Notable Cases

CITATION: Lysko v. Maxbeau Company, et al., 2010 ONSC 6523

COURT FILE NOS.: 02-CV-230896 CM4; 02-CV-230897 CM4; 03-CV-254691 CM3; 05-CV-298199 PD2

SUPERIOR COURT OF JUSTICE – ONTARIO

RE:
Michael Lysko v. Maxbeau Company, Bob McCown and Damien Cox (02-CV- 230896 CM4)Michael Lysko v. Rogers Sportsnet Inc. and Marty York (02-CV-230897 CM4)

Michael Lysko v. David Braley, David Asper, Sherwood Schwarz, Lyle Bauer, John Tory, David MacDonald, Hugh Campbell, Robert Ellard, Sig Gutsche, B.C. Lions Football Club Inc., Vancouver Football Club Ltd., 431966 B.C. Ltd., Calgary Stampeder Football Club Ltd., Edmonton Eskimo Football Club, 1097694 Ontario Limited, carrying on business as the Hamilton Tiger-Cats Football Club, Montreal Alouettes (1997) Limited Partnership, 9032-9756 Quebec Inc., 1493044 Ontario Limited, carrying on business as the Ottawa Renegades, Saskatchewan Roughriders Football Club, Argos N.S. Corporation, Toronto Argonauts Holding Inc. and Winnipeg Blue Bombers Football Club (03-CV-254691 CM3)

Michael Lysko v. Bob McCown, Rogers Broadcasting Limited, Rogers, Communications Inc. and Rogers Sportsnet Inc. (05-CV-298199 PD2)

BEFORE: Master Graham

COUNSEL:
Brian MacLeod Rogers, for the defendants Maxbeau Company, McCown and Cox (moving parties)Matthew Gottlieb and James Bunting, for the defendants Rogers Sportsnet and Marty York (action no. 02-CV-230897 CM4) and Bob McCown, Rogers Broadcasting Limited, Rogers Communications Inc. and Rogers Sportsnet Inc. (action no. 05-CV-298199 PD2) (moving parties)

Geoffrey Shaw and Christopher Bartlett, for the defendants David Braley and Hugh Campbell (moving parties)

Christine Lonsdale and Elder Marques, for the defendants David Asper and Lyle Bauer (moving parties)

John Field and Jason Green, for the defendants Sherwood Schwarz, John Tory, David MacDonald, Robert Ellard, Sig Gutsche, B.C. Lions Football Club Inc., Vancouver Football Club Ltd., 431966 B.C. Ltd., Calgary Stampeder Football Club Ltd., Edmonton Eskimo Football Club, 1097694 Ontario Limited, carrying on business as the Hamilton Tiger-Cats Football Club, Montreal Alouettes (1997) Limited Partnership, 9032-9756 Quebec Inc., 1493044 Ontario Limited, carrying on business as the Ottawa Renegades, Saskatchewan Roughriders Football Club, Argos N.S. Corporation, Toronto Argonauts Holding Inc. and Winnipeg Blue Bombers Football Club (moving parties)

J. Gardner Hodder, for the plaintiff

HEARD: March 3 and 4 and June 28 and 29, 2010

REASONS FOR DECISION

(Defendants’ motions for security for costs)

[1] The plaintiff Michael Lysko was the commissioner of the Canadian Football League (“CFL”) from December 1, 2000 until the CFL terminated his employment on March 19, 2002. His four actions consist of a claim against the CFL for damages related to his termination and claims against sports journalists Bob McCown, Damien Cox and Marty York and CFL executives David Braley, David Asper, Hugh Campbell and Lyle Bauer for damages for defamation.

[2] Mr. Lysko resided in Canada at the time that his employment as CFL commissioner was terminated, and continued to reside in Canada until October, 2007, when he commenced employment as Vice-President, Marketing Partnerships with Intersport Inc. in Chicago, Illinois. In approximately August, 2009, he obtained employment with Southern Methodist University in Dallas, Texas and he continues to reside in Texas.

[3] The defendants now move under rule 56.01(1)(a) for an order that Mr. Lysko post security for costs on the basis that “the plaintiff . . . is ordinarily resident outside Ontario”. The applicable part of the rule is as follows:56.01(1) The court, on motion by the defendant or respondent in a proceeding, may make such order for security for costs as is just where it appears that,

(a) The plaintiff or applicant is ordinarily resident outside Ontario; . . .

[4] Although the plaintiff, in his factum, describes himself as “temporarily resident in Dallas, Texas”, plaintiff’s counsel agreed on the first day of the hearing that the plaintiff is ordinarily resident outside Ontario, and that this fact triggers the court’s enquiry as to whether it should exercise its discretion “to make such order for security for costs as is just”.

