Lutz v Fabian Seed Farms Inc, 2023 ABCJ 109

In the Alberta Court of Justice Citation: Lutz v Fabian Seed Farms Inc, 2023 ABCJ 109 Date: 20230516 Docket: P2002700154 Registry: Medicine Hat Between: Linda M. Lutz Plaintiff - and - Fabian Seed Farms Inc Defendant - and - Leo Lutz Third Party Judgment of the Honourable Justice G.S. Maxwell Introduction [ 1 ] This civil claim was commenced by the Plaintiff, Linda Lutz (Linda), for a claim of unpaid wages in the amount of $4,232.25 as against Fabian Seed Farms Inc (Fabian).

Linda claimed unpaid wages as the Corporation’s bookkeeper and her claim was defended by Fabian on the basis of either inaccuracies or the absence of any agreement to pay those wages. Fabian then counterclaimed for $19,532.62 as against Linda, and Fabian further added her husband, Leo Lutz (Leo), as a Third Party. The counterclaim, as well as the claim against Leo, was in large part based on allegations of fraud.

The pleadings suggested that Linda and Leo had jointly defrauded Fabian of product, and with respect to Linda’s claim for unpaid wages, essentially alleged inaccuracies that resulted in expenses that exceeded any amount owed to her in order to correct the errors she had made.

[ 2 ] Linda represented herself and testified on her own behalf. [ 3 ] Fabian was represented by Andrew Fabian and Steven Fabian, the sons of Patrick Fabian who was the director and founder of the Corporation. The Corporation called Loris Gilchrist, who was a certified general accountant, Kenneth Sabatier, and Greg Anderson, a chartered accountant and managing partner from MNP. [ 4 ] In defence of the Third Party claim, Leo represented himself and testified on his own behalf.

Linda Lutz’s Claim [ 5 ] Linda testified that her employment started with Fabian on April 1, 2019, and that although there was no initial wage agreement, there was ultimately an agreement between Patrick Fabian and herself to receive $600.00 per month. In accordance with that agreement, she was paid $2,000.00 in December 2019 and was owed another $3,600.00 from January 1 until June 20, 2020. She was terminated on August 12, 2020 by Patrick’s son, Andrew.

Andrew had surreptitiously recorded his visit and ultimate dismissal of Linda where she first heard the allegations that Leo had been defrauding the Corporation, and that Andrew believed Leo had kept Linda in the dark. There were allegations that books did not balance in Quickbooks, but Linda disputed that. There had been bookkeeping challenges throughout and long before she commenced employment. Fabian Seed Farms Inc had an associated business entitled EcoTea and their books were intermingled. As early as 2019, there were discrepancies between inventory received, sales and unsold seed treatment.

Those discrepancies were resolved with the involvement of Kenneth Sabatier, and were characterized as possible spillage, and errors in inventory accounting because of the rapid growth of the business. Linda was cross-examined extensively by Andrew Fabian with respect to a number of alterations made to documents reflecting the delivery and sale of EcoTea product. Leo Lutz would typically load the product, sometimes when he was alone, then fill out a load out sheet which was ultimately submitted to Linda, who would then invoice the client.

In cross-examination, Andrew alleged that the imbalance between inventory and dollar values was irreconcilable while Linda, in response, provided explanations for each of the corrections made to documents. There were examples of customers changing their mind and product being rerouted to other customers.

There were instances where product was spilled or lids on the containers were faulty and at the end of the day, there was never any evidence of how the actual inventory was calculated or measured. [ 6 ] It became clear through this cross-examination, that Patrick Fabian, Kenneth Sabatier , Leo Lutz, and Linda Lutz had multiple discussions respecting their business arrangements. For example, the problems suggested with inventory in 2019 were resolved between those four individuals.

Linda was extensively cross-examined on multiple examples of delivery slips being changed, and in virtually every instance, was able to provide and explanation for the alterations. Over, and over, again along with those explanations, Linda indicated that Patrick Fabian was both aware and agreed to the changes that seemed to be made on the fly. There were some situations where Linda was not able to explain alterations to documents.

For example, there were invoices where dates had been changed, and the suggestion in cross-examination was that the lack of that explanation suggested that they were covering up the theft of product. Again, Linda testified that she believed that she had Patrick’s approval to make those changes where she was privy to the specific knowledge regarding those transactions. Fabian Seed Farms Inc Defence and Counterclaim [ 7 ] Andrew Fabian representing the Corporation, called Loris Gilchrist, a certified general accountant. The essence of her evidence was that Fabian Seed Farms Inc. keeps inventory itself.

She testified that it took her 39.5 hours to correct the errors that Linda had made in her bookkeeping. An invoice was received in evidence of her time spent correcting Linda’s errors. In cross-examination, she acknowledged that the errors were from January 1, 2020, going forward, and that Linda had been responsible for setting up Quickbooks prior to that. One fact that was unchallenged, was that prior to Linda’s involvement, the books for the Corporation were in disarray.

