Debtor's CFO sued personally for credit card use?

Arrangement relatif à DavidsTea inc., 2023 QCCS 1141 (CanLII)
Is a claim against a debtor’s CFO in relation to use of a corporate credit card barred by orders made in the company’s CCAA proceedings?

On December 9, 2022, Amex filed an Originating Application claiming $351,124.80 from Frank Zitella based on his use of an Amex Corporate Platinum Card issued at his request on February 14, 2019. Zitella—with the support of the Debtors—claimed that the Amex card was associated with the corporate account of DavidsTea Inc. (“DT”) and he used it in his capacity as DT’s Chief Financial Officer until DT filed for protection under the Companies’ Creditors Arrangement Act. Accordingly, Zitella, DT and DavidsTea (USA) Inc. (collectively, the “Debtors”) filed an Application to Dismiss a Claim Instituted in Contravention of The Claims Process Order and of The Sanction Order in the CCAA Proceedings file, seeking a declaration that the Amex lawsuit was instituted illegally and in breach of certain Orders in the CCAA Proceedings.

Specifically, the Debtors argued that the Amex claim sought to be prosecuted had already been released and discharged in the CCAA Proceedings and could not legally form the basis of liability against Zitella given that he had always used the Amex card while acting in his capacity as officer of DT. From DT’s standpoint, Amex acted as a tactical creditor who failed to participate in the CCAA Proceedings, “lied in the weeds” and now attempts to recover—in full—a pre-filing claim against DT, by litigating that same claim against Zitella. Amex argued that its claim against Zitella was not released and discharged because he was sued pursuant to a contract that he entered into in his personal capacity, not in his capacity as a director or an officer of DT.

The Court questioned the legal interest of the debtors to file the application to dismiss a case involving solely Zitella, given that they were not parties to the Amex lawsuit nor at risk of being condemned to pay the Amex claim in whole or in part. To the extent that DT was liable for the Amex claim, it was released and discharged in the context of the CCAA Proceedings. Moreover, the Amex lawsuit and its outcome would not upset the results and the conclusion of the CCAA Proceedings. The Amex lawsuit did not affect the finality of the CCAA Orders. Any creditor reasonably aware of the relevant facts would not erroneously conclude that pre-filling claims may continue to be litigated years after the termination of the CCAA Proceedings. The fact that Zitella is presently President and CFO of DT was not sufficient to warrant the present direct involvement of the Debtors in the Application to dismiss.

At an early stage of legal proceedings, an application to dismiss is a discretionary exercise that must be assessed and determined with caution given that a plaintiff is at risk to see its case dismissed summarily and prematurely without the benefit of a trial during which all parties would have had the opportunity to present their respective proof and evidence. In case of doubt, the plaintiff’s right to a trial must prevail and the plaintiff must be given the opportunity to be heard on the merits of its case.

On a prima facie basis, the language of the Amex Application leaves very little doubt that the Applicant, Zitella, agreed to be bound to Amex for all the charges incurred in his personal capacity, and not in his capacity of an officer of DT. Despite Zitella’s assertions that the Application was signed in his capacity as an officer of DT, the language of the Application does not unequivocally support the same for the purpose of the Application to dismiss. None of the terms and definitions contained in the Application suggests that the form was signed and completed by Zitella in his sole capacity as an officer of DT without incurring his personal liability.

The Court agreed that since Amex failed or omitted to file a proof of claim in the context of the CCAA Proceedings, Amex was bound by the terms and conditions of the CCAA Orders and could no longer assert the Amex claim against DT. However, Amex was not obligated to file a proof of claim for the Amex claim as a sign of good faith, especially if it believed to have another solvent debtor and, rightly or wrongly, wanted to avoid any compromise of the Amex claim under the Plan of Arrangement that could adversely impact an eventual lawsuit against Zitella.

Moreover, section 5.1 (1) CCAA only allows a compromise of claims against directors of a company that arose before the commencement of the CCAA proceedings and that relate to the obligations of the company where the directors are by law liable in their capacity as directors for the payment of such obligations. The CCAA does not extend such protection to the officers of a company nor provide the faculty for a company to compromise claims against its officers. Accordingly, an insolvent company seeking the protection of the CCAA could not legitimately and validly attempt to comprise in a proposed Plan of arrangement contractual claims against its officers who are not even directors.

It would be against the interest of justice to grant the Application to dismiss in the present context. It will be up to the merits judge to determine whether Amex alleged failure or omission to file a proof of claim in the CCAA Proceedings triggered a release and discharge of Zitella’s obligations regarding the Amex claim. The Court dismissed the Applicants’ application to dismiss.

 

Judge: Michel A. Pinsonnault, J.S.C.

Counsel: Bogdan-Alexandru Dobrota and Jack Little of Woods s.e.n.c.r.l. for the Applicants, the Debtors and Frank Zitella, Tracy Gokhool of Charness, Charness & Charness for the Creditor/Respondent, Amex Bank of Canada and Joseph Reynaud of Stikeman Elliott s.e.n.c.r.l., s.r.l. for the Monitor, PricewaterhouseCoopers Inc.