COURT FILE NO.: CV-22-495

DATE: 20220922

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: 2321492 ONTARIO INC., 2759655 ONTARIO LTD., NAWC2000 INC., MOSHE AVIV and HAIM NAAR, Plaintiffs

AND:

ADE TAETLBUM and 2149991 ONTARIO INC., Defendants

BEFORE: Justice S.E. Fraser

COUNSEL: Doug Bourassa, Counsel for the Plaintiffs

Frank Spizzirri, Counsel for the Defendants

HEARD: August 12, 2022

ENDORSEMENT

Nature of the Motions

1In the motions before me, both the Plaintiffs and the Defendants seek relief under s. 248 of the Business Corporations Act, R.S.O. 1990, c. B. 16, as amended, (the OBCA), for conduct by the parties opposite which they allege to be oppressive or unfairly prejudicial.

2The parties also seek other relief, but the arguments primarily centred on the conduct of the parties and who, if anyone, is entitled to a remedy.

The Parties

3The Plaintiff, NAWC2000 Inc. (NAWC), is an Ontario corporation. It carries on business as the Canadian Centre for Addictions (CCFA) which operates for-profit private rehabilitation facilities including one located in Port Hope, Ontario for persons with addictions. The Plaintiffs state that CCFA specializes in the treatment of mental health, substance, drug, and alcohol abuse.

4The Individual Plaintiffs, Moshe Aviv (Aviv) and Haim Naar (Naar), do not live in Canada. Each owns 40% of the shares of NAWC and the Individual Defendant, Ade Taetlbum (Taetlbum), owns 20% of the shares.

5From April 2015 until January 25, 2022, Mr. Taetlbum held the position of Director of Operations for CCFA. Mr. Taetlbum claims that he was primarily responsible for the management and operation of CCFA and that he took CCFA from a money-losing operation to a highly profitable organization. According to him, CCFA generates approximately $1 million in revenue per quarter, and approximately $100,000, on average, in monthly dividends to shareholders. CCFA is valued between $48 and $60 million. A second treatment facility, in Cobourg, is set to open and Mr. Taetlbum predicts that this will more than double the revenue and the profits.

6On January 25, 2022, at a meeting that Mr. Taetlbum alleges was improperly held, Mr. Aviv and Mr. Naar, together forming a majority of the shareholders of NAWC, terminated Mr. Taetlbum’s position as Director of Operations and took steps to shut him out of the business operations.

7The corporate Plaintiff, 2321492 Ontario Inc. (232), is a company related to NAWC. It owns the lands upon which the Port Hope treatment facility is located. As with NAWC, Mr. Aviv and Mr. Naar each own 40% of the shares of 232 and Mr. Taetlbum owns 20% of the shares.

8The corporate Plaintiff, 2759655 Ontario Ltd. (275), is a company formed to take title of a property in Cobourg for the second treatment facility. Mr. Taetlbum holds 100% of the shares but all the parties agree that Mr. Taetlbum held 80% of those shares for Mr. Aviv and Mr. Naar. Ownership of 275 was to be in the same 40/40/20 split but, as bank financing was required, that changed. Messrs. Aviv and Naar were not Canadian residents and Mr. Taetlbum told the Plaintiffs that the bank would not lend to a company with majority foreign owners.

9As a result, Mr. Taetlbum held 100% of the shares of 275 with the Individual Plaintiffs having a beneficial interest. NAWC and the bank provided the financing for the Cobourg property.

10Financing for the 275 property in Cobourg was provided in part by way of a mortgage from the Toronto-Dominion Bank (TD Bank). On October 14, 2020, TD Bank committed funding by way of a loan in the amount of $1.4 Million dollars, secured in part by a charge against the 275 property and general security agreements against NAWC and 275.

11The Corporate Defendant, 214991 Ontario Inc. (214), is a company whose sole shareholder is Pearl Taetlbum, the wife of Mr. Taetlbum.

