AutoCanada Capital Motors GP Inc v Mirbach, 2021 ABQB 170

Court of Queen’s Bench of Alberta Citation: AutoCanada Capital Motors GP Inc v Mirbach, 2021 ABQB 170 Date: Docket: 1803 09167 and 2003 08738 Registry: Edmonton Between: AutoCanada Capital Motors GP Inc. Applicant/Plaintiff - and - Calvin Mirbach, 2075868 Alberta Ltd., 1859603 Alberta Corp Carrying on Business As GRR Leasing, Gregory Rasmussen, 2016543 Alberta Ltd., 2016543 Alberta Ltd. Carrying on Business as Canuck Auto, Flawless Integrity Ltd., 1406386 Alberta Ltd., 1406386 Alberta Ltd. carrying on Business as Auto City Edmonton, Crossline Consulting Ltd., Crossline Consulting Ltd.

Carrying on Business as Auto City Edmonton, Crossline Truck & Auto Sales Ltd., 1513144 Alberta Ltd., 1513144 Alberta Ltd. Carrying on Business as auto City Edmonton, Alberta Treasury Branches and Automotive Finance Canada Inc. Respondents/Defendants And Between: AutoCanada Capital Motors GP Inc. Applicant/Plaintiff - and - Adam Shtay, Angelo Tagliamonte, Joshua Davis, John Doe #1, a Registry Agent who is assigned, or used, the Registry Agent No. 0405- 98732, John Doe #2, a Registry Agent who is

assigned, or used, the Registry Agent No.0344-75871, ABC Corp #1, a licensed Motor Vehicles Registry at which John Doe #1 worked, ABC Corp #2, a licensed Motor Vehicles Registry at which John Doe #2 worked, John Doe #3, and ABC Corp #3 a licensed Motor Vehicles Registry at which John Doe #3 worked Respondents/Defendants _______________________________________________________ Endorsement of the Honourable Mr. Justice M. J. Lema _______________________________________________________ A.

Introduction [ 1 ] The plaintiff in a multi-defendant action with cross-claims seeks partial consolidation of that action with a second action started by it against some of the parties to the first action and involving some common facts and issues. The plaintiff also seeks confirmation that an existing receivership order stays further steps by any party in both actions or, as applicable, an order staying such steps. [ 2 ] Some of the defendants and cross-claimants object to partial consolidation, arguing that the entire second proceeding should be consolidated with the first.

On the stay aspect, they largely do not object but submit that the plaintiff itself should also be stayed. [ 3 ] I find that the second action, if needed, should be heard, by the same justice, directly after the first action, with the evidence, fact findings, and legal findings (if any) relating to Messrs. Davis and Tagliamonte in the first action carrying over into the second action.

As for the second action’s remaining claims, they are consolidated with, and folded into, the first action. [ 4 ] Stay-wise, I am not convinced that any scope-of-existing-stay declaration is warranted, and same for any expanded stay order. B. Consolidation analysis [ 5 ] Here is Rule 3.72 [formerly R. 229], which provides for consolidation or other grouping of two or more related proceedings:

(1) The Court may order one or more of the following: (

a) that 2 or more claims or actions be consolidated; (

b) that 2 or more claims or actions be tried at the same time or one after the other ; (

c) that one or more claims or actions be stayed until another claim or action is determined; (

d) that a claim be asserted as a counterclaim in another action.

(2) An order under subrule (1) may be made for any reason the Court considers appropriate, including, without limitation, that 2 or more claims or actions (

a) have a common question of law or fact, or

(

b) arise out of the same transaction or occurrence or series of transactions or occurrences. [emphasis added] [ 6 ] The Alberta Court of Appeal reviewed consolidation in 1177620 Alberta Ltd v Axcess Mortgage Fund Ltd [1] : In Alliance Pipelines , at para 6, Paperny JA for this Court described the proper approach to a consolidation application as follows: The purpose of consolidation is to enhance the administration of justice.

A court should consider the possibility of inconsistent verdicts, the prospect of prejudice to the parties and the impact of consolidation and non-consolidation, both at the pre-trial and trial stages, on scarce resources, including administrative, judicial and financial. In other words, a court must be able to conclude that having regard to all the circumstances, on balance, it is in the interests of justice that the actions be consolidated . Some of the relevant factors that should be considered are discussed in Mikisew .

