Syncmold Enterprise Corp. v. Pinnacle Mold Inc.
Syncmold Enterprise Corp., Plaintiff, and
Pinnacle Mold Inc., Elmar Dietrich, Kenneth Hedgewick,
Wayne McLaughlin, Ken Byrne, Mike Robinet, National
Bank of Canada, 468464 Ontario Ltd., Denelli
Enterprises Inc., Chittle Manufacturing Consultants
Inc., Hedgehog Investments Limited, Trukent
Enterprises Ltd., Wayne McLaughlin Family Enterprises
Inc., Stephen Funtig, S. Funtig & Associates Inc.,
 O.J. No. 175
174 A.C.W.S. (3d) 243
Court File No. CV-08-11002CM
Ontario Superior Court of Justice
T.L.J. Patterson J.
Heard: December 8, 9 and 10, 2008.
Judgment: January 15, 2009.
Civil litigation -- Civil procedure -- Judgments and orders -- Summary judgments -- For part of claim -- Injunctions -- Circumstances when granted -- Motion by plaintiff for partial summary judgment and to vary security for costs allowed in part -- Motion by defendant to discontinue interlocutory injunction dismissed -- Plaintiff alleged that defendant owed them $1,906,383 for series of purchase orders -- $1,596,566 owing had been clearly demonstrated, so partial summary judgment granted in that amount -- Interlocutory injunction to continue because plaintiff had serious issue to be tried with remaining amount claimed and would suffer irreparable harm if funds released since defendant now wound down -- Security for costs in sufficient amount and continued in abundance of caution.
Motion by the plaintiff for partial summary judgment and to vary the security for costs order. Motion by the defendant to discontinue the interlocutory injunction. The plaintiff alleged that the defendant owed it $1,906,368 for a series of purchase orders. By the end of 2007, the defendant had decided to wind down and hired a consultant to ensure the bank was paid first. By early 2008, the defendant had established that it would collect accounts receivable but take no new jobs. The defendant told the plaintiff that it would be paid after the bank, but the plaintiff argued this was misleading because the defendant owed shareholders, whose interests were secured. The plaintiff requested payment of amounts owing but the defendant made no move to set up a payment plan. A consent interlocutory injunction was ordered and the receiver was holding $1.5 million, one million of which would go to shareholders and the majority of the remainder would be owed to the plaintiff, even if they lost their priority claim.
HELD: Plaintiff's motion allowed in part. The defendant's motion was dismissed. A partial judgment of $1,596,566 was granted to the plaintiff as it had proven that amount was owing. The plaintiff had a serious issue to be tried with respect to its remaining amount claimed and if the funds were released, it would suffer irreparable harm. Therefore, the balance of convenience favoured the plaintiff and the injunction was continued. Out of an abundance of caution, the security for costs order was continued.
Statutes, Regulations and Rules Cited:
Business Corporations Act, R.S.O. 1990, c. B.16, s. 248
Personal Property Security Act, R.S.O. 1990, c. P.10,
Raymond G. Colautti and Anita Landry, for the Plaintiff.
Arthur M. Barat, Q.C., for the Pinnacle Defendants.
1 T.L.J. PATTERSON J.:-- Before me is a motion by the plaintiff, Syncmold Enterprise Corp. for a partial summary judgment in the sum of $1,596,566.80, a motion by the defendant that an interlocutory injunction be discontinued, and a motion by the plaintiff that a security for costs order be varied.
2 Pinnacle Mold Inc. (hereinafter "Pinnacle") is a tooling company of which Elmar Dietrich, Wayne McLaughlin and Ken Hedgewick are directors and shareholders. Most of the other named Defendants are shareholders with the others being involved for various reasons.
3 The plaintiff, Syncmold Enterprise Corp. (hereinafter called "Syncmold") is a Taiwanese Company who provided tool molds to Pinnacle as the cost of production was cheaper in Taiwan. The molds then would be supplied to the ultimate purchaser and it often was Magna.
4 Jim Hughes is an individual who operated as a sales representative for Syncmold and used the name Syncmold North America for that purpose.
5 There is outstanding $1,906,368.80 owing by Pinnacle to Syncmold for a series of purchase orders commencing in May 2007, with the last molds that are unpaid having been delivered just prior to January 30, 2008.
