CITATION: Eisen v. Betowski et al., 2017 ONSC 6433
COURT FILE NO.: CV-15-1550
DATE: 20171026
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MELVYN EISEN
Plaintiff
– and –
ELIZABETH EWA BETOWSKI, BERARDO MASCIOLI, GALEN LAM and LAKE SIMCOE AEROPARK INC.
Defendants
Gillian Silverhart, for the Plaintiff (Moving Party)
Michael Hochberg, for the Defendant Galen Lam (Responding Party)
HEARD: October 19, 2017
REASONS FOR DECISION
DiTOMASO J.
INTRODUCTION
[1] The Plaintiff Melvin Eisen (“Eisen”) moves for summary judgment against the Defendants on his claim and seeks to have the Defendants’ counterclaims dismissed. Eisen seeks payment on a mortgage where the balance remains outstanding and has not been paid by the mortgagor, Lake Simcoe Aeropark Inc. (“LSA”) or the guarantors, Elizabeth Ewa Betowski (“Betowski”), Berardo Mascioli (“Mascioli”) and Galen Lam (“Lam”), despite demand by Eisen.
[2] Betowski, Mascioli and LSA have not responded to this motion although properly served. Neither did any of them attend before the court when the motion was heard on October 19, 2017.
[3] Lam does not deny that he guaranteed LSA’s indebtedness to Eisen. Lam alleges that Eisen conducted an improvident sale of the Property. Further, Lam alleges that Eisen or his real estate agent, Peter DeGuerre (“DeGuerre”) frustrated a number of agreements (the Lam Agreements) which had been negotiated or attempted to be negotiated by Lam for the sale of the Property. Lam alleges that his liability to Eisen should be reduced. Eisen asserts that there is no basis for any such reduction.
OVERVIEW
[4] With the exception of the allegations of improvident sale and the frustration of the Lam Agreements, the factual matrix in respect of this matter is for the most part not in dispute.
[5] On behalf of Eisen, I had before me the following materials:
- Motion Record containing the affidavit of Melvyn Eisen sworn April 10, 2017 and exhibits attached thereto;
- Affidavit of Matthew Fishman sworn October 19, 2017 and exhibits attached thereto;
- Affidavit of Matthew Fishman sworn September 22, 2017 contained in the reply Motion Record and exhibits attached thereto;
[6] I also had before me the Motion Record of the responding party Lam together with attached exhibits.
[7] The materials filed on this motion establish the following facts.
[8] Until October 28, 2016, LSA was the owner of the properties known municipally as 225 Line 7 North, Oro-Medonte and 401 Line 7 North Oro-Medonte (the “South Parcel”) (collectively, the “Property”). LSA granted a mortgage to Eisen, which mortgage was registered against title to the Property (the “Mortgage”).
[9] Betwoski, Mascioli and Lam guaranteed the Mortgage to Eisen.
[10] LSA defaulted in payment of the amounts due under the Mortgage. Despite demand, no payments were received and the Property was sold under power of sale at a loss. Eisen seeks payment for the deficiency balance.
[11] LSA, Betoski and Mascioli have not filed responding material.
The Mortgage
[12] The Mortage registered against title to the Property secured the principal sum of $3,350,000, together with interest thereon at a rate of 12% per annum. The Mortgage required monthly payments in the amount of $33,500. The Mortgage was registered against title to the Property on June 26, 2012 as instrument number SC991268.
[13] Eisen initially held the Mortgage in trust for Joseph L. Rotman as beneficiary (“Rotman”). However, on June 10, 2015, Amaranth Resources Limited (“Amaranth”) purchased Rotman’s interest in the Mortgage.
[14] The Mortgage provides that Eisen may pay all costs, charges, expenses (including legal fees as between solicitor and his own client) which may be incurred in taking, recovering and keeping possession of the Property, and generally taking any other proceedings in connection with or to realize on the security, and that any such amounts shall be added to the debt secured by the Mortgage, with interest.
