COURT FILE NO.: CV-14-5976
DATE: 2023/10/03
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
STEELE INDUSTRIAL SUPPLIES INC.
Joseph D. Kennedy, for the Applicant
Plaintiff
- and -
SHARON ELLIOTT and THE ESTATE OF KERRY ELLIOTT, Deceased
Paul E. Trenker, for the Defendants
Defendants
HEARD: February 7 and 8, May 24, 2023
ellies R.S.J.
REASONS FOR DECISION
OVERVIEW
[1] Sharon Elliott worked as a bookkeeper for Steele Industrial Supplies Inc. (“Steele”), from 2002 to 2012. She was fired after it was discovered that she had been stealing from her employer.
[2] A little less than two years after she was fired, Steele sued Mrs. Elliott and her husband for damages resulting from the theft. Mr. Elliott passed away after the action was commenced and Steele’s claim was continued against his estate.
[3] Mrs. Elliott was ultimately charged with eight offences under the Criminal Code relating to the theft. In 2015, she pleaded guilty to one count of fraud over $5,000. As part of the sentence imposed, Mrs. Elliott paid restitution to Steele in the amount of $100,000. Steele asserts that she stole much more than that.
[4] In March 2019, Steele moved for summary judgment on its claim. For reasons released in June 2019, I found that, although Steele had proven that Mrs. Elliott stole money and that Mr. Elliott had been unjustly enriched as a result, I was unable on the evidence to fairly and justly determine the amount that Mrs. Elliott stole and, likewise, the amount by which Mr. Elliott had been unjustly enriched: Steele Industrial Supplies Inc. v. Elliott, 2019 ONSC 3904. As a result, I ordered the trial of that issue.
[5] For the following reasons, I have concluded that Mrs. Elliott stole approximately $204,000 from Steele during the course of her employment. However, I am still unable to determine the amount by which Mr. Elliott was unjustly enriched.
EVIDENTIARY ISSUES
[6] At the outset of the trial, it became obvious that what I should have ordered was the hearing of viva voce evidence on the summary judgment motion under r. 20.04(2.2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rather than a trial under r. 20.04(3). My failure to do so resulted in confusion as to what evidence was admissible at trial.
[7] Ultimately, the matter proceeded as though I had made an order under r. 20.04(2.2). Counsel agreed that the contents of the expert reports prepared on behalf of both sides would be admitted into evidence, along with the source documents relied upon by the experts in preparing their reports. During the trial, I heard evidence from the experts retained by both sides, Shaun Wilson (the owner of Steele), and from Mrs. Elliott herself. The experts' reports and the affidavits filed on the motion served as the witness's evidence-in-chief and they were cross-examined by opposing counsel.
[8] I have incorporated both the written and the oral evidence into the discussion that follows. However, because I have already set out the written evidence in some detail in my earlier reasons on the summary judgment motion, I will not repeat it all here. Instead, I will highlight only the written and oral evidence that relates to the issue of damages.
[9] I will begin with the evidence of Mrs. Elliott.
THE EVIDENCE
Sharon Elliott
[10] Mrs. Elliott testified that she began gambling in 2006, primarily at Casino Rama ("Rama"), but that she also gambled at casinos in Michigan ("Kewadin"), Sudbury, and Arizona. She said that she began stealing from the plaintiff in 2008. Her evidence is that the cash she stole came from customers who paid cash either for outstanding invoices or for new purchases. Mrs. Elliott testified that, in addition to the cash she took from her employer to fund her gambling habit, she took cash advances from her credit cards, transferred funds between personal bank accounts, and borrowed from friends and family members.
[11] Mrs. Elliott maintains that she stole approximately $94,000 from Steele. During her examination for discovery, Mrs. Elliott testified that she knew the amount she took because each time she stole cash, she would make certain journal entries and write the amount she stole on Post-it Notes on the Weekly Cash Received Reports. Thus, for example, if she stole $1,000, she would make an entry as follows:
Dr. 5020 – Inventory Costs $1,000
Cr. 1060 – Scotiabank (00…16) $1,000
[12] Mrs. Elliott testified that she never destroyed any financial records and knows how much she took because, after she was charged criminally, she went through the records. She testified that she agreed to pay Steele more than she stole ($100,000) by way of restitution as part of a plea bargain because it seemed reasonable given the breach of trust for which she was responsible.
Shaun Wilson
[13] Mr. Wilson has been with Steele since May 1, 2002, the same date that Mrs. Elliott began working for the company as its bookkeeper. He is now the sole shareholder.
[14] Mr. Wilson testified that Mrs. Elliott was fired in September 2012, following an investigation undertaken by Robert Watchorn, an accountant, and after she admitted stealing from Steele. Mr. Wilson testified that Steele was unable to determine the exact amount stolen because Mrs. Elliott kept two sets of books. Contrary to the evidence of Mrs. Elliott, Mr. Wilson testified that Mrs. Elliott did destroy financial records belonging to the company.
[15] Mr. Wilson testified that he was not involved in the discussions that led to Mrs. Elliott paying $100,000 in restitution to resolve her criminal charges. Instead, he attended court one day and was simply presented with a cheque.
[16] Mr. Wilson believes that Mrs. Elliott stole a lot more than $100,000. He believes the amount to be approximately $646,000, the amount Steele wrote off due to the thefts. He bases his belief on the fact that Mrs. Elliott was living a lifestyle while she was working for Steele that she could not afford on the $15 to $18 per hour she was being paid.
