Court File and Parties

Court File No.: CV-18-610345 Date: May 6, 2024 Superior Court of Justice - Ontario

Re: Mario Narciso and Fernanda Garcez Cortes v. Victor Ferreira, Maria Rita Ferreira, Francesco Dragonetti, Ildina Galati, Rosalia Spadafora and FFM Capital Inc.

Before: Associate Justice C. Wiebe

Counsel: Robert A. Klotz, for Maria Rita Ferreira Bobby Sachdeva, for Mario Narciso and Fernanda Garcez Cortes

Heard: April 24, 2024

Reasons for Decision

[1] The defendant, Maria Rita Ferreira (“Maria”), brings this motion seeking an order discharging a certificate of pending litigation (“CPL”) that was granted to the plaintiffs on motion without notice by Master McGraw (as he then was) on December 11, 2018. She also seeks an order dismissing this action against her.

[2] The grounds for the motion are threefold: the plaintiffs made a material misrepresentation to Master McGraw about two mortgages; the plaintiffs have not prosecuted this proceeding with reasonable diligence; and the plaintiffs have unreasonably delayed this proceeding. After reviewing the background facts, I will deal with the misrepresentation issue first and then two delay related issues together. The plaintiffs of course oppose the motion.

Background

[3] In the course of this motion, Maria served an affidavit she swore and two affidavits sworn by one, Lyn Feldman. The plaintiffs served three affidavits affirmed by their lawyer, Kevin Sherkin, and an affidavit affirmed by Fernanda Garcez Cortes, one of the plaintiffs. These deponents, except Ms. Cortes, were cross-examined.

[4] The following background facts are undisputed. Victor Ferreira (“Victor”) was the spouse of Maria since 1997. Since 2006 the two lived in a house at 18 Brule Trail, King, Ontario (“the Property”). Victor was the registered owner. Maria asserts that on October 14, 2014 the two signed a separation agreement (without counsel) stating that Maria would buy Victor’s half share in the home for $470,000, that he would remain in the house paying rent at $2,500 per month, and that Maria would be credited with mortgages Victor took out for himself and his debts to her.

[5] The plaintiffs allege that Victor worked for FFM Capital Inc. (“FFM”) as a mortgage broker/investment advisor and that in December, 2015 Victor induced them to invest in a syndicated fourth mortgage held by Fortress Real Development Inc. encumbering a property in Barrie, Ontario, owned by a related company, Fortress Collier Centre Ltd. The investment came from monies Mario Narciso obtained in a settlement that left him permanently injured. In the 2016-2017 period Fortress became insolvent, and the bulk of the investment was lost.

[6] On June 14, 2017 the Superintendent of Financial Services penalized Victor for violating the Mortgage Brokers, Lenders and Administrators Act. Thirteen days later, on June 27, 2017, Victor transferred title to the Property to Maria for $2. Maria asserts that at this time Victor’s debts to her under the separation agreement exceeded the purchase price, which was the reason for the transfer. On May 28, 2018 a mortgage to the Toronto-Dominion Bank (“TD”) with a face value of $2.3 million was registered. On August 9, 2018 a mortgage to Nebram Investments Inc. with a face value of $115,000 was registered.

[7] On December 7, 2018, having retained Mr. Sherkin, the plaintiffs commenced this action against Victor, FFM and various employees of FFM claiming damages in the amount of $750,000 and punitive damages of $500,000 on account of the advice they received on the Fortress Collier investment. They also seek an order voiding the June 27, 2017 transfer of the Property as a fraudulent conveyance designed to defeat Victor’s creditors. They claim the CPL.

[8] On December 11, 2018 the plaintiffs moved without notice before Master McGraw to obtain the CPL. They filed an affidavit sworn by Ms. Cortes wherein she reviewed this history, and the June 27, 2018 transfer. She also stated that Maria “took out” the two, above noted mortgages. Master McGraw granted the order. In his endorsement, Master McGraw only mentioned the transfer for $2 and not the mortgages. Shortly thereafter, the CPL was registered on title and the statement of claim, motion material and order were served on the defendants.

[9] This action is one of 18 actions commenced at roughly the same time involving investors in similar situations as the plaintiffs. Lawyers are defendants in most of these actions along with investment advisors and mortgage brokers. Mr. Sherkin represents the plaintiffs in all of these actions. Eight of these actions concern the Collier Centre invesment. Four of these eight actions are actions against Victor or in which Victor is a third party (“the Ferreira Actions”). This action is one of those four. One of the Ferreira Actions is an action by these same plaintiffs against a lawyer who was involved with them in the Collier Centre investment, an action we will call “the Lawyer Action.”

