Court File and Parties

Court File No.: CV-24-733627-00CL Date: 2025-10-17 Ontario Superior Court of Justice [Commercial List]

Between:

Abe Schwartz, Plaintiff

– and –

Edward Leavens, Marc Carrafiello, Derek Schenk, Charlie Atkinson, Michael Hyatt, Richard Hyatt and DataStealth Inc., Defendants

Counsel

Marie Henein, Peter Henein & Justine Smith, for the Plaintiff

Scott Kugler & James Aston, for the Defendants Richard Hyatt, Michael Hyatt and DataStealth Inc.

Linda Rothstein, Ren Bucholz & Sonia Patel, for the Defendants Edward Leavens, Marc Carrafiello, Derek Schenk and Charlie Atkinson

Hearing

Heard: September 25, 2025

Justice: Jana Steele

Reasons for Decision

Introduction

[1] The defendants seek to strike the plaintiff's claim for, among other things, abuse of process. Their position is that Penny J.'s decision in Leavens v. Schwartz, 2023 ONSC 3381 (the "Shotgun Decision") finally disposed of this matter and that Mr. Schwartz, unhappy with the result, now seeks another kick at the can.

[2] The background to the matter is summarized in the Shotgun Decision. What is not included in the background in the Shotgun Decision is certain behind the scenes dealings that were taking place between the defendants, Edward Leavens, Marc Carrafiello, Derek Schenk and Charlie Atkinson (collectively, the "SMT Defendants"), and the defendants, Richard Hyatt and Michael Hyatt (the "Hyatt Brothers") leading up to the triggering of the buy/sell.

[3] The dealings between the Hyatt Brothers and the SMT Defendants started before the buy/sell was triggered. Essentially, the Hyatt Brothers agreed to loan Leavens and Carrafiello funds to pay for Schwartz's Datex shares, if, among other things, the buy/sell was triggered, and Leavens and Carrafiello were in a position to purchase Schwartz's shares. If this occurred, then the Hyatt Brothers would finance the purchase, by way of convertible secured debt. As detailed in the Shotgun Decision, Leavens and Carrafiello triggered the buy/sell and Leavens did not respond within the designated timeframe. Accordingly, and as found by Penny J., Leavens and Carrafiello were successful and could buy Schwartz's shares at the offered price. The financing was provided by the Hyatt Brothers, who subsequently exercised the conversion option.

[4] Schwartz may regret not having opted to purchase Leavens' and Carrafiello's Datex shares when they triggered the buy/sell. However, Schwartz does not now get to reopen the entire matter based on a new theory.

[5] The buy/sell agreement was between the shareholders: Leavens and Carrafiello on the one hand, and Schwartz on the other. The contractual arrangement was set out in the unanimous shareholders' agreement. Each of the shareholders was entitled to look out for their own self-interest. Leavens and Carrafiello chose to negotiate certain financing terms with the Hyatt Brothers before triggering the buy/sell. Schwartz was free to get financing if he wished. He did not do so. Nor did he accept the offer put to him.

[6] For the reasons set out below, I have determined that the claim shall be struck without leave to amend, because it is an abuse of the court's process.

Background

[7] The SMT Defendants are the current and former senior management team of DataStealth Inc., an Ontario cybersecurity company.

[8] DataStealth is the successor to Datex Inc.

[9] Prior to the amalgamation of Datex into DataStealth, the SMT Defendants were also the senior management team for Datex: Leavens was its Chief Executive Officer, Carrafiello was its Chief Information Officer, Schenk was its Chief Technical Officer, and Atkinson was a contractor responsible for Datex's sales team and acted as de facto Chief Revenue Officer.

[10] Leavens and Carrafiello were also officers at Datex.

[11] Leavens held about 22% of Datex's shares, and Carrafiello held about 11%. Schwartz held about 66% of Datex's shares.

[12] The Shotgun Decision was released on June 5, 2023. Among other things, Penny J. confirmed that the shotgun clause in the unanimous shareholders agreement had been complied with. Given that Schwartz did not exercise his right to purchase Leavens' and Carrafiello's shares within the specified time period, Schwartz was deemed to have accepted Leavens' and Carrafiello's offer to purchase his shares in Datex for $1.16 per share for a total price of $6,960,000.