Expert Evidence
MNP's 2018 Report
[17] To determine the amount that Mrs. Elliott stole, Steele hired the forensic accounting firm MNP LLP (“MNP”). MNP reviewed the journal entries Mrs. Elliott made to cover up the thefts and concluded that the entries did add up to just under $94,000 ($93,663.05). However, MNP concluded that the journal could not be relied upon for several reasons, including Steele’s information that the general ledger had been manipulated and that the supporting documents (invoices, inventory records, and cancelled cheques) had been destroyed by Mrs. Elliott. As a result, MNP set about the task of determining the amount stolen using other methods.
[18] In a report dated April 26, 2018, MNP determined the amount stolen by Mrs. Elliott by examining the data as it related to the places she would have deposited stolen cash, namely her bank accounts, and the place she would have spent it, namely the casino. MNP began by reviewing the banking records of Mr. and Mrs. Elliott. Using the banking records obtained by the police for the period from 2006 to 2012, MNP determined that the sum of $207,945 in cash had been deposited in these accounts over that period of time.
[19] MNP next turned to the issue of spending. Using information about the amount of money Mrs. Elliott put into the slot machines at Rama (called the "Handle") and information obtained from the Ontario Lottery Corporation about the payout rates of the machines, MNP estimated the total amount of money she spent at Rama to be $319,088. To avoid double counting money that had been deposited into a bank account and later spent at Rama, MNP deducted the cash withdrawals from the Elliott accounts over the 2006-2012 period ($81,515) from the total amount deposited, resulting in net deposits of $126,430. Adding the net cash deposits to the amount that MNP estimated Mrs. Elliott spent at Rama using the Handle, MNP determined the amount stolen was $455,470.
KPMG's 2018 Report
[20] The defendants retained the forensic accounting firm of KPMG Forensic Inc. ("KPMG") to review and critique the MNP report. In a report dated November 26, 2018, KPMG leveled two main criticisms at the MNP report. First, KPMG took issue with the way in which MNP calculated the money spent at Rama. Instead of using the Handle, KPMG found that the best indicator of what Mrs. Elliott spent at Rama was Rama's own record of the amount she actually lost there.
[21] Mrs. Elliott had been given a VIP card by Rama, which she used whenever she attended the casino. Using the card, Rama kept track of the number of visits Mrs. Elliott made to the casino, the length of time she spent there, the amount of money she put through the slot machines, and her net loss. It appears Rama used this information to reward Mrs. Elliott from time-to-time with complementary meals and accommodation. Rama called the net loss the "Observed". According to KPMG, Mrs. Elliott’s Observed was $76,578. To this amount, KPMG added the sum of $5,299, which represented Rama payouts to Mrs. Elliott that were not accounted for in the Observed. This brought the total possible high spent at Rama to $81,877.
[22] KPMG's second main criticism of MNP's report related to the way in which MNP calculated Mrs. Elliott's net cash deposits into the bank. KPMG agreed with MNP that it was appropriate to use only net cash deposits to avoid double counting cash stolen and then cash spent at Rama. However, KPMG reviewed the same bank records that MNP reviewed and concluded that MNP had included a number of deposits that were clearly not cash deposits and additional deposits for which there was no supporting evidence that the deposit was cash. Whereas MNP had calculated net cash deposits at $126,430, KPMG calculated the net cash deposits at between -$14,625 (suggesting that some of the funds spent by Mrs. Elliott at Rama were her own and that, therefore, she spent less there than she stole from Steele) and $82,860 (arrived at by deducting only the clearly non-cash deposits and cash advances Mrs. Elliott obtained at Rama using her credit card). Given the uncertainty regarding what was and was not a cash deposit, KPMG opined that the actual amount of cash deposited was somewhere in between these two amounts. Using this approach and adding the net deposits to the amount spent at Rama, KPMG estimated that the amount of money stolen by Mrs. Elliott was between $67,163 and $164,648.
[23] In addition to using this methodology, KPMG also considered projected cash sales based on Steele's estimates and compared them to actual cash deposits made on Steele's behalf during the 2006-2012 period as an alternative way to calculate the amount stolen. Steele had provided Mr. Watchorn with information about expected weekly cash sales ($800-$1,000) and the actual cash deposits for each year in that time span, with the exception of 2009. Using this information, and taking into account that some of the cash likely would have been used for petty cash or otherwise not deposited, KPMG estimated that the amount stolen (excluding 2009) was between $119,000 and $164,000.
[24] Finally, KPMG considered the fact that the records from Rama showed that Mrs. Elliott used three different credit cards on 14 different occasions in 2011 and 2012 to obtain cash advances totalling $6,300. KPMG only had banking information for one of the credit cards used. However, Mrs. Elliott's banking records showed that a total of approximately $160,000 had been paid on debts accumulated under six other cards. Using the percentage of cash advances taken by Mrs. Elliott on the one credit card for which it had information, KPMG opined that it was possible that Mrs. Elliott had spent $43,620 by way of cash advances at Rama, which would reduce the amount of stolen cash she spent there by that amount.
