ONTARIO
SUPERIOR COURT OF JUSTICE
CITATION: L-Jalco v. Murano 2015 ONSC 840
COURT FILE NOS.: CV-11-0017-00 and CV-11-0020-00
DATE: 2015/Mar/13
BETWEEN:
L-Jalco Holdings Inc.
Plaintiff
– and –
Joseph Murano and Marjorie Babcock
Jehuda Julius Kaminer
Defendants
William P. H. Procter, for the Plaintiff
Joseph Murano and Marjorie Babcock, in person
G. Edward Lloyd, for the Defendant, Jehuda Julius Kaminer
HEARD: November 14, 2014 at Belleville
The Honourable mr. justice j. m. johnston
REASONS FOR JUDGMENT
[1] This is a Ruling upon the Motion commenced by the Defendants, Joseph Murano and Marjorie Babcock and Julius Kaminer seeking the following:
(1) an Order setting aside the Summary Judgment of Madam Justice Polowin dated July 5, 2012;
(2) an Order compelling an accounting of all funds advanced, the source of funds and all funds received by the Plaintiff pursuant to Section 12 of the Mortgages Act;
(3) an Order that all funds received by the Plaintiff in the sale of the properties pursuant to the mortgage herein be paid into Court;
(4) an Order permitting further Discovery of John Lawrynowicj, Calin Lawrynowicj, Nancy Lawrynowicj, Patrick Ho, Dan Serruya and members of Calin Lawrynowicj’s former law firm.
[2] The Defendants seek two different but related areas of relief.
[3] The Defendants seek to have the Judgment set aside and a detailed accounting, including an accounting of proceeds of sale in respect to the properties covered by the mortgage.
Background:
[4] Justice Polowin granted the Plaintiff L-Jalco Holdings Inc.’s Motion for Summary Judgment involving five Court actions on six properties. In the detailed Judgment, Justice Polowin reviewed the arguments of the Defendants. The Defendants opposed the Motion for Summary Judgment on two main grounds:
(1) there was no mortgage between L-Jalco and the Murano Defendants; and
(2) L-Jalco did not advance and the Murano Defendants did not receive the $1.1 million from L-Jalco.
[5] The Defendants are referred to in Justice Polowin’s Judgment as “the Murano Defendants”. The Defendants submitted that they were never advised as to the true identity of the lender on the mortgages. Further, the Murano Defendants alleged before Polowin, J. that there was a genuine issue for trial as to the advance of mortgage funds and disputed the Plaintiff’s claim that it advanced $1.1 million.
[6] At paragraph 24 of her Judgment, Polowin, J. states, “It is admitted that L-Jalco is attempting to obtain Summary Judgment by relying on Schedule “A” to its Statement of Claim prepared by L-Jalco’s counsel, based on information provided by Lawrynowicj & Associates, without producing backup documentation that was relied upon to create the Schedule “A” statement. There was also an issue raised by the Defendants as to the true identity of the lenders. In addition, the Defendants deny that they agree that all funds advanced prior to registration of the mortgage would be secured by the mortgage.” At paragraph 44 Polowin J. states, “The Murano Defendants have also raised that there is a genuine factual issue in dispute, which requires a trial as to whether L-Jalco advanced $1.1 million to the Murano Defendants. While there were no trust statements or other such contemporaneous paperwork, cheques have been produced with respect to the amounts advanced. Further, there is no question that Mr. Murano received Exhibit “A” to the Affidavit of Joseph Murano dated August 9, 2011, the advance summary, in April 2009. Yet no complaint was ever made with respect to this accounting until the commencement of these enforcement proceedings in 2011.”
[7] The Defendant Kaminer appealed the decision to the Ontario Court of Appeal, however, the Appeal was struck for delay and costs were awarded against Kaminer. Further, the Murano Defendants appealed the decision and the same was dismissed. Costs were awarded against Murano. Those costs remain outstanding.
