Aubin v Petrone, 2021 ABQB 1021

Court of Queen’s Bench of Alberta Citation: Aubin v Petrone, 2021 ABQB 1021 Date: 20211223 Docket: 4803 168361 Registry: Edmonton Between: Renee Lyne Aubin Applicant - and - Sabino Steven Anthony Petrone Respondent - and - Quantiam Technologies Inc., Consolidated Civil Enforcement Inc. Interested Non-Parties Corrected judgment: A corrigendum was issued on February 14, 2023; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Endorsement of the

Honourable Mr. Justice J.S. Little _______________________________________________________ I. Introduction [ 1 ] This is a post-trial case management application by Ms. Aubin to enforce a monetary judgment in her favour given after trial in 2018. I heard the application on November 30, 2021. Counsel then asked that I hold off on issuing a decision until December 16, 2021 to give them additional time to negotiate a solution. I was told on December 16 that the parties were still working on and possibly close to resolution but were not yet ad idem , which necessitates this decision. II. History [ 2 ] Appendix 1 sets out a

summary of this action. Briefly, the husband Petrone and wife Aubin were majority shareholders in a successful closely held private corporation called Quantiam. Ms. Aubin argued at a matrimonial property trial conducted by Justice Khullar, as she then was, that Quantiam, as the source of the parties’ wealth, should be the source of any monetary equalization payment due to her. She obtained a judgment for approximately $5.7M. Mr. Petrone failed to make any payments. Justice Khullar then granted security against certain Quantiam assets to secure payment of the judgment, but Mr.

Petrone continues to be unable or unwilling to use the financial wherewithal of Quantiam to pay any amount on that judgment. Ms. Aubin through Consolidated Civil Enforcement Inc. has seized 23,145 shares owned by Mr. Petrone in Quantiam in an effort to realize on her monetary judgment. [ 3 ] Despite having bravely heard a number of post-trial applications following her elevation to the Court of Appeal, there came a point where it was no longer practical for Justice Khullar to continue to deal with post-trial issues.

As a result, I was appointed case management judge on May 3, 2021 of this and certain other, related actions. [ 4 ] The following excerpt from Justice Khullar’s judgment in what the parties refer to as the Remedies Decision, 2018 ABQB 973 assists in understanding the need for this application: [30] I have ordered that the judgment be charged and secured against Mr. Petrone’s shares in Quantiam. However, for the same reasons that I did not think an in specie distribution of shares would be a meaningful remedy for Ms. Aubin, securing the judgment amount against the shares may be inadequate to enable Ms.

Aubin to enforce it. I find this case to be like Wildman and Barrett, in that there are special circumstances to lift the corporate veil and secure payment of the judgment against the assets of the Quantiam. I take comfort in this approach by the admission of Quantiam that it recognizes that it must be involved in the resolution of this dispute. I valued the shares in Quantiam to be $15.2 million reflecting the hard assets of Quantiam (para 108, Merits Decision).

One of those assets is the building owned by Quantiam located at 1651 - 94 Street, Edmonton (Building) which has been appraised between $5,201,000 and $6,510,000 depending on the valuation approach (para 94, Merits Decision). [31] So, in terms of remedy, under s 9(3)(b), (

c) and (

j) I declare that Ms. Aubin’s judgment against Mr. Petrone in the amount of $5,570,394 is protected by a security interest in Mr. Petrone’s shares in Quantiam and a security interest in the Building. Other assets of Quantiam remain unencumbered by this decision. I have chosen a specific asset of Quantiam instead of all assets, in order to recognize and protect the interest of the minority shareholders.

The security interest in the Building may be registered. (See Appendix A for the wording of this order.) [ 5 ] There are two issues which may not be evident from the above excerpt or the history summarized in Appendix 1 which complicate the resolution of this matter. [ 6 ] The first is what I will refer to as the Summerland mortgage. While the two parties were still together, Quantiam lent 159Co, owned equally by the parties and now owned solely by Ms. Aubin as a result of the trial decision, funds to purchase a residential property in Summerland, BC. When the parties split up, Ms.

