Korem v. Crown Jewel Resort Ranch Inc., 2011 NSCA 102

NOVA SCOTIA COURT OF APPEAL Citation: Korem v. Crown Jewel Resort Ranch Inc. , 2011 NSCA 102 Date: 20111110 Docket: CA 345280 Registry: Halifax Between: Nahman Korem Appellant v. Crown Jewel Resort Ranch Inc. Respondent JUDGE : MacDonald, C.J.N.S. APPEAL HEARD : September 16, 2011, in Halifax, Nova Scotia SUBJECT : Injunctive relief; motion to preserve assets; irreparable harm

SUMMARY : Although not obvious from its title, this appeal actually involves an acrimonious divorce. The appellant is the husband and his wife, Ms. Iris Kedmi, is the sole shareholder of the respondent corporation, which operated as part of their family business. Mr. Korem says that the company owes him over $2,000,000, prompting him to start the present action. In the meantime, he asserts that Ms. Kedmi is running the company into the ground. So he asked the Supreme Court of Nova Scotia to preserve the assets pending the main action. Edwards, J. denied this interim relief. Mr.

Korem now seeks leave to appeal that ruling to this court. - 2 - ISSUE: Did the judge err in denying the interim relief requested?

RESULT : Leave granted but appeal dismissed. The motions judge made an unassailable factual finding that the appellant failed to establish irreparable harm (should the injunctive relief not be granted). As such, there was no merit to the appeal. This information sheet does not form part of the court ’ s judgment. Quotes must be from the judgment, not this cover sheet. The full court judgment consists of 8 pages. NOVA SCOTIA COURT OF APPEAL Citation: Korem v. Crown Jewel Resort Ranch Inc. , 2011 NSCA 102 Date: 20111110

Docket: CA 345280 Registry: Halifax Between: Nahman Korem Appellant v. Crown Jewel Resort Ranch Inc. Respondent Judges: MacDonald, C.J.N.S.; Oland and Hamilton, JJ.A. Appeal Heard: September 16, 2011, in Halifax, Nova Scotia Held: Appeal dismissed per MacDonald, C.J.N.S.; Oland and Hamilton, JJ.A. concurring. Counsel: Jennifer C. Nolan, for the appellant Christopher T. Conohan, for the respondent Reasons for judgment : OVERVIEW [ 1 ] Although not obvious from its title, this appeal actually involves an acrimonious divorce. [ 2 ] The appellant is the husband and his wife, Ms.

Iris Kedmi, is the sole shareholder of the respondent corporation, which operated as part of their family business. Mr. Korem says that the company owes him over $2,000,000, prompting him to start the present action. In the meantime, he asserts that Ms. Kedmi is running the company into the ground. So he asked the Supreme Court of Nova Scotia to preserve the assets pending the main action. Edwards, J. denied this interim relief. Mr. Korem now seeks leave to appeal that ruling to this court. For the reasons that follow, I would grant leave but dismiss the appeal.

BACKGROUND [ 3 ] In happier times, moving from Connecticut to operate the Crown Jewel Resort Ranch in Cape Breton was going to be the couple’s retirement dream. So beginning in 2002, they acquired and then ran the resort, complete with guest

accommodations, restaurant, livestock, beehives and air strip. There, guests could enjoy many unique outdoor activities, including dog sledding and horseback riding. [ 4 ] To operate the business, three companies were incorporated as follows. The respondent, holding the moveable assets, would be used to facilitate the day to day operations. A second company, I.N.K. Real Estate Inc., with Mr. Korem as the sole shareholder, would hold the real estate including all buildings and the airstrip. In turn, it leased this property, except the airstrip, to the respondent.

The third company, Crown Jewel Aviation, owned jointly by Mr. Korem and a friend, would hold title to an airplane and would lease the airstrip from I.N.K. [ 5 ] Things appeared to be unfolding as planned until 2010 when the marriage broke down and the couple separated. Things would go rapidly downhill from there. Ms. Kedmi had Mr. Korem removed as the respondent ’ s director. She also ordered him to cease his involvement with the business and to turn over his keys. In response, Mr. Korem, as sole shareholder of I.N.K., began the process of evicting the respondent from the premises.

Then, in late November 2010, he commenced his $2,000,000 debt action. Two days later, he filed the present motion to preserve assets. [ 6 ] On December 6, 2010, the Supreme Court of Nova Scotia issued a temporary preservation order to last until the motion could be heard on its merits. Then in mid-February 2011, following several adjournments, the matter was ultimately heard by Justice Frank C. Edwards. [ 7 ] By order dated February 23, 2011, Mr. Korem’s motion was dismissed prompting the present appeal.

