COURT FILE AND PARTIES

COURT FILE NO.: CV-11-427038

DATE: 20140905

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Azeta Ghaeinizadeh, by his litigation guardian Baheih Sharifi, Payam Ghaeinizadeh, Azeta Ghaeinizadeh, Manouchehr Ghaeinizadeh, Ilinaz Naeli, Ila Naeli, Jaclyn Orsetto, Bahieh Sharifi, Arash Sharifi, Masoumeh Abbasian, Mehran Yazdani, Lerpon Paul Greenspon, Armonico Corp., 6740197 Canada Corp., Operating as Dux Holdings, and Ku De Ta Capital Inc., Plaintiffs

AND:

Garfinkle, Biderman LLP, Wendy H. Greenspoon-Soer, Dorota Smolarkiewicz, Michelle R. Frost, Jean Jerome Cusmariu, Rajan Katyal, Robins Appleby & Taub LLP and Peggy Spadafora, Defendants

BEFORE: Carole J. Brown J.

COUNSEL:
Jerome R. Morse, for the Plaintiffs

Daniel Bernstein, for the Defendants

HEARD: January 9 and June 24, 2014

ENDORSEMENT

[1] The defendant, Jean Jerome Cusmariu ("Cusmariu"), brings this motion for summary judgment. It is the position of the defendant that this is an appropriate case for summary judgment as there are no material facts in dispute and no genuine issues requiring a trial.

[2] The motion is opposed by the responding party plaintiffs who take the position that this is not an appropriate case for summary judgment as there are material facts in dispute and genuine issues requiring a trial. It is the position of the responding parties that there are considerable conflicts in the evidence, factual inconsistencies and a complexity of legal issues such that the matter cannot be appropriately determined on a motion for summary judgment.

[3] The action as regards Ilinaz Naeli and Ila Naeli has been resolved, as have the actions against Robbins Appleby & Taub LLP and Peggy Spadafora.

[4] The moving party, Cusmariu, is a lawyer who acted on mortgage transactions for Ku De Ta Capital Inc. ("KDT"), which was in the business of providing second mortgage loans. The plaintiffs, other than KDT ("investor plaintiffs") allege that they funded mortgage loans which KDT gave to third parties, and that the second mortgages were to be held in trust for them. The investor plaintiffs allege that KDT and its sole officer, director and shareholder, Bashir Syed ("Syed") misappropriated their interest in those mortgages through fraudulent transactions for which Cusmariu, acted as counsel to KDT. The investor plaintiffs allege that Cusmariu is liable to them for their investments which were appropriated by these transactions. They allege that Cusmariu breached duties owed to them by failing to ascertain their interest in the underlying mortgages and knowingly assisted in breaches of trust and fiduciary duty by Syed/KDT.

[5] It is the position of the responding party that the investor plaintiffs have put forward no evidence on this motion to establish reasonable reliance or knowing assistance and, in particular, there is no evidence that any of the investor plaintiffs retained or relied on Cusmariu in respect of any of their alleged investments in KDT, nor that any of the investor plaintiffs in fact funded the mortgages in issue or that Cusmariu had any knowledge of this.

[6] In 2009, the investor plaintiffs commenced an action bearing Court file number, CV-09-385657 against Syed, KDT and others in relation to the frauds committed by Syed. Syed and KDT were noted in default in that action and, on March 22, 2011, the plaintiffs obtained judgment against the defendants in that action. In May of 2011, the investor plaintiffs commenced the present action against Cusmariu and other lawyers who acted for KDT, who the investor plaintiffs allege, have through their actions, facilitated Syed's conduct in perpetrating the fraud. On October 6, 2011, the investor plaintiffs obtained an order permitting them to bring a derivative action on behalf of the plaintiff, KDT, against the defendants in the within action. This order was amended on April 16, 2012 on appeal to the Ontario Court of Appeal, permitting the investor plaintiffs to bring the derivative action on behalf of KDT nunc pro tunc. The investor plaintiffs allege that they have not been able to recover on the judgment or costs award obtained in the other action against KDT and Syed.