MNP's 2021 Report
[25] Nearly two-and-one-half years after KPMG's 2018 report, MNP prepared a "reply" report dated May 31, 2021. This report was prepared by a different team of forensic accountants at MNP, including Josh Epstein, who testified at trial.
[26] In its 2021 report, MNP agreed with KPMG that the best estimate of the amount of money spent by Mrs. Elliott at Rama was the Observed report. However, MNP differed from KPMG in that MNP used the total negative amounts identified in the report of $83,523 as the amount spent at Rama on the basis that Mrs. Elliott had cashed out all of her winnings.
[27] MNP disagreed with the characterizations by KPMG of many of the banking transactions in the Elliott accounts. Whereas KPMG had calculated its low and high estimates of the amount deposited by deducting between $43,570 and $141,055 of questionable cash deposits, MNP deducted only $9,750 of deposits as possible transfers from an account owned by the Elliotts at Northern Credit Union to another account owned by the Elliotts at TD Bank to arrive at its low estimate of the amount of cash stolen. In addition, MNP included $5,210 of unauthorized cheques made out to Mrs. Elliott in its calculation of the amount of money she stole.
[28] Ordinarily, one might expect that using the Observed amount of $83,523 as the amount spent at Rama, rather than the amount of $319,088 based on the calculation made using the Handle, would result in a drastic reduction in MNP's estimate of the amount stolen by Mrs. Elliott. However, in its 2021 report, MNP estimated that Mrs. Elliott had stolen between $421,695 and $446,964, amounts only slightly less than the amount of $455,470 it estimated in its 2018 report. This new amount was arrived at mainly because of two major changes to MNP's approach to its task.
[29] The first major change related to the use of total cash deposits into the Elliott bank accounts versus net cash deposits. Whereas in its 2018 report, MNP had used only net cash deposits by Mrs. Elliott so as to avoid double counting cash deposited and then withdrawn to spend at the casino, in its 2021 report, MNP did not deduct any cash withdrawals by Mrs. Elliott. MNP justified this change in its methodology by referring to the admission made by Mrs. Elliott during her examination for discovery in 2017 that she had gambled at casinos other than just Rama, as set out above. This change in methodology added $81,515 to MNP's estimate of the amount stolen.
[30] The second major change to MNP's approach was a change in the scope of its review. Whereas MNP had estimated the amount of money stolen by Mrs. Elliott only during the period from January 2006 to the end of her employment in September 2012 in its 2018 report, in its 2021 report, MNP expanded the scope of its review to include the period from the beginning of Mrs. Elliott's employment with Steele in May 2002. MNP justified this change on the basis that Mrs. Elliott had admitted during her examination for discovery that she had stolen money from a previous employer and on the same basis that it justified the first major change in its approach, namely that Mrs. Elliott had admitted to gambling at casinos other than just Rama.
[31] Because MNP lacked "documentation" for the period from May 2002 to December 2005, MNP used its estimate of cash stolen in the period from January 2006 to September 2012 to arrive at a weekly estimate of the amount stolen during the 2006-2012 period of between $799.73 and $847.63. It then adjusted this amount for inflation in order to estimate the amount stolen in the 2002-2006 period. Employing this methodology, MNP estimated the amount stolen in that period at between $141,790 and $150,286.
[32] Using its altered approach of including total cash deposits, MNP estimated Steele's losses due to Mrs. Elliott's thefts as follows:
For the period 2002-2006:
= $141,790 to $150,286
For the period 2006-2012:
= $279,905 to $296,678
Total for the period 2002-2012:
= $421,695 to $446,964
[33] MNP compared the results arrived at using its altered approach with results obtained by taking the average monthly cash deposits of Steele for a period after Mrs. Elliott was fired and adjusting for inflation. MNP used information obtained from Mr. Watchorn regarding the actual cash deposits made by Steele in the period from October 2012 to December 31, 2014, after Mrs. Elliott's employment was terminated in September 2012. Using this information to estimate what the actual cash sales should have been in the period 2006 to 2012 (again, adjusting for inflation) and comparing that amount to the actual cash deposits made on behalf of Steele during that period, MNP estimated the amount stolen in the 2006-2012 period (to the end of Mrs. Elliott's employment) to be $301,559. MNP then used the figures it obtained using this methodology to estimate the loss for the 2002-2006 period to arrive at a figure of $152,759 for that period. In total, MNP estimated the 2002-2012 loss to be $454,318 using this alternate methodology, a figure it found compared favourably with the figures arrived at using its altered original approach.
KPMG's 2021 Report
[34] Because MNP had expanded the scope of its analysis and altered the methodology it employed within the scope of its original report, Mrs. Elliott was permitted to commission a further report from KPMG to respond to MNP's reply report.
[35] In a report dated December 21, 2021, KPMG was critical of MNP's change in methodology for reasons I will refer to in the analysis that follows. With respect to cash deposits, while KPMG agreed with MNP's characterization of one transaction in the $120 as being a cash deposit and another in the amount of $220 as being a possible cash deposit, KPMG remained of the view that, where a transaction could not be definitively determined to have been a cash deposit, it should be deducted from the high estimate of money stolen to arrive at a low estimate. Thus, for the period from 2006 to 2012, KPMG arrived at a low estimate of cash stolen in the amount of $67,283 and a high estimate in the amount of $164,868.
