Ziegelmaier v. Fisher et al., 2023 ONSC 4191

KINGSTON COURT FILE NO.: CV-18-328 DATE: 2023/07/17

ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

Rene Ziegelmaier Applicant – and – Casey Fisher, Wolfe Island Spring Craft Brewery Inc., 1949419 Ontario Limited, Wolfe Island Spring Inc., Wolfe Island Craft Brewery Inc. and Frontenac Community Futures Development Corporation Respondents

Counsel: Jacques Portela, counsel for the Applicant Michael J. Pretsell, Counsel for the Respondents, Casey Fisher, Wolfe Island Spring Craft Brewery Inc., 1949419 Ontario Limited, Wolfe Island Spring Inc., Wolfe Island Craft Brewery Inc. Avi Sharabi, Counsel for the Respondent, Frontenac Community Futures Development Corporation

HEARD: October 19-21, 2022 (by videoconference)

REASONS FOR DECISION

Corthorn J.

Introduction

1In the spring of 2016, Rene Ziegelmaier (“Ziegelmaier”) and Casey Fisher (“Fisher”) joined forces to pursue a microbrewery business on Wolfe Island, a short ferry ride from Kingston, Ontario. Fisher was already established in the restaurant business. He had an ownership interest in two restaurants in the Kingston area, including one on Wolfe Island. Ziegelmaier had recently emigrated to North America from Brazil. Ziegelmaier attended a seven-month apprenticeship program in brewing in Vermont. He completed the program in December 2015.

2Ziegelmaier and Fisher met in the fall of 2015. In 2016, the two men incorporated three companies to facilitate the pursuit of their microbrewery venture (“the Corporations”). The Corporations are respondents in this proceeding. Ziegelmaier and Fisher are each 50 per cent shareholders in, the sole directors of, and officers of the Corporations.

3In the fall of 2016, one of the Corporations obtained loans totalling $250,000 from the Frontenac Community Futures Development Corporation (“Frontenac”). The loans were to assist in the start up of the microbrewery business. Frontenac required the corporate borrower, Ziegelmaier and Fisher to enter into a General Security Agreement. As security for the loans, Frontenac registered a collateral mortgage against the Wolfe Island property owned by one of Fisher’s numbered companies (“Landco”).

4Also in the fall of 2016, another of the Corporations purchased a commercial building on Wolfe Island, out of which the microbrewery business was to be run. Each of Ziegelmaier and Fisher personally contributed funds towards the purchase of the property – $50,000 and $20,000 respectively. A vendor take-back mortgage in the amount of $280,000 was held by the previous owner of the property.

5Ziegelmaier and Fisher disagree about the degree of success achieved by the microbrewery business and how their business relationship broke down during the 1.5 years they remained in business together. The two men agree that, in April 2018, Fisher took steps to bring their business relationship to an end. Fisher acknowledges that in late April 2018, he changed the locks on the microbrewery building and he locked Ziegelmaier out of the bank accounts for the Corporations.

6Fisher was concerned that Frontenac would rely on the collateral mortgage to enforce the General Security Agreement. In the spring of 2019, Fisher approached Frontenac with a proposal to restructure the existing debt. The restructuring was carried out, with the end result being that,

• the amount then owing on the original loans ($225,700) effectively became a debt owed by a new company incorporated by Fisher (“Newco”);
• all of Frontenac’s rights related to the original loans were assigned to Newco – with the exception of Frontenac’s rights under the collateral mortgage; and
• the remaining security was held by Newco against one of the Corporations (“Brewco”, as defined below).

7As of October 2022, when the parties were before the court, Newco had not taken any steps against Brewco to enforce the security Newco now holds.

8On the application before the court, Ziegelmaier seeks relief under the oppression remedy provisions of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”). Ziegelmaier alleges that Fisher engaged in a campaign to force Ziegelmaier out of the microbrewery venture. Ziegelmaier alleges that the campaign and the oppressive conduct culminated in April 2018 when he was locked out of the microbrewery premises and the corporate bank accounts.

9Fisher denies that he engaged in oppressive conduct either personally or on behalf of any the Corporations. Fisher’s position is that Ziegelmaier’s expectations about the business venture were not realistic. Fisher submits that his conduct, including in April 2018, (a) was in the best interests of the Corporations, and (b) falls within the range of reasonable alternative steps available to him and to the Corporations at the time.

10At this stage of the proceeding, the parties ask the court to determine whether Fisher, personally and on behalf of the Corporations, engaged in oppressive conduct.

