PETERBOROUGH COURT FILE NO.: CV-18-00000006-0000 DATE: 20240730 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

CYDAHLIA HOWRAN, by her Litigation Guardian, Jennifer Freeman, and JENNIFER FREEMAN Plaintiffs – and – CODY HOWRAN, CHRISTINE FOURNIER, THE CORPORATION OF THE CITY OF KAWARTHA LAKES, THE DOMINION OF CANADA GENERAL INSURANCE COMPANY, and JOHN DOE Defendants

Counsel: Peter Wardell and Evan Rankin, Agents for Darcy Merkur and Stacey L. Stevens, for the Plaintiffs Kevin McGivney and Natalie D. Kolos, for the Defendant/Moving Party, The Corporation of the City of Kawartha Lakes Sean Dewart and Brett Hughes, Agents for Chris Schnarr, for the Defendants Cody Howran and Christine Fournier Mary Teal, for the Defendant The Dominion of Canada General Insurance Company and John Doe

HEARD: January 18, 2024

REASONS FOR DECISION

CASULLO J.

Overview

[1] The defendant, the Corporation of the City of Kawartha Lakes (“the City”) brings this motion to stay or dismiss the plaintiffs’ action as against the City for failing to immediately disclose the terms of a cooperation agreement (the “Cooperation Agreement”) entered into between Cody Howran and Christine Fournier (the “Howran/Fournier defendants”). The failure to so disclose is characterized as an abuse of process.

[2] Mr. Wardle and Mr. Rankin are counsel for the plaintiffs on this motion only, who oppose the relief sought by the City.

[3] Mr. Dewart and Mr. Hughes are counsel for the Howran/Fournier defendants on this motion only, who oppose the relief sought by the City.

[4] On behalf of the plaintiffs, Ms. Stevens brings a motion to approve the Cooperation Agreement, as well as the advance payment.

[5] Ms. Teal brings a motion seeking dismissal of the action against the Dominion of Canada General Insurance Company and John Doe.

Background

[6] On August 31, 2014, the plaintiffs were passengers in a car operated by Cody Howran and owned by Christine Fournier. The minor plaintiff, Cydahlia, is the daughter of Ms. Freeman and Mr. Howran. Both Cydahlia and Ms. Freeman were riding in the back seat of the car.

[7] As Mr. Howran drove northbound on Kawartha Lakes County Road 49, he crossed the centre line, crossed the southbound land, and entered a ditch on the west side of the roadway, colliding with a tree stump.

[8] Cydahlia suffered a spinal cord injury was rendered quadriplegic.

The Pleadings

[9] A statement of claim was issued by the plaintiffs naming Mr. Howran, Ms. Fournier, and the City as defendants.

[10] The City delivered a statement of defence, a crossclaim against the Howran/Fournier defendants, and a counterclaim against Ms. Freeman.

[11] The Howran/Fournier defendants thereafter delivered a statement of defence, and a crossclaim against the City. Given the Howran/Fournier defendants’ position that the collision was caused by an unidentified motorist, the plaintiffs obtained an order to add the Dominion and John Doe as defendants pursuant to the unidentified driver provision of the OPCF-44R Family Protection Endorsement.

[12] Dominion delivered a statement of defence, and a crossclaim against the Howran/Fournier defendants, the City, and John Doe.

The Cooperation Agreement

[13] Counsel for the City very helpfully provided a chronology in respect of the Cooperation Agreement, from which I have borrowed heavily.

[14] On September 26, 2017, there was a meeting between Mr. Brown and Ms. Stevens (plaintiffs’ counsel), Mr. McGivney (City’s counsel) and Ms. Fraser (adjuster for Travelers Insurance, who insured the Howran/Fournier defendants - also known as the “Settling Defendants”). At this meeting, Mr. Brown advised Mr. McGivney that a cooperation agreement was being negotiated. Mr. McGivney was provided with a copy of the draft agreement.