6 Towards the end of 2007, Pinnacle made a decision based on a deteriorating financial position and a lack of work to wind down the business. Prior to that in the early fall of 2007, Mr. Yeh, president of the Syncmold together with other key persons, attended at Pinnacle in Windsor and examined the premises with a view to purchasing, part and possibly all of Pinnacle. Their accountant, Tony Chang, was given full access to the books and records and financial statements of Pinnacle to do the evaluation. By the end of 2007, Syncmold decided not to purchase Pinnacle. This ultimately was confirmed at a meeting in Taiwan with principals of Pinnacle, Mr. McLaughlin and Mr. Byrne on January 30, 2008. There was some discussion that Syncmold or Mr. Yeh might invest in a new company to carry on Pinnacle's business but that also was decided against.
7 As I have indicated, at least by the end of December 2007, Pinnacle had formed the intention to wind down the operation. On January 7, 2008, Ken Byrne was retained as a consultant for the purpose of finding bridge financing and assisting with Pinnacle's cash flow but in a short time became a consultant to assist in winding down the operation and make sure that the National Bank (the bank), as a secured creditor was paid in full.
8 There were three meetings with the bank, January 8, January 15 and January 21, 2008. At the January 8 meeting, the company advised the bank that it intended to cease operations. On January 15, 2008, Mr. Byrne's role as a consultant was to affect the orderly wind down of the operations and supervise the collection of the company's outstanding receivables. On January 21, 2008, representatives of KPMG as monitors on behalf of the bank, became involved and established that Pinnacle obtain delivery of the five outstanding seat mold tools owing to Magna to assist in collecting the Magna accounts receivable, that Pinnacle not commence new jobs and that a working arrangement would be made with a company called Integrity to deal with existing customers.
9 It was not the bank that insisted on the wind up of the company. It was Pinnacle who decided to wind up the business and to involve the bank in order that there would be an orderly wind down of the operation that maximized revenues. This was confirmed by Mr. Byrne to the KPMG monitor that they would pay the bank as soon as possible out of collection of accounts receivable and other matters related to the wind down plan.
10 On January 30, 2008, shortly after the three bank meetings, McLaughlin and Byrne of Pinnacle went to Taiwan to meet the principals of Syncmold and a recording of the meeting was made by one of the Syncmold representatives. A motion was brought before me requesting that the English portions be part of the evidence on this motion. I ruled that as the entire tape including those that spoke Chinese was required in English it would be unfair to have only those that spoke English in the transcript before me on the motion. That being said, Mr. McLaughlin confirmed the conversation was recorded. In his affidavit and his cross-examination Mr. McLaughlin confirmed that Pinnacle owed Syncmold a lot of money, that payment of accounts receivable were needed to pay the plaintiff and that there was enough to pay Syncmold over an extended period of time. Commissions paid by Integrity would also be available. There was a discussion about future business plans but there was no agreement.
11 Also at the January 30, 2008, meeting, Mr. McLaughlin said that the bank would be paid first, that Syncmold would be paid next and then the shareholders would be paid. It was argued by Syncmold that this statement was misleading because the shareholders had their shareholder's loans protected by a registered security interest and are entitled and have claimed priority over Syncmold. Syncmold's purchase orders and shipping confirmation forms indicated that Syncmold owned the molds until there was payment, but the purchase orders were not registered as a security interest under the Personal Property Security Act and therefore Syncmold is an unsecured creditor.
12 It appears from the material filed that Syncmold was not told that there had been a prior decision by Pinnacle to wind down the operation and that KPMG was in place to assist the bank in monitoring the voluntary wind up of Pinnacle.
13 During the months of February and March 2008, Syncmold requested payment but there was no clear proposal made by Pinnacle for the payment. On April 18, 2008, Pinnacle hired Stephen Funtig to be a receiver to take possession of Pinnacle's properties and to liquidate the company and attempt to maximize accounts receivable.
14 As a result of non-payment, Syncmold hired Mr. Colautti and on April 30, 2008, a motion for an interlocutory injunction was made on notice to the defendants. Mr. Chittle, one of the shareholders, was not served but I am satisfied he was aware of the motion because he had a lawyer in attendance to represent his interests. A consent interlocutory injunction was signed by Justice Quinn.
15 The summary judgment and injunctive relief issue was set over to a date to be set by the trial coordinator and that is the matter before me in this motion. In the interim there would be no further distribution (the bank had previously been paid in full) to secured or unsecured creditors. The role of Mr. Stephen Funtig was confirmed as receiver.
16 There was the issue of whether it was appropriate for Syncmold to use the KPMG confidential report that had been supplied to the bank and that was reserved for this motion as well.