[7] The allegations against Cusmariu pertain to two mortgage transactions on which he is alleged to have acted on behalf of KDT, taking instructions from its principal. The plaintiffs allege that the mortgage transactions were part of a fraudulent scheme to deprive the investor plaintiffs of their interest in the underlying mortgages. They allege that Cusmariu owed KDT and the investor plaintiffs a duty of care and fiduciary duties and breached those duties or, alternatively, was reckless or willfully blind to the existence of the investor plaintiffs and their interests in the mortgages. They allege that "at a minimum, Cusmariu knew that individuals or companies other than [Syed] had any interest in the KDT mortgages" as in 2007 " Cusmariu acted as independent counsel for purposes of ILA for the investor plaintiff, Azeta Ghaeinizadeh regarding obtaining funding for her to use as capital to invest through KDT.

[8] The affidavit of Cusmariu filed in support of this motion states that between 2005 and 2009, he acted on mortgage transactions for KDT, including the two mortgage transactions in issue. He was not privy to any financial information pertaining to KDT or its principal, apart from the terms of the mortgage transactions he acted on. He was not aware that KDT obtained or relied on funding from any of the investor plaintiffs. The funds for mortgage loans advanced by KDT were provided to him by Syed on behalf of KDT in the form of a bank draft, with no indication on those drafts that the funds originated from any other party. Cusmariu was not aware of the existence of any of the investor plaintiffs other than Ms. Ghaeinizadeh and her company, 6740197 Canada Corp. operating as Dux Holdings ("Dux").

[9] It is the evidence of Cusmariu that he met Ms. Ghaeinizadeh only once when she attended at his office in September 2007, accompanied by her brother Pedram Ghaeinizadeh to obtain independent legal advice. It is his evidence that she told him that she was the principal of Dux, which was contemplating borrowing up to $2 million from a company called Xerxes Capital Management Ltd. and she needed ILA in respect of a personal guarantee she intended to give to Xerxes in connection with the loan. He states that she told him that Dux intended to use the borrowed funds to invest in second mortgages. It is his evidence that she did not tell him that Dux intended to invest in mortgages through KDT or that it intended to have any dealings with KDT or its principal. Cusmariu denies having any knowledge that Ms. Ghaeinizadeh intended to invest the funds obtained from Xerxes in KDT, that KDT invested funds held in trust for investors, or that he was in a conflict of interest when he provided ILA to Ms. Ghaeinizadeh.

[10] The evidence of Pedram Ghaeinizadeh, in his affidavit filed on this motion, upon which there was no cross-examination, contradicts the evidence of Cusmariu. Mr. Ghaeinizadeh stated in his affidavit that he was a friend of Syed, had met Cusmariu in early September 2007, when he accompanied Syed to Cusmariu's offices. He was introduced to Cusmariu as a friend and business associate. Thereafter, when his sister needed ILA for purposes of the loan from Xerxes, he consulted with Syed who recommended Cusmariu and, in fact, it was Syed who made the arrangements for the meeting with Cusmariu, which was scheduled for September 28, 2007.

[11] The evidence indicates that on Cusmariu's file relating to Ms. Ghaeinizadeh, he identified her as an acquaintance of Syed ("Bashir Syed's friend). It is further the uncontroverted evidence of Mr. Ghaeinizadeh that he told Cusmariu, at the meeting, that Ms. Ghaeinizadeh was borrowing the money from Xerxes in order to invest in KDT. When Cusmariu commented that the interest rate at which she was borrowing the money was high, Mr. Ghaeinizadeh states that he explained that the investment of the money in KDT would return a higher interest rate and that, as a result, the return would "cover the spread".

[12] At no time during the meeting did Cusmariu identify that he was in a conflict of interest as a result of his professional relationship with KDT, despite that he was providing legal advice to her which specifically related to her decision to invest in KDT and despite the fact that he had been told this in the meeting. There are clearly material facts in dispute as regards the retainer to provide advice for the ILA.

