ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 10-24289
DATE: 2012-05-28
B E T W E E N:
LAKEPOINT MORTGAGE INVESTMENT FUND 1 INCORPORATED
George Limberis, Counsel for the Plaintiff
Plaintiff
- and -
LEONARD LYN, SINGH LYN LLP, TRINITY DIVERSIFIED NORTH AMERICA LTD., FORGE D'URZO aka FORTUNATO D'URZO, SCOTT CHRISTOPHER WEBSTER, ROBERT JOSEPH HYDE, MARIO SERGIO, FINBANK MORTGAGE AND FINANCE CORPORATION, TRINITY GLOBAL REALTY LIMITED, TRINITY DIVERSIFIED MECHANICAL LTD., TRINITY GLOBAL INSURANCES INC., TRINITY TRUST INSURANCE LIMITED, TRINITY MEMORIALS INC., PALADIN CORP., TRINITY LAOTIAN LTD., TRINITY GLOBAL CORP., CANADIAN PROFESSIONAL SERVICES INC., VENTURE SYNERGIES INC., CORPORATE & PERSONAL FINANCIAL SERVICES INC.
George Corsianos, Counsel for the Defendants: Trinity Diversified North America Ltd., Forge D'urzo aka Fortunato D'urzo, Finbank Mortgage and Finance Corporation, Trinity Global Realty Limited, Trinity Diversified Mechanical Ltd., Trinity Global Insurances Inc., Trinity Trust Insurance Limited, Trinity Memorials Inc., Trinity Laotian Ltd., Trinity Global Corp., Corporate & Personal Financial Services Inc. No one else appearing.
Defendants
HEARD: January 12, 13,16, 17 and 18, February 8 and 9, 2012
RULING ON MOTION
Parayeski J.
[ 1 ] The focus of the lengthy hearing before me was the relief sought in the cross motion of the Defendants Trinity Diversified North America Ltd. (hereinafter TDNAL), Forge D’Urzo aka Fortunato D’Urzo, Finbank Mortgage and Finance Corporation, Trinity Global Realty Ltd., Trinity Diversified Mechanical Ltd., Trinity Global Insurances Inc., Trinity Trust Insurance Ltd., Trinity Memorials Inc., Trinity Laotian Ltd., Trinity Global Corp., and Corporate & Personal Financial Services Inc. These defendants, some of whose names as contained in the title of proceedings may be technically incorrect, seek an order setting aside an order of Cavarzan J., dated December 9 th , 2010 and a series of subsequent orders that flowed from it. The original order was granted on an ex-parte basis and created a Mareva injunction. The moving Defendants also seek a reference to address any damages they may have suffered as a result of the orders in question.
[ 2 ] As is plain from the pleadings in this case, the parties function through an extraordinarily complex corporate structure. The basic premise of the claim, however, can be stated simply. The Plaintiff alleges that it invested monies with TDNAL. The Plaintiff says that the subject monies were to be loaned out on second mortgages, with the interest earned on those mortgages being the basis of the return on investment. Instead, the Plaintiff alleges, the monies were used by the principal of the moving Defendants in various improper ways, including a running a Ponzi scheme and funneling funds to his own various corporations and himself. Forge D’Urzo aka Fortunato D’Urzo is that principal. He denies all of this, saying that the principals of the Plaintiff knew all along what happening with the monies invested, and that what was happening was wholly legitimate. He does admit, however, that there is insufficient money left to pay the investors their principal or interest.
[ 3 ] Put simplistically, the moving Defendants say that the Plaintiff obtained the initial order on the basis inadequate and/or improper disclosure to Cavarzan J. in first instance. Subsection 6 of Rule 39.01 of the Rules of Civil Procedure states:
“(6) Where a motion or application is made without notice, the moving party or applicant shall make full and fair disclosure of all material facts, and failure to do so is in itself sufficient ground for setting aside any order obtained on the motion or application.”
[ 4 ] At paragraph 46 of the factum submitted by the moving Defendants, they set out what they allege are some 22 instances of material non-disclosure or misstatements contained in the filings placed before Cavarzan J. at the time he granted the order of December 9 th , 2010.
[ 5 ] It is not my intention to parse all 22 alleged shortcomings. Instead, I shall focus on what I see as the most serious purported instances of not being as forthcoming or fair as a party in the Plaintiff’s position must have been. They are as follows:
The failure to disclose a shareholder’s agreement known to the principals of the Plaintiff which stated that the business of the Defendant TDNAL was going to be much broader than second mortgage investment;
Failure to disclose that two of the individuals whose affidavits were presented to the Cavarzan J. failed to reveal the fact that they were involved in TDNAL and the fact that they were receiving “secret” referral fees on investments placed with it; and
Incorrect and therefore misleading interpretation of financial statements.
