Langston v. Landen, 2008 ONCA 321

Langston et al. v. Landen et al. [Indexed as: Langston v. Landen]

90 O.R. (3d) 673

Court of Appeal for Ontario,

MacPherson, Rouleau and Epstein JJ.A.

April 28, 2008

Real property -- Vesting order -- Estate trustee misappropriating millions of dollars from estate and using stolen funds to purchase and renovate matrimonial home -- Beneficiaries suing trustee and his wife -- Motion judge imposing constructive trust on home in favour of estate and ordering sale of home -- Motion judge not erring in making order vesting legal title to home in estate where plaintiffs had not sought that relief.

Trusts and trustees -- Constructive trust -- Estate trustee misappropriating millions of dollars from estate and using stolen funds to purchase and renovate matrimonial home -- Title to home in name of trustee's wife -- Motion judge not erring in imposing constructive trust on home in favour of estate -- Motion judge not erring in failing to take into account contributions made by wife to home -- Any notional entitlement wife might have to reimbursement rendered nugatory by financial benefits she had enjoyed while living in home.

The appellant's husband L admitted that, while acting as an estate trustee, he misappropriated more than $2.5 million from the estate. Several million additional dollars were missing and unaccounted for. L used estate funds designated for charities to purchase a luxury residence (the "matrimonial home"), title to which was in the appellant's name. New estate trustees and several beneficiaries sued L and the appellant, and brought a motion for partial summary judgment based on L's admissions and a declaration that the appellant had no beneficial interest in the matrimonial home. The motion was granted. The motion judge declared that the home was held on a constructive trust by L for the estate and made a vesting order in favour of the estate. The appellant appealed.

Held, the appeal should be dismissed.

The motion judge did not err in imposing a constructive trust on the matrimonial home in favour of the estate, despite the fact that the appellant had legal title to the home. The appellant contributed nothing towards the purchase or renovation of the matrimonial home. All of the money could be traced to estate funds misappropriated by L. [page674]

The motion judge did not err in making the vesting order. While the respondents did not seek that relief, the motion judge had jurisdiction to make the order under s. 100 of the Courts of Justice Act, R.S.O. 1990, c. C.43, and the order was a logical and necessary precursor to the order for the sale of the property.

While the appellant claimed that she had made contributions to the matrimonial home over the years, she had also lived rent-free in luxury for over a decade. Any notional entitlement she might have to reimbursement for personal money directed towards the matrimonial home was rendered nugatory by the financial benefits she had enjoyed while living in the home.

APPEAL from orders of Greer J., reported at [2007] O.J. No. 3667, 160 A.C.W.S. (3d) 921 (S.C.J.), imposing a constructive trust, directing the sale of a home and granting a vesting order.

Cases referred to Chippewas of Sarnia Band v. Canada (Attorney General)(2000), 2000 CanLII 16991 (ON CA), 51 O.R. (3d) 641, [2000] O.J. No. 4804, 195 D.L.R. (4th) 135, 139 O.A.C. 201, [2001] 1 C.N.L.R. 56, 41 R.P.R. (3d) 1, 101 A.C.W.S. (3d) 859 (C.A.); International Corona Resources Ltd. v. LAC Minerals Ltd. (1987), 1987 CanLII 4308 (ON CA), 62 O.R. (2d) 1, [1987] O.J. No. 883, 44 D.L.R. (4th) 592, 23 O.A.C. 263, 18 C.P.R. (3d) 263, 28 E.T.R. 245, 46 R.P.R. 109, 6 A.C.W.S. (3d) 363 (C.A.) Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43, s. 100 Authorities referred to Waters, Donovan W.M., Mark R. Gillen and Lionel D. Smith, Waters' Law of Trusts in Canada, 3d ed. (Toronto: Thomson Carswell, 2005)

Robert B. Bell and Margot G. Finley, for appellant. Sean Cumming and Colby Linthwaite, for respondent Charities. Lisbeth Hollaman, for respondent Estate Trustee During Litigation.

The judgment of the court was delivered by

MACPHERSON J.A.:-- A. Introduction

A. Introduction

1The appellant Pauline Landen is married to Barry Landen ("Landen"), an accountant who took several million dollars from the estate of a business partner and friend, Paul Penna, that Landen was administering as estate trustee.

2Once Landen's misconduct was discovered, the respondents Estate Trustee During Litigation and various charities that were beneficiaries under the Penna will, tried to recover some of the money from Landen. [page675]

3In a judgment released on September 21, 2007, Greer J. granted most of the relief sought by the respondents. She granted partial summary judgment against Landen for $3,733,455.20. She declared that Pauline Landen had no beneficial interest in the current matrimonial home because all the money used to purchase and renovate the home in the late 1990s had come from funds Landen had misappropriated from the Penna estate. Finally, the motion judge refused to discharge the Certificate of Pending Litigation from title to the matrimonial home, which the appellant sought with a view to selling the home herself.