17 In that regard, I am satisfied as this report was provided by Pinnacle to Syncmold and as the bank has consented to its use there is no confidentiality issue regarding the KPMG report. KPMG took no position.
18 The amount being claimed is $1,906,368.80 and there is a disputed charge back of $309,802.00. On the summary judgment application before me, Syncmold has agreed that the charge back dispute be determined at trial. Therefore, they are requesting a partial summary judgment of $1,596,566.80 against Pinnacle.
19 I grant the partial summary judgment against Pinnacle as requested by Syncmold for the amount requested of $1,596,566.80 it being understood that there are alleged charge backs of $309,802.00 will have to be dealt with later at trial. The five tools in question have been provided to Magna and Magna has paid in full for these tools with there being a discount arranged between the receiver and Magna. There is no indication that the discount had anything to do with the quality of the tools. I am satisfied that there is no genuine trial of an issue that $1,596,566.80 is owed to Syncmold.
20 The bank has been paid and the receiver has collected and is holding approximately $1,500,000 of which the shareholders claim a security interest in their shareholders' loans approximating $1,000,000 and the approximate remainder of $500,000 is available for the unsecured creditors. As Syncmold is the major unsecured creditor they would receive substantially all of the $500,000 even if they lose their claim to be paid in priority to the shareholders.
21 The next question is whether the April 30, 2008, consent interlocutory injunction should continue until trial of the outstanding issues between the parties.
22 Syncmold acknowledges that the shareholders have a registered security interest and they do not. Despite that, Syncmold alleges that actions of Pinnacle and its shareholders are such that Syncmold should be paid in priority to the shareholders.
23 The R.J.R. MacDonald case sets a three-fold test for granting an interlocutory injunction and also its continuance:
1) Is there a serious issue to be tried?
2) Will the applicant suffer irreparable harm if the injunction is not granted? and
3) Which party will suffer a greater harm from granting or refusing a remedy pending a decision on the merits?
24 Interlocutory injunctions are granted and in this case the argument is it should be continued to preserve the status quo of the outstanding issues.
25 Syncmold argued that there was a serious case to be tried including the following:
1) Although it did not register under the Personal Property Security Act, the documentation between Syncmold and Pinnacle states that the property of the molds remains with Syncmold until paid. That fact and the comments by Mr. McLaughlin on behalf of Pinnacle, it is alleged, were deceitful and constituted negligent misrepresentation when he indicated that Syncmold would be paid before the shareholders.
2) That the shareholders would receive an unjust enrichment by treating seat molds as their property and that a constructive trust was created.
3) That the plaintiff has a valid claim for prejudicial, unfair and oppressive conduct against the defendants under section 248 of the Ontario Business Corporations Act.
26 Mr. Colautti in his factum on behalf of Syncmold provided a detailed analysis of the above issues including case law interpreting section 248 of the Business Corporations Act that he submits supports Syncmold as a complainant under that legislation.
27 Pinnacle's lawyer states that the arguments presented by Syncmold do not apply to the facts at hand.
28 In my opinion, the issues raised by Syncmold are serious issues to be tried.
29 In my opinion, the applicant will suffer irreparable harm if the interlocutory injunction is not continued as the receiver would be able to release the funds to the shareholders prior to the issue of priority and charge backs having been determined.
30 As a result, in my opinion Syncmold would suffer the greater harm if the interlocutory injunction is not continued and that Pinnacle and the shareholders would suffer lesser harm. I note that the funds held are being invested by the receiver.
31 If Syncmold is successful in the argument under section 248 of the Ontario Business Corporations Act there is broad jurisdiction in the court to provide a remedy that arguably could include the issue of priority of payments of the funds being held.
32 Therefore, the existing interlocutory injunction shall continue to trial.
33 The issue has been raised as to whether or not the order for security for costs made by Justice Gates on August 28, 2008 should be set aside as Syncmold would be entitled to, at the very least, a substantial portion of the estimated $500,000 available for the unsecured creditors. By my granting the partial summary judgment order, a significant amount of the $500,000 would be available to them at the very least. The charge back and the expenses of Mr. Funtig are not yet finalized and therefore it is unclear exactly what would be available to Syncmold as an unsecured creditor. Out of an abundance of caution, in my opinion the security for costs award of Justice Gates should remain.
34 Plaintiff's counsel are to provide a draft order. If there is a dispute as to the wording of the order I may be spoken to.
35 Written submissions for costs are to be submitted within 30 days with response within 15 days or such extended time period as I approve.
T.L.J. PATTERSON J.