Court File and Parties
Court File No.: CV-24-00721967-0000 Date: 2025-09-29 Superior Court of Justice - Ontario
Re: Alan Daniels, Plaintiff
And: Leonard Ivey, John Frankel, Softdrive Technologies Inc., Softdrive Technologies Group Inc., FF Violet (VI) Venture Capital Fund, LP, FF Violet (VI) Venture Capital Fund GP, LLC, Garage Capital Fund III LP, by its General Partner, Garage Management III Inc., Series Softdrive, a Series of Cow Hollow Capital Master LLC, SDV Seed Fund I, a Series of Side Door Ventures, LLC, Globalive Capital Inc., and Ryerson Futures Inc. in Trust for Ryerson University, Defendants
Before: Akazaki J.
Counsel:
- Christopher J. Cosgriffe, for the Plaintiff
- David Lederman and Arash Rouhi, for the Defendant Ryerson Futures Inc., in Trust for Ryerson University
- Christopher McClelland, for the Defendants Softdrive Technologies Inc., Leonard Ivey, John Frankel, Softdrive Technologies Group Inc., Garage Capital Fund III LP, by its general partner, Garage Management III Inc., Series Softdrive, a series of Cow Hollow Capital Master LLC, and Globalive Capital Inc.
Heard: August 20, 2025
Reasons for Decision
Overview
[1] Ryerson Futures Inc. brought this rule 21 motion to strike out Alan Daniels' pleadings and to dismiss the action against it, because the oppression claim revealed no case to answer. After Ryerson demanded particulars from Mr. Daniels of his case against Ryerson, he refused to provide them. Mr. Daniels tried to persuade the court that his pleading contained at least a placeholder for an oppression claim against Ryerson, if one looked hard enough and gave his counsel an opportunity to search for evidence during the discovery process. The nature of the case his pleadings described against the oppressors left no reason to believe Ryerson took part in the oppression or had the power to do so. Therefore, the action against Ryerson cannot be an exception to the rule that plaintiffs must know and disclose the case against a defendant before suing it.
[2] The court requires a plaintiff to plead the material facts of a civil cause of action. If the plaintiff could not articulate them, there was no reason to sue. That is the practical logic of a motion under rule 21.01(2)(b), "to strike out a pleading on the ground that it discloses no reasonable cause of action or defence." A civil action is not an undertaking to be taken lightly. Serving a defendant with papers that fail to disclose a cause of action abuses the judicial process.
[3] Mr. Daniels disclosed a viable claim against the other defendants for wrongful termination of employment and for an oppression remedy pursuant to s. 241 of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 ("CBCA"). He pleaded that the other defendants, headed by Leonard Ivey and John Frankel, orchestrated Mr. Daniels' ouster from Softdrive Technologies Inc. and the undervalued sale of its assets to a new company. Mr. Daniels alleged that Mr. Ivey and Mr. Frankel convened a directors' meeting to fire him, intending to invoke a provision in the shareholders' agreement allocating votes only to persons providing services to the company. By disqualifying his shares, they were able to pass a shareholder resolution to complete the sale. If true, this clever if unlawful conduct did not involve Ryerson.
[4] There was no dispute that the Statement of Claim, as amended, contained no facts of Ryerson's participation in Mr. Daniels' termination from employment at Softdrive. When asked about Ryerson's participation in these oppressive acts, Mr. Daniels' counsel argued that Ryerson consented to the sale and accepted shares in the new purchaser entity, which made them complicit in the oppression. Because the sale and purchase are the same oppressive transaction, Mr. Daniels argues, Ryerson was involved in the oppression.
[5] Oppression occurs within the confines of a corporation or its corporate group's ability to harm an eligible complainant's interests or to bring about an inequitable outcome. It is perpetrated by the acts or omissions of persons exercising the power to bring about the harmful result or inequity. The grounds for a finding of corporate oppression, under s. 241(2), are all rooted in the exercise of corporate powers and conduct of business by a federal corporation, by its affiliates, or by its directors. The acts or omissions of corporate actors outside the corporation or its affiliated group, however hostile they may be perceived, cannot constitute oppression, in the way the statute has formulated the right to apply for a court remedy. Ryerson's "complicity" by indirectly benefitting from the events prejudicial to Mr. Daniels cannot found liability if it did not cause or materially contribute to those events.
