Executive Summary: Key Legal and Evidentiary Issues

• Urgent pandemic procurement of 3 million NIOSH-certified N95 masks created a high-stakes commercial context for alleged misrepresentations.
• Key evidentiary dispute centred on what Michael Caridi actually knew and could reasonably believe about his ability to source NIOSH-certified N95 masks when he demanded full pre-payment.
• The trial judge’s finding of civil fraud turned on whether Caridi’s assurances amounted to recklessness (indifference to truth) rather than an honest, though careless, mistake.
• Personal liability of a corporate director/officer was in issue, specifically when fraudulent conduct done through a company makes the individual personally liable for pure economic loss.
• Extensive tracing evidence from a receiver showed how CHU’s funds were paid out to Caridi and various third parties, and that almost none of the money was applied to CHU’s benefit.
• On appeal, the Court of Appeal for Ontario upheld both the fraud finding and director’s personal liability, and confirmed that such a fraud-based debt is not discharged in bankruptcy.

Facts and commercial context

At the beginning of the COVID-19 pandemic in March 2020, CHU de Québec-Université Laval (CHU), one of the largest hospital networks in Quebec, urgently needed large quantities of NIOSH-certified N95 respirator masks for safe use in a clinical environment. Its existing N95 stock was running low and the Province faced an imminent shortage of certified masks. CHU’s procurement during the pandemic was coordinated through Sigma Santé, a non-profit entity that handled sourcing of personal protective equipment for CHU and other health agencies in Quebec. Through Sigma Santé, CHU came into contact with Blu Stella Consulting Group Inc. (Blu Stella) and, ultimately, Tree of Knowledge Inc. (TOKI), a Nevada-incorporated subsidiary of Tree of Knowledge International Corp. (TOK Corp.), which before the pandemic had been in the pain-management and cannabis businesses. Michael Caridi was the chief executive officer of TOK Corp. and president and sole director of TOKI at the relevant time. In February 2020, TOKI, through Caridi, decided to enter the PPE market, including respirator masks, and it was later agreed that any profits from PPE transactions would be split 50/50 between Caridi personally and TOKI. Caridi engaged Blu Stella, led by Fabio Gesufatto, to market PPE on TOKI’s behalf. A former associate introduced Caridi to Anthony Lee, based in China, who was represented as having the connections to source masks through Chinese manufacturers and intermediaries, with Athletix LLC, owned by Conrad Roncati, acting as an intermediary between TOKI and Lee.

N95 and KN95 masks: technical distinction

CHU’s requirement was specifically for NIOSH-certified N95 masks, a standard set by the U.S. National Institute for Occupational Safety and Health. N95 masks are designed for a tight facial fit and to filter out at least 95% of airborne particles, and to qualify as “NIOSH-certified” they must meet prescribed standards and bear the appropriate NIOSH markings. KN95 masks, by contrast, are a Chinese-regulated counterpart designed to meet similar filtration performance but under different standards and testing protocols. Some NIOSH-certified N95 masks are manufactured in China, but without the NIOSH certification markings a mask labelled “N95” may not provide the expected level of protection and is not considered NIOSH-certified. This distinction between NIOSH-certified N95 masks and KN95 masks was crucial to the dispute: CHU’s procurement documents, and its risk environment as a hospital network, were all premised on obtaining NIOSH-certified N95 respirators, not KN95 or “NIOSH-compliant” products.

Negotiations and misrepresentations

As COVID-19 escalated in March 2020, Sigma Santé’s representative, Elie Boustani, contacted Blu Stella’s CEO, Fabio Gesufatto, about sourcing PPE. After some exchanges, on 26 March 2020 Boustani again contacted Gesufatto when the Province’s NIOSH-certified N95 supplies were nearly exhausted. Gesufatto said he could assist through “Tree of Knowledge” and arranged a conference call with Caridi and Boustani later that day. On that call, Caridi said he could quickly supply three million masks that met CHU’s requirements, but imposed tight conditions: CHU needed to issue a purchase order that same day and pay in full the following day, with delivery promised by end of day 28 March 2020. Following the call, Gesufatto emailed Boustani confirming the purchase of “FDA/CE/ISO/NIOSH Certified N95 Respirator Mask[s]” and stating that three million masks would be shipped “tomorrow morning” for delivery by Saturday, 28 March 2020. TOKI’s invoice, sent the same day, described the goods in similar terms and confirmed shipping on 28 March. CHU issued two purchase orders describing the product as “N95 … NIOSH-certified” masks and, on 27 March 2020, wired US$13,693,522.50 to the bank account specified on the TOKI invoice. The trial judge later found that Gesufatto’s confirmation email, TOKI’s invoice and CHU’s purchase orders together formed the contract for the sale of three million NIOSH-certified N95 masks at a total price of US$11,160,000 plus estimated shipping of US$750,000 and taxes. The central misrepresentations identified at trial arose from Caridi’s statements that TOKI could and would deliver these three million NIOSH-certified N95 masks on the extremely short timeline, and later, that mask shipments he described remained fully NIOSH-certified N95 even as documentary indications suggested KN95 product.