[13] Leavens and Carrafiello borrowed money from the Hyatt Brothers to purchase Schwartz's Datex shares. The following are highlights of the discussions and documents leading up to the financing:

a. Atkinson introduced Michael Hyatt to Leavens in September 2022.

b. In December 2022, Leavens approached Michael Hyatt about potentially financing a buyout of Schwartz's shares.

c. In December 2022, Leavens, Atkinson and the Hyatt Brothers entered into a mutual non-disclosure agreement to facilitate the delivery of preliminary due diligence materials. Around this time, the production of documents by the SMT Defendants to the Hyatt Brothers commences.

d. On January 31, 2023, the SMT Defendants and the Hyatt Brothers' corporation entered into a letter of intent ("LOI") for the proposed loan. Under the LOI, the Hyatt Brothers agreed to provide the SMT Defendants with up to $5 million, by way of convertible secured debt, "for the sole purpose" of acquiring Schwartz's Datex shares. The loan would only be advanced if Leavens and Carrafiello were successful on the buy/sell (or to buy Schwartz's shares in another manner contemplated in the LOI).

[14] On or about February 12, 2023, Leavens met with Schwartz and introduced the idea of an amicable separation given that the parties were at odds with how the business should operate in the future. At that meeting Leavens told Schwartz that they did not have all the cash they needed to buy him out and would have to turn to mortgages and/or loans from friends/family. Schwartz took a few days to consider, then told Leavens he was not interested.

[15] On or about February 24, 2023, Leavens and Carrafiello delivered the binding offer on Schwartz further to the buy/sell under the USA.

[16] As detailed in the Shotgun Decision, Schwartz wrote to Leavens and Carrafiello on or about March 10, 2023, stating that he was not selling his shares, nor was he buying their shares. Leavens and Carrafiello brought the application before Penny J. to enforce their rights under the unanimous shareholders agreement. Penny J. determined that Schwartz's failure to respond within the designated timeframe amounted to a deemed acceptance of the offer to sell his shares to Leavens and Carrafiello.

[17] On or about May 4, 2023, the Hyatt Brothers and the SMT Defendants entered into an Amending Agreement to amend certain provisions of the LOI, given that "[t]he parties did not anticipate protracted litigation delaying the proposed transaction to purchase [Schwartz's] Datex securities for an indeterminate period." The recitals note, among other things, that the LOI contemplated the financing of a purchase of Schwartz's Datex shares, the issuance of the buy/sell notice by Leavens and Carrafiello, the USA, and the initiation of the court application to enforce Leavens' and Carrafiello's rights to buy Schwartz's Datex shares.

[18] Schwartz did not appeal or attempt to have the Shotgun Decision set aside. Schwartz also discontinued an action previously commenced against the SMT Defendants, alleging oppression under the OBCA.

[19] Following the release of the Shotgun Decision, Leavens and Carrafiello borrowed the funds from the Hyatt Brothers for the purchase of Schwartz's shares further to the buy/sell.

[20] On or about June 16, 2023, following the release of the Shotgun Decision on June 5, 2023, certain agreements were signed by the Hyatt Brothers and the SMT Defendants, including a loan agreement, general security agreement, and guarantee.

[21] In October 2023, the Hyatt Brothers exercised the conversion option. The Hyatt Brothers acquired beneficial ownership of shares in DataStealth, on or about October 13, 2023.

[22] On or about December 17, 2024, Schwartz commenced this action (the "Claim").

Analysis

Should the Claim be dismissed or struck without leave to amend?

[23] The SMT Defendants submit that the Claim should be dismissed or struck without leave to amend because it is res judicata, a breach of the doctrines of issue estoppel or cause of action estoppel, and/or otherwise an abuse of process under Rules 25.11(c) and 21.01(3)(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. These Rules state:

25.11 The court may strike out or expunge all or part of a pleading or other document, with or without leave to amend, on the ground that the pleading or other document,

(c) is an abuse of the process of the court.

21.01 (3) A defendant may move before a judge to have an action stayed or dismissed on the ground that,

(d) the action is frivolous or vexatious or is otherwise an abuse of the process of the court.

and the judge may make an order or grant judgment accordingly.