Position of the Defendants:
[8] The Defendants allege that new information now exists and was not available at the time of hearing of the Motion for Summary Judgment. The evidence according to the Defendants is such that it ‘probably would have changed’ the Motion Judge’s result. The Defendants allege that, unknown to the Defendants or the Motion Judge, on November 11, 2011, $259,232.15 was paid upon the Defendants’ mortgage account held by L-Jalco Holdings.
[9] Further, they allege that, unknown to the Defendants, or the Motion’s Judge on December 12, 2011, a company called YLVP (controlled by Calin Lawrynowicj, son of John Lawrynowicj, John Lawrynowicj being the principle owner of the Plaintiff, L-Jalco Holdings) paid $351,208.22 into the Defendants’ mortgage account held by L-Jalco Holdings. Accordingly, the Defendants argue that $610,440.37 was paid on the mortgage account by these two payments and clearly this money was no longer owed to the Plaintiff by the Defendants and that payments should have been disclosed under the Plaintiff’s continuing duty of disclosure and drawn to the Court’s attention. Motion for Summary Judgment was heard on April 30, 2012. On December 13, 2012, a year and a day after payment by YLVP to L-Jalco, Mr. Calin Lawrynowicj, declared bankruptcy. The Defendants allege as a result of Calin’s bankruptcy, new information has become available that is pertinent and relevant to the Defendants’ claim in this matter and would have been relevant to the decision made by Justice Polowin.
[10] Subsequent to the Polowin decision, the Law Society of Upper Canada commenced an investigation into Calin Lawrynowicj which has resulted in his suspension as a lawyer in the Province of Ontario. I am now informed a further police investigation has commenced.
[11] The Defendants argue that information that has now become available as a result of the bankruptcy investigation, including “the findings of the forensic accountant who investigated Calin on behalf of LSUC and the testimony of Calin’s former accountant, Mr. Ho, indicates that Calin and John Lawrynowicj acted deceitfully and dishonestly and committed fraud. Specifically the Defendants allege the following information was unknown at the time for the Motion for Summary Judgment and would have probably changed the decision:
(1) the funds advanced to the various Defendants were obtained by the Plaintiff by fraud;
(2) there were loan repayments made which were never disclosed in the action such that the Plaintiff’s money sought to be recovered by the Plaintiff were not actually owed to the Plaintiff;
(3) the amounts allegedly advanced to the Defendants were paid into Calin’s trust account at a time subsequent to the advances and by re-imbursement from Trust or Corporation under Calin’s control;
(4) that the accounts prepared by Mr. Patrick Ho had been amended without his knowledge and therefore the evidence before the Court at the Summary Hearing was fraudulent;
(5) that the witnesses who gave evidence on behalf of the Plaintiff were, in fact, dishonest, unreliable and had the Court been aware of all of the facts and circumstances which are known now, the Court would have been “highly unlikely to give their evidence any weight at all”.
Motion to Set Aside Judgment:
[12] The Defendants seek to set aside the Judgment pursuant to Rule 59.06(2) of the Rules of Civil Procedure:
(2) Setting aside or varying – A party who seeks to,
(a) have an order set aside or varied on the ground of fraud or of facts arising or discovered after it was made;
(b) suspend the operation of an order;
(c) carry an order into operations; or
(d) obtain other relief than that originally awarded,
may make a motion in the proceeding for the relief claimed.
[13] In seeking to have the Judgment set aside there is a two-part test as set out in Scott v. Cook 1970 CanLII 331 (ON SC), [1970] 2 O.R. 769-775:
First, would the evidence, if presented at trial, probably have changed the result?
And, secondly, could the evidence have been obtained before trial by the exercise of reasonable diligence?
[14] The Defendants further argue there are qualifications of the first line of the test in cases where fraud, conspiracy are involved or where the Judgment is “tainted and affected by fraudulent conduct”.