These, however, are not necessarily the only relevant factors, nor are they in themselves determinative. Each case must be assessed on its own merits and should include consideration, not just of the common claims, but the extent of the distinct claims between the parties. The focus in each case must be on the impact of consolidation on the parties and on the administration of justice. See also Munro v Munro , 2011 ABCA 279 at para 6 , 513 AR 363.

Justice Paperny also noted, at para 4 of Alliance Pipelines , that the Court may rely on the pleadings alone to determine whether there are common issues of law and fact, where the pleadings clearly contain the same factual allegations, so that it is relatively simple to find the nature and extent of the common and distinct issues arising in each action.

In B & S Publications Inc v Gaulin , 2002 ABCA 238 , 317 AR 397 [ B & S Publications ], Berger JA for the Court confirmed the consolidation order made by the Chambers Judge, noting that the two actions had related parties , arose from the same series of transactions , and had common questions of fact between them. Having separate trials would result in duplication of process , the same witnesses having to testify, and the specter of inconsistent verdicts .

Application of those principles here [ 7 ] To understand the connection between the two proceedings here, I provide a brief (and somewhat simplified) sketch of both proceedings. [ 8 ] The plaintiff operates a car dealership. It contends that dozens of vehicles (or their proceeds) owned by it went astray in transactions not authorized by it.

It launched the first action against Calvin Mirbach, and a corporation owned by him, both of whom were involved in the impugned transactions, as well as various downstream purchasers and a financier, claiming entitlement to the vehicles and their proceeds as against all of those downstream parties. [ 9 ] Mirbach and his corporation are largely missing in action here.

Most of the other defendants claim that the two of them had actual or ostensible authority from the dealership to sell the vehicles in question and that, in bona fide arm’s length transactions, these other defendants collectively acquired the vehicles from the dealership, and then re-sold, or financed, them, with the dealership having no continuing claim in the vehicles or their proceeds. Some of them issued cross-claims against the dealership, as well as certain employees (or former employees) of the dealership, including Messrs.

Davies and Tagliamonte. [ 10 ] In the dealership’s second action, which (it acknowledges) features largely common issues of fact and law with the first action, it sues an individual (Adam Shtay), who is the principal of one of the corporate defendants in the first action. The dealership acknowledges that this claim is unquestionably bound up with the factual and legal issues in the first action. Accordingly, it seeks consolidation of that component of the second action. Mr.

Shtay does not dispute such consolidation, and none of the other participating- at-the-application defendants objected to that step. [ 11 ] Accordingly, I direct that the second action, as it concerns Mr. Shtay (and, for that matter, all other defendants, other than Messrs. Davis and Tagliamonte), be consolidated with the first action. Contingent claims against Messrs. Davis and Tagliamonte [ 12 ] The participating defendants balk at the limited nature of the consolidation proposed by the dealership i.e. limited to the claim against Mr. Shtay (and other defendants, currently unserved).

In the second action, the dealership also sued two of its former employees (Messrs. Davis and Tagliamonte), on a contingent basis. It seeks relief against them on various breach-of-employment and breach-of- fiduciary-duty bases if the dealership loses the tug-of-war over the vehicles and proceeds in the first action.

The participating defendants see these claims, even if contingent, as entirely bound up in the issues in the first action and, accordingly, as warranting consolidation with the first action. [ 13 ] I find the following significant here: • the actions, or inactions, of Davis and Tagliamonte are front and centre in the first action, as a result of counterclaims by some central defendants who are downstream purchasers of the vehicles: 185 and its principal Rasmussen (claiming against both Davis and Tagliamonte, among others), and Flawless and its principal Shtay (claiming against Tagliamonte, among others).

In a nutshell, these purchasers contend: o first, that the transactions by which the vehicles in question left the dealership were properly authorized by it i.e. effectively, that the actions of Davis and Tagliamonte in approving such transactions, or at least in approving dealings on the dealership’s behalf by Mirbach, were the dealership’s own actions, with the result that the dealership has no further claim to the vehicles or their proceeds; o alternatively, if Mirbach or others at the dealership did not have actual authority for such transactions, the dealership (in whole or in

