Link v. Link, 2020 NSSC 293

SUPREME COURT OF NOVA SCOTIA Citation: Link v. Link , 2020 NSSC 293 Date: 20201215 Docket: 497455 Registry: Halifax Between: Jay Link Applicant v. John E. Link, Troy Link, John Hermeier, and Link Snacks Inc. Respondents Decision Judge: The Honourable Justice Peter P. Rosinski Heard: September 23, 2020, in Halifax, Nova Scotia Counsel: Scott R.

Campbell and Christopher Madill, for the Applicant Michelle Awad, QC and Michael Richards, for the Respondents By the Court: Introduction I - The history of the parties [ 1 ] Link Snacks Inc. [“Link Snacks”], a Wisconsin USA Corporation, is a producer and distributor of Jack Link’s meat snacks products. Link Snacks was founded in 1986 by Jack Link. He began by selling beef jerky from the back of a pick-up truck, and Link Snacks became one of the largest protein snack companies in the world, selling jerky, stick products, steak strips and bars, sausages, and lunchbox snacks.

According to the affidavit of Director and Officer John Hermeier, whose evidence I accept unless I indicate otherwise: Until June 2009 Link Snacks was owned by Jack (55%) and his two sons, Troy (21.5%) and Jay (23.5%), who received their shares as gifts from Jack. All three were members of the Board of Directors, with Jack as Chairman and CEO. As Link Snacks grew, Jack and his sons set up several companies that serviced Link Snacks either by producing meat snacks for Link Snacks or distributing its products in markets outside the USA. These related companies typically were owned by Troy and Jay on a 50-50 basis.

One of the companies incorporated for international distribution of Jack Link’s products was Link Snacks Global, Inc. [”Link Global”]. Link Global is a Wisconsin holding Corporation and never conducted any business itself, but instead owned several subsidiary companies, which either directly, or through sub-subsidiaries, distributed Link Snacks’ Jack Link meat-snacks brand in markets outside the USA … Jay and Troy each own 50% of the outstanding shares of Link Global… [which] owns a corporation known as LSI Canada Holdings, Inc. (”LSI Canada Holdings”), which is also itself a holding Corporation.

LSI Canada Holdings, in turn, owns 100% of the outstanding shares of Jack Link’s Canada Company (“Link Canada”), a Nova Scotia unlimited liability company incorporated in Nova Scotia on November 8, 2002 … Link Canada’s business consisted solely of its distribution of Link Snacks’ products. It owned no production facilities, recipes, or intellectual property rights. And, at no time did Link Canada have a written or verbal contractual right to distribute Link Snacks products. Rather, Link Canada’s ongoing ability to serve as a distributor was always and exclusively at the sole discretion of Link Snacks. …

On August 4, 2005, Jay entered [into] a “Departure Memorandum” under which he agreed, among other things, to be terminated as an employee and/or officer of Link Snacks and other companies and to negotiate an amicable buy-out of his interests in Link Snacks and related companies. Prior to his departure Jay expressed dissatisfaction with his role as COO and demanded that he be appointed CEO of Link Snacks. When members of management expressed their views that Jay was not yet ready or qualified to be CEO, Jay became increasingly hostile.

As a result, his ability to work with members of senior management, as part of a cohesive team, became strained. Ultimately, Jay refused to report to his father, Jack, who was the chief executive officer, or consult with other members of Link Snacks management, he failed to communicate about what he was doing for the company and he did not timely perform his responsibilities. Jay stated to me, at or about the time of his departure, that if Jack and Troy did not accept his terms, Jay would make life miserable for [them and] Link Snacks with a bunch of lawsuits which he had ready to file.

He threatened that management would be spending all of its time responding to his lawsuits and they would have no time to operate the business. His stated goal was to ‘bring the company to its knees’ through the litigation process. [1] II - Jay’s claims against the Respondents [ 2 ] Jay alleges that between 2009 and 2016, Jack, Troy, and John Hermeier acted in breach of their fiduciary duties by effecting, in bad faith (and, incidentally, to the benefit of Link Snacks Inc.) the following acts: 1. Transferring profits from Link Canada to Link Snacks Inc., the “ Transfer Pricing Claims ”; and 2.

Terminating Link Canada’s distribution of Link Snacks’ products in Canada and the transfer of Link Canada’s assets to Link Snacks at undervalued amounts (Jay says “at no cost”), such that Link Canada’s share value became negligible, which correspondingly meant that Link Global’s share value similarly became negligible, and ultimately that Jay’s 50% ownership of Link Global’s value became negligible, the “ Theft of Link Canada Claims ” (which latter claims were also characterized by Jay at the Wisconsin litigation in the Third Amended Complaint as “unjust enrichment of Link Snacks to the detriment of Link Canada”). [ 3 ] This decision addresses whether I should grant leave to Jay Link [“Jay”] to bring an action in this court, in the name and on behalf of Jack Link’s Canada Company [“Link Canada”], against his father John E.

Link [“Jack”], Troy Link [“Troy”], John Hermeier [“Hermeier”], (collectively, “the Individual Respondents”) and Link Snacks Inc. [“Link Snacks”], a Wisconsin, USA, Corporation.

III - A synopsis of the Wisconsin litigation [ 4 ] For present purposes it is accurate to say, until a motion to amend seeking leave regarding the Third Amended Complaint, initially proposed on or about August 15, 2017, by Jay’s counsel, seeking to add as plaintiffs Link Global, LSI Canada Holdings Inc [“LSI”] and Link Canada, Jay participated in his personal capacity in multiple related lawsuits in the State of Wisconsin against Link Snacks, Jack, Troy, and John Hermeier. [ 5 ] In

summary, most relevant for my purposes are the following: 1. The so-called “ Link I ” lawsuit, where Link Snacks, Jack and Troy sued Jay for specific performance of the Buy-Sell Agreement between Link Snacks and its shareholders, which, after the termination of Jay’s employment, triggered his obligation to sell his Link Snacks shares back to the Corporation. Jay filed counterclaims against Jack, Troy and Link Snacks, and filed third-party claims against John Hermeier, as well as against Link Snacks, three other Directors and against four other Link companies, including Link Global.

Link I went to trial in 2008, and on July 9, 2008, the jury returned its verdict. The jury found that: a. Jay breached the terms of the Departure Memorandum; Jay breached his fiduciary duties to Link Snacks and another Link owned company; Jay tortiously interfered with Link Snacks’ prospective contractual rights with a third party; b. John Hermeier and the other Officers and Directors of the Link companies did not breach their fiduciary duties to Jay; c. Troy technically breached his fiduciary duties to Jay, but that those breaches caused Jay zero dollars in damages; and d.

Jack breached his fiduciary duties to Jay. The jury awarded reciprocal punitive damages awards of $5 million against each of Jack and Jay. [ 6 ] In assessing the equities, the Link I court also stated the following in relation to Jay’s conduct: One, when faced with changes in his job responsibilities, Jay disobeyed the Chief Executive Officer and refused to ever submit to the boss’ direction. Two, Jay threatened to harm the Corporation, to seek vengeance, and to hamper the business of Link Snacks, Inc.

Three, Jay threatened with the foulest of language to cut off the raw supply of beef product necessary for the continued existence of the business. Four, notwithstanding the clear and unequivocal obligations Jay had in the 1995 Buy-Sell Agreement entered into, Jay entered into a transaction with J&F, also known as Friboi, where the largest beef producer in the world would have the option to purchase shares in all of the Link-related companies and thereby become that very large, quote, third party, end quote, that can interfere with the management and control of Link Snacks.

Specifically, the joint venture agreement with JF provided -- I grabbed the wrong exhibit. We know what it provided: J&F has the option to purchase any shares, any interest, that Jay has or may acquire in the Link-related companies. Five, notwithstanding knowledge that unless and until this Court's ruling on the condition precedent is reversed by the appellate courts of this state Jay is not entitled to any payment for his shares until he signs a non-competition agreement, notwithstanding that, Jay went forward with a, quote, competitive business, individually and with Friboi.

That new enterprise, although small, presently presents a serious business risk to the long-term viability of Link Snacks, Inc. Six, Jay tortiously interfered with the prospective contract between Friboi and Link Snacks, Inc., that, although proof of damages was inadequate, the conduct was wrong as to Link Snacks, Inc.; and the jury so found. Seven, Jay breached the Departure Agreement by instead of exercising good faith in the negotiation for the sale of his shares pursuant to the agreement he signed, he proposed that he purchase Jack and Troy’s shares.