The Guarantee
[15] Betowski, Mascioli and Lam provided an unlimited guarantee to Eisen of the debts owing by LSA to the Plaintiff. In a schedule to the Mortgage, they agreed as follows:
The Guarantors…do hereby absolutely and unconditionally guarantee to the Mortgage…the due and punctual payment by the Mortgagor of all principal monies, interest and other monies owing on the security of the Mortgage…the Guarantors will pay all such monies to the Mortgagee without any demand being required to be made.
Sale of Property
[16] The Mortgage matured on July 1, 2014.
[17] Notwithstanding maturity of the Mortgage, Eisen provided LSA and Lam with the opportunity to sell the Property before instituting power of sale proceedings approximately nine months later. Amaranth and Eisen were hopeful that Lam’s efforts would result in a sale which would see the Mortgage satisfied in full.
[18] Lam retained an experienced commercial real estate agent, Jason Child of CBRE to sell the Property. The Property was not sold.
[19] A Notice of Sale was issued on April 28, 2015, and served on all parties, including Betowski, Mascioli and Lam.
[20] Pursuant to an Agreement of Purchase and Sale accepted June 23, 2016, as amended by amending agreement dated July 28, 2016 (collectively, the “APS”), the Property was sold to 1482941 Ontario Inc. (“148”) for the purchase price of $1,900,000. 148 later assigned the APS to Simcoe Aeropark Development Corp. (“SADC”). In accordance with the APS, the Property was transferred to SADC on October 28, 2016. As incentive to 148 to enter into the APS for $1,900,00, Amaranth agreed to provide a vendor take back mortgage to SADC in the amount of $1,300,000.
[21] The proceeds from the sale of the Property did not satisfy the indebtedness under the Mortgage. There is deficiency balance claimed by Eisen in the amount of $4,090,074.26 with interest continuing to accrue at the rate of 12% per annum in the sum of $1,322.82 per diem.
[22] Despite demand, neither LSA nor the guarantors have paid any amount to Eisen. The Statement of Claim was issued on December 11, 2015. The Defendants delivered their Statements of Defence and Counterclaim. They also delivered their reply and Statement of Defence to Counterclaim.
THE ISSUES
[23] The fundamental issue to be determined is whether there is a genuine issue requiring a trial.
POSITION OF THE PARTIES
Position of the Moving Party Eisen
[24] Eisen submits that he took reasonable precautions to obtain the market value for the Property. He denies that there was any improvident sale of the Property. Further, he denies that there was any interference in respect of the Lam offers. He submits that the proceeds of the sale of the Property did not satisfy the indebtedness under the Mortgage. Eisen submits that he is entitled to summary judgment against all Defendants for the outstanding balance on the Mortgage which has not been paid by the Defendants despite demand by Eisen.
[25] Further, Eisen submits that in addition to no improvident sale, there has been no interference by either Eisen or his real estate agent DeGuerre regarding the Lam offers.
[26] Eisen submits that the defences and allegations raised by Lam in his amended Statement of Defence and Counterclaim are without merit. Lam does not deny that he provided a guarantee to the Mortgage. Instead, Lam alleges, among other things, that the Property was sold improvidently by Eisen which Eisen denies.
[27] Eisen submits that he took reasonable precautions to obtain market value for the Property, including obtaining an appraisal, hiring a real estate broker with substantial experience, researching and contacting numerous potential purchasers, exposing the Property to the market for nearly a year and negotiating the offers received from potential purchasers.
[28] Eisen submits that Lam has not demonstrated that a higher price could have been obtained on the sale of the Property. Eisen seeks judgment and dismissal of the Defendants’ counterclaims with costs.
The Position of the Defendant Lam
[29] Lam submits that he has good reason to believe that Eisen failed to carry out the duty of care owed to the Defendants in the power of sale context and that Eisen’s failures caused the deficiency. Further, Lam submits that Eisen and/or DeGuerre frustrated Lam in his attempt to sell the Property to other prospective purchasers through the Lam Agreements. Lam submits that there has been no discovery in this action and that he has been deprived of information to which he is entitled pursuant to the rules. Accordingly, he has been hampered in his ability to put his best foot forward or to make full answer and defence. He further submits that there are credibility issues between the parties and that there are genuine issues requiring a trial.
