ESTATE NO.: 31-1122565
HEARD: 20130314
RELEASED: 20131022
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY AND INSOLVENCY
In the Matter of the Bankruptcy of Rhonda Michelle Starkman
of the City of Toronto, in the
Province of Ontario
APPEARANCES: Rhonda Starkman - the Bankrupt rhondas@rogers.com
Sanjeev Mitra - for the Trustee,
Brief &Associates Limited fax 416-8631515
BEFORE: MASTER D. E. SHORT, Registrar in Bankruptcy
HEARD: March 14, 2013
REASONS FOR DECISION
Another Cautionary Tale
I. Contested Discharge
[1] The Bankrupt, Rhonda Starkman made a voluntary assignment into bankruptcy on October 22, 2008. It was her first bankruptcy.
[2] Since then a series of dates were set for her discharge hearing but for a variety of reasons were adjourned. Now, after five years, the matter comes to be addressed by this decision.
[3] Counsel for the Trustee opposed the Bankrupt’s Application for Discharge on the basis that there were issues relating to mortgage financing that was placed on her home in the months prior to her voluntarily going into bankruptcy.
[4] At the hearing the bankrupt filed extensive materials in support of her position, which to a large extent took issue with the manner in which her estate had been administered, and in particular took issue with the manner in which the claims of her second husband were resolved by the Trustee.
II. Background
[5] The interface between the Bankruptcy and Insolvency legislation in force in Ontario and the legislation and case law relating to family law disputes and in particular property claims against alleged family assets and matrimonial property presents great difficulties to this Court in coming to a just and equitable division amongst the creditors, former spouses and the bankrupt.
[6] This is one such case.
[7] Ms Starkman raises a number of problems with respect to the manner in which her bankruptcy was handled.
[8] In part, she complains about the delay in having these matters resolved. However, adjournments were also sought by her both on health grounds and otherwise, over the months prior to her discharge hearing finally proceeding.
[9] The matrimonial matter took an extended period of time with hearings before various courts. Ultimately a settlement was made, which she regards as having been agreed to by the Trustee, notwithstanding her belief that such a settlement was improvident and unjustified.
[10] Originally this matter was scheduled to be heard on March 16, 2012 before Master Sproat. Due to a conflict the matter was adjourned to a hearing scheduled to be before me some ten months later. Then, at that point in time there was a serious influenza outbreak in Toronto and regrettably, for the Bankrupt was complicated by her acquiring a bacterial infection. As a consequence, I adjourned the matter for another two months and directed that it be heard on March 14, 2013.
[11] Notwithstanding that over one year had elapsed since the hearing date scheduled before my colleague, the responding materials that Ms Starkman intended to rely upon were served the day prior to the hearing before me and in fact did not reach me until the morning of the hearing.
[12] The materials consisted of typed submissions which were 30 pages in length (single-spaced) setting out a large number of concerns and issues. As well, a binder with 11 tabs of material was filed with the Court, in circumstances where a full review of its contents was not possible prior to the hearing.
[13] Nevertheless, rather than again adjourning the matter again, I determined to proceed with the hearing and to reserve my decision. My other responsibilities have regrettably further delayed the release of this decision.
[14] This Court has a “Late Filing” document that allows a litigant to set out the reasons for filing their material after an established deadline. In this case a handwritten note from the bankrupt on that form read:
“I expected to only write a few paragraphs in response to the trustees report opposing my discharge; however; as I reviewed 4 ½ years of documents, I realized that my proof was never presented by the Trustee. It took me two weeks to compile a response that shows how from the very beginning, I tried to work with the Trustee to present a view other than my ex-husband’s.
As my documents show, the Trustee was wrong in giving my ex-husband and his lawyer thousands of dollars from my estate at the expense of the legitimate creditors. Justice Newbould on August 17, 2011 stated Tom’s claim belongs in family court and Tom is not a creditor. There is no mention of this in the Trustee’s documents and he is still opposing my discharge. I list 15 violations of the BIA in my response and I believe the Trustee must be held personally accountable. I provided documentation that is accurate and detailed. That took me much longer than anticipated; however, I believed it was necessary for the Court to have this information.” [underlining in original]
III. The Bankrupt’s Concerns
[15] The first page of her submission sets out part of the source of the confusion and complexity that has presented some of the difficulties in my review of the handling of this estate. In part it reads:
“I reflected on the potential outcome of this hearing and what, to me, would be the “best case” scenario. Ordinarily, I understand there are three options: Undischarged, Discharged or Discharged with Conditions. One would assume every bankrupt wants a discharge, a fresh start without the overwhelming financial burden; however, that is not the case for me.”
