021, Mr. Gayed wrote to Justice Dow, requesting to be removed as lawyer of record for the Hedmann Defendants. Mr. Gayed maintains that he never received any response to this letter. If so, this is perhaps not surprising as Mr. Gayed attached no materials to his letter.

[68] On November 3 and 8, 2021, Ms. Hamilton wrote to Mr. Gayed asking if he had taken any further steps to be removed as lawyer of record for the Hedmann defendants. She also advised that she wished to examine Mr. Gayed’s clients pursuant to R. 31.04(2)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[69] Mr. Gayed responded on November 11, 2021 to say that he could address the motion to remove himself as lawyer of record on the date scheduled for the motion relative to the default, February 16, 2022. He also advised that he would not produce his clients for examination.

[70] Ms. Hamilton wrote back to say that in her view it was not appropriate to wait until February 11, 2022 for the removal motion, and that if Mr. Gayed did not provide dates for his clients’ examinations, she would unilaterally select dates and serve notices of examination. Ms. Hamilton proceeded to do so about 10 days later, having received no response from Mr. Gayed. She served notices for examinations to take place on April 5 and 6, 2022.

[71] Once again, for reasons that are not entirely clear, Mr. Gayed’s motion to be removed as lawyer of record did not proceed on February 16, 2022 as scheduled.

[72] Neither Mr. Hedmann nor Mr. Agozzino, nor any representatives of any defendant corporation, turned up to be examined on April 5 and 6, 2022, pursuant to Ms. Hamilton’s notices. She obtained certificates of non-attendance in this respect.

Motions and Materials Before This Court

[73] It is not clear that for purposes of the hearing before me, the defendants had properly scheduled Mr. Gayed’s motion to be removed as lawyer of record, the defendants’ motion to set aside the noting in default, or any motion to strike the notices of examination. Nonetheless, I heard Mr. Gayed’s submissions on the motion to set aside the noting in default in conjunction with the plaintiffs’ motion for default judgment.

[74] The only evidence put before me by the defendants, within the motion record for the motion to set aside the noting in default, was an affidavit of Mr. Agozzino sworn on June 7, 2021.

[75] In that limited affidavit, Mr. Agozzino deposed that:

(a) He is a lawyer and has been in practice for 39 years.

(b) He has previously been retained by each of 269, 270, Verdant, and Mr. Hedmann, and has never been retained by either plaintiff.

(c) When Mr. Hendricks stopped him in the parking lot outside Mr. Agozzino’s office in late 2019 asking to discuss Mr. Hedmann’s company, Mr. Agozzino declined to do so, saying he could not speak to Mr. Hendricks about “any matter”.

(d) He spoke with a principal of 268, who confirmed that 268 has had no dealings with the plaintiffs or the Hedmann Defendants.

(e) The defendants have always intended to defend the action (with reference to some of the correspondence between Ms. Hamilton and Mr. Gayed in that regard).

[76] The defendants have filed no evidence whatsoever to deal with the description of events set out in detail in the plaintiffs’ materials on the motion for default judgment. There is no affidavit from Mr. Hedmann. As noted, despite having received notices of examination, neither Mr. Hedmann nor Mr. Agozzino attended on April 5 and 6, 2022, over a month before the hearing before me.

Observations re Defendants’ Tactics

[77] I find that the defendants are using various tactics to avoid and delay any adjudication of this matter on the merits, and have succeeded in doing so for many months already.

[78] Unfortunately, this is consistent with their treatment of Mr. Hendricks in the underlying events.

Analysis and Conclusions re Defendants’ Conduct

[79] In my view, it is readily apparent, on the basis of the virtually uncontroverted evidence put before me by the plaintiffs, that the defendants — mainly Mr. Hedmann, but assisted by Mr. Agozzino — deliberately and consistently misled Mr. Hendricks about Verdant and its business and about the various investments Mr. Hedmann persuaded Mr. Hendricks to make.

[80] It is clear on this record that Mr. Hedmann made numerous deliberate misrepresentations about Verdant, the Keele Property and Transaction, and the use of Mr. Hendricks’ funds. Mr. Hedmann allowed Mr. Hendricks to believe that the $300,000 he advanced for the Keele Transaction was being held in trust for that deal, when in fact it was spent on other real estate deals in which Mr. Hedmann was involved. The Keele Property had been sold to another purchaser (268) in June of 2021, and as such, all of the many ongoing representations by Mr. Hedmann about the deal he had described to Mr. Hendricks being about to close were knowingly and intentionally false.