[15] At some point following the September 26, 2017, meeting Mr. Schnarr was retained to represent the Howran/Fournier defendants.

[16] Presumably there were further discussions concerning the Cooperation Agreement, given the contents of Mr. Brown’s letter to Mr. Schnarr on October 18, 2017: “It is regrettable that your principals are not prepared to cooperate with us in the claim against the road authority nor to advance pay their policy limits.” Mr. McGivney was copied on this letter.

[17] For all intents and purposes, at least to the City’s understanding, a cooperation agreement was off the table in the fall of 2017.

[18] However, in early 2020 the notion of the Cooperation Agreement arose once more. Mr. Brown wrote to Mr. Schnarr on January 28, 2020, stating as follows:

Thank you for taking the time to discuss the proposed Cooperation Agreement with me this morning. I have made the changes which we discussed in the attached revised agreement. I also added a requirement that the agreement be approved by the court without delay.”

[19] Mr. Brown’s letter of January 28, 2020, enclosed a draft cooperation agreement.

[20] On January 11, 2021, Mr. Schnarr wrote to plaintiffs’ counsel as follows:

I just wanted to [follow up] on the draft co-operation agreement and pursuing the court approval of my clients’ s. 256 payment. I look forward to hearing from you.

[21] On February 2, 2021, Mr. Schnarr wrote once again to plaintiffs’ counsel:

Hey guys – have you had a chance to take a look at the revisions? I’d like to move on you getting approval for the advance payment.

[22] It appears that on June 17, 2021, the terms of a draft proposed cooperation agreement were agreed to, subject to both court approval, and Mr. Brown and Mr. Schnarr obtaining instructions from their respective clients.

[23] On August 18, 2021, counsel for all parties participated in a conference call regarding the upcoming examinations for discovery, as well as other matters in the litigation. Mr. Brown advised all present that a cooperation agreement was in place, and once it was signed counsel would be provided with a copy of it. The agreement was to have been produced prior to examinations for discovery.

[24] On September 1, 2021, Ms. Kolos emailed Ms. Stevens requesting a copy of the Cooperation Agreement. Ms. Stevens replied on September 7, 2021, advising that minor revisions were being made and a copy will be provided once signed.

[25] Ms. Kolos followed up again on September 8, 2021. Mr. Schnarr replied, advising that the Cooperation Agreement had not yet been completed.

[26] Ms. Freeman was examined on September 10, 2021, despite the fact that the Cooperation Agreement had not been produced.

[27] On October 5, 2021, Ms. Kolos wrote and enquired whether the Cooperation Agreement had been signed and, if so, to be provided a copy. Mr. Schnarr replied that the Cooperation Agreement had not been signed.

[28] The examination of Mr. Howran began on October 6, 2021, but was not completed.

[29] On October 14, 2021, a revised version of the Cooperation Agreement was circulated between Ms. Stevens and Mr. Schnarr. This is the version of the Cooperation Agreement that was ultimately signed by the parties in September, 2023.

[30] On October 26, 2021, the terms of the Cooperation Agreement were agreed between the plaintiffs and the Howran/Fournier defendants. Attached as Exhibit “A” to Mr. Schnarr’s affidavit affirmed January 8, 2024 is a copy of the Cooperation Agreement, signed by Mr. Schnarr and provided to the plaintiffs.

[31] The examination of Mr. Howran was completed on January 17, 2023.

[32] On April 17, 2023, counsel for the City wrote plaintiffs’ counsel and again requested a copy of the Cooperation Agreement.

[33] On May 16, 2023, Ms. Teal emailed Mr. Schnarr and Ms. Stevens as follows:

Some time ago, I understood that the Plaintiff and co-defendants Howran/Freeman were negotiating a “cooperation agreement”.