ANALYSIS AND FINDINGS
Test on Summary Judgment
[30] Rule 20.04(2)(a) provides that:
(2) The court shall grant summary judgment if,
(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence[^1];
[31] The summary judgment rule affords a motion judge with the following powers on a summary judgment motion:
(2.1) In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at trial:
Weighing the evidence.
Evaluating the credibility of a deponent.
Drawing any reasonable inference from the evidence[^2].
[32] In Hryniak v. Mauldin[^3], the Supreme Court of Canada articulated a new approach to summary judgment under Rule 20 by expanding the use of summary judgment as an alternative model for adjudication that should be more widely available to provide litigants with less expensive and more timely access to justice. The Supreme Court of Canada held that summary judgment rules must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims.
[33] In Hryniak, the Supreme Court of Canada articulated the following roadmap to a motion for summary judgment:
On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring a trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicated the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers 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 if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.[^4]
[34] A responding party to a motion for summary judgment is obliged to put his best foot forward and in that context must do more than simply assert an uncorroborated fact. The respondent to the motion for summary judgment must set out in affidavit material or other evidence, specific facts and coherent evidence showing that there is a genuine issue for trial in default of which the court may simply decide against the responding party on the ground that it failed to file affidavit material or other evidence as required, or in the alternative, may draw adverse inferences from the failure.[^5]
[35] Summary judgment motions must be granted whenever there is no genuine issue requiring a trial. In Hryniak, the Supreme Court of Canada held that there will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process:
(i) Allows the judge to make the necessary findings of fact;
(ii) Allows the judge to apply the law to the facts, and
(iii) Is a proportionate, more expeditious and less expensive mean to achieve a just result.[^6]
Improvident Realization
[36] The duty of a mortgagee selling under power of sale is set out in Oak Orchard Developments Ltd. v. Iseman (“Oak Orchard”)[^7] as follows:
(i) A mortgage selling under a power of sale is under a duty to take reasonable precautions to obtain the true market value of the mortgaged property at the time on which he decides to sell it. This does not mean that the mortgagee must, in fact, obtain the true value.
(ii) The duty of the mortgagee is only to take reasonable precautions. Perfection is not required. Some latitude is allowed to a mortgagee.
(iii) In deciding whether a mortgagee has fallen short of his duty, the facts must be looked at broadly and he will not be adjudged to be in default of his duties unless he is plainly on the wrong side of the line.
(iv) The mortgagee is entitled to exercise an accrued power of sale for his own purposes whenever he chooses to do so. It matters not that the moment may be unpropitious and that by waiting, a higher price could be obtained.
(v) The mortgagee can accept the best price he can obtain in an adverse market provided that none of the adverse factors are due to fault on his part.
(vi) Even if the duty to take reasonable precautions is breached, the mortgagor must show that a higher price would have been obtained but for the breach in order to be compensated in damages.
[37] The evaluation of whether a mortgagee has met its duty is not applied to the value obtained, but to the care taken in completing the sale. The steps taken by the mortgagee can be an indication of the level of care taken[^8].
FINDINGS
[38] I find that this is an appropriate Motion for Summary Judgment where a determination of the essential question will lead to a fair and just result and will serve the goal of timeliness, affordability and proportionality in light of the litigation as a whole (see Hryniak, at para. 66).
Did Eisen Take Reasonable Precautions to Obtain Market Value for the Property?
The Appraisal
[39] I accept the evidence of Eisen and Fishman in respect of steps taken to obtain the appraisal.
[40] An appraisal prepared by an accredited appraiser was obtained effective June 23, 2015 (the ”Appraisal”). The Appraisal estimated liquidation value for the Property to be between $2,400,000 and $3,150,000 in a power of sale scenario.
[41] The Appraisal states that LSA received draft plan approval in 2010 for the South Parcel. The Appraisal assumed that the draft plan approval obtained by LSA remained in effect and that the Property could accommodate the preliminary place of industrial subdivision. The Appraisal further states that the draft plan approval obtained by LSA would expire on November 26, 2015, which it did.