Failure to secure NIOSH-certified masks

The trial judge found, after reviewing limited and incomplete evidence of communications among Caridi, Roncati and Lee, that at the time TOKI agreed with CHU to supply three million NIOSH-certified N95 masks, Caridi had not actually secured any masks at all. Around 21 March 2020, Caridi had only had general discussions with Lee about the possibility of sourcing PPE from China. By 26–27 March, when he was promising CHU three million certified N95 masks and demanding full advance payment, there was still no agreement between Caridi and Lee (or Athletix) for the purchase and sale of any masks—let alone a firm commitment to ship NIOSH-certified N95 respirators. Only on 29 March 2020 did a structure emerge in which TOKI would contract with Athletix, and Athletix in turn would source masks from Lee or his company. A written agreement between Athletix and TOKI, dated 28 March, provided for TOKI’s purchase of three million “N95 face masks”, with an initial 100,000 to ship around 30 March and further deliveries “every day or so” subject to pandemic-related constraints and freight availability. An undated Athletix invoice to TOKI for 500,000 masks to be shipped on 30 March suggested Lee did not expect to be able to source more than 500,000 units immediately, a limitation never disclosed to CHU. The trial judge also accepted that, based on the Athletix documentation and descriptions referring to “kn95” masks without the indicia of NIOSH certification, Caridi knew, or at least recognized a real possibility, that the masks Lee was arranging would not be NIOSH-certified N95 masks.

Non-delivery, KN95 shipment and partial settlement

TOKI failed to deliver any masks on 28 March 2020, despite the contractual promise. Over the following days CHU sought reassurance that the masks would be delivered and that they would indeed be NIOSH-certified N95 respirators. Caridi continued to give reassurances, at one point telling CHU representatives that he was “100%” certain the masks would be NIOSH-certified. On 29 March, Caridi sent an email attaching a Chinese export declaration form referring to “KN95” respirator masks; when this prompted concern, he told Boustani and Gesufatto by phone that the products were NIOSH-certified N95 masks but were being described as KN95 only to facilitate clearance through Chinese customs. Ultimately, no masks arrived until April: 2,000 masks were delivered on 9 April 2020, and a further 154,000 on 13 April. The packaging and labelling identified them as “KN95 (Non medical use)” manufactured by a Chinese company, not as NIOSH-certified N95 respirators. On 14 April, before more masks could be delivered, Quebec’s Assistant Deputy Minister of Health instructed Caridi not to deliver any more masks because CHU had ordered NIOSH-certified N95 masks and had instead received KN95 masks; he indicated the delivered stock would be tested to see if anything could be salvaged. Testing later confirmed the KN95 masks were essentially worthless for CHU’s intended medical use.