The Dispute

Plaintiffs’ Complaints Against Mr. Taetlbum

12The Plaintiffs allege misconduct on the part of Mr. Taetlbum giving rise to his termination and loss of control of the operations of the Plaintiff corporations.

13In simple terms, the Plaintiffs allege:

a. In 2017, Mr. Taetlbum made unilateral changes to the mortgages on the 232 property resulting in a higher mortgage rate (from 5% to 7%), a rate that was higher than that commercially available. The Plaintiffs refer to these mortgages as the Valenova mortgages;

b. In or about August 18, 2021, Mr. Taetlbum, without the authorization of the Individual Plaintiffs, transferred the Valenova mortgages to 214, Mr. Taetlbum’s wife’s corporation, such that 214 became the new mortgagee for the 232 property;

c. Mr. Taetlbum structured the renegotiation and transfer of the mortgages in such a way so that, despite the higher interest rate, the payment was the same, so that it would not be immediately obvious that the mortgage had been transferred;

d. The renegotiation of the 232 mortgages and subsequent transfer of the charges to 214 had negative consequences, including that 232 was paying less principal and more interest;

e. In October, 2021, Mr. Taetlbum terminated his own employment and became a consultant to NAWC following which he proceeded to charge management fees to NAWC resulting in a doubling of his annual salary plus HST;

f. Mr. Taetlbum directed funds from NAWC to 275 without authorization of the Individual Plaintiffs including a direction that $702,522.76 be taken from the NAWC bank account and placed in the 275 bank account (the 275 account). Mr. Taetlbum later returned $50,000 to the NAWC account in January, 2022;

g. Mr. Taetlbum claims he transferred funds to 275 to protect himself because he had made personal guarantees for loans made to 275;

h. Once the shareholders’ dispute became known, Scotiabank froze the NAWC, 232 and 275 accounts and would not accept instructions from either party;

i. As a result of Mr. Taetlbum’s conduct, there was a default on the TD Bank loan on the 275 property. On July 8, 2022, TD called the loan and served notice of its intention to enforce putting the Cobourg facility, and other matters, in jeopardy;

j. The Plaintiffs have replacement financing for each of the mortgages on the Port Hope property and on the Cobourg property to be guaranteed by Mr. Aviv and Mr. Naar. The Defendants’ counsel advised the court the Defendants have arranged for 214 to finance the Cobourg property (replace the TD loan) to which the Plaintiffs object in the strongest terms; and

k. That Mr. Taetlbum has enriched himself at the expense and detriment of NAWC.

Defendants’ Complaints against the Individual Plaintiffs

14Mr. Taetlbum alleges misconduct by the Individual Plaintiffs including that:

a. The January 25, 2022 shareholders’ meetings were improperly held and therefore invalid;

b. He was wrongfully terminated and shut out of the Corporate Plaintiffs (he has commenced a counterclaim for this wrongful termination);

c. Since his termination, the Individual Plaintiffs have been diverting CCFA revenues by more than $2 million and have stopped paying him his remuneration and monthly dividends;

d. Mr. Taetlbum’s last dividend payment was in December, 2021;

e. The Individual Plaintiffs have been taking exorbitant sums in dividends and racking up legal fees, in his counsel’s words, using his money to bring a lawsuit against him;

f. The Individual Plaintiffs have failed to provide information regarding revenues, expenses and details of the location of company money which concerns him given that the Individual Plaintiffs do not reside in Canada;

g. The profit and loss statement, provided by the Plaintiffs, which was provided just prior of the hearing demonstrates that the Individual Plaintiffs are taking dividends, alleging that they have taken over $600,000 to their benefit in the first half of this year;

h. Mr. Aviv and Mr. Naar acted in their own self-interest taking dividends without considering the business needs of CCFA;

i. He received no dividends in 2015 and only sporadically in the following two years;

j. Mr. Aviv and Mr. Naar borrowed from NAWC and that those loans have not been repaid;

k. Since January 25, 2022, the Plaintiffs have barred him from the CCFA premises, failed to provide him with financial information about the affairs of the CCFA and diverted CCFA revenue. Also, he has no access to bank accounts, business records or company documents. He now receives no remuneration and no dividends; and

l. It is reasonable for him to expect that:

i. He receive his share of profits and dividends;

ii. He receive a return on his investment of time and effort to turn around the financial fortunes of CCFA;

iii. He receive an orderly exit;

iv. He be provided with financial and corporate records of the Plaintiff companies; and,

v. His personal risk not to increase after his wrongful termination.

