COURT FILE NO.: CV-20-00000820-0000 DATE: 2023 05 11

ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

John Howard Society of Peel-Halton-Dufferin Plaintiffs

Evan Moore, for the Plaintiff

- and -

Darren Pennock, Nancie Parker a.k.a. Nancie Lukasik a.k.a. Nancie Lukasik-Parker, Derusha Law Firm, Morgan Anderson Phillips LLP and Fader Furlan Moss LLP Defendants

Adil Habib, for the Defendants

HEARD: April 20, 2023, via videoconference

Reasons for Judgment

DALEY J.

[1] The plaintiff moved for default judgment against the defendants Darren Pennock, Nancie Parker, a.k.a. Nancie Lukasik, a.k.a. Nancie Lukasik-Parker (the “Defendants”) in accordance with the terms of the amended statement of claim, dated May 12, 2021.

[2] Alternatively, the plaintiff moved for judgment on the terms of the settlement agreement reached with the Defendants in September 2022.

[3] The Defendants’ statement of defence was struck pursuant to the order of Justice Doi dated June 13, 2022. Notably, the defendants consented to this order striking out their statements of defence.

[4] No relief is sought by the plaintiff in respect of any other defendants named in this action.

[5] Although the Defendants were noted in default, counsel appeared on their behalf on the return of this motion on a watching brief only and did not seek to make any submissions.

Evidentiary Record

[6] Given that the Defendants’ statement of defence was struck out, on consent, they are deemed to have admitted all the facts asserted against them in this action. However, given the nature of the claims being asserted, it must still be proven that the breaches alleged as against the Defendants formed a evidentiary foundation for the legal relief sought by the plaintiff.

[7] The plaintiff is a not-for-profit organization with its headquarters in Brampton, Ontario. The plaintiff provides crime reduction and reform services in the Peel, Halton and Dufferin Regions.

[8] The Defendants are husband and wife and reside at 3018 Kilbride Court, Mississauga, a property they purchased together during this litigation.

[9] The plaintiff is managed by a volunteer board of directors along with a small complement of paid staff. The funding for the plaintiff’s operations is received from a combination of government grants and private donations.

[10] The Defendant Pennock joined the plaintiff’s board of directors as a volunteer member in 2005 and he later became the president of the board. In December 2012 Pennock was hired by the plaintiff for the position of Executive Director.

[11] Pennock’s employment with the plaintiff was covered by an employment contract and section 7 of that contract provided that the position of Executive Director was a fiduciary position with the plaintiff charitable organization.

[12] As the Executive Director, Pennock was responsible for an annual budget of $3 million and he manage the day-to-day operations of the plaintiff and reported only to the board of directors.

[13] As set out in detail in the evidentiary record filed on this motion, the Defendant Pennock was provided with a corporate Bank of Montréal MasterCard credit card in the name of the plaintiff. In the course of carrying out his fiduciary duties on behalf of the plaintiff, from time-to-time, Pennock would use his personal credit cards for purchases and then seek reimbursement from the plaintiff on the basis that the expense incurred was a proper expense for the organization.

[14] It was discovered by the Chief Operating Officer of the plaintiff that Pennock had filed numerous expense claims that were determined to be fraudulent.

[15] Following a further investigation of Pennock’s dishonest conduct, he was advised on September 18, 2019, that his position with the plaintiff was being terminated for cause effective immediately. During a meeting held where Pennock’s employment was terminated, he acknowledged his misuse of credit card facilities, apologized and offered to make restitution.

[16] With the assistance of a fraud and forensic accounting litigation services firm, a thorough accounting review of the plaintiff’s business operations was conducted resulting in a report dated February 25, 2020, wherein additional fraudulent and unauthorized expenses were identified as well as instances where Pennock falsified invoices and created fake documents in order to create the impression that the charges were valid for the purposes of the plaintiff. It was also determined that he forged signatures of board members on expense claims and that he falsified and forged documents in order to pass off the expense claims is valid.

[17] Further, the investigation also disclosed that Pennock made charges on his corporate credit card for alleged legal fees in relation to three separate law firms which are named as party defendants in this action, all of which were found to be fraudulent. None of the identified defendant law firms had issued accounts to the plaintiff or Pennock and all documentation relating to the alleged expenses incurred with these law firms was fraudulently manufactured by Pennock without the law firms’ knowledge or involvement in any way.

[18] The accounting review disclosed further fraudulent activity by Pennock including the charging of personal travel, meals and entertainment expenses in the sum of $159,375.89 to the plaintiff corporation, when none of these expenses were related to or were incurred on behalf of the plaintiff. All these expenses were solely for the benefit of the Defendants.

