Striking frivolous claims against officers, directors

There is no 'gatekeeper' or other court official who makes sure a claim is tenable before the court opens a file

Striking frivolous claims against officers, directors
Alex Minkin

Exclusive to Canadian HR Reporter from Rudner Law.

Consider this scenario: a former employee sues your company, claiming damages for wrongful dismissal. Instead of only bringing claims against the company, the employee also brings frivolous claims against you personally, as well as the other officers and directors of the company.

Is there anything you can do?

Generally speaking, if you are named as a defendant in a lawsuit, you need to defend the lawsuit or risk being noted in default. People are often surprised to hear that a plaintiff can bring any lawsuit they wish against any defendant, and there is no “gatekeeper” or other court official who makes sure that the claim is tenable before the court opens a file.

This means that, unfortunately, many people find themselves in the unfortunate situation of having to incur legal fees defending an untenable or frivolous lawsuit.

One example of this is when an employee sues not only the company they worked for, but also the individuals who operate the company. The general rule, as held by the Court of Appeal, is that an individual will not be personally liable for their actions done in the course of their role as a directing mind of a corporation.

Exceptions to the rule around liability

There are exceptions to this rule, for instance in cases of fraud, deceit or other conduct that brings their actions outside of their role in the corporation.

Another exception, as I wrote about previously, is that in certain situations the directors of a corporation may have some liability for unpaid wages and other debts owing to an employee. Outside of these exceptions, a claim brought against an individual will be untenable and frivolous if the cause of action is properly brought against the corporation.

So what can you do if you are named as a defendant, but there is no reasonable basis for the claim? One option is to bring summary judgment motion. In such a motion, the court will weigh the evidence, and may dismiss the lawsuit if it is satisfied that there is no genuine issue requiring a trial. However, summary judgment motions can be time consuming and costly, and will often require significant steps, including affidavits and cross-examinations, in order to obtain the necessary evidence.

In situations where the lawsuit clearly has no chance of success, a defendant can bring a motion to “strike” all or part of the claim on the basis that it is frivolous, vexatious, or an abuse or process. In such a motion, the court will not take a deep look at the evidence that is available, and rather will determine whether or not there would be a viable claim, even if all of the plaintiff’s allegations were to be accepted.

No tenable claim in Ontario case

This is what occurred in the 2021 court decision of 1051214 Ontario Ltd. v Vivo Pizza Pasta Franchise Inc. In that case, the defendants brought a motion to strike certain claims in the Statement of Claim, including all of the claims brought against the personal defendant, who was the cntrolling mind of the corporate defendant.

Justice Diamond set out the test on a motion to strike as follows:

“Assuming that the facts as stated in the Statement of Claim can be proven, I must decide whether it is “plain and obvious” that the claim discloses no reasonable cause of action as against the moving defendants. As the pleaded facts are presumed to be true, I can only strike out a claim which has no reasonable prospect of success.”

After considering the allegations contained in the Statement of Claim, Diamond found that there was no tenable claim against the personal defendant, and dismissed the claims that were brought against him.

That case is an example of a defendant successfully moving to strike claims that were untenable, without having to incur the cost of a summary judgment motion, which is usually significantly more complex than a motion to strike. As the claims against the personal defendant were found to have no reasonable prospect of success, they were struck without the need to examine the available evidence.

Motion to strike not always best option

It is important to note that a motion to strike is not always the most appropriate option, and will only be successful where it is plain and obvious that there is no tenable claim. Where the success of the claim will depend on the available evidence, a motion to strike will not be appropriate.

When assessing your options in response to a frivolous claim, one factor to consider is the potential to recover legal costs. If you are successful on a motion (including a motion to strike or a summary judgment motion), you can expect to receive an award representing a portion of the legal costs you incurred, but there will always be an unrecoverable portion of your legal fees.

Therefore, depending on the circumstances, it is sometimes more cost-effective to simply defend the lawsuit, and wait to deal with the merits of the case at a later stage of the proceeding. That is particularly true when the same lawyer represents all defendants and the incremental cost of defending all of them is not significant.

A motion to strike is just one tool available to counsel in defending a lawsuit brought against their client. The best path forward will depend on the specific circumstances of the case, and if you find yourself in the unfortunate position of being a defendant in a lawsuit, it is important to seek the advice of a lawyer with experience in litigation.

Alex Minkin is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].

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