[36] While KPMG was also critical of the expansion by MNP of the scope of its review, KPMG nonetheless undertook its own estimate of the cash stolen during the 2002-2006 period. Using MNP's methodology of inflation-adjusted weekly estimates of cash stolen between 2006 and 2012, but substituting its own estimates of the amount stolen during that period rather than those of MNP, KPMG estimated the amount stolen in the 2002-2006 period at between $34,022 and $83,405.
[37] Taking the two time periods into account, KPMG's estimate of the total amount stolen was between $101,305 and $248,273.
ISSUES
[38] I have only two issues issue left to decide in this case:
(1) How much money did Mrs. Elliott steal from Steele? and
(2) How much was Mr. Elliot enriched as a result?
[39] As I will explain, in my view, the answer to the first question does not lie in the evidence of any one witness. As I will also explain, there is not enough evidence to answer the second question.
ANALYSIS
How much money did Mrs. Elliott steal from Steele?
The Burden of Proof
[40] As in most civil cases, Steele must prove the amount stolen on a balance of probabilities. However, it is a well-established principle that where the damages in a case are by their inherent nature difficult to assess, as they are here, the onus on the plaintiff is only to provide sufficient evidence to allow the court to do its best, "even to the point of resorting to guess work": Martin v. Goldfarb (1998), 1998 CanLII 4150 (ON CA), 112 O.A.C 138, 163 D.L.R. (4th) 639, at para. 75. I do not believe that I need to resort to guess work in this case to determine how much Mrs. Elliott stole from Steele. For reasons I will explain, although I do not fully accept any one witness's evidence, there is sufficient evidence to permit me to reach a reasoned conclusion based on the evidence I do accept.
Mrs. Elliott's Evidence
[41] Unfortunately, I am unable to rely much on the evidence of Mrs. Elliott.
[42] Mrs. Elliott presents as a nice person. However, as a witness, she is neither credible nor reliable. When we speak of a witness's credibility, we are referring to that witness's veracity. When we speak of the reliability of a witness's testimony, we are referring to the accuracy of the witness's evidence: R. v. Morrissey (1995), 1995 CanLII 3498 (ON CA), 22 O.R. (3d) 514 (Ont. C.A.), at p. 526. Mrs. Elliott's testimony suffers in both respects.
[43] Mrs. Elliott's credibility suffers mainly because she is an admitted thief. She stole from her employer, someone who trusted her. And she stole not just from one employer, but from two. Mrs. Elliott admitted while testifying that she stole between $40,000 and $47,000 from North Bay Mazda while she was working there in the 1980s. In the case of Steele, if not also in the case of Mazda, Mrs. Elliott falsified documents to accomplish this theft. With each and every false entry, she misrepresented the truth. For this reason, I cannot trust that she is telling me the truth now when she says that she only stole about $94,000 from Steele.
[44] Even if I felt I was able to trust Mrs. Elliott to tell the truth, I would not feel able to rely on the accuracy of her evidence. I will give four examples to demonstrate my concern, beginning with the least important ones.
[45] Mrs. Elliott testified during her evidence-in-chief that she gambled once in Arizona in the 1990s. However, in cross-examination, she testified that this occurred in 2015, a difference of decades. Mrs. Elliott also testified at trial that she was not gambling when she stole from Mazda, but testified while being cross-examined on her affidavit that she was "not doing much gambling" during that time. These are two different things. Mrs. Elliott also testified at trial that she went to Rama at least seven or eight times per year, "sometimes more". However, the records from Rama indicate that she attended there 193 times in six years, or about 29 times per year. This differs from Mrs. Elliott's testimony by a factor of about three.
[46] Finally, and most importantly in this case, Mrs. Elliott testified that she started gambling (consistently, I understood) in 2005 or 2006. She tied her answer to a music concert she attended that year at Rama. However, a record from Rama referred to at trial as a "Player Information Card" shows that Mrs. Elliott registered as a gambler there in April 2002, two or three years earlier.
[47] Because of these weaknesses in Mrs. Elliott's evidence, I must look to the other evidence to determine how much was stolen.
Shaun Wilson's Evidence
[48] Mr. Wilson's evidence, while certainly credible, also does not assist me much. I have no evidence explaining why his company wrote off so much more money than even MNP has estimated Mrs. Elliott stole from Steele. His belief that Mrs. Elliott stole nearly $650,000 is based on his observations that she was living a lifestyle that she could not afford, but the only evidence before me of what that lifestyle entailed relates to Mrs. Elliott's gambling. This aspect of her lifestyle has been analyzed by Steele's experts, MNP, and their evidence that Mrs. Elliott stole $454,318, at most, does not support Mr. Wilson's belief.
The Expert Evidence
The 2006-2012 Period
[49] KPMG was retained to review MNP's analysis, not to develop one of its own. For that reason, KPMG followed the same methodology developed by MNP. With respect to the 2006-2012 period, both firms looked at the places Mrs. Elliott would save the stolen cash (her bank accounts) and the places she would spend it (Rama). The validity of the conclusions reached by both KPMG and MNP depend upon the strength of the assumptions underlying this methodology. With respect, I believe that the assumptions are flawed because they are based on Mrs. Elliott's out-of-court evidence.