The entry into a cooperation agreement has the effect of changing the adversarial position of the parties set out in their pleadings. It requires immediate disclosure at the risk of a permanent stay of the proceedings. The obligation is to disclose and not just notify. Moreover, the parties to an agreement may not delay its execution to defer the formal disclosure obligation.

Can you please confirm the terms of any cooperation agreement, whether executed or not, and when the agreement was finalized?

[34] On July 5, 2023 the City emailed Ms. Stevens and Mr. Schnarr as follows:

We have been requesting the details of the cooperation agreement between Mr. Howran and the plaintiffs since plaintiffs’ counsel advised us of its existence in August 2021. No details have been provided.

We echo Ms. Teal’s comments below about such an agreement altering the landscape of the proceedings and once again write to request the immediate disclosure of same.

[35] On August 3, 2023 the City emailed Ms. Stevens and Mr. Brown as follows:

We have been requesting details of the cooperation agreement between the plaintiffs and Cody Howran for two years. There is now a significant body of caselaw which has stayed actions as an abuse of process for failure to provide immediate details regarding any such an agreement. See, for example, CHU de Québec-Université Laval v. Tree of Knowledge International Corp., 2022 ONCA 467, where the Court confirmed that immediate disclosure of any agreement which “changes the landscape” of the litigation is required, and that such an obligation is not limited to only Mary Carter or Pierringer agreements. We trust that you will be immediately providing us a copy of this agreement in response to this email.

[36] On August 14, 2023, Ms. Stevens responded to Ms. Teal and the City as follows:

Thank you for your recent email and summary of the case law relating to our obligation to disclose the co-operation agreement.

I agree the case law requires parties to disclose the existence of agreements once they are finalized. However, in our case the subject co-operation agreement has not been finalized and remains in draft form as Ms. Howran is a minor. Given that the proposed agreement impacts Ms. Howran’s rights in the litigation, court approval must be obtained in order to finalize same.

Having said that, we are providing you with a copy of the proposed cooperation agreement [emphasis in original].

[37] This “proposed” version of the Cooperation Agreement differed from the version Mr. Schnarr signed on October 26, 2021. I will set out the relevant portions of the different versions below.

[38] On August 15, 2023, the City advised all counsel that in light of the late disclosure of the Cooperation Agreement, the City would not participate in the mediation scheduled to be held on August 22, 2023.

[39] Ms. Stevens failed to reply to Ms. Teal’s email, also dated August 15, 2023, requesting to know the date the advance payment was received by the plaintiffs. By the time the motion was argued, all parties were aware that the advance payment of $1 million was made by the Howran/Fournier defendants to McKellar Structured Settlements.

[40] On September 7, 2023, the City served its record for the within motion to permanently stay the proceeding as an abuse of process.

[41] On September 27, 2023, Mr. Brown on behalf of the plaintiffs, and Mr. Schnarr on behalf of the Howran/Fournier defendants, signed a further revised version of the Cooperation Agreement, which became the final version. While it was the final version, it was the first version of the Cooperation Agreement to be signed by all counsel.

Three Iterations of the Cooperation Agreement

[42] All told, there were three versions of the Cooperation Agreement. I have set out the relevant portions of each below:

September 2017 Draft a. Mr. Howran and Ms. Fournier would make an advance payment to the plaintiffs (article 1). b. The plaintiffs would maintain their claims for damages, interest, and costs against Mr. Howran and Ms. Fournier (article 3). c. The plaintiffs, Mr. Howran, and Ms. Fournier would "cooperate on liability issues at the trial of the [action] against [Kawartha Lakes]" (article 8). d. Mr. Howran and Mr. Fournier would not dispute the damages claimed by the plaintiffs at trial (article 9).

October 26, 2021 Draft a. Addition: The plaintiffs, Mr. Howran, and Ms. Fournier would jointly argue at the conclusion of trial that the cooperating defendants' costs following the advance payment "should be borne" by the non-cooperating defendants (article 2). b. Deletion: The provision that provided that the plaintiffs would maintain their claims for damages, interest, and costs against Mr. Howran and Ms. Fournier was deleted (former article 3). c. Revision: The advance payment may be structured, "subject to court approval" (article 5). d. Deletion: The provision that would have prevented Mr. Howran and Ms. Fournier from contesting the plaintiffs' damages claimed at trial was deleted (former article 9).