That was the reason that Linda was tasked with establishing Quickbooks for the Corporation. [ 8 ] The Corporation also called Greg Anderson, a chartered accountant. Of note, and after a full explanation in advance of Mr. Anderson being called, Andrew Fabian decided to simply call Mr. Anderson as a witness and not to give expert evidence. Although the process of calling an expert and allowing for opinion evidence was explained in advance, the Corporation made the decision to simply have Mr. Anderson give his evidence and not as an expert.

His evidence was that in 2018 the Corporation had significant issues in their bookkeeping. He and Patrick Fabian decided that hiring a bookkeeper would be a good plan, and thus Linda was taken on. He then proceeded to give evidence that it would be normal to have eight to ten journal entries each year that would require correcting by the accountants. That would be what he called a clean set of books. There were more journal entries that required correcting, in fact something in the range of 26, when they received the books from the Fabians after Linda had been terminated.

Firstly, that evidence is either an expert opinion, or comes very close to it, but perhaps more problematic was there was virtually no foundation provided for the representation that eight to ten journal entries would be normal, but that 26 was somehow negligent. For example, there was no context given as to the relation between the number of total entries and the number of correctable entries, no information as to the number of entries typical for his comparators, and no information as to the total number of entries of Fabian. [ 9 ] Fabian Seed Farms Inc also called Kenneth Sabatier. Mr.

Sabatier was from Overton, Manitoba, and had an agreement with Fabian Seed Farms Inc to be its representative for EcoTea in Alberta. Overton Environmental Enterprises was the parent company and supplier of the product distributed by Fabian Seed Farms Inc. As it turns out, Leo Lutz had been employed by EcoTea even before the agreement with Fabian Seed Farms Inc Mr. Sabatier described what he called “a fluid” business in 2019 with respect to polices, discounts, etc.

It was clear that were no hard and fast rules with respect to things such as who had the authority to give discounts in certain circumstances, nor whether there were specific discussions about the pricing of product; but he ultimately confirmed that the price suggested by the Lutzs was appropriate. He confirmed that there had been discussions in general about problems with product falling off of a trailer and he had a loose recollection of other discussions about problems with product.

He conceded that his memory of 2019 was not strong and that he had, subsequent to the end of that year, deleted all of his emails. [ 10 ] He testified that it was probable that he discussed issues with respect to faulty lids, and he was making decisions on the fly.

He described as a faulty business practice in being overwhelmed with the growth of the business. He specifically recalled a meeting with Patrick Fabian, and both Linda Lutz and Leo Lutz, and himself, where they reconciled one situation where there had been significant spillage of product. Although I found Mr. Sabatier to be an honest witness, there was no question that his record keeping and his memory were lacking. [ 11 ] Of significant note, I will simply make comment at this point in time that neither Patrick Fabian nor his two sons chose to give evidence on behalf of the Corporation.

That was in spite of a previous adjournment of this trial where an adjournment was granted on the basis of the fact that Patrick Fabian as too ill to participate in the proceedings. It became abundantly clear to this Court, that the person who was in the best position to both advance the claim on behalf of the Corporation and to potentially confirm or deny many of the explanations provided by either Linda Lutz or Leo Lutz, was Patrick Fabian. However, Patrick Fabian sat through the entire trial in the courtroom and chose not to give any evidence.

In my opinion, it would have been the best evidence available to the Corporation and the decision not to testify, leads me to draw an unfavorable inference against the Corporation. [ 12 ] Where a party has failed to call a relevant witness, the court will sometimes draw an inference that the evidence that has not been called would not have been helpful or would have been detrimental to that party’s case : Crooked Post Shorthrods, A Partnership v MAsterfeeds Inc , 2008 ABQB 641 at para 224 , citing Simmons v Koenig , 2001 ABQB 152 .

That court went on to state that: In civil cases, an unfavorable inference can be drawn when, in the absence of an explanation, a party litigant does not testify, or fails to provide affidavit evidence on an explanation, or fails to call a witness who would have knowledge of the facts and would be assumed to be willing to assist that party. In the same vein, an adverse inference may be drawn against a party who does not call a material witness over whom he or she has exclusive control and who does not explain it away.

Such failure amounts to an implied admission that the evidence of the absent witness would be contrary to the party’s case or at least would not support it. [ 13 ] The question of whether to make that inference depends on the circumstance, in particular: a. Whether there is a legitimate explanation for the failure to call the witness; b. Whether the witness has material evidence to provide; c. Whether the witness is the only person or the best person who can provide the evidence; d.

Whether the witness is within the “exclusive control” of the party, and is not “equally available to both parties.” ( Howard v Sandau , 2008 ABQB 34 at para 230 ) [ 14 ] In my opinion, that test is met. Patrick Fabian could advance the claim of the Corporation with his evidence and could answer the position advanced by the Lutzs. He would certainly have had the direct knowledge of the circumstances, and it would have been the best evidence available to the Corporation, and the decision not to testify, leads me to draw an unfavorable inference against the Corporation.

