SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO.: CV-10-410209

DATE: 20130418

RE: BAYWOOD HOMES PARTNERSHIP, 2131059 ONTARIO LIMITED, 2206659 ONTARIO LIMITED, 2147789 ONTARIO LIMTED, 1367169 ONTARIO LIMITED and RALPH CANONACO / Plaintiffs and Responding Parties

AND:

ALEX HADITAGHI also known as ALEX VAHID HADITAGHI also known as VAHID HADITAGHI, MAJID HADITAGHI also known as MICHAEL HADITAGHI also known as MARK HADITAGHI, MONEYLOGIX GROUP, INC., MORTGAGEBROKERS.COM INC., MONEYLOGIX GROUP, INC., MORTGAGEBROKERS.COM FINANCIAL GROUP OF COMPANIES INC., GARY CILEVITZ, MICHAEL KNARR also known as MIKE KNARR and FARIDEH RONHBAKHSH also known as FARIDEH ROUHBAKHSH / Defendants and Moving Parties

BEFORE: Justice Edward Belobaba

COUNSEL:
George Karayannides, Mark Hines and Daniel DelGobbo for the Moving Parties / Defendants

David Foulds and Jonathan Davis-Sydor for the Responding Parties / Plaintiffs

HEARD: March 14, April 11 and 12, 2013

summary judgment motion

[1] It would have been very easy for me to dismiss this motion for summary judgment and send the matter to trial. The “full appreciation” test[^1] provides a comfortable exit for a busy or disinterested motions judge. By shifting the focus from issues requiring trial to concerns about the number of witnesses and the volume of filed material,[^2] the Court of Appeal has unintentionally provided responding counsel with a game-winning strategy: overwhelm the motions judge with a voluminous amount of material, throw in some references to the “interests of justice”, and he or she may happily take Exit 51[^3] and send the case to trial.

[2] Here, at first glance, the volume of material that was filed by the parties was overwhelming: the motion record was almost 1900 pages long, with 11 affidavits and more than 500 pages of cross-examination transcripts. The materials also included a 45-page index of correspondence between counsel and lengthy factums from both sides, well in excess of the 30-page limit. The moving parties’ supplementary factum provided a two-page “cast of characters” summary and a 16-page chart describing the “chronology of events and transactions.” The responding parties’ factum contained an 18-page chart listing more than 90 examples of alleged “factual disputes” in the affidavit evidence.

[3] Thus, it would have been easy to apply the generously elastic language of Combined Air, dismiss the motion for summary judgment in its entirety and send the matter on to trial. Easy but wrong. After taking some time to review the material, I realized that my initial concerns about the volume of filed material were misplaced and that counsel for the moving parties was right – the case really came down to three or four documents, and the issues in dispute were potentially amenable to summary adjudication.

Background

[4] The two protagonists are Ralph Canonaco and Alex Haditaghi. Counsel referred to them in court by their first name (with their permission) and I will continue to do so here.

[5] Ralph and his family are experienced home-builders; Alex is an expert mortgage broker. The two of them, with their colleagues and through their respective companies, engaged in a series of transactions involving a property in Barrie over the course of the turbulent financial year that was 2009. Disputes arose, giving rise to this litigation. Initially, Alex sued Ralph on two promissory notes that Ralph had signed personally and Alex believed were due and owing, one for $750,000 and another for $500,000. Ralph countered with a multi-million dollar lawsuit accusing Alex and certain of his companies and colleagues of fraud and other improprieties, and numerous breaches of agreement. The competing lawsuits were eventually consolidated into a single proceeding that now consists of Ralph’s action and Alex’s counterclaim on the two promissory notes (“the Two PNs”).

[6] Alex brings this motion for summary judgment dismissing Ralph’s action in its entirety and granting his counter-claim on the Two PNs. Ralph argues that the matter should go to trial because of the complexity of the underlying factual narrative, the large volume of conflicting evidence and the fact that a trial judge would be in a better position to fully appreciate all of the evidence and related legal issues and resolve the disputes. Alex, in response, says that almost all of the so-called conflicting evidence is beside the point, the voluminous record is unnecessarily distracting and the case really comes down to three documents that were drafted, negotiated and signed with the assistance of legal counsel: a Release dated November 12, 2009 and the Two PNs also signed around the same time.

The hearing and mini-trial

[7] During the course of the hearing of the motion for summary judgment, I was persuaded on the evidence before me that Ralph’s action was completely precluded by the November 12, 2009 release agreement, referred to as the Third Release.[^4] The language is clear and comprehensive and can be objectively assessed. None of the arguments advanced by Ralph about the document’s scope and content or its signatories are tenable. And, there is no credible evidence in the material before me that can seriously support the allegations of duress, unconscionability, non est factum or lack of consideration. On its face, the Third Release seems to be a complete bar to this action.