September 27, 2023 Draft a. Addition: Mr. Howran and Ms. Fournier would pay the plaintiffs' reasonable partial indemnity costs through to final judgment (article 2). b. Revisions: References to the non-settling defendants were revised to include the defendants The Dominion of Canada General Insurance Company and John Doe, which had been added to the action (articles 3, 4, 5, 9). c. Revision: The provision that provided that the plaintiffs would maintain their claims for damages, interest, and costs against Mr. Howran and Ms. Fournier was re-added (article 5). d. Revision: The advance payment may be structured subject to court approval, failing which it would be "refunded" (article 7). e. Addition: The Cooperation Agreement would "take effect upon approval by the Court" (article 12).

[43] What remained a constant theme in each version of the Cooperation Agreement is the plaintiffs’ undertaking to cooperate on liability issues at the trial of the proceeding against the City. In the third version, the plaintiffs also agreed to cooperate on liability issues at the trial against the Dominion of Canada General Insurance Company and John Doe.

The Issue

[44] Did the Cooperation Agreement change the litigation landscape, such that the only remedy for the plaintiffs’ alleged non-disclosure is a permanent stay of the proceedings?

The Law

[45] The obligation to disclose a partial settlement is not a novel concept. In Pettey v. Avis Car Inc., [1993] O.J. No. 1454 (Gen. Div.), at para. 32, Ferrier J. held as follows:

The agreement must be disclosed to the parties and to the court as soon as the agreement is made. The non-contracting [non-settling] defendants must be advised immediately because the agreement may well have an impact on the strategy and line of cross-examination to be pursued and evidence to be led by them. The non-contracting parties must also be aware of the agreement so that they can properly assess the steps being taken from that point forward by the plaintiff and the contracting [settling] defendants. In short, procedural fairness requires immediate disclosure. Most importantly, the court must be informed immediately so that it can properly fulfil its role in controlling its process in the interests of fairness and justice to all parties.

[46] In the years that followed, the obligation to disclose was consistently upheld by the Court of Appeal: Aecon Buildings v. City (Brampton), 2010 ONCA 898, [2010] O.J. No. 5630, at para. 16, leave to appeal denied [2011] S.C.C.A. No. 84; Laudon v. Roberts, 2009 ONCA 383, [2009] O.J. No. 1824, at para. 39, leave to appeal denied [2009] S.C.C.A. No. 304.

[47] In Handley Estate, the Court of Appeal made it very clear that the duty to disclose a partial settlement arises immediately upon settlement being reached: see Handley Estate v. DTE Industries Ltd., 2018 ONCA 324, [2018] O.J. No. 1763, at para. 36. Failure to do so constitutes an abuse of process.

[48] In CHU de Québec-Université Laval v. Tree of Knowledge International Corp., 2022 ONCA 467, [2022] O.J. No. 2762, the Court of Appeal again address the notion of abuse of process, holding that partial settlement agreements which change the adversarial positions of the parties must be disclosed to the Court and the non-settling parties immediately upon their conclusion. Failure to do so must result in a stay of the proceeding.

[49] In CHU, the settling plaintiff had advised the non-settling parties that a Pierringer agreement was being negotiated, and that it would be seeking court approval. The motion judge found that “[b]ased on this disclosure, a reasonably experienced civil litigation lawyer would have known that the adversarial orientation of the litigation had changed, that parties that had been co-defendants were no longer co-defendants, and were no longer aligned with the other defendants:” CHU, at paras. 55-56.

