SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-08-365340
DATE: 20140523

RE: EVELYN HIMEL, Plaintiff

AND:

DAVID MOLSON and LESLIE TOTH, Defendants

AND:

LEE EDWARD FINGOLD, Third Party

BEFORE: D.L. Corbett J.

COUNSEL:
Harvey J. Ash, for the Plaintiff

Charles Sinclair, for the Defendant David Molson

Lee Edward Fingold, self-represented

HEARD: October 21, 2013

JUDGMENT

D.L. CORBETT J.

[1] This action concerns a fraudulent mortgage transaction. Ms Himel was the lender. She advanced $100,000 against a property she understood was being purchased for $200,000. She received a first mortgage as security.

[2] Dr Leslie Toth was the purchaser.[^1]

[3] David Molson, a solicitor, acted for both Dr Toth (as borrower) and Ms Himel (as lender). Mr Molson also acted for Dr Toth in the purchase and sale transaction.

[4] Mr Fingold was the mortgage broker and also provided paralegal services in connection with the transaction. Mr Fingold is also Ms Himel’s son.

[5] Ms Himel lost $75,082.21 in the fraud.

[6] Dr Toth has admitted being a party to the fraud. He has died now, apparently without assets. The issue for trial is whether Mr Molson perpetrated the fraud with Dr Toth, or whether Mr Fingold did so.

[7] Credibility is a major issue:

(a) Mr Fingold is a disbarred lawyer who has been convicted of fraud and for improperly practicing law after having been stripped of his membership in the Law Society of Upper Canada;

(b) Dr Toth was convicted of OHIP fraud, several incidents of domestic violence, and he gave evidence before his death of attempting to perpetrate immigration fraud together with Mr Molson;

(c) Mr Molson has pleaded guilty to mortgage fraud, and has settled a mortgage fraud case with Royal Bank of Canada for several million dollars.

[8] Ms Himel testified at trial. She, at least, was a truthful and believable witness.

[9] Mr Fingold testified at trial. His evidence must be approached with caution, given the blots on his personal integrity. However, where Mr Fingold testified as to facts within his personal knowledge, I am satisfied that he was telling the truth. Where Mr Fingold strayed into opinion and conjecture, his partiality was evident. Mr Fingold testified that he places responsibility for the fraud on Mr Molson. He says that Mr Molson brought the transaction to him as a potential mortgage investment for his mother. He had done business like this with Mr Molson many times before. This was a routine transaction. Mr Molson told Mr Fingold that he knew the parties on both sides of the transaction and that the transaction was legitimate. On this basis, Mr Fingold was prepared to advise his mother to go ahead and lend $100,000 on first mortgage security for a property being purchased for $200,000.

[10] Dr Toth was examined for discovery under oath prior to trial at a time when his death was anticipated before trial. The transcript of his evidence was placed into evidence on consent, but on the basis that Dr Toth’s credibility is a substantial issue. I approach Dr Toth’s evidence with great caution. He has a history of deception, including giving false evidence under oath. I would not be prepared to trust his evidence without corroboration in other evidence that I do accept, within an overall context which renders his evidence believable. Dr Toth’s evidence, in sum, was that he acknowledged his own participation in the fraud, but said that Mr Molson was the architect of the fraud and its prime beneficiary.

[11] Mr Molson did not testify at trial. Excerpts from his examination for discovery were read into the record on behalf of Ms Himel.

The Transaction

[12] The agreement of purchase and sale and the mortgage both closed on July 27, 2006.

[13] Under the agreement of purchase and sale, Dr Toth purchased the property from Anthony and Gladys Holden for a price of $200,000. The property was a vacant cottage lot near Belleville, Ontario.

[14] Ms Himel loaned $100,000, secured by a first mortgage against the property. The mortgage was for a term of one year (maturing July 26, 2007), at an annual interest rate of 9%.

[15] In July 2007, the mortgage came due. It was not repaid.

[16] Monthly interest payments under the mortgage continued, however, into 2008.

[17] The property was eventually sold under power of sale. Gross sale proceeds were $29,900. Net proceeds were $24,917.79. Ms. Himal lost $75,082.21, plus interest, on the mortgage.

[18] Default judgment was obtained against Dr Toth. No funds have been recovered from Dr Toth. There seems no prospect of recovery from his estate.