That counter-proposal was completely contrary to the intent and the purpose of both the Departure Memorandum and the 1995 Buy-Sell Agreement. Eight, Jay disclosed confidential business information that is almost impossible to determine the value as to that disclosure of confidential information . [2] [My italicization added] 2. The so-called “ Link II ” lawsuit [3] filed December 6, 2010 [the “ First Complaint ”- the equivalent in Nova Scotia being a “Statement of Claim”] in Wisconsin Circuit Court.

Jay sued in his personal capacity all of the Respondents herein, and alleged that “they breached their fiduciary duties by manipulating intercompany transactions which allegedly deprived Jay of monies and dividends properly payable to him … Jay refers to this claim … as his ‘Transfer Pricing Claims’” [4] - which evolved to become the “ First Amended Complaint” dated February 28, 2013. [5] [ 7 ] The First Amended Complaint evolved to become “ Second Amended Complaint ”, filed on May 10, 2016 [6] wherein he added the content of paragraph 19 G: “[the Individual Defendants breached their fiduciary duties to Jay Link by…] causing, through their actions and inactions, the transfer of value from those companies identified in paragraph 18 above [including Link Global] to themselves or to Link Snacks for less than adequate consideration.” This added paragraph more specifically reflects what Jay would characterize as “the Theft of Link Canada” claims in the proposed derivative action in Nova Scotia. [7] 3.

After Link Snacks terminated Link Canada’s status as its distributor by notice June 12, 2015, with an effective date February 12, 2016 [8] , Jay amended his Complaint again to add as Plaintiffs, Link Global, LSI, and Link Canada; and Link Snacks as a Defendant.

Together these comprise the “ Third Amended Complaint ”. [9] Therein, Jay added a further breach of fiduciary duty claim as against the Individual Respondents in relation to the “Theft of Link Canada Claims”, and one of “Unjust Enrichment” as against Link Snacks. [10] IV - The present decision that this Court must make [ 8 ] At its core, Jay seeks to re-invent his unsuccessful Wisconsin litigation regarding the “Transfer Pricing Claims” and “Theft of Link Canada Claims”, not by proceeding here in Nova Scotia in his personal name this time, but rather in the name of Link Canada. [ 9 ] Jay seeks permission to conduct what is called a “derivative action” pursuant to s. 4 of the Third

Schedule of the Nova Scotia Companies Act , RSNS 1989, c. 81 . [ 10 ] In Budd v Bertram , 2018 NSCA 95 , Justice Hamilton speaking for our Court of Appeal, discussed derivative actions: 32 Derivative actions allow minority shareholders, among others, to bring actions in the name and on behalf of the company, to enforce a right of the company, when those who control the company refuse to do so. Federal and provincial statutes were enacted to permit such actions, which for the most part had been previously barred at common law. …:

1. they ensure that a shareholder has a right to recover property or enforce rights for the corporation if the directors refuse to do so, and 2. it helps to guarantee some degree of accountability and to ensure that control exists over the board of directors by allowing shareholders the right to bring an action against directors if they have breached their duty to the company. … 34 Granting leave to commence a derivative action is a discretionary remedy arising out of equitable principles … Leave should not be granted where there is an adequate alternate remedy available to the complainant … The parties agree there is no alternative remedy in this case. 35 The legislation governing derivative actions is drawn in broad terms and, as remedial legislation, should be given a liberal

interpretation in favour of the applicant … A judge hearing a leave application is not called upon to determine questions of credibility or to resolve the issues in dispute and ought not to try. These are matters for trial … The threshold the applicant has to meet is low as the test is that it "appears" to be in the interests of the company, not that it is in the interests of the company. [Citation omitted] [ 11 ] For the reasons that follow, I conclude that I should not grant leave, and I decline to do so.

Background 1 - The Grounds for Relief in the Notice of Application in Chambers [ 12 ] In his Application for permission to bring a derivative action against the Respondents, Jay sets out the following alleged factual basis for his claim: [11] The Parties 1. Link Canada is an unlimited liability company, incorporated pursuant to the laws of Nova Scotia. Link Canada is a wholly-owned subsidiary of LSI Canada Holdings, Inc. (“LSI”), which is a company incorporated pursuant to the laws of Wisconsin.

LSI is a wholly- owned subsidiary of Link Snacks Global, Inc. (“Link Global”), which is a company also incorporated pursuant to the laws of Wisconsin. 2. Jay is a 50% shareholder in Link Global. Jay is a resident of Wisconsin. 3. The Respondent, Troy Link (“Troy”), owns the remaining 50% shares in Link Global. Troy holds the deciding shareholder vote in the event of a tie between Jay and Troy. 4. At certain material times, the following Respondents were officers and directors and – collectively – had the ability and authority to manage, direct and control the affairs of Link Global, LSI and Link Canada: a.

Troy; b. John Link (“Jack”); and c. John Hermeier (“Hermeier”). 5. On the Nova Scotia Registry of Joint Stock Companies profile for Link Canada, the civic address for each of Troy, Jack and Hermeier is listed as 1 Snackfood Lane in Minong, Wisconsin. 6. Link Global is presently the subject of a dissolution proceeding in the Wisconsin State Circuit Court (the “ Receivership Court ” ), in which a receiver (the “Receiver”) has been appointed to liquidate the assets of Link Global and its subsidiaries.

In this capacity, and as of April 2018, the Receiver’s authority has been confirmed to include management and control of the affairs of Link Canada.

7. The remaining Respondent, Link Snacks, Inc. (“Link Snacks”), is a company incorporated pursuant to the laws of Wisconsin. Link Snacks is among the world’s largest producers of meat-snacks. 8. Jay was a shareholder of Link Snacks until June 30, 2009. Since that time, Jack and Troy have been the sole shareholders of Link Snacks. 9. At all materials times, Troy, Jack and Hermeier were officers and directors and – collectively – had the ability and authority to manage, direct and control the affairs of Link Snacks. 10. Despite their similar names, Link Snacks and Link Global are independent companies.

The officers and directors of Link Global and its wholly-owned subsidiaries (LSI and Link Canada) owe legal and fiduciary duties to those companies, including a duty of undivided loyalty. Link Canada – Business and Operations 11. Link Canada was formed in 2002. Until 2016, Link Canada distributed Link Snacks’ jerky product in Canada. During this time, Link Canada built a distribution network that reached grocery stores, convenience stores, big-box stores, and other retail outlets throughout Canada. 12.

Beginning in or about 2009, the individual Respondents (Jack, Troy and Hermeier – the “Individual Respondents”) began to privilege their duties to Link Snacks over their duties to Link Canada. The Individual Respondents operated Link Canada as a subservient subsidiary of Link Snacks, rather than the subsidiary of an independent Link Global. 13. Over time, the Individual Respondents authorized and directed Link Snacks to set the terms of every transaction between Link Snacks and Link Canada, without any opportunity for negotiation on the part of Link Canada.

In so doing, Link Snacks was able to exercise full control over Link Canada’s business and over Link Canada’s employees. 14. In response, Jay filed a claim against the Respondents in December 2010 in the United States, in the State of Wisconsin, Washburn County Circuit Court Case No. 2011CV62 (historically referred to by the parties as “ Link II ”). 15. In approximately February of 2016, the Individual Respondents (as directors and officers of Link Snacks) authorized and directed Link Snacks to acquire every operating asset of Link Canada for itself.

At the same time, the Individual Respondents (as directors and officers of Link Canada) authorized and directed Link Canada to relinquish the entirety of its operating assets to Link Snacks at no cost and with no benefit to Link Canada, LSI or Link Global. 16.

Thereafter, the Individual Respondents and Link Snacks: a. set up a new company in Canada, LSI Enterprises Canada ULC, that was wholly owned by Link Snacks, rather than Link Global / LSI; b. transferred the employment agreements of Link Canada employees to this new company; c. transferred the leases from Link Canada to this new company, including its primary office space; and d. seized all of Link Canada’s customer information and customers and transferred them to this new company. 17. In the result, Link Canada no longer has any employees and no longer conducts any business. Corporate Misappropriation

18. At all material times, the officers and directors of Link Canada were obliged to act in the best interests of Link Canada. Because the Individual Respondents were officers and directors of both Link Canada and Link Snacks, they had conflicted loyalties with respect to any and all business affairs between the two companies. 19. The Individual Respondents took no steps to resolve these conflicts, such as appointing independent management teams to handle any business affairs between Link Snacks and Link Canada.

