COURT FILE NO.: FS-18-00004347 DATE: 20181204 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Antonio Conorado Barbieri AND: Karin Joanne Vistoli

BEFORE: J.T. Akbarali J.

COUNSEL: John Schuman for the Applicant Larry Silverberg for the Respondent

HEARD: November 22, 2018

Endorsement

Overview

[1] The applicant brings this motion for summary judgment, or for an order striking equitable claims made by the respondent in her pleadings. He also seeks an order that the respondent be required to remove the lis pendens she caused to be placed on properties in Arizona owned by the applicant’s business. In a cross-motion, the respondent seeks a preservation order over the assets in Arizona held by the business.

Background

[2] The parties were married on October 21, 2012 and separated in January 2018. They have a six year old daughter [1]. The parties always resided together in Toronto. They both continue to reside in Toronto.

[3] The applicant operates a business, TCB Homes LLC. TCB flips homes in Arizona. The applicant states that he operates the business from Toronto, travelling to Arizona only when necessary. TCB’s records are maintained in Ontario. TCB’s real property, however, is located in Arizona.

[4] After separation, in May 2018, the respondent commenced a proceeding in Arizona against the applicant and TCB, along with some other unidentified defendants. In it, she pleaded that, under “Canadian law” governing marriage, all property of whatever nature gained or generated, and wherever situate during the marriage is “community property” and each spouse has a legal and equitable interest therein. She also pleaded that the parties agreed they would become partners in purchasing investment properties and that she provided funds of over $100,000 USD for that purpose. She pleaded that TCB is a community asset. She alleged the applicant has failed to account to her and intends to convert all of her interest in TCB to his own use. She raised claims in breach of contract, breach of fiduciary duty, unjust enrichment, and quiet enjoyment. She sought an accounting, an interim restraining order and injunctive relief against sale and conversion of property.

[5] After issuing the claim, the respondent waited two weeks before serving it. Service was timed to occur just before a sale of a property owned by TCB was set to close. To avoid scuttling the sale and the possible resultant liability to the purchaser, the applicant states he signed a stipulation agreeing that the proceeds of that sale would be held in escrow in Arizona.

[6] The respondent also registered lis pendens against the other real property owned by TCB in Arizona.

[7] The applicant’s evidence is that the stipulation and lis pendens have the effect of preventing him from running TCB and earning income from TCB.

[8] At the same time, the applicant’s other source of income has dried up. He used to work for the respondent’s painting company, but no longer does. The applicant says the respondent terminated his employment. The respondent says he quit.

[9] In either case, the applicant currently earns no income. He has moved out of the matrimonial home and is living with his mother. He states that due to his lack of income, he is paying no child support. He also states that due to his lack of income, he cannot secure his own accommodation. This may be affecting his parenting time with the parties’ six year old child. In an interim access decision made in the Ontario proceeding, Paisley J. ordered one weekend overnight access monthly to the father, in part because the respondent resides with his mother, who is 81 years old and requires the use of oxygen. Paisley J. was concerned that extensive overnight access would be difficult for the respondent’s mother, whose position was not in evidence.

[10] Thus, this is an unusual case, in that the property issues have significant impact on the parenting issues and support. There is urgent need to regularize the parties’ situation.

[11] The applicant commenced this Ontario proceeding in August 2018. In it, he seeks a divorce, child and spousal support, custody and access, equalization of net family property, or alternatively unequal division of net family property in his favour, and sale of net family property.

[12] The respondent filed an answer and claim. In it, she claims a divorce, child and spousal support, equalization of net family properties, exclusive possession of the matrimonial home, freezing assets in Arizona and Texas, sale of family property in Arizona and Texas and a temporary preservation order. She does not claim unequal division of net family property.

[13] In her answer and claim she alleges that she has a partnership interest in TCB, or alternatively, that she owns 50% of the company by way of constructive trust, given her financial contributions between 2010 and 2012. She states that TCB was either “an intended partnership or a joint family venture”.