[19] In order to disguise and hide these fraudulent expenses, Pennock created fraudulent board of directors’ meeting minutes as outlined in detail in the evidentiary record submitted.

[20] Pennock further unlawfully and fraudulently purchased gift cards in the approximate value of $45,395.61, as well as electronics and other assets totaling $63,895.87.

[21] On February 27, 2020, the plaintiff obtained an order for a Mareva injunction, followed by a further order on March 9, 2020, continuing that injunction order, which the Defendants did not oppose.

[22] On October 19, 2021, Pennock was charged with the following offences: (a) fraud over $5000; (b) breach of trust; and (c) six counts of uttering of forged documents. There is no evidence as to the outcome of those charges.

[23] Pursuant to a consent order dated November 1, 2020, as agreed to by the Defendants, and the plaintiff, all parties represented by counsel, the Defendants’ statements of defence were both struck, and they were ordered to pay the costs of the motion.

[24] Following the order striking their statements of defence, the Defendants entered into a settlement agreement with the plaintiff whereby both Defendants agreed to pay to the plaintiff the sum of $352,045.00, with at least the sum of $150,000 of that amount to be paid to the plaintiff on November 30, 2022. However, the Defendants paid only $100,000 towards the settlement and thus they were in breach of the terms of the settlement agreement.

[25] The Defendants also agreed to pay the balance of the total settlement over time, and in accordance with the agreement reached, they were to provide to the plaintiff security in the form of a second mortgage on their home in order to secure the balance of the settlement monies to be paid by them. Rather than providing a second mortgage, as had been agreed to, the Defendants produced to the plaintiff a mortgage commitment for a third mortgage, in further breach of the settlement agreement.

The Motion & Analysis

[26] The governing principles for a rule 19.05 default judgment motion were carefully considered by Brown J (as he then was) in Elekta Ltd. v. Rodkin, 2012 ONSC 2062, at para 14, where he stated that on a motion for default judgment the inquiry undertaken by the court is the following: (i) What deemed admissions of fact flow from the facts pleaded in the statement of claim?; (ii) Do those deemed admissions of fact entitled the plaintiffs, as a matter of law, to judgment on the claim?; and (iii) If they do not, has the plaintiff adduced admissible evidence which, when combined with the deemed admissions, entitles it to judgment on the pleaded claim?

[27] The plaintiff moved for judgment against the Defendants in accordance with the amended statement of claim, also seeking punitive and exemplary damages and an order of the court that any judgment granted against the Defendants would survive the bankruptcy of either defendant. Alternately, the plaintiff seeks judgment in accordance with the settlement entered into by the parties.

[28] Having considered the very detailed, substantial and uncontradicted evidence as to the conduct of the Defendants, the deemed admissions and the details of the loss occasioned by their breaches, I have concluded that the plaintiff is entitled to recover judgment in accordance with the amended statement of claim for damages from the Defendants as set out in the draft judgment filed in respect of the principal amount of $327,045.00, which after the payment of $100,000 made is deducted, and prejudgment interest is added at the appropriate rates, in a total judgment amount of $239,388.50 inclusive of prejudgment interest up to and including April 20, 2023.

[29] Thus, judgment is being granted based on the deemed admissions and the evidentiary record adduced and not based on the settlement reached by these parties, which the Defendants breached.

[30] As to the liability of the defendant Nancie Parker, as named, and the other names which she has used, as set out in the title of proceedings, apart from the deemed admissions resulting from the striking of her statement of defence, I am satisfied that she is liable to the plaintiff on several basis including (1) knowing assistance of a breach of trust and fiduciary duty; (2) by way of willful blindness as to the fiduciary’s fraudulent and dishonest conduct; and (3) unjust enrichment.

[31] It is notable that Nancie Parker consented to the striking of her statement defence while represented by counsel, when the amended statement of claim alleged conduct giving rise to her liability in favour of the plaintiff for the specific wrongdoing and causes of action as outlined above.

[32] The elements of the cause of action of knowing assistance include: (a) an existing fiduciary duty; (b) a fraudulent and dishonest breach of the fiduciary duty; (c) actual knowledge of the fiduciary’s fraudulent and dishonest conduct and (d) participation by or assistance of the “stranger” in the fiduciary’s fraudulent and dishonest conduct: Caja Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu Binacional v. Obregon, 2020 ONCA 412.

[33] The uncontradicted evidence in respect of the Defendants and specifically in respect of the defendant Nancie Parker supports a finding of liability in respect of that Defendant grounded on her knowing assistance with respect to the co-defendant Pennock’s conduct by way of both his breach of trust and his breach of fiduciary duty.

