Court File and Parties

CITATION: Harold the Mortgage Closer Inc. v. Ontario (Financial Services Regulatory Authority, Chief Executive Officer), 2024 ONSC 5293

COURT FILE NO.: 279/24

DATE: 2024-09-25

SUPERIOR COURT OF JUSTICE – ONTARIO DIVISIONAL COURT

RE: HAROLD THE MORTGAGE CLOSER INC. and HAROLD GERSTEL and ESTHER GERSTEL INC., Applicants AND: CHIEF EXECUTIVE OFFICER OF THE FINANCIAL SERVICES REGULATORY AUTHORITY OF ONTARIO, FINANCIAL SERVICES REGULATORY AUTHORITY OF ONTARIO and ATTORNEY GENERAL OF ONTARIO, Respondents

BEFORE: Shore J.

COUNSEL: Melvyn L. Solmon and Joanne Iskander Salmoon, for the Applicants Troy Harrison and Michael Scott, for the Respondent FSRA Emtiaz Bala, for the Attorney General of Ontario

HEARD at Toronto: August 13, 2024

Endorsement

[1] Harold Gerstel (“Gerstel”), Harold the Mortgage Closer Inc. (“HTMC”), and Esther Gerstel Inc. (“EGI”) (together, “the Applicants”) seek judicial review of the Financial Services Regulatory Authority of Ontario’s (“FSRA”) decision to begin investigating the Applicants, to issue a summons on Gerstel, and to issues a Notice of Proposal (“NOP”) concerning the Applicants.

[2] The Respondents brought this motion to quash the Applicants’ application for judicial review for being premature, or for an order remitting the matter back to a hearing before the Financial Services Tribunal (“FST”).

Background:

[3] Gerstel and HTMC are licensed under the Mortgage Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c. 29 (the “MBLAA”). Gerstel is the principal broker and sole director of HTMC. EGI is not licensed under the MBLAA, but as a mortgage lender it must comply with certain requirements under the MBLAA.

[4] FSRA administers the MBLAA. The MBLAA provides a comprehensive licensing framework for mortgage brokers, mortgage brokerages, mortgage agents, and mortgage administrators. MBLAA requires licensees to comply with prescribed standards of practice, including disclosure, suitability, and conflict of interest requirements.

[5] FSRA may take regulatory action when individuals or entities contravene the MBLAA.

[6] FSRA must issue a NOP before it can impose licensing sanctions, general administrative penalties, or compliance orders. The NOP triggers a right to a hearing before the FST, an independent tribunal.

[7] On January 11, 2022, FSRA issued guidance entitled: “Transparent Communication of FSRA Enforcement Action” (the “Transparency Guidance”). The Transparency Guidance sets out guidelines as to when FSRA will publish documents issued during its enforcement proceedings. Pursuant to the Transparency Guidance, FSRA publishes its NOP to revoke a licence, refuse a licence, or impose general administrative penalties under the MBLAA.

[8] In May 2022, the Toronto Star published several articles questioning the conduct of the Applicants.

[9] FSRA conducted a compliance examination of HTMC. FSRA also began a broader investigation into the Applicants’ business dealings (the “Investigation”).

[10] On June 22, 2023, FSRA issued a NOP proposing to revoke the licence of the Applicant, HTMC, to refuse to renew the licence of the Applicant, Gerstel, and to impose administrative penalties on the Applicant, Gerstel (the “First NOP”).

[11] The Applicants asked FSRA not to publish the NOP. The FSRA refused the request. The Applicants brought a motion before the FST requesting an interlocutory order. The FST declined to grant the order.

[12] On August 30, 2023, Gerstel and HTMC filed an application for judicial review (the “First Application”). They subsequently amended the First Application on November 8, 2023. Gerstel and HTMC asked the Divisional Court to make various orders related to FSRA’s enforcement and publication practices and to strike or amend the First NOP.

[13] On April 16, 2024, Justice Myers quashed portions of the First Application, including those relating to striking or amending the First NOP. He did so on the basis that the First Application was premature (Harold the Mortgage Closer Inc. v. Chief Executive Officer of the Financial Services Regulatory Authority of Ontario, 2024 ONSC 2236).

[14] Gerstel and HTMC brought a motion to set aside or vary Justice Myers’ decision.

[15] In Harold the Mortgage Closer Inc. v. Ontario (Financial Services Regulatory Authority, Chief Executive Officer), 2024 ONSC 4464, this Court found that:

a. The motion judge did not err in striking the applicants’ allegation that the FSRA knowingly issued an incomplete, misleading, and false NOP;

b. The remainder of the claims of the application are not amendable to judicial review;

c. The impugned decisions of the FSRA are, in any event, reasonable; and

d. The motion to vary and the application should be dismissed.

[16] On February 5, 2024, as part of the ongoing Investigation, FSRA issued another summons (the “Second Summons”) to Gerstel. The Second Summons required Gerstel’s attendance for examination under oath. Gerstel failed to comply with the Second Summons. At the time, Gerstel did not seek judicial review or other relief from the Second Summons.