[6] To arrive at the conclusion that the plaintiff's pleadings must be struck, with a final chance to plead material facts of the oppression claim against Ryerson, I will address the following points:
- Nature of oppression claims under s. 241 of the CBCA
- Test for striking out a pleading under rule 21
- Mr. Daniels' pleadings against Ryerson
1. Nature of Oppression Claims Under S. 241 of the CBCA
[7] Oppression is a statutory cause of action that replaced much more restrictive common-law remedies. In the CBCA, it is found in s. 241, the relevant portions of which I reproduce here with underlining to illustrate the point made above:
Application to court re oppression
241 (1) A complainant may apply to a court for an order under this section.
Grounds
(2) If, on an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates
(a) any act or omission of the corporation or any of its affiliates effects a result,
(b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or
(c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner
that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the court may make an order to rectify the matters complained of.
Powers of court
(3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing …
[An extensive list of typical remedies follow.]
[8] As stated by the Supreme Court of Canada in BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at para. 45, the oppression remedy "focuses on harm to the legal and equitable interests of stakeholders affected by oppressive acts of a corporation or its directors." The language of s. 241(3) is broad enough to allow the court wide latitude to craft a remedy to right the wrong or to compensate the complainant for the suffered prejudice. The overarching principle of oppression remedies is the protection of corporate stakeholders' reasonable expectations immediately prior to the prejudicial act or event (BCE, at para. 56).
[9] In this case, Mr. Daniels was an atypical oppression complainant, because he controlled a supermajority of 65% of the common shares. Ordinarily, the oppression remedy safeguards the rights of minority stakeholders against the corporate authority of majorities: Colautti Landry et al v. Pickard et al., 2021 ONSC 2741, at para. 31. As detailed in my discussion of the pleadings in the statement of claim, the allegation that the minority shareholders Ivey and Frankel oppressed Mr. Daniels could be viable, because of the leverage they exerted through a mechanism in the shareholders agreement.
[10] Although novel, I am prepared to accept that a shareholders agreement that can be executed in a manner giving minority shareholders the ability to turn the tables on a majority holder could qualify as oppression under s. 241(2). In the absence of specific wording limiting complainants to minorities, this appears to be an exceptional case where the majority shareholder could have been oppressed by two minority shareholders, if they manoeuvred themselves into a majority. The question before the court is whether Ryerson could be held liable to Mr. Daniels, if it was not involved in Mr. Daniels' dismissal from the company, and if its sole involvement in the asset sale was registering a consent that had no effect on the transaction going ahead. Before getting to that question, I must first define the scope of my authority under rule 21 to review the adequacy of the pleadings.
2. Test for Striking Out Pleadings Under Rule 21
[11] Rule 21.01(1)(b) provides Ontario's version of a rule of court, implemented across Canada to allow for pleadings to be struck for the failure to disclose a reasonable cause of action or defence. Under subrule 21.01(2), no evidence is admissible on the motion. The court can only strike out a pleading, if it is plain and obvious, assuming the facts pleaded are true or capable of proof, discloses no reasonable cause of action or defence: Knight v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45, at para. 17.
[12] The Supreme Court in Imperial Tobacco also instructed that a claimant is not entitled to rely on the possible emergence of facts supporting the claim that may be revealed at the discovery stage. Although the court does not demand proof of an allegation at the pleadings stage, it requires a pleading of the material facts: Imperial Tobacco, at para. 22.
[13] To relieve against the possibility of unfairly denying the plaintiff a day in court, the court must grant leave to amend the pleading to cure the defect, except where no amendment could save it: Conway v. The Law Society of Upper Canada, 2016 ONCA 72, 395 D.L.R. (4th) 100, at para. 16. Without listing and comparing the long history of the treatment of this principle, the general principle is to grant leave whenever the pleader has omitted a vital element of a claim or defence, and to deny leave if the pleading provides a full account of events and transactions that leave no prospect of an ability to support a legal cause of action or defence. Ryerson argued that the case fell into the latter category.
