Timothy Rupcich - v. -, 2014 SKPC 026

IN THE PROVINCIAL COURT OF SASKATCHEWAN CIVIL DIVISION Citation: 2014 SKPC 026 Date: January 28, 2014 File: File # 364/12 Location: Regina, Saskatchewan Between: Timothy Rupcich - and - Atlantis Research Labs Inc. Timothy Rupcich For the Plaintiff Vladimir Mravcak For the Defendant JUDGMENT P. DEMONG, J INTRODUCTION [ 1 ] The plaintiff Timothy Rupcich (“Rupcich”) is seeking recovery of a sum of money which he says is a debt due and owing to him by the defendant Atlantis Research Labs Inc. (“Atlantis”).

[ 2 ] Rupcich says that while he was employed with Atlantis he incurred certain costs for the benefit of Atlantis and paid for them by credit card with the expectation that Atlantis would, within a reasonable period of time, repay this debt together with any credit card interest that would accrue on that debt over time. [ 3 ] Atlantis acknowledges that Rupcich incurred these costs but denies that this expenditure should be characterized as a debt due and owing.

They maintain that the payment made by Rupcich was a shareholder loan which would be repaid on a principal only basis as and when Atlantis had sufficient funds to afford to repay the principal amount. [ 4 ] Atlantis further disputes that there was an agreement to pay any accumulated credit card interest on this loan and in the alternative alleges that Rupcich has failed entirely to mitigate his claim for interest because he has taken absolutely no steps to pay down his credit card to obviate some or all of the interest that has accrued ... especially when he knew or ought to have known that Atlantis lacked the financial means to attend to payment of this loan/debt on demand.

FACTS [ 5 ] Atlantis is a pre-revenue Saskatchewan corporation which conducts thermal acoustic and propulsion research with a view to developing new energy and propulsion technology. It holds patents in this regard and employs approximately five people. It holds very little tangible property other than office equipment, a couple of engines and an air platform which it uses to conduct testing. [ 6 ] As a pre-revenue company it has no product to sell and has been financed through the acquisition of scientific research grants, the sale of shares, and the receipt of shareholder loans.

It became clear at trial that finances are and have been tight and on numerous occasions in its history, monies promised by way of grant or loan are often delayed or fall through.

In the result, most of the employees, including its CEO, its primary engineer, and office manager regularly defer wages and instead “book” these deferred wages as shareholder loans to be repaid at a later date if and when monies become available either as described above, or when the company becomes profitable. [ 7 ] All shareholder loans are placed in a queue and are paid when payable in chronological sequence or, as the office manager testified, when urgent or exigent circumstances of the lender demand attention. [ 8 ] In or about the summer of 2011, Atlantis hired Rupcich and gave him the title of Vice-President of Marketing and Product Development.

They granted him 2,000 shares of the company and agreed to pay him a salary of $35,000.00 per year. He was hired, according to the testimony of Vladimir Mravcak, the CEO of Atlantis, in part because his brother Greg Rupcich was a significant shareholder of the company, holding about 5% of the share float. Atlantis wanted to keep this major shareholder happy and hired Rupcich to participate in strategic planning, marketing and fundraising. [ 9 ] By April of 2012, Rupcich purchased 500,000 more shares of the company for $50,000.00 and therefore he and his brother Greg collectively owned ten percent of Atlantis.

It is important to note, for reasons which will become clear later in this judgment, that special conditions operate when pre-revenue companies attempt to sell shares. Securities law demands that potential shareholders be fully informed as to the nature of a pre-revenue company and must attest to their status as “high net worth” individuals. The court heard that Rupcich so attested and this was not disputed by Rupcich. [ 10 ] In February of 2012, Atlantis became aware of a business opportunity. A military jet described as a Canadair CL41-G Tebuan was available for purchase in the United States.

Atlantis wanted another air platform for its research but apparently lacked the financial means to acquire it. The acquisition of this jet would lend credence to the company, and hopefully excite interest in Atlantis which, in turn, would invite additional cash injection either through loans or share purchases. [ 11 ] Rupcich and his brother Greg were prepared to front short term bridge financing in the amount of $141,530.00 USD to allow Atlantis to purchase the aircraft but on certain terms relating to Greg’s status as beneficial owner of the aircraft and Rupcich’s

appointment to the board of Atlantis. To do so Rupcich contributed $100,000.00. Atlantis agreed to these terms. [ 12 ] Arrangements had to be made with respect to ferrying the aircraft to Regina. Atlantis had limited financial means but had booked about $2,000.00 towards the cost of fuel. Rupcich advised that if he could co-pilot the flight home, he would cover the costs with his credit card. [ 13 ] At trial Atlantis testified that it was of the view that these costs would be regarded as a shareholder loan and be placed in the queue which I have previously referred to.

