SUPERIOR COURT OF JUSTICE - ONTARIO

Newmarket Court File No.: FC-09-33213-00
Date: 20120127

RE: Carmine Gargano, Applicant

AND:
Teresa Gargano, Respondent

Before: Healey, J.

Counsel:
Carmine Gargano on his own behalf
D. Cohen, Counsel, for the Respondent

Heard: January 12, 2012

ENDORSEMENT

[ 1 ] This is a motion by the respondent, Teresa Gargano, in which she seeks the following relief:

(1) an order for child support for the three children of the marriage;

(2) leave to add Mr. Daniele Gargano and New Triumph Fine Woodworking. as respondents to this proceeding and an order granting her leave to amend her Answer accordingly;

(3) an order for questioning of third parties, namely Fiorella Gargano and Daniel Gargano;

(4) an order for the release of the amount of $20,000 from the sale of the jointly owned vacation property in Collingwood;

(5) an order for financial disclosure related to income only, in light of the applicant's recent bankruptcy, as specifically set out in the disclosure letter from the respondents’ expert, Vivian Alterman at AP Valuations and in the Request for Information served by the respondent;

(6) an order for interim disbursements to be paid by the applicant to the respondent’s valuator in the amount of $10,000 for the purpose of preparing an income report;

(7) an order extending the timelines for the filing of the expert income report;

(8) an order for the applicant to provide security for costs of the trial in the amount of $40,000 to be paid on or prior to March 1, 2012;

(9) an order that, in the event that either the interim disbursements or the security for costs are not paid by the timelines set out by this court, that the respondent may move to strike the applicant's pleadings on motion to this court without the necessity of obtaining the applicant's consent to dates for such a motion;

(10) costs.

[ 2 ] The proposed added parties were properly served but filed no responding material and did not appear at the motion.

[ 3 ] For the reasons that follow, this court orders:

(1) The applicant shall pay temporary child support to the respondent for the three children of the marriage based upon an imputed income of $90,000 in the amount of $345 per month based on a shared custody arrangement, commencing January 1, 2012 and thereafter on the first day of each month;

(2) Mr. Daniele Gargano and New Triumph Fine Woodworking are added as parties to this proceeding and leave is granted to amend the Answer to make claims against those added parties. Additionally, leave is granted to the respondent to move by 14B on notice to the applicant to add other corporations that she may subsequently discover to have been incorporated after the commencement of this proceeding, of which any of the applicant, Daniele Gargano or Fiorella Gargano are owners or directors;

(3) Leave is granted for questioning of Daniele Gargano;

(4) The respondent may serve a Request for Information on Fiorella Gargano to produce documents and information relating to: (i) the first mortgage registered against 343 Napa Valley Avenue, Vaughn; (ii) any accounts held jointly with the applicant; and (iii) any financial assistance that she has provided to the applicant over the course of the marriage of the parties and following separation. In the event that she fails to respond to the Request for Information, or her responses are incomplete, the respondent may move by 14B on notice to the applicant for leave to question Fiorella Gargano as a non- party.

(5) On consent, the real estate solicitor holding the proceeds of sale from 835 Suncrest Circle in trust shall forthwith release one-half of the net proceeds of sale to the respondent, without necessity of the applicant’s signature on a Direction;

(6) Daniele Gargano shall produce to the respondent’s lawyer, within 30 days:

i. answers to the following questions contained in correspondence from AP Valuations Limited, being exhibit L to the affidavit of the respondent sworn November 11, 2011: #3, 8-12, 19-24, 29-32, 44-47, 50-54;

ii. proof/documents pertaining to any loans or gifts made by him to the applicant for the period 2000 to December 31, 2011, including proof of payments by him toward the expenses of the applicant or the children of the marriage.

(7) The applicant shall produce to the respondent’s lawyer, within 30 days:

i. answers to the following questions contained in the same correspondence referred to in 6 above: #35-39; and

ii. the information requested in the Form 20: Request for Information dated November 11, 2011, #1-15 inclusive.

(8) All of the above information to be provided by the applicant and Daniele Gargano shall be organized, with an index and tabs;

(9) The timeline for serving an expert income report is extended for the respondent to March 30, 2012, as this matter is scheduled to be tried during the May 2012 sittings;

(10) The other claims for relief in the motion are dismissed.