[ 6 ] On the first point, my view is that the failure to disclose one agreement in a sea of paper productions, some of which at least appear to suggest that the focus of the investment program was indeed second mortgages, is not materially misleading. However, such non-disclosure may be said to have been unfair in the sense that it did not serve as some evidence of the moving Defendants’ position that TDNAL was not obligated to invest monies exclusively in second mortgages.
[ 7 ] On the second point, I have difficulty in understanding how the fact that principals of the Plaintiff corporation were being paid commissions on investments they were directing to TDNAL is somehow an answer to the alleged misuse of the invested funds. It is, at its highest, atmospheric. I note that the moving Defendants take great issue with the use of atmospheric phrasing used by the Plaintiff in its own materials.
[ 8 ] The third point is problematic for the Plaintiff. There are usually several ways one can interpret financial statements. The interpretation placed upon them by the Plaintiff is one such way. It is not the only way, however, and may not be the one ultimately accepted by the trial judge. It is the duty of a party seeking an ex-parte order, particularly one as forceful as one which grants a Mareva injunction, to be balanced in its presentation. It was not balanced to give only one interpretation, as appears to have been done here.
[ 9 ] While considered individually, none of the 22 shortcomings is necessarily proof of sufficient inadequacy as to require interference with the original order. Taken collectively, however, I am of the view that the Plaintiff failed to make “full and fair” disclosure as is required by the rule quoted above. The standard is extremely high, as is appropriate.
[ 10 ] That, however, is not the end of the analysis. I say this because I adopt as correct the interpretation of the law given by Gans J. in his decision in US v. Yemec et al , as is reported at 2003 23436 (ONSC). At paragraph 42 thereof, His Honour notes that there has been an evolution away from the notion that the failure to make full and frank disclosure is automatically fatal to the maintenance of any ex-parte order granted on the basis of that disclosure. That evolution has to do with there being a discretion to deny dissolution if such would result in an injustice. I am convinced that setting aside the order of Cavarzan J., and the subsequent orders that flow from it, would indeed result in an injustice. I come to that conclusion for the following reasons:
TDNAL’s accountants admit that it is insolvent. There is no reasonable explanation before me from its principal, Mr. D’Urzo, as to why it should be permitted to carry on business, including possible dissipation of what assets it does hold. I also note that there is no adequate explanation for why or how the company came to be insolvent;
There is some evidence that money invested by TDNAL was used to make interest payments to investors in lieu of its being invested;
There is some evidence of inadequately documented and unsecured loans from TDNAL to other companies owned or controlled by Mr. D’Urzo;
There is evidence that Mr. D’Urzo has mortgaged his home subsequent to the financial problems coming to light without giving a meaningfully fulsome explanation for the same; and
There is evidence that after it became apparent that TDNAL could no longer afford to operate and make interest and principal payments to investors, Mr. D’Urzo continued to make some interest payments to other corporations owned or controlled by him and to draw his salary, and that he only stopped both activities once the injunction was granted.
[ 11 ] Of course, at the end of the day there may be an adequate explanation for all of this. I do not presume to predict the trial result. If the injunction ultimately proves to have caused the Defendant’s compensable damages, that will be dealt with by way of the Plaintiff’s continuing undertaking.
[ 12 ] The moving Defendants’ motion is dismissed. The outstanding orders are to remain in place.
[ 13 ] If the parties cannot agree with respect to the costs of this lengthy motion, they may make brief written submissions in that regard. Such submissions, if any, should not exceed three type-written pages in length, not including cost outlines. Those submissions, if any, should be sent to my attention at the John Sopinka Court House in Hamilton on or before July 1 st , 2012.
Mr. Justice M. D. Parayeski
Released: May 28, 2012
COURT FILE NO.: 10-24289
DATE: 2012-05-28
ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: LAKEPOINT MORTGAGE INVESTMENT FUND 1 INCORPORATED Plaintiff - and – LEONARD LYN, SINGH LYN LLP, TRINITY DIVERSIFIED NORTH AMERICA LTD., FORGE D'URZO aka FORTUNATO D'URZO, SCOTT CHRISTOPHER WEBSTER, ROBERT JOSEPH HYDE, MARIO SERGIO, FINBANK MORTGAGE AND FINANCE CORPORATION, TRINITY GLOBAL REALTY LIMITED, TRINITY DIVERSIFIED MECHANICAL LTD., TRINITY GLOBAL INSURANCES INC., TRINITY TRUST INSURANCE LIMITED, TRINITY MEMORIALS INC., PALADIN CORP., TRINITY LAOTIAN LTD., TRINITY GLOBAL CORP., CANADIAN PROFESSIONAL SERVICES INC., VENTURE SYNERGIES INC., CORPORATE & PERSONAL FINANCIAL SERVICES INC. Defendants RULING ON MOTION Parayeski J.
Released: May 28, 2012