



COURT OF APPEAL FOR ONTARIO

CITATION: Groia &
    Company Professional Corporation v. Cardillo, 2019 ONCA 165

DATE: 20190301

DOCKET: M49832 (C66100)

Lauwers J.A. (Motion
    Judge)

BETWEEN

Groia & Company
    Professional Corporation

Respondent (Plaintiff)

Moving Party

and

John Robert Cardillo
    and Medcap Real Estate Holdings Inc.

Appellants (Defendants)

Responding Parties

Bonnie Roberts Jones, for the moving party

F. Scott Turton, for the responding parties

Heard: February 5, 2019

REASONS FOR DECISION

[1]

The moving party on this motion (the respondent law firm on the appeal),
    moves for an order under rule 61.06 of the
Rules of Civil Procedure
,
    R.R.O. 1990, Reg. 194 for security for costs. It submits that there are good
    reasons to believe the appeal is frivolous and vexatious and that the
    responding parties on this motion (the former clients who are the appellants on
    the appeal), have insufficient assets in Ontario to pay the costs of the appeal.

[2]

For the reasons that follow, I allow the motion and order the clients to
    post security for costs in the amount of $80,000, failing which the appeal will
    be dismissed.

Background

[3]

A fuller factual background is set out in the reasons for judgment of Wilson
    J. dated October 1, 2018 with reasons reported at 2018 ONSC 5776. The law firm
    represented the clients in four pieces of litigation, but they did not pay all
    of the accounts rendered. The trial judge heard a simplified rules trial over four
    days and approved the accounts rendered without deduction in the amount of
    $184,891.39, the balance of the unpaid accounts, plus interest of $2,963.40.
    The order also provided for the payment of $60,000, as agreed, for the trial
    costs.

Discussion

[4]

Rule 61.06 governs security for costs on appeal. An order to post security
    for costs is justified:

(1)

In an appeal where it
    appears that,

(a) there is
    good reason to believe that the appeal is frivolous and vexatious and that the
    appellant has insufficient assets in Ontario to pay the costs of the appeal;



[5]

(c) for other good reason, security for costs should be ordered,

a judge of the appellate court, on motion by the respondent,
    may make such order for security for costs of the proceeding and of the appeal
    as is just.

...

(2)

If an appellant fails to comply with an order under subrule (1), a judge
    of the appellate court on motion may dismiss the appeal.

[6]

For an order for security for costs to be granted under rule 61.06(1)(a),
    the motion judge must: (a) have good reason to believe the appeal has no merit
    and is therefore frivolous and vexatious, and (b) have good reason to believe
    the clients have insufficient assets in Ontario to cover the costs of the
    appeal:
Schmidt v. Toronto-Dominion Bank
(1995), 24 O.R. (3d) 1 (C.A.),
    1995 CarswellOnt 154, at para. 15. As this court observed in
Schmidt
,
    at para. 16:

A judge hearing a motion for security
    for costs may reach the tentative conclusion that an appeal appears to be so
    devoid of merit as to give "good reason to believe that the appeal is
    frivolous and vexatious" without being satisfied that the appeal is
    actually totally devoid of merit.

[7]

The law firm also invokes rule 61.06(1)(c), and relies on
Henderson v.
    Wright
, 2016 ONCA 89, 345 O.A.C. 231, where Strathy C.J.O. stated at paras.
    27 and 28:

Appellate courts in Ontario have ordered security for costs
    when an appeal has a low prospect of success coupled with an appellant who has
    the ability to pay costs but from whom it would be nearly impossible to collect
    costs.

This "good reason" balances the need to ensure an
    appellant is not denied access to the courts, with the respondent's right to be
    protected from the risk the appellant will not satisfy the costs of the appeal.
    (Internal citations omitted)

[8]

The motion therefore raises three issues for determination: Do the
    clients have insufficient assets in Ontario to cover the costs of the appeal? Does
    the appeal have any merit? Is there any other good reason to order security for
    costs?

Do the clients have insufficient assets in Ontario to cover
    the costs of the appeal?

