Harris et al. v. Leikin Group Inc. et al., 2014 ONCA 479

• Judge: Hoy, A.C.J.O. and Sharpe and van Rensburg, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: June 18, 2014
• Jurisdiction: Ontario
• Citations: 2014 ONCA 479;(2014), 321 O.A.C. 181 (CA)

Harris v. Leikin Group Inc. (2014), 321 O.A.C. 181 (CA)

MLB headnote and full text

Temp. Cite: [2014] O.A.C. TBEd. JN.021

Adam Leikin Harris, Naomi Sara (Harris) Stanton, Sheira Rachel Harris, Zena Leah Harris, Hilliard Brian (Rick) Kesler, and David Joseph Spieler (plaintiffs/appellants) v. Leikin Group Inc., Barbara Linda Farber, David Lawrence Katz, Andrew Mark Katz, Grant Jameson, Geoffrey Gilbert, Ogilvy Renault LLP, Ingrid Levitz in her Capacity as Estate Trustee with a Will of the Estate of Gerald Levitz, Patricia Day, Ginsburg Gluzman Fage & Levitz LLP and First Capital Realty Inc. (defendants/respondents)

(C56933; 2014 ONCA 479)

Indexed As: Harris et al. v. Leikin Group Inc. et al.

Ontario Court of Appeal

Hoy, A.C.J.O. and Sharpe and van Rensburg, JJ.A.

June 18, 2014.

Summary:

Following a serious falling out, the majority of shareholders in a family corporation proposed that their interests be bought out. After extensive negotiations, a share redemption was concluded under which each of the eight members of the selling group was to receive $3.395 million. The buyout was based on the corporation's principal asset (a "big box" shopping complex known as College Square) having a value of $60 million. The $60 million was determined based on negotiations and not an appraisal. To finance the buyout, the non-selling group of shareholders found an equity partner (First Capital Realty (FCR)) which purchased a 50% interest in College Square which had an attributed value of $78.8 million. Six members of the selling group of shareholders (the plaintiffs) sued the non-selling group, the corporation, the corporation's lawyers and accountants, and FCR (the defendants). The plaintiffs asserted that, inter alia, the defendants owed them fiduciary duties which the defendants breached primarily by withholding material information during the negotiations leading to the share redemption. The defendants moved for summary judgment.

The Ontario Superior Court, in a decision reported at [2011] O.T.C. Uned. 3556, dismissed the claim against FCR and directed a trial against the remaining defendants. The court identified the areas where it needed to hear further evidence and legal argument to decide the case. Pursuant to Civil Procedure Rules 20.05(1) and 20.05(2), the court ordered that the trial adopt a hybrid form in which the evidence on the summary judgment motions would be preserved and supplemented with further evidence to be led at trial. The plaintiffs appealed the order granting FCR summary judgment.

The Ontario Court of Appeal, in a decision reported at [2011] O.A.C. Uned. 693, dismissed the appeal.

The Ontario Superior Court, in a decision reported at [2013] O.T.C. Uned. 1525, dismissed the plaintiffs' claims. The court ordered the plaintiffs to pay nearly $2.5 million in costs. The plaintiffs appealed, asserting that the trial judge (1) erred in directing a hybrid trial, effectively robbing them of control of the trial narrative; (2) made errors of law or palpable and overriding errors of facts about whether the defendants owed, and breached, fiduciary duties to the plaintiffs during the share redemption negotiations; and (3) erred in holding that the costs award was "fair and reasonable".

The Ontario Court of Appeal dismissed the appeal.

Company Law - Topic 2724

Shareholders - Duties of shareholders - Fiduciary duty - The majority of shareholders in a family corporation proposed that their interests be bought out - A share redemption agreement was negotiated and executed - Six members of the selling group (the plaintiffs) claimed against the non-selling group, the corporation and the corporation's professional advisors (the defendants), asserting that the defendants owed them fiduciary duties which the defendants breached primarily by withholding material information during the negotiations leading to the share redemption - The Ontario Court of Appeal affirmed the dismissal of the claims - The trial judge correctly determined that any per se duties owed by any of the defendants (as directors, officers and professional advisors) were owed to the corporation - The central issue was whether there was any ad hoc fiduciary duty arising in the circumstances - With respect to an assertion that the defendants had an obligation to act in the plaintiffs' interests, the trial judge made three central findings of facts - Firstly, the relationship between the plaintiffs and the defendants was adversarial, bitter, acrimonious and marked by distrust - That dynamic was reflected in the negotiations leading to the share redemption agreement - Secondly, there was no "bought deal" between the defendants and a purchaser respecting the sale of a portion of the corporation's principal asset to finance the redemption of the plaintiffs' shares nor did the defendants know that the purchaser was prepared to pay a specific price to acquire an interest in that asset - Thirdly, during the negotiations leading to the share redemption agreement, the plaintiffs requested, but did not get, assurances aimed at maximizing their returns on the share redemption agreement - The plaintiffs knew that the defendants would likely negotiate a favourable deal with a new partner - In those circumstances, the trial judge properly rejected the plaintiffs' breach of fiduciary duty claims - See paragraphs 57 to 83.