Instead, and as outlined above, the Individual Respondents acted in violation of their legal and fiduciary duties to Link Canada. 20. As the operating minds of both Link Canada and Link Snacks, the Individual Respondents authorized and directed an entire asset transaction in conflict (the “Corporate Misappropriation”). This ultimately decimated Link Canada and the value of its shareholdings up the corporate ladder. 21. Link Snacks was the primary beneficiary of this Corporate Misappropriation by the Individual Respondents.

Link Snacks received all the operating assets of a highly developed Canadian distribution company for no consideration whatsoever. 2 - The facts asserted in Jay’s affidavit [ 13 ] In his affidavit Jay states: [12] The Parties and Corporate Structure 4. The companies described below are, or have been, in the business of producing and distributing meat snacks, including meat jerky products. 5. Jack Link’s Canada Company (“Link Canada”) is a Nova Scotia unlimited liability corporation (Registry ID 3072204).

A true copy of the corporate profile for Link Canada from the Nova Scotia Registry of Joint Stock Companies website is attached to this Affidavit and marked as Exhibit “A”. 6. There are three directors of Link Canada, all of whom are named as Respondents to this proceeding: (

a) John E. Link (“Jack”), who is also Chairman of the Board and Chief Executive Officer; (

b) Troy Link (“Troy”), who is also the President; and

(

c) John Hermeier (“Hermeier”), who is also the Chief Financial Officer. 7. Link Canada is a wholly owned subsidiary of LSI Canada Holdings, Inc. (“LSI”), which is a Wisconsin corporation (Entity ID L035676). A true copy of the Corporate Report for LSI from the Wisconsin Department of Financial Institutions website is attached to this Affidavit and marked as Exhibit “B ” . 8. Jack, Troy and Hermeier are the directors and officers of LSI. 9. LSI, in turn, is a wholly owned subsidiary of Link Snacks Global, Inc. (“Link Global”), which is also a Wisconsin corporation (Entity ID L034225).

A true copy of the Corporate Report for Link Global from the Wisconsin Department of Financial Institutions website is attached to this Affidavit and marked as Exhibit “C”. 10. Jack, Troy and Hermeier are the directors and officers of Link Global. 11. I own 50% of the shares in Link Global. Troy owns the other 50% of the shares in Link Global. If there is a tie between me and Troy, Troy gets to cast the deciding shareholder vote. 12. The other Respondent to this proceeding is a company called Link Snacks, Inc. (“Link Snacks”). Link Snacks is also a Wisconsin corporation (Entity ID C032662).

A true copy of the Corporate Report for Link Snacks from the Wisconsin Department of Financial Institutions website is attached to this Affidavit and marked as Exhibit “D”. 13. Jack, Troy and Hermeier are the directors and officers of Link Snacks. 14. I was a shareholder of Link Snacks until June 30, 2009, when I sold my shares back to Link Snacks pursuant to a Wisconsin Circuit Court Order enforcing a 1995 Buy-Sell Agreement. A true copy of the June 15, 2009 Order in this regard is attached to this Affidavit and marked as Exhibit “E ” . 15.

To the best of my understanding, Jack and Troy have been the only shareholders of Link Snacks since June 30, 2009. 16. Link Canada was the sole distributor for Link Snacks’ products in Canada until 2016. Allegations of Corporate Misappropriation 17. I am seeking derivative leave because I believe that Jack, Troy, and Hermeier (the “Individual Respondents”) have breached their fiduciary duties to Link Canada by

engaging in acts of unlawful corporate misappropriation. I assert that the Individual Respondents and Link Snacks owe compensation to Link Canada for their misconduct. 18. I allege that the Individual Respondents’ misconduct began in or around 2009, when they started to operate Link Canada as a subservient subsidiary of Link Snacks, even though Link Canada is a subsidiary of Link Global – an entirely different and separate corporate chain. 19. The alleged misconduct includes manipulation of the “transfer prices” paid by Link Canada to Link Snacks.

I assert that the Individual Respondents caused Link Canada to overpay for the product it was buying from Link Snacks, thereby siphoning money away from Link Canada and into Link Snacks. I refer to these allegations as the “ Transfer Pricing Claims .” 20. In December 2010, I filed a claim against the Respondents in Wisconsin (Washburn County Circuit Court Case No. 2011CV62, a proceeding which the parties have historically referred to as “ Link II ”). The 2010 complaint filed included the Transfer Pricing Claims. 21.

In February 2016, the Individual Respondents then brought the operations of Link Canada to an end: (

a) as directors and officers of Link Snacks, the Individual Respondents authorized and directed Link Snacks to acquire every operating asset of Link Canada for itself; and (

b) at the same time, and as directors and officers of Link Canada, the Individual Respondents authorized and directed Link Canada to relinquish the entirety of its operating assets to Link Snacks at no cost and with no benefit to Link Canada, LSI Holdings, or Link Global. 22. I refer to these actions as the “ Theft of Link Canada Claims ”. To effect these claims, the Individual Respondents and Link Snacks: (

a) set up a new company in Canada, LSI Enterprises ULC, that was wholly owned by Link Snacks;

a) set up a new company in Canada, LSI Enterprises ULC, that was wholly owned by Link Snacks; (

b) transferred Link Canada’s employment agreements to the new company; (

c) transferred Link Canada’s leases to the new company; and (

d) seized all of Link Canada’s customer information, and transferred it to the new company.

23. The material result of the Theft of Link Canada Claims was to deprive the shareholdings in Link Canada of all their value, to the benefit of Link Snacks. 24. Link Canada no longer has any employees and is no longer in business. 25. I amended my Link II complaint in May 2016 to add the Theft of Link Canada Claims, a true copy of which is attached to this Affidavit as Exhibit “F”. 26. I will discuss the Link II proceedings in more detail below. The Transfer Pricing Claims and Theft of Link Canada Claims will be collectively referred to as the “ Corporate Misappropriation ”. Appointment of Receiver 27.

As part of an earlier dissolution proceeding involving Link Global, a receiver was appointed to liquidate the assets of Link Global and its subsidiaries, including Link Canada. 28. By Order dated October 5, 2009, the Wisconsin Circuit Court appointed Peter F. Herrell of Eau Claire, Wisconsin as the receiver (the “Receiver”). At the time of this October 2009 appointment, Mr. Herrell was with the law firm Wiley Law S.C. of Eau Claire and Chippewa Falls, Wisconsin. Mr. Herrell is now with the law firm Nodolf Flory, LLP in Eau Claire. 29.

A true copy of the October 5, 2009 Order Appointing Receiver is attached to this Affidavit and marked as Exhibit “G”. [13] Evidentiary objections [ 14 ] Let me next briefly deal with evidentiary objections raised by the parties. 1. Jay argues (in his Reply brief at page 2) that paragraph 15 of Brian P. Norton’s affidavit, and paragraph 34 of John Hermeier’s affidavit, are inadmissible hearsay and should be struck. I agree. [ 15 ] In

summary, John Hermeier’s wife testified in the Wisconsin proceedings that sometime before 2008, Jay twice called her to urge her that John needed to talk to Jack and convince him to stop his efforts to disadvantage Jay, otherwise he was going to “make our lives a living hell” and their family could lose everything if Jay rather than Jack was successful in the litigation. [ 16 ] Civil Procedure Rule [“CPR”] 5.17 states: The rules of evidence, including the rules about hearsay, apply on the hearing of an application and to affidavits filed for the hearing except a judge may, in an ex parte application, accept hearsay presented by affidavit prepared in accordance with Rule 39 – Affidavit. [ 17 ] Justices Warner and Norton of this Court considered CPR 5.17 in Hutchinson v RL MacDonald investment Ltd ., 2018 NSSC 248 , and King v Gary Shaw Alter Ego Trust , 2020 NSSC 288 . [ 18 ] Counsel agreed that pursuant to

section 20 of the Nova Scotia Evidence Act , no formal authentication of the Wisconsin court proceedings transcripts were required. I observe that while the evidence is inadmissible coming from Julie Hermeier, the gist of it is admissible from John Hermeier. Notably, the latter states: “Jay threatened me on several occasions that if Link I went to trial, I could lose everything.” 2. The Respondents argue that the affidavit of Andrew Erlandson (sworn June 1, 2020, and filed June 22, 2020) is improper reply evidence, or a form of case splitting.