[34] The evidence supports a finding that the defendant Pennock had a fiduciary duty and that he fraudulently and dishonestly breached that duty and that Nancie Parker had actual knowledge of the fraudulent and dishonest conduct and that she participated in or gave assistance, as a stranger, to the fiduciary in carrying out the fraudulent and dishonest conduct.

[35] I find that Nancie Parker participated in the unlawful and fraudulent conduct and breach of fiduciary duty when she received the benefit of the misappropriated funds from the plaintiff. Legal fees were paid on her behalf using funds fraudulently taken from the plaintiff. Furthermore, she traveled on European and Caribbean trips purchased using funds fraudulently taken from the plaintiff and as well she received gifts and household items purchased with the misappropriated funds.

[36] In the alternative to having actual knowledge as to the misappropriations and defalcations committed by Pennock, the evidence also supports a finding that Nancie Parker’s actual knowledge is established by her willful blindness. Willful blindness can be used to establish actual knowledge of the fiduciary’s fraudulent and dishonest conduct in circumstances where: (a) the circumstances are such that they would arouse the suspicions of a reasonable and honest person such that they are sufficient to raise a duty to inquire; and (b) someone in that person’s position chose to remain deliberately ignorant to the knowledge that the inquiry would reveal.

[37] As was pleaded in the amended statement of claim and as now stands as an admission of fact, the defendant Nancie Parker knew that Pennock’s salary did not support the lifestyle and expenses he was incurring on their behalf. That knowledge raised the duty to inquire, which she either did, and thereby had actual knowledge of the fraud or did not, thereby remaining fully blind to the fraud.

[38] Furthermore, I find that Nancie Parker was unjustly enriched when she received the personal benefit of funds misappropriated from the plaintiff. There was no juristic reason for this benefit, which deprived plaintiff of resources necessary to fund its programs.

[39] I therefore find that Nancie Parker is jointly and severally liable with her co-defendant Pennock for the damages set out above.

[40] The plaintiff seeks punitive damages from the defendant Pennock only based on his breach of fiduciary duty.

[41] On a motion for default judgment the court has jurisdiction to make an award of punitive damages in the event the combination of the deemed admissions and the evidentiary record support such an award: Barrick Gold Corp. v. Lopehandia.

[42] The defendant Pennock’s employment contract, which is contained in the evidentiary record, provided in Section 10 that he was appointed to a fiduciary position and in executing the contract he agreed to abide by the following duties:

Section 10: Your position with the John Howard Society Peel-Halton-Dufferin is a fiduciary one. Accordingly, you owe the John Howard Society Peel-Halton-Dufferin all fiduciary obligations that are recognized by law.

[43] As to Pennock’s fiduciary duty, and its breach, it has been held that such a duty has certain characteristics namely:

(a) There must be an undertaking by the fiduciary, express or implied, to act in accordance with the duty of loyalty imposed on him or her. That undertaking may be found in the relationship between the parties.

(b) The duty must be owed to a defined person or class of persons who must be vulnerable to the fiduciary in the sense that the fiduciary has a discretionary power over them.

(c) The claimant must show that the alleged fiduciary’s power may affect the legal or substantial practical interests of the beneficiary.

See: Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 SCR 261 at paras. 30 – 36; 6071376 Canada Inc. v. 3966305 Canada Inc., 2019 ONSC 3947, 147 OR (3d) 564.

[44] I have concluded that based on the evidentiary record adduced, the plaintiff has addressed and established that the fraudulent conduct of defendant Pennock is captured by all these considerations and that the plaintiff has thereby made out a case grounding a finding of a breach of fiduciary duty by the Defendant Pennock.

[45] Before considering whether the defendant Pennock’s conduct rises to the level that would warrant an award of punitive damages, I have examined the factors discussed by Binnie J in Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 SCR 595 at para 94 and I am satisfied that this is an appropriate case for an award of punitive damages.

[46] In coming to this conclusion, I find that Pennock’s conduct was high-handed, malicious, and highly reprehensible, particularly given the clear evidence that he breached his fiduciary duty as set out in his contract of employment, he committed multiple acts of fraud and deception thereby depriving the plaintiff organization of a very substantial sum of money, which is funded by tax dollars collected by the government and as well through charitable donations. The mandate of the plaintiff organization is to provide services with respect to crime reduction and criminal reform all of which ultimately benefit the public at large.

