Warkentin v BMO Nesbitt Date:, 2018 MBCA 22

Citation: Warkentin v BMO Nesbitt Date: 20180308 Burns Inc et al, 2018 MBCA 22 Docket: AI17-30-08823 IN THE COURT OF APPEAL OF MANITOBA Coram: Mr. Justice Michel A. Monnin Madam Justice Diana M. Cameron Madam Justice Janice L. leMaistre BETWEEN : DOUGLAS WARKENTIN ) D. G. Hill ) for the Appellant ) (Plaintiff) Appellant ) R. G. Slaght, Q.C. and ) R.

Trenker - and - ) for the Respondents ) BMO NESBITT BURNS INC. and ) Appeal heard: COLIN RYAN ) November 29, 2017 ) ) Judgment delivered: (Defendants) Respondents ) March 8, 2018 On appeal from 2016 MBQB 216 LEMAISTRE JA Introduction [ 1 ] The plaintiff appeals the dismissal of his claim that, in BMO Nesbitt Burns Inc. (BMO) terminating his employment as an investment advisor, BMO and Colin Ryan (Ryan) (collectively, the defendants) breached his employment agreement, acted in bad faith in the performance of the employment contract and committed the tort of deceit.

He also appeals the decision of the trial judge granting BMO’s counterclaim for repayment of a loan for $612,500 plus a bonus of $127,837.50 and interest. [ 2 ] For the reasons that follow, I would dismiss the appeal. Background The Plaintiff’s Hiring and Firing [ 3 ] Prior to becoming employed as an investment advisor for BMO and while working for a different financial company, the plaintiff made a significant misrepresentation regarding his financial assets in a personal loan application (the misconduct).

Briefly, in order to make it appear that he had considerably more assets than he actually had, he cut and pasted two account statements into one document, removed reference to his margin debt and submitted the document in support of his application. The falsified account statement made it appear that the plaintiff had approximately $600,000 when he actually had approximately $300,000 and margin debt of around $179,000.

His former employer, having learned of the misconduct, reported him to the Investment Industry Regulatory Organization of Canada (IIROC). [ 4 ] The plaintiff lost his job when his former employer was acquired by another company. While he was looking for employment, the plaintiff interviewed with a number of investment firms. During these interviews, he described the misconduct. None of these firms offered him employment. [ 5 ] On July 8, 2011, the plaintiff met with Ryan, BMO’s branch manager in Winnipeg, to discuss employment at BMO and by July 11, 2011, he had accepted an employment offer.

At the time that BMO hired the plaintiff, IIROC had not yet made a determination regarding the misconduct. On August 8, 2011, the plaintiff signed an employment agreement, a loan agreement and a

promissory note with BMO (collectively, the employment contract). These documents contained the terms of the loan and the bonus. BMO made a forgivable loan to the plaintiff for $612,500. As security, it took a promissory note wherein the plaintiff promised to repay the loan immediately if he ceased to be an employee of BMO. Further, as a term of his employment agreement, he received an asset gathering bonus (the bonus) in the amount of $131,250 which he agreed to repay if he either resigned or was terminated, with or without cause, by BMO prior to the expiry of a date five years in advance.

Ryan and another investment advisor at BMO, Lev Zentner, received bonuses for hiring the plaintiff. [ 6 ] Approximately five months after hiring the plaintiff, the defendants learned of the extent of the misconduct and BMO dismissed him without cause. Pursuant to the employment contract, BMO paid the plaintiff four weeks’ salary in lieu of notice. When the plaintiff was terminated, BMO sought repayment of the loan and the bonus. By this time, the plaintiff had transferred approximately $58 million of his book of business to BMO.

Despite dismissing him without cause, the defendants advised him that he was terminated because of the recent discovery of the details of the misconduct giving rise to the IIROC complaint and after having learned that his Bachelor of Arts degree was not legitimate. [ 7 ] Subsequent to his termination, IIROC fined the plaintiff $25,000, suspended him for six months retroactive to February 1, 2012, required him to rewrite an examination for security industry professionals and imposed an order for costs of $5,000.