At footnote 3, page 24 of its brief: “[it] is improper as it is not limited to ‘new points raised’ by the Respondents’ affidavits: Civil Procedure Rule 5.05(4)… The Respondents were unable to provide new evidence in response. That fact notwithstanding, and as set out above, the Erlandson affidavit is wholly irrelevant to the issues in this proceeding and offers no opinion on Nova Scotia law.” I disagree. [14] [ 19 ] Mr. Erlandson exclusively references Wisconsin law.

He states at paragraphs 18 and 20 of his affidavit: Having reviewed the Wisconsin Circuit Court record, it would be unreasonable to conclude that Jay was dilatory in bringing in pursuing

the subject causes of action, or that he received poor or neglectful legal representation… In my opinion, it is unlikely that the Wisconsin Circuit Court would consider applying the statute of limitations defense in this matter, until the cause proceeded to the merits stage. [ 20 ] His evidence could be said to support the following statements in Jay’s affidavit: 81 – I have been diligently trying to pursue these claims in Wisconsin for several years.

I have interpreted some of the directions from the Circuit Court and the Court of Appeals to be inconsistent or in conflict, but I have tried to comply with them in each request I have made to the Receiver in the hopes that he would pursue the claims of Corporate Misappropriation or authorized me to do so.… 84 – The Directors of Link Canada [the Individual Respondents] have also been notified of my intention to bring this proceeding. [They] have been involved in the Wisconsin proceedings [Link II and the Receivership Proceeding] and have argued in those proceedings that the only way I can bring a derivative action on behalf of Link Canada is if I seek leave from the Supreme Court of Nova Scotia.

The Individual Respondents’ Wisconsin counsel have also been copied on my lawyers’ correspondence to the Receiver. [ 21 ] To the extent that the complaint may be seen to be the Applicant splitting his case, I accept his argument that “until being served with the Respondent’s Notice of Contest and Affidavits on May 22, 2020, the Applicant (who had already filed his Affidavit, and the original Erlandson Affidavit) was not aware the Respondents would be relying on a limitations defence at the leave stage.

As such, in this context, the Second Erlandson affidavit is proper in order to respond to the limitations issue as raised by the Respondents after such time as the Applicant’s primary evidence was prepared and served.” A consideration of the prerequisites for granting leave to proceed with a derivative action 1 - Should I assess the effect of the Limitation of Actions Act upon the derivative action at this stage or should it be deferred until after the issue of leave to commence a derivative action is decided?

I will assess its effect at this stage. [ 22 ] The Respondents argue that Jay’s proposed derivative action is so certainly statute-barred by the Limitation of Actions Act , c. 35, S.N.S. 2014 (effective September 1, 2015), relying on

section 23 thereof (the transitional provision), that I have all I need to decide that issue conclusively; alternatively they suggest that I consider that the derivative action is statute - barred as part of my analysis of the statutory criterion that “it appears to be in the interests of the company… that the action be brought….”. [15] [ 23 ] I bear in mind that the basic facts alleged include breaches of fiduciary duty alleged against the Individual Respondents involving the time interval from 2009 to 2016.

Our Limitation of Actions Act is a substantial rewriting of its predecessor and became effective on September 1, 2015. Thus, there is also an issue as to which Act (or perhaps Wisconsin law) should be applicable, if not both, during their respective effective dates. [ 24 ] Jay says that “the limitations analysis in this case is not as straightforward as the Respondents suggest and involves multiple issues that should be left for the trial judge to determine”. For example: 1. what substantive law applies to the derivative claims? [A choice of law issue – I conclude Nova Scotia law applies] 2.

What substantive law applies to the limitation period? [A choice of law issue – I conclude Nova Scotia law applies] 3. Under the governing law, what is the applicable limitation period? 4. When did the limitation period start to run? 5. Was the limitation period “tolled” or suspended at any point? 6. Has the limitation period expired? [If Nova Scotia law applies, then yes it has] [ 25 ] Although it has not been endorsed by courts in Canada to my knowledge, Jay’s counsel cites an interesting

article that at the time of publication stated in its executive

summary: Limitation periods are an integral and significant aspect of the litigation process in Canada. Although the application of limitation periods may often seem harsh, they are generally considered to be beneficial by bringing stability to society and by providing an incentive to plaintiffs not to ‘sleep on their rights’. However, in corporate derivative actions… the application of a limitation period presents certain issues that could result in such goals not being advanced.

Specifically, two main issues arise, namely: who is the claimant for the purposes of limitation periods, and how do limitation periods apply to leave applications? The authors propose that the Canadian judiciary should adopt the adverse domination doctrine, applying the majority test, and explicitly hold that the filing of the leave application is sufficient to bring the derivative action within the limitation period .

This approach would be consistent with the separate corporate existence principal and the purposes underlying limitation periods, as well as providing certainty and predictability to the adjudication of derivative action claims. - Robert W Thompson QC, Scott T Jeffers and Codie L Chisholm – “The limits of derivative actions: The application of limitation periods to derivative actions” (2012) 49:3 Alberta LR 603. [My italicization added] [ 26 ] If the limitations defence argument is addressed by a trial court here in Nova Scotia using Nova Scotia law, Jay will have the

burden of proving his claim was brought within the applicable limitation period - s. 9 of the LAA . Here, Jay filed the leave application on March 12, 2020. [ 27 ] Legal claims are most reliably and precisely identifiable when a Notice of Action including a Statement of Claim are filed with the court.

In my opinion, henceforth, at the time they file their leave Application, applicants seeking leave to file Derivative Actions should provide a reliable draft of the Statement of Claim for which they seek approval. [16] [ 28 ] The Respondents’ position is summarized at page 1 of their brief: This Application should be denied because it is: 1) time-barred by the applicable two-year Nova Scotia limitation period; …

b) by the Applicant’s own admission, all material facts giving rise to those two Corporate Misappropriation Claims were known to the Applicant by at least May 2016;

c) though ignorance of the law does not toll a limitation period, the Applicant was aware, well prior to expiration of the Nova Scotia two- year limitation period, that it was necessary to obtain leave from the Supreme Court of Nova Scotia in order to commence a derivative action asserting the Corporate Misappropriation Claims on Link Canada’s behalf; and

d) the Applicant chose not to file this Nova Scotia application until nearly 4 years after he had discovered all of the material facts. [ 29 ] The Respondents go on to point out in relation to Jay’s request that a derivative action in Nova Scotia should apply Wisconsin law, that the threshold question “is whether Nova Scotia or Wisconsin law applies to a claim for breach of fiduciary duties brought on behalf of a Nova Scotia corporation against its own directors relating to alleged actions taken to adversely affect Link Canada in its ability to sell products in Canada.” [ 30 ] Lastly, Jay submits in his Reply brief: 1 - … The court should not make a

summary determination on the governing law, including the applicable limitation period, at the leave stage … 2 - … It would be inconsistent with the requisite liberal approach to deny leave [at this time] on this basis [whether the governing law is Nova Scotia or Wisconsin], without the benefit of a full record of evidence and submissions on this issue addressing inter alia the impact of the Wisconsin-based corporate structure on the governing law, and the impact of the Wisconsin proceedings on the running of the limitation period. 3 - … [Jay] disagrees that the law of the place of corporate incorporation necessarily applies to dispositive effect in the circumstances, where the alleged misconduct occurred in Wisconsin and where the other relevant corporations are based in Wisconsin. [ 31 ] Procedurally, this is a Notice of Application in Chambers per CPR 5.03.

It is the first step in what could be a very lengthy proceeding. I acknowledge that I have no proposed Statement of Claim before me. Nevertheless, the Court has a clear understanding of the claims that are being made, and the benefit of extensive evidence and argument in relation to all the necessary procedural and substantive arguments for me to be in a position to consider the limitation period issue, not as a freestanding determination of what is the limitation period herein, but as a component of my analysis regarding whether Jay has satisfied me of each of the relevant factors in

section 4 of the Third

Schedule of the Companies Act , as interpreted in the binding and persuasive jurisprudence. [17] [ 32 ] I will address the limitations period defence within my analysis of whether the statutory preconditions have been met. In

summary, I am not satisfied that Jay has demonstrated that all the necessary preconditions have been met, and I therefore decline to grant leave to file a derivative action here in Nova Scotia. Let me explain this in more detail. 2 - The statutory preconditions to granting of leave to file a derivative action in Nova Scotia [18] [ 33 ] First, I’ll say a brief word about fiduciary duties of directors of Nova Scotia companies. [ 34 ] As all counsel and I agreed: in proceedings using the law of Nova Scotia, such fiduciary duties exist by virtue of, and reference to, the common law in Nova Scotia. [19] [ 35 ]

Section 99 of the Companies Act deals with conflicts of interest: 99

(1) Subject to this Section, it shall be the duty of a director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company to declare the nature of his interest at a meeting of the directors of the company.