4Barry Landen does not appeal the motion judge's order. However, Pauline Landen does appeal. She contends that the effect of the motion judge's decision is to ensnare a large portion of her own money, approximately $565,000, in her husband's wrongful conduct relating to the Penna estate. Accordingly, she seeks modification of the motion judge's order to permit recovery of this amount from the imminent sale of the matrimonial home. B. Facts (1) The parties and events

B. Facts

5The basic facts in this case are outrageous and sad.

(1) The parties and events

6Barry Landen, an accountant, was a longtime business partner and friend of Paul Penna, a very successful business man in the mining field. Landen worked for Penna's company from 1981 to 2004. In an affidavit filed in these proceedings, Landen described his relationship with Penna in this fashion: "Over the years, my relationship with Paul developed into more than that of an employer/employee, and became closer to a father/son relationship. Paul and I were close and trusted friends."

7Penna died in August 1996 with an estate valued at about $24 million. He appointed his wife, another business associate and Landen as executors and trustees. Penna also bequeathed $100,000 to Landen.

8Almost immediately, Landen managed to shunt the other two executors to the sidelines. He started to loot the estate. His misconduct was not discovered until 2004.

9An Estate Trustee During Litigation was appointed. In 2007, Landen admitted to having taken $2,668,486 from the Penna estate. It appears that several million additional dollars are also missing and unaccounted for.

10One of Landen's most egregious acts was to use estate funds designated for many worthy charities to purchase for [page676] himself in 1997 a luxury residence at 248 Forest Hill Road in Toronto. The purchase price was $1,185,000. Renovations to the home cost $942,054.75. All of this money came, directly or indirectly, from the Penna estate. Title to the house was given to the appellant.

11A second major misappropriation was Landen's donation of $970,994.57 to the United Jewish Appeal from the Penna estate. The UJA was not a named beneficiary in Penna's will.

12Eventually, the new trustees of the estate and several charities that were beneficiaries under the Penna will commenced litigation against the Landens. (2) The motions

(2) The motions

13In September 2007, Greer J. heard two motions together.

14The respondents brought a motion for partial summary judgment, based in part on Landen's admissions. They also sought a declaration that Pauline Landen has no beneficial interest in the matrimonial home at 248 Forest Hill Road. In response, the appellant brought a motion seeking a discharge of the Certificate of Pending Litigation registered against the matrimonial home.

15The motion judge granted partial summary judgment in favour of the respondents for $3,733,455.20, as follows:

(a) The sum of $2,127,054.75 being the amount transferred by him from Jakmin Investments Ltd. for the purchase of the home and for the renovations made to it;

(b) The sum of $75,000, being the three amounts taken by Landen from the Estate of Paul Penna in 1997;

(c) The sum of $282,656, being the moneys Landen took from the Estate of Paul Penna for payment of the various car leases for him and family members, the computer service, insurance and sports tickets;

(d) The value of 7,000 shares of AGNICO Eagle Gold Mines which Landen converted to his own use;

(e) The sum of $277,750 being the sum Landen paid to himself as a dividend from Jakmin Investments Ltd.;

(f) The sum of [$970,994.57] being the sum Landen improperly paid to the Miles Nadal Jewish Community Centre, the Downtown Jewish Day School, and the United Jewish Fund of Toronto (the "UJA") in breach of trust. [page677]

16The motion judge also declared that the appellant had no beneficial interest in the matrimonial home at 248 Forest Hill Road. She declared that the home is held on a constructive trust by Landen for the Penna estate and she made a vesting order of title in favour of the estate. She dismissed the appellant's motion for an order discharging the Certificate of Pending Litigation.

17At the appeal hearing, the court was informed that the home has been sold for $3,250,000, with a closing date of April 30, 2008.

18The appellant appeals, principally with respect to the motion judge's treatment of the current matrimonial home. C. Issues

C. Issues

19The issues on the appeal are:

(1) Did the motion judge err by imposing a constructive trust on the matrimonial home in favour of the estate of Paul Penna?

(2) Did the motion judge err by making an order vesting title to the matrimonial home in the estate of Paul Penna?

(3) Did the motion judge err by not recognizing and making proper allowance for the money the appellant had contributed to the matrimonial home? D. Analysis (1) The constructive trust issue

D. Analysis

20The appellant had legal title to the matrimonial home. The appellant submits that the motion judge erred by imposing a constructive trust in favour of the Penna estate because this constituted an improper remedy against her, albeit not against her husband.

21The problem with this submission is its starting point, namely, that the Forest Hill home belonged to the appellant. It did not. Neither she nor her husband paid anything towards the purchase or renovations, totalling more than $2 million of the home. Every cent came from the money Landen took from the Penna estate.