[15] The Defendants rely heavily on the argument that the evidence presented at the Summary Judgment hearing was “permeated with fraud both by omission and by the altering of the accounting of Mr. Ho and the submission to the Court, as evidence, the altered, fraudulent accounting.” Further the Defendants argue the entire transaction was part of an overarching scheme of fraud which meant that the entire series of transactions were fraudulently misrepresented in Court so that the Judgment is tainted by fraud and the whole must fall. Second, the Defendants argue that this was a Motion for Summary Judgment on Affidavit and not after viva voce evidence and not after trial.
Position of the Defendants of fraud:
The Defendants argue that there is new evidence of fraud and that it seriously undermines the Plaintiff’s account of the series of transactions between the parties and that it clearly contradicts the Plaintiff’s evidence in respect of quantum and undermines the credibility of the Plaintiff’s witnesses who have now been revealed as deceitful, manipulative and wholly untruthful witnesses.
Analysis:
[16] The onus is upon the moving party to establish that there is new evidence and that this new evidence, if presented to Polowin, J., “probably would have changed the result”. The Defendants allege fraud; they must provide sufficient evidence to support the allegation. Innuendo is not sufficient to satisfy the moving parties onus on the motion.
[17] I find that, while there may be very serious questions surrounding Calin Lawrynowicj and the internal working of his law office and whether or not he was operating a ponzie scheme defrauding investors, there was a clear finding by the Motion Judge that the source of the mortgage funds were not relevant. The Ontario Court of Appeal confirmed the Motion’s Judge’s Ruling finding: “There is no requirement that the mortgagee prove the source of funds in the circumstances of this case”.
[18] Further, Justice Polowin made findings as to the validity of the mortgages and the amount based upon evidence that included cheques presented at the Motion and the fact that the Murano Defendants had a copy of the now-disputed Exhibit as to calculation of funds advanced pursuant to the mortgages for some period of time and made no complaint until after the enforcement proceedings were commenced. Most telling is the oral submission of Mr. Murano in this hearing, wherein he stated that he did not dispute that the Defendants owed the money, rather the issue was to whom the money was owed.
[19] The next argument is that, while the Defendants acknowledge they did not make payments upon the outstanding mortgages, the mortgages were reduced. Allegedly Calin Lawrynowicj and his related company YLVP made payments in the amount of $610,440.37. The Defendants argue the amounts paid necessarily reduced the amounts owed to the Plaintiff. This assertion arises from evidence given by Calin Lawrynowicj’s accountant, Mr. Ho. Mr. Ho testified in the bankruptcy proceedings of Calin Lawrynowicj, his evidence is filed in this motion. I find that notwithstanding the Ho testimony, there is no evidence that a portion of the mortgage was actually paid. Mr. Ho, in fact, speculated that the payment was made to acquire an interest as mortgagee, in a portion of the mortgage. Inspection of the transcript of Mr. Patrick Ho’s Examination, questions 194-197, confirms that a payment was made, but if it related to the Defendants’ mortgage, it was for the purpose of acquiring an interest as a mortgagee in a portion of the mortgage. There is no evidence that a payment was advanced to reduce the mortgage owed by the Defendants.
[20] In my view, there is no other new evidence and no evidence that would have probably changed the determination of the Motion for Summary Judgment. Much of the Affidavit evidence relied upon by the Defendants contains reference to events subsequent to the Polowin, J. Judgment.
[21] I accept the Defendants’ argument that there is a serious question about the credibility of Calin Lawrynowicj and whether he defrauded other clients. Calin Lawrynowicj certainly had interactions with the Murano Defendants. However, Calin Lawrynowicj was not and is not a party to this litigation. There is no new evidence that Calin Lawrynowicj’s alleged fraud in other matters impacted the mortgages which were the subject of the Motion for Summary Judgment. At this stage, the Defendants who are the moving party of the Motion must establish more than simply suspicion and innuendo that the alleged fraud of Calin Lawrynowicj impacts this particular matter. The Defendants could have taken steps in the course of this Motion to seek further and direct evidence to support their position, including direct evidence from Mr. Ho. Instead the Defendants rely on portions of transcripts of Examinations of Mr. Ho taken in separate proceedings relating to the bankruptcy of Calin Lawrynowicj.
