LDR PROPERTIES INC. v. MARY GRACE FERRARI, 2015 ONSC 3193

COURT FILE NO.: 1155/13

DATE: 20150522

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: LDR PROPERTIES INC., Plaintiff

AND:

MARY GRACE FERRARI, GRAZIANO GAGLIARDI, 2335966 ONTARIO LTD., 2264612 ONTARIO LTD, and 2308102 ONTARIO LTD., Defendants

AND:

ALAN S. PRICE, Intervenor

BEFORE: COATS J.

COUNSEL: Judy Hamilton, Counsel for the Plaintiff

Howard W. Reininger, Counsel for the Defendant, Graziano Gagliardi

Justin Anisman, Counsel for the Intervenor Alan S. Price

HEARD: April 27, 2015

ENDORSEMENT on the motion

1. Nature of the Motion

[1] The Defendant, Mr. Graziano Gagliardi (“Mr. Gagliardi”) brought a motion argued on April 27, 2015 seeking to set aside the judgment of Gray J. dated May 22, 2013. Gray J. granted judgment against Mr. Gagliardi, his daughter, Mary Grace Ferrari (“Ms. Ferrari”) and various other numbered companies. Mr. Gagliardi seeks to set aside the judgment and all Writs of Seizure and Sale filed against him and seeks permission to file a Statement of Defence and Counterclaim.

[2] In the alternative, Mr. Gagliardi seeks a declaration from this Court that the debt claimed as outstanding on his guarantee has been substantially paid and the judgment against him substantially satisfied by receipt by the Plaintiff of the net proceeds that were derived from the sale of properties that were held as security by the Plaintiff.

[3] The main issues on this motion are first whether Mr. Gagliardi was served with the statement of claim for the matter for which Justice Gray granted judgment on May 22, 2013 and second, whether the judgment as issued and entered contains an error of substance that would further justify the judgment being set aside.

2. Background and Facts

[4] This motion exists in the context of an alleged mortgage fraud perpetrated by Mr. Jeff Hanna, Ms. Ferrari and Ms. Ferrari’s father, Mr. Gagliardi.

[5] The alleged fraud has led to ongoing actions in the Superior Courts of Milton, Toronto, and Hamilton.

[6] On December 20, 2012 a matter being heard by Hourigan J. (as he then was) was settled as a result of signed minutes of settlement dated December 19, 2012 between LDR Properties Inc. (“LDR”), Ms. Ferrari and Mr. Gagliardi.

[7] Pursuant to the minutes of settlement, the Defendant Ms. Ferrari agreed to pay certain amounts to LDR on specified dates. The security behind the obligation to pay included mortgages that were held by LDR over various properties that the Defendants had an interest in as well as a general security agreement from 2264612 Ontario Ltd and 2264618 Ontario Ltd to secure the payment of settlement funds.

[8] The minutes of settlement required Mr. Gagliardi to execute and deliver a personal guarantee in the amount of $800,000. Mr. Gagliardi’s guarantee was $800,000 over his daughter’s $2,067,800 owed in settlement funds to the Plaintiff. It was stipulated in the minutes that Mr. Gagliardi’s guarantee would be released after LDR received payment of $1,200,000 of the settlement funds.

[9] It has not been disputed that two of the payments totaling $450,000 were not made by Ms. Ferrari to LDR as mandated in the minutes.

[10] This default was the impetus for the Plaintiff commencing an action on February 26, 2013. The Statement of Claim allowed the Defendants to serve and file a request to redeem at any time before being noted in default.

[11] On March 4, 2013 the Defendants issued a Notice of Intent to Defend.

[12] The Plaintiff on the motion before Justice Gray conceded that the action was for a judicial sale of the properties encumbered by mortgages under the minutes of settlement.

[13] The Defendants: Ms. Ferrari, Mr. Gagliardi, 2335966 Ontario Ltd., 2264612 Ontario Ltd., and 2308102 Ontario Ltd. were noted in default on April 8, 2013. A request to redeem was served on April 8, 2013 but by the time an attempt was made to file it the Defendants were already noted in default.

[14] In the meantime, four notices exercising power of sale of the properties were issued by the Plaintiff over the mortgaged properties under the settlement agreement. Two notices were issued on March 5, 2013 and two notices on March 7, 2013.