ANALYSIS The Test [ 8 ] Our Civil Procedure Rules authorize the issuance of preservation orders in certain circumstances: 42.01

(1) A party to a proceeding may make a motion for an order preserving any of the following, in accordance with this Rule: . . . (

c) assets that would be available to satisfy a judgment claimed in the proceeding. 42.02

(1) A party who files an undertaking as required by Rule 42.07 may make a motion for an injunction ... to preserve property claimed in, a proceeding.

(2) The motion must be made on notice to each party and the person in control of the evidence or property, unless the motion may be made ex parte under Rule 22.03, of Rule 22 - General Provisions for Motions.

(3) The order may be restraining, mandatory, or part restraining and part mandatory. [ 9 ] The test for granting this type of injunctive relief is well established. Specifically, Mr. Korem would have had to establish three things: namely, that (

a) his claim has merit to the extent that it at least represents a serious issue to be tried; (

b) without a preservation order, he will suffer “irreparable harm”; and (

c) when the consequences of making such an order are fully

considered, the “balance of convenience” favours its issuance. [10] For example, in RJR-MacDonald Inc. v. Canada (Attorney General), (SCC),[1994] 1 S.C.R. 311, the Supreme Court of Canada confirmed: ¶43 Metropolitan Stores adopted a three-stage test for courts to apply when considering an application for either a stay or aninterlocutory injunction. First, a preliminary assessment must be made of the merits of the case to ensure that there is a serious questionto be tried. Secondly, it must be determined whether the applicant would suffer irreparable harm if the application were refused.

Finally,an assessment must be made as to which of the parties would suffer greater harm from the granting or refusal of the remedy pending adecision on the merits. It may be helpful to consider each aspect of the test and then apply it to the facts presented in these cases. See also Haida Nation v British Columbia (Minister of Forests), 2004 SCC 73, [2004] 3 SCR 511 at para. 12 and Tusket MiningInc. v. Sheetharbour Offshore Development Inc., 2007 NSCA 59 at para. 6. [11] Regarding the merits of the claim, Edwards, J. was not favourably impressed with what he viewed asMr.

Korem’s “artificial” attempt to disguise a matrimonial dispute as commercial litigation. In dismissing the motion, he did not mincehis words: Is There a Serious Question to be Tried? ¶13 No. This action for debt is a strategic manouevre by Mr. Korem to counter the actions taken by his wife. This is a matrimonialdispute which should be litigated in the Family Division. This action is artificial. There is no document or paper trail of any kindoutlining the alleged debt.

The note on p.3 of the Grant Thorton December 31, 2008 financial statement "Loan from Director,$2,006,628.00" is ambiguous and certainly is not capable of proving the alleged loan. I believe Ms. Kedmi when she says that she andMr. Korem never had any discussion about any loan. The timing of the recall of the loan could not be more suspicious. ¶14 This is a frivolous and vexatious motion. As I have noted, all of these matters should be litigated in the Family Division. The"serious issue" to be tried is the calculation and apportionment of matrimonial assets.

According to Counsel, the action was started in theGeneral Division because of Counsel's perception that it would be faster to do it that way. With respect, I doubt that that is the case. Inany event, this is not the appropriate forum. [12] The judge also felt that Mr. Korem failed on the irreparable harm issue and, as such, there would be noneed for him to even address the third “balance of convenience” requirement. [13] Before us, Mr. Korem cites reversible error on both the merits question and the irreparable harm test.However, I need only address the irreparable harm issue to dispose of this appeal.

Irreparable Harm [14] In finding no threat of irreparable harm, the judge made these findings of fact: ¶15 ... I do not believe that Ms. Kedmi is attempting to disrupt the business of the Company. Nor do I believe that she is destroyingassets of the Company. ¶16 In the first place, the business of this Company has been at a virtual standstill at least since the couple separated in August 2010.As noted, the Company has never made a profit even when Mr. Korem had unfettered control over its direction.

I am satisfied that theCompany does not have a chance of resuming normal operation until this couple get their matrimonial issues resolved. In short, for all

practical purposes, there is not now, nor will there be for the foreseeable future, much of a business to disrupt. ¶17 Secondly, I do not believe that Ms. Kedmi will destroy assets. She has a vested interest in maintaining the business and its assets in the best condition possible. If I am wrong and she does commit waste, then Mr. Korem can be compensated from her share of the matrimonial property after that share is finally determined. ¶18 Finally, the assets are subject to an encumbrance in the form of a 2005 Security Agreement with the Cape Breton Development Corporation Development Growth Fund Corporation.