(2) In the case of a proposed contract the declaration required by this

Section to be made by a director shall be made at the meeting of the directors at which the question of entering into the contract is first taken into consideration, or if the director was not at the date of that meeting interested in the proposed contract, at the next meeting of the directors held after he became so interested, and in a case where the director becomes interested in a contract after it is made, the declaration shall be made at the first meeting of the directors held after the director becomes so interested.

(3) For the purpose of this Section, a general notice given to the directors of a company by a director to the effect that he is a member of a specified company or firm and is to be regarded as interested in any contract which may, after the date of the notice, be made with that company or firm shall be deemed to be a sufficient declaration of interest in relation to any contract so made.

(4) Any director who fails to comply with this

Section shall be liable to a penalty not exceeding one hundred dollars.

(5) Nothing in this

Section shall be taken to prejudice the operation of any rule of law restricting directors of a company from having any interest in contracts with the company. [ 36 ] The general ambit of the fiduciary duties of directors of Nova Scotian companies is discussed by Sarah Bradley in her Nova Scotia Companies Act and Commentary (Lexis-Nexis Canada Inc., Markham Ontario, 2015): Introduction to Nova Scotia Companies The Nova Scotia Companies Act is one of the oldest general incorporation statutes still used in Canada today for business incorporations… [the NS CA] is an example of the traditional English system of incorporation, in which the memorandum of association is the fundamental constating document and it, along with the articles of association are contractual in nature.

In the memorandum system, the corporation is conceived of as a contractual relationship among its members that is granted legal personality through the statute. At one time, many Canadian jurisdictions utilized this “memorandum of association” system, but during an era of widespread statutory reform in the 1970s and 80s almost all replaced it with the “statutory division of powers” system, as exemplified by the Canada Business Corporations Act .

In contrast to the contractual memorandum system, in the statutory division of powers system the corporation is a legal entity granted powers under that statute that are to be exercised by the persons and in the manner prescribed in the statute.

The principal practical difference between the two systems, described more fully below, relates to the role and powers of the Board of Directors, which are set out in the memorandum of an NS CA company and are scarcely mentioned in the statue itself… The NS CA is therefore an incorporation statute with an unusual provenance and a long history, which is unique in many respects, though rarely intuitively navigable. (pp. 1-2) [ 37 ] Bradley goes on to discuss the “Unlimited Liability Company” under the NS CA at page 6: Under the NS CA a company may be incorporated as ‘a company not having any limit on the liability of its members’, referred to in the Act as an ‘unlimited company’, and often in common discourse as a “ULC”…. understanding its application, and the corresponding risk to investors in ULC’s, requires a careful consideration of the Act and its history.

Today, limited liability is an almost universally observed characteristic in corporate law… However, early in the development of corporate law in the United Kingdom and North America, incorporation statutes did not feature limited liability and the concept was regarded with some suspicion by business creditors, the public, the legislatures and the courts.

This suspicion arose in part from some early scandals, and also perhaps from a lack of familiarity with the concept of limited liability and a general sentiment that a moral hazard was created when business people were not held liable for the debts of their businesses.

As a result of this early suspicion, and presumably the desire of some business people to allay the concerns of creditors by bonding the reputation to that of their business, once limited liability was introduced into early incorporation statutes in the UK (including those upon which the NS CA is based), they continued to provide for the creation of companies that offer the benefits of separate legal personality but did not feature limited liability.

Nova Scotia is now the only jurisdiction in Canada to retain the unlimited liability company throughout its corporate law history… Although it has been possible to incorporate companies with unlimited shareholder liability in Nova Scotia for more than 100 years, for most of the 20 th century, such companies were as unheard of in Nova Scotia as they were everywhere else… Then, in the 1990s, thanks to the evolution of US tax laws and the pioneering work of a few Nova Scotia lawyers, Nova Scotia ULC’s experienced a dramatic and sustained burst of popularity, becoming more frequently used than they had ever previously been.

At the heart of this Renaissance was the distinctive treatment of ULC’s received under US tax laws. Generally, for the purposes of Canadian tax law, an NS CA company, whether liability is limited or unlimited, is recognized as a corporation and a separate taxpayer, liable to pay tax on its income and gains and to realize its own losses.

For the purposes of US tax laws however, an entity whose members have unlimited liability for its debts has been considered to be an entity which could elect to have its income, gains and losses ‘flow-through’ to its shareholders, and thus used to offset the shareholders other income, gains or losses for US tax purposes.

This dual nature of an unlimited company has led to Nova Scotia ULC’s often being referred to as ‘hybrids’ for US tax purposes… Recent changes [coming into effect January 1, 2010] to US tax law and the tax treaties between Canada and the United States have affected how Nova Scotia ULCs are used to effect these results. [ 38 ] Bradley discusses directors’ duties at page 57: Directors’ duties The duties owed by Directors to the Corporation they serve can be generally described under three broad categories: the first is the duty of obedience, or the duty to act within one’s powers, in compliance with the Act and the constating documents of the company; the second is the duty to act with reasonable care; and the third is to act with the loyalty and good faith of the fiduciary.

These duties are not

codified explicitly in the NS CA as they are in many other jurisdictions. Rather they are owed [by] directors of NS CA companies exclusively by operation of the common law.… The duties of directors at common law are described in an extensive and complex body of jurisprudence, which Nova Scotia courts have rarely had the opportunity to consider. Accordingly, they can be determined principally by considering older Canadian cases and cases from other jurisdictions such as the UK.

Recent Canadian cases may also be relevant to the determination of these duties, but in applying these more modern cases in the context of the NS CA companies, one must remain alert to the fundamental distinction between the duties that arise from the statutory provisions of other jurisdictions, and those that arise from the common law. The following paragraphs offer a brief

summary of these common law duties as they apply to the directors of Nova Scotia Companies. It is well settled, both at common law and under the BCA statutes, that the duties of a director are owed to the corporation itself, and not to the shareholders or any other constituency. The duty of obedience is relatively straightforward.

The director of a company is obliged to act within the powers granted to him or her by the Act and the constating documents of the company, and to comply with the terms set out therein. … The common law duty of care imposes an obligation on directors to carry out their work on behalf of the company with the requisite degree of care and skill… The common law duty of loyalty has a number of components that were summarized by Millet LJ in the leading English case of Bristol and West Building Society v Mothew , [1996] 4 All ER 698 (CA) , who observed that a director has a duty to ‘act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal.

This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary. There is clearly a considerable degree of overlap between the no profit, no conflict and no benefit imperatives, though the underlying premise is also clear: the director must always act in good faith and subordinate his or her own interests to the interests of the company. [My bolding added] [ 39 ] The statutory preconditions can be found in

section 4 of the Third

Schedule of the Companies Act :

(1) Subject to subsection (2) of this section, a complainant may apply to the court for leave to bring an action in the name and on behalf of the Company or any of its subsidiaries, or intervene in an action to which any such body corporate is a party, for the purpose of prosecuting, defending or discontinuing the action on the behalf of the body corporate.

(2) No action may be brought and no intervention in an action may be made under subsection (1) of this

section unless the court is satisfied that

a) the complainant has given reasonable notice to the directors of the Company or its subsidiary of his intention to apply to the court under subsection (1) of this

section if the directors of the Company or its subsidiary do not bring, diligently prosecute or defend or discontinue the action;

b) the complainant is acting in good faith; and

c) it appears to be in the interests of the Company or its subsidiary that the action be brought, prosecuted, defended or discontinued. [20] [ 40 ] Jay is clearly eligible as a “complainant” per section 7(5) of the Third Schedule. The parties disagree on whether: 1. Jay has given reasonable notice to the directors of the company… of his intention to apply to the court under subsection 4(1); 2. Jay “is acting in good faith; and 3. It appears to be in the interests of the company that the action be brought, prosecuted, defended or discontinued. s. 4(2)(a) - Has reasonable notice been given?

[41] Jay says that he has given reasonable notice to Peter Herrell, who was appointed as sole Director of Link Canada, by theWisconsin court on June 27, 2018.