[17] On April 30, 2024, upon the Investigation’s completion, FSRA issued another NOP (the “Second NOP”) alleging contraventions of the MBLAA by Gerstel and EGI. The Second NOP proposes various sanctions against the Applicants.

[18] The Applicants requested a hearing before the FST regarding the Second NOP. The Applicants challenge the decision to start the investigation, the issuances of the summons and the issuance of the Second NOP. This FST hearing remains ongoing.

[19] On May 8, 2024, the Applicants filed the second application for judicial review.

[20] The Respondents brought this motion to quash the Second Application as being premature.

Law and Analysis:

[21] The Divisional Court quashes an application for judicial review if it is “plain and obvious” or “beyond doubt” that the application cannot succeed. This Court should dismiss an application for delay only in “clear cases.”

[22] The courts have held that the commencement of any challenge to a regulatory investigation should only be after the regulatory process has run its course. In this case, there are ongoing proceedings before the FST.

[23] The Ontario Court of Appeal recently held in College of Physicians and Surgeons of Ontario v. Kilian, 2024 ONCA 52, at paras 34, 37:

As noted by the application judge, noncompliance while a challenge is pending “would substantially undermine the effective and efficient regulation of health care professionals.” As the College notes, it would allow a physician “to engineer premature judicial review simply by refusing to cooperate with an investigation and waiting for the regulator to commence a s. 87 application. This would simply be a different way to fragment administrative proceedings.” […] After the administrative process is complete, Dr. Kilian can then challenge the outcome of the administrative process through judicial review to the Divisional Court: Judicial Review Procedure Act, R.S.O. 1990, c. J.1, ss. 1, 2, and 6(1). To allow her to do so now before the investigation is complete would be premature[.]

[24] The Ontario Court of Appeal has held in Volochay v College of Massage Therapists of Ontario, 2012 ONCA 541 at para 68:

[U]nless exceptional circumstances exist, a court should not interfere in an administrative proceeding until it has run its course. The principle has particular force where adequate alternative remedies are available under the administrative scheme. Ordinarily an affected individual must pursue these remedies before seeking relief from the court.

[25] There are ongoing proceedings before the FST regarding the Second NOP.

[26] As set out above, the applicable statutory scheme entitles the Applicants to a full hearing with a high degree of procedural protection. The FST will hold a full de novo hearing. Following its de novo hearing, the FST may direct that the NOP be carried out, with or without changes, or it may substitute its opinion. Until the FST makes a final order, the Applicants remain licensed under the MBLAA.

[27] The FST’s decision regarding licensing is then subject to a statutory right of appeal to the Divisional Court pursuant to s. 21(5) of the MBLAA.

[28] At the same time, the Applicant can also seek judicial review of any portion of the decision for which there is no right of appeal. The Divisional Court will then have a full record and the FST’s decision.

[29] I find that the Act provides an adequate alternative remedy to address any alleged unfairness in the Investigation (including the Summons) and to contest the allegations contained within the Second NOP: a de novo hearing before the FST. The courts have held that a full, fair hearing before an impartial tribunal (like the FST) can even cure previous procedural defects in the proceeding. In this case, the Applicants have requested a hearing before the FST.

[30] This approach is also consistent with s. 138 of the Courts of Justice Act, R.S.O. 1990, c. C.43, which specifically provides that as far as possible, multiplicity of legal proceedings shall be avoided.

[31] These principles respect the administrative decision-making process and the legislature's intent, while preserving the court’s ability to intervene only as required in exceptional circumstances. Exceptional circumstances are ones that bring the rule of law into disrepute, which goes beyond breaching procedural fairness or even acting without jurisdiction: see Dugré v. Canada (Attorney General), 2021 FCA 8 at para. 35 and Harold the Mortgage Closer Inc. v. Ontario (Financial Services Regulatory Authority, Chief Executive Officer), 2024 ONSC 4464 at para. 49.

[32] There are no exceptional circumstances that would justify deviating from this approach. The Applicants have failed to show that their situation is different from that of any other applicant requesting a hearing before the FST.

[33] Finally, Gerstel and HTMC remain licensed. There is no prejudice to them pending the FST hearing.

[34] In the proceedings related to the First NOP, the Divisional Court held that “[t]he motion judge correctly held that it was plain and obvious that the application to strike or amend the NOP could not succeed as it was premature”: see Harold the Mortgage Closer Inc. v. Ontario (Financial Services Regulatory Authority, Chief Executive Officer), 2024 ONSC 4464 at para. 36.

[35] I find that the application related to the Second NOP is premature and it is plain and obvious that the application cannot succeed. The motion is granted. The application is dismissed.

[36] The parties agreed to costs for the successful party in the sum of $5,000. The Applicants shall pay the Respondents costs in the total sum of $5,000.

Shore J.

Date: September 25, 2024