Background

a) The Individual Parties

11Ziegelmaier was born and raised in Brazil. His education includes an information technology degree, obtained from the Mackenzie (American) University. While still in Brazil, Ziegelmaier worked for General Motors for several years. He also worked part-time in a brewery.

12In 2015, Ziegelmaier’s then wife began a graduate level program at the University of Waterloo. Ziegelmaier was interested in joining his wife in North America. As a result of his part-time work in a brewery in Brazil, Ziegelmaier was interested in the beer industry. He registered for the seven-month craft brewer’s apprenticeship program at the American Brewer’s Guild in Middlebury, Vermont. As part of that program, Ziegelmaier completed a two-month internship at a brewery in Boston, Massachusetts.

13In the fall of 2015, Ziegelmaier attended a craft brewer’s conference in Toronto, Ontario. While attending the conference, Ziegelmaier met Ann Prichard, Frontenac’s Director. It was ultimately through Prichard that Ziegelmaier was introduced to Fisher.

14Prior to meeting Ziegelmaier, Fisher had established two restaurants. In 2009, Fisher opened The Mansion in Kingston. Fisher is the majority shareholder and President of the corporation which owns that restaurant. He is also the General Manager of The Mansion. In the fall of 2012, Fisher opened the Wolfe Island Grill. He is the President and sole shareholder of the corporation which owns that restaurant. Fisher was continuing to operate both restaurants when he met Ziegelmaier.

15Before meeting Ziegelmaier, Fisher had been investigating opening a brewery on Wolfe Island. He had approached Frontenac for potential financial assistance and was aware of the property ultimately purchased for the brewery venture with Ziegelmaier. Fisher wanted to establish a brewery so that he could supply beer to his restaurants.

b) The Corporations

16Listed below are the Corporations and the two Fisher corporations involved in the original and restructured indebtedness to Frontenac, respectively:

• Wolfe Island Spring Craft Brewery Inc. (“Brewco”) – this corporation carried on business as Wolfe Island Spring Craft Brewery (“the Brewery”);
• Wolfe Island Spring Inc. – it was intended that this corporation would operate a spring water and, eventually, a cidery business. Neither the spring water nor the cidery business ever got off the ground;
• 1949419 Ontario Limited (“194 Ontario”) – the corporation used by Ziegelmaier and Fisher to purchase the Wolfe Island property on which the Brewery is located;
• Wolfe Island Craft Brewery Inc., a corporation created by Fisher to facilitate the debt restructuring with Frontenac in 2019 (“Newco”); and
• 1856173 Ontario Ltd., a corporation solely owned by Fisher and through which title is held to the property on which the Wolfe Island Grill is located (“Landco”).

17Next, I will provide an overview of the record.

c) The Evidence

18The evidence includes the six affidavits listed below:

• October 17, 2018 Ziegelmaier affidavit
  • 61 paragraphs
  • Exhibits “A” to “K”
• December 14, 2018 Fisher affidavit
  • 85 paragraphs
  • Exhibits “A” to “C”
• August 2, 2019 Ziegelmaier reply affidavit
  • 74 paragraphs
  • Exhibits “A” to “Z”, “AA”, and “AB”
• September 11, 2019 Ziegelmaier affidavit filed on the applicant’s motion to amend the notice of application (adding Wolfe Island Craft Brewery Inc. and Frontenac as respondents)
  • 12 paragraphs
  • Exhibits “A” to “G”
• September 18, 2019 Ziegelmaier supplementary affidavit
  • 1 paragraph
  • Exhibits “A” to “G”
• May 20, 2021 Prichard affidavit
  • 26 paragraphs
  • Exhibit “A”

19Fisher also sought to rely on certain corporate financial statements that were prepared subsequent to the exchange of affidavits. Fisher intended that his request to do so be determined as a preliminary motion on the hearing of this stage of the application.

20I reviewed with counsel my concerns about (a) the quality of the evidence filed in support of Fisher’s preliminary motion, and (b) what appeared to be the lack of relevance of the corporate financial statements to the narrow issue of oppression. The corporate financial statements upon which Fisher was seeking to rely are for financial years which post-date the years in which the oppressive conduct is alleged to have occurred. Fisher’s preliminary motion was adjourned, to be pursued at a later date and on better evidence.

21Ziegelmaier was not cross-examined on any of his affidavits. In early July 2021, both Fisher and Prichard were cross-examined on their respective single affidavits. The transcripts from the cross-examinations are 285 and 88 pages, respectively.