Clause 9.2 of that Agreement prevents the sale of assets by the Company "except in the ordinary course of its business or for the purposes of carrying on its business". In the face of that Agreement, Ms. Kedmi's ability to sell off assets is significantly eliminated. [ 15 ] These findings are clear. Ms. Kedmi would not destroy the assets and even if she did, Mr. Korem would have other protections so as to avoid irreparable harm. [ 16 ] Furthermore, these findings are ba sed squarely on the judge ’ s view of the evidence and in my view they are unassailable.

Therefore without irreparable harm, there can be no injunctive relief and consequently no cause for us to interfere. The Judge ’ s Final Order [ 17 ] Before concluding, however, I wish to address Mr. Korem’s complaint that the judge, on his own motion, granted injunctive relief to Ms. Kedmi. Specifically, Mr. Korem refers to this aspect of the decision under appeal: ¶19 ... I will not be granting a Preservation Order. However, I am prepared to order that Ms. Kedmi permit Mr. Korem to take the records relating to the Aviation Company and store them in one of the rooms, other than the one in which he now resides.

I recognize that she claims that she is also part owner of the Aviation Co. and I therefore make this order without prejudice to her claim. ¶20 Further, as the sole owner of Crown Jewel Ranch Resort Ltd., (pending determination in the Family Division) Ms. Kedmi is entitled to have interim possession of all the keys, financial records and documents, computer passwords and other proprietary information and property owned by the Company. She cannot preserve the Company otherwise and, as of his termination, he has no legal standing in the Company. I am therefore ordering Mr.

Korem to provide same to her no later than Monday, February 21, 2011. He may retain the keys to the room where he resides and the key to the room designated for storage of the Aviation Company records. He may have the locks changed on those two rooms and he may also continue to use the Company vehicle he has been using. (provided he provides written proof of $2 million of automobile liability insurance). [ 18 ] This conclusion made its way into the order for judgment as follows: 2.

The Respondent, Crown Jewel Resort Ranch Inc., shall resume possession and control of the facilities and real property that makes up the resort property and trails on or before Monday, February 21, 2011. . . . 4. The Applicant shall turn over all keys of the resort property, including all inside and outdoor keys, to the Respondent, along with all business records, equipment, computer equipment and computer passwords. This shall be carried out no later than Monday, February 21, 2011. [ 19 ] Thus, Mr. Korem advances these grounds of appeal:

(3) The trial judge erred in law by making an order for relief pertaining to all company property, possession of buildings and company assets in the absence of any jurisdiction to do so;

(4) The trial judge erred in law by ordering relief that encumbered a corporate entity, who is the lawful owner of the building and some property, who was not a party to the proceedings or the motion;

(5) The trial judge erred in both fact and law by ordering that possession of real property be turned over to a party who never owned the property and has no right of possession of said property;

(6) The trial judge erred in law by not according appropriate weight to a validly terminated lease between two corporations; . . .

(8) The trial judge erred in law by granting relief sought by the Defendant in a motion that was withdrawn prior to the hearing of the motion;

(9) The trial judge erred in law by granting the relief sought by the Defendant in a motion for an injunction, which withdrawn prior to the motion, without applying the proper test for an injunction; [ 20 ] In advancing this aspect of his appeal, Mr. Korem essentially asserts that the judge, by giving Ms. Kedmi possession of the facilities and real property, took away his company I.N.K.’s right as a landlord and to make matters worse, he did so on his own motion. [ 21 ] I disagree because, in my view, Mr. Korem reads too much into this aspect of the judge’s decision. Instead, it must be placed in context.

Specifically, it must be remembered that Mr. Korem had had the benefit of an interim preservation order, which Justice Edwards then refused to extend. In other words, the interim order had to be vitiated. Therefore, in my view, these impugned passages represent the judge’s attempt to do no more than that; i.e., to have matters revert to their pre-motion state when Ms. Kedmi had de facto possession of the facilities. In this light, these provisions do not prejudice I.N.K.’s rights as a landlord. Nor has the judge strayed beyond that which was before him.

DISPOSITION [ 22 ] For all these reasons, I would grant leave but dismiss the appeal with $1,500 costs to the respondent, together with reasonable disbursements to be agreed upon or taxed. MacDonald, C.J.N.S.

Concurred in: Oland, J.A. Hamilton, J.A.