[24] The defendants are required to show that it is plain and obvious that the claim cannot succeed because it has no possibility of success: Baradaran v. Alexanian, 2016 ONCA 533, 3 C.P.C. (8th) 131, at paras. 14-15; Dosen v. Meloche Monnex Financial Services Inc. (Security National Insurance Company), 2021 ONCA 141, 457 D.L.R. (4th) 530. As noted by the Court of Appeal in Baradaran, at para. 16, a motion under rules 25.11 and 21.01(3)(d), is "not to determine the merits, but to decide whether the pleading should be struck, as having no chance of success because it is frivolous and vexatious or an abuse of process." As noted by the plaintiff, the moving parties have a high bar to meet, because if they succeed, the Claim is not adjudicated on its merits.

[25] The SMT Defendants point to Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 S.C.R. 460, where Justice Binnie explained, at para. 18, that the law generally bars re-litigation of claims:

The law rightly seeks a finality to litigation. To advance that objective, it requires litigants to put their best foot forward to establish the truth of their allegations when first called upon to do so. A litigant, to use the vernacular, is only entitled to one bite at the cherry. The appellant chose the ESA as her forum. She lost. An issue, once decided, should not generally be re-litigated to the benefit of the losing party and the harassment of the winner. A person should only be vexed once in the same cause. Duplicative litigation, potential inconsistent results, undue costs, and inconclusive proceedings are to be avoided.

[26] As noted, the defendants rely on issue estoppel, cause of action estoppel, and/or abuse of process. I set out below, the nature of each of these related doctrines.

Issue Estoppel

[27] As set out in Danyluk, at para. 25, a proceeding will be stayed or dismissed because of issue estoppel where:

a. The same issue was decided in the prior decision;

b. The prior decision was final; and

c. The parties to the previous decision were the same, or their privies.

Cause of Action Estoppel

[28] Cause of action estoppel prevents a party from bringing a claim that it previously asserted or had the opportunity to assert in a prior proceeding. In The Catalyst Capital Group Inc. v. VimpelCom Ltd., 2019 ONCA 354, 95 B.L.R. (5th) 175, leave to appeal refused [2019] S.C.C.A. No. 284, at paras. 49-50 the Court of Appeal stated:

The purpose of cause of action estoppel is to prevent the re-litigation of claims that have already been decided. As expressed by Vice Chancellor Wigram in Henderson v. Henderson (1843), 67 E.R. 313, at p. 319, it requires parties to "bring forward their whole case." The court thus has the power to prevent parties from re-litigating matters by advancing a point in subsequent proceedings which "properly belonged to the subject of the [previous] litigation".

For cause of action estoppel to apply, the basis of the cause of action and the subsequent action either must have been argued or could have been argued in the prior action if the party in question had exercised reasonable diligence. [citations omitted.]

Abuse of Process

[29] Abuse of process is the overarching doctrine, and in my view is applicable in the instant case, as discussed below. Abuse of process is a flexible doctrine. As noted by the Supreme Court of Canada in Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77, at paras. 35, 37, and 42:

Judges have an inherent and residual discretion to prevent an abuse of the court's process. This concept of abuse of process was described at common law as proceedings "unfair to the point that they are contrary to the interest of justice" [citations omitted]. [...]

[...] Canadian courts have applied the doctrine of abuse of process to preclude relitigation in circumstances where the strict requirements of issue estoppel (typically the privity/mutuality requirements) are not met, but where allowing the litigation to proceed would nonetheless violate such principles as judicial economy, consistency, finality and the integrity of the administration of justice. [citations omitted.] [...]

The attraction of the doctrine of abuse of process is that it is unencumbered by the specific requirements of res judicata while offering the discretion to prevent relitigation, essentially for the purpose of preserving the integrity of the court's process. [citations omitted.]

[30] In the recent case, Pine Glen Thorold Inc. v. Rolling Meadows Land Development Corporation, 2025 ONCA 604, the Court of Appeal dismissed the appeal from the motion judge's decision on the basis that the claim was an abuse of process. At para. 32, the Court of Appeal noted that the plaintiff was seeking to litigate issues "that were or could have been raised" on the prior applications before the court. At para. 33, the Court of Appeal stated:

Analytically, it makes more sense to first look at the claim as a whole to determine whether it is an abuse of process. If the claim is an abuse of process, it is not necessary to examine each individually pleaded cause of action. [...]