HISTORY OF THE LITIGATION

[ 4 ] On September 13, 2011 the parties attended for a full day settlement conference with their respective counsel and valuators. The endorsement of the case management judge, McGee J., indicates that it was a productive conference even though no settlement was reached, and that the matter was to proceed to the November 2011 trial settings.

[ 5 ] The trial management conference was held on October 11, 2011. McGee J.’s endorsement from that date indicates that the applicant released his counsel and his valuator following the settlement conference. His trial management conference brief indicates that he only intends to lead his own personal evidence at the trial. Her endorsement notes that the applicant's expert valuation of his interest in various companies had up until that point been in draft form only, and the source documents were never provided to the respondent. The respondent was therefore left in the position of having no expert evidence at trial to cross-examine, and no source documents, time or funds with which to prepare her own valuation. McGee J. granted the respondent’s request for an adjournment of this matter to the May 2012 trial settings under the circumstances, and scheduled this motion to proceed.

[ 6 ] Thereafter, on November 18, 2011, the applicant filed an assignment in bankruptcy. This occurred two days after the applicant was served with this motion; he denies any connection between the two events. Such assignment stays the property claims in this proceeding.

[ 7 ] Much earlier in this proceeding the applicant had consented to an order requiring him to formally value his interest in the Triumph Group of Companies as at the date of transfer and at the date of separation. As earlier indicated, the applicant complied with this order and at the hearing of this motion the court was advised that he was in possession of the completed business valuation report. That report is now, most likely, moot.

BACKGROUND FACTS

[ 8 ] The parties were married on May 13, 1995 and separated on August 4, 2009. The parties have three children: Nicholas born January 30, 2000, Guilia born September 19, 2001 and Nadia born December 14, 2002.

[ 9 ] Shortly after separation the parties consented to an order that they have temporary joint custody of the children and that the children reside with each of the parties on a 50/50 schedule. The parties have been following such a schedule without any significant issue since September 2009. The parties live some distance apart; the applicant resides in Woodbridge and the respondent resides in Peel region. The applicant's position in this proceeding is that he wants to have a trial to determine the residency of the children. He indicated during his argument of this motion that he wants to have the children reside with him for two reasons: one is the convenience to the children of the proximity of their school to his home, whereas now they have a lengthy drive during the weeks that they are living at their mother's home, and another is a concern raised by the mother’s driving record, which was not in evidence on this motion.

[ 10 ] The respondent is employed with the CIBC, earning income of approximately $68,000 per annum.

[ 11 ] The applicant is a trim contractor, previously owning 50% of the group of companies together named "The Triumph Group of Companies" (the "companies"). Prior to separation, but after the respondent advised the applicant that she was considering a separation, the applicant transferred his 50% interest in the companies to his brother, Daniele Gargano. This occurred in November 2008. The respondent did not discover the transfer of the companies until she received a sworn financial statement from the applicant that did not include any of the companies as assets on the date of separation. Any capital gain/loss arising from the transfer does not appear on the applicant's 2008 or 2009 income tax returns. No funds changed hands on the transfer, but it is the position of the applicant that the consideration for the transfer was the forgiveness of debt arising from loans made to him by his brother throughout the marriage. Thereafter, the applicant worked as a consultant for his former companies.

[ 12 ] In his argument the applicant conceded that he did not really know how much money he owed to his brother. His material contained handwritten notes setting out sums allegedly loaned by his brother, together with various cheques or bank drafts made payable to the applicant.

[ 13 ] The respondent alleges that during the marriage the applicant advised her that he was earning approximately $90,000 per annum. Her evidence is that the sum of $7,500 per month was deposited into the joint account as the applicant's draw or salary. Her position on this motion is that this amount should be grossed up to $150,000. The respondent’s tax returns reflected income of only approximately $20,000 per annum during the marriage. In his financial statement sworn August 5, 2009 the applicant indicated that he had a gross monthly income, including the benefit of the use of a Buick Enclave, insurance and a gas card, of $5,919 per month. In his financial statement sworn two years later, he indicated that he was employed by New Triumph Fine Woodworking, but receiving no wage. He was, however, still receiving the benefit of the vehicle, insurance and gas card. In his affidavit sworn January 9, 2012 the applicant deposes that he has been employed by New Triumph Fine Woodworking since August 4, 2010 and his T4 from that company indicates that he earned a total of $1,250. The respondent’s 2010 Notice of Assessment indicates total income of $20,836.

