Court File and Parties

Court File No.: 1888/19 Date: 2022-02-18 Superior Court of Justice - Ontario

Re: Brian Flight and Amber Flight And: Julie LeBlanc

Before: Justice A. K. Mitchell

Counsel: T. Vasdani, for the plaintiffs/moving parties C. Hubley, for the defendant

Heard: January 17, 2022 via video conference

Endorsement

Overview

[1] Pursuant to r. 20 of the Rules of Civil Procedure (the “Rules”), the plaintiffs, Brian and Amber Flight, seek summary judgment against the defendant, Julie LeBlanc, in the amount of $180,000. The plaintiffs allege Ms. LeBlanc misappropriated funds and defrauded Mr. Flight while acting as the bookkeeper for Mr. Flight’s painting business during the period 2003-2018.

[2] The defendant opposes the plaintiffs’ motion and asks that the motion be dismissed. By informal cross-motion (colloquially referred to as a “boomerang” motion), the defendant seeks summary judgment dismissing the plaintiffs’ claim on the basis it is statute-barred. The plaintiffs do not oppose the defendant’s cross-motion proceeding without formal notice of cross-motion.

Background

[3] The plaintiffs are spouses of one another. The defendant is the former spouse of Mr. Flight. Ms. LeBlanc and Mr. Flight separated in 2004 and divorced in 2009. Notwithstanding the breakdown of their marriage, the defendant continued to act as the bookkeeper for Mr. Flight’s sole proprietorship until 2018.

[4] Mr. Flight’s painting business has a history of insolvency. Mr. Flight first made an assignment in bankruptcy on February 27, 2004 and was discharged on February 9, 2005. On June 22, 2006, Mr. Flight made a second assignment in bankruptcy and on July 31, 2011 he was again discharged from bankruptcy. A little over a month later, Mr. Flight made a third assignment in bankruptcy on September 6, 2011 and was subsequently discharged on December 10, 2014.

[5] On May 13, 2016, Mr. Flight filed an assignment bankruptcy for a fourth time. Adamson & Associates Inc. was appointed trustee of the bankrupt estate of Mr. Flight (the “Trustee”).

[6] On August 28, 2019, a conditional and suspended order of discharge was made. The conditions of discharge were not satisfied and Mr. Flight remained an undischarged bankrupt until February 19, 2021.

[7] On that date, Mr. Flight filed a consumer proposal which was accepted by his creditors (the “Proposal”). Rumanek & Company Ltd. was appointed administrator under the Proposal.

The Litigation

[8] Mr. Flight claims that on January 9, 2018 he discovered that between 2003 and 2018 Ms. LeBlanc transferred funds “earmarked” for the business’ CRA remittances from the business account to her own personal account.[^1] The plaintiffs allege that Ms. LeBlanc’s misappropriation of funds led to the business’ chronic state of insolvency and Mr. Flight’s many bankruptcy filings.

[9] On September 30, 2019, Mr. Flight and his spouse commenced this action (the “Flight Action”). At the time the claim was issued, Mr. Flight was an undischarged bankrupt.

[10] On September 11, 2020, the Trustee commenced an action against the defendant for payment of the sum of $200,275.64 alleging conversion, breach of trust and unjust enrichment (the “Trustee Action”). The Trustee Action is founded on the same allegations of misconduct as those on which the Flight Action is based.

[11] In the Flight Action, the plaintiffs seek damages (including punitive, exemplary and aggravated damages) arising from the defendant’s alleged fraud and misappropriation of funds in excess of $6 million. The plaintiffs plead the following causes of action:

(i) breach of contract;

(ii) fraudulent misrepresentation;

(iii) unjust enrichment;

(iv) breach of fiduciary duty; and

(v) conversion.

[12] Included within the damages claimed is an amount claimed by Ms. Flight for damages arising pursuant to the Family Law Act (“FLA”).

[13] The plaintiffs’ motion for summary judgment was first returnable in 2020. Notices of return of motion were served from time to time with the motion eventually argued on January 17, 2022.

[14] On the return the motions, the plaintiffs abandoned Ms. Flight’s FLA claim and their claim for aggravated and punitive damages, and restricted their damages to $180,000, which amount is comprised of the following:

(a) $96,101 on account of amounts payable under the Proposal;

(b) $36,374.55 on account of interest and penalties payable to CRA during the period May 2011 through January 2018;

(c) $27,018.99 for legal fees on a full indemnity basis;

(d) $7,096.40 payable to Trillium Bookkeeping Inc.; and

(e) $13,409.06 for damages for theft.