part through Davis and Tagliamonte) created the reasonable impression that they did have such authority (i.e. ostensible authority), with the same result i.e. the dealership has no further claim to the vehicles or their proceeds; o alternatively, if Mirbach and others had neither actual nor ostensible authority, the dealership (in whole or in part through Davis and Tagliamonte) was negligent in supervising Mirbach and others, causing losses to the downstream parties; and o alternatively, Davis, Tagliamonte and Mirbach engaged in fraudulent activities at the expense of the downstream parties; • in other words, the actions or inactions of Davis and Tagliamonte, in terms of their (possible) direct involvement in the transactions in question, their (possible) authorizing of Mirbach in respect of such transactions, their (possible) creation of an ostensible- authority impression about Mirbach, their (possible) lack of oversight of Mirbach, or their (possible) involvement in (possible) fraud by Mirbach, will be explored in the first action as a result of these counterclaims i.e. even if (in the main action) the dealership effectively closes ranks with Davis and Tagliamonte, disavowing only Mirbach (disclaiming him as any kind of employee or agent of the dealership); • in its second action, the dealership expressly concedes the overlap between the two actions: o paragraph 1 of the thrice-amended statement of claim says: “This [second] action involves the same events and transactions that are the subject matter of [the first action].” Paragraph 2 says: “It is the [dealership’s] intention to have those claims in this [second] action involving all of the defendants [including Shtay and various currently-not-served parties], with the exception of [Davis and Tagliamonte], consolidated with the [first] action”; and o its approach to the latter two is expressed in the third paragraph: The facts set out in the [first] action are adopted herein as though they were repeated verbatim.

All of the allegations contained within these [second-action] pleadings against [Davis and Tagliamonte], including allegations of negligence, breach of contract, breach of fiduciary duties, fraud, conspiracy, and conversion are in the alternative to the allegations plead in the [first] action [i.e. against all the defendants in the first action] [;] in the event that the [dealership] loses its interest in any of the Vehicles … as a result of the actions, inactions, or negligence of [Davis or Tagliamonte], it is the [dealership’s] intention to seek contribution and indemnity from [Davis and/or Tagliamonte]. [emphasis added] • in other words, if the dealership loses the tug-of-war over the vehicles and proceeds in the main action, it wishes to use the second action to claim over against these two former key employees for causing, or contributing to, that loss; • if the second action proceeds, it will necessarily explore the actions or inactions of these two , not from the perspective of gauging their actual or ostensible authority to conduct the impugned transactions or their independent liability as negligent or fraudulent actors, but from the perspective of whether those same actions or inactions represented breaches of their employment or fiduciary duties to the dealership ; • accordingly, while the consequences of their actions or inactions may be different in the two proceedings – i.e. whether the vehicles did or did not move out of the dealership to the downstream parties, versus whether these two individuals are liable to the dealership for losses caused to it – their same actions or inactions will be central in both proceedings (again, if the second action is required i.e. if the dealership loses the tug-of-war); • Tagliamonte did not participate in the recent court application, despite being served; • Davis did participate, and was represented by counsel, but he did not offer a particular position on this consolidation aspect after it was confirmed, during the application, that Davis is indeed a party, via counterclaim, in the first action; • the dealership emphasizes the contingency aspect i.e. that the second action, at least as against Davis and Tagliamonte, may not be required i.e. if the dealership wins the tug-of-war; • it is not apparent to me that the tug-of-war will be “winner take all”; it is conceivable that its outcome will be a split decision , with the dealership, on the one hand, and the downstream parties, on the other, each being awarded some of the contested vehicles and proceeds. (The dealership recognizes this, with its paragraph-three reference to losing its interest in “any” of the contested vehicles); • it is too early to make any predictions about the likely outcome of the tug-of-war;

• what is plain is that, if the dealership loses the tug-of-war, in whole or in part, its claim-over against Davis and Tagliamonte will be triggered, and the resolution of its breach-of-employment and breach-of-fiduciary-duty claims will require close-in scrutiny of their actions and inactions in the transactions in question i.e. again, some of the central factual inquiries explored in the first action ; • it would be a waste of time, energy, and money if those actions and inactions had to be explored again, in a possible second action; • while the dealership only applied for partial consolidation under R. 3.72, and recognizing that Tagliamonte did not participate at the application (despite proper service), the affected parties i.e. the dealership, Davis, and the participating downstream parties, were alive to the “scope of consolidation” issue well in advance of the application and had an opportunity to make submissions on it in their written briefs and at the application itself .

