Luo v. Fulton Development Inc.

Decision 1: Frame the motion to strike as a collateral attack on McSweeney J.’s leave order

The conventional response to a motion to strike is to defend the pleading paragraph by paragraph — a defensive posture that gives the moving party the framing advantage. We did not. Our position was offensive: McSweeney J. had already granted leave for Mr. Luo to bring the derivative action on October 11, 2022, after considering whether Mr. Luo was acting in good faith and whether the proposed action appeared to serve 947’s interests. McSweeney J.’s order had not been appealed. The defendants’ motion to strike the same derivative claims, brought after the leave order had become final, was effectively asking Doi J. to revisit the very issues McSweeney J. had already decided.

Doi J. accepted that framing at para. 43: “As McSweeney J. granted leave for Mr. Luo to bring the derivative action, I find that this motion to strike out the derivative action in the statement of claim raises an impermissible collateral attack by the Moving Defendants against the leave order which raises an abuse of process: De Bousquet at para. 11.” That single doctrinal move — Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63 and De Bousquet v. Jarrett, 2023 ONSC 3545 — flipped the polarity of the motion. The defendants did not have an open route to reattack the derivative action; they had foregone that option when they did not appeal the leave order.

Decision 2: Build the pleading as a derivative + oppression hybrid — not as a single-track claim

A derivative action remedies a wrong done to the corporation. An oppression remedy remedies a wrong done to a complainant personally. The two are doctrinally distinct, but they overlap where the corporate wrong also directly affects a particular complainant in a way that differs from the indirect effect on similarly placed complainants — Rea v. Wildeboer, 2015 ONCA 373 at paras. 29–33. We built the pleading on both rails. Mr. Luo’s claim, with leave, was the derivative track. Pepture’s oppression claim — for which leave is not required — was the personal-track parallel.

Doi J. accepted the dual structure at paras. 44–47. McSweeney J.’s leave order had been granted only to Mr. Luo, but did not preclude Pepture or other limited partners from advancing a separate oppression claim. Doi J. observed that the conduct alleged — deliberate exclusion of Mr. Luo and Pepture from the $327,500 distribution; preference of select limited partners; failure to act in 947’s best interests — arguably engaged the BCE Inc. v. 1976 Debentureholders, 2008 SCC 69 oppression standard. The dual structure meant that if the derivative claims came under appellate scrutiny on the leave question, the oppression claim would still survive on its own footing — and vice versa.

Decision 3: Defeat the “double recovery” framing on its own terms

The defendants’ principal substantive argument was that the plaintiffs were seeking to recover the same $500,000 from Fulton that had already been partially recovered through 258’s 2019 settled action against the seller. On that framing, the present action was an abuse of process for chasing recovery the plaintiffs had already received.

We pressed the asymmetry: the $327,500 settlement was paid to 258, not to 947 or to Mr. Luo or Pepture. None of those funds were ever distributed to 947, to Mr. Luo, or to Pepture. The plaintiffs had been deliberately excluded from any share of the recovery. There was no double recovery because the plaintiffs had received nothing from the prior recovery to begin with. Doi J. accepted that framing at para. 49: “Although the Settled Action recovered $327,500.00 of the original $500,000.00 which was paid to 258, it is clear that none of the returned funds were ever repaid to 947, as set out earlier…. Based on this, I do not accept that the derivative and oppression claims in the statement of claim are effectively seeking a double-recovery of the same loss and, therefore, abusing the court’s process.”

Decision 4: Resolve the multiplicity-of-proceedings issue by consent — not by combative argument

The 2019 Loan Action (CV-19-5171) and the present derivative + oppression action (CV-22-3095) were related, and the defendants raised consolidation under Rule 6.01(1)(d) as part of the relief sought on this motion. We did not contest consolidation as a matter of principle. We accepted, by consent, that the crossclaim and counterclaim in the 2019 action would be consolidated with the present action and that the balance of the 2019 action would be stayed. This consolidation served the practical interests of all parties — one proceeding instead of two — and avoided the cost-and-delay friction of a contested consolidation motion. Doi J. accepted this consent disposition at paras. 2 and 52, and declined to award costs thrown away to the defendants on the consolidation motion at para. 51 — in part because the plaintiffs had reasonably awaited the statement of defence before taking a position on consolidation. Cooperative disposition on a discrete sub-issue can simplify the broader contest without costing ground on the principal points.

1. A leave order granted under the corporate-statute derivative framework is not an open question on a later motion to strike. Once leave has been granted and the period for appeal has expired, a defendant’s motion to strike the same derivative claims raises a collateral-attack concern. The principle in Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63 — that an order made by a court with jurisdiction is binding unless set aside or quashed — flows directly into the abuse-of-process analysis. Plaintiffs in this position should lead with the collateral-attack point, not bury it after a paragraph-by-paragraph defence.

2. Derivative + oppression hybrid pleadings build redundancy into the cause of action. Under Rea v. Wildeboer, 2015 ONCA 373, derivative claims (corporate wrong) and oppression remedies (personal wrong) can co-exist where the corporate wrong also affects a particular complainant in a distinguishable way. Building the pleading on both tracks — with the leave order supporting the derivative track and the personal-complainant standing supporting the oppression track — means a defect in either branch does not collapse the entire pleading.

3. “Double recovery” framing depends on identifying who actually received the prior recovery. A defendant arguing that a plaintiff’s claim duplicates a prior recovery must identify a recovery the plaintiff actually received. Where the prior recovery was paid to a different entity and the plaintiff was deliberately excluded from the distribution, the double-recovery argument has no foundation. Plaintiffs should anticipate this framing and have the exclusion-from-distribution evidence ready at the pleading stage.