Lee Funeral Home Limited v. Board of Funeral Services, 2014 CanLII 46351

Licence Tribunal

Appeal d'appel en

Tribunal matière de permis

DATE:

2014-07-30

FILE:

8596/FBCSA

CASE NAME:

8596 v. Registrar of the Board of Funeral Services

Appeal from a Decision of the Registrar under the Funeral, Burial and Cremation Services Act, 2002, S.O. 2002 c.33 to Revoke a Registration

Lee Funeral Home Limited

Appellant

-and-

Board of Funeral Services

Respondent

REASONS FOR DECISION AND ORDER

ADJUDICATOR:

D. Gregory Flude, Vice-Chair

APPEARANCES:

For the Appellant:

Harris Rosen, Counsel

For the Respondent:

Bernard C. LeBlanc and Rebecca Zaretsky, Counsel

Heard in Toronto:

June 23, 24 & 26 and July 2, 2014

REASONS FOR DECISION AND ORDER

1The corporate Appellant appeals the Notice of Proposal of the Registrar dated January 16, 2014, proposing to revoke the Appellant’s registration under the Funeral, Burial and Cremation Services Act, 2002, S.O. 2002 c.33 (the “Act”). The Appellant does not deny that it is in default of certain of its obligations under the Act but submits that revocation is too harsh a penalty. Rather, the Appellant proposes registration on terms designed to address the identified problems and ensure future compliance.

2The Tribunal heard from five witnesses on behalf of the Registrar: Michelle Crognale, an investigator with the Board of Funeral Services (the “Board”) which is the office of the Registrar under the Act; John Sweet, a managing funeral director of the Appellant during the year leading up to the proposal; a former funeral director employed by the Appellant who was also the executor of an estate having a prepaid contract with the Appellant; Peter Jordan, the manager in charge of registration and inspections on behalf of the Board; and Wendy Katarincic, the accounts receivable manager for a supplier of vaults to the Appellant. Since the evidence of the former employee deals with personal information relating to his mother’s funeral and his personal income, his name will not be disclosed to protect his privacy. Four witnesses testified on behalf of the Appellant: Jim Lee, the former owner of the Appellant, Deoram (Roy) Benipersaud, the new owner of the Appellant; Joseph Salib, the Appellant’s bookkeeper and Adam Fisher, a Chartered Accountant and Trustee in Bankruptcy who specializes in restructuring distressed or disorganized companies.

3There is no fundamental dispute concerning the underlying facts. In the summer of 2012, James Lee put the Appellant business on the market. In very candid testimony, he stated that he felt that the business was becoming unprofitable because of changes in the industry. Mr. Lee’s family had opened the business in the 1930s. He had taken over from his father and had been in the industry for 47 years. After that period of time he was also ready to retire. Mr. Benipersaud sought to buy the business and during the summer of 2012 they negotiated a price. The purchase closed in late August 2012.

4Notwithstanding that the Board publishes a guideline recommending that new purchasers begin their application for registration several weeks prior to purchase, neither Mr. Benipersaud nor Mr. Lee applied to the Board for registration until approximately two weeks following the closing. Ms Crognale stated that the Board permits new purchasers of existing businesses to operate under the previous licence until the registration formalities have been completed. In this case that period was prolonged. Ms Crognale was away on maternity leave at the time the application to transfer the licence was made and her replacement dealt with the application. It was partially completed by the time she returned on July 30, 2013, and became her responsibility again. She decided to go back to square one to process the application. She corresponded with the Appellant through September, dealing mainly with the Managing Director, John Sweet. She also corresponded with Mr. Benipersaud and it was clear in her evidence that she developed some level of exasperation at his apparent inability to complete several relatively simple forms.