[16] Thus, I am required to address what appears to be the Bankrupt’s disinclination to be awarded a discharge in a situation where the trustee seems to be opposing the discharge, without any forceful argument now being made in that respect.
[17] It is clear from the materials that a number of the Trustee’s actions were not in accord with the Bankrupt’s view as to the correct manner of proceeding. Moreover she asserts that the Trustee tended to side with her ex-husband rather than the bankrupt. Regrettably, given my limited jurisdiction and the nature of the application before me, much of what Ms Starkman has to say probably belongs in another forum.
[18] Nevertheless she indicates the questions that she was asking the court to answer were:
“a. How will the issue of wrongly paying Tom and his lawyer out of the proceeds from my house be handled?
b. How will I be compensated for the trustee’s violation of the BIA?”
[19] In here written submissions the Bankrupt then proceeds to set out 15 headings with supporting transcript quotations, statutory extracts and comments. While I have reviewed all of the comments I have selected a few to extract in order to provide somewhat of a sense of perspective in this case.
[20] The first item I intend to address is entitled, “Failed to disallow Tom Mitchell’s First Proof of Claim/Failed to provide my lawyer or me with rationale for inaction.” The bankrupt’s submission reads in part:
“On October 22, 2008 I made an assignment in bankruptcy.
My house became vested in the trustee, and there was enough equity in the house to pay all of my creditors. Prior to my bankruptcy, the trustee had agreed that my mother could purchase a house privately and my mother had a $250,000 line of credit available for that purpose”
[21] Apparently her husband filed his first proof of claim on October 29, 2008 for $485,000. Ms Starkman asserts that the house was only valued at $550,000 at that time.
[22] She submits that:
“This claim was never disallowed by the Trustee despite the efforts of 3 lawyers, 2 other Trustees, evidence from me disputing Tom’s claim (Appendix 3), and the requirements of the BIA, excerpts of which are provided below:….”
[23] The family law issues are not really before this court. Justice Newbould apparently has already made that determination. Nevertheless the complexity of the issues raised by Ms Starkman help to indicate, yet again, the extent of her dissatisfaction and concern with respect to the process in which she was involved.
[24] The various trust concepts that can arise in Ontario family law property disputes together with the bankruptcy legislation create complex dilemmas for trustees and the court. This area is addressed under her second heading, “Applied irrelevant family law matters to bankruptcy/REFUSED expert opinion/ignored my letter outlining why Tom had no claim”.
[25] Under this heading she sets out a very lengthy explanation of her position in this area. The following are extracts from her submission:
“Tom never had any right to my property. The most he could have had was an equalization payment but he did not even have that.
The Line of Credit the Trustee continually refers to was part of an action that I initiated in Family Court because my ex-husband refused to move out of my house and refused to make any financial contribution. The night before the court was to hear my motion to evict Tom, I approached him with a settlement offer. We agreed in principle and the next morning we signed a typed copy with our lawyers. I was not even aware the judge signed it.
To reiterate, the purpose of that agreement was to avoid a motion to evict Tom. It set out a timeframe in which he had to find a job or move out and it established a monthly rental payment he had to make or move out.
Although the $50,000 limit on the line of credit was there the lawyers agreed the number was irrelevant because any equalization payment would be based on the value in equity in the house at the time of separation, not at the time of sale. We separated on July 31, 2007; we already had a formal appraisal and knew the house value as of that date and the amount remaining in the mortgage. Anything I did with the house after July 31, 2007, including the $125,000 line of credit, had absolutely no negative effect on an equalization payment of Tom may have been entitled to according to the Family Law Act. [emphasis in original]
[26] The bankrupt alleges that the Trustee did not fully comprehend the family law principles in play in this case:
“According to the Family Law Act (FLA), the equity in the house is NOT divided. If it were, the debt would be divided as well and the trustee certainly did not do that. Instead of division of property that is the law in some provinces, in Ontario, the FLA calls for equalization, whereby each spouse completes an independent financial statement with his or her assets and liabilities, calculates Net Family Property and then, if necessary, payment is made by one spouse to the other so each side is equal....”
In November 2008 my family lawyer wrote a letter stating that Tom was not entitled to any equalization payment, and he did not file any claim in Family Court in the 15 months prior to my bankruptcy.… Even one week before I filed for bankruptcy, Tom’s brief for the upcoming case conference in Family Court did not include a motion regarding a trust claim. Had Tom actually raised the trust claim in the family action, the outcome would have been determined for years ago. Tom, the trustee, and I would have avoided thousands of dollars in fees
Despite having this knowledge from experts in family law, the trustee refused to listen and continue to take Tom’s side, at the expense of the legitimate creditors.”
