CITATION: Esfahani v. Samimi, 2017 ONSC 7167

COURT FILE NO.: CV-12-462210

DATE: 20171130

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Djalaleddin Esfahani, Plaintiff

AND:

Kamran Samimi, Shariar Mostael, and Layla Sabet, Defendants

BEFORE: Madam Justice Darla A. Wilson

COUNSEL: Raymond Colautti and Anita Landry, Counsel for the Plaintiff

Arnold Zweig, Counsel for the Defendants

HEARD: October 24, 2017

ENDORSEMENT

[1] The Plaintiff brings this motion for summary judgment against the Defendants Marina Samimi ("Marina"), Shariar Mostael ("Shariar") and Layla Sabet ("Layla") jointly and severally, in the sum of $645,754.08.

Background

[2] There is a significant history to this claim, which must be understood in order to appreciate the nature of the relief sought before me.

[3] The Plaintiff obtained a judgment in Germany against the Defendant Kamran Samimi ("Kamran") in 2007. A judgment was then obtained in Ontario in 2009 from Justice Nolan against Kamran recognizing the German judgment and finding it to be enforceable in the Superior Court. This judgment was in the amount of $645,754.08 as of June 2016.

[4] The Plaintiff received no payments pursuant to the Judgment and as such brought this action in 2011 claiming damages and pleading that the Defendants fraudulently conveyed properties to evade payment of the Judgment. The properties are 161 Owen Blvd., 159 Owen Blvd., and 165 Banff Road. The solicitor for the Plaintiff failed to include in his materials a copy of the Statement of Claim in this action. However, I gather it is alleged in this action that these properties were conveyed between the Defendants on this motion, who are in close relationships to Kamran, and that these conveyances were fraudulent and carried out to defeat, hinder, delay and defraud the Plaintiff of the monies to which he was entitled pursuant to the judgment.

[5] Kamran filed an assignment in bankruptcy on November 6, 2013. The report of the Trustee in Bankruptcy pursuant to s. 170 of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3, ("BIA") was dated July 3, 2014 and was served on the Plaintiff, who did not file any written opposition to the discharge of Kamran. Thus, Kamran was discharged from bankruptcy on August 7, 2014.

[6] In 2013, the Plaintiff originally brought this summary judgment motion. In September 2013, counsel agreed that the motion ought to proceed as a mini trial with the judge answering a single issue. The mini trial proceeded before Justice Dunphy in early 2015 (see Esfahani v. Samimi, 2015 ONSC 657, [2015] O.J. No. 1180). The issue that Justice Dunphy was asked to determine was whether the Defendants engaged in a series of transactions with the intent to defeat, delay, hinder or prejudice the Plaintiff from receiving payment from Kamran for the outstanding judgment of Justice Nolan or enforcing it.

[7] Justice Dunphy heard evidence over the course of four days, and in written reasons released March 11, 2015, he found that the Defendants did engage in various transactions with the intent to defeat, hinder or delay the Plaintiff from receiving payment from Kamran for the Judgment. The Defendants appealed Justice Dunphy's decision to the Court of Appeal, and this appeal was dismissed in May 2016 (see Esfahani v. Samimi, 2016 ONCA 418, [2016] O.J. No. 2788).

[8] The Plaintiff claims judgment against Marina in the sum of $645,754.08 as of June 15, 2016 plus interest. The Plaintiff claims against the Defendants Layla and Shariar jointly and severally with Marina the sum of $570,000.00 plus interest from December 24, 2009. The Plaintiff relies on the provisions of the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29, ("FCA") and the Assignment and Preferences Act, R.S.O. 1990, c. A.33, ("APA") to recover the proceeds of the fraudulent conveyances to satisfy the outstanding judgment. It is submitted that any funds from the fraudulent conveyances are imprinted with a trust for the Plaintiff.

[9] The Plaintiff asserts that when a transaction is declared to be fraudulent under the FCA, the net proceeds of the transaction will be ordered to be paid over to the creditors of the judgment debtor pursuant to s. 12 of the APA.

