



COURT OF APPEAL FOR ONTARIO

CITATION: 790668 Ontario Inc. v. DAndrea Management Inc.,
    2017 ONCA 1019

DATE: 20171227

DOCKET: C62632

Doherty, Benotto and Huscroft JJ.A.

BETWEEN

790668 Ontario Inc., Frezza Management Inc., Elio
    Frezza,
Gina DAndrea-Vozza, Donna DAndrea-Hogan, Onorio Frezza,
Tara Frezza, Julia Frezza and Michael Frezza

Plaintiffs (Appellants)

and

D'Andrea Management Inc., Daney D'Andrea, D'Andrea Developments Inc.,
Rick D'Andrea, 1317539 Ontario Inc., 1476335 Ontario Inc.,

1052534 Ontario Limited,
Aldo Rotondi
,  Jose Nunes,
1536962 Ontario Ltd.,
St. Willibrord Community
Credit Union Limited, now operating as Libro Financial Group

Defendants (Respondents)

William V. Sasso and
    Nicholas J. Cartel, for the appellants

Jonathan F. Lancaster, for
    the respondents 1476335 Ontario Inc. and Aldo Rotondi

Harry van Bavel, for the
    respondent Libro Financial Group

Richard B. Swan and Hartlee
    Zucker, for the respondents DAndrea Management Inc. and Rick DAndrea

Heard: December 19,
    2017

On appeal from the judgment of Justice Johanne Morissette
    of the Superior Court of Justice, dated August 2, 2016.

REASONS FOR DECISION

[1]

The appellants are minority shareholders in a family-owned company,
    DAndrea Management Inc. (DMI). DMI was used as an investment vehicle by the
    DAndrea/Frezza family to acquire a commercial property. The respondent Daney
    DAndrea was the director of DMI and oversaw the purchase, development, and
    management of the property. The appellants alleged that through a series of
    transactions Daney diverted interests in the property to his benefit and that
    these transactions were oppressive to their interests. The appellants also
    alleged a conspiracy between several of the respondents to allow DMI to default
    on a mortgage so that a company that Daney controlled could take assignment of
    the power of sale under the mortgage and sell the property.

[2]

Following a 19-day trial, the trial judge rejected the appellants claims
    and awarded costs to the respondents. The appellants appeal the dismissal of their
    claims and seek leave to appeal costs. The respondents 1476335 Ontario Inc. and
    Aldo Rotondi cross-appeal a portion of the cost award.

[3]

In February 1994 DMI purchased property from Fiberglas for $4.5 million
    with a $4.1 million vendor take back mortgage. Four years later, Daney sued
    Fiberglas on behalf of DMI as a result of environmental problems with the
    property. They settled the lawsuit and the mortgage was reduced to $1.05
    million. The respondent Libro Financial Group financed DMIs indebtedness with
    a $1.3 million-dollar loan in exchange for a first mortgage on the property.

[4]

In order to close the deal with Fiberglas and Libro, DMI shareholders
    were required to discharge their second mortgages against the property. All of
    DMIs shareholders executed the discharge except for two of the appellants 
    Peter and Onoria Frezza. The respondents alleged that Peter and Onorio refused
    to discharge the second mortgage in order to leverage favourable terms in
    relation to a debt owed by a company owned by Peter to DMI.

[5]

In order to complete the Fiberglas deal without the discharge of the
    second mortgage, Daney incorporated 1317539 Ontario Inc. (Newco). To place
    Libro in the necessary first ranking mortgage position (without Peter and
    Onorios consent), DMI assigned the first-ranking Fiberglas mortgage security
    to Libro through Newco as security for the Libro mortgage. Libro provided the
    new financing of $1.3 million, secured through the assignment of the Fiberglas
    first mortgage security, and backed by a personal guarantee of $1.3 million by
    Daney.

[6]

For several months thereafter, Newco made loan payments on the $1.3
    million indebtedness to Libro. However, during this period DMI (controlled by
    Daney at the time) paid Newco the equivalent of the prior loan payments on the
    former $4.1 million Fiberglas indebtedness. This resulted in a diversion of the
    economic benefit of the Fiberglas settlement from DMI to Newco for a period of
    several months, amounting to approximately $217,000. Onorio commenced a
    derivative action against DMI.

[7]

Eventually, the parties reached an agreement for repayment of the $217,000
    and Onorios derivative action was abandoned. Daney agreed to renew his $1.3
    million personal guarantee on the condition that he be compensated for this
    renewal and for his years managing the property. This was done in the form of a
    management agreement and guarantee fee.

[8]

In April 2001, the majority of DMI shareholders resolved to list the property
    for sale for $2.499 million. Several of the appellants opposed the sale of the property.
    On June 20 2001, the appellants commenced an oppression action.

[9]

DMI defaulted on the Libro loan. In April 2002, Libro issued a notice of
    sale. The appellants took no steps to redeem the property.