[27] Nevertheless what is clear is that the trustee entered into settlements with counsel for Mr. Mitchell along the way and that the sale of ultimately was approved on a consent basis by Justice Newbould
[28] The Bankrupt’s view of what happened however is summarized in this way by her:
“The result: The accumulation of thousands of dollars in fees for the trustee, his lawyer, and Mr. Klotz that the Trustee recommended be deducted from the proceeds of the sale, at the expense of the legitimate creditors. Furthermore, the delays cost the legitimate creditors thousands of dollars because the real estate market continued to fall during that time period and the equity in the house dropped.
If the trustee had sold the house to my mother as planned when I filed for bankruptcy in October 2008, the equity was $120,000. All of my creditors could have been paid in full with that money. By the time Mr. Klotz and the trustee finished their “negotiations,” the money was reduced to $55,000. Once fees were deducted and the rest of the money was wrongly given to Tom, the creditors received nothing.
These delays also cost me thousands of dollars in fees for my real estate lawyer, none of which were recovered from the proceeds.
Moreover, the Trustee now uses this issue to claim that the assets in my bankruptcy do not equal 50% of my liabilities. Clearly that argument is invalid since my assets were worth more than 100% of my liabilities at the time of my bankruptcy and it is only because of the trustee’s violations of the BIA that he is able to calculate a different number.
[29] When the costs came to be addressed before Justice Newbould this exchange took place between Ms Starkman and the Court:
Ms. Starkman: I agree that there is no question that these costs were incurred on negotiations with the property. The question really is whether all of these negotiations were necessary or whether they delayed the deal. And also that Mr. Mitchell’s family lawyer’s fees are included with Mr. Klotz’s fee and I believe that’s completely inappropriate as he had nothing to do with… the sale of the property.
The Court: Ms. Starkman, one of the problems is that for a court sitting here is that the Trustee, who is an officer of the court, has made certain statements about what took place and his counsel has as well. And I understand perfectly when matrimonial litigation is involved that parties on both sides take hard positions, that’s life. But it’s difficult to determine who’s right or wrong on that. Now I understand perfectly well that you feel just as strong as you do, and you may be completely correct on that. The problem is I am not in a position to judge all of that… But it’s very difficult at this stage for me to make judgments as to whether or not Mr. Klotz got in the way of this deal or not. What I do have is a report from an officer of the court saying that he thinks that this is appropriate. So it’s very difficult for me, at this stage, to say to the officer of the court, I am sorry.”
[30] Another area of concern is reflected at page 21 of Ms Starkman’s submissions. There she indicates the finding of Justice Newbould with respect to the proceeds of the house. She states:
Although it took until August 17, 2011, fortunately Justice Newbould was able to make judgment when he determined that Tom was never a creditor, meaning that he never had rights to the proceeds of the house.”
[31] Whether that was the finding or a more limited ruling that he had no family law claim as distinct from an unjust enrichment claim, is unclear to me
[32] Moreover, how the “unjust enrichment” claim was promoted to a preference position other that by a concession of a Pettkus v. Becker, [1980] 2 S.C.R. 834 style of claim, against the house, is again unclear to me.
[33] I fail to appreciate how this claim moves ahead of other creditors. Perhaps it is based on there being a holding of the house in trust for the beneficiary of the notional trust, on the basis of an agreed settlement. (But ought a participant in that arrangement, which apparently was not asserted as at the date of bankruptcy, be entitled to receive the subsequent increase in equity of the home?)
[34] I acknowledge that these complexities were not fully canvassed in the arguments before me. This is supposed to be a summary process and it is difficult to see how these issues could have been resolved without a further substantial investment of court time with consequential, probably unrecoverable, further legal fees being incurred.
[35] Someone needs to say “Enough”.
[36] Apparently that role has fallen to me.
IV. Rehabilitation?
[37] The tenth topic raised by the Bankrupt outlines her view of the Trustee’s attitude towards her with respect to her discharge. It is entitled: “Saw nothing good in the fact that I went back to school, started a new career, and got myself back on my feet, while my ex-husband continues to do nothing and is now suing me in Civil Court.”
[38] Obviously, as with all the matters raised by the Bankrupt, there are almost always two sides to any story. The Trustee only received the entire summary of the Bankrupt’s issues on the eve of the eventual discharge hearing, but the email trials suggest that many items of complaint would come as no surprise to the Trustee.
