Court File and Parties

COURT FILE NO.: CV-20-0224-00 DATE: 2023-02-23

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Sebastiano Foglia and Jacqueline Mason, Applicants v. Grid Link Corp., 1928025 Ontario Ltd., and Jody Bernst, Respondents

HEARD: February 22, 2023

BEFORE: Fitzpatrick J.

COUNSEL: Nathan Wainwright, for the Sebastiano Foglia Brian Maclvor, for the Respondents

Endorsement on Motion to Convert this Application to an Action

[1] Grid Link Corp., (GL), 1928025 Ontario Ltd and Jody Bernst (Bernst) (collectively the Respondents) bring a motion for:

1. An Order converting this Application into an action, wherein the Applicant, Sebastiano Foglia shall be the Plaintiff and the Respondents, Grid Link Corp., 1928025 Ontario Ltd. and Jody Bernst shall be the Defendants; and
2. An Order that Sebastiano Foglia shall have 30 days to file and serve a Statement of Claim in relation thereto;

Background

[2] I have been case managing this matter since it was commenced in July 2020. In January 2021, the Respondents brought a motion to strike the application. It was refused (Foglia v. Grid Link Corp., et al, 2021 ONSC 703). In that decision I set out the background of the dispute in this matter at paragraphs 2 to 4 which I repeat here for ease of reference.

[2] GL is a full-service utility contractor that services major public and private infrastructure projects, including electrical transmission and distribution systems, oil and and natural gas pipelines, and railroads. Bernst is the owner of the majority equity interest in GL. Sebastiano Foglia (Foglia) and Jacqueline Mason (Mason) are minority shareholders of the Respondent 1928025 Ontario Ltd. (hereinafter "192"). 192 is a holding company that owns a minority equity interest in GL.

[3] Bernst owns 70% of the issued and outstanding common shares in the capital of GL. 192 owns 30% of the common shares of GL. Neither of the Applicants owns, or has owned, any shares in the capital of GL. Foglia is a former employee of GL. Mason is the wife of a former employee of GL who held a senior management position. Mason is a passive investor.

[4] Foglia and Mason have commenced this matter by way of a Notice of Application. In substance, the Notice of Application alleges the misappropriation of GL's corporate funds by Bernst for his personal benefit and seeks various oppression remedy orders pursuant to s. 248 of the Business Corporations Act, R.S.O. 1990, c. B.16, as amended (the "OBCA").

[3] Mason is no longer a party to this application. The parties will amend the style of cause in this matter in due course.

[4] In my role as case management judge, I also gave what I perceived to be clear directions to the parties as to the conduct of this application. These comments were contained at paragraphs 11, 12 and in particular at paragraph 29 of the Foglia decision referred to above.

[5] Apparently, those directions have not been sufficiently persuasive to the parties to have them focus their efforts on moving forward in an efficient manner. The parties had a March 10, 2022, case management conference before me. The endorsement from that attendance gave directions with respect to procedure for this motion. Apparently, it has taken the better part of a year to schedule this attendance. I recognize this is not unheard of in other places in the Province. Such a long time out is a relatively new phenomenon in the Northwest.

[6] Looming in the background of this matter is an action under Court File CV-20-0440-00, Grid Link Corp. v Sebastiano Foglia, Daniel Mason, Ian Michael Staal, Staal Irrigation Incorporated and Staal Utility Inc. I am advised counsel for the parties opposing each other in that case are the same as those of the opposing parties in this matter. Among other things, the statement of claim seeks over $11 million dollars in damages against all defendants for breach of fiduciary duties, breach of duties of confidence, good faith and fidelity, intentional interference with economic and contractual relations, conspiracy, conversion of intangible property and unjust enrichment.

[7] No defence has been served to date.

[8] Counsel advised that the defendants are moving to strike the entire claim on a half day attendance before me scheduled on March 22, 2023.

[9] As far as this application goes the parties have not conducted cross examinations of the affidavits served to date.