Aubin began to live full time in that property and Quantiam started a foreclosure on its mortgage. While this is a complicating factor, it is clear to me from the November 30 hearing that Quantiam acknowledges Ms. Aubin’s entitlement to receive the Summerland property free of the Summerland mortgage, reducing the judgment payable by something in the region of $2M. [ 7 ] The second issue is that Quantiam leases its building from the City of Edmonton, but its lease includes a favourable option to purchase the fee simple.

The charge granted by Justice Khullar clearly encumbers the building itself, but does not specifically encumber the Option. And while I consider the Option favourable insofar as that, at trial, its exercise price of $1.6M was under market, it does require a cash payment of $1.6M, which Quantiam claims it cannot currently afford. Further, it is more likely than not that the City would have to approve a party other than Quantiam which exercises the Option, since the property is in a technology park which the City requires be occupied only by technology tenants. III. Parties’ Positions A. Ms. Aubin [ 8 ] Mr.

Curtis seeks one of three alternative remedies intended to see that Ms. Aubin gets paid the approximately $5.6M equalization payment, which with interest and costs is now approximately $6M.

[ 9 ] The first alternative he seeks is to have Consolidated sell to Quantiam enough of the 23,145 shares seized, to satisfy the amount of the Summerland mortgage. Ms. Aubin would then not take further steps to enforce her judgment without leave of the court. That satisfies one of Justice Khullar’s objectives, which was to remove the Summerland property from the equation. It does reduce the asset side of Quantiam’s balance sheet.

But the arguments I have heard on behalf of Quantiam are that its primary concern is with a material change in control of a very specialized corporation and that with the deemed satisfaction of a $10.5M liability on December 15, 2021, the strength of the corporate balance sheet is not as dependent on the $2M it attributes to the Summerland mortgage. And this alternative does little damage to the minority shareholders: their interest actually increases with a cancellation of some of Mr.

Petrone’s shares. [ 10 ] The second alternative he seeks is to appoint a receiver of the seized shares and to have the court order that the Option to Purchase be exercised by a certain date. As a court appointed receiver, that gives the Court some control and the parties the option to return to the Court if either the receiver or one of the real litigants is attempting some tomfoolery. [ 11 ] The proposed receivership order is broad. In addition to including the receiver’s right to exercise Mr.

Petrone’s voting rights respecting the seized shares, the proposed order permits the receiver to “prosecute and continue the prosecution of any and all proceedings and to defend all proceedings now pending or hereinafter instituted” with respect to those shares, essentially displacing Mr. Tumbach as the person currently responsible for protecting Mr. Petrone’s rights in these proceedings.

It includes as well the right to market those shares, which is not a realistic outcome, given that this is a closely held corporation and no one, outside of the corporation, in his or her right mind would buy into this litigation. Certainly the Court is entitled to revise and ultimately determine the receiver’s authority, but overall I see that appointing a receiver of the shares at this stage simply brings another player to the table at additional expense. [ 12 ] The third option he seeks is that the court order Quantiam to exercise the Option at its own expense of approximately $1.6M. Then $2M of Mr.

Petrone’s debt would be deemed to be equal to the Summerland mortgage debt, and Quantiam would have a month to redeem that debt, failing which Aubin could foreclose, effectively extinguishing that debt. That is very circuitous. B. Quantiam [ 13 ] The written submissions that I received from Mr. Petrone and Quantiam essentially argue that the trial decision and Court of Appeal decision respecting the valuation of Quantiam and lifting of the corporate veil were wrongly decided. With leave to the SCC from our Court of Appeal decision having been refused, those submissions simply fail.

I summarize counsel’s more reasonable arguments below. [ 14 ] Mr. Kinash for Quantiam proposes that the court codify the terms of a “with prejudice” offer made to Ms. Aubin in October, 2021 that would require her to obtain third party financing of $1.6M to exercise the Option and then become the landlord subject to commercially reasonable lease terms, thereby receiving an income stream which would reduce her judgment. [ 15 ] Compelling Ms.

Aubin to independently finance a purchase of the land and building might be feasible for a sophisticated commercial creditor but would be an unusual step for a passive creditor. And it means that either the parties have to agree on the terms of a lease, which is unlikely, or that the Court determine them, which would put this Court at the negotiating table with the City of Edmonton. C. Mr. Petrone [ 16 ] Mr. Tumbach proposes that Mr. Petrone transfer about half of his shares to Mr. Aubin at a value of $221.30 per share, which is the valuation used at trial.