[9]

The law firms factum sets out four grounds for doubting that the clients
    have sufficient assets in Ontario to cover the costs of the appeal:

(a) Mr.
    Cardillo stated in his affidavit dated April 17, 2018 that when he engaged
    Groia & Company his financial circumstance were strained, that he was
    under a near overload of financial and personal stresses, and that he had to
    pay his wife $1,500,000 to fund a settlement with her;

(b) Mr.
    Cardillo advised Groia & Company in July 2016 that he would not be able to
    pay his outstanding legal fees until he sold certain Medcap-owned properties,
    which he expected to do that fall. Groia & Company understands that these
    properties have now been sold; however, Mr. Cardillo and Medcap have not
    disclosed any details of the sales, including what, if any, equity they held in
    those properties and have still refused to pay Groia & Company;

(c) There
    are numerous encumbrances on the properties owned by Mr. Cardillo and/or Medcap
    and Mr. Cardillo has made several attempts to render himself judgment proof;

(d) There
    are numerous outstanding judgments and writs filed against Mr. Cardillo and
    Medcap.

[10]

The
    support for each of these paragraphs is considerable in the record. The
    responding party does not grapple with the issue except to say that where the
    appeal is not frivolous or vexatious the issue of insufficient assets is not
    reached. Counsel asserts in his factum that there is evidence in the law firms
    motion record that discloses considerable real estate assets and no valuation
    opinion suggesting that their value is inadequate.

[11]

In
    my view, the law firm has demonstrated beyond a reasonable doubt that Mr.
    Cardillo has taken many steps to render himself judgment proof, and that his
    assets are not readily exigible. This ground on which an order for security for
    costs may be granted is adequately made out.

Does the appeal have any merit?

[12]

The
    supplementary notice of appeal specifies five grounds of appeal:

(a)

The Reasons of the trial judge are
    not responsive to the cases live issues and the parties key arguments, are in
    respect of many core issues conclusory, and are as a result insufficient;

(b)

While the learned trial judge
    correctly stated the factors to be taken into account in assessing legal
    accounts of the respondent law firm, she failed to apply them in any meaningful
    way;

(c)

The learned trial judge made significant misapprehensions of central
    facts, particularly regarding the Harrison Matter;

(d)

The learned trial judge failed to address most of the issues raised by
    the appellants;

(e)

The learned trial judge made legal errors regarding the ambit of issues
    that were relevant to the assessment of the respondent lawyers legal accounts,
    and in particular erred in not addressing issues regarding the skill of the
    lawyers and the results achieved due to the case not being an action for
    solicitors negligence.

[13]

Mr.
    Turton argues that the trial judges reasons do not pass muster under the
    principles applied by this court in
Dovbush v. Mouzitchka
, 2016 ONCA
    381, 131 O.R. (3d) 474, at paras. 20-25. He submits, in particular, that the
    trial judge failed to resolve confused or contradictory evidence on key issues,
    and failed to pay due regard to the submissions of counsel and the evidence put
    before her.

[14]

The
    responding parties major complaint relates to the Harrison matter, which
    ultimately accounted for about $160,000 of the accounts rendered. Fees and
    disbursements at issue in the other three matters on which the law firm acted
    for the respondents are a small proportion of the amounts at issue on the
    appeal. Any merit in these would not be sufficient to offset the lack of merit
    on the Harrison matter.

[15]

The Harrison matter was an application for an oppression
    remedy under the
Business Corporations Act
, R.S.O. 1990 c. B.16 against two companies that leased and operated a
    fitness club. The application was heard by McSweeney J., who made the following
    unopposed order on September 12, 2016:

THIS COURT DECLARES that
    with respect to 1615574 Ontario Limited (Leaseco),

(a)

The applicants are complainants
    within the meaning of s. 245 of the OBCA;

(b)

That Maria Catenacci holds 75% of
    the shares of Leaseco in trust for John Cardillo or his designate;

(c)

That the respondent John
    Harrison be removed as a director of Leaseco and that John Cardillo or his
    designate be appointed as the sole director of Leaseco;

(d)

That John Cardillo or his
    designate be granted unfettered access to the books and records of Leaseco;

(e)

That an accounting be conducted with respect to any monies paid to John
    Harrison and/or Sharon Harrison, or companies under their control, by Leaseco
    since September 2015.

[16]

The
    application judge reserved the balance of the application, and released an
    endorsement on January 13, 2017. She ordered the trial of an issue of 1.5 days
    in length on the threshold issue of the ownership of 1860331 Ontario Inc.
    (the operating company), for the following reason:

Based on the contradictions and inconsistencies on key points
    in and between the evidence of Mr. Cardillo and Mr. Harrison, the credibility
    of each of the parties is squarely an issue. I find that there is a genuine
    issue for trial which cannot be resolved on the basis of the record filed.