[47] As to the quantification of a proper award of punitive damages, the court in Midwest Amusement Park, LLC v. Cameron Motorsports Inc., 2018 ONSC 4549, [2018] O.J. No. 4024 at para 103 stated as follows:

It follows from Justice Binnie’s remarks that an assessment of punitive damages requires an appreciation of: (a) the degree of misconduct; (b) the amount of harm caused; (c) the availability of other remedies; (d) the quantification of compensatory damages; and (e) the adequacy of compensatory damages to achieve the objectives of retribution, deterrence, and enunciation. These factors must be known to ensure that punitive damages are rational and to ensure that the amount of punitive damages is not greater than necessary to accomplish their purposes.

[48] The financial harm caused to the plaintiff is in the amount of $327,045.00, of which the Defendants have repaid to the plaintiff the sum of $100,000, in partial compliance with the settlement but had been reached with them, leaving a balance outstanding of $239,388.50, which sum is inclusive of prejudgment interest.

[49] While for the defendant Pennock has been charged with the criminal offences referenced above, there is no evidence as to the status of those charges and whether a compensation order would be made within the context of the criminal proceedings and further whether that Defendant has the means to repay the net judgment amount currently outstanding exclusive of interest. Thus, there is no evidence of any other remedy available to allow for recovery of the stolen funds.

[50] Furthermore, the repayment by the Defendants of the stolen funds would not achieve the objectives of retribution, deterrence and denunciation and thus I have concluded that those objectives must be addressed through an award of punitive damages.

[51] In the court’s decision in Gennett Lumber Company v. John Doe a.k.a. Milton Harvey et al., 2019 ONSC 1345 at paras 38 – 51, Sossin J (as he then was) thoroughly reviewed all the considerations to be examined in determining a proper award for punitive damages. I have considered those remarks and have concluded that although the plaintiff seeks an award of $250,000 for punitive damages, I find that the sum of $35,000 is justified in the circumstances of Pennock’s breach of fiduciary duty and fraudulent conduct which significantly harmed the plaintiff taxpayer-funded and charitable organization. In reaching this conclusion as to the award of punitive damages, I have considered the detailed analysis of how the court should proceed in assessing punitive damages as outlined by Brown J in Elekta at paras 24-31.

[52] I have determined that the award of punitive damages must reflect the finding that Pennock’s conduct including fraud and breach of fiduciary duty directly harmed a not-for- profit organization, whose financial resources come from tax dollars and charitable donations. This is not simply a case of fraud committed against a for-profit corporation. The harm extended to the public and not just to shareholder investors.

[53] Pursuant to section 178 of the Bankruptcy and Insolvency Act, RSC 1985, c B-3, ss 178(1)(d) and (e), debts arising from fraud or breach of fiduciary duty are not discharged by reason of bankruptcy: Bankruptcy and Insolvency Act, RSC 1985, c B – 3 at ss 178 (1) (d) and (e). On a motion for default judgment for damages arising from fraudulent conduct, the court may order that the judgment survive the bankruptcy of a judgment debtor: PCNIX Inc. v. Tecpartner Inc., 2023 ONSC 2663.

[54] For the reasons outlined above, I have concluded that the Defendants’ liabilities to the plaintiff arise from acts of fraud and breach of fiduciary duties and as such it is ordered that, in the event they are ever in a state of bankruptcy, the judgment to issue in accordance with these reasons shall survive any present or future bankruptcy proceeding in respect of either of the Defendants.

Conclusion

[55] In the result the plaintiff shall have judgment in the following terms:

(i) Judgment against both the Defendants in the net sum of $239,388.50, which amount is inclusive of prejudgment interest up to and including April 20, 2023.

(ii) A declaration that the judgment granted against the Defendants, Darren Pennock and Nancie Parker a.k.a. Nancie Lukasik a.k.a. Nancie Lukasik-Parker shall survive any present or future bankruptcy proceeding, made by the said Defendants, in accordance with section 178 (1) (e) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B – 3, as amended.

(iii) Judgment in favor of the plaintiff against the defendant Darren Pennock alone for punitive damages in the sum of $35,000.

(iv) Costs payable by both Defendants, jointly and severally, in the sum of $47,944.49, that amount being the actual costs incurred in prosecuting this action and the present motion. Having considered the detailed bill of costs submitted by counsel for the plaintiff, the time reasonably spent, and disbursements incurred and taking into account that the Defendants have been found liable to the plaintiff under several causes of action including fraud and breach of fiduciary duty, I have determined that an award of actual costs incurred is appropriate.

[56] A judgment shall issue in accordance with these reasons and as per the draft judgment filed.

Daley J. Released: May 11, 2023