The number of shares he proposes is 27,000, which at $221.30 per share would be $5,975,100, approximately the current judgment debt owing. [ 17 ] This proposal is beautifully simple. It recognizes Justice Khullar’s finding from the trial that both parties had contributed to the wealth embedded in Quantiam and her later finding that Mr. Petrone did not have the cash necessary to retire the judgment but should be able to do so in instalments. [ 18 ] Reinstating Ms. Aubin as a shareholder recognizes that Quantiam, while the source of the wealth for the then couple, simply does not have the wherewithal to front Mr.

Petrone with the approximately $4M payable after settlement of the Summerland mortgage. It needs to remain a viable entity in order to continue to employ Mr. Petrone who has spousal support obligations.

Insofar as Justice Khullar recognized that some balancing of the interests of the minority shareholders was required, this solution does not change their percentage interest, though they now come behind two shareholders, one of whom they are convinced wants to destroy the corporation. [ 19 ] It also recognizes Quantiam’s arguments that the introduction of a third party, such as a receiver of the shares whose sole objective would be to bleed cash out of the corporation, would create uncertainty for Quantiam’s minority shareholders, customers, and the grant-issuing benefactors upon whom Quantiam relies. [ 20 ] What it fails to recognize is that Justice Khullar specifically rejected an in specie distribution of the shares in Quantiam as not being a meaningful remedy for Ms.

Aubin. I may have to revisit that finding in the future if Quantiam continues to limp along without sufficient free cash to distribute to its shareholders including Mr. Petrone, who can then pay Ms. Aubin. But at this stage, because Mr. Petrone and the friendly minority shareholders would still control Quantiam, but without a sufficient majority for a special resolution, all that it would accomplish is to move this collection dispute directly to the corporate level. Virtually any corporate action taken would very likely give rise to an oppressive or derivative action by Ms. Aubin as minority shareholder. IV.

Decision

[ 21 ] I explained to the parties that this application is not to be considered a baseball arbitration where I am obligated to choose only from among the various proposals put forth. But it was helpful to have the parties present their various alternatives and, as it happens, one of those alternatives jumps to the fore. [ 22 ] In my view, Mr. Curtis’s first alternative is a reasonable, rational, and simple first step, namely that certain of Mr.

Petrone’s seized shares equal in value to the Summerland mortgage be purchased for cancellation by Quantiam: • It settles the issue of the Summerland mortgage by freeing the property from the mortgage, a step recognized by Justice Khullar as desirable and by Quantiam as not only inevitable but equitable.

That takes one complicating factor off the table. • It satisfies the first of four instalments fixed by Justice Khullar, albeit late. • Agreeing to a voluntary freeze on further enforcement without leave allows the parties additional time to see if they can find a mutually satisfactory resolution to a complex problem involving not only the parties but the corporation and its other stakeholders. Under the four payment

schedule fixed by Justice Khullar in the 2020 Post Appeal Clarification Decision, the next instalment of a one quarter payment would be due in March, 2022. According to submissions made by counsel at the application, Quantiam may be turning a corner in its profitability, which bodes well for Mr. Petrone finding a way of leveraging his interest in Quantiam to pay out Ms. Aubin or at least making the next required instalment. • It leaves open the opportunity to tailor a further remedy from the alternatives presented by Mr. Curtis and his colleagues. V. Order [ 23 ] For those reasons, I adopt Mr.

Curtis’s draft Order, which I have attached as Appendix II, with the value per share for paragraph 1 of the Order being the $221.23 determined at trial, and with the proviso that Ms. Aubin take no further enforcement steps without leave of this Court. Mr. Curtis at paragraph 54 in his written submissions invites the Court to make an Order anticipating that the March 2, 2022 deadline imposed by Justice Khullar will be missed and pre-emptively extending that deadline.