Company Law - Topic 2725

Shareholders - Duties of shareholders - To other shareholders - [See Company Law - Topic 2724 ].

Company Law -Topic 4262

Directors - Duties - General principles - Fiduciary duty - [See Company Law - Topic 2724 ].

Company Law - Topic 4603

Officers and agents - Duty to company - Fiduciary duty - [See Company Law - Topic 2724 ].

Company Law - Topic 4622

Officers and agents - Duty or liability to shareholders - Fiduciary duty - [See Company Law - Topic 2724 ].

Equity - Topic 3606

Fiduciary or confidential relationships - General principles - What constitutes a fiduciary relationship - [See Company Law - Topic 2724 ].

Practice - Topic 37

Actions - Conduct of - General - Case management - In complex litigation involving a closely held family corporation, the defendants moved for summary judgment - The motions judge dismissed the claim against one defendant and directed a trial before him against the remaining defendants - The judge identified the areas where he needed to hear further evidence and legal argument to decide the case - Pursuant to Civil Procedure Rules 20.05(1) and 20.05(2), the judge ordered that the trial adopt a hybrid form in which the evidence on the summary judgment motions would be preserved and supplemented with further evidence to be led at trial (the trial management order) - The matter proceeded to trial and the plaintiffs' claims were dismissed - The plaintiffs appealed, asserting that the motions judge erred in directing a hybrid trial - The Ontario Court of Appeal held that the plaintiffs did not have a right of appeal from the trial management order at this stage - The court offered the following observations - The trial management order's terms fell squarely within the language of rule 20.05 and what was contemplated by Hryniak v. Mauldin (2014 SCC) - The trial was not simply a reconfiguration of the dismissed summary judgment motions - The judge salvaged the resources that went into the motions and afforded the parties considerable latitude in the presentation of the case - The plaintiffs did not complain about any aspect of the procedure during the trial - Generally, a party could not appeal on the basis of some aspect of trial procedure to which the party did not object or could not sit on an objection only to raise it once it learned of an unfavourable result - The plaintiffs could not point to any unfairness or prejudice caused by the trial or identify anything that they would have done differently - The hybrid trial process did not lead the judge to reverse material findings of fact made at the summary judgment motions - See paragraphs 47 to 56.

Practice - Topic 5408.1

Judgments and orders - General - Collateral attack - Following a serious falling out, the majority of shareholders in a family corporation proposed that their interests be bought out - A share redemption was concluded - Six members of the selling group (the plaintiffs) sued the non-selling group, the corporation and others, including First Capital Realty (FCR) (the defendants) - The defendants moved for summary judgment - The motions judge dismissed the claim against FCR and directed a trial before him against the remaining defendants - The judge identified the areas where he needed to hear further evidence and legal argument to decide the case - Pursuant to Civil Procedure Rules 20.05(1) and 20.05(2), the judge ordered that the trial adopt a hybrid form in which the evidence on the summary judgment motions would be preserved and supplemented with further evidence to be led at trial (the trial management order) - The plaintiffs unsuccessfully appealed the order granting FCR summary judgment - The matter proceeded to trial and the plaintiffs' claims were dismissed - The plaintiffs appealed, asserting that the motions judge erred in directing a hybrid trial - The Ontario Court of Appeal held that it was too late for the plaintiffs to challenge the fairness or propriety of the trial management order - The plaintiffs had an opportunity to challenge the order by appealing, or seeking leave to appeal, at the time the order was made - Having failed to do so, they should not now be allowed to collaterally attack it - The parties proceeded with a lengthy, complex and costly trial based on the trial management order - It would be contrary to law and common sense to allow the disappointed loser to complain now about the order's fairness - This was not a mid-trial ruling that had to await a final outcome before an appeal could be brought - The summary judgment phase and the trial phase were two distinct phases - The order did not fall within the trial proper so as to permit the plaintiffs to sit on their right of appeal to be used if they were unsuccessful at trial - See paragraphs 42 to 46.