[81] The evidence also leads to the conclusion, on a balance of probabilities, that the $80,000 Mr. Hendricks paid for shares in Verdant was elicited by Mr. Hedmann’s misrepresentations and was also used for purposes other than the purchase of Verdant shares. It is also evident that the “last-minute” $6,000 loan Mr. Hendricks made to Mr. Hedmann on the eve of one of the many alleged closing dates for the Keele Transaction, allegedly so that the deal could close, was used by Mr. Hedmann for some other purpose.

[82] Mr. Agozzino, for his part, received $300,000 into his trust account that he knew or ought to have known came from Mr. Hendricks and was specifically earmarked for use in the 264/Verdant acquisition of the Keele Property. Mr. Agozzino knew within a few weeks after receiving those funds that they could not in fact be used for that purpose, because he had acted for the purchaser in a transaction involving the acquisition of that very property in June of 2021.

[83] In circumstances in which he knew or ought to have known that Mr. Hendricks understood that his $300,000 advance was continually being held in trust for use in the 264/Verdant acquisition of the Keele Property, Mr. Agozzino nonetheless allowed those funds to be spent by Mr. Hedmann and other companies controlled by him on other projects not involving Mr. Hendricks and offering no participation or benefit to him.

[84] In short, the record strongly indicates that Mr. Hedmann was and is a fraudster, and that Mr. Agozzino was a knowing or at least a deliberately blind participant in Mr. Hedmann’s schemes. More particularly, I find that the plaintiffs’ evidence provides a basis for judgment on the basis of fraudulent and/or negligent misrepresentation. I will return below to the details of the findings against each defendant and to the question of damages.

Discussion re Defendants’ Position on Default

[85] Despite the overwhelming evidence leading to these conclusions, Mr. Gayed on behalf of the defendants purported that, in his understanding, all he was dealing with before me was a garden-variety motion to set aside a noting in default, and that all the defendants had to show was an abiding intention to defend and that they took steps at the earliest opportunity to set aside the noting in default.

[86] Even notwithstanding the other issues I have discussed, the defendants fell well short of the mark on setting aside the noting in default. Mr. Gayed’s correspondence with Ms. Hamilton throughout the many months before she asked to have the defendants noted in default demonstrated anything but an intention to defend. Rather than simply delivering a statement of defence and getting on with the matter, as Ms. Hamilton repeatedly implored the defendants to do so, Mr. Gayed instead used every ploy available to avoid doing so.

[87] I would include in this category Mr. Gayed’s mysterious on-again off-again motion to be removed as lawyer of record. That motion was at one point said to be in relation to Mr. Agozzino and Agozzino Law (or at least it was said to be those defendants who wished to remove Mr. Gayed from the record), and then a few months later, it was said to be the Hedmann Defendants who wished to retain new counsel.

[88] Whichever defendants it was from time to time who purportedly wished to replace Mr. Gayed, over the course of many months and various purported attempts, Mr. Gayed was unsuccessful in being removed.

[89] As I noted above, at least at some points it is not clear what necessity there was for the removal motion other than to add delay. At least by the time of the case conference before Justice Dow in September of 2021, there was apparently an understanding that Mr. Gayed would step aside as counsel for the Hedmann Defendants and that other counsel, who was present at that case conference, would get on the record. That change could have been accomplished using a notice of change of lawyer under the Rules, and did not require a motion.

[90] Nonetheless, Mr. Gayed continued to insist that he needed a motion in order to be removed and refused to take timely or affirmative steps to accomplish that rather straightforward outcome.

[91] Indeed, that folly continued up to and including the hearing before me. In addition to the defendants’ motion to set aside the noting in default, Mr. Gayed purported still to be seeking an Order removing himself as counsel for the Hedmann Defendants.

[92] I am very concerned that the defendants, using Mr. Gayed as their puppet, are continuing their effort to manipulate these proceedings to obfuscate and delay. I will not allow that charade to continue.

Discussion of Relevant Law

[93] The law governing the intersection of a motion to set aside a noting in default on one hand, and a motion for default judgment on the other, does not appear to be particularly well-developed. I suspect that is because circumstances like those before me are exceedingly rare.

[94] As a general proposition, a party moving to set aside a noting in default need only show an abiding intention to defend and that it took timely and expeditious steps immediately upon becoming aware of the noting in default to have it set aside.

[95] As discussed by Justice Molloy in McNeill Electronics v. American Sensors Electronics Inc. (1996), 5 C.P.C. (4th) 266 (Ont. Gen. Div.):

“Motions to extend the time for delivery of pleadings and to relieve against defaults are frequently made and are typically granted on an almost routine basis. Usually opposing counsel will consent to such relief as a matter of professional courtesy. Where there is opposition to a motion of this kind, it is usually related to additional terms which are sought as a condition to the indulgence being granted or to issues of costs… It is not in the interests of justice to strike pleadings or grant judgments based solely on technical defaults. Rather, the Court will always strive to see that issues between litigants are resolved on their merits whenever that can be done with fairness between the parties.”