Disposition

[10] The Respondents seek a procedural remedy on this motion. Procedure is the servant of outcome. A request for a procedural remedy cannot be properly assessed without regard for how it will move the matter towards an outcome. In this matter I see both parties as seeking the same ultimate outcome; a sale of Foglia’s shares. This is a typical result of much OBCA based litigation where minority share positions in privately and closely held companies are at issue. This litigation also has a history. It is three years old. It is time to get a move on.

[11] I appreciate the Respondents argument that it appears from the material and the conduct to date, that many material facts are in dispute between these parties. This would militate in favour of granting the relief requested by the Respondents. However, in my view the matter is not that simple.

[12] Foglia is clear that his ultimate goal in this proceeding is to obtain a sale of his 6% indirect minority shareholding interest in GL. Foglia submits this too is the ultimate outcome of this litigation desired by the Respondents.

[13] Foglia points out several statements made in the affidavit material filed to date by the principal of GL, Bernst. At paragraphs 12 and 74 of Bernst’s affidavit of February 7, 2022 he says:

12. Sebastian is currently the General Manager of Staal, with primary responsibility for obtaining and managing the same work opportunities with the same clients on behalf of Staal that he was responsible for at Grid Link. Given that Sebastian's current role at Staal is in direct competition with Grid Link, I want him held accountable for the damages he has caused by his improprieties, but I also want any connection that Sebastian has to Grid Link severed, including his indirect minority equity interest. I disagree with Sebastian's allegations that my actions have violated any of his expectations as an indirect shareholder of Grid Link given that he was aware of Grid Link's well-understood and unwritten policy of providing perquisites to key employees, of which he himself was a primary beneficiary thereof, and I further disagree with any allegations that my actions have been oppressive or unfairly prejudicial to, or have unfairly disregarded his indirect equity interest in, Grid Link. However, I agree that Sebastian must eventually dispose of his indirect shareholdings. (emphasis added)

13. As of the date hereof, Sebastian is the sole remaining minority shareholder of EmployeeCo. As indicated above, I do not wish for Sebastian to remain a shareholder of EmployeeCo any more than he does and I agree that he must divest his interest at some point. But any valuation of Sebastian's shares, and the date or dates at which those shares should equitably be valued, will require consideration of the millions of dollars of annually recurring revenue and business opportunities that Grid Link lost from its long-standing clients as a result of Sebastian assisting Staal to acquire contracts with Grid Link's primary clients of its Pipeline Division and Railway Division, and Sebastian's actions will also be relevant to any remedy considered in this Application.(emphasis added)

[14] In another affidavit of May 13, 2022 at paragraph Bernst states;

28. Sebastian should at some point dispose of his indirect shareholdings in the equity of Grid Link, but it should not occur as a result of a compelled sale in a fabricated oppression proceedings designed to be isolated from his gross misconduct and the grievous harm he has caused to Grid Link and its share value. A full and complete hearing of the material facts and issues will, I strongly believe, result in: (a) oppression relief being found to be not available to Sebastian; and (b) Sebastian's misconduct generating damages in favour of Grid Link far beyond the value of his indirect shareholdings in the equity of Grid Link. (emphasis added)

[15] In my view, based on a review of this evidence I find the ultimate goal of both sides of this dispute is to adjudicate the question of how much, if anything, Foglia should be paid for his shareholdings. The relief requested in the immediate motion will not move the parties forward toward that goal in the near term. Ultimately resolution of the dispute likely will involve a trial with vive voce evidence in some form. However, “the old way” of simply setting the matter down and expecting the court to accommodate a long and unfocused civil trial or application hearing is an untenable approach in the present circumstances in which we find ourselves in the Northwest Region.

[16] I have discussed these circumstances with counsel. They are well known to the bar in Thunder Bay.

[17] This matter has been granted what I perceive to be a realistic and fair degree of attention since it was commenced in the beginning of the pandemic. Results have not been encouraging to date.

