It will come as no surprise that I remain interested in cases that deal with doing business with family and friends where the relationship breaks down and the parties end up in court. A recent decision of Madame Justice Burke reminds us just how far these disputes can go and how expensive they can be to the losing party.

Michael Price (“MP”) was employed in Vancouver for 19 years by a # company (“481”) operating a hair loss clinic and sale of products and services to remediate hair loss. MP was a 20% shareholder.  David Robson (“DR”) lived in Ontario and was a 74% shareholder.  MP and DR were close friends but had a falling out. MP claimed he was constructively dismissed in June 2013.  He sued 481, DR and his family members as well as a second  # company, (“857”), which he alleged had improperly taken over the business of 481.

The opening comments of Justice Burke set the stage:

This high-conflict case arises out of the breakdown of a 20-year friendship and business relationship between Michael Price (“Mr. Price”) and Farrukh David Robson (“Mr. Robson”).

[2]             In addition to their business and personal relationships, both Mr. Price and Mr. Robson suffer from significant life‑altering illnesses. The emotion engendered as a result of these factors led to a difficult and “hotly disputed” trial; particularly the factual matrix. Both sides accused the other of lies and fabrications. Within this context, the factual reality must be distilled.

DR had been very involved in the business of 481 but he was diagnosed with renal failure in the late 1990’s and had been on regular dialysis since late 2007.  In 2011 the relationship between MP and DR became strained, caused in part by allegations that DR had improperly used 481’s bank account rendering it almost insolvent, and there was a serious problem with supply of product.  MP decided to sever his relationship with DR and made an offer to purchase DR’s shares and pay a small fee for use of the business name “Micron”.  DR viewed the offer to purchase as a “terrible offer” and the accusations began to fly back and forth.

On December 27th 2012 MP was diagnosed with stage four colorectal cancer and began treatment. He had a 12 year old son who was severely disabled causing his wife to work only part time. The parties attempted to buy each other out but those discussions and emails became very acrimonious and accusatory. DR’s family became involved.  DR implemented a new commission structure and made other changes that reduced MP’s compensation.  They reduced and cancelled benefits when MP was most in need.

During negotiations MP sent an email to DR in April 2013 stating in part:

David,

Your offer’s in the garbage where it belongs…..

Although I’m not on dialysis life support, stage 4 metastatic cancer is in many ways a more serious life-threatening matter. My oncologist told me to reduce/eliminate my stress. I acknowledge that my disclosure of this to you could easily result in your becoming even more predatorial towards me, and this would tell me that you no longer care whether I live, or whether I die.

MP underwent surgery on May 31st 2013 and remained in hospital until June 8th 2013.  On June 10th 2013 DR replaced MP with Mr Akhtar as manager of the clinic while MP was absent from work recovering from surgery. MP sued for constructive dismissal as well as a number of other claims.  He sued not only 481 but also 857 and the personal defendants:

In July 2013, the defendant 8577935 Canada Corporation (“857”) was incorporated. It is alleged that 481 has ceased doing business and its assets have been transferred to 857, a business run by the personal defendants or by some of them. This is alleged to have occurred without proper authority or justification.

[10]         It is also alleged the defendants discontinued payment of Mr. Price’s salary and benefits (including medical, dental, extended health benefits, and more) at a time when he was most in need. Accordingly, it is alleged the personal and corporate defendants engaged in conduct that amounts to bad faith and unfair dealing; and were deceitful, negligent, oppressive and unduly insensitive in the matter of Mr. Price’s discharge.

[11]         Mr. Price claims the personal defendants are the alter egos of the corporations and the corporate veil separating the corporations and the personal defendants should be pierced. Essentially, he claims the personal defendants gutted 481 and transferred its business and assets to 857, all in order to deprive him of an ability to recover on any judgment against 481 by hiding its assets in 857.

The court found that DR was not a credible witness and preferred the evidence of MP to that of DR.

The court held that MP was constructively dismissed.  481 and DR made many serious allegations of cause including misappropriation of funds which were found to be totally without merit:

Overall, I conclude as was the case in MacDonald v. Newfoundland (Canada Games Park Commission), [1986] N.J. No. 335 (D.C.), the plethora of allegations against Mr. Price are an attempt to disguise the real reason why Mr. Price was fired. This was likely his discovery of financial improprieties. Mr. Robson sought to grasp at straws to establish some sort of grounds to justify Mr. Price’s dismissal. The evidence simply does not establish any of the accusations.

Turning to the question of notice the court concluded that given MP’s age (47), years of service (20) and his senior management position reasonable notice was 20 months with damages calculated on MP’s monthly salary and commissions calculated at $6,480. It rejected the claim that MP had failed to mitigate his damages and awarded $24,145 with respect to expenses associated with mitigation.

The court also awarded $50,000 for aggravated damages based in part on the unfounded allegations of dishonesty and the fact that DR knew of the seriousness of MP’s cancer and treatment despite his denials.  The $50,000 is a substantial award for MP as it is likely tax free.  The court held however that punitive damages were not warranted although this was a close call.  The Court stated:

It is not without some hesitation that I do not find that punitive or exemplary damages are appropriate. An employer’s conduct must be extreme in order to attract punitive or exemplary damages: Kelly v. Norsemont Mining Inc., 2013 BCSC 147. Although Mr. Robson acted in a blameworthy manner, I do not classify his conduct as extreme due to the responsive nature of some of Mr. Price’s emails.

These awards are very significant but what really caught my attention about this case is the fact that further damages were awarded against the individual defendants.

First the court found that it could lift the corporate veil in this case to assess personal liability against DR and his family.  857 was found to have been set up to receive the assets of 481.  DR used 481’s bank account as his personal account and as an account for other businesses, “essentially co-mingling funds and assets.” The revenues of 481 as well as its clientele and assets were transferred to 857 with the intention of removing them from MP’s reach which intentions were found to be “wrongful, or even fraudulent and is additional reason to lift the veil here.”  It found that 481, 857 and DR were all liable to pay those damages associated with the wrongful dismissal.

MP alleged breach of fiduciary duties and civil conspiracy. The court found that the personal defendants were jointly and severally liable for the tort of civil conspiracy and awarded MP $100,000 in compensatory damages.

MP’s claims for relief as a shareholder were dismissed as he had not brought a derivative action nor an oppression claim under the Corporations Act.

Finally the court did not make a final order on costs.  One would assume MP will seek Special Costs representing full indemnity for his legal fees—given the 31 days of trial one can assume those costs would in the lower to middle 6 figure range.

LESSONS LEARNED

My dad used to say be very careful when you do business with family and friends—at some point the two relationships may come in conflict and both will suffer. In this case MP and DR and their respective families were at one point “close friends”.  Yet despite that friendship the bond that kept them together broke apart at a time in each of their lives that they suffered from serious illnesses.  This is not the way their relationships, both business and personal, should have ended.

 

Michael Weiler practices employment and labour law including human rights and prevention of workplace harassment/bullying and independent investigations; advising on the practical and legal issues affecting private family-owned businesses; and more – see his website at www.WeilerLaw.ca .  Michael is a frequent seminar presenter and the assistant editor of Canadian Cases on Employment Law.  Michael can be contacted at mweiler@weilerlaw.ca  . For those who wish to receive articles, seminar notices and blog comments please contact Carolyn Weiler at cweiler@weilerlaw.ca  or call her at 604 336 7427.

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