The Relief Sought

15The Individual Plaintiffs ask that I name them as complainants under the OBCA and that they be granted leave to bring a derivative action. They also request an order correcting the 275 shareholder register to reflect the 40/40/20 split; certain orders that would allow new operating officers to conduct business on behalf of NAWC, 232 and 275, requests for disclosure, a preservation order and other related relief.

16While the motions before me sought wide-ranging relief, the focus of the relief sought by the Plaintiffs on this appearance was to transfer the 275 shares to ensure the complete refinancing of the TD mortgage and to free up the frozen funds of NAWC now held in the 275 account.

17The Defendants sought the appointment of an inspector or a receiver, and request that I appoint an investigator or an investigative receiver under ss. 161-162 of the OBCA and s. 101 of the Courts of Justice Act, respectively. They seek a full and independent review of the payments and distributions made to Naar from January 2015 onward as well as the reinstatement of Mr. Taetlbum’s remuneration.

The Issues

18The issues that must be considered in these motions are:

a. Whether the shareholders meeting of January 25, 2022 was properly held;

b. Whether the individual parties are complainants within the meaning of s. 245 of the OBCA;

c. Whether leave should be granted to the Individual Plaintiffs to commence a derivative action; and

d. Whether the parties have acted unfairly or oppressively that warrants relief from this Court.

Analysis

Are the Individual Parties Complainants?

19A complainant under the OBCA is defined in s. 245 and includes a registered holder and beneficial holder of a security as well as director or officer or former director or officer of a corporation.

20Mr. Aviv and Mr. Naar are entitled to be complainants as shareholders of NAWC and 232 but also as beneficial holders of 275.

21Mr. Taetlbum is a complainant as a shareholder of NAWC, 232 and 275.

22I therefore designate each of the individual parties in this action as complainants.

Shareholders’ Meeting

23The evidence before me suggests that Mr. Taetlbum had proper notice of the NAWC and 232 shareholders’ meeting. While there was an error in the notice, this was corrected and Mr. Taetlbum took the position that the meeting was not going to be properly held and chose not to attend it. He logged on early to the meeting which was held by the Zoom videoconferencing platform, and did not stay.

24Notice of a shareholders meeting is important because it allows a shareholder to be heard. In this case, Mr. Taetlbum chose to rely on what he thought was a defect in the notice to call into question the propriety of the meeting.

25I find that the NAWC and 232 meetings were properly held.

26I have insufficient information to find that the 275 shareholders’ meeting was properly held. On the information before me, the Plaintiffs state that while the shares of 275 were to be held in a 40/40/20 split, Mr. Taetlbum was the 100% shareholder, even though he was holding 80% of them beneficially. There is no evidence in the record as to how this meeting was held and I can draw no conclusions about the propriety of the 275 shareholder’s meeting.

27At the NAWC shareholders’ meeting, Mr. Taetlbum was removed as a director of NAWC, and the majority of the shareholders elected Mr. Aviv, Mr. Naar, and Mr. James McKenny to the Board of Directors. The shareholders authorized the directors to enter a new banking resolution and appoint new signatories to the accounts. Other steps were taken as outlined in the Affidavit of Rory Taylor which had the effect of squeezing out Mr. Taetlbum. Similar steps were taken for 232.

28He claims wrongful dismissal and because his employment was inextricably interwoven with his position as an officer and director, it should be considered oppressive conduct.