5During September 2013, an incident came to Ms Crognale’s attention that caused her great concern. She was informed that a former employee had run into difficulties when attempting to arrange for his mother’s pre-paid funeral. Pre-paid funeral contracts are a highly regulated area in the governance of funeral homes. They involve the deposit, segregation and safe-keeping of trust funds. In the case of the employee’s mother, the contract identified the type of casket and vault. At the time she passed away, the employee had been “laid off.” He considered himself still employed and contacted Mr. Benipersaud to get an employee discount for his mother’s funeral. Following some negotiations, the employee agreed to a sum in excess of what he expected to pay and was required to purchase the casket and vault that the Appellant had contracted to deliver. When attempting to purchase the casket and vault, the employee discovered that the Appellant’s credit rating at that time was so poor that most suppliers would not deliver even a pre-paid casket to the funeral home. As an industry insider, he was able to prevail upon both a casket and a vault maker to deliver the required items to the Appellant. It is not disputed that the pre-paid funds had been segregated as required and were returned to the estate in full. The Appellant’s inability to deliver the required services arose out its poor credit rating.

6As a result of the above incident, Ms Crognale conducted an onsite inspection over a period of two days at the Appellant’s premises. She discovered a number of deficiencies. Of major concern was the fact that suppliers had not been paid for supplies or services fundamental to the operation of a funeral home business. Her research into these issues was hampered by the fact that the books and records of the business, which by regulation are to be kept at the funeral home, were not available for inspection. She determined that the major supplier of caskets was owed approximately $9,000.00 and would no longer deliver to the Appellant. Other casket suppliers were subsidiaries of the major supplier and also would not deliver to the Appellant. She could not determine if withholding taxes were being remitted on wages and a number of prepaid contract refunds were outstanding longer than the 30 day regulatory refund period. Equally disturbing was that the Appellant was in arrears with the City of Mississauga for the cost of death registrations such that the City required cash payments for the registration of deaths. These arrears resulted in a personal visit from Mayor Hazel McCallion to demand payment. While this is a colourful incident, it is the existence of these arrears that is of concern to the Tribunal not the involvement of the mayor.

7Final areas of concern for Ms Crognale are the Appellant’s treatment of refunds of outstanding pre-paid funeral contracts and Mr. Benipersaud’s failure to disclose a $500,000.00 mortgage on the Appellant’s property. Her concerns with the refunds are twofold. Firstly, the Registrar has not yet received the report of a Public Accountant on the prepaid contracts required by regulation. This report is due from each funeral home registrant within four months of the end of its fiscal year. The Appellant’s fiscal year end was changed to August 31 when Mr. Benipersaud took over the business. The report of a Public Accountant was due on December 31, 2013. As of the date of the hearing, the Registrar had not yet received it. Her second concern was over the timing of a refund on one of the prepaid contracts. On November 28, 2013, Mr. Sweet, the managing funeral director, relayed information to her from Mr. Benipersaud that all of the refunds had been paid. Subsequently, she discovered that the bank draft for one refund was not issued until November 29. Finally, she produced evidence showing that a $500,000.00 charge on the Appellant’s property had not been disclosed. She takes the position that Mr. Benipersaud deliberately misled the Registrar.

8The findings were reduced to a report sent to the Appellant on October 28, 2013. The Appellant was given until November 28 to respond to the Board about steps taken to remedy the outstanding matters. As that date approached, the Managing Director, John Sweet, remedied those matters within his sphere of influence and asked Mr. Benipersuad to address those issues over which Mr. Sweet had no control. Paramount among the matters to be addressed by Mr. Benipersaud were the repayment of outstanding pre-paid refunds and the delivery of complete books and records to the funeral home. As the deadline approached, Mr. Sweet pushed Mr. Benipersaud. Mr. Sweet appears to have become increasingly frustrated that his attempts to keep the Appellant in compliance with the regulations appeared fruitless. That frustration was reduced to writing on November 26 when Mr. Sweet wrote to Mr. Benipersaud:

ROY

FUR THER TO OUR CONVERSATION AND IN REGARDS TO THE BOARD INSPECTION IN ADDITION TO THE INFORMATION THAT I HAVE ALREADY REQUESTED FROM YOU (PROOF OF SUPPLIES INVOICES BEING PAID AND UP TO DATE)