[15] On May 22, 2013 a motion was brought by the Defendants, Ms. Ferrari and the three numbered companies, to set aside the noting in default, with Mr. Price acting as counsel for the Defendants on the motion.

[16] A cross-motion for summary judgment was brought by the Plaintiff as the Defendants were in breach of the minutes of settlement. The Plaintiff moved against Mr. Gagliardi in his capacity as personal guarantor under the minutes of settlement.

[17] Justice Gray ruled in his endorsement that as the action was commenced as a judicial sale, the notices of sale were nullities and did not affect the action for judicial sale. The Defendants under the action for judicial sale had the right to redeem the mortgage provided that the request was served and filed before they were noted in default.

[18] Justice Gray determined that the time for serving and filing the request to redeem was not affected by the power of sale notices that had been served and were held to be nullities. The right of the Plaintiff to note the Defendants in default was under the action for judicial sale and existed independently from the notice of sale.

[19] Justice Gray held that having regard to the background of this matter he would not exercise his discretion to set aside the noting of default.

[20] After rejecting the request to set aside the noting in default, Justice Gray granted judgment on the mortgage covenant against Ms. Ferrari and the numbered companies. The court further granted judgment against Mr. Gagliardi for the guarantee. Justice Gray granted possession to the Plaintiffs of the mortgaged properties and ordered an immediate judicial sale of the properties that were listed in the minutes of settlement.

[21] Justice Gray specifically declared in his endorsement that the power of sale notices were a nullity and that a judicial sale was to occur. This was not reflected in the issued judgment. The judgment did reflect other aspects of Gray J.’s endorsement with regard to possession of the properties and the in-personam orders against Ms. Ferrari and Mr. Gagliardi.

[22] The order was approved as to form and content by counsel for all parties despite the absence of the provision for an immediate judicial sale.

[23] After Gray J.’s judgment of May 22, 2013, Mr. Price and Mr. Friedman (the lawyer for the Plaintiff) exchanged emails and consented to amended terms of payment.

[24] Counsel for all parties agreed on consent for an order for leave to issue a writ of possession of the properties. These e-mails occurred from June 7 to June 17, 2013.

[25] It is quite clear from the record before me that both counsel agreed to disregard the judicial sale aspect of Gray J.’s endorsement.

[26] As of June 16, 2014 all four properties were sold.

3. Issues

[27] The following issues will be addressed for the purposes of this motion:

1. Did Mr. Gagliardi have notice of the Statement of Claim that was issued February 26, 2013 by the Plaintiff?

2. Can the order of Justice Gray be set aside on the grounds that the matter before the court resulted in a default judgment or is the Defendant estopped from re-litigating the ruling of Justice Gray under the principles of res judicata?

3. Should the Order of Justice Gray be set aside because the term in his endorsement requiring a judicial sale was not included in the judgment that was issued and entered?

4. If the judgment of Justice Gray is not set aside what is the impact of the parties’ failure to comply with the judgment?

5. Should this Court grant a declaration for Mr. Gagliardi stating that the judgment on his guarantee has been substantially satisfied?

4. Position of the Parties

a.) Position of the Defendant, Mr. Gagliardi

[28] The Defendant’s position is that he was unaware of this action and was never served with the Statement of Claim. The Defendant alleges that although the lawyer, Mr. Alan Price, purported to represent him on the motion before Justice Gray he had never spoken with Mr. Price and that the lawyer was not authorized to represent him. The Defendant relies on Dawson’s Marina Ltd. v Telfer, [2005] O.J. No. 6249 at para. 17 (ONSC) for the proposition that if the defendant can establish that correct procedures had not been followed in obtaining judgment or in relation to some step taken by the Plaintiff, such as failing to serve a statement of claim in a proper manner, then the Defendant is entitled to have the judgment set aside.

[29] Essentially the Defendant’s main submission is that since he had no notice of the proceedings and therefore could not properly represent himself, the proceedings were fundamentally tainted and the judgment of Gray J. should be set aside.

[30] The Defendant states that the matter before Justice Gray was to set aside a noting in default and that as no Statement of Defence was given to the Plaintiff’s there could be no summary judgment and that Justice Gray’s endorsement was a default judgment. The Defendant therefore submits that it is rule 19.08 of the Rules of Civil Procedure that governs and this proceeding is not barred by the doctrine of res judicata and issue estoppel.