[10] In the within action Victor and Maria retained lawyer Charles Gastle and delivered their joint statement of defence on January 18, 2019. By April, 2019 all pleadings were served. Mr. Sherkin then decided to merge his firm with Miller Thomson. This pre-occupied him and his associates from the summer of 2019 to the end of November, 2019. In the meantime, in June, 2019 counsel for two defendants took steps to amend their defences, and in October, 2019 Mr. Gastle did the same for Victor and Maria. The plaintiffs obtained an order lifting the stay when FFM went bankrupt in 2019 but did little else that year.

[11] 2020 saw some activity. In March, 2020 the Covid-19 pandemic hit. The associate assisting Mr. Sherkin in carrying these files was off work from April to September, 2020. Through inadvertence, Mr. Sherkin did not involve another associate during that time. The associate returned in September, 2020. The firm facilitated the amendment to the Ferreira defence, noted FFM in default, served a notice of change of lawyers in the Lawyer Action and began preparing affidavits of documents.

[12] 2021 and 2022 saw little activity. On January 26, 2021 the plaintiffs’ affidavit of documents was served in the Lawyer Action. Although prepared, the plaintiffs’ affidavit of documents in this action was not served through inadvertence. In March and April, 2021 Mr. Sherkin sent out expert engagement letters. In April, 2021 the associate assisting Mr. Sherkin left Miller Thomson and was replaced by another associate who did nothing in this action for over a year. That replacement associate left the firm in the summer of 2022. Mr. Sherkin was unaware of this inaction. Another associate took over in the summer of 2022. It took time for this associate to familiarize himself with all 18 files.

[13] 2023 and 2024 saw a surge in activity. Examinations for discovery were arranged and conducted. In May and June, 2023, LawPro, the insurer for the lawyers in all of these actions, advised Mr. Sherkin that it wanted to make a separate settlement to minimize the diminution of insurance coverage. On July 12, 2023 Miller Thomson finally served a notice of change of lawyers in this action. Six examinations for discovery took place in 2023, two of which were in two of the Ferreira Actions other than this one. Victor and the lawyers refused to be examined. Three more examinations were scheduled to take place in early to mid-2024. I understand that they have now been conducted. A mediation of the claims against the lawyers was arranged to take place on January 18 and 19, 2024. I was advised at the outset of the argument that there is now a settlement with the lawyers.

[14] On June 22, 2023 Maria retained Mr. Klotz. On July 6, 2023 Mr. Klotz served the motion material for this motion with a return date of September 21, 2023. On August 29, 2023 Mr. Sherkin emailed Mr. Klotz asking to arrange discoveries and advising that all his clients were seeking case management of all the actions. Mr. Klotz refused to arrange discoveries due to this motion. Mr. Sherkin had medical issues, and LawPro was notified.

[15] On September 18, 2023 Mr. Sherkin wrote to the Regional Senior Justice (“RSJ”) asking for case management. Mr. Klotz wrote the RSJ the next day objecting. The plaintiffs served their responding motion record in the within motion shortly before the return date, and on September 21, 2023 sought an adjournment. Associate Justice Abrams granted the adjournment to allow for further motion material and cross-examinations. The motion was adjourned to be heard as a short motion on December 19, 2023.

[16] On October 6, 2023 Justice Wilson denied the case management request. On November 23, 2023 Mr. Sherkin served a motion in writing “as soon as the motion can be read” seeking a timetable order, and did so without mentioning the within motion. This motion material was not filed.

[17] The plaintiffs waited until December 4, 2023 to serve supplementary motion material in the within motion. Mr. Klotz offered to conduct discoveries by written interrogatories if the questions arrived by December 7, 2023, as Maria was leaving on a trip. The interrogatories arrived on December 8, 2023, and the discoveries did not take place. This motion came before me on December 19, 2023. Because of the need for cross-examinations and because the allotted time was inadequate, I adjourned the motion on consent to be heard by me as a long motion on April 24, 2024.

