2017 QCCQ 1570, 2017 QCCQ 1570

Iamonico c. Pacific Exploration and Production Inc. 2017 QCCQ 1570 COURT OF QUEBEC «Small Claims Division» CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL TOWN OF MONTREAL Civil Division No: 500-32-152120-160 DATE: February 17, 2017 ______________________________________________________________________ PRESIDED BY THE HONOURABLE GILLES LAREAU, J.C.Q. ______________________________________________________________________ ROBERTO IAMONICO Plaintiff v. PACIFIC EXPLORATION AND PRODUCTION INC. And ERNEST AND YOUNG And GLASS LEWIS AND COMPANY LTD. And INSTITUTIONAL SHAREHOLDER SERVICES INC.

Defendants ______________________________________________________________________ JUDGMENT ______________________________________________________________________ CONTEXT [ 1 ] On April 25, 2016, Plaintiff Roberto Iamonico (IAMONICO) instituted proceedings against Pacific Exploration and Production Inc. (PACIFIC). [ 2 ] His claim for 11,275.00$ seeks compensation for financial losses as a result of his investment in PACIFIC alleging that it made « mis-representations and also not acted in the best interests of shareholders as evidenced by the takeover process and its actions in recent corporate matters ». [ 3 ] On April 27, 2916, PACIFIC sought and obtained an initial order for protection pursuant to the Companies' Creditors Arrangement Act [1] (CCAA) from the Ontario Superior Court of Justice, Commercial List.

Pursuant to paragraph 17 of this Initial Order, the Claim filed by IAMONICO in the present file is stayed. [ 4 ] Following the reception of the Initial Order and the stay of the proceedings, IAMONICO amended his action to include Ernest & Young (E&Y), Glass Lewis and company ltd. (GL) and Institutional Shareholder Services Inc. (ISS) as additional defenders (ADDITIONNAL DEFENDANTS). [ 5 ] All of the ADDITIONNAL DEFENDANTS have petitioned this Court to object to the amendment and to have it quashed. [ 6 ] Essentially the arguments in support of these oppositions all raise as a common denominator the fact that IAMONICO's amended application contains no allegation regarding them, their operations, services, activities or products.

They add that no exhibits filed by IAMONICO contain any direct or indirect reference to the ADDITIONNAL DEFENDANTS, that there is no contractual relationship between them and the Plaintiff and, as a result the amended action is unfounded in law and has no chance of success. [ 7 ] These applications seeking that the amended action be rejected were first put before the Court on September 12 2016 at which time the Court rendered the following judgment: « The Court will not hear the petition to quash today.

The Court will grant the petitioner (IAMONICO) 30 days from today (until October 12 th , 2016) to amend his action in order to detail every claim he has against each defendant specifically.

Following that, defendants may petition the Court objecting to the amendment or may choose to file a defence on the merits…» [ 8 ] As a result of the September 12, 2016 judgment, IAMONICO added the additional arguments : « I hold the co-defendants, Glass Lewis, ISS and Ernest and Young, responsible for my financial losses, when I invested in the stock securities of the main defendant pacific exploration and production inc. because they fall under the pertinent articles of law in the Québec Securities Act, specifically

article 223 which states an applicant may claim damages from any expert or advisor or general dealer or professional firm, connected with the main defendant; Exhibits evidence will be deposited with the small claims court, in due course. (…) the main defendant and co- defendants committed several civil securities law infractions, including but not limited to : false statements causing financial losses, misrepresentations causing financial losses, acting in a negligent behavior causing financial losses (…)» [ 9 ] Following the added arguments furnished by IAMONICO, the ADDITIONNAL DEFENDANTS re-submitted for hearing their petition for dismissal of the amended application. [ 10 ] The petitions were heard on January 23, 2017.

ANALYSIS [ 11 ] Since IAMONICO invokes

Section 223 of the Quebec Securities Act [2] , it seems important to give a complete reference to this

section of the Act :

CHAPTER II MISREPRESENTATION DIVISION I PRIMARY MARKET AND TAKE-OVER OR ISSUER BIDS 217. A person who has subscribed for or acquired securities in a distribution effected with a prospectus containing a misrepresentation may apply to have the contract rescinded or the price revised, without prejudice to his claim for damages. The defendant may defeat the application only if it is proved that the plaintiff knew, at the time of the transaction, of the alleged misrepresentation. 218.