[31] In the Claim, Schwartz alleges that the SMT Defendants are liable for oppression, breach of the unanimous shareholders agreement and the duty of honest and good faith contractual performance, fraud, conspiracy, and breach of their duties to Datex under s. 134 of the OBCA because he alleges that they effected a "secret investment agreement" with the Hyatt Brothers and deprived him "of an opportunity to negotiate directly with the Hyatt Brothers or other potential investors."

[32] Schwartz submits that the defendants entered into an arrangement to buy his shares in Datex, disguised as a loan, that in reality was a strategic acquisition of Datex. His position is that further to Datex's corporate governance documents, the defendants were required to disclose the arrangement.

[33] The Claim was made after Schwartz learned that Leavens and Carrafiello had engaged in discussions with the Hyatt Brothers prior to triggering the shotgun provision of the USA. Setting aside whether Schwartz was somehow misled by Leavens and Carrafiello through their non-disclosure of their dealings with the Hyatt Brothers (discussed below), the issues that the plaintiff now seeks to litigate in the Claim "could have been" raised before Penny J. or were decided by Penny J.

[34] Certain allegations in the Claim are similar to those that were before Penny J., however, the grounds were different. For example, the Claim alleges that Leavens and Carrafiello breached the USA and breached their duty of honest and good faith contractual performance. The Claim is by Schwartz for damages of $95,000,000. At para. 61 of the Shotgun Decision, Penny J. determined that there was no breach, or threatened breach, of the senior managers' duties to Datex. As set out further below, Penny J. goes on to highlight that most of the alleged duties are not owed to Schwartz at all – they are duties owed to Datex.

[35] The SMT Defendants submit that the "subject matter" of the Claim is the same as the Shotgun Decision. They submit that the new theory Schwartz advances is based on the same subject matter as the issues before Penny J. and properly belonged in the application before him.

[36] The application was brought by Leavens and Carrafiello. [1] It was an application to enforce the buy/sell that they had triggered pursuant to the terms of the unanimous shareholders agreement. The issues considered by Penny J. included whether Schwartz had grounds to refuse to respond to the buy/sell notice and whether the application should be converted into a trial and consolidated with an action Schwartz had previously commenced alleging oppression under the OBCA.

[37] In the Shotgun Decision, Penny J. confirmed that the buy/sell notice that Leavens and Carrafiello provided to Schwartz complied with the unanimous shareholders' agreement. He noted that when Schwartz received the buy/sell notice, he had two options: Schwartz could buy Carrafiello's and Leavens' shares for the offer price, or he could sell his shares to them at the same price. Penny J. noted, at para. 24, that the language on the USA on this point is "clear and mandatory." He further found that if the offeree fails to respond within 15 days, pursuant to the terms of the USA "it will be deemed that the Offeree has accepted the offer of the Offeror, and will be obligated to sell its shares to the Offeror per the terms of the Buy/Sell Notice." At para. 25, Penny J. stated that because Schwartz failed to respond to the buy/sell notice within the 15-day period, Schwartz was deemed to have accepted the offer of Carrafiello and Leavens to sell his shares at the price set out in the offer.

[38] Penny J. further considered three arguments made by Schwartz as to why the buy/sell notice should not be enforced in accordance with the terms of the USA. Schwartz argued that certain conduct of senior management was calculated to defeat the intent of the buy/sell provision. He argued that threats by senior management to resign if he took over the company were contrary to the obligation of honest and good faith performance. Schwartz also argued that Leavens and Carrafiello engaged in oppressive behaviour such that the buy/sell notice should be set aside. Schwartz's argument was that he had a reasonable expectation that senior management would honour their duties to the company. Their threat to resign thwarted that expectation. Finally, Schwartz argued that Carrafiello's and Leavens' conduct breached the implied terms that the offeror would offer to buy or sell the shares in the same condition. Penny J. rejected each of the arguments advanced by Schwartz.