I ALSO NEED

I REQUIRE FROM YOU PROOF THAT THE FOLLOWING REFUNDS HAVE BEEN MADE TO

[LIST OF NAMES]

A PHOTOCOPY OF THE CANCELLED CHEQUES WOULD BE SUFFICIENT

ALSO

ITEM 6 OF THE BOARD LETTER

BOOKS AND RECORDS

AS OF TODAY I HAVE SEEN NO INDICATION FROM YOU THAT THE RECORDS, INVOICES, DEPOSIT BOOK ETC HAVE BEEN RETURNED TO THE FUNERAL HOME. THIS MUST BE DONE IN ACCORDANCE WITH THE BOARD LEGISLATION. I HAVE ASKED YOU NUMEROUS TIMES WHEN THIS WILL BE DONE AND AS OF TODAY, NOVEMBER 26, 2013) THIS HAS NOT BEEN DONE…THIS IS VERY IMPORTANT ROY.

PLEASE DO NOT MAKE ME ADVISE THE BOARD THAT THIS HAS NOT BEEN DONE…OUR TIME IS RUNNING OUT…I MUST RESPOND ON THURSDAY NOVEMBER 28…..

9During the day on November 28, Mr. Sweet drafted a response letter to the Board. With respect to the delivery of the books and records to the funeral home he stated in the draft:

6.) I have made numerous attempts and spoken to Mr. Benipersaud in regards to the records and pertinent invoices and paperwork relentlessly, but, as of today, November 28, 2013 Mr. Benipersaud has not complied with my request to return the book [sic] and records to the funeral home in conjunction to the regulation 30, subsection 98(1) and 99.1 and 6.

He did not send this letter. What he did was keep up a dialogue with Ms Crognale advising her that he was going to wait until the last minute to give Mr. Benipersaud a chance to comply.

10Around 6:30 on the evening of November 28, Mr. Benipersaud appeared at the funeral home with a cardboard box and informed Mr. Sweet that the box contained the books and records of the business. Mr. Benipersaud reviewed the draft letter prepared by Mr. Sweet and suggested some changes. With respect to the books and records, in reliance on Mr. Benipersaud’s representations, Mr. Sweet changed his letter to state:

6.) In conjunction to the regulation 30, subsection 98(1) and 99.1 and 6., the invoices and pertinent paperwork, deposit book, etc has indeed been relocated to the Funeral Home.

11There is a dispute between Mr. Sweet and Mr. Benipersaud about the content of the box and its fate after the evening of November 28. Mr. Sweet says that he was shown the contents of the box in a rushed and perfunctory manner. He felt that the box did not contain the complete books and records; nevertheless, he amended his letter to advise the Board that the records were on site. Mr. Sweet goes on the say the box was gone the next morning. Mr. Benipersaud stated that the box contained the complete books and records of the funeral home and that they remained on the premises thereafter. The Tribunal prefers Mr. Sweet’s evidence notwithstanding what appears to have been less than full disclosure to the Board. Mr. Sweet gave very specific evidence about the layout of the office, including the glass centre panel of Mr. Benipersaud’s office giving him a view of the desk. The documentary record shows Mr. Sweet making every effort to save his employer from regulatory embarrassment. The other evidence in the case is inconsistent with Mr. Benipersaud’s evidence; particularly that of Mr. Salib who stated that he had the books and records and Mr. Benipersaud’s continual failure to produce records as requested by the Board, actions that are inexplicable if all of the records were so readily available.