[96] In Nobosoft Corporation v. No Borders Inc. et al, 2007 ONCA 444, 43 C.P.C. (6th) 36, the Court of Appeal for Ontario specifically endorsed the approach embodied by Justice Molloy in McNeill Electronics. However, in allowing the noting in default to be set aside in the case before it, the Court said, at para. 6:

“There is no evidence here that No Borders sought to flout or abuse the Rules of Civil Procedure. It moved relatively promptly to set aside the noting in default. At the very least, its delay in seeking relief was not inordinate. Moreover, there is nothing on this record establishing prejudice to the respondent if the requested relief was granted.”

[97] I unreservedly agree with the general proposition that in most cases, as long as a party does not delay and where there is no evidence that the party is not operating in good faith, cases should not conclude on the basis of technical defaults. However, the case before me is the rare case in which there is evidence that a party seeks to “flout or abuse the Rules of Civil Procedure”, and in which setting aside the noting in default at this stage would in fact prejudice the plaintiffs.

[98] It is clear to me that in the events giving rise to this claim, Mr. Hedmann in particular, assisted by Mr. Agozzino, skillfully manipulated Mr. Hendricks and strung him along for a very long time through misrepresentation and deception about material matters.

[99] It seems likely that the funds comprising the plaintiffs’ investments described above are long gone. I have no doubt that it will be a difficult chore for the plaintiffs to trace those funds, let alone recover them.

[100] To add insult to injury, in repeatedly delaying the proceedings, the defendants have reduced the chances of recovery and thereby compounded the prejudice to the plaintiffs with each passing day. Through the efforts and obfuscation of Mr. Gayed, they have now strung out these proceedings well beyond what is acceptable. Mr. Gayed is employing mechanisms available within the Rules, such as the latitude given for motions for removal of counsel of record, and therefore he is not technically acting improperly. However, I am not prepared to reward him and his clients for this behaviour which seems calculated to exploit the potential for delay and avoidance of a merits‑based hearing.

[101] In particular, and coming back to the intersection of R. 19.03 and R. 19.05, in my view it is intentionally and unduly myopic for the defendants to maintain that all they need do at this stage is to satisfy the minimal usual requirements of R. 19.03 to be allowed to file a defence.

[102] What would follow, one suspects, would be another version of Mr. Gayed’s remarkable “getting off the record” routine, and then a request for additional time for new counsel (or perhaps Mr. Gayed, if his removal efforts stay true to form) to file a defence.

Defendants Needed to Provide Evidence and Did Not

[103] In my view, the defendants did not have the luxury of ignoring the motion for default judgment, which they received about five months before they brought their motion to set aside the noting in default.

[104] The plaintiffs’ record provides compelling evidence of a meritorious claim on behalf of parties who have been intentionally and maliciously deceived. That evidence required a substantial answer from the defendants and not merely a minimal procedural response calculated to engender additional delay.

[105] In my view, the evidence presented by the plaintiffs entitles them to a judgment pursuant to R. 19.05. Normally that rule contemplates no opposition from a defaulting defendant and requires the plaintiff to provide (uncontested) evidence, where, as here, the claim is for unliquidated amounts and the defaulting defendant has an opportunity to respond. However, the defendant is reasonably expected to provide a substantive response. The defendants have instead provided a slim record going only to their R. 19.03 motion. Their failure to offer any substantive evidence to refute the plaintiffs’ evidence in the R. 19.05 context leaves the Court in more or less the same position as it would typically be in for purposes of an uncontested R. 19.05 motion.

[106] The case law relative to R. 19.08 discussing the requirements in order to set aside a default judgment is apposite here. While I appreciate that there is not yet a default judgment before me, it would have been appropriate, in the face of the plaintiffs’ long outstanding motion for default judgment, for the defendants to make a showing on the merits and not merely assume that their ongoing procedural ploys would continue to avoid the need to do so.

[107] Under R. 19.08, various cases provide that in order to set aside a default judgment a party must show an arguable case on the merits (see for example Lenskis v. Roncaioli (1992), 11 C.P.C (3d) 99 (Ont. Gen. Div.), and Hunt v. Brantford (City) (1994), 34 C.P.C. (3d) 379 (Ont. Gen. Div.)).

[108] More recent cases have confirmed that the test under R. 19.08 does not go as far as the need to “put one’s best foot forward” under R. 20 (see for example Zeifman Partners Inc. v. Aiello, 2020 ONCA 33, 442 D.L.R. (4th) 299, at paras. 31-33). There is nonetheless an obligation to show that if the Court sets aside the judgment, an arguable defence on the merits will be offered.