Material Nondisclosure and Misrepresentation

[18] Maria argues that the plaintiffs failed to make full and fair disclosure of all material facts in their motion without notice to Master McGraw. Rule 39.01(6) of the Rules of Civil Procedure specifies that a moving party on a motion without notice “shall make full and fair disclosure of all material facts.” This requirement is a high one. “Material facts” for the purpose of this rule includes all facts that “may” have affected the outcome of the motion. This is an objective test; see Henein v. Alala, 2021 ONSC 5871 at paragraph 43, and Conti v. Duca, 2023 ONSC 6626 at paragraph 21. A failure to make full and fair disclosure is grounds in itself to set aside the order given on the motion without notice; see Rules of Civil Procedure, Rule 39.01(6).

[19] Maria alleges that the plaintiffs made the following material non-disclosure and made the following misrepresentation in their motion before Master McGraw: concerning the first mortgage to the TD with a face value of $2.3 million, Ms. Cortes in her affidavit stated that Maria “took out” that mortgage thereby wrongly implying that it was fully advanced up to the limit of the mortgage at the time it was registered; the plaintiffs did not produce the standard charge terms that were referred to in the registered TD mortgage, which standard charge terms make it clear that the mortgage was a collateral mortgage and not a conventional mortgage; while Ms. Cortes included the title abstract showing deleted instruments, she did not produce the previous TD mortgage that was discharged a few days after the subject TD mortgage was registered; she did not point out that there was on title a similar pattern in the past of TD mortgages and TD mortgage discharges.

[20] Mr. Klotz argued that this non-disclosure and misrepresentation created the impression that the TD mortgage for $2.3 million was fully advanced at the time it was registered, thereby creating the wrong and prejudicial impression that Maria (and Victor) at that time dissipated the equity in the property to avoid Victor’s creditors. Mr. Klotz provided evidence that the TD mortgage for $2.3 million was in fact used to pay off the previous TD mortgage and advance no more than $190,000 of additional money.

[21] I do not accept this submission for the following reasons:

• It is undisputed that the plaintiffs did not know, and could not find out, prior to the motion the actual advances made under the TD mortgage. As a result, the standard charge terms, in my view, would have only shown that the mortgage was a collateral mortgage with flexibility to secure an entire range of debt from zero up to the face value of the mortgage.
• The use of the words, “took out,” in Ms. Cortes’ affidavit do not, in my view, have the connotation ascribed to them by Mr. Klotz, namely that they mean “fully advanced.” The test is an objective one, namely what meaning a reasonable person would give to the words. In my view, the words are synonymous with the word, “gave.” “Gave” refers to what a mortgagor does when a mortgage is registered, namely “give” a mortgage to the mortgagee. As such, in my view, the words are also synonymous with “registered,” which is in fact what happened with the mortgage. I was given no authority in support of Mr. Klotz’s argument that “took out” means “fully advance.” Mr. Sherkin may have insisted in cross-examination that the TD mortgage was fully advanced, but I am not satisfied that this is the meaning a reasonable person would ascribe to the words.
• The disclosure of the prior TD mortgage that was discharged a few days after the registration of the subject TD mortgage would just have begged the question to a reasonable person as to what amount was in fact secured by that earlier mortgage. Again, it is undisputed that at the time of the motion, the plaintiffs did not know, and could not find out, what advances the TD had in fact made.
• Master McGraw did not refer to the mortgages in his endorsement. His Honour referred to the transfer of the Property for $2 of consideration between Victor and Maria, two spouses, stating that this created a triable issue as to the plaintiffs’ interest in the Property and justification for the CPL. This finding was not challenged in this motion.
• Finally, I take into consideration the fact that Maria took 4.5 years to bring this motion after she was served with the motion material and did so without explanation for the delay. Rule 37.14(1)(a) specifies that a person affected by an order obtained on a motion without notice must move “forthwith” to vary or set aside the order. In Ma et al. v 1835942 Ontario Inc. et al., 2023 ONSC 6530, Associate Justice Frank found that a delay in bringing a motion to set aside an order for a certificate of pending litigation due to its merits required an explanation and an assessment of several factors in light of that explanation. Here, there is no explanation from Maria as to why she waited this long. The reasonable inference to be drawn is that she acquiesced in this order including any deficiency that may be in it, and now has changed her mind. This not only violates Rule 37.14(1)(a), it undermines the credibility of her motion on this ground.

[22] I, therefore, conclude that the non-disclosure alleged by Maria was not “material” as it did not affect in any way the outcome of the motion. I also conclude that there was no material misrepresentation by the plaintiffs as alleged by Maria.