[15] Discovery in the Flight Action – both oral and documentary – has not taken place. Cross-examinations on affidavits filed by the parties in support of their respective positions on the motions were not conducted.

Analysis

[16] As indicated earlier in these reasons, the defendant’s cross-motion for summary judgment seeks to dismiss the Flight Action on the basis it is statute-barred. Although a formal notice of motion was neither served on the plaintiffs nor filed with the court, the plaintiffs’ confirmed their consent to the defendant’s cross-motion proceeding at the outset of argument on the motions. I note the plaintiffs’ reply factum directly responds to the issues raised on the cross-motion and, therefore, find that the plaintiffs were given an opportunity to respond to the issues on the cross-motion.

[17] Should Ms. LeBlanc be successful on her cross-motion, it will be unnecessary to deal with the plaintiffs’ motion as the issues will be rendered moot by the dismissal of the action. Consequently, I will first deal with the cross-motion.

[18] Pursuant to r. 20.01(3) of the Rules, a defendant to an action may move for summary judgment dismissing all or part of the claim against it. If the court is satisfied there is no genuine issue requiring a trial, the court must grant summary judgment.

[19] The decision of the Supreme Court of Canada in Hyrniak v. Mauldin[^2] provides the governing law. Recognizing that affordable and timely access to the civil justice system is paramount, the Supreme Court of Canada has interpreted r. 20.03 to require motions judges to utilize their enhanced powers under r. 20 to weigh evidence, evaluate credibility and draw reasonable inferences where appropriate in order to expand the cases capable of being disposed of summarily without the need for costly and protracted litigation.

[20] With respect to the cross-motion, the relevant evidence is not in dispute. Credibility is not an issue. Accordingly, I find that the issues on the cross-motion do not require a trial for their determination and are suitably dealt with in a summary fashion.

[21] Based on the undisputed evidence put forward by the parties, I make the following findings:

(a) Mr. Flight was an undischarged bankrupt for the period May 13, 2016 through February 19, 2021;

(b) the plaintiffs’ claims against the defendant (the “Claims”) were discovered January 9, 2018;

(c) the plaintiffs commenced this action (the Flight Action) on September 30, 2019;

(d) the two-year limitation period with respect to the Claims expired January 9, 2020;[^3]

(e) the Trustee commenced the Trustee Action on behalf of the creditors of the estate of Mr. Flight against Ms. LeBlanc on September 11, 2020; and

(f) Mr. Flight’s bankruptcy was annulled effective February 19, 2020 and effective that date all assets of the Trustee re-vested in Mr. Flight.

[22] Pursuant to s. 71 of the Bankruptcy and Insolvency Act[^4] (“BIA”), upon filing an assignment in bankruptcy all assets of Mr. Flight, including any chose in action, vested in the Trustee. Consequently, as of the date of bankruptcy Mr. Flight ceased to have any capacity to dispose of or otherwise deal with his property. Pursuant to ss. 2 and 67(1) of the BIA, the bankrupt’s property is broadly defined and includes a cause of action discovered when Mr. Flight was an undischarged bankrupt.[^5]

[23] Any claim personal to Mr. Flight for damages relating to injuries to his person did not vest in the Trustee. However, the Claims do not include any claims for personal injuries suffered by Mr. Flight. Rather, the damages relate to the property of Mr. Flight, namely, funds improperly transferred from Mr. Flight’s business accounts.

[24] On the date the Flight Action was commenced, Mr. Flight was bankrupt and had no interest in the Claims (i.e., the causes of action against Ms. LeBlanc). Therefore, Mr. Flight had no capacity to commence the action. Only the Trustee (or any creditor holding an assignment of the cause of action pursuant to s. 38 BIA) held an interest in the cause of action against Ms. LeBlanc.

[25] Although not formally requested as part of the relief sought on their motion, in response to the cross-motion the plaintiffs requested an order granting leave nunc pro tunc to continue the Flight Action. The plaintiffs argue that Mr. Flight’s failure to obtain leave to bring the Flight Action is a mere irregularity and one easily remedied by a nunc pro tunc order. Such an order would operate from the date the action was commenced and, therefore, well within the limitation period.

[26] Stated differently, the plaintiffs submit their failure to obtain an order permitting Mr. Flight to commence the action does not render the action a nullity, rather is an irregularity which can be cured with leave of the court granted nunc pro tunc. In support of their position, the plaintiffs referred me to the decision of the Ontario Court of Appeal in Re New Alger Mines Limited[^6]. In Alger, the bankrupt company had commenced an action against the trustee without first obtaining leave as required by s. 186[^7] of the BIA. The company sought leave after the expiration of the limitation period. Leave was refused by the motions judge; however, this decision was overturned on appeal.