[50] The experts' estimates assume that Mrs. Elliott deposited the stolen cash before withdrawing it to take to Rama, an assumption first made by MNP. That assumption was made on the basis of Mrs. Elliott's discovery evidence that she deposited "most" of the stolen money into certain bank accounts. However, I find it unlikely that Mrs. Elliott would deposit such a high proportion of the money she stole into the bank. That would only make it easier to detect that she was stealing, something she had already been caught doing once before. Instead, I believe it more likely that Mrs. Elliott only deposited the money she stole "sometimes", as she stated in her testimony during the trial.
[51] The experts' assumption regarding where Mrs. Elliott spent the stolen money was also flawed because it, too, was based on Mrs. Elliott discovery evidence. Mrs. Elliott testified during her examination for discovery that she gambled predominantly at Rama and only occasionally at Kewadin. Mrs. Elliott testified at trial that she only went to Kewadin perhaps eight to ten times over four or five years between 2006 and 2012. I have a hard time accepting that evidence.
[52] During her cross-examination, Mrs. Elliott testified that she had to spend "a lot" to get a "Platinum Card" at Rama and that she believed she had a Platinum Card at Kewadin, as well. During her re-examination, she said she was not sure about whether she had a Platinum Card at Kewadin. However, during her examination for discovery, she expressed no uncertainty when she testified that she had a Platinum or similar such card at Kewadin and that she had to have spent a lot there to get it. Even if I accept that she went to Kewadin much less frequently than she went to Rama, Mrs. Elliott also testified that her spending at Kewadin was "just as bad" as it was at Rama.
[53] Both of these weaknesses in the underlying assumptions mean that the experts' work may underestimate the amount stolen. However, because MNP appeared content to use the total cash deposits during the 2006-2012 period as a starting point in their analysis in both reports, I am prepared to do likewise. Nonetheless, because of these weaknesses, where there is a dispute regarding the characterization of a deposit as cash or non-cash, I believe it is more appropriate to assume that the deposit is a cash deposit, unless there is good reason to believe otherwise.
[54] I would like now to address the issue of cash deposits and what deductions should be made from those deposits. I will then address the issue of how much should be added to the deposits as stolen money spent at Rama.
Total v. Net Deposits
[55] As I mentioned above, in its 2021 report, MNP made a major methodological change to its analysis relating to the 2006-2012 period by using the total, instead of net, cash deposits and then adding the amount spent at Rama to that amount. I do not believe that this is appropriate, for three reasons.
[56] First, it completely ignores the problem of double counting. While I have concluded that only some of the stolen money was deposited in Mrs. Elliott's bank accounts, the money that was deposited should not be counted twice for the very reason that MNP advanced in its 2018 report: it overestimates what was stolen by the amount that was deposited and later withdrawn to spend at Rama.
[57] Second, adding the amount withdrawn has no demonstrated ability in the evidence to stand as a proxy for the amount spent by Mrs. Elliott at the other casinos. MNP purported to reverse its position on the use of net cash deposits because it had not received any reports from casinos other than Rama. For that reason, it believed "that the cash withdrawals should not be deducted from the estimation of cash misappropriated as they likely represent cash misappropriated from Steele that was spent at other casinos and on personal expenses such as trips": 2021 MNP Report, at para. 5.33. There is nothing in the evidence to support this assumption. There is no way to know what part, if any, of the $81,515 that was withdrawn was spent at other casinos.
[58] Third, and perhaps most importantly, the use of total cash deposits is not justified on the evidence we do have. Using the total cash deposits rather than net deposits means that Mrs. Elliott spent $121,890 to $131,640 at places other than Rama because, even on MNP's analysis, the evidence shows that she only spent a maximum of $83,523 at that casino. As KPMG points out, this would mean that Mrs. Elliott spent more than 60 percent of the total cash deposits on things other than gambling at Rama. While she may have spent money at Kewadin at the same rate as she spent it at Rama, it is not a reasonable inference that she spent it with greater frequency. Given the number of visits she made to Rama each year on average, it is highly unlikely she could have travelled to other casinos that much. Kewadin was a three-day round trip.
[59] For these reasons, I do not accept MNP's suggestion that the use of total cash deposits is an appropriate way to estimate the amount of money Mrs. Elliott spent on things other than gambling at Rama.
"Unsupported Possibly Cash Deposits"
[60] As I mentioned earlier, the experts differed in their characterization of certain transactions as either cash or non-cash deposits. While they managed to agree on $320 worth of transactions in their 2021 reports, they continued to disagree about transactions worth tens of thousands of dollars.
[61] The largest amount in dispute were the "Unsupported Possibly Cash Deposits". This is the label given by KPMG to transactions totalling $53,855 that it excluded from its low estimate because they were unsupported by any documents showing that they were clearly cash deposits. I would include a large percentage of these deposits as cash deposits.
[62] MNP conducted a thorough review of the Elliott bank records. With certain exceptions I will come to, it included as cash deposits all transactions involving round numbers, even if there was no supporting documentation for that characterization. KPMG purported to exclude all of this money on its low estimate on the basis that, although the transactions involved round numbers, such round numbers could be indicators of cheques being written from the friends or family members from whom Mrs. Elliott said she borrowed money to gamble. This is not reasonable based on the evidence.