[13] The plaintiffs further allege that Cusmariu acted on behalf of KDT on two transactions involving mortgages funded by KDT in 2008 and 2009, in which mortgages were sold or transferred at a discount to others. The monies obtained were then, on the instruction of Syed, transferred to his account, rather than to the account of KDT. It is the allegation of the investor plaintiffs that he knew or could not have been unaware that investors, such as Ms. Ghaeinizadeh and Dux had invested in KDT, which had obligations to these investors.

[14] It is the position of the responding party plaintiffs that cases which involve assessment of complex conflicting factual scenarios are not generally appropriate for determination on a motion for summary judgment. They rely on Gacesa v Investment Planning Counsel, a case involving allegations of solicitors' negligence, where the court declined to grant summary judgment on the basis that cases which require the determination of the scope of a retainer, whether a conflict of interest existed, or whether the lawyer failed to appropriately warn his or her clients of particular legal risks, could not be properly dealt with on a motion for summary judgment: Gacesa v Investment Planning Counsel [2012] O.J. No. 6109. Further, whether a duty of care is owed in this case or whether it is negatived by policy considerations is a complex, nuanced and important question that should be decided on a full record, and not on summary judgment: Allen v Aspen Group Resources Corp., 2012 ONSC 3498, [2012] O. J. No. 2924.

[15] The responding party plaintiffs further rely on the expert report of Craig Carter which opines that Cusmariu failed to meet the accepted standard of practice in this case. However, this is, of course, an expert opinion which is not determinative of the issue, but is based on unproven assumptions and therefore of no assistance in this motion.

The Law and Analysis

Rule 20 and Summary Judgment

[16] Rule 20 provides for summary judgment where there is no genuine issue requiring a trial with respect to a claim or defence.

[17] The Supreme Court of Canada, in Hyrniak v Mauldin, 2014 SCC 7 and Bruno Appliances and Furniture Inc. v Hyrniak, 2014 SCC 8, has recently reinterpreted Rule 20, taking into account the recognized need for access to justice for the majority of Canadians. The Supreme Court held that summary judgment rules must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims. It found that the Court of Appeal, in Combined Air Mechanical Services Inc. et al v. Flesch et al, 2011 ONCA 764, placed too high a premium on the "full appreciation " of evidence that can be gained in a conventional trial, given that such a trial is not a realistic alternative for most litigants. It held that a trial is not required if a summary judgment motion can achieve a fair and just adjudication, if it provides a process that allows the judge to make the necessary findings of fact, apply the law to those facts and is a proportionate, more expeditious and less expensive means to achieve a just result than going to trial.

[18] On a motion for summary judgment, the judge must first determine if there is a genuine issue requiring trial based only on the evidence before the judge without using the judge's new fact-finding powers.

[19] There will be no genuine issue requiring a trial if the summary judgment process provides the motion judge with the evidence required to fairly and justly adjudicate the dispute on the merits within the meaning of Rule 20.04(2)(a) and is a proportionate, more expeditious and less expensive means to achieve a just result. Where a summary judgment motion allows the judge to find the necessary facts and resolve the dispute, proceedings at trial would generally not be proportionate, timely or cost-effective. However, a process that does not give the judge confidence in conclusions to be drawn can never be the proportionate way to resolve the dispute.

[20] Madam Justice Karakatsansis, writing for the Court, observed as follows in the companion case, Bruno Appliances, supra, at paragraph 22:

The motion judge should ask whether the matter can be resolved in a fair and just manner on a summary judgment motion. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is the proportionate, more expeditious and less expensive means to achieve a just result. If there appears to be a genuine issue requiring a trial, based only on the record before her, the judge should then ask if the need for a trial can be avoided by using the new powers provided under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice.

[21] To grant summary judgment, on a review of the record, the motions judge must be "of the view that sufficient evidence has been presented on all relevant points to allow him/her to draw the inferences necessary to make dispositive findings under Rule 20.

[22] The Supreme Court recognized that concerns about credibility or clarification of evidence can often be addressed by calling oral evidence on the motion itself, using the powers given to the court pursuant to Rule 20.04(2.1). However, it also recognized that there may be cases where, given the nature of the issues and the evidence required, the judge cannot make the necessary findings of fact, or apply the legal principles to reach a just and fair determination.