22The number of pages in the record is well-into the four-digits. The size of the record, by number of pages alone, does not preclude the court from determining the single issue before it at this time. Consideration must be given to the substantive content of the record.

Disposition

23For the reasons set out below, (a) the application as against Frontenac is dismissed and (b) the balance of the application is, in its entirety, converted to an action. It is not possible, on the record before the court, for a judge to properly determine even the narrow issue of oppressive conduct.

The Law – Conversion of an Application to an Action

24Pursuant to r. 38.10(1) (a) and (b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, a judge presiding on an application has the discretion to grant several alternative forms of relief. Rule 38.10(1)(b) gives the presiding judge the discretion to “order that the whole application or any issue proceed to trial and give such directions as are just.”

25At the outset of the hearing, the court was informed that Ziegelmaier opposes the conversion of the application, in whole or in part, to an action. Regardless, all parties agreed that it is open to the court to either (a) convert the entire application to an action, or (b) determine the narrow issue of oppressive conduct and convert the balance of the proceeding to an action.

26Three facta were filed on the application – one from each of Ziegelmaier and Frontenac and the third from all respondents other than Frontenac. I refer to the respondents, other than Frontenac, collectively as “the Respondents”.

27Not one of the three facta complies with the requirements of Rule 4 regarding the format of court documents. I make that point because double-spacing is not used, resulting in the facta containing more content than would be before the court had the parties complied with Rule 4. The point is, that the parties more than maximized the substantive content of their respective facta.

28Despite more than maximizing the content of their respective facta, neither Ziegelmaier nor the Respondents address in their facta (a) the significant number of factual disputes; and (b) the findings of credibility that are required to determine the single issue of the alleged oppressive conduct.

29In West v. Edson Packaging Machinery Ltd. et al. (1993), 16 O.R. (3d) 24, Cavarzan J. converted an application for an oppression remedy to an action. He did so in part because, “The material before the court [contained] emphatic contradictory evidence challenging the plausibility of the applicants’ case.”: para. 16. Cavarzan J. summarized the evidence before him as follows: “There is a dispute as to material facts, that is to say, facts necessary to a determination of the matter and without which a proper determination cannot be made.”

30The factors to be considered by the court when deciding whether to convert an application to an action were delineated by Firestone J. (as he then was) in Przysuski v. City Optical Holdings Inc., 2013 ONSC 5709, at paras. 5-8. Those factors have been applied in many subsequent decisions of this court.

31For example, at para. 15 of her decision in Fountain Asset Corp. v. First Global Data, 2017 ONSC 4780, 12 C.P.C. (8th) 377, Kristjanson J. summarized the factors in the following way:

(a) An application should be used when there is no matter in dispute and when the issues to be determined do not go beyond the interpretation of a document; (b) A good reason to convert an application into an action is when the judge [who] will hear the matter cannot make a proper determination of the issues on the application record; (c) When issues of credibility are involved[,] the matter should proceed by way of action; (d) Whether material facts are in dispute; (e) The present of complex issues that require expert evidence and/or weighing of the evidence; (f) Whether there is a need for pleadings and discoveries; and (g) The importance and impact of the application and of the relief sought.

32All of the factors listed above are relevant to the matter before this court and favour the conversion of the application, in its entirety, to an action.

Analysis

33I start with the first listed factor and highlight that the matters in dispute go well beyond the interpretation of a document or documents.

34The events upon which Ziegelmaier relies occurred over a period of more than three years – starting in late 2015 and ending with the debt restructuring in 2019. Some of the events which transpired in those years include the execution of documents by Ziegelmaier and/or Fisher, both personally and on behalf of the Respondents. The interpretation of one or more of those documents may be relevant to the determination of some of the issues. The point is that the determination of the issues requires much more than the interpretation of a single document.

35The factors listed at items (b) and (d) of para. 31, above, are related. It is clear from the substantive content of the voluminous record that it would not be possible for any judge to determine the narrow issue of the alleged oppressive conduct and/or any other issues on the basis of the written materials. There are simply too many factual issues in dispute.

36I focus, for the moment, on the issue of the alleged oppressive conduct. The cornerstone of the oppression remedy is the reasonable expectations of the stakeholders: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at para. 61. Ziegelmaier and Fisher disagree as to what the reasonable expectations were from the outset of their relationship and those through to and including the viability of the Brewery, as a business, as of 2018.