[5]  The defendants collectively seek orders that the plaintiff pay security for costs totalling $2,833,574.88. Mr. Lysko does not take issue with the defendants’ assertion that this amount reflects a realistic assessment of the defendants’ projected costs of defending the actions. He has provided evidence, set out below, that his assets fall well short of this amount.

[6] If Mr. Lysko can persuade the court both that he is impecunious, and that his claim “is not plainly devoid of merit”, then the court should exercise its discretion not to order security for costs. In the case of a demonstrably impecunious plaintiff, the evidentiary threshold on the merits is very low. (See Zeitoun v. Economical Insurance Group (2008), 91 O.R. (3d) 131 (Div. Ct.) at ¶49)

[7] In the event that Mr. Lysko cannot prove that he is impecunious, the defendants submit that he must show a stronger case on the merits to avoid an order for security for costs. The defendants rely on Zeitoun, supra (at ¶50):“[50] Where impecuniosity has not been shown however, a closer scrutiny of the merits of the case is warranted; in those cases there is no compelling argument that there is a danger that poverty of the plaintiff will cause an injustice by impeding pursuit of a claim that otherwise would have been permitted to be tried. Where impecuniosity has not been shown, a legitimate factor in deciding whether or not it would be just to require security for costs is whether the claim has a good chance of success.”

[8] The defendants also rely on Coastline Corp. v. Canaccord Capital Corp., [2009] O.J. No. 1790, in which Master Glustein stated (at ¶7) that in order to avoid an order for security for costs, a plaintiff who is not impecunious “must meet a high threshold to satisfy the court of its chances of success” [emphasis added]. In his footnote to this statement of the law, Master Glustein elaborates:“2 Courts use different language to explain the threshold to be met as to the strength of the case that the plaintiff must demonstrate to avoid security for costs when a plaintiff does not have sufficient assets to pay a costs award but is not impecunious, such as the claim has a “good chance of success”, a “real possibility of success”, or an “overwhelming” case. However, the principle governing all of the cases is that there is a high threshold to meet for the plaintiff to satisfy the court of its chances of success.”

[9] With respect to the burden on a party attempting to avoid an order of security for costs based on impecuniosity, the defendants rely on Willets v. Colalillo, [2007] O.J. No. 4623 in which Master Haberman stated (at ¶48):“There is a high burden of proof on a party who asserts impecuniosity to prove it by referring to his financial situation with particularity. This involves a positive obligation to tender detailed evidence demonstrating that he is “impoverished or needy” (see RCVM Enterprises Ltd. v. International Harvester Canada Ltd. (1985), 50 O.R. (2d) 508; Ferguson v. Arctic Transportation Ltd. (1996), 118 F.T.R. 154). Proof of financial hardship will not suffice, nor will demonstrating that a party lives below the poverty line (see Mark Doe v. Canada, [2005] F.C.J. No. 705).

[10] The plaintiff argues that if the court is persuaded that security for costs should be ordered, the amount ordered should not be so high that it effectively kills the actions. He advocates “a middle ground” between ordering no security and ordering the $2.8 million sought by the moving parties. In support of this submission, he relies on Secord Avenue Co-operative Homes Inc. v. Happy Dawes Developments Limited, 1999 CarswellOnt 1871; 45 O.R.(3d) 561 (S.C.J.-Master), Susin v. Savers Mortgage Inc., 2000 CarswellOnt 294, (S.C.J.) and White Mountain Homemade Ice Cream Canada Inc. v. Palladium Corp.,2002 CarswellOnt 3028 (S.C.J.).

[11] In Secord Avenue Co-operative, supra, the defendants moved for security for costs in the total amount of $365,525.91. Master Peterson accepted that the plaintiff was not impecunious because it had assets of $115,000.00 which apparently had been reduced to $79,000.00. In considering these facts, Master Peterson stated: “9 The real issue on this motion appears to arise from the cases which say that if the plaintiff does not establish that it is impecunious an order for security for costs should be made. On the other hand the cases seem to indicate that if the plaintiff is impecunious and the case is not devoid of merit no order for security should be made. The cases do not appear to address a situation where the plaintiff is not impecunious but cannot provide security in the amount which is found to be the reasonably likely costs the defendant will incur in defending the action. In my view the requirement of rule 56.01(1) which authorizes a court to make such order as is just strongly suggests that a middle ground must exist.”

[12] Master Peterson concluded that the just order in the circumstances was to require the plaintiff to provide security for costs in the amount of $20,000.00 on account of each defendant to cover the costs of the action up to the conclusion of discoveries. The court left open the possibility of the defendants moving for further security for the balance of the action, once the action was set down for trial.