[39] Penny J.'s decision was broader than simply deciding the legality of the buy/sell. As noted in para. 38 of the Shotgun Decision, Schwartz had to show good reason why the buy/sell should not be enforced, which he failed to do.

[40] Schwartz had sought, in the alternative, that Leavens' application should be converted to an action and consolidated with Schwartz's action alleging oppression under the OBCA. [2] That action was subsequently discontinued. Now Schwartz seeks to re-litigate based on a new theory.

[41] Penny J. denied the request to consolidate the application with Schwartz's action, at para. 69.

[42] Penny J. also noted that Schwartz seemed to be conflating the duties owed by senior management to Datex with duties owed to him. Penny J. stated, at para. 61:

The short answer to this submission is that I have determined, based on the evidence, that Mr. Schwartz has not shown there was breach, or threatened breach, of the Applicants' and senior managers' duties to Datex. I should note in passing that most of the alleged duties are not owed to Mr. Schwartz personally. The relevant duties are owed to Datex, not to Mr. Schwartz. The point is worth making because there is a suggestion, among other things, that the Applicants owed duties of a fiduciary nature to Mr. Schwartz in relation to the exercise of the buy/sell provision. A buy/sell offer does not give rise to fiduciary obligations between shareholders. This is because there is no undertaking by one party to act on behalf of another – a buy/sell provision represents "the quintessential corporate mechanism for the exercise of shareholder self-interest". It is "hard to conceive of a corporate/commercial mechanism less likely to attract the operation of fiduciary obligations": Aronowicz, at paras. 50 and 54. To be sure, the senior management team may have owed obligations to the company, but these obligations are not tied to the Applicants' right to make an offer under the buy/sell provision.

[43] The issue of the source of the funds for Leavens and Carrafiello to buy Schwartz's shares under the buy/sell could have been explored before Penny J. Schwartz was live to the issue that Leavens and Carrafiello would have to borrow funding to buy his shares. In the cross examination of Leavens before the Penny J. application, Schwartz's counsel asked Leavens where he obtained the additional funding. The answer was refused on the basis of relevance. As discussed further below, it was consistent with the law to have refused to disclose who would loan the funds to Leavens and Carrafiello for the purchase under the buy/sell: Aronowicz v. Emtwo Properties Inc., 2010 ONCA 96, 98 O.R. (3d) 641, at para. 44. Leavens and Carrafiello were entitled to act in their own self-interest: Aronowicz, at para. 50. Schwartz did not further pursue the source of the funding prior to the hearing of the application. He may have decided to not bring a motion to pursue the issue knowing that the jurisprudence (Aronowicz) would have supported Leavens' position that the source of the additional funding was not relevant.

[44] The plaintiff points to Grandview v. Doering, [1976] 2 S.C.R. 621 where the Supreme Court of Canada stated that the doctrine of res judicata does not prevent the examination of the same set of facts in another cause of action, "provided that this cause of action is separate and distinct."

[45] Schwartz's Claim is not separate and distinct from the application that was before Penny J. The Shotgun Decision definitively determined that the buy/sell had been triggered and Schwartz was required to comply with the terms of the unanimous shareholders agreement and sell his shares and that nothing about the parties' conduct precluded them from enforcing the buy/sell. The Shotgun Decision was not appealed. The current Claim effectively seeks to undo this finding.

[46] The relief sought under the Claim is a collateral attack on the Shotgun Decision. In paragraph 1(g) of the Claim, Schwartz seeks disclosure of extensive current financial information of DataStealth and Datex, to which he has no entitlement having sold his shares further to the Shotgun Decision. He also seeks relief under the oppression provisions of the OBCA related to the dealings between the Hyatt Brothers and the SMT Defendants prior to the triggering of the buy/sell. As noted above, the source of the funding could have been further explored prior to the hearing before Penny J.

[47] Ultimately the plaintiff is unhappy that further to the Shotgun Decision he was forced to sell his shares in Datex for far less then he thought they were worth at the time and now. He now wants damages from the defendants. The Claim effectively undermines what was already decided by the court; the buy/sell was triggered, Schwartz failed to take action, and therefore he was required to sell his shares to Leavens and Carrafiello for less than he thought they were worth.