[31] The Defendant further submits that as the Court’s endorsement of May 22, 2013 required a judicial sale and no judicial sale was addressed in the order it should be set aside as an irregularity that goes to the very root of the judgment: see Beber (In Trust) v. Davis, [1987] O.J. No. 1035 (Master).

[32] In the alternative, Mr. Gagliardi submits that based on the accounting delivered by counsel for the Plaintiff, Judy Hamilton, from the sale of the properties, this Court should find based on his supplementary motion record that his debt outstanding to the Plaintiff has been substantially satisfied or that the proceeds from the Plaintiff are enough that the $1,200,000 threshold has been met and he is not liable as guarantor. Mr. Gagliardi states that the judgment against him should be credited with the net proceeds received by the Plaintiff from the sale of the security held by the Plaintiff.

b) Position of the Plaintiff

[33] The Plaintiff takes the position that Mr. Gagliardi was served with the Statement of Claim and had notice of the proceeding. The Plaintiff submits that even if Mr. Price was not authorized by Mr. Gagliardi to act and therefore Mr. Price could not accept service on his behalf, Mr. Gagliardi was still served properly by alternate personal service pursuant to rule 16.03(5) of the Rules of Civil Procedure. The Plaintiff states in the affidavit of Vince DeRosa that a process server attended the home of Mr. Gagliardi and served a copy of the Statement of Claim on his wife and also sent a copy by regular mail.

[34] The Plaintiff submits that Gray J.’s judgment cannot be set-aside under rule 19.08 as His Honour granted summary judgment to the Plaintiff. The Plaintiff submits that as the judgment of Gray J. was not appealed, the Defendant is barred by the doctrine of res judicata from seeking to set aside the judgment and re-litigating the issues before the Court.

[35] The Plaintiff submits that although the judicial sale provision was not included in the judgment, the only paragraph of the judgment against Mr. Gagliardi on the guarantee was correct. The Plaintiff further submits that the sale of the properties was on consent and that since the judicial sale is no longer possible as the properties have been sold “it is nonsensical to set the judgment aside for that purpose.”

[36] With regard to Mr. Gagliardi’s submission that this Court should grant him a declaration with regard to the status of his guarantee, the Plaintiff takes the position that the term in the minutes of settlement wherein Mr. Gagliardi would be released from his guarantee has not been satisfied. The Plaintiff proposes that Mr. Gagliardi has a right to pursue a separate accounting of the amount owed and an interpretation of the minutes in this regard, if required, without setting aside the judgment on the guarantee.

c) Intervenor (Alan Price)

[37] The Intervenor takes no position with respect to whether the judgment against Mr. Gagliardi should be set aside.

[38] Mr. Price submits that this Court should not make any findings with regard to whether Mr. Price was retained by Mr. Gagliardi and whether it was proper for Mr. Price to accept service of the Statement of Claim on behalf of Mr. Gagliardi as these issues are the subject matter of other separate litigation.

5. Law and Analysis

[39] Before delving into the analysis of the various issues before the Court I would like to note that I will not be making any findings with regard to the relationship and actions between Mr. Price and Mr. Gagliardi.

[40] On the evidentiary record before me, I cannot make any factual determinations about the alleged conduct of Mr. Price and leave the matter in its entirety to be dealt with in a separate proceeding.

a) Did Mr. Gagliardi have notice of the Statement of Claim that was issued February 26, 2013 by the Plaintiff?

[41] I find that Mr. Gagliardi had notice of the Statement of Claim that was issued February 26, 2013.

[42] The affidavit of Vince DeRosa sworn October 9, 2014 clearly states that a process server attended the home of Mr. Gagliardi on February 28, 2013 and served a copy of the Statement of Claim on his wife, Lina Gagliardi, with a copy sent by regular mail. The affidavit of service of Domenic Mazzone attached as an exhibit verifies this information.

[43] Rule 16.03(5) states:

Where an attempt is made to effect personal service at a person’s place of residence and for any reason personal service cannot be effected, the document may be served by,

(a) leaving a copy, in a sealed envelope addressed to the person, at the place of residence with anyone who appears to be an adult member of the same household; and

(b) on the same day or the following day mailing another copy of the document to the person at the place of residence,

and service in this manner is effective on the fifth day after the document is mailed.