[14] The respondent has also amended her Arizona complaint. In the amended complaint, dated July 18, 2018, she pleads that TCB has been funded solely by her contributions, and that she has unlawfully been excluded as a “member” (i.e., a shareholder) from TCB. The respondent advances the same claims as in her original complaint. However, the amended complaint no longer pleads “community property” but instead states that the parties are married and alleges that the applicant is:

required by law to act in good faith towards the properties of the marriage and not to convert them in a way that would unlawfully extinguish or diminish the interest of [the respondent] as Wife under Canadian law. A divorce between the parties is currently pending in Canada and [TCB] and the investment properties are part of it and these acts of said Defednants [sic] would attempt to skirt that.”

[15] On October 4, 2018, based on partial minutes of settlement, Goodman J. of this court ordered that the “the proceedings on the parties’ instructions for their Arizona attorneys shall be stayed”, and that “the Ontario Superior Court of Justice shall determine the property rights of the parties arising from the breakdown of their marriage”.

Issues

[16] The applicant’s notice of motion seeks a series of orders, some of which have been addressed by Goodman J.’s consent order. The orders the applicant seeks on this motion are:

a. an order “for summary judgment pursuant to Rule 16(8) with respect to claim number 11 in the Application, being that the Applicant’s business and/or properties are not “community property” as such a concept does not exist under Ontario Law”.

b. An order “for summary judgment pursuant to Rule 16(9) with respect to claim number 11 in the Application, being that the Respondent does not have an equitable interest in the Applicant’s business and/or properties [sic] owned by the Applicant’s business as the Respondent has not pled any facts in her Answer that give rise to her having a claim to an equitable interest in those assets.”

c. An Order that the Respondent cause the Lis Pendens that she has registered against title of the properties owned by TCB Hones LLC to be removed from title to those properties within 10 days”.

[17] The respondent seeks a preservation order with respect to the Arizona properties and the funds held in escrow in Arizona. She is agreeable to extending the preservation order to all property held by the parties wherever situate.

[18] Each party also seeks costs of this motion.

[19] I now turn to the analysis of these issues.

Community Property

[20] The applicant seeks an order that his business and/or properties are not “community properties” as no such concept exists under Ontario law. Ostensibly he requires this declaration for purposes of addressing the proceedings in Arizona which are stayed by consent order and agreement of the parties. In addition, as I have noted, the amended complaint in Arizona no longer makes any claim of community property. In effect, I understand that the applicant is seeking some form of declaration that he may use in Arizona if necessary to prove to that court that Ontario is not a community property jurisdiction.

[21] On marriage breakdown in Ontario, each spouse’s property rights are determined by the legislative scheme set out in s. 5 of the Family Law Act, R.S.O. 1990, c. F.3. Section 5(1) FLA provides that:

When a divorce is granted or a marriage is declared a nullity, or when the spouses are separated and there is no reasonable prospect that they will resume cohabitation, the spouse whose net family property is the lesser of the two net family properties is entitled to one-half the difference between them.

[22] The legislative scheme operates to provide for a money payment from the spouse with the greater net family property to the other spouse, such that each spouse benefits equally from their collective growth in net worth during the marriage, subject to certain exceptions. Ontario is not a community property jurisdiction.

[23] Accordingly, the applicant is correct that, under Ontario law, his business and/or properties are not “community properties”.

[24] I note that the respondent did not advance any argument to the contrary or resist this relief.

Equitable Claims

[25] The applicant seeks relief with respect to the respondent’s equitable claims. However, it is unclear from the order sought the basis on which the applicant seeks relief. The Notice of Motion seeks an order “for summary judgment pursuant to Rule 16(9)…being that the Respondent does not have an equitable interest in the Applicant’s business and/or properties [sic] owned by the Applicant’s business as the Respondent has not pled any facts in her Answer that give rise to her having a claim to an equitable interest in those assets”.