[19] The vendors, the Holdens, apparently were represented on the purchase and sale transaction by Tony Karalis. Mr Karalis died on March 5, 2010.[^2] No file has been obtained from Mr Karalis’ law practice respecting the Holdens’ transaction. Mr Karalis’ letterhead states that his practice was restricted to “criminal law and family law”.

[20] The Holdens did not testify.

Evelyn Himel

[21] At the time of trial, Ms Himel was 83 years old. She had been married twice: first to Harvey Fingold, a successful businessman who died of cancer in 1972. Following Mr Fingold’s death, Ms Himel began to invest in mortgages. By the time of the events in issue, Ms Himel had been investing in private mortgages for nearly thirty-five years and was very experienced in doing so. I found her an intelligent and focused witness, shrewd in managing her affairs, with sufficient sophistication to conduct her mortgage lending business. Ms Himel testified that she granted perhaps 20-25 mortgages per year. Some were quite small – in the range of $5,000 to $10,000. Some were larger, in the range of $50,000 to $70,000. Few were larger than that.

[22] On the Toth transaction, everything Ms Himel knows about it she heard from her son, Mr Fingold. She did not speak with Mr Molson directly. She never met or spoke with the borrower (Dr Toth), the vendors (the Holdens), or the Holdens’ solicitor (Mr Karalis). Mr Fingold told Ms Himel that the property was a very large and valuable cottage property. Ms Himel did not know that the property had been purchased for $11,900 in the 1980’s and had not been improved since. She would have been concerned about this had she known: she would have wanted to have understand how the property increased in value twentyfold.

[23] Ms Himel was shown a document from Mr Molson’s file which, on its face, appeared to be a copy of a direction, signed by her, instructing Mr Molson not to obtain an appraisal on the mortgaged property. Ms Himel agreed that the signature looks like her signature, but she denied signing it. There is no evidence authenticating the copy that was put to Ms Himel. I accept Ms Himel’s evidence on this point and do not accept the direction as authentic.

Lee Edward Fingold

[24] Mr Fingold says that he was approached by Mr Molson about whether his mother might lend $100,000 on a $200,000 sale transaction. Mr Molson had acted on eleven prior transactions for Ms Himel, with Mr Fingold acting as Ms Himel’s agent, and all of these prior transactions had been successful.

[25] In reviewing the agreement of purchase and sale, Mr Fingold noticed that there was no real estate agent listed, and that the transaction was on a short closing (six days). This made him suspicious. He testified that Mr Molson told him that this was because the parties knew each other, that he knew both sides, and this was a private, friendly deal.

[26] Mr Fingold stated that Mr Molson did not ask for a signed direction from Ms Himel instructing that no appraisal be obtained. Mr Fingold never asked his mother to sign such a direction, and he never provided it to Mr Molson. There was, in fact, no appraisal obtained, but Mr Fingold said that this was because he was satisfied with the information provided to him by Mr Molson. If Mr Molson had asked for the direction, this would have caused Mr Fingold some concern because it would have led him to consider that perhaps Mr Molson did not have confidence in the equity in the property to support the loan. Mr Fingold’s reasoning here is somewhat weak and circular, but on balance I am prepared to accept it. He trusted Mr Molson, but would have been suspicious if Mr Molson had asked for a self-serving document such as the direction. He was told by Mr Molson that the Holdens were long-time owners of the property and the property search confirmed that they had held title for twenty years.

Leslie Toth

[27] During his examination for discovery, Dr Toth said that he had never met Ms Himel or Mr Fingold. He never met the Holdens. He never saw the property that was the subject-matter of the fraud. He never paid anything for it, and never made any of the monthly payments. He had known Mr Molson since 2000. Mr Molson had acted as his lawyer in two domestic assault cases. Then Dr Toth agreed to be a “straw purchaser” for Mr Molson in three prior transactions. At one point Mr Molson’s bank accounts were frozen, because of allegations against him, and Dr Troth operated four bank accounts on behalf of Mr Molson: two at TD Bank, and one at each of Scotiabank and Royal Bank.

David Molson

[28] Mr Molson did not testify.

[29] Ms Himel asks that I draw an adverse inference against Mr Molson from his failure to testify. I am not prepared to do so on a blanket basis. However, where there is evidence that requires an explanation, or there is an absence of evidence that requires an explanation, and none is forthcoming, then it is appropriate to draw an adverse inference.