[13] In Susin, supra, Belleghem J. found both that there was good reason to believe that the action was frivolous and that the plaintiff had not established impecuniosity. He commented that the plaintiff’s financial circumstances were such that if the order were granted in full as requested, it would deprive the plaintiff of his cause of action, which he concluded would be an unjust result. He cited the passage quoted above from Secord Avenue Co-Operative and ruled as follows:“11 As my obligation in these circumstances is to impose an order which is “just” I choose the “middle ground” adverted to by Master Peterson and order that the plaintiff post security for costs in the sum of $6,500 within 90 days.”

[14] In White Mountain Homemade Ice Cream Canada Inc., supra, the defendants were seeking security for costs totalling $243,459.90 and the plaintiff had assets of approximately $140,000.00. R. Smith J. found that the plaintiff was not impecunious but could not pay the costs requested as security and specifically stated that if the court were to order the plaintiff to pay security in the amount requested, “it would stop the plaintiff in its tracks and dispose of the suit”.

[15] R. Smith J. relied on the decision of Trainor J. in Warren Industrial Feldspar Co. v. Union Carbide Canada Ltd. (1986), 54 O.R. (2d) 213 (H.C.) in stating: “The amount which must be posted for security for costs should not deprive a plaintiff of pursuing a valid cause of action which is not frivolous or devoid of merit”.

[16] R. Smith J. also reviewed Secord Avenue Co-operative, supra and exercised the court’s discretion to order that the plaintiff post security of $20,000.00 per defendant up to the commencement of trial.

[17] The plaintiff having acknowledged that he is ordinarily resident outside Ontario, the issues that the court must address on this motion are as follows:

1. Has the plaintiff Michael Lysko demonstrated that he is impecunious and if so, has he demonstrated that his claims are not plainly devoid of merit?

2. If the plaintiff cannot demonstrate that he is impecunious, should the court order him to pay such security for costs as he is able to based on the “middle ground” referred to inSecord Avenue Co-operative, supra without having to prove that his claims have a good chance of success?

3. If the plaintiff fails to demonstrate impecuniosity, and the court is not satisfied that it can make an order based on the “middle ground” referred to in Secord Avenue Co-operative, can the plaintiff avoid an order for security for costs by satisfying the court that his claims have a good chance of success?

[18] In order to address these issues, it is first necessary to review both Mr. Lysko’s employment history subsequent to the termination of his employment with the CFL, his current employment status and his assets.

[19] Mr. Lysko’s employment history is as follows:

1. As commissioner of the CFL, he began earning a salary of $275,000/yr as of December 1, 2000 and he continued to be paid this amount following his termination on March 19, 2002 for the balance of the three year period of his original contract, which ended on November 30, 2003.

2. Commencing in July, 2004, Mr. Lysko was employed at the University of Western Ontario (“UWO”) as Director, Sports and Recreation Services. His salary was $110,000/yr. This employment, which pursuant to his contract was for a five-year term ending June 30, 2009, was terminated as of July 18, 2007. However, he continued to receive his salary of $110,000/yr until June 30, 2009.

3. In September, 2007, Mr. Lysko accepted the position of Vice-President, Marketing Partnerships with Intersport Inc. in Chicago. His contract commenced in October, 2007 and he received a salary of US$150,000/yr until April 20, 2009. During this time, he was also receiving his salary from UWO of $110,000/yr.

4. In August, 2009, the Mr. Lysko commenced employment with Southern Methodist University in Dallas earning a salary of $6,000/month.

5. From the commencement of his employment with UWO in July, 2004 until the present, the only period of time during which Mr. Lysko did not receive a salary from any job was the month of July, 2009.

[20] Mr. Lysko’s evidence is that his assets, consisting of 50% of bank accounts held jointly with his wife, 100% of his pension funds including his RRSP and his IRA in the U.S., and his 2004 Infiniti automobile, have a total value of $138,598.84.

[21] Mr. Lysko’s liabilities, consisting of 50% of the debt on a jointly held credit card and 100% of the debt on another credit card, total $11,259.94. His assets net of liabilities therefore total $127,338.90. His gross assets in Ontario total $110,239.35.

[22] If Mr. Lysko were to cash in his RRSP and his IRA, he would incur tax liabilities and penalties totalling $16,350.43. His assets also include a pension from the UWO valued at $51,967.89 which he does not have access to.

[23] The plaintiff’s available assets therefore total $59,020.58. His wife’s net assets of $12,110.34 would be further reduced by the tax consequences of collapsing her own RRSP and IRA.

[24] At the time that the motions were argued, Mr. Lysko’s annual salary was $72,000.00 and his annual income in the years following his termination as CFL commissioner was considerably higher. He also has total assets of $138,598.84 and net available assets of $59,020.58. Accordingly, he is not “impecunious” in the sense of being impoverished or needy.