The Real Estate Agent
[42] On or about July 15, 2015, Eisen retained DeGuerre to sell the Property. DeGuerre is a well-respected commercial real estate agent with over 30 years’ experience.
[43] The Property was listed for sale by DeGuerre on September 24, 2015 for the sum of $4,150,000 and remained on the market at the same price until it was sold. The listing price was selected in an attempt to elicit the highest possible offer that would satisfy the Mortgage and other costs associated with the sale process.
[44] The Property was immediately placed by DeGuerre on both the Toronto and the Barrie multiple listing services where the listings remained until the Property was sold.
[45] DeGuerre also took a number of steps to marketing the Property, including:
(i) Distributing a flyer concerning the Property to over 2,500 commercial real estate agents on a bi-weekly basis via email blast for the duration of the listing.
(ii) Advertising the Property on DTZ and later, Cushman & Wakefield’s website for the duration of the listing.
(iii) Placing an advertisement in the Barrie Examiner on multiple occasions.
[46] Throughout the listing, DeGuerre also researched and contacted at least 23 purchasers who he thought may be interested in purchasing the Property. Matthew Fishman, the Vice President, Real Estate at Amaranth, also reached out to at least 24 of his contacts in the industry to see whether they were interested, or knew of any others who would be interested, in purchasing the Property.
Offers Received
[47] DeGuerre received offers from three different purchasers. Significant negotiations tookd place with each purchaser in an effort to obtain the best possible purchase price. A detailed chart summarizing each offer and the negotiations is found at paragraph 21 of the Fishman Affidavit, sworn September 22, 2017.
[48] Pursuant to the APS accepted June 23, 2016, as amended by amending agreement dated July 28, 2016, the Property was sold to 1482941 Ontario Inc. (“148”) for a purchase price of $1,900,000. 148 assigned the APS to Simcoe Aeropark Development Corp. (SADC”). The Property was transferred to SADC on October 28, 2016.
[49] As incentive to 148 to enter into the APS for $1,900,000, Amaranth agreed to provide a vendor take back mortgage to SADC in the sum of $1,300,000.
[50] The proceeds from the sale of the Property did not satisfy the indebtedness under the Mortgage. There is a deficiency balance in the sum of $3,843,165.63 as at April 7, 2017. Interest continues to accrue at the rate of 12% per annum in the sum of $1,322.82 per diem. An updated statement of indebtedness was provided by Eisen.
[51] Despite demand, no payments have been made to Eisen.
[52] I find that on the facts of this case and the application of principles set out in Oak Orchard Developments Ltd. v. Iseman, supra and Toronto Dominion Bank v. 466888 Ontario Ltd., supra the steps taken by Eisen and Amaranth demonstrate that reasonable care and precautions were taken to obtain market value for the Property as follows:
(i) An appraisal of the Property from a certified appraiser was obtained;
(ii) Eisen retained DeGuerre, an experienced commercial real estate agent, to sell the Property. DeGuerre:
a. distributed a flyer concerning the Property to over 2,500 commercial real estate agents in a bi-weekly, email blast for the duration of the listing;
b. listed the Property on the Toronto and Barrie multiple listing services for the duration of the listing;
c. advertised the Property on DTZ and Cushman & Wakefield’s website for the duration of the listing;
d. placed advertisements in the Globe and Mail and Barrie Examiner; and
e. researched and contacted targeted at least 23 potential purchasers.
(iii) Fishman emailed at least 24 of his industry contacts to see whether they, or someone they knew, would be interested in purchasing the Property;
(iv) The Property was exposed to the market for nearly one year; and
(v) The offers to purchase were negotiated by Eisen.
The Alleged Improvident Realization
[53] In his affidavit sworn September 6, 2017, Lam alleges that the property was sold improvidently. I find that the only evidence Lam proffers concerning the value of the Property is an outdated opinion of value as at August 2, 2013, which valued the Property between $8,500,000 and $15,000,000 on an “as is” basis (the “Opinion”). The Opinion confirms that it is not a certified appraisal and that it may be subject to errors and/or omissions.