[30] There is affirmative evidence, in the form of testimony from Mr Fingold and sworn evidence from Dr Toth, that implicates Mr Molson as the principal behind the fraud. I have no evidence from Mr Molson to the contrary. I draw an adverse inference from Mr Molson’s failure to deny his role in the fraud under oath and to submit to cross-examination.

[31] Second, there is an absence of financial documents in Mr Molson’s files. I do not have comprehensible documents showing the beneficial disbursement of funds from Mr Molson’s trust account, which should show where he disbursed the funds payable to the vendors. I do not have a reporting letter that shows the overall purchase and sale transaction and the mortgage transaction of which it was a part, and explains the flow of funds. I draw an adverse inference from the absence of these documents, and the absence of testimony from Mr Molson explaining these points.

[32] Third, Mr Molson relies on a direction purportedly provided by the solicitor for the Holdens, to explain distribution of the proceeds of sale. The Holdens did not testify. Their lawyer’s file was not produced, and the lawyer himself died before his evidence was preserved for use in this proceeding. The direction itself appears to provide that the Holdens – the vendors – who had their own lawyer – were nonetheless directing that the purchaser’s solicitor, Mr Molson, have his account paid from the sale price. And included in this was payment for the land transfer tax – a tax ordinarily payable by the purchaser. This cries out for explanation. In his examination for discovery, at Question 279, Mr Molson said that it was “typical” for the vendor to pay the purchaser’s legal fees. It may have been “typical” in transactions involving Mr Molson, but such an arrangement would not otherwise be “typical”. It is even stranger for the fact that the direction does not call for any of the sale proceeds to be directed in trust to the Holdens’ solicitor for payment of his account. In a case that is obviously a fraud, this reliance on a document that is, on its face, questionable, leads me to doubt the authenticity of the document. The Holdens’ solicitor apparently directed that funds be paid to a series of recipients, with no explanation as to why the funds were not being paid to the Holdens. There is then a rather extraordinary reference in the letter from the Holdens’ solicitor to a conversation between the Holdens and Mr Molson directing that $90,000 of the purchase price remain in his trust account to fund purchases of other properties, ostensibly said to be purchases by relatives of the Holdens. The failure of Mr Molson to testify to the document, and to give evidence under oath that the document is genuine and that he relied upon it, leads me to draw an adverse inference. I do not accept it as genuine. I conclude it is all part of the fraud.

[33] Fourth, as noted above, a signed direction, ostensibly from Ms Himel, was produced from Mr Molson’s file. Ms Himel, a credible witness, denies this document is genuine. So too does her son, Mr Fingold. In the face of this evidence disavowing the direction, I draw an adverse inference against Mr Molson for his failure to testify about this document.

Admissibility of Evidence of Mr Molson’s Conviction for Fraud

[34] There is the matter of Mr Molson’s conviction for fraud. A certified copy is part of the evidence (Exhibit 1A, tab 40). Ms Himel seeks to have this evidence admitted both in respect to Mr Molson’s credibility, and as “similar fact evidence”.

[35] There is no doubt this evidence could have been put to Mr Molson had he testified at trial. But he did not testify. And so, he argues, his credibility is not in issue.

[36] I do not consider that the evidence of the conviction should be admitted into evidence as similar fact evidence. There is no record to establish that the fraud for which Mr Molson was convicted was similar to the transactions in issue in this proceeding, aside from both falling under the general rubric of “mortgage fraud”. I conclude that the prejudicial effect of this evidence would outweigh its probative value as similar fact evidence.

[37] I do consider, however, that Mr Molson’s credibility is in issue, even though he did not testify. Mr Molson’s counsel pointed to documents in Mr Molson’s file, such as the purported direction from the Holdens, and the purported direction from Ms Himel, to explain what happened. No one testified to authenticate these documents. And even if it was thought that these documents were nonetheless admissible as business records, I would not believe their contents simply on the basis that they appear in Mr Molson’s file. Two witnesses gave sworn testimony that Mr Molson was the architect of the fraud (Mr Fingold and Dr Toth). The transaction was undoubtedly a fraud on Ms Himel. Mr Molson did not testify. But documents are produced from his file which are said to exonerate him. Even without Mr Molson’s prior conviction for fraud, I would not be prepared to accept the truth of the contents of these unauthenticated file documents. This conclusion is reinforced by my adverse finding of Mr Molson’s credibility, which further erodes any weight I would place on a document just because it is found in Mr Molson’s file. Accordingly, I admit the evidence of Mr Molson’s conviction for the limited purpose of assessing his credibility, specifically in terms of the weight I place on documents produced from his file.