[44] The materials before the Court from Mr. Gagliardi do not address the Plaintiff’s allegation that he was served by an alternative to personal service and instead focuses solely on the allegations of the unauthorized acceptance of service by Mr. Price. As Mr. Gagliardi could have responded to the evidence of the Plaintiff in regard to alternate service and did not and in light of the affidavit of service, I draw an adverse inference from the silence of the Defendant on this point and find that Mr. Gagliardi did have notice of the Statement of Claim.

b) Can the judgment of Justice Gray be set aside on the grounds that the matter before the court was the granting of a default judgment or is the Defendant estopped from re-litigating the decision of Justice Gray under the principles of res judicata?

[45] Both the Plaintiff and Defendant mischaracterize the matter before Justice Gray. Justice Gray had before him a motion to set aside the noting in default brought by the Defendants other than Mr. Gagliardi and a cross-motion brought by the Plaintiff for summary judgment.

[46] Counsel for the Defendant’s submission that summary judgment could not be granted by Justice Gray as no Statement of Defence was filed does not fully reflect Rule 20.01 of the Rules of Civil Procedure.

[47] Rule 20.01(1) states:

A plaintiff may, after the defendant has delivered a statement of defence or served a notice of motion, move with supporting affidavit material or other evidence for summary judgment on all or part of the claim in the statement of claim. (Emphasis Added)

[48] As the Defendants had filed a notice of motion to set aside the noting in default the Plaintiff was justified in bringing a cross-motion for summary judgment. The judgment of Justice Gray makes it very clear that the Plaintiff’s motion was for summary judgment. His handwritten endorsement also makes this crystal clear. The Plaintiff’s motion was for summary judgment not a default judgment.

[49] As summary judgment was granted, the question before the court is whether to set aside the judgment of Justice Gray would be impermissible due to the doctrine of res judicata and issue estoppel. I find it would.

[50] The doctrine of issue estoppel prevents the re-litigation of a right, issue or fact that has been put in issue and decided by a Court in a previous proceeding. In Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44 at para. 24, Binnie J. cited with approval the definition of issue estoppel given by Middleton J.A. in McIntosh v Parent:

When a question is litigated, the judgment of the Court is a final determination as between the parties and their privies. Any right, question, or fact distinctly put in issue and directly determined by a Court of competent jurisdiction as a ground of recovery, or as an answer to a claim set up, cannot be re-tried in a subsequent suit between the same parties or their privies, though for a different cause of action. The right, question, or fact, once determined, must, as between them, be taken to be conclusively established so long as the judgment remains.

[51] The Supreme Court of Canada in Danyluk at para. 25 set the following preconditions to the operation of issue estoppel:

1. That the same question has been decided.

2. That the judicial decision which is said to create the estoppel was final.

3. That the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies

[52] It would be inappropriate for this Court to set aside the summary judgment of Justice Gray specifically with regard to the guarantee of Mr. Gagliardi as this exact issue has been decided between the same parties. Justice Gray granted summary judgment on the personal guarantee against Mr. Gagliardi. Justice Gray’s order was not appealed.

c) Should the judgment of Justice Gray be set aside because the term in his endorsement requiring a judicial sale was not included in the judgment that was issued and entered?

[53] Rule 59.06(1) of the Rules of Civil Procedure is a source under the rules to amend an order. The rule states: “An order that contains an error arising from an accidental slip or omission or requires amendment in any particular on which the court did not adjudicate may be amended on a motion in the proceeding.”

[54] Justice Perell in Kiki Kapalua Inc. (c.o.b. Loki Salon) v 1203840 Ontario Ltd., 2014 ONSC 2255 at para. 28 described the Courts jurisdiction to amend or set aside an order as limited to:

(1) Cases of fraud; (2) where there has been a slip in drawing up the order; and (3) where there has been an error in the order expressing the manifest intention of the court from its reasons for decision. The rule is operative only in exceptional circumstances given the public interest in the principle of finality to the litigation process.

[55] In this case it is regrettable that in the face of Justice Gray’s endorsement requiring a judicial sale of the properties, all parties consented to a draft judgment that did not include a judicial sale as a term. An order can still be found to be fraudulent even if it has the consent of both parties. The question is does the order reflect the reasons of the judge. Where the order contains an omission that obviates that manifest intention of the Court that order should be set aside regardless of the consent.