[ 14 ] The respondent’s position is that the applicant’s bankruptcy is the latest move in a continuum of behaviour aimed at defeating her claims in this proceeding. The respondent wholly disbelieves that the applicant was indebted to Daniele, and believes that the transfer of the companies is a ruse created by the applicant and his brother to reduce his assets and income. She points to the fact that two of the companies that were transferred to Daniele were only incorporated in the year of transfer. These two companies, Triumph Trim and Hardware Ltd. and Ultimate Hardwood Flooring Inc., were the only two companies that were active at the time of separation. At the time that these companies were created, according to the applicant’s own documentation he owed his brother the same amount of debt that he still owed him nine months later, at the time of the transfer. The debts relied on by the applicant, she argues, were well past the two year limitation period by the date of the transfer of the companies.

[ 15 ] Also relied on by the respondent is the fact that the applicant’s personal credit card debts continued to be paid by Triumph Trim and Hardwood Ltd. throughout 2009. Despite the transfer the respondent has never been without a company car, and in November 2011 the original Buick Enclave was replaced with a Lexus SUV. The company most recently incorporated by Daniele Gargano has the same office and address, substantially the same name as the former company, and performs the same functions.

[ 16 ] The respondent also points to the applicant’s lifestyle: she indicates that the applicant continues to maintain all of the expenses for the parties’ son’s AAA hockey, exceeding $10,000 per year, and has taken several vacations since separation. He requested that he take the children to Florida for vacation over the Christmas break, and has informed the respondent that he is planning to take them to Florida for ten days in July. The respondent deposed that the applicant has contacted her aunt to make a request that he rent her three-bedroom condominium in Collingwood over the past Christmas and New Year’s season. The applicant states that all of this has been paid for by the generosity of his brother. The respondent regards this with suspicion; during the marriage the applicant’s brother, she alleges, never paid for any of their expenses.

[ 17 ] After separation, and without access to any of the funds from the sale of the matrimonial home or from the sale of the parties’ Collingwood vacation property, the applicant purchased a townhouse in Woodbridge at a cost of $414,900, against which is registered a first mortgage in the amount of $450,000 in favour of his mother, Fiorella Gargano. The mortgage is due on demand, and otherwise it contains no terms of payment or interest. The applicant states that his mother encumbered her own home to raise the mortgage funds. The respondent, on the other hand, believes that the applicant has "funnelled" money through a joint account that he holds with his mother, and that the funds for the mortgage actually belonged to him.

THE ISSUES ON THIS MOTION

(a) Adding parties

[ 18 ] The applicant's ability to earn income, and therefore the reason for the transfer of the companies, as well as his current involvement in New Triumph Fine Woodworking or related companies is a live issue in this proceeding. Full disclosure with respect to the corporate transfers, the alleged loans and transactions related to the loans, and the applicant's relationship to these companies is required.

[ 19 ] As the applicant himself has indicated in his material and throughout his submissions, many of the respondent’s queries and documents that she seeks are now within the control and ownership of his brother. These documents and the information that the court has ordered to be produced in paragraph 3 above are necessary for the court to do justice in this case. Daniele Gargano is required to participate in this proceeding in order to enable the court to decide all of the issues in the case. Accordingly, he is being added as a party and the respondent may amend her answer to seek relief against Daniele Gargano.

(b) Questioning

[ 20 ] Similarly, important information is within the control of Fiorella Gargano. Documentary information regarding the mortgage registered against the applicant's home, transactions within the joint bank accounts that she holds with her son or sons, and the financial assistance that the applicant alleges to have received from her over the past three years all impact on the question of the applicant's income or income earning ability. Under Rule 20 the courts have broad control over the process of obtaining information from a person who is not a party and to make orders to that end. I am satisfied that in this case it would be unfair to the respondent to go on with the case without being able to fully understand the financial relationship between the applicant and his mother. Taking into consideration the test for disclosure from a third party set out in Ontario (Attorney General) v. Ballard Estate , 1995 3509 (ON CA) , 1995 CarswellOnt 1332 (C.A.), an order for production is warranted. However, it is only if there is an absence of response or an incomplete response from Fiorella Gargano that the court should consider the more intrusive procedure of oral questioning. In making this order am being cognizant of the age of the applicant's mother and attempting to avoid causing greater distress than necessary for her.