Conclusion

[38] I accept the evidence of Dr Toth, supported by the evidence of Mr Fingold, that Mr Molson was the architect and prime beneficiary of the fraud. Ms Himel has proved her case on a balance of probabilities. Ms Himel shall have judgment against Mr Molson for $75,082.21, with prejudgment interest in accordance with the Courts of Justice Act from the date the action was commenced.[^3]

Third Party Claim

[39] There is no evidence that Mr Fingold was a party to the fraud: because Mr Molson did not testify, the allegations he makes against Mr Fingold remain as nothing more than unproven allegations. The third party claim is dismissed.

Pleadings in Addition to the Allegations of Fraud

[40] In paragraph 10 of the statement of claim, Ms Himel pleads that she is elderly and “relies on her investment as her sole source of income”. It is true that Ms Himel is elderly. However, she impressed me as both intelligent and shrewd. She was taken advantage of here, not because she is vulnerable or frail, but because she was lied to by a person she trusted and was entitled to trust. It is clear that Ms Himel had other mortgages, and that this particular mortgage was not her “sole source of income”.

Alternative Allegations in Negligence

[41] In paragraphs 11A, 11B and 11C, Ms Himel pleads bald allegations of negligence, presumably as an alternative to her claim against Mr Molson in fraud. Since I have concluded that Mr Molson is liable on the basis of fraud, he is not liable for negligence: the legal wrong here was advertent, not negligent, and cannot be both.

Punitive and Exemplary Damages

[42] This is an appropriate case for punitive damages. In fixing an appropriate amount, I take into account that I limit Ms Himel’s claim for interest to the rate provided in the Courts of Justice Act. The mortgage interest rate was 9% per annum, which, of course, Mr Molson knew. Ms Himel has foregone the interest income she could have earned on the mortgage funds. Mr Molson knew the mortgage interest rate and that it was an inducement to Ms Himel to enter into the transaction. In addition, of course, Mr Molson owed duties of trust and fidelity to Ms Himel as her lawyer, duties that he breached flagrantly. In all the circumstances I fix punitive damages at $30,000, payable without prejudgment interest.

Costs

[43] This is a case for substantial indemnity costs. However the amount must still be reasonable, given the nature and importance of the claim and the work involved. This was a straightforward claim involving a $75,000 loss. Costs are high relative to the judgment, but this was a three day trial that did not require the most senior of solicitors. I consider the defendant’s bill of costs to be a more reasonable claim than is that of the plaintiff: substantial indemnity costs payable to Ms Himel by Mr Molson fixed at $50,000, inclusive, payable forthwith.

[44] Mr Fingold was self-represented. He is entitled to his disbursements, which I fix at $200. It is clear that self-represented litigants may be awarded a modest amount, and an indemnity, where they represent themselves. Here, most of Mr Fingold’s time spent on the case would have been required in his role as a party, even if he had chosen to have counsel. The work organizing and presenting the case was done for the most part by counsel for Ms Himel and counsel for Mr Molson. A self-represented party is not entitled to costs for the opportunity costs of taking part as a party in a lawsuit. I fix the indemnity for Mr Fingold’s time doing counsel work on his own behalf at $1,000, inclusive. Therefore, Mr Molson shall pay costs to Mr Fingold fixed at $1,200, inclusive, payable forthwith.

[45] I cannot leave this case without noting that counsel for Mr Molson did an exceptional job trying to defend his client. His written and oral argument was thorough and scholarly, and put the argument for Mr Molson at its highest. For this I am most grateful. However, this was not a close call. If this had not been Mr Molson’s fraud, he would have had a great deal of explaining to do to persuade the court that he was not complicit in or wilfully blind to the fraud of others. But the evidence is that this was his fraud.

[46] Judgment accordingly.

D.L. Corbett J.

Date: May 23, 2014

[^1]: I was told that Leslie Toth was a chiropractor.

[^2]: Counsel advised that this information was obtained from the web site of the Law Society of Upper Canada.

[^3]: Ms Himel claimed the mortgage interest rate. Mr Molson was not a party to the mortgage, and interest is not awarded based on a party’s expectation interest outside a contractual stipulation for a particular rate.