[10]

In
    May 2002, Daney incorporated 1476335 Ontario Inc. (147). Libro then assigned
    its power of sale under the mortgage of the property to 147 and it continued
    the power of sale proceedings in Libros place. Jose Nunes, an unrelated party,
    purchased the property for $1.3 million with a vendor take-back mortgage of
    $1.125 million. In January 2004, Nunes transferred the property back to 147 for
    $1.101 million.

[11]

Although
    the appellants raise six grounds of appeal, they can be grouped into two
    categories:

1.

With respect to the oppression remedy, they allege that the trial judge:

a.

misapplied the clean hands doctrine as it applies to the oppression
    remedy;

b.

erred in finding that they did not have reasonable expectations;

c.

did not give adequate weight to the fact that one of the respondents obtained
    benefits properly belonging to DMI.

2.

With respect to the conspiracy claim arising out of the sale of the
    property, they allege that the trial judge:

a.

erred in the finding that the mortgagees fulfilled their obligation to
    obtain market value of the property;

b.

erred in finding that the appellants had suffered no damages.

[12]

We
    do not agree. The appellants issues are all based on alleged errors of fact by
    the trial judge. The trial judge made findings of fact that were supported by
    the evidence. The appellants can show no misapprehension of fact or error of
    law.

[13]

With
    respect to the oppression remedy, the trial judge noted that because the
    oppression remedy is an equitable remedy, it was necessary to consider the
    conduct of both the defendants and the appellants in the circumstances. She
    concluded that Peter and Onorio refused to agree to discharge the second
    mortgage in an attempt to gain leverage over DMI and Daney, in order to
    renegotiate the original 1994 shareholders agreement and reduce or eliminate the
    debt that Peter owed to DMI. She concluded that even if a postponement of the
    mortgage had been presented, Peter and Onorio would have attempted to extract
    some benefit.

[14]

When
    claims in equity are made, the court will not reward those who come with unclean
    hands. The trial judge was entitled to consider and make findings based on the
    appellants conduct.

[15]

With
    respect to Daneys conduct, the trial judge concluded that as a result of Peter
    and Onorios refusal, Daney had to protect DMIs interests, form Newco, and
    complete the deal with Fiberglas. She noted that Daney was the only shareholder
    of DMI risking his personal financial affairs through a guarantee. She found
    that the creation of Newco was not oppressive given that it was in DMIs
    interests to close the deal with Fiberglass. Further, she found that Daney
    justifiably no longer wanted to be the only shareholder personally liable on
    the mortgage  his conduct could not be seen as oppressive.

[16]

We
    note that the trial judge did criticize Daney for his clearly wrong conduct
    in relation to his diversion of the benefit of the Fiberglass settlement to
    Newco. However, she noted that the agreement to repay the money resolved this
    dispute and resulted in the abandonment of the earlier derivative action. Further,
    she observed that the appellants offered no evidence that the amount payable to
    Daney for the guarantee or his management was unreasonable.

[17]

With
    respect to conspiracy, the trial judge concluded that no unlawful conspiracy
    was made out on the evidence. The alleged conspiracy was an agreement that
    Libro assist Daney in making DMI default on the mortgage, enabling Libro to
    proceed by way of power of sale against the property and for Daney to be
    assigned that power of sale.

[18]

She
    rejected the conspiracy claims based on findings of credibility. She found
    there was no evidence that the sale to Nunes and then back to 147 was intended
    to cause harm to the appellants.  She also found no consipiracy between Libro
    and Daney, concluding that Libro just wanted to be extricated from the dispute.
    These findings were open to her on the evidence.

[19]

In
    any event, the trial judge concluded that there had been no proof of damages
    and we see no error in this regard.

[20]

The
    respondents Rotondi and 147 seek leave to cross-appeal on costs for two reasons.
    First, they say that the trial judge should have included the appellants Tara
    and Michael Frezza as jointly and severally liable for the costs. The trial
    judge determined that they did not involve themselves in the litigation save
    for loaning their names as shareholders of DMI. We see no reason to interfere
    with her discretionary decision to exclude them. Second the cross-appellants
    submit that the trial judge did not order solicitor and client costs from the
    date of the offer under the misunderstanding that the offer was not open at the
    date of trial. It was. On this basis, we allow the cross-appeal by making an
    adjustment to the costs payable to the cross-appellants. The costs are
    therefore increased by $18,000 to $266,000 to reflect the full indemnity costs
    from the date of the offer in accordance with r. 49(10).

[21]

In
    conclusion, the appeal is dismissed, the cross-appeal is allowed in part. The
    appellants are to pay costs of the appeal to the respondents as follows:

·

To DMI and Rick DAndrea, $27,000;

·

To Rotundi and 147, $20,000;

·

To Libro, $10,000.

[22]

These
    amounts are inclusive of disbursements and HST and are the joint and several
    liability of the appellants except for Tara and Michael Frezza.

Doherty J.A.

M.L. Benotto J.A.

Grant Huscroft J.A.