The Plaintiff’s Claim [ 8 ] The trial of the plaintiff’s claim centered on whether the defendants were aware of the nature of the misconduct when they hired him. He asserted that having hired him with full knowledge of the misconduct, his later termination based on it constituted a breach of contract. [ 9 ] The plaintiff argued that evidence that was disclosed to BMO after he was hired which suggested that the misconduct was in the nature of a forgery, was not immediately acted upon by BMO.

The plaintiff maintained that he had approximately $70 million in client assets prior to joining BMO and that he transferred most of his book of business to BMO when he joined the firm. It was his position that BMO did not act on the information it received about his misconduct until most of his client assets had moved to BMO and that this constituted bad faith performance of the employment contract and deceit by BMO. [ 10 ] Further, the plaintiff contended that Ryan acted in bad faith and committed the tort of deceit by knowingly hiding the nature of the misconduct from other officers at BMO.

Specifically, he alleged that Ryan did not advise the head of compliance, Lorne Switzer (Switzer), of the extent of the misconduct because Ryan knew that he would receive a financial bonus when the plaintiff was hired and the plaintiff’s book of business was transferred to BMO. BMO’s Counterclaim [ 11 ] At the time of his termination, the plaintiff had not repaid any of the money owing on the loan and the amount due on the bonus was $127,837.50. BMO’s counterclaim was for the amounts owing on the loan and the bonus with interest.

The Evidence at the Trial [ 12 ] At the trial, the plaintiff testified that he told Ryan the full extent of the misconduct when they met on July 8, 2011. [ 13 ] Apart from the plaintiff’s testimony, the crux of the evidence regarding the defendants’ knowledge came from Ryan who testified that when he hired the plaintiff, he relied on the plaintiff’s representations to him regarding the nature of his misconduct.

Ryan testified that he was unaware of the degree of the misconduct and that the plaintiff had minimized it. [ 14 ] Ryan testified that the plaintiff told him that he had an IIROC issue which related to an incident in which he “misstated his assets and . . . [passed] off an older statement as a newer statement” and that Ryan could speak to his lawyer about it. Ryan also said that when he spoke to the plaintiff’s lawyer, he confirmed what the plaintiff had told him.

In addition, there was evidence that the lawyer made a note to his file as to the nature of the conversation that was consistent with Ryan’s evidence. [ 15 ] Ryan also testified that he received an email from the plaintiff on August 9, 2011 (the August 9th email) which provided clarification of information on the uniform termination notice (the UTN) submitted to IIROC by his former employer when the plaintiff resigned voluntarily that Ryan was not previously aware of.

The email states: I submitted a loan application for myself in February 2011 where I overstated my assets by submitting a statement that was a month old from CIBC Wood Gundy and stated that the statement was current, which it was not. [Wellington West] Compliance confronted me.

They ended up auditing my entire client base, and found it was an isolated incident. [ 16 ] Finally, Ryan said that he explained the details of the plaintiff’s misconduct as he understood them to Switzer in order to get his approval to hire the plaintiff and that he would not have hired the plaintiff if he knew the full extent of the misconduct because Switzer would not have permitted it. [ 17 ] The plaintiff asserted that the following documents were provided to BMO and that they established that the defendants knew about the plaintiff’s misconduct: • The UTN sent to BMO some time after August 9, 2011 which was completed by the plaintiff’s former employer (contains the phrase “falsification / forgery of documentation” regarding the misconduct);

• The IIROC file sent to BMO on August 10, 2011 (also contains the phrase “falsification / forgery of documentation” regarding the misconduct); and • The plaintiff’s BMO liability insurance application (insurance application) dated October 7, 2011 (the plaintiff stated “it was discovered that I had falsified my own credit application”). [ 18 ] Regarding these documents, Ryan testified that he did not review the UTN or the insurance application and that he did not learn about the full extent of the misconduct until the plaintiff admitted the details of what he had done at a meeting in January 2012, just before the plaintiff was terminated.

There was no evidence at the trial that Ryan reviewed the IIROC file. The Trial Judge’s Findings [ 19 ] The trial judge noted that an employment contract may be terminated upon notice or payment in lieu. He found that the plaintiff was neither lied to nor misled about “matters linked to the performance of the contract” (at para 32), that BMO paid the plaintiff in lieu of notice and that BMO did not breach the employment contract. [ 20 ] The trial judge rejected the plaintiff’s evidence that he fully disclosed the misconduct.