It was of the view that Rupcich, as a high net worth individual who had previously loaned Atlantis money; who had also earlier deferred his wages on at least two occasions; who had been able to front $1,000,000.00 for the cost of the aircraft - would be able to pay off his credit card when it became due, or alternatively “eat” the accrued interest in exchange for the privilege of co-piloting the jet. Atlantis testified that were it otherwise, they had a number of interested persons who would happily do so.

This is because flying a jet is apparently a rare treat and on the open market the privilege of flying a military jet comes with a price tag of about $1,000.00 per hour. As a commercial pilot, Rupcich would get a number of “free” hours of jet time. [ 14 ] Unfortunately, the cost of ferrying the jet to Regina was well in excess of the $2,000.00 that Atlantis had set aside. About six weeks after the jet was brought back to Regina, Rupcich submitted a claim for about $7,566.00.

He was paid the $2,000.00 that was on hand and was advised by e-mail that the remaining amounts would be put into the budget (queue) and it would be paid down as funds became available. The office manager also offered to write a cheque for the minimum amount owing on the Rupcich credit card. [ 15 ] Atlantis clearly assumed that Rupcich would treat this cost as a shareholder loan. There was however, no evidence whatsoever tendered at court to suggest that Rupcich had agreed to treat this as a shareholder loan.

Atlantis’ assumption was predicated on their previous business practices, their recognition of Rupcich as a high net worth individual, and Rupcich’s unqualified willingness to incur those costs on his own credit card. [ 16 ] Very shortly thereafter, the relationship between Rupcich and Atlantis fell apart. Rupcich felt that Atlantis had reneged on the bridge financing agreement and on a Memorandum of Agreement entered into between Greg and Atlantis. [ 17 ] At some point in time Rupcich apparently allowed his brother Greg onto the Atlantis facility in an effort to seize the jet.

This was apparently done outside the scope of Rupcich’s employment and to the detriment of his employer. On June 20, 2012, Rupcich was terminated for cause. [ 18 ] Lawsuits ensued in the Court of Queen’s Bench in relation to what this court understood to be breach of contract in relation to the previous bridge financing and/or breach of a previous Memorandum of Agreement. There was an ongoing labour standards dispute over unpaid wages.

In September of 2012, Rupcich also started this lawsuit. [ 19 ] Atlantis filed their Dispute Note on October 29 of 2012 and this matter was referred to Case Management Conference on January 10 of 2013. There was no resolution at Case Management and the matter was set over for trial to commence May 13, 2013 at 9:30 A.M. [ 20 ] On May 13, Atlantis failed to appear at the scheduled time and default judgment was entered in favour of Rupcich for the principal amount and costs and interest. Shortly thereafter Atlantis sought to set aside the default judgment.

They had improperly assumed that the trial was to commence at 10:00 A.M. Following argument I set aside the default judgment but on terms. The Sheriff had already seized funds from Atlantis and was holding them in satisfaction of the judgment. Atlantis agreed to payment out the principal owing and costs incurred to that date but continued to dispute Rupcich’s claim for interest. [ 21 ] The matter was again set over for trial on the single issue of whether or not and in what amount interest may be due and owing. That trial proceeded on January 22 nd of 2014 commencing at 9:30 A.M.

The trial continued through the day until about 6:30 p.m. and absent a few ten minute breaks between witnesses and an hour and one-half for lunch, the court spent approximately six and one-half hours listening to evidence, the majority of it from Rupcich. [ 22 ] It became clear throughout Mr. Rupcich’s evidence that he had an axe to grind and intended to use this courtroom as a speaker’s platform in an effort to cast aspersions on Atlantis and its CEO Vladimir Mravcak.

The court was repeatedly required to advise Rupcich to deal with only those matters which were relevant to the single, relatively straightforward issue before this court. By example, by 12:30

he had yet to even discuss the quantum of damages he sought, and even though he had concluded his testimony by that time he had to be brought back after lunch and reminded of this obligation. [ 23 ] I did not find Rupcich to be a particularly compelling witness. He purported to be exacting and precise on any matter which was purely ancillary to the single issue before the court but feigned ignorance on those things which were central to the dispute.... suggesting that because two years had transpired his recollection might be faulty.