37Examples of the disputes about the reasonable expectations at the outset of the business relationship include the following:

• Ziegelmaier’s evidence is that he and Fisher agreed they would rent the property on Wolfe Island. Ziegelmaier alleges that Fisher made a unilateral decision, which he acted upon without Ziegelmaier’s input, for 194 Ontario to purchase the property. Fisher’s evidence is that the plan was always to purchase the property;
• Ziegelmaier’s evidence is that Ziegelmaier and Fisher agreed the former would, unconditionally, be paid a salary of $4,000 per month by Brewco. Fisher’s evidence is that there was no such agreement; the two men agreed they would each begin to take a salary only once the Brewery became profitable (which Fisher asserts it never did).

38In addition, Ziegelmaier and Fisher agree about little, if anything, that happened once the Brewery was up and running. For example, they disagree as to their respective roles in negotiating contracts to sell their beer to the LCBO and The Beer Store. As another example, they disagree about Ziegelmaier’s skill and knowledge as a brew master, the frequency with which batches of beer failed, and Ziegelmaier’s record-keeping as a brew master.

39Ziegelmaier and Fisher disagree about many of the financial aspects of the Brewery. Fisher alleges Ziegelmaier diverted funds from Brewco to himself and removed cash from the register at the Wolfe Island Grill. Ziegelmaier alleges Fisher diverted funds from Brewco to cover personal expenses and/or expenses for his restaurant businesses.

40Fisher describes the Brewery, as of April 2018, as a failing business into which he was no longer prepared to invest either personal funds or income generated from his restaurants. Ziegelmaier acknowledges that Fisher invested more funds (personally or through his businesses) in the Brewery than did Ziegelmaier. He asks the court, however, to consider both his monetary investment and his labour in starting up and continuing the Brewery. Ziegelmaier’s position is that, when his monetary investment is added to the value of his labour, his overall investment is similar to Fisher’s investment in the Brewery.

41It is not possible for the court to consider the business realities of the situation as is required: see BCE Inc., at para. 58. Too many findings of fact, based on emphatically contradictory evidence, are required to determine what the business realities were at the material times. For the same reasons, it is not possible to determine whether the steps taken by Fisher in 2018 and 2019 were within “the range of reasonable alternatives” and, if so, business decisions to be accorded deference: see BCE Inc., at para. 40.

42Because of the significance, nature, and extent of the material facts in dispute, it is not possible, on the written record, to determine Ziegelmaier’s request for a declaration that the Respondents engaged in oppressive conduct.

43I return to the Przysuski list of factors – specifically, item (c) and whether issues of credibility are involved. Based on the number of material facts in dispute, alone, findings of credibility are likely required. Over and above the material facts in dispute, each of the two men accuses the other of misappropriating funds from Brewco. Such accusations or allegations give rise to the requirement to make findings of credibility.

44As a result of the allegations of misappropriation of funds, one or both of the parties may seek to introduce forensic accounting evidence based upon a review of the relevant financial statements. At a minimum, accounting evidence is required as to the state of the finances of Brewco in 2017, 2018, and 2019. It is difficult to assess the potential complexity of the accounting evidence and whether expert evidence will be required (i.e., Przysuski factor (e)).

45I turn next to pleadings and discoveries (i.e., Przysuski factor (f)). I find that there would be a significant benefit to the parties to the court, and to the overall efficiency of the proceeding if pleadings were exchanged. The facta are of little to no assistance to the court in understanding the extent of the material facts in dispute and/or the many factual findings required to properly determine the application. A properly pleaded claim and properly pleaded defence would provide a framework for the documentary and oral discovery process and for a trial of the action.

46It may be possible for Ziegelmaier to rely, in part, if not in whole, on the transcript of the cross-examination of Fisher as the transcript of an examination for discovery of Fisher. Ziegelmaier may wish to pursue examination for discovery of Fisher on matters raised in the pleadings that were not addressed in cross-examination. Ziegelmaier was not cross-examined.

47The number of hours of examination for discovery to which the parties are entitled may require determination by the court. That topic can be addressed at the case conference the parties are required, by the order made below, to arrange and attend.

48The final Przysuski factor (i.e., item (g)), requires the court to consider the importance and impact of the application and the relief sought. Two former business partners are embroiled in a bitter dispute. The monetary amounts involved are in the six-figure range. Ziegelmaier is advancing claims other than for oppression remedy relief. His total claim for damages, with pre-judgment interest, may exceed $1,000,000. The outcome of the application may impact the ability of one or both men to pursue their respective careers.