[8] But the most telling and most persuasive indicator of its validity was Ralph’s own testimony. During the cross-examination on his affidavit, Ralph admitted that “as of December 2009, there was a clean slate.” He agreed that neither he nor any of his companies “had any claims against [Alex].”

[9] Ralph’s counsel points out that Ralph also added that “likewise [Alex] didn’t have any claims against [me].” This additional qualifier deserves the following comment. If Ralph meant that the Third Release explicitly released any claims that Alex may have had as against him, that interpretation is demonstrably incorrect. If he meant, as is more likely, that he had a separate (perhaps earlier) understanding or agreement with Alex that Alex would not pursue him on the Two PNs, then this can be considered as a separate issue and will be, below.

[10] I pause at this point to note the following. Both sides agree that some of the documents and agreements that were executed by the two protagonists over the course of their business relationship did not accurately reflect what was really going on. This was particularly obvious with regard to the $500,000 PN and its related documentation, as I will explain in more detail below. Even Ralph’s lawyer, who was directed to draft these documents, was unable to fully explain on cross-examination why they were needed or what the parties intended to do with them. In other words, both Ralph and Alex fabricated and executed documents that did not reflect the true state of affairs but were used to advance a transaction or otherwise assist the other party for some other reason.

[11] I refer to the existence of “fake documents” while discussing the Third Release because Ralph’s counsel tried to persuade me that the Third Release may also be tainted by these same concerns and thus a full review of the factual background was necessary, providing yet another reason why the entire matter should go to trial. I acknowledge that, standing alone, the authenticity or intended purpose of the Third Release could well be doubted given the apparent use and prevalence of fake documentation. However, I am prepared to adjudicate the Release issue summarily, and in favour of Alex, mainly because of Ralph’s “clean slate” admissions on cross-examination as discussed above.

[12] These admissions, in my view, confirm both the authenticity and intended purpose of the Third Release. By December 2009, as Ralph himself admitted, neither he nor his companies had any claims against Alex and his companies. And, given that all of the claims in the plaintiffs’ action relate to alleged breaches that predate the Release,[^5] and given that none of the legal defences advanced on the plaintiffs’ behalf (duress, unconscionability, non est factum and lack of consideration) can succeed on the record before me, I have no difficulty concluding that the plaintiffs’ action (except for the claims relating to the Two PNs, which I will explain shortly) is precluded and should be summarily dismissed.

The Two PNs

[13] The Two PNs, however, pose difficulties for me. I agree with counsel for Alex, that on their face, the PNs are clear in both scope and content, and that the related documentary evidence, including the explicit comfort letters prepared by Ralph’s lawyer, also supports their validity and enforceability. Ralph, however, insisted repeatedly in his affidavit evidence that the Two PNs were “fictions”, that he signed them strictly as a favour to Alex who needed them for his own personal reasons (perhaps to shore up his company financials) and that Alex reassured him that he would “put them in a drawer” and they would never be enforced. Ralph says he was stunned when Alex sued on the two promissory notes and he then countered with his own action.

[14] I wanted to hear more about the Two PNs from Ralph and Alex in person. I decided that a “mini-trial” would assist me in assessing their conflicting evidence and deciding whether the issue of enforceability could be adjudicated summarily. At the half-day mini-trial, three witnesses gave evidence about the Two PNs: Alex, Ralph and Ralph’s brother Frank. Frank was not privy to the PNs but briefly described how he learned about them later and what Alex told him in private about their enforceability. Because Alex denied that the latter conversation ever took place, and because Frank’s evidence was arguably self-serving, I did not give any weight to Frank’s evidence. For me, the contest came down to the PN documentation and to Alex and Ralph’s explanations as to why the Two PNs were signed.

[15] Alex testified at the mini-trial that the Two PNs were needed to cover the deficiency owing to him (actually to his company, Moneylogix) following the sale of the mortgage receivable and certain “ancillary rights” that pertained to the Barrie property. Alex explained that the two promissory notes, one for $750,000 and the other for $500,000, were intended to help cover this deficiency. Ralph agreed to sign the notes personally because all of his companies were single-purpose project vehicles and/or overleveraged and thus, it made sense to provide a personal promise to pay.

[16] Ralph’s evidence was that none of this was true. He testified that Alex was embarrassed about the fact that he sold the mortgage and the ancillary rights below fair market value and he needed to satisfy the concerns of shareholders and other interested third parties. He told Ralph that he needed the PNs to shore up his financials and he promised Ralph that he would never enforce them – “he said he would put them in a drawer.”

[17] As I have already noted, all of the documentary evidence before me supports Alex’s version of events. However, it became apparent as the mini-trial progressed, that in the business culture that had developed between them, Ralph and Alex often ignored or worked around carefully drafted documentation or worse, fabricated such documentation when it was deemed necessary to do so.