3. Mr. Daniels' Pleadings Against Ryerson
[14] Ryerson obtained a limited stake of non-voting common shares in Softdrive Technologies Inc., as a condition of having facilitated and initially hosting the startup at the innovation centre of what is now Toronto Metropolitan University. Mr. Daniels pleaded no active role on Ryerson's part in any of the matters forming his complaint, perforce because it could not have had one.
[15] The facts of the s. 241 oppression claim appeared at paragraphs 41 to 47 of the Amended Statement of Claim. To understand these pleadings, one must refer to paragraph 24, to find the operation of the shareholder agreement called the "Voting Agreement." It provided for three directors who were providing services to the company. The two other directors' termination of Mr. Daniels allowed them to eliminate his vote as a shareholder, despite his control of 65%. The minority shareholders then passed a resolution requiring Softdrive to sell off its assets valued at $8.5 million USD to a new company incorporated by Mr. Ivey and Mr. Frankel, Softdrive Technologies Group Inc. ("ST Group"), for consideration of $400,000 CAD. If true, the pleading disclosed a viable oppression complaint by Mr. Daniels against Mr. Ivey, Mr. Frankel, and their corporate asset recipient.
[16] Paragraphs 31 to 39 of the claim pleaded how Ivey and Frankel outvoted Mr. Daniels two to one at a board of directors meeting to terminate his employment. In the statement at paragraph 40 summing up the wrongful termination as part of the oppression, he amended the statement of claim to include Ryerson among those liable for the termination. Because Ryerson had no seat on the board to participate in the firing, the insertion of Ryerson in paragraph 40 should be struck out. The pleading clearly made no sense.
[17] As pleaded, Ryerson also lacked a practical and causal role in the shareholder resolution. If Mr. Ivey and Mr. Frankel outvoted Mr. Daniels by two to one to terminate his employment, the use of that mechanism to disqualify the majority shareholder in a shareholder resolution also left no role for Ryerson, because it lacked the voting shares to prevent the passage of the resolution. After disqualification of Mr. Daniels' shares, the resolution was passed unanimously by the voting shares controlled by Mr. Ivey and Mr. Frankel. Ryerson also argued that its consent was mandatory. The more dispositive fact was that its consent was irrelevant, if the two proponents of the shareholder resolution stood in a unanimous position. Refusal to provide the consent would not have halted the resulting transaction. Granting it only meant it did not join Mr. Daniels as a potential oppressed complainant.
[18] One might infer from the issuance of shares of the new company to Ryerson protected the proponents and the new company from Ryerson joining Mr. Daniels in the ranks of the oppressed. However, not being oppressed did not render Ryerson an oppressor. Mr. Daniels must plead an active role for Ryerson in the prejudicial outcome of the corporate acts set in motion by Mr. Ivey and Mr. Frankel. If he had responded to the demand for particulars with information about that role, he could have saved the pleadings against Ryerson. By electing to refuse to provide particulars, the parties and the court can only assume there were none to disclose.
[19] Mr. Daniels' counsel then focused on paragraph 46 of the Amended Statement of Claim, as containing the particulars of the material allegations against Ryerson:
- The only reason Daniels' employment was terminated was because, since he controlled 65% of the Common Shares, he controlled the Active Common Majority and thus his consent would be necessary for the Oppressive Transaction. By orchestrating Daniels' termination and ouster from Softdrive, Ivey, Frankel, ff Violet LP through ff Violet GP, the other Purchasers, Ryerson and Softdrive Group eliminated Daniels from the Softdrive business and any future value of the Softdrive assets all to their own benefit. Such conduct was oppressive, was a breach of the fiduciary duties owed by Ivey and Frankel, and was done for no legitimate business purpose.
[Original underlining denotes the amendment inserting Ryerson.]