Derivative Action and Oppression Remedy

29The oppression remedy is an equitable remedy (BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, at para. 57). Those who claim relief must come with clean hands (790668 Ontario Inc. v. D’Andrea Management Inc., 2017 ONCA 1019, at paras. 13 and 14). I must consider the conduct of the parties when I determine whether to grant relief. Conduct which involves concealment of information for personal use or deceit are examples of unclean hands (Boni v. Leonardo Worldwide Corporation, 2018 ONSC 1875, at paras. 72-73).

30A derivative action may be brought where the court grants leave for a complainant to bring an action in the name and on behalf of the corporation for wrongs done to the corporation.

31This is a case where a derivative action and oppression remedy intersect. The factual underpinnings in this case permit the Individual Plaintiffs to bring both claims. NAWC, 232 and 275 are closely held corporations. The wrongs done to the corporation have also impacted the Individual Plaintiff complainants.

(a) Individual Plaintiffs’ Claim of Oppression and for a Derivative Action

32While the Individual Plaintiffs are each minority shareholders, acting together, they form a majority. Together they can cause the corporate Plaintiffs to take actions. Given my findings that the NAWC and 232 shareholders’ meetings were properly held, I need not deal with their claims of oppression and for a derivative action.

(b) Defendant Taetlbum’s Claim of Oppression

33Mr. Taetlbum, as a minority shareholder, is entitled to claim oppression, and I so designate him as a complainant.

34However, I find that Mr. Taetlbum does not come to this Court with clean hands. I find that Mr. Taetlbum has conducted the business and affairs of the Corporate Plaintiffs and exercised his powers as director of the Corporate Plaintiffs in a manner that is oppressive, unfairly prejudicial or which unfairly disregards the interests of the Individual Plaintiffs as shareholders, creditors, directors, or officers of the Corporate Plaintiffs.

35Despite holding 275 for the Individual Plaintiffs, he has acted in his own personal interests and in a manner that is to the detriment of the Individual Plaintiffs and the Corporate Plaintiffs.

36There is no dispute that the shares of 275 were to be held in the same share distribution as the other companies and that while Mr. Taetlbum held 100% of the shares for 275, that Mr. Aviv and Mr. Naar each had a 40% beneficial interest in 275.

37To protect his own position against the Plaintiffs and TD, Mr. Taetlbum transferred $702,522.76 from NAWC to 275 for which he was the sole shareholder. Mr. Taetlbum thereby created a status quo for his own benefit and not for the benefit of NAWC. By transferring funds that were not his to a company for which he had 100% control and then refusing to relinquish control to the beneficial owners, Mr. Taetlbum put his own interests before that of NAWC, 232, and 275. His actions led to a default of the TD Loan.

38The wrongful withholding of the funds and the shares threatens the health of NAWC and the interests of the Individual Plaintiffs. This is how I conclude that Mr. Taetlbum does not come to this Court with clean hands.

39The 275 shares shall be transferred to their beneficial owners, as further ordered below. The funds removed from the NAWC account to 275 shall be transferred back to NAWC.

Appointment of Inspector/Receiver

40The Defendant Taetlbum askes that I appoint an inspector/investigator or a receiver.

41Section 101(1) of the Courts of Justice Act provides that a receiver or receiver and manager may be appointed by an interlocutory order, where it appears to a judge of the court to be just or convenient to do so. Section 161(1) of the OBCA permits a registered holder or beneficial owner of a security to apply to the court for an order directing an investigation be made of the corporation.

42The appointment of a receiver or an inspector is an extraordinary remedy. The party seeking the appointment must show an index of suspicion that reasonable shareholder expectations have not been met respecting the actions or non actions of the management and directors. A mere suspicion of impropriety is not sufficient. Oppression is a broad ground which could justify an appointment. (Moore v. Assaly, 2013 ONSC 817, at paras. 40-45).

43In determining whether it is appropriate, I must consider whether the party seeking the appointment needs access to the information, whether there are better less expensive means to acquire the information, whether the proposed investigation would give a tactical advantage and the expense of the proposed investigation (Khavari v. Mizrahi, 2016 ONSC 4934, at paras. 35 and 41).