[48] As I noted above, the buy/sell was a contractual agreement among the Datex shareholders. Buy/sell agreements are, in many ways, an excellent corporate divorce mechanism. If the parties agree in a unanimous shareholders agreement on the terms of a buy/sell and one party triggers the buy/sell, that party is incentivized to offer to buy the shares at a fair price, because the other party has the choice of selling or buying the offeror's shares at the same price. Buy/sell mechanisms are generally designed to operate quickly, as was the case here.

[49] I am satisfied that the underlying subject matter of the Claim and the Shotgun Decision are the same and the abuse of process doctrine is applicable.

Should the court decline to apply the abuse of process doctrine?

[50] The Court may decline to apply abuse of process or res judicata where its application would work as an injustice: Dosen v. Meloche Monnex Financial Services Inc. (Security National Insurance Company), 2021 ONCA 141, 457 D.L.R. (4th) 530, at para. 37. The court may exercise its discretion and decline to apply these doctrines in the following non-exhaustive circumstances:

a. The first proceeding is tainted by fraud or dishonesty,

b. Fresh, new evidence, previously unavailable, conclusively impeaches the original results, or

c. Fairness dictates that the original result should not be binding in the new context:

Dosen, at para. 37.

[51] Schwartz submits that the first proceeding is tainted by fraud or dishonesty. The SMT Defendants were not transparent to the plaintiff regarding their dealings with the Hyatt Brothers, including the existence and terms of the LOI. The SMT Defendants were transparent in that they disclosed that they would need a loan to finance the payment to Schwartz to buy his shares under the buy/sell. However, the involvement of the Hyatt Brothers was not disclosed to Schwartz. Among other things, Schwartz was unaware that under the terms of the LOI, if the SMT Defendants were successful under the buy/sell, the Hyatt Brothers would provide financing for the "sole purpose" of buying Schwartz's shares. The LOI terms also contemplated that the Hyatt Brothers would have the right to convert the secured debt to common shares so that ultimately, they would own 51% of the beneficial shares of Datex.

[52] The issue with the plaintiff's position is that it is premised on the view that the SMT Defendants were required to disclose their side deal with the Hyatt Brothers. This is not the case.

[53] There is no fiduciary duty between the parties subject to a buy/sell arrangement: Aronowicz at paras. 54-56. The Court of Appeal in Aronowicz stated at para. 50:

It is hard to conceive of a corporate/commercial mechanism less likely to attract the operation of fiduciary obligations than a shotgun buy/sell provision in a unanimous shareholders agreement. The same may be said for the operation of obligations to act reasonably, honestly and in good faith – other than the good faith obligation not to act in a fashion that eviscerates the very purpose of the agreement. [...] A shotgun buy/sell provision is the quintessential corporate mechanism for the exercise of shareholder self-interest. Carefully drafted, it provides a delicate balance for the preservation of the parties' individual rights by ensuring that the pulling of the trigger generates the best and highest price in exchange for the involuntary termination of the shareholders' relationship.

[54] At para. 44 of Aronowicz the Court of Appeal agreed with the conclusion of the motion judge that there was no obligation on the one shareholder to disclose the loan agreement in the context of the operation of the buy/sell. Aronowicz applies to the instant case. There was no obligation on Leavens and Carrafiello to disclose the financing arrangement with the Hyatt Brothers in the context of the operation of the buy/sell.

[55] The conversion option, which Schwartz also takes issue with, would only come into play If Leavens and Carrafiello were successful on the buy/sell. At that point, Leavens and Carrafiello owned the shares.

[56] Schwartz argues that the loan from the Hyatt Brothers was a sham. I disagree. Leavens and Carrafiello needed funding if they were going to buy out Schwartz. The terms of the deal they reached with the Hyatt Brothers were reflected in the LOI. The LOI provides that the financing would be provided by way of "convertible secured debt ranking in first priority, for the sole purpose of acquiring [Schwartz's] unencumbered interest in Datex." The terms that these parties negotiated included a conversion right, in addition to other provisions that would apply if the SMT Defendants acquired Schwarz's shares. However, the Hyatt Brothers were only advancing the funds to Leavens and Carrafiello further to the LOI because Schwartz did not exercise his right to buy Leavens' and Carrafiello's shares at the offered price. The rest of the terms of the LOI only became important if Leavens and Carrafiello accessed the funding to purchase Schwartz's shares and acquired the shares under the buy/sell set out in the USA. There is nothing in the USA that goes beyond the buy/sell transaction between the shareholders of Datex.