[63] While Mrs. Elliott did say that she borrowed from friends and family to support her gambling habit, the impression she left was that this was only a minor source of funds for her. Were it otherwise, I would have expected her to say so while testifying in a proceeding in which she was being accused of stealing over $400,000 based on deposits into her bank account. Perhaps more importantly, it makes sense that borrowed money would comprise only a small part of the misappropriated money that Mrs. Elliott gambled away. Unlike Steele, the people from whom Mrs. Elliott borrowed money knew how much money they were giving Mrs. Elliott. It stands to reason that they would not allow Mrs. Elliott to continue borrowing money that she could not repay.
[64] For this reason, I accept MNP's characterization of these funds as cash deposits, but with some reduction to account for the evidence that Mrs. Elliott did borrow some money from family and friends. I will come back to this when I perform my own estimation of the amount stolen.
Transactions Not Identified by TD Bank as Cash Deposits
[65] One of the larger points of contention between the experts relates to transactions at the TD Bank. Mrs. Elliott's bank records showed that about 70 percent of the total estimated cash deposits were made into, and about 53 percent of the withdrawals were taken from, one particular TD account. TD conducted a review of its records relating to this account to determine which deposits were cash deposits. TD's analysis identified approximately $115,000 as cash deposits. That left $21,800 as unconfirmed cash deposits.
[66] Unfortunately, TD provided no information on how it conducted its analysis. As a result, MNP included the $21,800 in its estimation of the amount stolen. KPMG excluded it from both its low and its high estimations. I would exclude it from my estimation, as well.
[67] I agree with KPMG that it is more likely than not that the deposits that were not identified by TD as cash deposits were not cash deposits. The records referred to by the experts in their reports show that the tellers at TD usually marked cash deposit slips by indicating the number and denominations of the bills submitted for deposit. MNP interpreted TD's failure to comment on certain deposits as a failure to analyze the supporting paperwork.
[68] I do not interpret TD's silence that way. I interpret it as an indication that TD examined the paperwork and concluded, as I would, that it was not a cash deposit because the paperwork indicated otherwise. The cheques that KPMG identified as cheques written on Northern Credit Union accounts that were deposited at TD serve as a good example, as I will now discuss.
Transfers to TD Bank from Northern Credit Union
[69] In its 2018 report, KPMG identified cheques drawn on an Elliott account at Northern Credit Union in the total amount of $9,750 that matched deposits into an Elliott account at TD Bank. While MNP agreed in its 2021 report that these could simply be transfers of money between Elliott accounts, it continued to include them as possible cash transactions in its high estimate of the amount of money stolen. I see no basis for doing so. I agree with KPMG that a delay of several days in the processing of deposits and withdrawals for cheques drawn on Elliott accounts at different institutions is not enough to consider the transaction as a cash deposit when the amount deposited and the amount withdrawn match precisely.
Transfers to CIBC
[70] In its 2018 report, KPMG also identified $5,500 worth of cheques made to the order of Mr. Elliott and drawn on a TD account owned by the Elliotts which were deposited into a CIBC account also owned by the Elliotts. MNP included these deposits as cash deposits because the withdrawals and the deposits did not occur quickly enough. As I stated above, I agree with KPMG that the fact that the cheques took 2-5 business days to clear does not mean that they should be treated as stolen cash.
Credit Card Advances
[71] Mrs. Elliott's banking records show that she and Mr. Elliott had seven different credit cards in the 2006-2012 period. The records from Rama show that Mrs. Elliott took cash advances in the amount of $6,300 on three of her credit cards while at the casino. Her banking records also showed that she made payments of approximately $160,000 towards credit card debts during that period. KPMG used the percentage of cash advances taken on the only credit card for which it had information (31 percent) and estimated that, if cash advances were taken at that rate on all of the credit cards, Mrs. Elliott may have obtained cash advances in the range of $43,620 during that time. Because this would have represented money not stolen from Steele, KPMG deducted this additional amount in arriving at its low estimate.
[72] I would not deduct any of this money in estimating the loss. There is no support for it in the evidence. Mrs. Elliott testified that she took cash advances only while she was at the casino and, in my view, those advances should be the only ones deducted from the money spent at Rama.
Unauthorized Cheques
[73] In its 2018 report, MNP identified two cheques, one in the amount of $210 and the other in the amount of $5,000, which had been written to Mr. and Mrs. Elliott. It reported that Steele was "unaware" of the first cheque. With respect to the second cheque, MNP reported that Mrs. Elliott alleged it was a loan made by Steele for her son's education, but that Steele had not authorized it.
[74] I can find nothing else in the evidence about these cheques. Mr. Wilson said nothing about them in the affidavits he filed in the motion and he was not asked about them during the hearing. It may be that there is some evidence about them in the examination for discovery of Mrs. Elliott or in the cross-examination of her on her affidavit in the motion, but I was not taken to it. Unlike the agreement reached early in the hearing regarding the expert evidence and the documents upon which the experts relied, there is no agreement to admit this sort of hearsay evidence as proof of the truth of the statement.
[75] For this reason, I have not included these cheques in my estimation of the amount of money stolen.
The Money Spent at Rama
[76] I turn now to the evidence about where Mrs. Elliott spent the stolen money. Regrettably, some of the evidence about how much stolen money was spent at Rama leaves me confused.
[77] First, there is an unexplained discrepancy in the experts' evidence about the amount of the Observed figure from Rama. KPMG reported it as being $76,578. MNP noted that this was incorrect and that the actual amount reported by Rama was $76,500. This discrepancy is minor, of course. However, there are other confusing aspects of the evidence about what was spent at Rama that are more consequential.