This, notwithstanding, that those ancillary matters clearly predated the issue before the court. [ 24 ] Rupcich steadfastly maintained that the notion of a shareholder loan arrangement and a “queue” for repayment were entirely foreign to him and that he was only made aware of these concepts when he received Atlantis’ Dispute Note.

This, notwithstanding that he had previously loaned the corporation money under this arrangement; that he had also participated in a wage deferral arrangement on two previous occasions; that he had previously attended at budget meetings where this was discussed; that he was aware of the corporation’s limited finances; and that his job as Vice-President included an obligation to assist in fundraising. [ 25 ] Conversely, I found the evidence of each of Vladimir Mravcak and the office manager, Janelle Mravcak, thoughtful, clear, concise, and compelling.

Unlike Rupcich, they fairly conceded both consequential and inconsequential matters. They acknowledged facts even though those facts might prove detrimental to their case.

They struck this court as dedicated, hardworking people who are struggling to keep the company afloat notwithstanding what they describe as an onslaught of litigation brought against them by Rupcich. [ 26 ] Atlantis conceded at trial that their treatment of the monies incurred by Rupcich as a shareholder loan was based, not on any specific meeting of the minds between Rupcich and the company, but rather, on what they assumed would be an agreeable arrangement between the two parties having regard to past corporate practice, the huge benefit conferred on Rupcich in allowing him to pilot the jet, and their understanding of him as a high net worth individual who could easily cover the original cost in a timely fashion leaving little if any interest accruing. [ 27 ] Rupcich, by comparison, steadfastly maintained that he expected to have the costs incurred by him paid within a reasonable time and/or have the corporation incur the credit card interest consequences.

He properly pointed out that his expectation was reaffirmed when the office manager offered to pay the first credit card minimum payment in May of 2012. He further points out that had he been able to use the corporate credit card the dispute would not have arose, and he fairly notes that if the other co-pilot Granley incurred these costs, his payment would have been recognized as a legitimate debt by Atlantis and paid in a timely fashion. Finally, the court notes that Rupcich did not sit idly by in his effort to collect on what he thought was a debt due and owing to him.

He commenced this action in September of 2012, a scant four months after incurring that expense. Whatever Atlantis may have thought was the original arrangement, by September of 2012 they were aware of Rupcich’s understanding of the arrangement. ANALYSIS [ 28 ] While I have a great deal of sympathy for Atlantis’ first argument … that the debt was a shareholder loan and that any accrued interest would be forgiven … I cannot so find. In my view the evidence falls short of any meeting of the minds on this issue.

It is clear that Atlantis gained the benefit of Rupcich incurring this original cost at his own original expense. I am of the view that if Rupcich were to bear the interest costs accruing this would in effect constitute a form of a gift by Rupcich to Atlantis, and in the absence of a specific agreement to that effect, or compelling evidence that a gift was intended there exists in law a presumption that a gift was not intended.

With the greatest of respect to the defendant, its unilateral presumption, based on the past practice of other employees in relation to wage deferral does not, in my view, establish the compelling evidence required. [ 29 ] At trial Rupcich steadfastly maintained that he did not, in the intervening months between May of 2012 and November of 2013, have any or sufficient funds to pay down the credit card indebtedness by even one cent. This is notwithstanding that he earns between $70,000.00 to $125,000.00 per year as a farmer and a further $7,000.00 to $12,000.00 as a reservist in the military.

This, notwithstanding that he received approximately $7,500.00 in a wage settlement in July of 2012 and a further payment of $50,000.00 from Atlantis as repayment of a shareholder loan in August of 2012. All of these monies, he asserted, went to payment of other debts which, in his view, took priority to the one in issue before the court. [ 30 ] Rupcich further asserted that he had no obligation to pay the debt down in preference to other debts because that was the responsibility of Atlantis. In my view, Rupcich’s understanding of the law is mistaken. If he had the means, it was incumbent upon him

to take reasonable steps to mitigate his damages and if Atlantis could have shown that he failed to do so, his damages would have been reduced accordingly. While I have some real concerns about whether or not Rupcich could not have, to some extent at least, mitigated those damages, it was incumbent on Atlantis to prove a failure to mitigate and this they failed to do. As such, Rupcich is entitled to the interest accruing on the debt that he incurred on behalf of Atlantis. [ 31 ] Rupcich asserts that the interest which accrued equates to $2,218.75.