[25] The defendants seek orders that Mr. Lysko pay security for costs of $2.8 million based on the fact that subsequent to the commencement of these actions, he moved from Ontario to the U.S.. However, while Mr. Lysko was ordinarily resident in Ontario, his exposure to costs was, on a practical level, limited to his exigible assets, despite the fact that the defendants’ total projected costs of defending his actions would greatly exceed the value of those assets. Nonetheless, he would have been able to continue with his actions without having to post security.

[26] So, if Mr. Lysko were still ordinarily resident in Ontario, he would be able to proceed to trial notwithstanding the fact that the potential costs recoverable by the defendants are more than $2.7 million greater than his available assets. But, contend the defendants, because he now resides in the U.S., he must pay security for costs of $2.8 million, which he clearly does not have, unless he can demonstrate that his actions have a good chance of success. Such an order would, of course, have the inevitable consequence of bringing the action to a grinding halt.

[27] The defendants’ position flies in the face of the central principle of rule 56.01(1), which is that the court “may make such order for security for costs as is just”. To make an order that would essentially deprive the plaintiff of his ability to proceed with the action, where the defendants would not have been fully protected with respect to their costs even if the plaintiff continued to be ordinarily resident in Ontario, would not be just. In addition, to order security for costs of the magnitude sought by the defendants would thwart the intention of rule 1.04(1):1.04(1) These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits. [emphasis added]

[28] The cases referred to by Master Haberman in the passage from Willets v. Colalilloquoted above include the statement that “proof of financial hardship will not suffice” to enable a plaintiff to avoid an order for security for costs. In this case, the inevitable result of the security for costs order requested by the defendants goes far beyond financial hardship to the point of financial impossibility. Although the plaintiff is not impecunious in the conventional sense of the word, relative to the costs sought by the defendants, he is impecunious because his assets are so modest in comparison with the security sought.

[29] The language in Zeitoun, supra at paragraph 50, relied upon by the defendants, must be read carefully. Low J. states that in cases in which impecuniosity has not been shown, “there is no compelling argument that there is a danger that poverty of the plaintiff will cause an injustice by impeding pursuit of a claim that otherwise would have been permitted to be tried” [emphasis added]. In this case, although the plaintiff is not living in poverty, there is not simply a danger but rather, an absolute certainty that his financial circumstances relative to the security for costs requested will cause an injustice by preventing him from pursuing an action that he would otherwise have been entitled to proceed with were he still living in Ontario.

[30] The only way to avoid such an injustice is to take “the middle ground” as did the courts in Secord Avenue Co-operative Homes Inc., Susin and White Mountain Homemade Ice Cream Canada Inc., supra and order that the plaintiff pay an amount for security for costs that is realistic considering his means. It defies logic that if Mr. Lysko were still living in Ontario, his real costs exposure would be limited to the total value of his assets but because he now lives in the U.S., he must pay $2.8 million for security for costs “up front”. The just order is that Mr. Lysko be required to pay into court the value of the assets that would be exposed had he remained ordinarily resident in Ontario. It is also reasonable that he be expected to finance a realistic additional amount of security.

[31] The purpose of rule 56.01(1)(a) is to ensure that defendants in an action in which the plaintiff is not ordinarily resident in Ontario are in a similar position with respect to the collection of any costs awarded as they would be if the plaintiff were living in Ontario. The discretion conferred by the rule allows the court to balance the defendants’ rights to gain ready access to the plaintiff’s assets to recover costs against the plaintiff’s right to have his actions adjudicated on their merits. To order the plaintiff to “pay what he can” based on his assets places the defendants in no worse a position than if the plaintiff continued to reside in Ontario in possession of the same assets.

[32] The defendants all submitted that if the plaintiff could not demonstrate impecuniosity he must satisfy the court that his claims had a good chance of success, and much of the argument on the motion was directed to the merits of the plaintiff’s actions. In none of the three decisions in which the courts opted for “the middle ground”, by ordering security for costs in an amount that the various plaintiffs could afford, was it required that the plaintiffs demonstrate a good chance of success. To the contrary, in Susin, supra, Belleghem J. found that there was good reason to believe that the action was frivolous, which is essentially the opposite of having a good chance of success. Accordingly, for the purpose of the approach that I have taken, it is necessary only that the plaintiff’s claims not be plainly devoid of merit and I am satisfied that Mr. Lysko’s claims at least meet that standard.

[33] For the reasons set out above, the plaintiff shall pay into court as security for costs the following amounts: 1. Within 60 days of this order, the sum of $50,000.00. 2. Within six months of this order, the sum of $50,000.00. 3. Within one year of this order, the sum of $50,000.00.

[34] If the parties cannot agree on the costs of the motion, they may make written submissions not exceeding three pages, within 30 days.

MASTER GRAHAM

Date: November 26, 2010