12There is extensive evidence showing that the Appellant was in financial difficulties over the past 12 months. The incident of the prepaid funeral is one indicator. With respect to the same employee, on June 4, 2013 he wrote to Mr. Benipersaud at the funeral home requesting his outstanding statutory holiday and vacation pay. He received no reply. On June 11 he worked his last shift as he was contacted by Mr. Benipersaud. He was told by Mr. Benipersaud that he was laid off. He made a claim for unpaid wages to the Ministry of Labour. Following an investigation, he was awarded $3,138.42. Of note is the statement in the decision:

We attempted to obtain evidence from the employer however we received nothing to consider. As the employer failed to avail themselves of the opportunity to provide information, the decision made was based on the information from the claimant.

Mr. Benipersaud’s explanation was that he did not receive any letters from the Ministry. He also stated that the matter was being considered by Mr. Salib and the claim had been reduced from $5,000.00 to $3,000.00 after Mr. Salib’s review. This statement is inconsistent with the Reasons for Decision and the explanation was not put to Mr. Salib when he testified. It is also inconsistent with the June 4 letter which does not set out a claim amount. It simply seeks statutory holiday and vacation pay.

13Mr. Salib stated that he had been in possession of all of the books and records for some time. He advised the Registrar of that fact by letter dated October 29, 2013. Much is made of the closing line of that letter in which Mr. Salib offered to answer any further enquiries the Registrar might have. The letter does not transfer the responsibility for answering the Registrar’s questions from the Appellant’s shoulders. It is merely advice that the books are being looked at. It remained the Appellant’s responsibility throughout its dealings with the Registrar to make specific answers to specific questions. Having made that statement, Mr. Salib then went on the identify areas of debt. He stated that there is a withholding tax liability in the region of approximately $20,000.00. He was of the view that this was not a serious issue as Canada Revenue Agency is not currently pressing for collection.

14Mr. Salib produced a trial balance for the Appellant covering the period from Mr. Benipersaud’s share purchase to January 31, 2014. He stated that it was based on the books and invoices given to him by Mr. Benipersaud. Conceding that the Tribunal does not have expert accounting experience, one area did appear to raise the spectre that even Mr. Salib may not be in possession of all the facts. The line item addressed the cost of caskets. It was not disputed in evidence that the Appellant owed $9,000.00 to Victoriaville for caskets, was in arrears to other suppliers and since last year had been put on to COD delivery by all suppliers for caskets. Thus the cost of caskets is well in excess of $9,000.00 yet it is recorded in the trial balance at $5,000.00. This lowering of cost against income of $130,000.00 for casket sales calls into question the integrity of the information upon which the trial balance is based.

15In addition to the assistance the Appellant is receiving from Mr. Salib, it has very recently retained the services of an accountant experienced in restructuring corporations. Adam Fisher is a chartered accountant and a Trustee in Bankruptcy. At the time of the hearing, he had had a cursory look at the Appellant’s books. He identified debts that were of concern to him, particularly the unpaid withholding tax. He had immediately suggested that the Appellant retain the services of a company to manage its payroll. The Appellant has taken this advice. Mr. Fisher was of the view that he could complete his review of the Appellant within a month and provide the Registrar with all of the documentation he requires.

16The Tribunal did not find Mr. Benipersaud a very convincing witness. In addition to the evidence about the delivery of books and records on November 28, he gave two different stories for why he dispensed with his employee’s services. His initial reason was that the employee had taken an unauthorized vacation. Later he stated that he had terminated the employee because he did not do embalming. The employee explained that he was concerned about his muscle control while handling the embalming implements and so, while others did the embalming, he performed other duties. The Tribunal notes that the termination closely followed the employee’s request for vacation and statutory holiday pay and suspects Mr. Benipersaud’s reasons were driven more by economic considerations. Other aspects of Mr. Benipersaud’s evidence were troubling. His evidence that he failed to respond to the Ministry of Labour because somehow the mail was intercepted or not received is totally unbelievable. He also stated that Mr. Salib was working on the employee’s claim and managed to reduce it from approximately $5.000.00 to $3,000.00. The only amounts set out in the correspondence originated with the Ministry of Labour.

