An action for breach of fiduciary duty and unjust enrichment against the Ontario Municipal Employ-ees Retirement System, which is one of Canada’s largest pension plans, two related companies and three former directors is on again following a recent Ontario Court of Appeal decision.

With this latest ruling, the OCA overturned a previous court order to strike down most of the claims against the several defendants — apart from certain specific claims for breaches of fiduciary obligation — for not disclosing a reasonable cause of action.

OMERS provides pension services to some 360,000 employees of municipalities and local boards throughout Ontario. Its assets exceed $48 billion.

An action on behalf of OMERS members was launched by Sid Ryan of the Canadian Union of Public Employees Ontario and Wyman MacKinnon, seeking redress for breaches of trust and fiduciary duty, among other things.

The defendants were the OMERS board, which administers the pension plan; Borealis Capital Corp., a merchant bank of which OMERS owns 27%; Borealis Real Estate Management Inc., BCC’s wholly owned real estate management arm; and three former employees of OMERS, Ian Collier, Michael Nobrega and Michael Latimer.

Collier was OMERS’ vice president of merchant banking and private placements before he left to become CEO of BCC in February 2001. He is also a director and shareholder of BCC.

Nobrega was responsible for OMERS’ infrastructure investments before he left in 2001 to become president of BCC. He is also a director and shareholder.

Latimer was managing director of OMERS Realty Corp. when it acquired Oxford Properties Group Inc., one of North America’s largest commercial real estate companies. In 2002, he arranged to have his employment transferred to BCC and to become a shareholder.

Ryan and MacKinnon sought the court’s approval to become representative plaintiffs on behalf of all plan members. The motion was contested and Ryan was held not to be an appropriate candidate because he was not a plan member. MacKinnon, however, was named as the representative plaintiff.

The defendants also sought an order from the court to have the statement of claim struck down, on the grounds that it did not disclose a reasonable cause of action, and have the action dismissed.

The judge hearing their motion found he could not determine whether the claim disclosed reasonable causes of action against the various defendants, so he allowed MacKinnon to deliver an amended statement of claim without prejudice to the defendants to renew their motion to have the claim struck down.

The amended claim sought:

> declarations that the defendants had acted negligently and committed various breaches of fiduciary and trust duties;

> a declaration that the individual defendants had been unjustly enriched at the expense of the pension fund;

> an accounting for all monies paid by OMERS to the defendants, pursuant to a series of management agreements and transactions;

> an order for equitable tracing of all monies improperly paid by OMERS to the defendants; and

> an order that various agreements under which the monies had been paid were void by reason of illegality.

Alternatively, the claim sought damages, to be returned to the pension fund, for breach of fiduciary duty and unjust enrichment.

The defendants sought to have the amended claim struck down, again for failing to show a reasonable cause of action.

The allegations on which the statement of claim relies involve the delegation of management of OMERS’ real estate assets (valued at more than $7.5 billion) to BCC “despite BCC’s lack of experience or expertise in real estate management,” and BCC’s incorporation of BREMI to assume the real estate management functions.

At the time of this delegation of real estate assets, Latimer was still employed by OMERS, and he negotiated on behalf of OMERS with Collier and Nobrega, who acted on behalf of BCC. Only after the management agreements were signed did Latimer relocate to BCC.

The statement of claim further alleges that in the spring of 2002, the OMERS board and BREMI executed a five-year management services agreement making BREMI exclusive provider of management services for OMERS’ real estate assets.

Understated Values

The claim goes on to allege that BREMI paid the grossly understated value of $11 million for OMERS’ real estate management business and that OMERS agreed to pay $3.7 million of BREMI’s start-up costs, in addition to several categories of fees and “imprudent” buyout agreements with Collier, Latimer and Nobrega.

@page_break@In addition, the claim alleges that OMERS paid BREMI or BCC approximately $62 million in management fees for the 18-month period between June 2002 and December 2003, and that this amount far exceeded the amounts OMERS paid to Oxford in fees when the latter managed the same assets.

According to the claim, the fees were incommensurate with the services purported to have been rendered and grossly in excess of market rates or of the costs that OMERS would have incurred had it continued to manage its real estate assets internally. These fees resulted in excessive compensation to the corporate defendants and their senior officers and shareholders, including the individual defendants.

The OCA based its decision on a 1990 Supreme Court of Canada case, Hunt v. Carey Canada Inc. , which says that in order to set aside a statement of claim, a defendant “must show that it is plain and obvious that the claim could not succeed at trial.” The OCA also pointed out that in making its decision, it may accept the allegations in the statement of claim as facts “except to the extent that the alleged facts are patently ridiculous or incapable of proof.”

Based on that standard, the OCA concluded that the statement of claim should not be struck down for failing to disclose a reasonable cause of action.

Mark Zigler of Toronto’s Koskie Minsky LLP acts for MacKinnon. He says he can’t comment on the merits of the case because it is an ongoing court action, but says the next step will be production of documents and discoveries. In addition, there are still some costs issues outstanding from the OCA action. If the matter goes to trial, that step is still a long way off. IE