In other words, I see no prejudice, to any party, to “full consolidation of the second action with the first” being explored in this application i.e. even though the dealership only applied for partial consolidation; • while some Alberta authority holds that an application is a necessary precondition to consolidation [2] , Rule 3.72 does not, unlike many other of Alberta’s rules, expressly require “an application” before the Court is empowered (here) to consolidate proceedings or otherwise organize them under that Rule; • given that wording, and the Court’s powers under Rules 1.3 (general authority of the Court to provide remedies) and 1.4 (procedural orders), I find that the Court has the power to direct consolidation (or otherwise coordinate two or more actions) under Rule 3.72 on its own motion (i.e. go beyond the partial consolidation sought by the dealership), particularly where the subject of consolidation (albeit partial only) was put on the table via an application and the affected parties had an opportunity to address the pros and cons of Rule 3.72 organization of these two proceedings, in whole or in part [3] ; and • on the Court’s authority to direct consolidation on its own motion, I note, for contrast, the decision of Pentelechuk J. (as she then was) in Alberta Motor Association Insurance Company v Aspen Insurance UK Limited [4] .

In the context of arbitrations under the International Commercial Arbitration Act and an express provision authorizing consolidation “ on application of the parties to 2 or more arbitration proceedings”, she found that both (or all) the parties had to apply and (implicitly) that an application was essential. [ 14 ] I conclude that, given the virtually complete overlap of the two actions as they concern what Davis and Tagliamonte did or did not do in respect of the impugned transactions here, the two actions have to be joined, in some fashion , to ensure that factual findings do not have to be made twice and, as applicable, that any overlapping legal findings anchored on those factual findings do not have to be repeated i.e. to ensure against inconsistent factual and legal findings . [ 15 ] This squares with s. 8 of the Judicature Act , which sets these objectives for the Court: ... that as far as possible all matters in controversy between the parties can be completely determined and all multiplicity of legal proceedings concerning those matters avoided . [emphasis added] [ 16 ] Given the contingent nature of the second action, the sensible way to join the proceedings is to direct, as R. 3.72(1)(

b) contemplates, that the actions be tried in sequence (main first, second second) by the same judge, with the evidence introduced in the first action and all factual and legal findings in the first action carrying over into, and serving as the foundation of, the second action (if needed).

That action would then focus on the dealership’s breach of employment and of fiduciary duty allegations i.e. the legal consequences of those first-action factual findings, as between the dealership, on the one hand, and Davis and Tagliamonte, on the other. [ 17 ] This sequencing of the two actions is supported by the analysis of Master Funduk in Hagman v Shepert, Saddy, Lyons, Fowle, Hendriks, and Perry [5] , where he emphasized (in part) the alternative nature of the one proceeding: ... it cannot be said that the actions have no relation to each other.

As I have already indicated, the claim against the defendants in the second action is alternative to the claim in the first action. In my view, it is appropriate that both actions be heard by the same trial judge to avoid any possible conflict in findings of fact . If the actions are tried before different judges it would be possible to have a case where there are findings of fact in the second action which are different than findings of fact in the first action. That is to be avoided. Although the issues may not be identical in each action there is an overlapping of facts .

In my view, it is appropriate that both actions come before the same trial judge. What is owing on the agreement for sale is an issue in both actions. The actions are not unrelated as both have a common base , being the plaintiff's acquisition of the vendor's interest in the agreement for sale. In addition, the second action is an "alternative" action. In my view, it is appropriate that both actions be set down on the trial list one after the other, to be heard by the same trial judge . ...

There will be an order that the actions be set down on the trial list one after the other, after they are both ready for trial, to be tried together or one immediately after the other as the trial judge may consider appropriate . [emphasis added] [Given the alternative nature of the one claim, I suggest sequential hearing was, or would have been, preferable.]

[18] For more examples of orders directing sequential hearing of two or more matters, see Pena v Kocian, 2006 ABQB 602(Chrumka J.) at paras 96-103 (whether land had been sold to be decided before deciding status of an interim tenancy agreement);Factors Western Inc v Point Design Homes Ltd, 2018 ABQB 1004 (Master Farrington) at paras 12-15 (set lien fund and determinepriority to it before deciding secured creditor’s residual claim against debtor); University of Alberta v Alberta (Information and PrivacyCommissioner), 2011 ABQB 100 (Lee J.) at paras 19-24 (issue of scope of “records under care and control” to be decided beforesubstantive judicial review application); Jeerh v Yorkton Securities Inc, 2004 ABQB 975 (Erb J.) at paras 18-28 (multiple claimsagainst a common stockbroker to be heard in sequence, with common evidence on brokerage-focused issues followed by relianceevidence from each claimant); and Fogarty v Co-operators Group Ltd, (1988) (AB KB), 94 AR 386 (Master Funduk)at paras 76-79 (determine whether insurance coverage still available before deciding whether law firm negligent for allegedly lateclaim).