22On this issue, the motion judge reasoned:

Pauline Landen has no beneficial interest in the Forest Hill home. She contributed not one cent to the purchase or the renovations. All of the money came from the Estate of Paul Penna through her husband's breach of his fiduciary duty to the Estate and its beneficiaries. All of the money in the [page678] home can be traced to the source of Estate funds illegally transferred by Landen from his disposition of assets held by Jakmin for the Estate. Since the money came from Landen in his capacity as a fiduciary, the constructive trust or express trust flows from him and the money can be traced from him to the house purchase and renovation. Landen originally had his name on the Deed of Transfer, and at the last minute, crossed it out and put his wife's name in his place. Pauline therefore has no legal or beneficial interest in the house.

23I agree with this analysis. It is entirely consistent with the leading case authorities and scholarly writing on the imposition of constructive trusts: see e.g., International Corona Resources Ltd. v. LAC Minerals Ltd. (1987), 1987 CanLII 4308 (ON CA), 62 O.R. (2d) 1, [1987] O.J. No. 883 (C.A.), at para. 187; and Donovan W.M. Waters, Mark R. Gillen and Lionel D. Smith, Waters' Law of Trusts in Canada, 3d ed. (Toronto: Thomson Carswell, 2005), at 500-01. (2) The vesting order issue

(2) The vesting order issue

24The appellant contends that the motion judge erred by making an order vesting title in the Forest Hill home in the Penna estate. The principal argument in support of this submission is that the respondents did not seek this relief in their Notice of Motion.

25I disagree. In Ontario, the jurisdiction to grant a vesting order is found in s. 100 of the Courts of Justice Act, R.S.O. 1990, c. C.43:

100. A court may by order vest in any person an interest in real or personal property that the court has authority to order be disposed of, encumbered or conveyed.

26A vesting order is a discretionary remedy: see Chippewas of Sarnia Band v. Canada (Attorney General) (2000), 2000 CanLII 16991 (ON CA), 51 O.R. (3d) 641, [2000] O.J. No. 4804 (C.A.), at para. 281. The motion judge exercised her discretion and vested the Forest Hill home in the estate. In a case where the relief sought and granted was an order for sale of the property with the proceedings of the sale being paid to the estate in partial satisfaction for the money taken from the estate by Landen, both the constructive trust and vesting orders strike me as logical and even necessary precursors to the order for sale of the property. In my view, the motion judge exercised her discretion in an entirely appropriate fashion. (3) The appellant's money in the matrimonial home

(3) The appellant's money in the matrimonial home

27As I understand the able and forceful oral submissions of the appellant's counsel, this is the main issue in this appeal. [page679]

28The appellant contends that even if the constructive trust and vesting orders were appropriate in a general sense, they fail to recognize and take account of some of the appellant's money that contributed to the matrimonial home over the years. There are two components to this submission.

29First, the appellant contends that from June 2006 to September 2007, she contributed $8,100 per month to the matrimonial home to pay for the mortgage, a line of credit and utilities and telephone. She submits that the motion judge erred by not providing that she be reimbursed for $121,300 from any future sale of the home.

30I disagree. In cross-examination on her affidavit, the appellant admitted that she had made the mortgage payments for only four months. Moreover, the appellant and the Landen family have lived rent-free for a decade in a luxury Forest Hill home. Finally, there is personal debt of the appellant and her husband of approximately $1 million secured against the home which the estate will have to pay off on closing the sale of the property. In these circumstances, any notional entitlement the appellant might have to reimbursement for personal money directed towards the Forest Hill home is rendered nugatory by the financial benefits she has enjoyed during a decade of living in the home.

31Second, the appellant contends that the family's previous matrimonial home at Renaissance Court in Thornhill was sold for $443,000 in net proceeds and that these funds were paid into the Penna estate. Accordingly, she should recover her share (presumably at least half) from the sale of the Forest Hill home.

32The problem with this submission is that Landen admits that every cent of the money used to purchase and renovate the Forest Hill home came from the money he misappropriated from the Penna estate. Moreover, and crucially, the Renaissance Court home was not sold until about 18 months after the Forest Hill home was purchased. Accordingly, there is no link between the money involved in the two matrimonial homes. It follows that the motion judge did not err by refusing to allocate some of the projected proceeds of the sale of the Forest Hill home to reimburse the appellant for her share of the proceeds of the sale of the Renaissance Court home.

33I make one final observation on this issue. With respect to the proceeds of the sale of the Renaissance Court matrimonial home, the door is not completely closed on the appellant. The motion judge observed: "There is some evidence that part of the proceeds of sale of the old home were used to repay some [page680] monies taken from the estate but these cannot be traced into the Forest Hill home."

34With respect, this strikes me as precisely right. If the appellant wants to continue to take the position that she has lost her share of the proceeds of the Renaissance Court matrimonial home she can pursue this issue against, potentially, her husband (a strong case, but probably irrelevant at this juncture) or the estate, presumably after the estate trustees, especially Landen, produce their accounts, which has not happened in spite of previous orders made by the motion judge. E. Disposition

E. Disposition

35I would dismiss the appeal. I would award the respondents their costs of the appeal fixed at $15,000 for the Estate Trustee During Litigation and $5,000 for the charities, inclusive of disbursements and GST.