[78] In its 2021 report, MNP identified that the Observed amounts reported by Rama included both positive and negative entries. Based on a February 3, 2021, letter written on behalf of Rama by Sebastian Nishimoto, Director, Legal Affairs and Privacy Officer at Gateway Casinos & Entertainment Limited, MNP concluded that the positive entries represented money spent by Mrs. Elliott and not lost. Because there was no evidence that Mrs. Elliott did not cash out the money that she did not spend at Rama, MNP used the total negative amounts identified in the Observed report of $83,523 as a possible high amount of stolen money spent at Rama.
[79] I am unable to understand this part of MNP's analysis. The letter of February 3, 2021, states quite clearly that "the $76,500 figure does not include any money that Mrs. Elliott may have won at [Rama] during the course of her play" and provides an unambiguous example showing that this figure represents the amount of money she brought to the casino.
[80] The other confusing aspect of the evidence about what was spent at Rama relates to "Payouts". In its 2018 report, MNP reported that Rama's records show that a total of $5,299 was paid to Mrs. Elliott as cash winnings and, therefore, it deducted this amount from the total amount of stolen money spent at Rama. To this point, the evidence about payouts makes sense.
[81] However, in its 2018 report, KPMG wrote that it had spoken with Rama on the telephone in October 2018 and been advised that this figure would only include "jackpot-type" payouts collected through the casino office and, therefore, it could not be used as an adequate measure of funds paid out by the slot machines themselves. In its 2021 report, MNP purported to agree with KPMG that the payouts should be "added back" into the amount of stolen money spent at Rama.
[82] I do not believe that this is appropriate. Regardless of whether the money was spent at Rama or not, it was not stolen money. It was winnings from stolen money. Given these problems with the evidence about the Observed, I have used only the $76,500 referred to by Mr. Nishimoto in his letter, a source document admitted by agreement of the parties, as the amount of stolen money spent at Rama.
The 2002-2006 Period
[83] MNP expanded the scope of its review in 2021 to the 2002-2006 period due to "Mrs. Elliott's admission of theft or fraud at a prior employer, her admission of theft at Steele and her history as an avid gambler": 2021 MNP Report, at para. 5.2.
[84] KPMG was critical of MNP's decision to expand the scope of its review in the 2021 MNP Report to consider the period from 2002 to 2006 because MNP was already aware of all these facts when it prepared its 2018 report. That may be true. However, the 2018 MNP Report was based, in part, on Mrs. Elliott's examination for discovery evidence that she started stealing from Steele in 2007 because of a gambling addiction. While it may not have been clear at the time the 2018 MNP Report was prepared, or even when MNP prepared its 2021 report, it is now clear that Mrs. Elliott started gambling at Rama even before starting to work at Steele in May of 2002. The analysis performed regarding the 2002-2006 period is, therefore, appropriate, in my view.
[85] It will be recalled that, because there was no information regarding Mrs. Elliott's bank accounts nor regarding what she spent at casinos during the 2002-2006 period, MNP used the estimate it had made regarding the 2006-2012 period to calculate a weekly amount stolen and then adjusted that amount for inflation to estimate the amount stolen in the 2002-2006 period. Using this sort of “regression” analysis, MNP arrived at an estimate of the amount of money stolen in earlier period of between $141,790 and $150,286.
[86] It will also be recalled that KPMG performed a similar analysis with respect to the 2002-2006 period using its own figures regarding the 2006-2012 period, rather than those used by MNP. After performing this same regression analysis, KPMG estimated that the amount stolen in the 2002-2006 period was in the range of $34,022 to $83,405.
[87] In comparing the two reports, I note that the inflation-adjusted amounts arrived at using the regression analysis results in figures that are exactly 50 percent of both the low and high estimates arrived at by both firms for the 2006-2012 period. Therefore, I will use that percentage to arrive at my own estimate of the amount stolen during the 2002-2006 period.
[88] In arriving at its figures for the earlier period, MNP did not consider the possibility that Mrs. Elliott might not have stolen cash at the same rate in the 2002-2006 period as she did in the 2006-2012 period. It simply assumed that she stole at the same rate. KPMG did not make that assumption. Instead, KPMG pointed out that "[t]he normal expectation would be that activity would start slowly, and increase gradually over time when it became clear that previous activities were not detected": KPMG 2021 Report, at para. 63.
[89] I agree with KPMG that it is likely Mrs. Elliott stole at a slower rate at first. For this reason, there should be some reduction applied to the estimate of money stolen during the 2002-2006 period. However, because Mrs. Elliot had stolen from an employer once before, I also believe it is likely that she began to steal at a faster rate sooner than would someone who had not. She was obviously so highly motivated to steal that her earlier experience had no, or at most a limited, deterrent effect. For this reason, I would apply a smaller reduction to the figures for stolen money in the 2002-2006 period than I would otherwise.
[90] With these comments about the contentious parts of the evidence out of the way, I turn now to my own estimation of the amount stolen.