[50] Whether a settlement agreement changes the litigation landscape ultimately depends on the circumstances of each particular case: see Poirier v. Logan, 2021 ONSC 1633, [2021] O.J. No. 1191, at paras. 57 and 70.

[51] The determination of whether there had been a change to the entirety of the litigation landscape is fact-specific, based on the various claims among the parties: Skymark Finance Corporation v. Ontario, 2023 ONCA 234, 166 O.R. (3d) 131, at para. 51.

[52] In Skymark, the Court of Appeal endorsed Feldman J.A.’s depiction of an agreement that changes the litigation landscape as one that “significantly alters the dynamics of the litigation”: Skymark, at para. 53.

[53] In Waxman Estate v. Waxman, 2021 ONSC 2180, [2021] O.J. No. 1693, at para. 43, aff’d 2022 ONCA 311, Koehnen J. described why providing timely notice of agreements that alter the litigation landscape is important:

(i) Timely disclosure enables the remaining defendants to decide whether to bring a cross-claim against the settling defendants.

(ii) Timely disclosure enables the remaining defendants to bring motions for production from the settling defendants.

(iii) Timely disclosure enables the remaining defendants to determine whether to examine the settling defendants for discovery or otherwise access and memorialize their evidence.

(iv) Timely disclosure allows the remaining defendants to assess whether the arrangement affects their strategy, line of cross-examination and evidence to be led by them.

(v) The court must be aware of the precise adversarial orientation of the parties in order to maintain the integrity of its own process. A court cannot make orders that govern the litigation effectively unless it is aware of the specific adversarial orientation of the parties [citations omitted].

[54] An absence of prejudice does not absolve the settlement parties from disclosing the terms of an agreement: Handley, at para. 45.

[55] As Perrell J. held in Poirier v. Logan, 2021 ONSC 1633, [2021] O.J. No. 1191, at para. 61:

As a practice point, however, there is little reason not to disclose a settlement agreement immediately. Even if the agreement is of the type that does not have to be immediately disclosed, then - better to be safe than sorry. As the immediate case demonstrates, the risks of intentionally or unintentionally keeping the settlement agreement a secret are far too risky.

Analysis

[56] This is a unique circumstance, one in which I conclude that the City’s motion for a stay should be dismissed, and the plaintiffs’ motion to approve the Cooperation Agreement should be granted.

[57] The mischief to be avoided by disclosing the terms of a settlement agreement to the court and the non-settling parties is litigation by ambush. That has not occurred in this case.

[58] The plaintiffs were acutely aware of their obligation to disclose the terms of the Cooperation Agreement. The City was provided a copy of the first draft in 2017. I concede that a month later, the City was under the impression that the Cooperation Agreement was off the table. The forward movement of the action then appeared to languish.

[59] However, during a conference call amongst all counsel in August 2021, in preparation for examinations for discovery, the City was advised that that the plaintiffs and the Howran/Fournier defendants were again attempting to finalize the terms of a cooperation agreement.

[60] When the City requested a copy of the Cooperation Agreement, Ms. Stevens advised that minor revisions were being made, and a copy would be forthcoming once signed.

[61] The 2017 draft of the Cooperation Agreement very clearly indicated that the litigation landscape would be altered:

The Plaintiffs and the Defendants Howran and Fournier will cooperate on liability issues at the trial of the proceeding against the Defendant the Corporation of the City of Kawartha Lakes.

[62] This is not an instance such as occurred in Tallman, where the motion judge held that the non-settling defendant “was left to divine the nature of the settlement instead of being told about it forthrightly and immediately”: Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2021 ONSC 984, [2021] O.J. No. 595, at para. 58, aff’d 2022 ONCA 66. Here, the essential terms of the settlement were within the City’s ken in 2017, before it examined Mr. Howran.

[63] Recall that Mr. Howran’s examination was conducted over two days. On the first day, October 6, 2021, Mr. Howran answered Mr. Brown’s questions concerning the circumstances of the collision and the installation of Ms. Howran’s car seat.