[10] The Defendants argue that the Plaintiff has no entitlement to judgment and the Plaintiff has followed the incorrect procedure. Counsel for the Defendants submits that the Plaintiff did not object to the discharge from bankruptcy. Since Kamran went bankrupt, the Plaintiff ought to have followed the scheme set out in the BIA. The Defendants submit that the motion ought to be dismissed because Kamran has been discharged from bankruptcy and the debt upon which these proceedings are based has also been discharged so there is no "debt" which can form the basis of a judgment.

Analysis

[11] The issue that Justice Dunphy was asked to determine on the mini trial was:

Did the Defendants, or any of them, engage in a series of transactions as detailed in the responding parties' motion record with the intent to defeat, delay, hinder or prejudice the Plaintiff from receiving payment from Kamran Samimi for the outstanding Judgment of Justice Nolan or enforcing same?

[12] In his reasons released March 11, 2015, Justice Dunphy found the evidence of fraud "strong and convincing." He found that the conveyances of the properties at 161 Owen Blvd., 159 Owen Blvd. and 165 Banff Road from Kamran to Marina were fraudulent as well as the conveyance of 165 Banff Road from Marina to Moshtael and Sabet. He found the granting of mortgages were also fraudulent. These issues have been adjudicated upon and Justice Dunphy's findings were upheld on appeal.

[13] The first issue to be determined is whether the Plaintiff is in the proper forum to collect on the judgment and whether the proper procedure has been followed. On the issue he was tasked to decide, Justice Dunphy commented:

The Plaintiff was the only listed creditor in the bankruptcy, duly filed and proved its claim and appointed the sole inspector. The trustee could have been financed by the Plaintiff or replaced or an assignment of the causes of action sought. Any or all of these would have been a more efficient use of the intervening year after the assignment in bankruptcy leading up to the hearing of this trial of an issue. Any or all of these continue to be more efficient options available to the plaintiff, notwithstanding the discharge of Kamran and his trustee in bankruptcy in August 2014 rather than seeking to pursue whatever untested residual civil claims might be said to remain with the Plaintiff in his own right notwithstanding the bankruptcy. The FCA and BIA provide remedies which specifically address the precise conduct the Plaintiff complains of in this action and provide powerful and tailored tools designed to be used in appropriate cases....The effect of the assignment in bankruptcy on Kamran personally with a claim provable against the bankruptcy estate created by his assignment in bankruptcy. That claim had the potential to be satisfied in whole or in part from any of the assets available to the trustee who wielded—and could wield still—all of the remedial weaponry afforded by the BIA and the FCA...Post-bankruptcy, an FCA claim can only belong to the trustee. Section 38 of the BIA provides a ready answer to a creditor who wishes to continue or commence an FCA action after bankruptcy of the debtor should the trustee fail to pursue it.

[14] The Plaintiff commenced a motion in bankruptcy court in December 2015 seeking to set aside Kamran's discharge and for permission to proceed with the bankruptcy proceeding in his own name pursuant to s. 38 of the BIA. However, for reasons which remain unclear, the plaintiff chose to abandon it and instead, brought the motion before me seeking a judgment against the remaining Defendants in damages to the amount of the Nolan judgment.

[15] Of note, neither party brought to my attention the endorsement of Dunphy J. dated April 12, 2017 (see Esfahani v. Samimi, 2017 ONSC 2293, [2017] O.J. No. 1790). Initially, Justice Dunphy was asked to hear the Summary Judgment motion that is currently before me. Justice Dunphy declined to hear the motion, noting he was not seized of anything in this matter and furthermore, he was no longer sitting on civil cases. He noted at para. 15:

The Plaintiff of course still has the simple and direct option of moving under the BIA to pursue the FCA action in the manner I described in my endorsement more than two years ago, although I cannot say what limitation periods may now have come and gone.

[16] The materials delivered by the Plaintiff fail to adequately address the real issue in this motion: whether they are procedurally correctly pursuing the remedy or whether they ought to have proceeded in bankruptcy court. Their materials fail to address in a satisfactory way the position taken by the Defendants. The content of the factum of the Plaintiff is, for the most part, directed towards the conduct of the Defendants that was fraudulent; that issue has already been determined by Justice Dunphy and it is not an issue I need to concern myself with.