My Estimation
The 2006-2012 Period
[91] Based on the conclusions set out above, I estimate the amount stolen by Mrs. Elliott during the 2006-2012 period at $148,780, calculated as follows:
Total overall cash deposits $207,945
• less a portion (20%) of the non-verified cash deposits ($53,855 x .20 = $10,771) rounded to $10,800 − $10,800
less TD Bank non-cash transactions − $ 21,800
less Northern Credit Union transfers − $ 9,750
less CIBC deposits that cleared TD bank within three days − $ 5,500
Total adjusted cash deposits = $160,095
- less withdrawals − $ 81,515
Total net deposits = $ 78,580
- plus Observed
- $76,500
- less cash advances taken at Rama − $6,300
Total money stolen in the 2006-2012 period = $148,780
The 2002-2006 Period
[92] Using the same regression methodology as the experts, but substituting my own figures for the 2006-2012 period, I estimate the amount stolen during the 2002-2006 period at $55,890, calculated as follows:
Total money stolen in the 2006-2012 period $148,780
multiplied by 50 percent to account for inflation = $74,390
less 25 percent to account for decreased frequency of theft at the commencement of employment (= $18,597.50, rounded) − $18,500
Total stolen money in the 2002-2006 period = $55,890
Total Stolen for the 2002-2012 Period
[93] Based on the foregoing analysis, I find that the total amount stolen in the period of Mrs. Elliott's employment with Steele is $204,670 ($148,780 + $55,890).
How much was Mr. Elliott unjustly enriched?
[94] As it is for most gamblers, Mrs. Elliott's investment in the slot machines was a losing venture. Therefore, it cannot be said that Mr. Elliott was enriched because the stolen money begot more money. Instead, he was enriched in two other ways.
[95] First, as I pointed out in my earlier decision, the money that Mrs. Elliott did deposit went into accounts she held jointly with Mr. Elliott, from which accounts joint debts were paid. Unfortunately, I have no evidence as to what proportion of the amount stolen and deposited went to pay for things other than gambling. Given that MNP had information about the Elliotts' income and bank accounts for the 2006-2012 period, I believe it would have been possible to provide an analysis of the amount of money that was deposited overall (including the amount of cash deposited) and the amounts paid out of the accounts (including the cash withdrawals) in a way that would have helped me to estimate how much of the cash was being used to pay for joint debts. That was not done. Instead, MNP set out the total amounts earned by the Elliotts over that period of time in its 2018 report and simply concluded that their lifestyle went beyond their legitimate means. As I pointed out earlier, there is no evidence about the Elliott's lifestyle beyond the conclusory evidence of Mr. Wilson and the evidence about gambling. Thus, Steele has failed to provide me with enough evidence to make a finding about how much Mr. Elliott was enriched in this way.
[96] The second way in which Mr. Elliott was enriched relates to his attendances with Mrs. Elliott while she was away gambling. As set out in the affidavit of Mr. Wilson on the motion, Mrs. Elliott testified at her examination for discovery that Mr. Elliott accompanied her "a majority of the time" when she went gambling. As noted by MNP, Mrs. Elliott was provided with complementary meals and accommodation at times by Rama. Again, however, I do not have enough evidence to determine how much Mr. Elliott was enriched in this way. I have no information as to how many of the 193 times Mrs. Elliott attended Rama in the 2006-2012 period were ones in which these complementary benefits were provided to her. Nor do I have any evidence as to whether complementary meals were also provided to Mr. Elliott, or the value of the free accommodations. In the absence of this type of evidence, I am unable to make a finding as to how much Mr. Elliott was unjustly enriched just by being with Mrs. Elliott.
[97] As I noted above, while the law does not require a plaintiff to prove with precision that which a defendant has made it difficult to prove, the law still requires a plaintiff to do what it can. With respect, I believe that Steele could have done more. For that reason, this aspect of the claim must fail.
CONCLUSION
[98] For the foregoing reasons, I find that although Mr. Elliott was unjustly enriched, I am unable to quantify the amount. However, relying on the work done by the experts, and applying my own findings as to the amounts in dispute, I have been able to quantify the amount stolen by Mrs. Elliott as being $204,670.
[99] Because she has already repaid Steele the sum of $100,000, there will be judgment in favour of Steele for the sum of $104,670, together with prejudgment interest at the rate provided by statute.
COSTS
[100] For reasons released on December 6, 2019, I assessed the costs of the summary judgment motion at $15,000, all-inclusive, in favour of Steele: Steele Industrial Supplies Inc. v. Elliott, 2019 ONSC 7092. However, I ordered that those costs be paid only in the event that Steele succeeded at demonstrating that Mrs. Elliott stole more than the $100,000 she paid by way of restitution in the criminal proceedings. Steele has done that. Of course, more costs have now been incurred in the process.
[101] Therefore, the parties shall make written submissions with respect to the issue of costs for this part of the motion, limited to five typewritten pages, exclusive of the Bill of Costs and attachments, as follows:
(1) on behalf of Steele, within 30 days of the release of these reasons; and
(2) on behalf of the defendants, within 45 days of the release of these reasons.
M.G. Ellies R.S.J.
Released: October 3, 2023
COURT FILE NO.: CV-14-5976
DATE: 2023/10/03
ONTARIO
SUPERIOR COURT OF JUSTICE
STEELE INDUSTRIAL SUPPLIES INC.
Plaintiff
– and –
SHARON ELLIOTT and THE ESTATE OF KERRY ELLIOTT, Deceased
Defendants
REASONS FOR decision
Ellies R.S.J.
Released: October 3, 2023