[57] The legal effect of Penny J.'s finding was that by the end of March 2023, Schwartz was to have sold his Datex shares to Leavens and Carrafiello further to the buy/sell.

[58] There was also no obligation on the SMT Defendants to disclose that they intended to sell the shares to the Hyatt Brothers further to the conversion option if the SMT Defendants were successful on the shotgun. In Weiss v. Schad, [1999] O.J. No. 4356 (Sup. Ct.) a minority shareholder sold his interest in a private company to another shareholder. The other shareholder sold the shares to a strategic partner three months later at a considerable premium. The shareholder had been in discussions with the potential strategic partner at the time he purchased the minority shareholder's shares. Among other things, the Court considered whether there was a fiduciary duty owed to the minority shareholder plaintiffs by the defendants, who were officers and directors of the company, to disclose that there were negotiations taking place with a potential investor. The court was satisfied that the bargaining positions of the parties were equal. At para. 114, the Court concluded that there was no fiduciary duty owed by the defendant to the plaintiff:

[The plaintiff] could not reasonably have expected that [the defendant] would act in his best interest. As stated earlier, their relationship was not one of dependency, trust or reliance. In the absence of any special circumstances and it not having been established that Schad and Hall were acting outside the scope of their normal duties as directors, I conclude that there was no fiduciary duty owed to the plaintiffs by the defendants to disclose the fact that there were discussions taking place with a potential investor.

[59] In Weiss, the Court further concluded, at para. 123, that there was "no implied term of good faith and fair dealing in the pre-contractual negotiations. Consequently, there was no duty on the defendants to disclose to the plaintiffs the fact that discussions were taking place with a potential investor in the course of negotiating the purchase of the plaintiffs' shares."

[60] In the instant case, similarly, there was no obligation on the SMT Defendants to disclose their side deal with the Hyatt Brothers. The SMT Defendants triggered the operation of the buy/sell in accordance with the terms of the shotgun clause in the unanimous shareholders agreement that had been negotiated by the parties. Schwartz could have chosen to buy their shares. He did not. The SMT Defendants were not required to disclose that they had arranged financing with the Hyatt Brothers, that included a conversion right, such that the Hyatt Brothers would ultimately acquire some of the business. This was a buy/sell. Leavens and Carrafiello were entitled to act in a self-interested manner, which they did.

[61] Schwartz also submits that there is new evidence that would "entirely change" the case, which was not ascertainable through reasonable diligence. The new evidence that Schwartz points to is the existence and the terms of the agreement between the SMT Defendants and the Hyatt Brothers. As discussed above, there was no obligation to disclose the details of the financing in the context of the operation of the buy/sell.

Disposition and Costs

[62] The plaintiff's claim shall be struck without leave to amend.

[63] The parties are encouraged to resolve costs. If they are unable to do so by October 31, 2025, they shall notify my judicial assistant. In such case, the parties may make written submissions as follows: The defendants shall deliver their written submissions (limited to 3 pages in length) by November 14, 2025. The plaintiff shall deliver his written submissions (limited to 3 pages in length) by November 28, 2025. The submissions shall be filed with the court and sent by email to my judicial assistant.

J. Steele J.

Released: October 17, 2025

Footnotes

[1] None of Atkinson, Schenk, or the Hyatt Brothers were parties to the application before Penny J.

[2] At para. 62 of the Shotgun Decision, Penny J. summarizes Mr. Schwartz's allegations in the action that was discontinued: "(a) Mr. Leavens and Mr. Carrafiello had engaged in self-dealing by paying unauthorized bonuses to themselves and others; (b) Mr. Leavens engaged in unauthorized hiring of employees and approved unauthorized employee pay increases; (c) Mr. Leavens compensation structure exposed Datex to potential liabilities; and (d) Mr. Leavens breached his employment agreement and failed to comply with the terms of his option grant agreement." Penny J. stated: "These allegations, in my view, have no impact on the validity or enforceability of the buy/sell notice."