Practice - Topic 5720

Judgments and orders - Summary judgments - Order to proceed to trial - Terms - [See Practice - Topic 37 ].

Practice - Topic 5779

Judgments and orders - Interlocutory or interim orders or judgments - What constitutes - [See Practice - Topic 5408.1 ].

Practice - Topic 7422

Costs - Solicitor and client costs (incl. substantial indemnity) - Measure of - Reasonable charges, reasonably performed - The unsuccessful plaintiffs in a long complex trial involving a closely held family corporation acknowledged that substantial indemnity costs were warranted - The trial judge awarded one group of defendants costs of $1,003,090, the second group costs of $1,012,650.51 and another defendant costs of $470,161.21 - The plaintiffs appealed, asserting that the trial judge erred in holding that the costs order was "fair and reasonable" - The Ontario Court of Appeal dismissed the appeal - The plaintiffs' costs were approximately $990,000 on a substantial indemnity basis - That was roughly on par with what the judge awarded the defendants - The trial judge did not err in rejecting the assertion that the plaintiffs should only be responsible for a portion of the defendants' costs due to the overlap in the claims against them - Having brought multiple defendants into the lawsuit and made allegations that implicated them all in a complex series of events, the plaintiffs could reasonably expect that costs incurred by each of those defendants would approximate the costs that the plaintiffs had incurred - See paragraphs 87 to 89.

Practice - Topic 7423

Costs - Solicitor and client costs - Measure of solicitor and client costs - Relevant considerations - General - [See Practice - Topic 7422 ].

Practice - Topic 8986

Appeals - When appeal available - From preliminary, procedural and evidentiary rulings - [See Practice - Topic 5408.1 ].

Practice - Topic 9017

Appeals - Restrictions on argument on appeal - Failure to object at trial - [See Practice - Topic 37 ].

Cases Noticed:

Combined Air Mechanical Services Inc. et al. v. Flesch et al. (2011), 286 O.A.C. 3; 108 O.R.(3d) 1; 2011 ONCA 764, refd to. [para. 2].

Hryniak v. Mauldin (2014), 453 N.R. 51; 314 O.A.C. 1; 2014 SCC 7, refd to. [para. 2].

Harris et al. v. Leikin Group Inc. et al., [2011] O.A.C. Uned. 693; 2011 ONCA 790, refd to. [para. 27].

R. v. Wilson, [1983] 2 S.C.R. 594; 51 N.R. 321; 26 Man.R.(2d) 194, refd to. [para. 43].

Marshall v. Watson Wyatt & Co. (2002), 155 O.A.C. 103; 57 O.R.(3d) 813 (C.A.), refd to. [para. 53].

Leader Media Productions Ltd. v. Sentinel Hill Alliance Atlantis Equicap Limited Partnership et al. (2008), 237 O.A.C. 81; 90 O.R.(3d) 561 (C.A.), leave to appeal dismissed (2008), 392 N.R. 391 (S.C.C.) refd to. [para. 53].

Aegon Capital Management Inc. et al. v. BCE Inc. et al., [2008] 3 S.C.R. 560; 383 N.R. 119; 2008 SCC 69, refd to. [para. 72].

BCE Inc. v. 1976 Debentureholders - see Aegon Capital Management Inc. et al.

Meditrust Healthcare Inc. v. Shoppers Drug Mart et al. (2002), 165 O.A.C. 147; 61 O.R.(3d) 786 (C.A.), refd to. [para. 73].

Statutes Noticed:

Civil Procedure Rules (Ont.) - see Rules of Civil Procedure (Ont.).

Rules of Civil Procedure (Ont.), rule 20.05 [para. 36 et seq.].

Counsel:

Robert Rueter and David Barbaree, for the appellants;

Stephen Victor, Q.C., and David Cutler, for the respondents, Barbara Farber, David Lawrence Katz and Andrew Mark Katz;

David Scott, O.C., Q.C., and Isabella Mentina, for the respondent, Leikin Group Inc.;

Benjamin Zarnett and Ryan Cookson, for the respondents, Grant Jameson, Geoffrey Gilbert and Ogilvy Renault LLP;

Alan D'Silva and David Spence, for the respondents, Ingrid Levitz in her capacity as Estate Trustee with a Will of the Estate of Gerald Levitz, Patricia Day and Ginsburg Gluzman Fage & Levitz LLP.

This appeal was heard on February 25 and 26, 2014, by Hoy, A.C.J.O., and Sharpe and van Rensburg, JJ.A., of the Ontario Court of Appeal. Sharpe, J.A., released the following decision for the court on June 18, 2014.