Rather, he found that the plaintiff “had intentionally withheld the most egregious details [of the misconduct] from [Ryan]” (at para 28). The trial judge referred to the evidence that the plaintiff said supported his assertion that he fully disclosed the misconduct: the UTN from the plaintiff’s former employer, the plaintiff’s IIROC file and the plaintiff’s insurance application.

He determined that, “These documents were all received by BMO after [the plaintiff] was hired” (at para 22) and he accepted Ryan’s testimony that he was not aware of the true nature of the misconduct at the time the plaintiff was hired. [ 21 ] The trial judge concluded that Ryan relied on “what he had been told by [the plaintiff] during their meeting on July 8, 2011, what he had been told by [the plaintiff’s lawyer] on the same date and [on the August 9th email] from [the plaintiff]” (at para 22).

He found that Ryan shared with Switzer, as told to him by the plaintiff, the full details of his knowledge of the misconduct. The trial judge noted that other evidence confirmed Ryan’s testimony (at para 26): (a) [the plaintiff] admitted on cross-examination that he approached the July 8, 2011 meeting with the intention of not making full disclosure to [Ryan]; (

b) on July 11, [the plaintiff] had lunch with [Zentner] of BMO and advised him that his departure from [his former employer] related to an incident in which there had been an overstatement of assets. If he had been forthright with [Ryan] on July 8 th , there would have been no reason for this ambiguous statement to [Zentner]; (

c) if [the plaintiff] had been forthright with [Ryan] on July 8 th he would have had no reason for providing a misleading statement to [Ryan] concerning his misconduct in the [August 9th email]. [ 22 ] Ultimately, the trial judge concluded that Ryan accepted what the plaintiff told him about the misconduct without “[delving] deeper into the documents which came into BMO’s possession after [the plaintiff] was hired” (at para 28) and that the plaintiff did not tell Ryan that he created a false statement “by cutting and pasting two documents together” (at para 23).

The trial judge was not satisfied that the plaintiff had established bad faith or deceit by Ryan or that Ryan had failed to disclose what he knew about the plaintiff’s misconduct to Switzer. [ 23 ] In granting the counterclaim, the trial judge rejected the plaintiff’s argument that the amounts were not repayable because BMO had breached the employment contract. He also rejected the argument that the bad faith conduct of the defendant relieved him of his responsibility to repay the loan and the bonus. Issues Raised on the Appeal [ 24 ] The plaintiff raises three issues on the appeal.

He argues that the trial judge erred by basing his conclusions solely on the knowledge of Ryan when other representatives from BMO were fully aware of the plaintiff’s misconduct. Next, he asserts that the trial judge erred by making credibility findings based on incomplete evidentiary references. Finally, the plaintiff says that the trial judge overlooked uncontradicted evidence and erred when he concluded that the funds paid to the plaintiff were a loan and not a signing bonus.

Discussion Did the Trial Judge Err by Basing His Conclusions Solely on the Knowledge of Ryan? [ 25 ] In considering whether the defendants were guilty of bad faith or deceit, the trial judge found that, “A key issue is whether [the plaintiff] misled [Ryan] with respect to the extent of his misconduct” (at para 21). Ultimately, he concluded that the defendants were not fully aware of the misconduct. The trial judge’s findings of fact and drawing of inferences are subject to a deferential standard of review and may only be interfered with by this Court if there is palpable and overriding error.

See Housen v Nikolaisen , 2002 SCC 33 at paras 20-25 ; and HL v Canada (Attorney General) , 2005 SCC 25 at paras 74-75 . [ 26 ] The plaintiff asserts that the issue the trial judge ought to have determined is whether the plaintiff misled BMO, not whether the plaintiff misled Ryan. In support of his argument, he relies on the fact that a number of officers at BMO had access to either

the UTN, the IIROC file or the insurance application. In my view, the plaintiff’s assertions are not borne out by the record. Many of theofficers referred to by the plaintiff did not testify at the trial and the extent of their knowledge cannot be discerned from the record. Theone officer who did testify denied full knowledge of the misconduct.

In any event, it is beyond question that the key evidence in the trialconcerned the extent of Ryan’s knowledge. [27] Relying on the Supreme Court of Canada decision in Bhasin v Hrynew, 2014 SCC 71, the plaintiff also asserts that, ifthe defendants were acting honestly in the performance of his employment contract, they would have terminated him after receiving theUTN, the IIROC file and the insurance application because all of these documents describe the misconduct as “falsification / forgery” or“falsified”.