He cites an email to the Receiver, March 10, 2020.[21] While the email does not expressly say thatJay has the intention to apply to the [Nova Scotia Supreme] Court under [s. 4(1) Nova Scotia Companies Act Third Schedule], in all thecircumstances, the notice of his intention, though not expressly stated, is sufficiently conveyed to meet the statutory requirement. s. 4(2)(b) - What is ‘acting in good faith’, and has Jay satisfied the court that he is acting in good faith? [42] Let me first examine what the jurisprudence reveals about how a court should define and assess this factor in the case of anapplication for leave to file a derivative action. [43] In L+B Electric Inc. v Oickle, 2006 NSCA 41, our Court of Appeal considered the “acting in good faith” requirement.

JusticeHamilton speaking for the court stated: 53 I will deal first with their argument relating to good faith. The judge found that the "onus" on Mr. Oickle to prove that he was actingin good faith was to satisfy the court by a preponderance of evidence, not some higher burden: [52] In my respectful opinion, it is not appropriate to require the applicant to meet a burden that is any higher than what the statuteprovides. The statute provides "No action may be brought ... under subsection (1) unless the court is satisfied that ... (

b) the complainantis acting in good faith". This text is consistent with the ordinary rules on onus and burden. The proponent bears the onus of satisfying theCourt. The Court will be satisfied by a preponderance of evidence. I have already discussed the history of this legislation towardsascertaining its purposes and scheme (see paras. 34 to 42 above). With great respect for the contrary view expressed by Puddester, J. inTremblett, [1993] N.J. No. 348 the history, purposes and scheme of this legislation do not support the imposition of a higher burden thanthe statutory text provides.

Particularly, there is no indication of Parliamentary or Legislative intent to restrict access to the derivativeaction out of deference to the principles of indoor management or majority rule. 54 The appellants have not argued that the judge erred in applying the ordinary burden. Accordingly, for the purposes of this appeal Ihave assumed, without deciding, that this is the correct burden. … 59 As set out by D.H.

Peterson, Shareholder Remedies in Canada (Markham, ON: LexisNexis, 1989) at p. 17.22 "good faith" is aquestion of fact: s.17.39 Good faith is said to exist where there is prima facie evidence that the applicant is acting with proper motives, such as areasonable belief in its claim, and is ultimately a question of fact to be determined on all of the evidence and the particularcircumstances of the case. 60 This principle is restated in Winfield v. Daniel (2004), 2004 ABQB 40 , 352 A.R. 82: para. 16 Section 240(2)(

b) of the Act requires that the Court be satisfied that the complainant is acting in good faith. Good faith is said toexist where there is prima facie evidence that the complainant is acting with proper motives such as a reasonable belief in the merits ofthe claim. Good faith is a question of fact to be determined on the facts of each case. The typical approach by the Courts is not toattempt to define good faith but rather to analyse each set of facts for the existence of bad faith on the part of the applicant. Ifbad faith is found, then the requirement of good faith has not been met: D.H.

Peterson, Shareholder Remedies in Canada,(Markham, ON: LexisNexis, 1989) at 17.39. … 62 In reaching his decision the judge considered relevant factors. There was evidence before him from which he could conclude that Mr.Oickle was acting in good faith. The appellants have not satisfied me that this finding by the judge was a palpable and overriding error. 63 The judge took into consideration that Mr. Oickle had been sued by the Company.

He stated in the last sentence in para. 53 of hisdecision quoted above in para. 55 above; "I must consider all of the circumstances, including that the proposal to bring this suit followsupon the proponent having been sued for his alleged wrongdoing towards the company." He also considered that Mr. Oickle had a self-interest in bringing the derivative action but found this did not exclude a finding of good faith. This position is supported by Title (Estate)v. Harris (1990), (ON SC), 67 D.L.R. (4th) 619 (Ont. H.C.J.); Winfield v.

Daniel, supra, para. 20; and Schafer v.International Capital Corp. (1996), (SK KB), 153 Sask. R. 241 at para. 32. 64 The judge considered whether there was a genuine issue for trial in the derivative action and whether the proposed action wasfrivolous or vexatious. These are relevant factors in assessing the issue of good faith, Winfield v. Daniel, supra, at para. 17 and 27;and Re Marc-Jay Investments Inc. and Levy (1974), (ON SC), 50 D.L.R. (3d) 45 (Ont. H.C.). In para. 47 of hisdecision quoted in para. 56 above, the judge reviewed the evidence that led him to conclude that there was a genuine issue fortrial.

There is nothing unjust about the judge's determination on the facts of this case that the Company's resources should be equallysupportive of both parties. 65 The fact some of the claims in the derivative action are the same as those in Mr. Oickle's counterclaim is not determinative of badfaith, Winfield, supra, para. 20. While the claims are similar, the remedies sought in the derivative action are different from those soughtin the counterclaim. The derivative action seeks a declaration that Mr. Bunnell's and Ms. Fraser's employment with the Company beterminated for cause and that the termination fell within the

section of the shareholders' agreement that would cause the forfeiture oftheir shares of the Company. It seeks a mandatory injunction requiring Mr. Bunnell and Ms. Fraser to sell their respective shares to theCompany for $1.00 in accordance with the forfeiture provisions of the shareholders' agreement. It seeks a permanent injunctionrestraining Mr. Bunnell and Ms. Fraser from further participation in the affairs of the Company. These remedies were not available toMr. Oickle in his personal action.

66 In addition, the only avenue available to Mr. Oickle to pursue remedies against Ms. Fraser was through the derivative actionbecause the judge found, and his finding was not appealed, that the rule is Foss v. Harbottle, (1843), 2 Hare 461, 67 E.R. 1989 (Ch.)prevented Mr. Oickle from adding Ms. Fraser as a party to his counterclaim as he had sought to do: [10] The facts alleged by Mr. Oickle do not support any cause of action he personally may have against Ms. Fraser personally. [11] The law articulated in Foss v.

Harbottle, (1843), 2 Hare 461, 67 E.R. 1989 (Ch.) was under severe criticism by the mid-twentiethcentury. Professor Dickerson referred to it as "that infamous doctrine" in Canada, Proposals for a New Business Corporations Law forCanada by Robert W.V. Dickerson, John L. Howard and Leon Getz, vol. 1 (Ottawa: Information Canada, 1971) at p. 161. ProfessorGower himself wrote of "The major absurdity of the Foss v. Harbottle rule" in L.C.B. Gower, The Principles of Modern Company Law,3rd ed. (London: Stevens & Sons, 1969) at p. 582. However, the problem was not with the basic law in Foss v. Harbottle.

The problemwas with the lengths to which the courts, including the court in Foss v. Harbottle itself, had gone in making formalized and categoricalrules that were supposed to give effect to the basic law in Foss v. Harbottle. The basic law was that a shareholder cannot sue fordiminished value of shares or for any other recovery on account of a wrong done to the corporation. Any suit is to be brought by thecorporation "or in the name of someone whom the law has appointed to be its representative" (Foss v. Harbottle at p. 490 in the Harereport or at p. 202 in the English Reports).

That element of the common law was re-affirmed by the Supreme Court of Canada at the verytime that legislative reform was coming to Canada: Burrows and others v. Becker and others (1968), (SCC), 70 D.L.R.(2d) 433 (SCC), p. 441. And, it remains sound to this day as long as one allows for the modification brought about by legislation creatingderivate actions.

"[I]ndividual shareholders have no cause of action for any wrongs done to the corporation and ... if an action is to bebrought in respect of such losses, it must be brought either by the corporation itself (through management) or by way of a derivativeaction.": Hercules Management Ltd. and others v. Ernst & Young and others (1997), (SCC), 146 D.L.R. (4th) 577(SCC), para. 59. [12] The claims against Ms. Fraser allege wrongs she is said to have done to the company. Not one of these allegations involves "awrong done to a shareholder qua shareholder" in the meaning of Hercules Managements at para. 62.

The claims allege wrongs done tothe corporation which could only affect Mr. Oickle through the value of his shares. Consequently, I decline to join Ms. Fraser as adefendant in the existing litigation. 67 Accordingly, the appellants have not satisfied me that the judge erred in finding Mr. Oickle had met the second criterion in s. 4(2)(c)of acting in good faith. [My bolding added] [44] In a nutshell, our Court of Appeal has endorsed an approach that would see me not attempt to define good faith, but ratherexamine the facts I find, to determine if there is sufficient evidence of bad faith on the part of Jay.

If bad faith is found, then the goodfaith requirement has not been met. Good faith is said to exist where there is prima facie evidence that the Applicant is acting with propermotives, such as a reasonable belief that the claim is sustainable.