[22] In the circumstances of this case and upon review of all of the Affidavit material filed on behalf of all the Defendants, I find there is insufficient grounds to find that there is new evidence that probably would have changed the decision of Polowin, J. This portion of the Motion is dismissed.
Request for Accounting:
Are the Moving Parties, the Murano Defendants and Kaminer entitled to an Accounting with respect to disposition of the properties?
[23] It is the position of L-Jalco that there are outstanding Cost Orders in the Court of Appeal that have not been satisfied and until such time as the Mortgagors satisfy the Costs Order, the Motions should be stayed or an Accounting should not be ordered.
[24] Second, L-Jalco argues it is not required to provide an Accounting unless there is clear evidence that there is a surplus. The Defendants’ own evidence, according to this argument, establishes that there is a shortfall showing a deficiency of $109,581.67 without allocation for interest after the date of Judgment, realty tax, arrears, legal costs and real estate commission. In short, L-Jalco’s position is that any further Order for Accounting is simply moot.
[25] The moving parties/Defendants take the position that there has been no proper Accounting received from the sale of the various properties pursuant to the Polowin Judgment, notwithstanding John Lawrynowicj’s promises to do so in the past.
[26] The Defendants argue that there is likely a surplus and L-Jalco has not established that there is a deficit.
Analysis:
[27] Notwithstanding the finding there is no new evidence to support a review of the quantum of funds advanced on the mortgage, there is a cloud of uncertainty surrounding Calin Lawrynowicj. Calin Lawrynowicj, although not a party to this matter, was very much involved in the transactions resulting in the mortgages. It is beyond the capability of this Court to determine whether Calin Lawrynowicj has or has not committed fraud in this or other investments and/or mortgages. However, in all of the circumstances, it is incumbent upon L-Jalco to provide an Accounting to the Defendants for the properties sold pursuant to the Judgment of Polowin, J. There is sufficient evident presented by the Defendants post-default in the mortgage and post-Judgment to require an Accounting, as would normally be the case. I reject the Plaintiff’s argument in the circumstances that no accounting is necessary because on the face the evidence there is a deficit still owed by the Defendants. The cloud of uncertainty and the requirement for transparency demand that the Plaintiff provide an accounting.
[28] The moving parties also seek an Accounting of all funds advanced, the source of funds and all funds received by the Plaintiff. The issue of the quantum of funds advanced was determined by the Polowin Judgment and I rule by this Judgment there are no grounds to review the finding. The Accounting for funds will be with respect to proceeds of the sale of the properties, together with any income from said properties L-Jalco may have received.
[29] I am not persuaded by the moving parties that grounds exist to require funds received by the Plaintiff in the sale of the properties pursuant to the mortgage herein, be paid into Court and decline to make that Order. I further decline the moving parties’ request for an Order permitting Discovery of John Lawrynowicj, Nancy Lawrynowicj, Calin Lawrynowicj, Patrick Ho, Dan Serruya. Discovery of these individuals relates to the issue of Polowin, J.’s Judgment. In the light of this Ruling, such Examination is not appropriate.
[30] In the event the parties cannot agree upon costs I require the parties to exchange written submissions including Bill of Costs limited to three pages. The moving parties to make submissions in writing and provide to counsel for L-Jalco within twenty-one days and file with this Court at Belleville and L-Jalco shall have the right of response within fourteen days. In the event further time is required, requests shall be made to the Court in writing.
The Honourable Mr. Justice J. M. Johnston
Released: March 13, 2015
CITATION: L-Jalco v. Murano 2015 ONSC 840
COURT FILE NOS.: CV-11-0017-00 and CV-11-0020-00
DATE: March 13, 2015
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
L-Jalco Holdings Inc.
Plaintiff
– and –
Joseph Murano and Marjorie Babcock
Jehuda Julius Kaminer
Defendants
REASONS FOR JUDGMENT
The Honourable Mr. Justice J. M. Johnston
Released: March 13, 2015