[20] I note that, as in paragraph 40, Ryerson was inserted by amendment. The plain and grammatical reading of the sentence implicated Ryerson in the orchestration of Mr. Daniels' ouster. The problem is that on the face of the pleadings, Ryerson did not take part in his termination and was not among the three directors on the board. Counsel then attempted to extend the meaning by referring to the words, "all to their own benefit," and similar wording in paragraph 42 ("Ryerson also supported and benefitted from the Oppressive Transaction").
[21] Benefitting from an oppressive transaction did not render Ryerson liable for the prejudice suffered by the complainant. Consenting to the transaction did not amount to support, if the consent was unnecessary. Even the provision in s. 241(2)(a), qualifying as oppression "any act or omission of the corporation or any of its affiliates [that] effects a result," could not aid Mr. Daniels' oppression claim against Ryerson. To affect a result, there must be a legal causal relationship between the complainant's detriment and the act or omission: Sahota v. Basra, 45 B.L.R. (2d) 143 (Ont. Gen. Div.), at para. 29.
[22] Despite the wide authority to fashion a remedy against oppression, the remedy can only be imposed on the participants in the oppression and against its direct beneficiaries with knowledge or notice of the oppression: Maynes v. Allen-Vanguard Technologies Inc. (Med-Eng Systems Inc.), 2011 ONCA 125, 274 O.A.C. 229, at paras. 74-75. The Court of Appeal's specific requirement that a direct beneficiary of an oppressive transaction can be subject to the statutory equitable remedy allows for constructive trust, tracing, and reversal of transactions. Here, ST Group was the direct beneficiary. To hold minority shareholders to individual liability for having gone along with an existing majority shareholder resolution would pierce the corporate veil well beyond the statutory mandate to hold the oppressors to account. The only consequence to which they should be bound is the restoration of their position, even if they lose the benefit of the transaction after court reversal. Such an outcome would be consistent with Ryerson's passive position. Ultimately, it does not care about the outcome of the litigation, beyond its desire to be extricated from it.
[23] If Ryerson had any corporate power to oppress Mr. Daniels, either by act or by omission, his pleadings failed to disclose the basic facts of such power and of the events and transactions amounting to oppression.
[24] In concluding that the court must strike out the claim against Ryerson, I am mindful of a style of legal practice reliant on the expectation that the court should allow the case to ripen during the discovery process. Although this practice must stop, it would be unjust to make any individual plaintiff an example by striking out an opaque pleading without affording him and his counsel an opportunity to apply more cognitive effort to the case against Ryerson and to find out for themselves why they sued that entity. The obstinate refusal to provide particulars of the oppression claim against Ryerson could signify the absence of a viable claim, but it could also denote a failure to consider Ryerson's role as incubator of the original organization of the startup company.
[25] I will therefore allow Mr. Daniels 20 days to comb through his records to determine whether there is anything there to find a viable claim against Ryerson. It is hard to imagine how Ryerson's role could be traced to the oppression complaint, but I will leave that function to Mr. Daniels and his counsel. If there is nothing to fill in the logical gaps in the pleading, then he should not abuse the leave to amend by straining to advance unsupportable facts. He should simply allow the 20 days to come and go, and face the costs consequences of having brought an untenable action.
Conclusion
[26] I will therefore grant Mr. Daniels leave to amend the Amended Statement of Claim within 20 days from the release date of this order, to articulate a cause of action against Ryerson. If the plaintiff fails to amend the pleading within the allowed time, the action shall be dismissed as against Ryerson, with costs.
[27] The parties to the motion filed costs outlines in advance of the hearing. I see no reason to depart from the default rule that costs should follow the event, on a partial indemnity scale. Ryerson estimates its costs on a partial indemnity scale in the amount of $34,780, compared to the $8,746 advanced by Mr. Daniels. The amounts reflect the heavy burden on a moving party in a rule 21 motion, compared to the passive strategy employed by Mr. Daniels of hoping a placeholder pleading was sufficient to thwart the pleadings being struck out. I hereby fix the costs of the motion payable by Mr. Daniels to Ryerson in the amount of $34,780, inclusive of disbursements and HST.
Akazaki J.
Date: September 29, 2025