[18] The best example, as already noted, is the $500,000 PN. The documentation shows that Ralph made the note payable to Alex’s other public company, Mortgagebrokers.com. The documentation also explains that the money was being paid to Mortgagebrokers.com as a settlement for fees due and owing to this company. However, none of this was true. No fees were owing to Mortgagebrokers.com. The applicable “settlement agreement” that was signed by both Ralph and Alex was itself a fake document that had no connection with what was really happening.

[19] The real explanation behind this $500,000 PN? Alex says it was part of the deficiency payment owing on the ancillary rights sale. The reason it was made payable to his mortgage company and not to the actual vendor, Moneylogix, was because Alex’s accountant advised Alex that his consulting time had to be “allocated” between his two public companies. Ralph, on the other hand, says that the $500,000 PN, like the $750,000 PN, was pure fiction, fabricated and executed as a “favour” to a friend who promised him that the PN would never be enforced. It bears repeating that neither of these competing explanations reflects what was stated on the face of the “settlement agreement” relating to the $500,000 PN, a settlement agreement that was signed by both Ralph and Alex.

[20] All of this gives rise to a number of questions:

➢ If the Two PNs were intended to cover Moneylogix’s deficiency on the above-described property transaction, why weren’t both notes mentioned in the Form 10-K that was filed with the U.S. Securities and Exchange Commission by the successor corporation, Panacea Global? In the section describing the transaction in question, only the $750,000 PN is mentioned. Nothing is said about the $500,000 note.

➢ Why were false documents fabricated about the settlement of fees owing to Mortgagebrokers.com when no such fees were owing?

➢ Why was the $500,000 PN made payable to Mortgagebrokers.com?

➢ If the PN was made payable to Mortgagebrokers.com on the advice of Alex’s accountant, why didn’t the accountant file an affidavit to help answer some of these questions?

➢ And a more fundamental question: Why are over-burdened judicial resources being used to summarily adjudicate a credibility contest that is complicated with false documents that the parties themselves have fabricated for reasons unknown or not easily understood? Why not just let the entire matter go to trial?

[21] The problem for me is obviously the $500,000 PN and its related documentation. I think it’s fair to say that but for the questions surrounding this particular promissory note, and given Ralph’s uneven testimony at the mini-trial, I would likely have found in favour of the defendants and would have granted summary judgment on the Two PNs. Should I now at least grant judgment on the $750,000 PN? In my view, this would neither be fair nor reasonable. The Two PNs are interconnected, whosever version is believed. I cannot enforce one and send the other on to trial.

[22] In sum, the mini-trial conducted under Rule 20.04(2.2) persuaded me that I am unable to achieve a full appreciation of the evidence that will be needed to make dispositive findings about the enforceability of the Two PNs. This is a question that does not turn solely on the documentation, given that some of the documentation is admittedly false. A full and complete examination of why the parties did what they did is required in the interests of justice. A trial judge will be in a better position to hear all of the evidence from all of the witnesses, including Ralph’s lawyer and Alex’s accountant, and make the appropriate findings.

[23] I find that the enforceability of the Two PNs are genuine issues that require a trial.

Disposition

[24] Because Ralph admitted his liability under the Cogan Personal Guarantee, judgment to go as against Ralph Canonaco in the amount of $150,000 plus interest as agreed to by counsel.

[25] The defendants’ motion for summary judgment dismissing the plaintiffs’ action in its entirety (except for the claims relating to the Two PNs as set out in paras. 1(f)(i) and 1(g)(iii) of the Statement of Claim) is granted. The plaintiffs’ action, with the exceptions just noted, is dismissed.

[26] The defendants’ motion for summary judgment on its counter-claim on the Two PNs is dismissed and the entire counter-claim (including the claims about the “2% fee” which were not really discussed in this proceeding) shall continue on to trial.

[27] Given the fact that success on the motions was almost equally divided, no costs are awarded.

[28] I wish to convey my thanks to counsel on both sides. The level of preparation and the quality of advocacy was superb and very much appreciated.

Belobaba J.

Date: April 18, 2013

[^1]: Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, (2011) 108 O.R. (3d) 1 (C.A.).

[^2]: See the Court of Appeal’s controversial admonition as set out in para. 51 in Combined Air, supra, note 1: “In cases that call for multiple findings of fact on the basis of conflicting evidence emanating from a number of witnesses and found in a voluminous record, a summary judgment motion cannot serve as an adequate substitute for the trial process. Generally speaking, in those cases, the motion judge simply cannot achieve the full appreciation of the evidence and issues that is required to make dispositive findings. Accordingly, the full appreciation test is not met and the "interest of justice" requires a trial.” (Emphasis added.)

[^3]: Referring to para. 51, supra, note 2.

[^4]: The parties also executed two prior releases. However, Alex’s counsel submits that the Third Release is all that is needed to stop the main action in its tracks.

[^5]: The only exception is the claim relating to the alleged “confidentiality agreement”. However, as Ralph admitted in his evidence at the mini-trial, he has no basis for this claim because to date there have been no breaches.