Delay

[23] The Courts of the Justice Act, R.S.O. 1990, c.C.43 (“CJA”), section 103(6)(a)(iii) authorizes a court to discharge a certificate of pending litigation where the party who obtained it “does not prosecute the proceeding with reasonable diligence.” Maria moves under that subsection for an order discharging the CPL alleging that the plaintiffs have failed to prosecute this action with reasonable diligence. She also moves under Rule 24.01(1)(c) to have the entire action, or at least the action against her, dismissed for delay since the plaintiffs have not set their action down for trial.

[24] Orders discharging certificates of pending litigation are discretionary. For an order discharging a certificate of pending litigation on the grounds of delay only under CJA section 103(6)(a)(iii), the court will weigh the delay and the explanation for it in light of all the issues between the parties in the case, namely the equities; see Stayside Corporation Inc. v. Cyndric Group Inc., 2023 ONSC 2363 at paragraphs 23 and 44 and Perruzza v. Spatone, 2010 ONSC 841 at paragraph 20.

[25] Dismissal orders under Rule 24.01(1) are also discretionary. Where the plaintiff does not intentionally delay or show disdain for the court process, the court must consider the following: whether the delay is inordinate and unreasonable; whether the delay is excusable; and whether the delay gives rise to a substantial risk that a fair trial of the issues in the litigation will not be possible; see Ali v. Fruci, 2014 ONCA 596 at paragraph 9.

[26] Having considered the evidence and the submissions, I have decided to dismiss this aspect of the motion as well, for the following reasons:

• The delay between the commencement of this action and the motion for the CPL, on the one hand, and this motion, on the other, was 4.5 years. This is less than the five-year period specified by Rule 48.14 before an administrative dismissal is issued or a status hearing is required. In the Ali, op. cit., paragraph 22, the Court of Appeal found the motion judge’s ruling that a delay of five years in that case was unreasonable to be a “close case.” I similarly find that the 4.5 years of delay in this case to be at minimum a “close case.”
• Much of the delay from 2019 to the summer of 2022 was, according to the evidence, the result of the conduct of plaintiff’s counsel. In 2019 Mr. Sherkin decided to merge his firm with another firm causing delay; in 2020, there was the temporary departure of the associate in charge of this file without proper oversight to see to it that this associate was replaced; in 2021 and 2022 that associate was permanently replaced by one who did nothing for over a year, again without proper oversight to see to it that this did not happen. An affidavit of documents was prepared and not served due to inadvertence. I am satisfied from the evidence that this was inadvertence, not deliberate conduct. Certainly, there is no evidence that the plaintiffs abandoned this case at any time. The Court of Appeal in Habib v. Mucaj, 2012 ONCA 860 at para. 7 made it clear that the court should, in the case of lawyer inadvertence, be more concerned with the rights of litigants than the conduct of counsel. I apply that principle here.
• This case cannot be viewed in isolation. There are many cases, 18 in number, concerning investors similarly situated as the plaintiffs being represented by Mr. Sherkin. Several of these cases are against Victor and concern the Collier Centre investment. Indeed, one of these other cases involves the plaintiffs suing the lawyer they became involved with in the Collier Centre investment. There has been activity in these other cases, certainly in 2023 and 2024, when several examinations for discovery occurred and a settlement with the lawyers was worked out. I accept that the burden of carrying all these cases may have caused delays in the within action that would not otherwise have happened. Again, counsel should have kept Maria informed of these developments, but, again, I put that oversight down to inadvertence. The effect of related litigation has been considered a relevant factor on a motion concerning delay; see Tarion Warranty Corporation v 1398796 Ontario Inc., 2017 ONSC 1742 at paragraph 21. I consider it relevant here.
• There was also no evidence that a fair trial cannot take place. There was no evidence of lost witnesses and lost documents. While memories of witnesses are presumed to fade over time, the case involving Maria appears to be document-centered. Also, as mentioned above, when the motion was brought, the case was well within the five period in Rule 48.14. This obviates the presumption of prejudice due to fading memories of witnesses; see Mohan Graphics Inc. v. Sherwin-Williams Canada Inc., 2022 ONSC 6610 paragraphs 21 and 22.
• I find also that the equities favour the plaintiffs in this case. Maria alleges that the CPL prejudices her by interfering with her ability to sell the Property and have Victor move out, thereby, she says, causing her mounting distress. The credibility of this claim is cast into doubt by the evidence. There was no evidence that Maria tried to sell the Property prior to July, 2023 when she listed it for sale. That listing was done at the time she brought this motion, thereby making it appear that she did the listing just to enhance her credibility in this motion. There is also no evidence that Maria gave Victor written notice to leave in accordance with their alleged separation agreement, at any time. The motion material also contained several photographs of Maria and Victor attending many social events together from 2016 to 2023 and appearing to be quite cordial with each other at these events. This is all after their alleged separation in 2014. Maria asserted in cross-examination that Victor paid her to attend these events, an assertion that seems self-serving as it is uncorroborated.
• The absence of any activity by the defendants, including by Maria, for an extended period of time is another factor I consider. After Mr. Gastle’s work at amending the pleadings of Victor and Maria, Maria did nothing prior to bringing this motion. There was no work on an affidavit of documents, discovery plan or examination for discovery. This passivity by a defendant has been viewed as a factor undermining the credibility of any claim of prejudice caused by delay; see Curlew Gardens Developments Inc v. Terraprobe Inc., 2023 ONSC 5531 at paragraph 45.
• Against this dubious claim of prejudice by Maria is pitted the more serious claim of prejudice by the plaintiffs should the CPL be discharged. There is no challenge in this motion as to the merits of the substance of the CPL order, namely whether the alleged fraudulent conveyance is a triable issue. In addition, there is no evidence from Maria that Victor has other exigible assets that could be available to the plaintiffs in place of the Property in the event of an adverse judgment against Victor in this case. Therefore, I find that, despite the arguable lack of reasonable diligence in prosecuting this action by the plaintiffs to date, I am not prepared to discharge the CPL or dismiss the action against Maria.