As the Applicant, Jay bears the burden of proof on a balance ofprobabilities, that he is “acting in good faith”.[22] [45] Relevant factors to the good faith inquiry include considerations such as whether there is a genuine issue for trial in thederivative action or whether the proposed action is frivolous or vexatious; or, as the court in Oickle stated at paragraph 77: “whetherthere was an arguable issue raised by the proposed derivative action” or “the standard is that ‘the intended action does not appearfrivolous or vexatious and could reasonably succeed’.”[23] [46] There is a further useful articulation of the “good faith” requirement by the Alberta Court of Appeal in Valgardson vValgardson, 2012 ABCA 124: 20 The question of good faith requires the court to ensure that the proposed action is not frivolous or vexatious: … There is both asubjective and objective component to the requirement of good faith.

The subjective aspect requires that the applicant believesthe proposed derivative action has merit. This guards against actions spurned by self-interest or private vendetta. But evenwhere the applicant believes that the proposed action has merit, the court must still consider whether objectively viewed theaction is not frivolous and vexatious. 21 A number of the factors relied upon by the chambers judge as evidence of lack of good faith ought properly to be characterized asneutral.

While the chambers judge found that the existence of the 2003 Action demonstrated animus between the parties, this isnot indicative of the absence of good faith.

Animosity between the parties is common in most litigation… Further, duplication inrelief between the derivative actions and the 2003 Action is not a basis for a finding of a lack of good faith: … … 25 And, while the chambers judge concluded that "there is a flavour throughout of an ongoing family dispute which has all theappearances of a private vendetta on the part of Blair Valgardson against his brothers" … the existence of a private vendetta is only asecondary factor in determining the absence of good faith. [My bolding added] [47] Justice Campbell stated in Chandler v.

Sun Life Financial Inc., [2006] OJ No. 451:

22 I am not satisfied that it can be said on any basis that it is in the interests of the shareholders of the financial institutions that the action sought to be commenced proceed. 23 In Royal Trust Corp. of Canada v. Hordo , [1993] O.J.

No. 1560 , Farley J. made the following comment with which I agree: It seems to me that the Court should look to the "real" purpose and motivation of the application and refuse the status of the complainant where the primary reason for seeking relief is the collateral purpose of furthering a pre-existing civil action. 24 The motion before me has focused on only one of the four statutory conditions.

I am satisfied on the basis of only one of the necessary conditions that Chandler has not met the obligation of satisfying the Court that permitting his action to proceed on behalf of the institutions would in any way benefit those institutions. [My italicization added] [ 48 ] A finding of “acting in good faith” may be made “where there is prima facie evidence that the complainant is acting with proper motives such as a reasonable belief in the merits of the claim.

Good faith is a question of fact to be determined on the facts of each case.” The good faith inquiry is not limited to merely whether Jay has an honest and reasonable belief in the merits of the claim he proposes to make in the derivative action. [ 49 ] Mere evidence of self-interest does not necessarily exclude a finding that Jay is acting with proper motives: Richardson Greenshields of Canada v Kalmacoff , (1995) 123 D.L.R. (4 th ) 623 (Ont. CA.). Nor does the mere evidence of the existence of a private vendetta by Jay necessarily exclude a finding that Jay is acting with proper motives.

However, in a proper case, these factors can individually or collectively weigh in favour of a finding of bad faith.

This is such a case. [ 50 ] Jay, in his own name, pursued a panoply of litigation in Wisconsin against the Individual Respondents and Link Snacks since 2005. [24] Generally speaking, in those various lawsuits Jay was not successful. [ 51 ] On August 8, 2008, the Link I court concluded: When faced with changes in his job responsibilities, Jay disobeyed the chief executive officer [of Link Snacks, his father Jack] and refused to ever submit to [his] direction… Jay threatened to harm the corporation, to seek vengeance, and to hamper the business of Link Snacks Inc.; Jay threatened with the foulest of language to cut off the raw supply of beef product necessary for the continued existence of the business [i.e.

Link Snacks]…; “notwithstanding the clear and unequivocal obligations Jay had in the 1995 Buy – Sell agreement entered into, Jay entered into a transaction with J and F… the largest beef producer in the world [which] would have the option to purchase shares in all of the Link -related companies and thereby become that very large “third party” that can interfere with the management and control of Link Snacks… J and F has the option to purchase any shares, any interest, that Jay has or may acquire in the Link -related companies… Jay breached the Departure Agreement by instead of exercising good faith in the negotiation for the sale of his shares pursuant to the agreement he signed he proposed that he purchase Jack and Troy’s shares… Jay disclosed confidential business information that is almost impossible to determine the value as to that disclosure of confidential information. [25] [ 52 ] In the South Dakota Action, Jay sought dissolution of LSI, and “sought to recover the same damages from Jack, Troy and Hermeier that he sought to recover from them in Link I for alleged breaches of fiduciary duties to him as officers and directors of LSI.

On December 2, 2009, the South Dakota Court dismissed Jay’s claims for breach of fiduciary duty.

The court also made specific findings that “Jay had consistently tried to destroy LSI and was found to have breached his fiduciary duties to LSI either intentionally or in reckless disregard of LSI’s rights.” It re-iterated “in fact, Jay Link has consistently tried to destroy the company’.” [26] [ 53 ] I accept the following evidence of John Hermeier, on the question of the best interests of Link Canada and whether Jay is acting in good faith: 29-Jay stated to me, at or about the time of his departure, that if Jack and Troy did not accept his terms, Jay would make life miserable for [them and] Link Snacks with a bunch of lawsuits which he had ready to file.

He threatened that management would be spending all of its time responding to his lawsuits and would have no time to operate the business. His stated goal was to ‘bring the company to its knees’ through the litigation process. The termination of Jay’s employment triggered the buyout provision of a ‘Buy-Sell Agreement’… between Link Snacks and its shareholders, Jack, Troy, and Jay, which obligated Jay to sell his Link Snacks’ shares back to the Corporation.

Jay refused, and on September 23, 2005, Link Snacks, Jack and Troy filed a lawsuit against Jay and the Wisconsin Circuit Court for specific performance of the Buy-Sell Agreement and damages for Jay’s breaches of fiduciary duty. This lawsuit is known to the parties as ‘Link I’.… [On November 17, 2005] Jay filed counterclaims in Link I against Jack, Troy, and Link Snacks, [and others and]… filed a second lawsuit in the State of South Dakota against Jack, Troy, and me … Jay falsely claimed that Jack, Troy, and I breached their fiduciary duties to Jay. The court dismissed all claims in the South Dakota Litigation.

Jay threatened me on several occasions that if Link I went to trial, I could lose everything… Link I went to trial in 2008 and on July 9, 2008, the jury returned its verdict on the parties legal claims. The jury found that:

i) Jay breached his fiduciary duties to Link Snacks and another Link owned company; ii) I did not breach my fiduciary duties to Jay; iii) Troy technically breached his fiduciary duties to Jay, but that those breaches because Jay zero dollars in damages; and iv) Jack breached his fiduciary duties to Jay. The jury awarded reciprocal punitive damages awards of $5 million against each of Jack and Jay…

On December 6, 2010, Jay filed another lawsuit against Link Snacks, Jack, Troy, and me in the Circuit Court of Washburn County Wisconsin… This lawsuit is known to the parties as ‘Link II’.

Among Jay’s 2010 claims was his assertion that the transfer pricing policies were unfair and priced in a manner that constituted a breach of fiduciary duty… After the termination of Link Canada’s distribution arrangement (explained in detail below) on May 10, 2016 Jay amended the Link II lawsuit to also allege a further breach of fiduciary duty by Jack, Troy, and I, resulting in injury to Link Canada stemming from this termination… I understand that this is the same claim Jay has described in his Notice of Application in Chambers and his affidavit as the “Theft of Link Canada claims’, which Jay seeks to assert against the Respondents on Link Canada’s behalf in these proceedings… Again, Jay asserted the additional 2016 claims in the Link II lawsuit directly in his own name… I have known Jay since 2002.

Based on my experience personally working with Jay at Link Snacks, my personal interactions with Jay, the statements Jay has made to me, and my observations of his demeanour, it is my belief that Jay is driven by personal animus toward his father, brother, Link Snacks, and me, and not by a genuine concern for Link Canada. [27] [ 54 ] Jay swears that “I believe that Jack, Troy, and Hermeier (the “Individual Respondents”)… have breached their fiduciary duties to Link Canada by engaging in acts of unlawful corporate misappropriation.