C. Stay analysis [19] In the main action, an investigative receiver was appointed by Topolniski J. on terms including a stay on all proceedingsagainst the vehicles in question and their proceeds. [20] The dealership seeks an order declaring that that stay applies to all of the proceedings afoot here: its first-action claim againstthe various defendants; the counterclaims issued by some of those defendants; and the second action.

In the alternative, it seeks an orderstaying such of those claims that are not already stayed by the receivership order. [21] The dealership is concerned that, without such a declaration or expanded stay order, parties may rev up proceedings beforethe investigative receiver has completed its work.

As well, it believes that, absent a confirmed or expanded stay, certain time clocks (e.g.for affidavits of records) will be, or are perhaps already, ticking, and that no party should be required to take any clock-stopping stepsbefore the receiver’s report is delivered (estimated at the application to ready around the end of April 2021). [22] The dealership’s counsel suggested a six-month stay (or continued stay) i.e. up to early July 2021. [23] I did not see any evidence of any particular steps having been taken by any of the parties (i.e. outside of the investigativereceiver’s work), other than the filing of pleadings (e.g. statements of defence and counterclaims in the main action; and the pleadingsfiled to date in the second action) i.e. no particular steps “in the trenches” of either action. [24] Neither did I hear submissions from any party about proposed steps “in the trenches.” [25] Instead, everyone seemed content, or resigned, to wait for the receiver’s report, albeit they differed in what they expect fromthe report (ranging from possibly a blueprint for the complete resolution of all these claims through to nothing more than evidence-gathering to serve as a foundation for future litigation) [26] Some parties were concerned about a possible “stay asymmetry” i.e. if some parties are stayed, all should be stayed. [27] All parties seemed to agree that, while many of the claims and cross-claims are focused on the vehicles in question and theirproceeds (and are thus already stayed by the receivership order), certain claims (e.g. for consequential business losses) are not formallystayed, as not bearing directly on the vehicles and proceeds.

Having said that, some asserted that such claims are indirectly stayed, asbeing contingent on the outcome of the tug-of-war over the vehicles and proceeds. [28] In all these circumstances, and fundamentally with no sign of any party having broken ranks or even threatening to do so (i.e.taking any particular litigation steps or demanding that others do so, before the investigative receiver’s report is delivered), I see noparticular need to make any declaration about the breadth of the receivership stay or grant any new stay. D.

Conclusion [29] For these reasons, the non-Davis, non-Tagliamonte dimensions of the second action are consolidated with the first action.

TheDavis and Tagliamonte dimensions of the second action, if triggered by the outcome of the first action, are to be heard by the samejustice on the heels of the first action and built on the evidence and findings in the first action as they relate to those two individuals. (Ifthe parties require any further clarification of this intended carry-over from the first action into the second, I invite them to contact mevia my assistant.) [30] Stay-wise, I decline to grant the requested “scope of stay” declaration or to grant an expanded stay.

However, on the matter oflitigation clocks running or perhaps having already run, I invite the parties to see if they can reach a standstill agreement or otherwisepreserve any currently running time periods or reinstate any already expired ones. [31] If the parties are unable to agree and one or more of them believe a clock-suspending order is necessary, I would be prepared,within the limits imposed by the Rules, to suspend all litigation-step clocks and to reinstate any expired litigation-step time periods (i.e.under the Rules), at least through to some reasonable period after the delivery of the receiver’s report, with a view to preserving allparties’ positions and prejudicing none of them. [32] I thank the parties for their helpful written and oral submissions, and I apologize for the delay in completing this judgment.

Heard on the 7th day of January, 2021.

Dated at the City of Edmonton, Alberta this 3 rd day of March, 2021 . M. J. Lema J.C.Q.B.A. Appearances: Michele Wolowidnyk Weir Bowen for the Applicant AutoCanada Capital Motors GP Inc. Ian Wachowicz and Andy (Andrew) J. Hladyshevsky, QC Dentons for the Respondents 2016543 Alberta Ltd carrying on business as Canuck Auto, Flawless Integrity Ltd and Adam Shtay Michael J. McCabe, Q.C. and Marco S. Poretti Reynolds, Mirth, Richards & Farmer LLP for the Respondent Automotive Finance Canada Inc. John M. Frame Witten LLP for the Respndent Joshua Davis Joshua Threinen Axon LawCounsel for 1859603 Alberta Corp carrying on business as GRR Leasing and Gregory Rasmusssen