ANALYSIS

17The statutory provisions governing registration and appeals to this Tribunal are set out in the Act. The governing premise of the statutory provisions is that an applicant is entitled to registration unless they run afoul of one of the grounds for revocation or refusal. The wording places the onus for establishing grounds for denial squarely on the Registrar. The applicable statutory wording is as follows:

14. (1) An applicant is entitled to a licence or to a renewal of the licence unless,

(a) the applicant or an interested person in respect of the applicant,

(i) is in contravention of this Act or the regulations, or

(ii) would be in contravention of this Act, the regulations, another Act or a municipal by-law if the applicant were issued a licence;

(c) the applicant is a corporation and,

(ii) an officer, director, employee or agent of the applicant makes a false statement or provides a false statement in an application for a licence or for renewal of a licence;

(d) in the case of an applicant for a licence to operate a cemetery, crematorium, funeral establishment, casket or marker retailing business, transfer service or other bereavement activity for which a licence is required under the regulations, or a renewal of such a licence,

(i) in the opinion of the registrar, the applicant or managing employees of the applicant do not have the integrity, honesty, experience and competence required to manage the business in accordance with the law, or having regard for the financial position of the applicant or managing employees, the applicant or managing employees cannot be reasonably expected to be financially responsible in the conduct of the business,

(ii) the applicant is unable to provide the resources and facilities required to manage a business.

(i) the applicant fails to comply with a request made by the registrar under section 111.

18. (1) The registrar shall notify an applicant or licensee in writing if he or she proposes to,

(a) refuse to issue or renew a licence;

(b) suspend or revoke a licence; or

(c) apply conditions to a licence or renewal of a licence to which the applicant or licensee has not consented.

Content of notice

(2) The notice of proposal shall set out the reasons for the proposed action and shall state that the applicant or licensee is entitled to a hearing by the Tribunal if the applicant or licensee mails or delivers, within 15 days after service of the notice, a written request for a hearing to the registrar and to the Tribunal.

Hearing and order

(5) If a hearing is requested, the Tribunal shall hold the hearing and may by order direct the registrar to carry out the registrar’s proposal or substitute its opinion for that of the registrar and may attach conditions to its order or to a licence.

111. A licensee shall provide the registrar, within the time that the registrar specifies, with the information that the registrar requests, including at the registrar’s request, verification, by affidavit or otherwise, of any of the information requested.

18The position of the Registrar is set out in the written Closing Argument at Part 1 – Overview. The Registrar identifies a chronic history of significant arrears in respect of key suppliers; the suppression of the true extent of those arrears from both the Registrar and this Tribunal; the continued refusal of Mr. Benipersaud to relocate his records to the funeral home; his lack of candour in his evidence before the Tribunal with respect to the loss of mail; and a general lack of honesty and integrity. The Appellant submits that Mr. Benipersaud is a novice in the funeral business. As such, it submits that he should be given some leeway. Steps have been taken to bring the Appellant into compliance and it should be given the chance to continue the remedial program.

19As stated above, the evidence is overwhelming that through the period from August 2012 to the end of 2013, the Appellant was suffering financially. Starting with the evidence of Mr. Lee that the reason he sold his business was because it was becoming unprofitable through the extensive evidence about unpaid suppliers and the fact the business was put onto a COD basis by casket makers and vault makers, it is clear that it was having difficulty meeting its obligations as they became due. There is some evidence that it may have turned a corner and it is the Appellant’s position that it will continue to improve with the help of Mr. Fisher. Evidence of the turnaround is sketchy. The Tribunal was not given an up-to-date list of current payables, notwithstanding that Mr. Salib testified that the books were current as of January 31, 2014 and Mr. Fisher, after a cursory overview, was able to identify payables that were of concern. A list of payables could easily have been produced.