[17]

Mr.
    Turton argues that the trial judge simply failed to address the arguments and
    the evidence, and notes that the trial judge did not even distinguish between
    the operating company and the leasing company in her reasons.

[18]

I
    select the three most significant grounds pursued by Mr. Turton in his appeal
    factum, on which he relied in argument. First, the law firm made no request in
    the notice of application, in the factum, or in argument of the application for
    a term in the interim order that Harrison continue to cause the operating
    company to pay the rent on the lease of the fitness club.

[19]

The
    result, Mr. Turton argues, is that the operating company and the leasing
    company became valueless because no order was obtained requiring Harrison to
    continue paying the rent. He observes that the trial judge, apart from failing
    to distinguish between the operating company and the leasing company in her
    reasons, also made no reference to the fact that the fitness club was lost
    while the application judges decision was under reserve.

[20]

The
    trial evidence on this issue was contradictory. Mr. Groia deposed that after McSweeney
    J. granted the interim relief on September 12, 2016, he told Mr. Cardillo that
    as he now had control over Leaseco and the lease he needed to take steps to
    protect his position. A follow-up email to that effect was sent to Mr.
    Cardillo. But Mr. Cardillo deposed that he requested Mr. Groia to seek that
    relief in the application.

[21]

The
    trial judge said:

I have no doubt that the application involved complex issues
    and was of great importance to Cardillo. Despite his attempts to minimize the
    success of Groia and Sischy on the application, the order of Justice McSweeney
    of September 12, 2016 was clearly a victory for Cardillo. On this point, I
    accept the evidence of Sischy that Cardillo was pleased with the outcome of the
    application. The fact Groia encouraged Cardillo to settle with Harrison and he
    declined to do so does not mean that the outcome of the application was of
    little or no value to him.

[22]

The trial judge added
    the following observations:

The interim relief that was obtained while Groia & Co. were
    his counsel was advantageous to Cardillo. While Cardillo asserts that the Groia
    firm "accomplished nothing" in the Harrison matter, I do not agree.
    It was necessary to bring the application, which was responded to by Harrison.
    The fact that Harrison did not oppose some of the relief sought on the return
    date of the application does not mean the work done was worthless or did not
    result in Harrison changing his position. Clearly, Cardillo had not been
    successful in his negotiations with Harrison and that is why he retained Groia
    to launch legal proceedings.

While Cardillo now complains that the leasing company ended up
    being worthless, it is important to note that after the hearing of the
    application and before the judge released her decision, time was spent
    attempting to settle the entire matter. Cardillo did not wish to follow his
    lawyers' recommendations on settlement, which was his prerogative. By November,
    the relationship between Groia & Co. and Cardillo had deteriorated to the
    point where both sides agreed Cardillo should retain new counsel. What happened
    with the company after the retainer of Groia & Co. ceased is not a factor
    for my consideration when determining whether the fees charged are fair and
    reasonable.

[23]

The
    second complaint relates to the evidence. The responding material filed by
    Harrison quoted previous testimony given under oath by Mr. Cardillo in other
    proceedings in which he had stated that he had no ownership interest in the fitness
    club, a statement that flatly contradicted the position Mr. Cardillo was taking
    in the application. Mr. Cardillos credibility came under fire, which led McSweeney
    J. to order the trial of an issue, but it never took place because the asset
    disappeared.

[24]

Mr.
    Turton argues that the law firm failed to take reasonable steps to address
    this credibility problem in the context of proceeding with an application on a
    paper record.

[25]

Mr.
    Groia and David Sischy, Mr. Groias associate, gave evidence on this issue. Mr.
    Groia disputed Mr. Turtons assertion in questioning him that the glaring
    inconsistency in evidence could not be resolved on a paper record, because
    Mr. Cardillo kept assuring us that his answers in the matrimonial litigation
    had been taken out of context. He added his view that in the post-Hyrniak era,
    application judges were more likely to make a credibility finding on
    transcripts than in the past.

[26]

Mr.
    Sischy was also cross-examined. He said that he identified the issue and
    discussed it with Mr. Cardillo at length, and he assured me that it is not
    what he meant. He added: Our plan didnt change, our plan was to always to
    seek an early and expedited hearing date. And, that was directly in accordance
    with his desire to get it  to put a maximum pressure on the Harrisons. On
    re-examination, Mr. Sischy added that the decision to proceed in the face of
    the inconsistent evidence that had been raised by the Harrisons was made in
    conjunction with Mr. Groia and Mr. Cardillo.