Decision [ 15 ] Linda Lutz’s claim is relatively straight forward. It is clear that there was an agreement to pay her $600.00 a month for her bookkeeping. She commenced work in April of 2019 and that a rate of $600.00 a month, was owed $5,400.00. She was paid $2,000.00 in December. Leaving a balance of $3,400.00 owing. She was not paid from January 1, 2020, to June 30, 2020, and not paid for her work from July 1 until August 12, 2020. At $600.00 a month, that works out to roughly an additional $800.00. For a total indebtedness of $4,200.00. Ms.

Gilchrist account to correct Linda Lutz’s errors was in the amount of $2,712.94. I find that it is appropriate to set that amount off against the amount owing to Ms. Lutz, leaving an indebtedness in Ms. Lutz’s favour in the amount to $1,487.06. [ 16 ] With respect to the counterclaim advanced by the Corporation, it is entirely unclear how the Corporation arrives at the specific dollar amount claimed. After having listened to the evidence of Linda Lutz and Leo Lutz, and the extensive cross-examination by Andrew Fabian, I am not satisfied on balance that either Mr. or Ms. Lutz defrauded the Corporation.

There is not question that the bookkeeping was less than perfect as testified to by people more qualified that Ms. Lutz, but the fact is; the Corporation’s entire bookkeeping practice was far from perfect. As previously noted, the Corporation’s failure to call Patrick Fabian to give evidence with direct knowledge of most of these dealings, contributed to inability to establish their case on balance. [ 17 ] In defence of the claim against himself, Leo Lutz denied stealing any inventory or having the means to do so.

I find that on balance, the explanations of clients changing their mind and the ultimate distribution of product to other clients, explained most if not all of the alterations made to the paperwork. Andrew Fabian suggested that this was a bait and switch scheme, but there is simply no evidentiary trail that establishes those facts. Again, Leo Lutz testified and I accept, that many conversations and agreements were made between Patrick Fabian, himself and even Mr.

Sabatier. [ 18 ] I would summarize that examination and cross-examination of Leo Lutz as satisfying me that the business practices and particularly, the record keeping of the Corporation was very loose. However, it did not satisfy me on balance that there was any theft or fraud. The burden of proof remains upon the party advancing the claim, and the standard of proof for civil fraud is on a balance of probabilities: Kowal v Sun Star Energy Inc , 2020 ABQB 244 at paras 380-383 . There is no evidence that Leo stole product, resold product or any evidence of payments to Leo by any other customers.

There were clearly discounts, loses and even write-offs that may have been discussed or cleared with Mr. Sabatier or Patrick Fabian and there are clearly loose ends. That alone does not mean that the case of fraud has been made out. After hearing the evidence, reviewing exhibits and re-reading transcripts, this Court is not satisfied there was any fraud on the part of the Lutzs.

Conclusion [ 19 ] I find that in spite of Linda Lutz executing her duties to the best of her abilities, there were errors in breach of her responsibilities as a bookkeeper that resulted in additional expenses to the Corporation to correct those errors. I do not find that she that she misused her position and that she was not party to any defalcation. Further, I do not find that either Linda Lutz or Leo Lutz willfully or fraudulently stole from Fabian Seed Farms Inc.

Rather, on balance, the evidence suggests that there was no intentional theft or fraud, and the Court is certainly not convinced of a bait and switch scheme as alleged by Fabian Seed Farms Inc. [ 20 ] Accordingly, the Court awards judgment in favour of Linda Lutz as against Fabian Seed Farms Inc in the amount of $1,487.06. The counterclaim against both Linda Lutz and Leo Lutz is dismissed. Costs [ 21 ] In this case, Fabian, as Plaintiffs by Counterclaim, make allegations of fraud against Linda and Leo Lutz.

They were not only unable to prove this claim, but advanced little to no evidence of value in advancing this claim, and the evidentiary record before the court clearly shows that they were aware of the issues for a long time, discussed these issues with the Lutz’, and were given reasonable explanations for those issues. [ 22 ] It is established law that unproved allegations of misconduct may attract higher costs, but each case requires the discretion of the trial judge on the case’s own facts: Alberta Treasury Branches v Valerio , 2011 ABQB 580 at para 15 . [ 23 ] One of the factors affecting a court’s willingness to exercise its discretion in choosing to award costs or not, is the manner in which a party advances its claim and the way the parties conduct themselves in the trial.

In considering this factor, I find that all three parties conduct before the Court was problematic. They chose to argue with each other and continued that even after being directed to stop. It was apparent that this was a very personal matter to all parties and emotions dictated behaviour far more often than careful consideration. At times, the Court was simply unable to control its own process. [ 24 ] These parties were clearly friends and that relationship, and its ultimate deterioration, meant that at the end of the day, none of the parties were winners.

That friendship and trust may well have led to some of the “loose” practices employed but also leads me to conclude that the Court’s discretion is best exercised by choosing not to award costs as against any party. Heard on the 24 th day of November, 2022 and the 1 st Day of December, 2022. Dated at the City of Medicine Hat, Alberta this 16 th day of May, 2023. G.S. Maxwell A Justice of the Alberta Court of Justice Appearances: Linda M. Lutz for the Plaintiff Fabian Seed Farms Inc for the Defendant

Leo Lutz for the Third Party