I choose not to do so for the reason that counsel here have tended to work to deadlines, and I would sooner they worked to a March 2, 2022 deadline than a later one. [ 24 ] In addition to the above Order, however, I will also confirm that Justice Khullar’s charge on the Building (see para. 31 of the Remedies Decision above), specifically includes an equitable assignment of the lease to Ms. Aubin and an equitable charge over the option to purchase, whether it is independent of or an incident of the lease. [ 25 ] If not already provided to her, Quantiam is ordered to deliver to Ms. Aubin, through Mr.

Curtis, true copies of the lease, and the option if is documented independently of the lease, together with all correspondence between the City of Edmonton and Quantiam respecting the lease and the option together with all internal memoranda respecting the lease and option. Quantiam through its counsel is further ordered to provide written notice to the City of Edmonton that Ms.

Aubin through her counsel has full authority to receive copies of all future correspondence and be a party to all discussions between the City and Quantiam respecting the lease and option. [ 26 ] Quantiam is further enjoined from terminating, surrendering, extending, or amending the lease or the option without Ms. Aubin’s written consent. [ 27 ] Thank you to counsel for the extraordinary efforts they obviously took in preparing their written submissions and for the efforts of others in their respective offices whom I know to be working hard behind the scenes on viable solutions.

Heard on the 30 th day of November, 2021. Dated at the City of Edmonton, Alberta this 23 rd day of December, 2021. J.S. Little J.C.Q.B.A. Appearances: Robert M. Curtis for Renee L. Aubin

Michael R. Kinash for Quantiam Technologies Inc. Dale Tumbach for Sabino S. A. Petrone Imran Qureshi for Quantiam Minority Shareholders Brian S. Sussman for Consolidated Civil Enforcement Inc. _______________________________________________________ Corrigendum of the Endorsement of The Honourable Mr. Justice J.S. Little _______________________________________________________ Changes reflected to indicate proper Counsel for Quantiam Technologies Inc. and to remove additional Counsel listed for Renee L. Aubin. Appendix 1

Summary of reported decisions: Aubin v Petrone , 2018 ABQB 163 – BC Injunction – Summerland Mortgage March 5, 2018 Aubin and Petrone each own 50% of 159Co. Petrone owns 85% of Quantiam and Aubin owns 4%. Quantiam lent 159Co $2.1M to purchase a property in BC, secured by mortgage, with the loan since paid down by $300,000. Quantiam sought to foreclose on the property. Aubin was granted an injunction preventing foreclosure for 30 days after the decision on the matrimonial property.

Aubin v Petrone , 2018 ABQB 536 July 13, 2018 Merits Decision This is the trial decision. Quantiam valued at $15M 159Co valued at $360,000 – all shares transferred to Ms. Aubin. Petrone ordered to make an equalization payment of $5,570,000. Aubin v Petrone , 2018 ABQB 973 Remedies Decision Aubin granted a security interest against Mr. Petrone’s shares in Quantiam to secure her $5.57M judgment. Petrone enjoined from bankruptcy/proposal until documentation complete. Aubin granted a security interest in the building leased by Quantiam and appraised at $5.2M- $6.5M.

Quantiam enjoined from declaring bankruptcy/proposal or disposing/charging the building until documentation complete. Aubin awarded costs of $369,000. Aubin v Petrone , 2020 ABCA 13 Appeal Jan, 2020 Appeal against Merits and Remedies decisions dismissed. Aubin v Petrone , 2020 ABQB 163 – Post Appeal Clarification of Security , March, 2020 Requirement for formal security documentation removed, since the parties cannot agree on form. Mr. Petrone to pay entire judgment in four years. Mr. Petrone to pay 25% of the judgment in each of the next four years.

If he does not, Aubin may apply to enforce the charges under s. 9(3)(

c) of the MPA (now FPA). Prohibitions against bankruptcy still apply. Aubin v Petrone , 2020 ABQB 708 - Clarification of Clarification , Nov, 2020 Four year payment

schedule to include first payment of at least $2M, ie. the current amount outstanding on the mortgage from 159Co to Quantiam on the BC property. The temporary injunction on foreclosure is lifted. Restriction on Quantiam declaring bankruptcy is lifted. Restriction on Mr. Petrone declaring bankruptcy is maintained until he sells the matrimonial home and discharges secured lines of credit for which Ms. Aubin may be jointly liable. Aubin v Petrone , SCC 39038, leave to appeal dismissed, 2020-06-25