[27]

The
    trial judge did not directly refer to this credibility contest, but her
    evaluation of the circumstances makes it clear that she accepted the evidence
    of Mr. Groia and Mr. Sischy. She said: I accept the evidence that Cardillo
    instructed Groia that he wanted an aggressive stance to be mounted with
    Harrison, who would likely cave after being served with an application. She
    added Cardillo retained Groia because of his reputation as an aggressive
    litigator in the area of shareholder disputes.

[28]

The
    third complaint relates to the clients claim for damages. Mr. Turton points
    out that while the application claimed financial compensation or damages, the
    law firm failed to identify the legal basis on which the clients were so entitled.
    Further, the Groia firm failed in cross-examination of Harrison to request or
    obtain financial statements, bank statements, accounting documents, or other
    financial information upon which a request for financial compensation could be
    based.

[29]

Mr.
    Turton argues that the issue was not addressed by the trial judge. Frankly, I
    do not see how this figures into the decision under appeal.

[30]

The trial judge stated: While counsel for the defendant
    submits that the various matters ought to have been handled differently, this
    is not a solicitors negligence case.
In
    discussing her responsibilities in the case, the trial judge noted: It is not
    my job to determine if the legal advice given to Cardillo by Groia & Co.
    was the best advice in the circumstances; nor is it appropriate to approach
    this case as if it were a solicitors negligence action. However, she added:
    The evidence indicates that the legal work that was done was skillful and what
    one would expect from a firm specializing in shareholder disputes and other
    types of commercial litigation. I see no error in the trial judges approach; she
    properly considered the relevant factors such as the results achieved, the
    skill of the lawyers, and the reasonableness of the costs incurred and did not improperly
    expand the scope of her review into the more detailed analysis of counsels conduct
    required in a solicitors negligence case.

[31]

In
    my view, there is good reason to believe the appeal has no merit. It does not
    raise any arguable error in law. The appeal really only challenges the trial
    judge's findings of fact and credibility.
As
    Strathy C.J.O. observed in
Henderson
, at para. 16: This appeal does not raise any
    arguable error in law, and challenges findings of fact and credibility for
    which the trial judge set out detailed, facially sound reasons. This court has
    held that such appeals appear to have no merit. He went on to say that [i]n
    such cases, there is almost no possibility of successfully overturning the
    result.: at para. 19.


[32]

To succeed, the clients must ultimately demonstrate that the
    trial judge made a number of palpable and overriding errors in her findings, of
    which I see no evidence.


[33]

The
    appeal lacks merit, and the law firm has satisfied this branch of the test
    under rule 61.01(1)(a) for security for costs.

Is there any other good reason to order security for costs?

[34]

Mr.
    Turton argues that the trial judge paid too much attention to Mr. Cardillos
    behaviour, and that this was not an appropriate consideration. In her reasons
    for decision, the trial judge set out the argument made by counsel for the
    clients: He was a difficult and abusive client, which added to the amount of
    time required to do the work and his conduct ought not to be sanctioned by the
    court. In her conclusion, she noted that Mr. Cardillo agreed to pay the
    invoices after selling the property in the fall of 2016. He failed to do so and
    it was only after the breakdown in the relationship between the parties that
    Cardillo became abusive and critical of Groia and Sischy.

[35]

It
    is not possible to discern from the trial judges reasons how much weight she
    attached to Mr. Cardillos behaviour in deciding the case, if any at all.
    However, I am satisfied that the moving party has also made out the ground
    under r. 61.06(1)(c), as set out by Strathy C.J.O. in
Henderson
, where
    he noted that Appellate courts in Ontario have ordered security for costs when
    an appeal has a low prospect of success coupled with an appellant who has the
    ability to pay costs but from whom it would be nearly impossible to collect
    costs. I consider this observation to apply to the clients. Chief Justice
    Strathy pointed to the respondent's right to be protected from the risk the
    appellant will not satisfy the costs of the appeal, a factor that also applies
    to the clients.

[36]

I
    therefore order that the responding parties post security for costs in the
    amount of $80,000, $60,000 relating to the costs of the judgment under appeal,
    and $20,000 relating to the appeal itself. The costs are to be posted by March
    29, 2019. The costs of this motion are payable to the moving party by the
    responding parties in the amount of $5,000, all-inclusive, forthwith.

P. Lauwers J.A.