[54] At the time of the Opinion, LSA had draft plan approval for a plan of industrial subdivision on the South Parcel. The approval subsequently expired causing the land to revert back to rural/agricultural. This made the Property less attractive and decreased its value.
[55] Lam further appeared to completely disregard the Opinion. In June 2015, the Property was listed for sale by CBRE for the sum of $5,100,000. As noted, notwithstanding Lam’s efforts, the Property was not sold.
[56] In accordance with the sixth principle set forth in Oak Orchard, Lam bears the onus of showing that a higher price would have been obtained. I find there is no evidence that Eisen could have obtained a better purchase price. Even if Eisen has not discharged his duty, which I have not found, Lam has failed to meet this onus. He has suffered no damages. I find there is no basis upon which to reduce his liability pursuant to the guarantee and his Counterclaim is dismissed.
The Alleged Interference With Lam’s Offers
[57] In the Defence, Lam alleges that he provided Eisen with a copy of an Agreement of Purchase and Sale dated November 2014 on the condition and undertaking that same be kept confidential. Lam further alleges that Eisen disclosed the alleged offer to third parties causing the purchaser to back out of the contemplated APS in the Lam affidavit
[58] In Lam’s affidavit, he addresses two additional offers he received to purchase the Property. He refers to these offers as the Dancor Agreement and the LOI in the Lam Affidavit. The Defence does not allege that Eisen disclosed these additional offers. The Confidential APS, Dancor Agreement and LOI shall be collectively referred to as the “Lam Agreement”.
[59] I find DeGuerre could not have frustrated the Lam Agreements because he did no know of them at the material time. DeGuerre was not retained by Eisen until July 15, 2017, 7 months following the last offer described by Lam in his affidavit. DeGuerre was not aware of the Lam Agreements prior to being retained by Eisen on July 15, 2015. DeGuerre did eventually learn about the Dancor Agreement from another broker in April, 2016.
[60] Lam states that DeGuerre was advised by Eisen about the Dancor Agreement and the Confirdential APS (as such terms are defined in the Lam Affidavit). Lam further claims that the divulgence of the Lam Agreements to undisclosed real estate professionals contributed to a a frustration of those agreements. He speculates that if DeGuerre or Eisen divulged aspects of the Lam Agreements to the community of real estate professionals that potential purchasers would try to purchase the Property after power of sale proceedings were commenced in order to obtain a lower price.
[61] I find there is no evidence: (i) either from Lam or the purchasers as to why the purchasers did not complete the agreements; or (ii) that DeGuerre or Eisen disclosed any details concerning the Lam Agreements to real estate professionals or to anyone.
[62] I find that it is not credible for Lam to allege that Eisen took steps to interfere with or frustrate the Lam Agreements when the sale of the Property pursuant to those offers would have seen the Mortgage satisfied in full.
[63] DeGuerre could not have frustrated the agreements because he did not know of them at the material time. While DeGuerre did learn about the Dancor Agreement in April, 2016 from another broker, I find he had no knowledge of the Confidential APS or the LOI.
[64] Further, the only evidence Lam offers in support of this allegation is found in paragraph 17 of the Lam Affidavit where he believes that DeGuerre divulged the Lam Agreements to unnamed real estate professionals in the community and that DeGuerre;s actions contributed to the frustration of same. Lam further states that if Eisen or DeGuerre divulged aspects of the Lam Agreements, that potential purchasers would wait until the power of sale proceedings to obtain a better purchase price.
[65] Aside from Lam’s belief, there is no concrete evidence that DeGuerre discussed the Lam Agreements with real estate professionals. Lam also provides no evidence from the purchasers or otherwise as to the basis for the termination of the Lam Agreements.
[66] If Lam’s belief is true, which is not admitted and is denied, one would have expected the purchasers in the Lam Agreements to submit offers to purchase the Property from Eisen at a lower purchase price. Eisen received no such offers.
[67] I find there is no basis to reduce Lam’s liability pursuant to the guarantee and his counterclaim is dismissed.