[64] It appears that following the first day of Mr. Howran’s examination for discovery, the plaintiffs and the non-settling defendants came to an agreement on the terms of the Cooperation Agreement, and as on November 11, 2021, an advance payment was transferred in trust to McKellar Structured Settlement.

[65] On the second day of Mr. Howran’s discovery, January 17, 2023, the City suggests that Mr. Howran could not recall the answers to any questions posed by the City in respect of the circumstances of the collision and the installation of the car seat.

[66] The City argues that Mr. Howran’s inability to recall details in 2023 was directly related to Cooperation Agreement being entered into. I do not read anything that nefarious into Mr. Howran’s difficulty with recollection. The collision occurred in 2014, approximately 9 and one-half years before his second day of discovery. Memories do tend to fade as years pass.

[67] Further, the questions posed by Mr. Brown related to the dynamics of the collision. The questions posed by Ms. Kolos on behalf of the City were related to more peripheral details one might not recall as clearly, such as whether Ms. Freeman had asked him to slow down before the collision, or whether he was eating or drinking or using his cell phone in the moments before the collision. Mr. Howran may also have been an uncooperative witness. There are remedies available to the City to address this.

[68] In any event, both discovery dates occurred after the City was made aware that an essential term of the Cooperation Agreement would see the Howran/Fournier defendants cooperating with the plaintiffs on liability at trial. This knowledge permitted the City to alter its strategy and lines of cross-examination if it so chose, even in the absence of a copy of the agreement. The City was not in any way misled.

[69] I find support for this position in Veenstra v. North Middlesex (Municipality), 2023 ONSC 464, [2023] O.J. No. 198. There, the moving party brought a motion to stay the action on the basis that the undisclosed Pierringer agreement between the plaintiffs and certain defendants changed the litigation landscape.

[70] Rady J. held that “the moving parties were aware of the fact that there was a Pierringer agreement in the works” and “the agreement was not fully executed until [later]”: Veenstra, para. 27.

[71] The moving parties in Veenstra were advised only that a Pierringer agreement was being negotiated. Here, the City was not only aware that a Cooperation Agreement was being negotiated, but it was also aware of the Cooperation Agreement’s fundamental condition that the Howran/Fournier defendants would act in concert with the plaintiffs, against the City, on the issue of liability.

Date the Cooperation Agreement was Finalized

[72] It does not escape the Court’s notice that settlement funds were advanced in trust in 2021. One might argue that this constituted a completed cooperation agreement, such that the terms should have been disclosed to the non-settling parties.

[73] I would disagree. The Cooperation Agreement was not fully executed until September 27, 2023, and was thereafter immediately disclosed.

[74] Furthermore, pursuant to the terms of the Cooperation Agreement, the settlement was subject to court approval. The funds were distributed on the understanding that if court approval was not obtained, the funds would be refunded.

Conclusion

[75] The City’s motion to stay the proceeding is dismissed.

[76] The plaintiffs’ motion to approve the Cooperation Agreement is granted. The settlement amount of $1 million represents the full amount of the policy limits of the Howran/Fournier defendants.

[77] That portion of the settlement funds earmarked for the minor plaintiff – $850,000 – has remained with McKellar Structured Settlement, awaiting court approval.

[78] The remaining $150,000, currently residing with Travellers Insurance, shall be forwarded to Thomson Rogers to be held in trust as a financial retainer. This is consistent with the terms of the law firm’s deferred fee arrangement with the plaintiffs.

[79] Ms. Teal’s consent motion to dismiss the action against The Dominion of Canada General Insurance Company and John Doe was granted on January 19, 2024.

Costs

[80] If the parties are unable to come to an agreement regarding costs, they may make written submissions (no more than three pages) to further supplement the bills of costs that were uploaded to Case Centre in advance of the hearing.

[81] Submissions are to be received no later than by August 23, 2024.

CASULLO J. Released: July 30, 2024