20There is ample evidence that the Appellant is in breach of its regulatory obligations. It has not produced the Public Accountant’s report with respect to its prepaid contracts. This failure in itself almost defies belief. The Notice of Proposal was served on the Appellant on January 16, 2014. In the six months between that date and the date of the hearing, the Appellant has done nothing to bring itself into compliance. A few days prior to the hearing, it hired Mr. Fisher who states that he can bring it into compliance within a month. The same may be said of the failure to bring the books and records into the funeral home. Despite the failure to do so being the basis of the Notice of Proposal, the Tribunal can have no confidence that Mr. Benipersaud has brought the Appellant into compliance with the Act.

21The nub of the problem for the Appellant stems from the fact the Mr. Benipersaud wants to be in control of his investment without either the trust of his employees or the knowledge of the funeral industry necessary to do so. Ownership confers no rights under the Act. All rights flow from being licensed. Thus, the Appellant, a corporation, may be licensed. To fulfil the obligations of a licensee, the day to day running of the corporation must be in the hands of a properly licensed managing funeral director. It is that individual who is responsible to the Registrar for ensuring the corporate licensee remains in compliance with the legislation. From the evidence, it is clear that Mr. Sweet fulfilled that role to the best of his ability but that he was hampered every step of the way by Mr. Benipersaud. He was frustrated in his efforts and finally fired for his troubles. The Appellant’s suggested solution, to have Mr. Lee attend on a part-time basis, does not address the fundamental issue that Mr. Benipersaud is not licensed and should have no control over satisfying the Appellant’s regulatory obligations. Only the managing funeral director may satisfy that role. The Tribunal did not hear from the current managing funeral director nor from any proposed managing funeral director.

22Notwithstanding that the Tribunal is of the view that the Registrar satisfied the onus to demonstrate that the Appellant is in default of its obligations under the Act and that grounds exist for revocation or other action, the Tribunal is of the view that revocation is too extreme a course of action in the current circumstances. The Tribunal notes that the Appellant has a long history of complaint-free existence, albeit under the control of Mr. Lee. It is also the case that no evidence was led to suggest that Mr. Benipersaud has been guilty of any wrongdoing in his previous business. The Tribunal also notes that, while its financial difficulties resulted in a situation where it could not perform a prepaid contract to the letter, there was no mishandling of the trust funds set aside for the funeral. The fault was one of execution rather than wrongdoing. The Tribunal accepts that Mr. Benipersaud’s mishandling of matters was due to inexperience. With proper controls in the future, the Tribunal is of the view that the Appellant can be operated in accordance with the statutory scheme and without risk to the public. Accordingly, the Tribunal is of the view that terms should be placed on the Appellant’s licence.

ORDER

23Pursuant to the provisions of s. 18(5) of the Act, the Tribunal orders the Registrar not to carry out the proposal dated January 16, 2014 to revoke the Appellant’s license. The Tribunal orders the Registrar to license the Appellant on the following terms:

1. At all times, the Appellant shall have in place a managing funeral director properly licensed under the Act to carry out the duties of that position.

2. The books and records of the Appellant shall be kept at the Appellant’s place of business and shall be accessible to the managing funeral director so that that person can fulfil the duties and obligations of the office under the Act.

3. Within 30 days of the release of these reasons, the Appellant shall provide the Registrar with all of the information and documentation requested by the Registrar prior to the issuance of Notice of Proposal to Revoke, including, but not limited to:

a. The report of a Public Accountant with respect to the prepaid contracts up to the end of June 2014;

b. Access to all of the books and records of the Appellant;

c. A list of accounts payable and other outstanding debt obligations; and

d. A five year business plan.

4. Within 30 days of the release of these reasons, the Appellant shall provide to the Registrar a plan to repay its payables and outstanding tax liabilities within a reasonable time not to exceed 18 months.

5. For whatever time Mr. Benipersaud is not licensed under the Act, he shall not take any action or do anything that in any way hampers the managing funeral director in the execution of the duties of that office under the Act. For greater clarity, he shall not direct mail relevant to the business to his home address and he shall not withhold business records or remove them from the business premises. Should he become licensed in the future, he shall abide by all of the obligations of a managing funeral director under the Act.