[23] The enhanced fact-finding powers granted to motion judges in Rule 20.04(1.1) may be employed on a motion for summary judgment unless it is in the "interest of justice" for them to be exercised only at trial. The Supreme Court observed that inquiry into the interest of justice to be served by summary judgment must be assessed in relation to the full trial and the relative efficiencies of proceeding by way of summary judgment as opposed to trial, including the cost and speed of both procedures, the evidence available at trial versus that on the motion, as well as the opportunity to fairly evaluate such evidence.

[24] The Supreme Court further commented that the interest of justice inquiry goes further and also considers the consequences of the motion in the context of the litigation as a whole. In cases where some claims against the parties will proceed to trial in any event, it may not be in the interest of justice to use the new fact-finding powers to grant summary judgment against a single defendant. Such partial summary judgment may run the risk of duplicative proceedings or inconsistent findings of fact and therefore the use of the powers may not be in the interest of justice.

[25] The parties must each "put their best foot forward". A party is not entitled to sit back and rely on the possibility that more favorable facts may develop at trial. The court is entitled to assume that all of the evidence the parties intend to rely on at trial is before the court.

[26] Given the material facts in dispute and credibility issues arising therefrom, and given the complex legal issues raised in this action, including scope of the retainer, whether Cusmariu owed a fiduciary duty or any duty to the investor plaintiffs or any of them, the accepted standard of practice in the circumstances of these transactions, whether there was a conflict of interest which existed, whether Cusmariu failed to appropriately warn his clients of particular legal risks, and whether there was any actual knowledge on the part of those plaintiffs relying on his advice, are all issues that involve complex legal and factual evidence, and are not appropriately determined on a summary judgment motion.

[27] Based on the evidence before me, I find that there are numerous genuine issues for trial, which cannot, on the record before me, be justly or fairly adjudicated on the merits of this case within the meaning of Rule 20.04(2)(a). Further based on the record before me, the issues in dispute and the complexity of the various issues in play, I am of the view that the new powers provided pursuant to Rules 20.04(2.1) and (2.2) will not assist in coming to a just or fair adjudication of this case on the merits.

[28] Accordingly, I find that this action must proceed to trial to be determined on a full evidentiary record with viva voce evidence from numerous witnesses which will be assessed for purposes of credibility.

[29] I dismiss the moving party’s motion for summary judgment.

[30] In the event that summary judgment is not granted, which is the case, the moving party seeks an order for security for costs as against KDT, pursuant to Rule 56.01(1).

[31] In support of his motion for security for costs, Cusmariu relies on the statement of claim which states at paragraph 72 "Neither KDT nor Bashir had made any payments on account of the judgment, nor have they made any payments to satisfy any outstanding costs awarded to the investor plaintiffs. Bashir claims that he has no assets sufficient to make the required payments to the investor plaintiffs.” It further states, at paragraph 73, that "KDT has suffered losses including, but not limited to, being divested of assets, and the consequent inability to honour its agreements." He further relies on an affidavit sworn by Pedram Ghaeinizadeh which states that KDT is unlikely to satisfy a costs award.

[32] The moving party relies on subrules 56.01(1)(d) and (e). It argues that KDT has put forward no evidence of impecuniosity and its claim is without merit, such that security for costs should be ordered.

[33] I note that this action is brought by 14 investor plaintiffs, and KDT, and that the 14 investor plaintiffs bring a derivative action on behalf of KDT. While KDT may not be able to satisfy a costs award, there is no argument made by the moving party, nor any evidence to suggest that the other 14 plaintiffs jointly or severally would be unable to satisfy a costs award. In the event that an award were made against the plaintiffs, it would be against all plaintiffs and not simply KDT. Further, I am not able to say, at this juncture, that the claims as against the defendants and particularly the moving party are frivolous or vexatious or without merit.

[34] In the circumstances, I make no order for security for costs.

Costs

[35] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, within thirty days of the release of this Endorsement.

Carole J. Brown J.

Date: September 5, 2014