49The Przysuski factors weigh heavily in favour of converting the application, in its entirety, to an action. Before concluding these reasons, I will address the dismissal of the application against Frontenac.

The Claim Against Frontenac

50In relation to Frontenac, Ziegelmaier acknowledges that he is not a “complainant” within the meaning of the oppression remedy provisions of the OBCA. For that reason, between the end of the second and the beginning of the third day (a partial day) of the hearing, counsel engaged in without prejudice discussions regarding Ziegelmaier’s claim against Frontenac.

51At the beginning of the third day of the hearing and through his counsel, Ziegelmaier acknowledged that (a) he is not entitled to advance an oppression remedy claim against Frontenac, (b) the notice of action does articulate any other cause against Frontenac, and (c) he is not claiming any damages from Frontenac.

52What Ziegelmaier is seeking, however, is an order setting aside the transactions related to the restructuring of the debt in 2019. The focus of Ziegelmaier’s concern about the restructuring is the assignment from Frontenac to Newco of Frontenac’s rights against Ziegelmaier, Fisher, and Brewco.

53I agree with Frontenac that Ziegelmaier has not articulated a basis upon which he and Frontenac are adverse parties. Nor has he articulated a basis to support a finding that it would be just and equitable to set aside the assignment. If Ziegelmaier is successful in his claims – for an oppression remedy or otherwise – against the Respondents, then the remedy required would be one which addresses Ziegelmaier’s entitlement to relief from the Respondents (i.e., not from Frontenac).

54At the conclusion of the third day of the hearing, the claim against Frontenac was dismissed. There was discussion as to when Frontenac’s costs of the application would be addressed – following the release of these reasons, or at a later stage of the proceeding.

55I recognize that if Ziegelmaier is found to be entitled to a remedy under the oppression remedy provisions of the OBCA, the remedy could include an order affecting the (now) non-party Frontenac. If such a remedy is contemplated, Frontenac would be entitled to notice, to deliver materials, and to make submissions at the relevant time. Frontenac might incur additional costs for involvement, as a non-party, in the proceeding at that time.

56This proceeding has a lengthy history; more than three years passed from the date on which the notice of application was issued to the date on which a single discreet issue proceeded to a hearing. It is now more than four years since the notice of application was issued; the remaining parties must now exchange pleadings and complete the discovery process. It could be several years before the matter is resolved through a decision at trial or a negotiated settlement.

57It would be unfair to Frontenac to delay – to a later stage of the proceeding – dealing with its costs of the application. The potential for Frontenac to incur additional costs in the future does not, in my view, detract from the importance of dealing with Frontenac’s costs of the application to this stage of the proceeding.

58The terms of the order at the conclusion of these reasons therefore requires Frontenac to arrange a case conference before me in the event Ziegelmaier and Frontenac are unable, within the designated timeframe, to resolve the latter’s costs of the application.

Conclusion

59For the reasons set out above, I make the following order:

1. The application as against Frontenac Community Futures Development Corporation (“Frontenac”) is dismissed.
2. Evidentiary issues raised on the application are adjourned, without prejudice to the parties to the action to raise those issues on an interim motion in the context of the action.
3. If, as of Friday, August 11, 2023 at 3:00 p.m., Ziegelmaier and Frontenac are unable to resolve the issue of Frontenac’s costs of the application, then Frontenac shall arrange a case conference before me, the purpose of which is to address the logistics for the determination of Frontenac’s costs of the application.
4. The application shall be converted to an action on the following terms: a) The applicant shall be the plaintiff. The respondents, other than Frontenac (“the Respondents”), shall be the defendants; b) The plaintiff shall deliver his statement of claim no later than 3:00 p.m. on Friday, August 25, 2023; c) Thereafter, the plaintiff and the defendants shall abide by the Rules of Civil Procedure, R.R.O. 1990, Reg. 194; and d) The parties to the action shall arrange a case conference before LAJ Civil, or their designate, to address matters including, but not restricted to, the following matters: i) a timetable for the completion of the oral and documentary discovery process; ii) the use to be made of the transcripts from the cross-examinations of Casey Fisher and Anne Prichard (the Director of Frontenac); iii) the number of hours to which the parties are entitled at this time for examinations for discovery; iv) interim motions; and v) whether the trial of the action should proceed in accordance with the procedure for matters under Rule 76 – Simplified Procedure and, if so, the parameters for the trial.
5. For the applicant/plaintiff and the Respondents/defendants, their respective costs of the application to the date of these reasons shall form part of the costs of the action and shall be addressed as such by the trial judge.