[27] Alger is distinguishable from the case at hand. Alger dealt with a situation where the bankrupt company required leave as a precondition to commencing an action against the trustee arising from its conduct in administering the bankrupt estate. The court in Alger was dealing with a technical defect in a pleading. Alger did not involve a chose in action which had vested in the trustee. I am unaware of a corresponding provision for leave in the BIA which allows an undischarged bankrupt to commence an action against a third party with respect to a cause of action vested in the trustee.[^8]

[28] Consequently, I find the Flight Action is a nullity as the plaintiffs were without capacity to commence the action given Mr, Flight’s status as an undischarged bankrupt on the date the action was commenced.[^9] Section 187(9) of the BIA has no application. Mr. Flight had no right, title and interest in the cause of action against Ms. LeBlanc and, therefore, had no standing to commence the action.

[29] Mr. Flight’s lack of standing or capacity to sue is not a mere irregularity, rather it renders the action a nullity. Simply stated - there is no action to “regularize” through the issuance of a nunc pro tunc order. Moreover, a nunc pro tunc order cannot be made in this case because of the passage of the limitation period.[^10]

[30] As an aside, the effect of the Proposal’s acceptance by Mr. Flight’s creditors was to automatically re-vest in Mr. Flight all property and assets, including any causes of action against Ms. LeBlanc. However, the Claims are statute-barred as they were discovered more than two years prior to the date on which the Claims re-vested in Mr. Flight.

Disposition

[31] Order to issue as follows:

1. the defendant’s cross-motion is granted and the Flight Action is hereby dismissed; and

2. the plaintiffs’ motion for summary judgment is dismissed.

Costs of the Motion

[32] The defendant is entitled to her costs of the motions. She seeks costs on a partial indemnity basis in the all-inclusive amount of $16,289.03 (comprised of fees totaling $13,224.92 and disbursements of $3064.11, both inclusive of HST).

[33] By comparison, the plaintiffs sought their full indemnity costs totaling $27,018.99 (comprised of fees totaling $25,218.99 and disbursements of $1800, both inclusive of HST).

[34] I have considered the factors in r. 57.01. Specifically, I have considered that the motions were dispositive of the entirety of the litigation. The action involved serious allegations against the defendant and included claims of historical fraud, negligence and breach of trust. Although the amount of the plaintiffs’ claim was significantly reduced by the time the motions were argued, the plaintiffs sought $6 million in damages in their statement of claim and it was reasonable for the defendant to have incurred substantial time and expense to defend her reputation and these claims.

[35] In addition, the defendant was put to the time and expense of preparing for these motions when they were returnable in October 2020 in reliance upon a certificate of readiness filed by the plaintiffs confirming the motions would proceed as scheduled. On the return of the motions on October 21, 2020 counsel for the plaintiffs advised that an adjournment was required. The defendant is entitled to the additional costs thrown away of preparing to argue the motions on October 21, 2020. Based on the experience of and hourly rates charged by defendant’s counsel taken together with my consideration of the rule 57.01 factors, I find the amount of costs claimed by the defendant to be fair and reasonable in the circumstances.

[36] Accordingly, the plaintiffs shall pay to the defendant her costs of the motions fixed in the amount of $16,289.03, inclusive of disbursements and HST, as claimed.

“Justice A.K. Mitchell”

Justice A.K. Mitchell

Released: February 18, 2022

[^1]: Statement of Claim, paragraph 21.

[^2]: 2014 SCC 7, 2014 CarswellOnt 640 (SCC).

[^3]: Section 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, provides that a claim is statute-barred if an action is not commenced within 2 years following the date on which it is discovered.

[^4]: R.S.C. 1985, c. B-3.

[^5]: Thistle v. Schumilas, 2020 ONCA 88 at para. 17 (“Thistle”).

[^6]: 1986 CanLII 2530 (ON CA), [1986] O.J. No. 144 (C.A.) (“Alger”).

[^7]: Now s. 215 BIA.

[^8]: Section 38 BIA allows for a creditor to obtain an order authorizing the creditor to take any proceeding for the benefit of the estate of the bankrupt in its own name and at its own expense and risk where the trustee refuses to take the proceeding. Upon such order being made, the trustee is required to assign and transfer to the creditor all of its right, title and interest in the shows of action or subject matter of the proceeding to the creditor.

[^9]: See Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 S.C.R. 701 at para. 58.

[^10]: See Douglas v. Stan Fergusson Fuels Ltd. 2018 ONCA 192 at para. 103; and Thistle at paras. 25-31.