Attempts to recover funds and receivership

CHU pressed for return of its money. During that period, TOKI’s bank account was frozen, and on 29 April 2020 CHU and TOKI reached a settlement framework aiming to resolve their dispute. TOKI agreed to transfer US$1 million immediately once the bank allowed, and thereafter to make minimum payments of US$1 million every ten days from 4 May 2020 until the outstanding amount was satisfied. Caridi also undertook to attempt to sell the KN95 masks delivered to CHU and apply proceeds against TOKI’s indebtedness. TOKI ultimately paid CHU US$2 million (one US$1 million transfer, and two transfers of US$500,000 each on 14 and 15 May 2020), made no further payments, and did not sell the masks. When it became clear that TOKI would not deliver certified N95 masks or fully refund CHU, CHU commenced proceedings against TOKI, TOK Corp., Caridi, Blu Stella and others. CHU later obtained appointment of an investigative receiver and a Mareva injunction against Caridi, TOKI and TOK Corp. The receiver traced the US$13.6 million CHU had wired on 27 March 2020 and found that by 30 November 2020 only US$5,000 remained in TOKI’s account. Of net receipts of roughly US$11.2 million relating to the CHU transaction, the receiver identified US$8.3 million in disbursements “related” to the CHU transaction, including over US$1.1 million paid directly to Caridi, funds to Athletix, a Chinese trading company, Blu Stella, an entity believed owned by Lee, and another party thought to be transaction-related. About US$2.9 million was disbursed for purposes unrelated to CHU’s transaction, including substantial payments connected to other PPE trades. The trial judge concluded that, although some of CHU’s funds were spent in attempts to procure masks, none of those funds produced any meaningful benefit for CHU; TOKI ended up using about US$6.8 million to buy approximately 2.5 million masks that turned out to be valueless.

Trial decision: civil fraud and personal director liability

By trial, CHU had settled with all defendants except Caridi, including via a Pierringer agreement under which TOKI consented to judgment for the full amount of the claim but did not participate at trial. Caridi, representing himself, maintained for most of the litigation that he had always told CHU he could only supply KN95 masks that were “NIOSH compliant” rather than NIOSH-certified; on the last day of evidence he changed tack and for the first time asserted that he had ordered NIOSH-certified N95 masks from Lee but had been let down. CHU advanced three main causes of action against Caridi: civil fraud (deceit), oppression, and unjust enrichment/constructive trust. The trial judge addressed civil fraud first, identifying the four elements from Bruno Appliance: a false representation, knowledge of its falsity (including recklessness), reliance, and resulting loss. He found that Caridi made four key misrepresentations: that he had the ability to supply three million NIOSH-certified N95 masks; that TOKI would deliver those masks if CHU paid in full; that he was “100%” certain the masks would be NIOSH-certified; and that masks described as KN95 on export documents were in fact NIOSH-certified N95 masks with KN95 labelling used only to clear Chinese customs. On the crucial “knowledge” element, the judge accepted that Caridi may have been subjectively “sincere” in wanting to complete the deal and in relying on Lee, but held that sincerity did not preclude a finding of recklessness. He concluded that from the outset Caridi understood there was a real risk that Lee would not deliver NIOSH-certified N95 masks that met CHU’s precise specifications, and that this risk grew as more adverse information came in. Despite having no concrete confirmation that Lee could supply any NIOSH-certified N95 masks—only indications that KN95-type product might be available—Caridi continued to state, with absolute wording, that TOKI would deliver the certified N95 masks and insisted on full advance payment. The judge held that Caridi was indifferent to whether his statements were true or false; he foresaw a real possibility they were false and consciously took that risk in order to induce CHU to contract and to forbear from terminating and suing promptly. This met the standard of recklessness in civil fraud. The trial judge found reliance and loss straightforward: CHU entered into the contract and paid the entire purchase price, and later refrained from terminating the contract in the immediate aftermath, as a direct result of Caridi’s assurances. CHU’s loss was the purchase price less amounts recovered, including the US$2 million returned by TOKI and further sums realized from other defendants and related litigation. Accordingly, he held TOKI liable in civil fraud. On personal liability, the judge ruled that this was not a case for piercing the corporate veil: there was no evidence TOKI itself was a sham or was incorporated to defraud CHU. Nonetheless, he held that Caridi should be personally liable on two grounds drawn from earlier Ontario authorities: that his conduct was “tortious in itself” and that he exhibited a “separate identity or interest” from TOKI by agreeing to share PPE profits 50/50. He therefore ordered judgment against Caridi personally for US$11,193,522.50 (the loss figure) less amounts paid by other parties, dismissed CHU’s oppression and unjust enrichment claims, declined to impose a constructive trust or tracing order, and declared that the judgment fell within s. 178(1)(e) of the Bankruptcy and Insolvency Act as a debt resulting from “fraudulent misrepresentation,” making it non-dischargeable in bankruptcy. In separate reasons he awarded CHU C$1,212,000 in costs against Caridi personally.