The plaintiff may claim damages from the issuer or the holder, as the case may be, whose securities were distributed, from its officers or directors, the dealer under contract to the issuer or holder whose securities were distributed and any person who is required to sign an attestation in the prospectus, in accordance with the conditions prescribed by regulation. 219. The plaintiff may also claim damages from the expert whose opinion, containing a misrepresentation, appeared, with his consent, in the prospectus. 220.

The defendant in an action provided for in sections 218 and 219 is liable for damages unless it is proved that (1) he acted with prudence and diligence, except in an action brought against the issuer or the holder whose securities were distributed, or that (2) the plaintiff knew, at the time of the transaction, of the alleged misrepresentation. 221.

Rights of action established under sections 217 to 219 may also be exercised if a misrepresentation is contained in (1) the information incorporated by reference in the simplified prospectus; (2) the offering memorandum prescribed by regulation; (3) any other document authorized by the Authority for use in lieu of a prospectus.

222. A person who has disposed of securities in response to a take-over bid or issuer bid effected with a circular containing a misrepresentation may apply to have the disposal rescinded or the price revised. The defendant may defeat the application only if it is proved that, at the time of the disposal, the plaintiff knew of the alleged misrepresentation. 223.

The plaintiff may also claim damages from the offeror, its officers and its directors, and from the expert whose opinions, containing a misrepresentation, appeared, with his consent, in the take-over bid or issuer bid circular, and any person who is required to sign an attestation in the take-over bid circular, in accordance with the conditions prescribed by regulation. 224. The defendant in an action provided for in

section 223 is liable for damages unless it is proved that (1) he acted with prudence and diligence, except in the case of the offeror, or that (2) the plaintiff knew, at the time of the disposal, of the alleged misrepresentation. 225. Any misrepresentation contained in any of the documents prepared for a take-over bid by the board of directors, a director or an officer of the offeree issuer gives rise to a right of action in damages, in favour of all the holders of securities of the offeree issuer at the time of the bid, against the signatory or signatories of the document. The defendant is liable for damages, subject to the grounds for defence set forth in

section 224. 225.0.1. A defendant may defeat an action based on a misrepresentation in forward-looking information by proving that (1) the document containing the forward-looking information contained, proximate to that information, (

a) reasonable cautionary language identifying the forward-looking information as such, and identifying material factors that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information; and (

b) a statement of the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection; and (2) the defendant had a reasonable basis for drawing the conclusions or making the forecasts or projections set out in the forward- looking information. This

section does not apply to forward-looking information in a financial statement required to be filed under this Act or the regulations or in a document released in connection with an initial public offering. 225.0.2.

The plaintiff is not required to prove that the plaintiff relied on the document containing a misrepresentation when the plaintiff subscribed for, acquired or disposed of a security. 225.1. (Repealed) . [ 12 ] It is not alleged that the ADDITIONNAL DEFENDANTS qualify as being either the offeror, one of its officers or directors nor is it alleged that they are experts whose opinions appeared with their consent in the take-over or issuer bid.

None of them appear to be a person who is required to sign an attestation in the take-over bid circular, in accordance with the prescribed regulation. [ 13 ] Other than a very broad and unspecified reference to some kind of "misrepresentation" IAMONICO's application does not specify for each Defendant the nature of his claim nor does it file any documents which would substantiate it. The exhibits he filed consist of extracts of the Securities Act, which do not apply to the ADDITIONNAL DEFENDANTS along with an impressive amount of

newspaper clippings and other miscellaneous documents. As such, IAMONICO did not comply with the September 16 th judgment. [ 14 ] The requirements regarding procedures are essential to the proper administration of justice and to allow equitable due process for all parties. The claim put forward by IAMONICO is such that it imposes an excessive burden on the ADDITIONNAL DEFENDANTS in order to even understand what fault exactly they allegedly committed. Further, no specific causal link is alleged and moreover no specific evidence is filed to support it.

FOR THESE REASONS, THE COURT: GRANTS Defendant's Ernest & Young, Glass Lewis and Company Ltd. and Institutional Shareholder Services Inc. opposition to the filing of the amended application. DISMISSES Plaintiff Roberto Iamonico's amended application. With judicial costs. __________________________________ GILLES LAREAU, J.C.Q. Date of hearing: January 23, 2017