His assessment is based on his calculations and not on any documentation received from his credit card provider and submitted to court for verification. His estimate runs from April 17 of 2012 at the rate of 19.9 % compounded monthly through until the date he says he paid it off, on November 29, 2013. [ 32 ] I disagree with his time frame. Rupcich conceded at trial that his credit card has a grace period and interest does not accrue until the month following the date of expenditure.

In my view, and based on his evidence, the interest would not start to accrue until, at earliest, May 15 of 2012. [ 33 ] Anytime after September 13 of 2013, Rupcich could have sought payment from the Sheriff on the principal owed to him under my previous order, and the court was not provided with any reason why it was not immediately applied to the outstanding indebtedness. In my view a reasonable person seeking to mitigate his damages would have called for that money immediately and applied it to the debt.

In my view it could have been applied to the debt by the end of September 2013. [ 34 ] In the absence of documentary evidence establishing the actual interest which would have accrued on the principal sum within this time frame the court is left to quantify that sum.

The court calculates that the interest owing on the sum of $5,666.56 over 16.5 months at a rate of 19.9 % compounded monthly equates to $1,767.00. [ 35 ] By way of amendment to his claim Rupcich also seeks a sum of money in damages to reflect what he describes as a financial burden imposed upon him by the failure of Atlantis to repay these monies in a timely fashion.

In my view, the evidence which he has tendered in support of that claim is wholly insufficient. [ 36 ] This additional claim is predicated on a letter presumably prepared by an individual from Farm Credit Corporation who opined that Rupcich’s previous failure to remit timely payment of outstanding indebtedness may at some point impact on the rate of interest he may be charged in the future should he seek further loans. Rupcich conceded that he had other outstanding loans and this letter presumably takes those additional factors into account. The letter is hearsay. The author was not called to testify.

The opinion offered would have to be presented by an expert for which no expert notice was given. The opinion is entirely speculative and is based on consideration of a number of factors not presented to this court for its consideration.

In my view the evidence is not admissible and is in any event so utterly speculative as to have no value to this court and therefore this aspect of Rupcich’s revised claim is denied. [ 37 ] Rupcich is entitled to pre-judgment interest on his damages from October 1, 2013, until date of trial which this court calculates to be $5.33. [ 38 ] On December 18, 2013, Atlantis made a written offer to Rupcich seeking to settle all remaining aspects of his claim upon payment to him in the sum of $1,700.00. This was done, Atlantis states, in an attempt to be reasonable and not tie up any valuable court resources.

Rupcich declined this offer and at trial indicated that he chose not to accept the offer because he wanted an admission of fault and if not provided, a finding of such by this court. [ 39 ] It is not the purpose of a civil court in a case such as this to penalize one party over the other. It is this court’s role to assess the relative merits of two competing aspects of an individual’s claim to money.

Penalties only arise when one party has conducted themselves in a moral or legal fashion that can be considered, among other things, to be highhanded, vindictive or malicious, and in my view the conduct of Atlantis falls far short of such conduct. [ 40 ] At the end of the day Rupcich is entitled to judgment in the sum of $1,772.33. This is $72.33 more than what was offered by the defendant. To achieve this, three people from Atlantis spent a day in court away from conducting what appears to be valuable work of a scientific nature which may hold great promise for this fledging company and the world at large.

[ 41 ] As stated the vast majority of court time was spent by Rupcich on matters which bore no relationship to the very narrow issue before the court. I view this as a significant waste of valuable court time. Under the circumstances I decline to make any award of costs. [ 42 ] Because my calculation of interest over the course of 16.5 months has been done without the benefit of an expert the plaintiff is granted leave to bring an application to adduce expert evidence to convince the court that its calculations are in error and a new value should be assessed.

If the plaintiff chooses to do so that application must be brought on or before March1, 2014. In that event the plaintiff shall serve on Atlantis and file with this court his written application including the name of his expert and that expert’s curriculum vitae, together with his opinion and the facts and equations upon which the expert seeks to rely. If that application is not brought before March 1, 2014, the quantum identified in this judgment shall stand as set forth herein. Paul Demong, J