[68] There is a further issue raised by Lam. He submits that this summary judgment motion is premature as there has been no discovery in this action. Lam asserts that he has been deprived of information that he is entitled to pursuant to the Rules of Civil Procedure. Accordingly, he has been hampered in his ability to put his best foot forward or to make full answer and defence. He also asserts that credibility issues between the parties cannot be determined on this summary judgment motion.
[69] I find that Lam took no steps to cross-examine Eisen, Fishman and/or DeGuerre as he was perfectly entitled to do. He has not put his best foot forward. His failure to do so rests solely with him and no one else. Further, I do not agree that there are credibility issues that cannot be resolved on this evidentiary record. I accept the evidence of Eisen and Fishman. I reject that the sale of the Property was improvident and I also reject that either Eisen or DeGuerre frustrated the Lam Agreements. It is clear that there is no evidence in this regard or that Lam has suffered any damages. It is clear that there is no basis to reduce Lam’s liability pursuant to the guarantee.
[70] Lastly, the Defendants other than Lam saw fit not to oppose this Motion for Summary Judgment although they were all duly served.
CONCLUSION
[71] I find there is no genuine issue requiring a trial. I find Eisen is entitled to summary judgment against the Defendants, dismissal of their Counterclaims and costs on the motion and action on a substantial indemnity basis for the following reasons:
(i) The Mortgage balance remains outstanding and has not been paid despite demand by Eisen.
(ii) LSA, Betowski and Mascioli have not responded to this motion.
(iii) Lam does not deny that he guaranteed LSA’s indebtedness to Eisen.
(iv) Eisen took reasonable precautions to obtain market value for the Property and there is no evidence that Eisen could have obtained a better price.
(v) There is no evidence that Eisen or DeGuerre frustrated the Lam Agreements.
(vi) There is no basis upon which Lam’s liability to Eisen should be reduced.
[72] I accept the evidence of Melvin Eisen set out in his affidavit sworn April 10, 2017 and the evidence set out in the affidavits of Matthew Fishman sworn September 22, 2017 and October 18, 2017 as to the amount of indebtedness as at October 19, 2017, I find the Defendants are indebted to Eisen in the sum of $4,090,074.26, with interest at the rate of 12% per annum.
[73] Submissions were heard in respect of costs.
[74] In accordance with the Mortgage, Eisen claims costs on a substantial indemnity basis for which he is entitled.
[75] I am satisfied that even though the Mortgage allowed for reimbursement of all costs, nevertheless, Eisen claims costs only on a substantial indemnity basis which I find is appropriate in this case.
[76] I fix costs for the action and motion in the amount of $31,025.75 on a substantial indemnity basis as claimed by Eisen. I find in all the circumstances these costs to be fair, reasonable and proportionate and I award same against all Defendants.
[77] Accordingly, summary judgment is granted in favour of the Plaintiff Melvin Eisen. This court orders:
(a) that Defendants shall pay the Melvyn Eisen the sum of $4,090,074.26 as at October 19, 2017 together within interest thereon at the rate of 12% per annum;
(b) the counterclaims of all Defendants are hereby dismissed;
(c) the Defendants shall pay to Melvyn Eisen costs of this motion and the action fixed in the amount of $31,025.75 inclusive of HST and disbursements, plus post-judgment interest at the rate of 12% per annum.
G.P. DiTomaso J.
Released: October 26, 2017
[^1]: Rules of Civil Procedure, R.S.O. 1990, Reg. 194, Rule 20.04(2)(a)
[^2]: Rule 20.04(2.1)
[^3]: Hryniak v. Mauldin, 2014 SCC 7
[^4]: Hryniak, supra at para. 66
[^5]: Rules of Civil Procedure, Rule 20.04; Combined Air Mechanical Services inc. v. Flesch, 2911 ONCA 764
[^6]: Hryniak, supra at para. 49
[^7]: Oak Orchard Developments Ltd. v. Iseman, [1987] O.J. No. 361 (H.C.J.) at para. 22, aff’d [1989] O.J. No. 2394
[^8]: Toronto Dominion Bank v. 466888 Ontario Ltd., 2010 ONSC 3798 at paras. 20 and 21, aff’d 2011 ONCA 149