[109] Here, there has been no effort to meet that obligation and no evidence to suggest that any meritorious defence will be forthcoming. To the contrary, the conduct of the defendants reflects an ongoing, concerted, and to date successful effort to avoid addressing the merits of the case.

Conclusions on Liability

[110] In all of the circumstances as set out above, I grant judgment to the plaintiffs pursuant to their motion under R. 19.05, and dismiss the defendants’ motion under R. 19.03.

[111] I find that the evidence described above clearly establishes Mr. Hedmann’s liability for fraudulent and/or negligent misrepresentation. He knowingly and repeatedly made various false representations to Mr. Hendricks, calculated to induce the plaintiffs to make equity investments that Mr. Hedmann had no intention of honouring and loans that he had no intention of using for the stated purpose or ever repaying. As against Mr. Hedmann, the evidence overwhelmingly meets the test articulated in Midland Resources Holding Ltd. v. Shtaif (2017 ONCA 320, 135 O.R. (3d) 481, at para. 162).

[112] Mr. Hedmann is also liable to the plaintiffs for breach of contract, given his failure to provide share certificates and to repay the plaintiffs’ loan relative to the Keele Transaction.

[113] With respect to Mr. Agozzino and Agozzino Law, McGee v. Samara (2021 ONSC 2540) stands for the proposition that a party who knowingly perpetuates the credibility of fraudulent misrepresentations may be found to have engaged in the fraud. Mr. Agozzino’s letter of October 5, 2019 in particular represented that Verdant was a legitimate company genuinely trying to purchase the Keele Property, which Mr. Agozzino knew was a fiction. At best, Mr. Agozzino and Agozzino Law were negligent; their conduct fell well short of any reasonable standard of care and was a “but for” cause of the plaintiffs’ losses.

[114] Verdant, for its part, was merely an alter ego for Mr. Hedmann. He was the directing mind of Verdant and, in that role, he used the company as a puppet to perpetuate his deceit. Similarly, 269 and 270 were corporations entirely controlled by Mr. Hedmann, and he used them as vehicles to misappropriate and divert the plaintiffs’ funds, and ultimately, to obscure his conduct.

[115] I do not find 268 liable. While it may prove to be the case, as alleged, that Mr. Hedmann also controls that corporation and directed the purchase of the Keele Property by that entity, the evidence before me, while suspicious, does not prove that that occurred on a balance of probabilities.

[116] This leaves the questions of damages and punitive damages.

Damages

[117] With respect to damages, the plaintiffs claim, as of the date of the motions before me, the principal amount of their investments, $386.000, plus the interest they incurred by accessing the funds through a high-interest line of credit. Calculated in that way, the total claim with interest, as of the hearing before me, was $428,390.15. I am prepared to award damages in that amount.

Punitive Damages

[118] Punitive damages are reserved for rare conduct that represents a marked departure from the ordinary standards of decent behaviour. An award of punitive damages must serve a rational purpose in circumstances in which “compensatory damages do not adequately achieve the objectives of retribution, deterrence and denunciation” (Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678, at para. 87).

[119] In my view, the fraudulent behaviour of Mr. Hedmann justifies an award of punitive damages. I award $20,000 under that head.

[120] While I am concerned about the conduct of Mr. Agozzino and Agozzino Law, and while that conduct is not what should be expected of an officer of this Court, I do not find the evidence to show a sufficiently marked departure from decent behaviour to justify imposing punitive damages.

Motion for Removal

[121] I am not prepared to deal with Mr. Gayed’s motion to be removed as lawyer of record for the Hedmann Defendants. For the reasons described above, it is not clear to me that this is a genuine motion or that there is a need for it in the circumstances. Mr. Gayed will apparently remain as counsel of record for the other defendants. If, as represented to Justice Dow back in September of 2021, there is another counsel waiting in the wings, and if given the outcome of the other motions herein the Hedmann Defendants still wish to change counsel, there are other mechanisms available to do so without taking up the Court’s time.

Costs

[122] It also follows that the plaintiffs are entitled to their costs, not only of these motions but of the proceedings to date. The plaintiffs’ costs outline supports a costs award on a substantial indemnity basis, which in my view is the correct scale given the conduct of the defendants designed to delay and obfuscate, in the amount of just over $30,000.

[123] I find that at this stage of the proceedings, and given the complexity of the proceedings, that amount is reasonable.

[124] As such, I award judgment to the plaintiffs in the amounts set out above, together with costs on a substantial indemnity basis in the amount provided in the plaintiff’s costs outline (just over $30,000).

W.D. Black J.

Date: August 16, 2022