He suggests that the trial judge failed to consider this evidence in concluding that the defendants were not guilty of bad faithcontractual performance. He contends that the defendants waited to fire the plaintiff until after his book of business had been securedand that this created an injustice. [28] The trial judge considered whether Ryan was guilty of bad faith when he dealt with whether the tort of deceit had beenestablished. The trial judge was well aware of the documents in the possession of BMO which might indicate that the misconductinvolved forgery.

He referred to the evidence regarding the documents that the defendants received after the employment contract wassigned on August 8, 2011 and found “no basis for [the plaintiff’s] allegations of bad faith or deceit against [Ryan]” (at para 29). He alsoconsidered the principle from Bhasin regarding the general duty of honesty in contractual performance and concluded (at para 32): Neither [Ryan] nor BMO misled [the plaintiff].

I am satisfied that at the time [Ryan] hired [the plaintiff] he did not have knowledge ofthe full extent of [the plaintiff’s] misdeeds and intended to hire him with a view to employing him long term at BMO.

Withoutknowledge of the full details of [the plaintiff’s] misdeeds it cannot be said that [Ryan] or BMO lied or knowingly misled [the plaintiff] about matters linked to the performance of the contract. [29] This conclusion is consistent with the trial judge’s finding that the defendants did not know about the full extent of themisconduct until the meeting in January 2012 when he was asked probing questions about exactly what he had done. Once thedefendants had this knowledge, they acted immediately to terminate the plaintiff. Moreover, there is no evidence of dishonest intent.

Dishonest intent is required in order to establish the tort of deceit (see Chapman v Warren et al, (ON SC), [1936] 2DLR 157 at 162-63 (Ont SC (H Ct J))) and distinguishes bad faith from mere negligence (see Bruno Appliance and Furniture, Inc vHryniak, 2014 SCC 8 at paras 17-21). I am not satisfied that the trial judge committed palpable and overriding error when he found alack of bad faith or deceit on the part of the defendants.

Did the Trial Judge Err When Making Credibility Findings? [30] The plaintiff says that the trial judge erred in his credibility assessments and in rejecting his evidence based on“incomplete evidentiary references.” Absent any palpable and overriding error, deference must be shown to a trial judge’s credibilityfindings (see R v Storheim (SKW), 2015 MBCA 14 at para 41; and Matic et al v Waldner et al, 2016 MBCA 60 at para 32).

In my view,the plaintiff has shown no such error and the trial judge’s findings of credibility should not be disturbed. [31] The trial judge listed a number of sound reasons for rejecting the evidence of the plaintiff. Among other things, henoted the plaintiff’s admission on cross-examination that he originally approached his dealings with Ryan with the intention of notmaking full disclosure and that he, in fact, failed to do so as evidenced by a statement that he made to Zentner on July 11, 2011 and theAugust 9th email that he sent to Ryan after he had been hired.

Both the statement and the email understated the nature of themisconduct. Again, no palpable and overriding error has been shown. Did the Trial Judge Err by Concluding that the Funds Paid to the Plaintiff Were a Loan and Not a Signing Bonus? [32] Having concluded that the defendants did not breach the employment contract and were not guilty of bad faith, the trialjudge granted BMO’s counterclaim for the amounts owing on the loan and the bonus with interest. [33] The plaintiff argues that the loan and bonus constituted “signing bonuses” and were not intended to be repayable.

Insupport of his position, he relies on the fact that both he and Ryan referred to the loan and the bonus as “signing bonuses” when theytestified. [34] The plaintiff did not make this argument at trial and, in any event, I am not persuaded that there is any basis to interferewith the trial judge’s decision. The trial judge found, and I agree, that the promissory note and the employment agreement signed by theplaintiff provided for repayment of the loan and the bonus upon cessation of employment within prescribed timeframes.

Conclusion [35] I am not satisfied that the plaintiff has established that the trial judge committed palpable and overriding error when hedismissed the plaintiff’s claim and granted BMO’s counterclaim. Accordingly, I would dismiss the appeal with costs. JA

I agree: JA I agree: JA