[39] Ms Starkman clearly feels wronged. In general her tone is not hysterical and she makes clear assertions of her positions. In this case her introductory paragraph reads:
My understanding is that rehabilitation of the bankrupt is a major factor when the court considers a discharge. Unfortunately, the Trustee never mentions anything good about me.
[40] She then lists 16 benchmarks for the Court’s consideration. None of these assertions were challenged before me. The list in substance reads:
a. I began my career in Marketing, ran my own company for several years and then, prior to bankruptcy. I became a Licensed Realtor.
b. I also became a registered Vendor/Builder with the Tarion Warranty Company.
c. In the four years since I filed for bankruptcy, I have worked non-stop to get my life back on track.
d. I returned to school in May 2009, commuting to Guelph, to earn a Master of Science in Adolescent Education. At least once a week I stayed up all night working and then drove to Buffalo at 5:30 a.m. for a full day class, returning to Toronto at 11:00 pm.
e. From September to December 2009, I was a full-time student teacher at a …Secondary School in Toronto, and I commuted to Buffalo on Monday nights to take an additional course not required for my graduation, but providing me with an additional teaching qualification in Ontario.
f. During that time I also wrote and passed five New York State licensing exams.
g. I graduated with a 4.0 GPA in December 2009.
h. In March 2010, I was placed on the Toronto District School Board’s Occasional Teacher List. I immediately obtained a one-month position. When that ended, I was called every day to supply teach and obtained another one-month position that employed me until the end of June.
i. While I was teaching, in May 2010, I started an online course through the University of Western Ontario’s Faculty of Education that gave me a third teaching qualification.
j. Coinciding with that course, which was 20 to 30 hours of work per week, I taught Summer School for the month of July
k. I spent August updating my portfolio and job searching. Despite the tremendous surplus of teachers, I received five job offers from schools. I accepted a position covering a maternity leave from September 2010 to March 2011. I finished that job on a Tuesday, and started at another school, teaching different subjects, the next day, working until the end of June. Again I taught Summer school for the month of July. In mid-July, I was hired for full-time, permanent teaching position, beginning in September.
l. From September 2011 to June 2012, I taught 5 Sections of Business and 1 Section of English at a GTA Collegiate.
m. While I was teaching in May and June, I took a course that gave me another teaching qualification.
n. I was declared surplus to my school in March, placed in another school in June, and was pulled back to my home school in July.
o. For the month of July, I took my Honor Specialist in Business.
p. Since September 2012, I have been at the same GTA Collegiate. This year I am teaching 6 sections of English.
[41] This is more than ample evidence both extraordinary gumption and rehabilitation in my opinion.
V. Caselaw and Statutory Provisions
[42] Section 12 of the Interpretation Act, R.S.C., 1985, c. I-21 guides the interpretation of all the statutes raised before me on this matter:
“Every enactment is deemed remedial, and shall be given such fair, large and liberal construction and interpretation as best ensures the attainment of its objects.”
[43] A rigid adherence to any one statutory provision may not give rise to a fair construction of the entire regulatory framework in a specific case which best ensures the attainment of the more specific objects of a statute of more specialized (and thus less general) application.
[44] In every discharge case I am required to take a hard look at the personal circumstances of each bankrupt individual. I am obliged to consider the evidence put before me and to determine a just result in all the circumstances.
[45] I have previously observed that the persons appearing before me on discharge hearings range from innocent victims of circumstances to callous serial rogues.
[46] My statutory discretion is broad, but must be exercised in, not only a judicial, but also in a caring and compassionate manner, seeking to rehabilitate the unfortunate victims and to punish the rogues appropriately. Such punishment in the absence of proven evidence of misconduct is not within my understanding of the responsibilities I undertook when assuming the duties of Registrar.
VI. Outstanding Questions
[47] As noted at the outset, surprisingly the Bankrupt indicated she was not really seeking a discharge but rather looking for a response to two questions:
a. How will the issue of wrongly paying Tom and his lawyer out of the proceeds from my house be handled?.
b. How will I be compensated for the trustee’s violation of the BIA?
[48] In Re Burroughs, 2013 SKQB 262 a credit union (Synergy) was a proven creditor in the bankruptcy estate. An objection to the trustee’s discharge was not filed within the usual filing period. Registrar Thompson in Saskatchewan, indicated in her reasons that it became clear at the hearing that the merits of Synergy’s objection to the final dividend were “inextricably bound” to the determination of standing by her.
[49] The credit union argued that to strictly adhere to the taxation process requirements of section 152 of the BIA would have the effect of prejudicing Synergy and any other party who wished to oppose the proposed dividend in cases where the bankruptcy administration is relatively more protracted. In particular Synergy argued that without its involvement there would’ve been no assets in the estate at all and, for that reason alone, it was unfair that the trustee should have a preferred claim to any recovery made.
