A recent decision from the Ontario Superior Court demonstrates the overlap between civil and criminal findings, and how an employer can use a criminal verdict to recover additional damages in a civil claim. In Atlas Copco Canada Inc. v. David Hillier 2018 ONSC 1558, rendered March 7, 2018, an employer “piggybacked” off of a criminal court decision to recover an additional $20 million from an ex-senior employee who accepted payments and benefits in return for allowing a fraud to continue.
This decision highlights an employer’s possible options for fraud recovery, as well as the steep costs for employees of participating in fraudulent schemes.
Background – $1.5 million for Criminal Fraud
The employee, Dirk Plate, was the General Manager of Atlas Copco Canada Inc.’s Construction and Mining Canada (“CMT”) division, and later became its Vice President, Global Strategic Customers. At his criminal trial, Mr. Plate was convicted of defrauding Atlas while in the CMT division and was ordered to pay $77,930 in restitution relating to two payments of fraudulently obtained funds, and to return certain annuities valued at approximately $1.44 million. In his decision, the sentencing judge found that Mr. Plate “was not as central” in the scheme as he joined it while it was already in place. While his participation was a great assist to the scheme and helped prevent it from being detected, the fraud was capable of being carried on without him.
Mr. Plate was highly trusted by his employer and he had “grossly betrayed that trust by his involvement in the scheme”. He was in the best position to stop the scheme if he wished to do so.
Criminal Fraud Results in Summary Judgment Motion
In its civil claim, Atlas brought a summary judgment motion based upon the criminal judge’s sentencing decision. Atlas argued that a trial was not required to prove claims for civil conspiracy, civil fraud, and breach of fiduciary duty because of the criminal verdict and the findings of fact made in the sentencing decision. Atlas alleged that Mr. Plate and other employees misappropriated funds through false advances and bonuses, illegitimate expense reimbursements, and inflated or false invoices used for “kickbacks”. Atlas claimed $20 million in damages on top of the amounts that had been awarded in the criminal restitution order.
In seeking to avoid liability, Mr. Plate argued that the findings in the sentencing decision should be given no weight because they were the basis of making of the criminal restitution order and could not be used to advance other claims.
Relying on Deposit Insurance Corp. of Ontario v. Malette 2014 ONSC 2845 and British Columbia (Attorney General) v. Malik 2011 SCC 18, Justice Dunphy who heard the summary judgment motion, agreed with Atlas that the findings of fact set out in the sentencing decision could be accepted as reliable evidence in the civil claim, unless there was some proof of unfairness. Since there was no new evidence or other indicia of potential unfairness, Justice Dunphy relied upon the criminal findings to determine whether Atlas had proved its civil claims or whether a trial would be required.
Decision – Additional $20 million for Breach of Fiduciary Duty
Here are the key findings from the decision:
- Civil conspiracy: Justice Dunphy focused on the fact that there was no evidence that Mr. Plate and the other former employees had acted “in concert, by agreement or with a common design”. Criminal conspiracy charges had been withdrawn before trial and the sentencing judge’s conclusions suggested that Mr. Plate had only passive knowledge of the fraudulent scheme. Justice Dunphy concluded that this passive knowledge was insufficient to demonstrate the level of agreement or common design necessary for civil conspiracy.
- Civil fraud: There was no issue that fraud had been proven for the $77,930 payments and the annuities. However, to prove civil fraud for any other amounts, Atlas was required to demonstrate that Mr. Plate had knowingly made false statements, with the intention that they be acted upon, and that they were acted upon to Atlas’ detriment. Justice Dunphy was not convinced that this test was met for any payments other than those covered by the restitution order. The criminal sentencing decision did not indicate, either explicitly or implicitly, that Mr. Plate had made any false statements relating to other amounts or that the fraudulent payments and annuities led to any other losses. While civil fraud would have been proven for the fraudulent payments and annuities, Atlas was not entitled to double recovery for these items.
- Breach of fiduciary duty: Justice Dunphy was satisfied, based on the criminal sentencing decision, that Mr. Plate was a fiduciary of Atlas and that his passive acquiescence in the face of a fraudulent scheme was a breach of his duties, particularly since he also accepted benefits and payments in exchange for his silence.
Ultimately, Justice Dunphy concluded that there was insufficient evidence of civil conspiracy and civil fraud – other than the fraud relating to the annuities and two cheques, which were already covered by the criminal restitution order. However, Atlas proved that Mr. Plate had breached his fiduciary duties by failing to stop the fraudulent scheme. Despite his lesser involvement in the fraudulent scheme, Justice Dunphy concluded that Mr. Plate was responsible for all losses that Atlas had suffered as a result of Mr. Plate looking the other way – including losses that arose after he had been promoted out of the CMT division. Therefore, Mr. Plate was liable for almost $23 million in damages, less any “double recovery” relating to the criminal restitution order and amounts recovered from the other former employees. Since no amounts had yet been recovered from the other employees, Justice Dunphy ordered Mr. Plate to pay $20 million to Atlas and ordered Atlas to update Mr. Plate regarding any amounts that it recovered in the future.
- Remedies for breach of fiduciary duty provide powerful tools for employers when senior and trusted employees knowingly assist in fraudulent schemes.
- In the right circumstances, a plaintiff can “piggyback” on findings made in a criminal case in advancing a civil claim.