[27] Mr. Klotz also argued that Mr. Sherkin’s conduct during the pendency of this motion caused unreasonable delay that should be considered by the court. There was indeed evidence that Mr. Sherkin delayed filing responding motion material until the eve of the return dates of September 21, 2023 and December 19, 2023. In both instances, this contributed to the delay of the motion to facilitate further materials and cross-examinations. I do not criticize Mr. Sherkin for trying to get case management for all the actions, given the number of these cases. However, his aborted effort at unilaterally moving for a timetable order in the face of this motion without even mentioning it lacked merit and was clearly an attempt to undercut this motion. However, these delays are not significant enough, in my view, to affect the issue of the delay of the proceeding. These delays will be considered on the issue of costs.

[28] For these reasons, I refuse to discharge the CPL and dismiss the action against Maria.

Conclusion

[29] In conclusion, I dismiss this motion in its entirety.

[30] Concerning the costs of this motion, I note that both parties uploaded costs outlines showing significant costs. Maria’s costs outline shows $48,034.15 in partial indemnity costs, $61,272.20 in substantial indemnity costs and $71,430.90 in full indemnity costs. The plaintiffs’ costs outline shows $45,540.29 in partial indemnity costs, $90,051.94 in substantial indemnity costs and $99,889.15 in actual costs.

[31] I believe I have enough to make a costs award that is fair and reasonable in the circumstances. On the one hand, Maria was entirely unsuccessful in her motion and, therefore, should is not entitled to costs. She also should have been mindful of the high hurdle she faced on this motion as she was not challenging the merits of the CPL motion and as her evidence of her prejudice was dubious. On the other hand, the plaintiffs justified this motion by their delay and lack of proper attention to this action, by their lawyers’ inadvertence, and by their failure to keep Maria informed of developments. They also delayed this motion unreasonably, as noted above. The result is an indulgence to the plaintiffs. Therefore, I find that the plaintiffs are also not entitled to costs of this motion. I, therefore, award no costs of this motion. The parties must absorb their own costs.

[32] Should either party wish to challenge this award, they may serve and email my assistant trial coordinator written costs submissions of no more than two (2) pages in this regard on or before 4:30 p.m. on May 9, 2024. Should that not happen, my costs award remains. Should that happen, my costs will be deemed to be set aside. Responding written costs submissions of no more than (2) pages must then be served and emailed on or before 4:30 p.m. on May 14, 2024. Parties are cautioned that a successful party on the challenge will get $2,500 in costs for this challenge alone in addition to any change I may make to my costs award.

Date: May 6, 2024 Associate Justice C. Wiebe