Appeal issues and appellate analysis

Caridi appealed to the Court of Appeal for Ontario, arguing that the trial judge: (1) applied too low a legal threshold for “recklessness” in the fraud analysis; and (2) erred in law in imposing personal liability on him as a director and officer based on the “tortious in itself” and “separate identity or interest” concepts, particularly where the loss was purely economic. He also sought leave to appeal the costs order, conditional on success on the merits. On recklessness, Caridi focused on parts of the trial reasons that used the language of “carelessness”, contending the judge had effectively equated negligence with recklessness and thereby watered down the stringent fraud standard. The Court of Appeal rejected this reading, emphasizing that the trial judge had carefully canvassed the authorities (including Derry v. Peek and Bruno Appliance) and distinguished between simple carelessness (an honest but mistaken belief) and the kind of indifference to truth—“careless whether it be true or false”—that constitutes recklessness in fraud. Properly read, the trial reasons adopted the classic line of cases holding that a person is reckless where they make a statement without an honest belief in its truth, indifferent to whether it is true or false, and without making reasonable inquiries to ascertain its accuracy. Applying the deferential standard for mixed fact and law, the Court of Appeal held that, on the trial judge’s factual findings, Caridi’s conduct comfortably met this threshold: he represented that he could procure three million NIOSH-certified N95 masks and insisted on full advance payment when he had no firm supply arrangement, no factual basis to believe Lee could deliver certified N95s, and every reason to suspect that, at best, KN95-type masks might be available. He continued repeating absolute assurances even as documentary evidence pointed away from NIOSH certification. The appellate court noted that the use and dissipation of CHU’s funds, including substantial payments to Caridi and to third parties for other PPE trades, underlined the seriousness of the misconduct and could have supported even harsher characterizations than the trial judge’s relatively generous assessment of Caridi’s “sincerity.”

Directors’ personal liability for fraud

On the personal liability issue, Caridi invited the Court of Appeal to clarify or recalibrate the law on when corporate directors and officers can be personally liable in tort, especially for pure economic loss, pointing to perceived inconsistencies in earlier Ontario cases and to an Alberta line of authority that attempts to synthesize various factors. He argued that liability should be narrow and that the “tortious in itself” and “separate identity or interest” categories should not extend to cases like his. The Court of Appeal declined the invitation to restructure the law in this case, holding that no clarification was necessary to resolve the appeal. Reviewing leading Ontario decisions (ScotiaMcLeod, Normart, and ADGA Systems), the court confirmed that, although company actions are normally attributed to the corporation, a director or officer can be personally liable where their conduct is independently tortious (“tortious in itself”) or where they act pursuant to a “separate identity or interest” from the company. The court observed that it is not essential, in every case, to parse which category a given fact pattern fits; particularly where intentional torts such as civil fraud are involved, the cases consistently recognize that a director’s personal participation in the fraud is sufficient to attract personal liability even where the wrongdoing occurs in the course of corporate business. In this case, the Court of Appeal emphasized that Caridi was not being held responsible simply because he was TOKI’s directing mind, but because he personally made the fraudulent misrepresentations that induced CHU to part with its funds and to refrain from early termination and enforcement. His own conduct satisfied every element of civil fraud. On that basis alone, the court held, he was properly found personally liable. Any questions about the outer limits of directors’ liability for less culpable torts or for purely negligent conduct could be left to be worked out incrementally in future cases. The appeal court therefore affirmed that fraud by a corporate officer or director—whether or not neatly categorized as “tortious in itself” or reflective of a “separate identity or interest”—is a standalone and well-established ground for imposing personal liability for the consequent loss.

Outcome and monetary consequences

The Court of Appeal dismissed Caridi’s appeal in its entirety, including his conditional challenge to the costs order. The trial judgment finding TOKI liable in civil fraud and holding Caridi personally liable was upheld, as was the declaration that the resulting debt is non-dischargeable as a “fraudulent misrepresentation” under s. 178(1)(e) of the Bankruptcy and Insolvency Act. The appeal court also awarded CHU C$20,000 in all-inclusive costs of the appeal. Taken together, the litigation leaves CHU as the fully successful party, with a substantial monetary judgment in its favour: a principal award of US$11,193,522.50 for civil fraud, subject to deduction of sums already recovered from other parties (so that the exact net damages figure cannot be fully determined on the face of the decision), augmented by significant cost awards of C$1,212,000 at trial and C$20,000 on appeal in CHU’s favour.