[ 21 ] Questioning of Daniele Gargano is warranted given that he played a pivotal role in the corporate transactions and is now in control of New Triumph Fine Woodworking, which in all respects appears to be the successor to Triumph Fine Woodworking Ltd.. I find that what has become one of the central issues in this case, being the credibility of the applicant's evidence surrounding the transfer of the companies, is best tested through the process of oral examination. Given that the trial is still four months away such questioning should not lead to delay or undue expense.

(c) Child Support

[ 22 ] While the respondent alleges that $7,500 was consistently deposited into their bank account by the applicant during their marriage, she has not provided any documentary proof in support of that allegation. Unquestionably their lifestyle, including servicing mortgages and other carrying expenses on a vacation property in Collingwood and a home in Woodbridge having a value in excess of $600,000, together with raising three children, including the expense of AAA hockey, indicates that the applicant was earning significantly more than the $20,000 that he reported to Revenue Canada. Even taking into account the respondent’s income, their expenditures suggest a standard of living that exceeds a family income of approximately $85,000. For the purposes of this temporary child support order, and recognizing that it is made on woefully inadequate evidence, I am basing child support on the income disclosed by the applicant in his initial financial statement sworn August 5, 2009, which was $5,919 per month or $71,028 per annum.. The applicant unexplainably had those earnings despite the earlier transfer of the companies to his brother. He provides no believable explanation for why that income terminated. Further, his evidence that he earned zero income other than the benefit of the vehicle, for well over a year, is not credible. The amount of $71,020 per annum should be increased to account for the fact that the applicant has paid tax on a much lower amount. Until better evidence is available the applicant's gross income will be set at $90,000. Based on an imputed income of $90,000 for the applicant and $68,000 actual income for the respondent, on a shared custody arrangement child support is payable by the applicant to the respondent for the three children at a rate of $345 per month.

[ 23 ] At this point I am not awarding retroactive support given the questions still surrounding the applicant’s income since separation, without prejudice to the right to pursue such claim at trial.

(d) Service of Expert’s Report

[ 24 ] In terms of extending the deadline for service of the expert’s report, this order is obviously necessitated by the fact that the property claims are stayed and the respondent now needs to obtain a report that addresses the issue of the applicant’s income, which is now being obfuscated by the applicant.

(e) Request for interim disbursements

[ 25 ] The request for an order that the respondent fund this income report is being denied on the basis that this is not a case where it is necessary to make such an order to "level the playing field". The parties’ incomes are not that far apart (based on the evidence before the court on this motion) and neither has control over any more assets than the other. Further, the release to the respondent of the money from the Collingwood property should assist her to secure such a report.

(f) Security for Costs

[ 26 ] While the bankruptcy of the applicant is of questionable legitimacy based on the evidence currently before the court, it remains to be proven by the respondent that the bankruptcy was undertaken as a tactical manoeuvre. The court must also remain open to the possibility that the applicant's bankruptcy was an unavoidable consequence of the parties having lived above their means during the marriage, and it being the culmination of the financial consequences to the applicant of the separation. To make an order for security for costs that may, if unpaid, result in a dismissal of the applicant's case would be unjust if in fact the latter is proved to be true.

[ 27 ] With respect to the respondents concerned that the applicant will drag out the issue of the residence of the children over several days of trial, and that she will ultimately bear the cost of such a process with no means of recovery of any potential cost order, there is provision in the Rules for a party to obtain admissions in advance of trial to limit the trial time. Additionally, the trial judge will be in a position to control the admission of irrelevant and time wasting testimony, to assist in addressing this very real concern.

[ 28 ] A temporary order shall issue in accordance with para. 3 of this endorsement.

(g) Costs

[ 29 ] If the parties are unable to agree upon costs of this motion they may make brief written submissions no longer than 2 pages in length, attaching any relevant offers, to be delivered to the office of the judicial assistants in Barrie. The respondent’s are due 10 days from the release of this decision, the applicant’s 5 days thereafter and any reply, if necessary, 2 days thereafter.

HEALEY, J.

Date: January 27, 2012