[18] In keeping with the general principle enunciated by Rule 1.04(1) of the Rules of Civil Procedure, and the equitable and remedial nature of provisions of the OBCA under which this application is brought, I am going to adjourn this motion to a subsequent date to be scheduled only with leave from myself acting as case manager or such other judge as may be appointed to this file by the Northwest Regional Senior Justice. Costs of today are reserved to the ultimate day the motion is returned for hearing.

[19] In the meantime, I order that the Respondents or any of them, shall purchase all of Foglia’s shares in 1928025 Ontario Ltd. (the Shares). This is the ultimate outcome both parties want in this litigation. This is where this matter is ultimately going to land. I want to make a procedural order now to move this case towards that outcome as efficiently and quickly as possible. If a formal order is necessary for any purpose, counsel for Foglia will draft same for approval by counsel for the Respondents and then signature by me.

[20] In aid of that order, I am going to direct that Foglia and the Respondents take the following steps in accordance with the following timetable;

1. On or before April 28, 2023, all parties shall retain and exchanges the names of any and all experts that will be relied upon by that party necessary to provide the Court with opinion evidence as to the value of the Shares when the issues of value, and valuation date of the Shares are adjudicated;
2. On or before June 30, 2023, Foglia is to provide the Respondents with a detailed list of any and all financial documentation required, including the date range for such documentation for his expert(s) to prepare an expert opinion evidence report(s) with respect to the value of the Shares;
3. On or before September 1, 2023 the Respondents are to provide an organized, indexed, paginated and tabbed document brief of the documents requested pursuant to this order to Foglia’s counsel in pdf format;
4. On or before November 3, 2023 Foglia is to provide the Respondents with a valuation date he will be proposing at any settlement or adjudication of the question of value of the Shares;
5. On or before December 15, 2023 Foglia will provide the Respondents with an expert opinion of value of the Shares;
6. On or before January 26, 2024 counsel will arrange a case conference where all experts of the parties will be present to discuss steps necessary for the Respondents to provide their expert reports. This meeting will be in the nature of what is colloquially known as a “hot tubbing session”. Also, at that conference the parties will discuss how adjudication of the question of the value of the Shares is to proceed and proposed dates for that adjudication. This motion will likely be given leave at that point to continue if the issue of action or application has not been agreed by that stage. Parties can expect a new timetable for new steps will be imposed at that time;
7. Either of the parties may convene a 30 minute case conference with Fitzpatrick J. as necessary and at any time to discuss any issues arising from the requirements imposed by the above timetable. The scheduling of the conference is not to be seen as an opportunity to delay, relitigate or avoid obligations required under this timetable.

[21] The majority of the work in this directed timetable falls to Foglia. This is because it is his application. I appreciate the Respondents’ approach to value includes set off or discount or some kind of accounting of alleged damages they blame on Foglia. This is an issue to be decided at a later date and in my view should not interfere with the steps outlined above. The Respondents’ action in that regard may end up dismissed as the result of the March 22, 2023 motion. If it does not, all parties to that action can expect to be subjected to a timetable that will have documentary production and discoveries completed in the CV-20-0440-00 file by the time that the “hot tub” meeting with the experts will be arranged for late 2023/early 2024 in this matter. Also, the issue of whether the deemed undertaking of Rule 30.1.01 of the Rules of Civil Procedure may be waived in the CV-20-0440-00 action (at least in respect of the Respondents and Foglia) should be canvassed at the March 22, 2023 attendance in the event the motion to dismiss is unsuccessful.

[22] One of the objectives in all of this is to have the parties flesh out the extent of the claim in the CV-20-0440-00 action so a more realistic assessment can be made about whether it will require that $11 million dollar claim to be consolidated with the present litigation and what part if any, those claims may play in an exercise of adjudicating the value of the shares.

[23] I thank counsel for their patience in making their submissions on this matter and attempting to reach a consent order prior to making their final submissions on this motion.

“original signed by” The Hon. Mr. Justice F.B. Fitzpatrick DATE: February 23, 2023