[56] In this case the order as agreed on by both parties reflects every aspect of Justice Gray’s endorsement except for the judicial sale. For the purposes of this motion the manifest intent of Justice Gray to hold Mr. Gagliardi liable on his guarantee was manifest on the face of the judgment. To set aside the entire judgment due to an omission in these circumstances is not warranted. In addition, the properties have already been sold rendering the judicial sale issue moot.

[57] This Court will not set aside the judgment of Justice Gray.

d) If the judgment of Justice Gray is not set aside what is the impact of the parties’ failure to comply with the Endorsement of Justice Gray?

[58] In submissions counsel for the Defendant mentioned that as a result of the properties being sold by way of power of sale a lower price was recognized on the properties and there may have been an improvident sale.

[59] On the record before me I do not intend to weigh in on this allegation. The Defendant has the option to bring an action in another proceeding over the allegation of improvident sale resulting from the endorsement of Justice Gray not being followed.

e) Should this Court grant a declaration to Mr. Gagliardi stating that the judgment on his guarantee has been substantially satisfied?

[60] Mr. Gagliardi submitted a supplementary motion wherein he sought this Court’s relief surrounding whether Mr. Gagliardi had satisfied his debt on the guarantee to the Plaintiff pursuant to the terms of the minutes of settlement or if he could be relieved from this obligation due to the value realized on the properties.

[61] In the Defendant’s own supplementary motion record (in the affidavit of Judy Dodd) it is acknowledged that there has been a receipt of sale proceeds by the plaintiff of $1,154,082. This is not the $1.2 million referred to in the minutes of settlement if I accepted Mr. Gagliardi’s interpretation of clause 6 of the minutes of settlement.

[62] On the record before me I am not satisfied that I can make a determination of the issues surrounding an interpretation of the minutes of settlement and an accounting from the sale of the properties and the amounts outstanding. Affidavits from both parties are sparse on these issues and the Plaintiff contests whether Mr. Gagliardi has paid any monies and whether his debt has been paid down by the sale of the properties. This claim was made by the Defendant late in the motion to set aside the judgment.

[63] Counsel for Mr. Gagliardi suggested that if I am not satisfied on this record I should direct a trial on the issue.

[64] In considering whether a trial or application would be better to settle the issue surrounding whether Mr. Gagliardi has fulfilled the obligations under the minutes of settlement I have considered rule 14.05(3).

[65] 14.05(3) states:

A proceeding may be brought by application where these rules authorize the commencement of a proceeding by application or where the relief claimed is,

(d) the determination of rights that depend on the interpretation of a deed, will, contract or other instrument, or on the interpretation of a statute, order in council, regulation or municipal by-law or resolution.

[66] In Granger v Granger, 2015 ONSC 1711 at para. 43 , Justice Diamond commented on when a matter may be more appropriate for trial as opposed to an application. He stated:

A judge presiding on an application is entitled to finally decide the rights of the parties on the merits so long as the principles which inform and define the parameters of a properly constituted application have otherwise been met. In determining whether it is possible to finally decide the rights of parties to an application on the merits, the Court must consider the following factors:

(a) whether there are material facts in dispute;

(b) whether there are complex issues requiring expert evidence or a weighing of that evidence;

(c) whether there is a need for the exchange of pleadings and for discoveries; and

(d) the importance and impact of the application and the relief sought.

[67] As the matter would involve a straightforward accounting on the sale of the properties and the interpretation of the minutes of settlement I am confident that this matter can be disposed of by application.

6. Conclusion:

[68] This Court dismisses the motion by the Defendant to set aside the judgment of Justice Gray.

[69] This Court Orders that an application may be brought regarding the interpretation the minutes of settlement and an accounting to resolve the issue of what Mr. Gagliardi owes from his guarantee and whether he is released from the guarantee as a result of the proceeds of the sale of the properties under the minutes of settlement.

[70] If the parties cannot agree upon the costs of this motion, written submissions limited to three pages in length with an attached bill of costs may be served and filed within 30 days from today, by the Plaintiff. Written responding submissions, limited to three pages in length, may be served and filed within 60 days of today by the Defendant. Reply submissions, limited to two pages in length, may be served and filed by the Plaintiff within 75 days of today.

Coats J.

Date: May 22, 2015