I assert that the Individual Respondents and Link Snacks owe compensation to Link Canada for their misconduct” (para 17). Under the heading “Criteria for Derivative Leave” Jay states: 81-I have been diligently trying to pursue these claims in Wisconsin for several years.

I have interpreted some of the directions from the Circuit Court and Court of Appeals to be inconsistent or in conflict, but I have tried to comply with them in each request I have made to the Receiver in the hopes that he would pursue the claims of corporate misappropriation or authorized me to do so. 82-It is my position that a derivative action would be in the interests of and would benefit Link Canada, because Link Canada’s claims are an outstanding issue in the receivership of its grandparent, Link Global. [ 55 ] Jay’s above-noted statements are the most express examples in his evidence regarding whether he, has an honest belief that the derivative action has merit, and is acting in good faith. [ 56 ] He has made no specific statements to refute, and presented no specific evidence to counter, that of John Hermeier, who clearly, and credibly in my opinion, asserts that Jay’s primary motivation is personal animus against his father, his brother, Link Snacks, and Mr.

Hermeier. [ 57 ] Jay has been capable as a complainant of starting this Application for leave to file a derivative action since he became aware of what he calls “The Transfer Pricing Claims” since, at the latest, December 2010, and the “Theft of Link Canada Claims” since at the latest, May 2016.

He gives no credible explanation as to why he did not start proceedings for such claims in Nova Scotia in his own name (or that of the corporation) during those years following his discovery of the material facts underlying these claims between December 2010 and May 2016, all the while having ongoing access to legal counsel.

He has not asserted that he has had negligent legal advice. [ 58 ] I conclude that since he discovered the material facts in December 2010 and May 2016, respectively, Jay knowingly decided not to bring an application for leave to pursue a derivative action in Nova Scotia. [ 59 ] I conclude that Jay is seeking leave before this Court, as part of a pattern of vengeful conduct he has unremittingly evinced since at least 2005, as against his father Jack, his brother Troy, and, incidentally, John Hermeier.

A review of the extensive evidence of the history of the parties vis-à-vis the various corporations that were part of the Link group of companies, the origins of these disputes reaching back to at least 2005, and the evolution of that dispute, suggests there is long-standing enmity by Jay against the Individual Respondents. However, that factor by itself is not determinative of the “good faith” dispute herein. [ 60 ] The uncontradicted evidence also reveals that only Jay personally has to gain from a grant of leave to proceed with the derivative action. There are no other shareholders who could complain.

Jay has pledged to the Receiver that he will personally pay the legal fees of the derivative action throughout. [28] Similarly, while the Respondents include Link Snacks Inc., Jay’s focus has clearly been on the Individual Respondents. At all material times, the only shareholders of Link Snacks have been Jack, Troy and Jay. The only shareholders of Link Global (and effectively Link Canada) were Troy and Jay. Even the unjust enrichment claim vis-à-vis Link Snacks is premised on the breaches of fiduciary duty by the Individual Respondents.

Therefore, the litigation is fairly characterized as, in essence, a personal dispute with the trappings of corporate structures – it is really Jay versus Jack, Troy, and John Hermeier. [ 61 ] I further conclude that Jay is, and has been, acting only in his own personal interest throughout. Only he and Troy are shareholders of Link Global. The proposed derivative action is not intended to benefit Link Canada in any real sense.

It could have been seen to benefit if it was truly conceived to be an independent entity, and to otherwise have been on an independent path as a “going concern”, but the circumstances of this case cause me to conclude that is not so. It is primarily intended to benefit Jay, and to

incidentally prejudice Jack, Troy, and John Hermeier. [ 62 ] Nor has Jay presented any evidence to refute Mr. Hermeier’s evidence that the transfer pricing charges to Link Canada were fair and reasonable (Hermeier affidavit, para. 44), or that the termination of Link Snacks’ non-contractual distribution arrangement with Link Canada was done for legitimate business reasons, with eight months advance notice and without objection by the Court-appointed Receiver.

The Receiver and Jay were both advised of, and their input sought regarding, Link Snacks’ intention to terminate its distribution arrangements with Link Canada on June 1, 2015 (paras. 45 - 69). [29] [ 63 ] The Receiver did not respond to the Link Snacks’ proposal. Mr. Hermeier states, at paragraph 71 of his affidavit: The person who was and remains in a position to independently determine whether it would be in Link Canada’s best interest to pursue the claims at issue is the Receiver.

He has always had the power and authority to vote the shares of Link Global and LSI Canada Holdings to elect the Directors of Link Canada and as set forth in the affidavit of Brian Norton, he has known about Jay’s allegations concerning wrong done to Link Canada since at least July 2017.

Yet, the Receiver has never caused Link Canada to file a direct action and has repeatedly refused Jay’s request that he do so. [ 64 ] The Receiver was initially appointed by Order dated October 5, 2009, in relation to Link Snacks Global Inc. [30] The Receiver’s position is revealed in the evidence before the Wisconsin Court: [31] Statement of Pete Herrell, Receiver for Link Global – dated August 14, 2017: I am the court-appointed Receiver for Link Global Inc.

As Receiver for Link Global, I am responsible for liquidating ‘all or any part of the assets of the corporation wherever located’. … Link Global is a holding company; its assets are its subsidiaries … Some assets of Link Global are still operating… Other subsidiaries of Link Global, however are now defunct. Liquidating those companies is simpler: my role is to ensure that their remaining assets are marshaled, converted to cash, and distributed to creditors or shareholders. Link Global’s Canadian operations fall into the second category.

Link Global is the sole owner of LSI Canada Holdings Inc., which in turn is the sole owner of Jack Link’s Canada Company (“Link Canada”). These companies are defunct and nonoperating; their only hard assets are a few million dollars in cash . Counsel for Jay Link have informed me that Link Canada may possess another asset: causes of action against its Directors for breach of fiduciary duties in connection with transfer pricing and the cessation of Link Canada’s operations. Jay’s counsel report that these claims, if successful, could result in a damages award of more than $80 million to Link Canada.

Any recovery would be distributed to the Receivership estate, along with other remaining cash in Link Canada’s accounts. I have not reviewed the evidence in support of these claims, and I cannot vouch for their merits… I am however, in a position to confirm that the best interests of Link Global and its defunct Canadian subsidiary are to liquidate all remaining assets and distribute them. If Link Canada’s assets include substantial causes of action that have not yet been adjudicated on their merits, as Jay contends, then liquidating those assets requires someone to litigate those causes of action.

Jay Link and his counsel are in the best position to litigate those causes of action involving Link Canada. They report that they have developed the claims, reviewed the discovery, retained experts and the consultants, and prepared the case for trial. It would be wasteful to the Receivership for me to redo their work or try to build the case from scratch. Jay has paid his own legal and expert fees to date and has pledged to continue paying those fees to pursue the claims on Link Canada’s behalf.

He has further represented that he will only seek reimbursement of those fees from Link Canada if the company’s recovery exceeds the amount of the fee request. Therefore, there is no financial risk to the companies or the Receivership and allowing Jay to proceed with those claims. If a jury finds that the claims have merit then the Receivership will gain the financial benefit of the damages award. If a court or jury finds the claims lack merit, then the Receivership’s finances will not be affected one way or another.

For all these reasons, I believe it makes sense for Jay Link and his counsel to proceed with the causes of action they have developed on Link Canada’s behalf. Regardless of whether those claims are successful, it is in the best interest of these companies to wind up and liquidate their assets – including any damage claims that have not yet been fully adjudicated. [My bolding added]

[ 65 ] What is particularly significant about this document is the Receiver’s statement to the court on August 14, 2017: Jay Link and his counsel are in the best position to litigate those causes of action involving Link Canada . They report that they have developed the claims, reviewed the discovery, retained experts and the consultants, and prepared the case for trial. It would be wasteful to the receivership for me to redo their work or try to build the case from scratch.

For all these reasons, I believe it makes sense for Jay Link and his counsel to proceed with the causes of action they have developed on Link Canada’s behalf. [My bolding added] [ 66 ] Thus, certainly by August 14, 2017, Jay not only knew the material facts in relation to the proposed derivative action in Nova Scotia, which, I might add, I am satisfied he knew by December 2010 (regarding the Transfer Pricing Claims) and by May 2016 (regarding the Theft of Link Canada Claims), but he had “developed the claims, reviewed the discovery, r

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