[17] As a result of the findings of Dunphy J., the transactions are void and the properties revert to Kamran, who has been discharged from bankruptcy and is no longer a debtor to the Plaintiff. It is the bankruptcy estate that has the claim under the FCA and an action that seeks to claim against others belongs to the trustee, regardless of whether or not there has been a discharge. It is up to the trustee whether or not claims are pursued, but in the event that the trustee elects not to proceed with a claim, the Plaintiff, who is a creditor against the estate, has various remedies available to it. The Plaintiff may seek the reappointment of the trustee or even the appointment of a different trustee. If such remedies are pursued by the Plaintiff these motions must be set down in a bankruptcy court, not as a standard summary judgment motion in the regular civil court.

[18] I agree with the submission of counsel for the Defendants, that the FCA does not confer a cause of action in damages against a transferee. As the court noted in Chiang (Trustee of) v Chiang, 2014 ONSC 3070, [2014] O.J. No. 2433, at para. 8, "A finding that Jay Chiang engaged in a fraudulent conveyance results in an order setting aside the conveyance; it does not result in a damage claim."

[19] As I have noted, I was not provided with copies of the pleadings in this action; they are not contained in the motion record. It appears there are other claims asserted by the Plaintiff such as conspiracy. However, the reasons of Justice Dunphy make no reference to these other claims and he did not adjudicate upon them, as he was not asked to do so.

[20] I concur that the Plaintiff cannot ignore the bankruptcy issue in its attempts to recover on the judgment. An action brought by a creditor to recover property belonging to a bankrupt vests in the trustee. In these circumstances, as the court noted in Marco v. Levy, [2001] O.J. No. 1310 (S.C), at para. 8, "There are only two methods for pursuing that cause of action: by the Trustee initiating an action pursuant to section 30(1)(d) of the BIA; and by a creditor under the authority of section 38 of the BIA." Adopting the reasoning in Marco, the court noted in Sera GmbH v. Sera Aquaristik Canada Ltd., [2009] O.J. No. 3676 (S.C.), at para 18 that "the Plaintiff cannot circumvent the bankruptcy procedure but it remains available to the Plaintiff to pursue through the BIA any claim the trustee does not wish to pursue." As I have noted the Plaintiff did bring a section 38 motion but chose to abandon it for reasons which were not explained to me nor addressed in the written materials.

[21] The argument advanced by the solicitor for the Plaintiff is focused on the entitlement of the Plaintiff to pursue damages against all of the Defendants except for Kamran and the effect of a finding under the FCA and the remedies available under the APA. That submission, however, fails to address the issue of the effect of the bankruptcy and discharge of the Defendant Kamran, which is essential from a procedural point of view. There was no explanation provided for the failure to pursue the motion in Bankruptcy court in December 2015.

[22] As noted by the solicitor for the Defendants, the cases cited and relied upon by the Plaintiff do not deal with the case, as here, where the debtor was found to have made fraudulent conveyances but made an assignment in bankruptcy and was subsequently discharged. The cases relied on by the Plaintiff in support of the relief on this motion do not address the situation before me, where there is a finding of fraudulent conveyances in the face of a debtor's discharge from bankruptcy.

[23] At the present time, and until a bankruptcy court decides otherwise, the judgment debt is discharged. The Plaintiff through this motion seeks damages against the other Defendants but there is nothing on which to form a basis for a damages claim, since the debt belongs to the trustee, not to Kamran.

[24] In my view, the Plaintiff has failed to follow the correct procedure to realize on the amounts owing under the Judgment of Justice Nolan. The motion is dismissed.

Costs

[25] Each counsel submitted costs outlines. If successful, the Plaintiff seeks partial indemnity costs of $35,385.28 or substantial costs of $40,063.48. The Defendant seeks costs of $13,704 on a partial indemnity scale and $20,547 on a substantial indemnity scale.

[26] In my view, given the comments of Justice Dunphy in his endorsement of March 11, 2015 as well as his endorsement of April 12, 2017 dealing specifically with this motion, the Plaintiff ought to have reconsidered the path by which he was seeking to recover on the Judgment of Nolan J.. He was aware of the proper procedure because he brought a motion in the Bankruptcy court but then decided not to pursue it.

[27] There is no reason why costs should follow the event. The Plaintiff shall pay to the Defendants Samimi, Sabet and Moshtael costs of this motion which I fix in the sum of $17,500 all inclusive.

D.A. Wilson J.

Date: November 30, 2017