44In my view, the Defendant Taetlbum has not established the requirements necessary for the appointment of an inspector either pursuant to s. 161 or under s. 248 of the OBCA and I do not appoint one.

45There are less intrusive means, which I order below, for providing information to Mr. Taetlbum relating to the profits and dividends, as well as the financial and corporate accounts of the Plaintiff companies.

46I do not think it is reasonable for Mr. Taetlbum to expect payment of his NAWC dividends when, without authorization, he has transferred $702,522.76 out of the NAWC account to 275. The profit and loss statement provided to me demonstrates that the Plaintiffs are crediting the dividends against the funds transferred out of NAWC to 275.

47However, it is reasonable for Mr. Taetlbum to expect that he would receive information about the corporations for which he is a shareholder and I order read only access to the corporate bank accounts and the financial statements as further detailed below.

48I asked the parties whether I should be concerned that vulnerable persons who use drugs and who are seeking rehabilitative services might be negatively impacted by this shareholders dispute. I was assured that these facilities are regulated by the Province of Ontario. However, there are allegations levelled against both the Individual Plaintiffs and the Individual Defendant about which I find the Ministry of Health must be made aware.

Order

49Considering the above findings, I grant the Plaintiffs’ motion for the relief pursued at the hearing of the motion. I largely dismiss the Defendants’ motion, save for the orders below regarding the provision of information. I order that:

a. Pursuant to s. 248(3)(k) of the OBCA, the shareholder register of the defendant, 2759655 Ontario Ltd. shall be corrected to reflect the division of shareholdings as follows:

i. 40% owned by the Plaintiff Mr. Aviv;

ii. 40% owned by the Plaintiff Mr. Naar; and

iii. 20% owned by the Defendant Mr. Taetlbum.

b. NAWC, together with its officers and directors as set out in the January 25, 2022 Resolution of Shareholders of NAWC and January 25, 2022 Minutes of the Directors Meeting of NAWC, shall have sole authority with respect to the operation of the bank account of NAWC as defined in paragraph (o) of the Plaintiffs’ Notice of Motion.

c. 232, together with its officers and directors as set out in the January 25, 2022 Resolution of Shareholders of 232 and January 25, 2022 Minutes of the Directors Meeting of 232, shall have sole authority with respect to the operation of the bank account of 232 as defined in paragraph (p) of the Plaintiffs’ Notice of Motion.

d. The Defendant Taetlbum is not an authorized representative of any of the Corporate Plaintiffs such that he shall not take any steps or actions on behalf of any of the Corporate Plaintiffs or hold himself out as a person authorized to do anything on their behalf and he shall not deal with or in any way affect the 275 Property or 232 Property, including, cause, direct or facilitate any assignment of 232’s, 275’s or NAWC’s rights of any sort in relation to the two properties.

e. NAWC, 232, and 275 shall provide monthly profit and loss statements to Mr. Taetlbum.

f. NAWC, 232, and 275 shall provide read only access to their bank statements for all accounts connected to those corporations to Mr. Taetlbum.

g. NAWC, 232, and 275 shall provide a statement of issued dividends and an accounting of the dividends credited to Mr. Taetlbum.

h. The parties shall establish a timetable for this litigation.

i. If the parties are unable to settle the order and incidental terms necessary to carry it out, I may be spoken to.

j. The Plaintiffs shall serve a copy of this Endorsement upon the Minister of Health.

50I make no order regarding the 275 Bank Account because I do not have clear information from the parties about how the Shareholders came to appoint new directors when Mr. Taetlbum held 100% of the shares. Some correspondence has been redacted. I am confident that the orders that I have made regarding the transfer of the shares and the repayment of the funds from the 275 account to the NAWC account that this should assist in remedying the conduct.

Costs

51I dismiss Mr. Taetlbum’s requests for funding for his costs and he has not put information before me to substantiate the need.

52If the parties cannot agree upon costs, I will entertain written cost submissions no more than four pages supported by dockets.