$20-million judgment overturned

The Ontario Court of Appeal has overturned a summary judgment for $20 million based on a criminal conviction for fraud over $5,000.

25 Mar 2019

The Ontario Court of Appeal has overturned a summary judgment for $20 million based on a criminal conviction for fraud over $5,000.

“The case cried out for scrutiny,” says Doug Cunningham in Toronto, who represented Dirk Plate, the successful appellant in Plate v. Atlas Copco Canada Inc. The Court of Appeal’s reasons serve notice that there are clear limits on what’s admissible when parties rely on material from criminal proceedings as evidence in subsequent civil matters.

“There are so many cases where a plaintiff will want to rely on material from a criminal trial to shorten the civil proceedings,” says Kevin O’Brien, a corporate commercial litigator in Osler Hoskin & Harcourt LLP’s Toronto office.

“The decision reaffirms that there’s a key distinction between using evidence that was necessary to the verdict and relying on evidence that was more incidental and not central to the criminal case.”

Plate had been a division general manager and subsequently vice president of global strategic customers at Atlas. After terminating him in 2007, Atlas sued Plate for $20 million, claiming he’d been part of a scheme to defraud the company.

A criminal charge followed, and a jury convicted Plate of defrauding the company of more than $5,000 by deliberately inflating invoices for employee benefits to more than $20 million.

On sentencing, the judge found that Plate’s participation in the fraud amounted to a “gross breach of his fiduciary duty” to the company. He found that Plate was “highly trusted” and had “grossly betrayed” that trust through his “passive acquiescence” in the criminal scheme. Plate was sentenced to five years in jail.

Subsequently, Atlas, relying solely on the criminal verdict and the findings on sentencing, moved for summary judgment in the civil proceeding before Justice Sean Dunphy of the Ontario Superior Court. Dunphy gave the sentencing judge’s findings, including the finding that Plate had breached a fiduciary duty, “very considerable weight.” Dunphy concluded that Plate was in fact a fiduciary for the purposes of the civil suit and granted summary judgment for $20 million. “The Decision on Sentencing made specific findings that Mr. Plate was a fiduciary,” Dunphy wrote. “The finding is one amply supported by Mr. Plate’s title during the relevant time frame (General Manager of CMT and then vice president) and by such description as the Decision on Sentencing contains regarding his duties and the vulnerability of Atlas Copco to him. Mr. Plate has provided me with no evidence to negative that finding.” Plate appealed.

“In essence, the appellant’s core submission — while not expressly stated in these terms — is that the motion judge could not grant summary judgment for breach of fiduciary duty on the strength of the findings made by the sentencing judge,”  wrote Associate Chief Justice Alexandra Hoy for a unanimous bench composed also of justices Kathryn Feldman and Grant Huscroft. In the result, the Court of Appeal overruled Dunphy and sent the matter back for trial. As Hoy, writing for the court, saw it, Dunphy had properly admitted the sentencing findings.

“At the sentencing proceedings, the extent of the appellant’s breach of trust was a relevant consideration, pursuant to s. 718.2(a)(iii) of the Criminal Code,” Hoy noted. “It is in relation to this factor that the sentencing judge found the appellant to have breached a fiduciary duty to the respondent. Thus, the fact that the issues in the criminal proceedings were not identical to those in the civil proceeding did not operate as a bar to admissibility of the sentencing judge’s findings relative to the respondent’s breach of fiduciary duty.”

Where Dunphy went wrong, however, was in giving too much weight to the sentencing judge’s conclusion that Plate was a fiduciary and in “failing to consider factors that were relevant to the weight to be accorded to the sentencing judge’s findings relative to fiduciary duty.”

Those factors include the similarity of the issues to be decided, the identity of the parties, the nature of the earlier proceedings, the opportunity given to Plate to contest the previous finding and whether the prior proceedings were criminal or civil. Here, the Crown had not even argued that Plate was a fiduciary but focused on the extent of his breach of trust. That was critical because although a fiduciary relationship involves an element of trust, it has a distinct meaning at law from the term “position of trust” found in the Criminal Code.

“While the characterization of an individual as a fiduciary is a question of mixed fact and law, the sentencing judge did not have the benefit of legal submissions from the parties on that issue, and did not advert to any legal authority in his Decision on Sentencing on the test for imposing a fiduciary obligation, in finding the appellant to be fiduciary,” Hoy wrote.

And because the finding that Plate was a fiduciary was not express or implied in the jury’s verdict but was made in the exercise of the trial judge’s sentencing powers, Plate’s “ability to appeal that finding was constrained significantly.” Dunphy erred by not taking these factors — “factors that diminished the weight to be accorded to the finding that the appellant was a fiduciary” — into account and, by so doing, erred in principle.

“[I] am not satisfied that the record before the motion judge positioned him to make the necessary factual and legal findings to either grant judgment to the respondent for breach of fiduciary duty in the amount of $20 million or to dismiss its claim for breach of fiduciary duty,” Hoy concluded. Ultimately, then, the decision as to whether Plate was a fiduciary was “for the ultimate trier of fact.”

Jim Patterson, the litigation partner in Bennett Jones LLP’s Toronto office, who represented Atlas, would not comment because the matter was still before the court.

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