[50] The Registrar ultimately concluded in that case:
“[26] While I appreciate Synergy’s position and understand that it is frustrated in receiving nothing from its efforts both prior and after the bankruptcy, I concluded that I do not have jurisdiction to alter the distribution scheme of the BIA. There is simply no mechanism to grant a payment to Synergy in this case.”
[51] I appreciate Ms Starkman’s position and understand that she is frustrated by the results of the process in which she has been embroiled. However, I similarly have concluded that a discharge hearing is not the appropriate forum to conclusively address either of the issues she has raised.
VII. Disposition
[52] Ms Starkman created and filed a convincing summary of her understanding of the problems encountered in her bankruptcy. The problem is that the hearing before me was not of a nature that would permit the trustee to fully answer the various allegations made with respect to the administration of this estate.
[53] The fourteenth item concerning an allegation that wrong information about filing a proposal was given to the bankrupt causes me particular concern. Her materials in this regard, with the original emphasis, assert in part:
“In April 2009, I learned the ultimate irony. When I made the decision to file for bankruptcy, the Trustee told me a proposal was NOT an option because I needed to have a regular income and I was not working at the time. That is wrong! I could borrow money and pay a lump sum.
The trustee knew that this was an ideal solution for me since my mother was all ready prepared with a line of credit to buy my house privately.
The advantages of a proposal instead of bankruptcy are enormous. Specifically in my situation a proposal would have had the following impact:
My house would always be my house. I would save the $55,000 equity payment and associated closing cost plus $10,000 in real estate fees….”
[54] In concluding this section of her submissions Ms Starkman asserts:
“Most importantly, had I filed a proposal, this ordeal would have been over 4 years ago. I would have recovered financially and emotionally. My credit rating would be almost fully restored. I would have had my “fresh start” and moved on with my life… happy, responsible, and optimistic… the way I always was except for this one-year blip in my life when I made some bad decisions.
In any event I signed the documents to file for bankruptcy and I believe that could have been a viable alternative….”
[55] At the hearing before me was not possible to fully canvas the evidence available to the trustee as to what was or was not discussed at the time of the bankrupt at the time of her deciding to file for bankruptcy. There are clearly a number of factors to be considered in determining which route to take. Regrettably, again to a large extent, that is now “water under the bridge”.
[56] I have set out, in great detail, large portions of the allegations of the bankrupt. The nature of the process before me does not contemplate an intense adversarial trial. Little is to be gained at this stage by endeavouring to make detailed findings of fact, particularly where the bankrupt may elect to seek relief elsewhere.
[57] As I have indicated I have a particular concern, that the trustee had no real opportunity to respond meaningfully to the full range of concerns raised in this forum.
[58] With respect to the issue of the legal costs incurred to date, it is my belief that the existing court orders have not been appealed with the result that they are therefore final.
[59] The result of that situation is that, while Ms Starkman may feel that she or her creditors have been improperly treated, since no appeal was taken from those orders (and barring an extraordinary order from a higher court) I am bound by those orders.
[60] With respect to her concerns regarding the trustee and her issues with his conduct of this matter, there are potential remedies available under the Bankruptcy and Insolvency Act which she has already identified in her materials.
[61] Whether there is anything practically to be gained by going down that road is not for me to decide. Having read the materials and in particular considered the rehabilitation efforts of the debtor I am satisfied that notwithstanding issues that were raised with respect to some of her conduct prior to filing for bankruptcy, this is a situation where it is appropriate for an immediate absolute discharge to be granted.
[62] As I said at the outset, matrimonial matters and bankruptcy matters often result in disasters for the parties and their creditors. Unless and until the applicable legislation is amended or clarified, this court will continue to have to address problems in the nature encountered in this case.
[63] Ms Starkman has described her life as being happy and optimistic in the past. She has rightly complained that it is taken too long to get to this point in her case. I appreciate that she considers many of the items that she has raised, to be important matters of principle. Nevertheless, I encourage her to seriously consider simply accepting her discharge and getting on with her life, rather than prolonging this matter.
[64] To the extent that I have caused any of the parties further anxiety by the delay in delivering these reasons I express my regret. However this case was one that was troubling and I needed to consider the options available to me at some length. Having now had an opportunity to do so, I am satisfied that an immediate unconditional Absolute Discharge, is the most just and fair result in this case, and I so order.
Master D. E. Short
Registrar in Bankruptcy
October 22, 2013
DS/ B.14