[26] Rule 16(1) deals with motions for summary judgment which, by rule 16(4), require evidence. Rule 16(9) is for an order giving directions in cases where the court does not make a final order on a motion for summary judgment. Rule 16(12)(b) deals with motions to strike a pleading because it sets out no reasonable claim or defence in law.

[27] I asked the applicant to clarify whether he sought this relief on a summary judgment motion, or whether he was seeking relief striking pleadings. He states this head of relief is constituted as a pleadings motion. This is consistent with the structure of his factum. He states that the pleading is deficient and leave to amend pleadings was not sought. He states that the evidence filed on this motion that relates to the equitable claims was filed with respect to the motion for a preservation order, not the pleadings motion.

[28] The respondent states that if her pleadings are deficient, she wants to amend them. However, she understood this relief to be in the nature of a summary judgment motion, and she filed evidence in support of her equitable claims.

[29] If the relief sought with respect to the equitable claims is a motion for summary judgment, then it must be dismissed. Each party has filed an affidavit with a different narrative relating to the respondent’s involvement in TCB. The respondent has produced documentary evidence in support of her contributions to the business. The applicant has produced documentary evidence in support of his claim that the respondent took over $200,000 more from the business than she ever contributed. The respondent has produced documents evidencing her involvement in the operations of TCB. The applicant states that all her involvement is from 2011, and to the extent any documents identify her as a shareholder of TCB, it is a document that only she signed. There have been no cross-examinations on the affidavits. The equitable claims cannot be resolved summarily on this record.

[30] However, if the relief sought relates to the sufficiency of the pleadings, I agree with the applicant that the answer is deficient. The respondent’s answer and claim do not plead material facts in relation to her claim of constructive trust or joint family venture.

[31] The applicant states that constructive trust is not a freestanding claim, but a remedy for unjust enrichment, which is unavailable in cases where the Family Law Act applies to property claims on marriage breakdown. The respondent relies on Berdette v. Berdette, 1991 CarswellOnt 280 at para 33, where the Court of Appeal for Ontario, relying on the Supreme Court of Canada in Rawluk v. Rawluk, held that when determining the rights of separating spouses, the first step is to determine ownership interests of the spouses. At that stage, the court must deal with and determine the constructive trust claims. This suggests that constructive claims are relevant to determining ownership of assets for purposes of calculating each spouse’s net family property, even if unjust enrichment is not asserted.

[32] In any case, the problems with the answer and claim can be dealt with by way of amendment. The applicant states that the respondent has not sought the opportunity to amend her claim. She did seek that opportunity in oral argument before me. I do not accept that her request in oral argument to amend pleadings came too late, when she filed evidence in support of her equitable claims on this motion. It was not unreasonable of her to assume that the motion was for summary judgment given the confusing structure of the motion and relief sought. It would not be just to deny her the opportunity to amend her pleadings in these circumstances.

[33] Accordingly, the motion (if there was one) for summary judgment with respect to the equitable claims is dismissed. The respondent shall have leave to amend her pleadings to plead the material facts in support of her claims for equitable relief within thirty days. The applicant may file a reply to the amended answer within twenty days thereafter. Whether the respondent wants to assert a claim in unjust enrichment is up to her. The parties can deal with the sufficiency of her pleading, if necessary, once the amendments have been made.

Removal of Lis Pendens and the Preservation Order

[34] The applicant seeks an order that the respondent cause the lis pendens that she has registered against the Arizona properties to be removed from title to those properties within ten days.

[35] The parties agree that I have jurisdiction to make this in personam order. They rely on Colebourne v. Colebourne, (1981), 10 A.C.W.S. (2d) 384, 1981 CarswellOnt 106 at para. 6, and Webster v. Webster, (1997), 32 O.R. (3d) 679, 1997 CarswellOnt 815 (Ont. Ct. (Gen. Div.)). They also note the consent order by which they agreed that all property issues would be determined in Ontario.

[36] The respondent argues against removal of the lis pendens. She also seeks a preservation order, especially if the lis pendens is ordered removed, over the property in Arizona and the funds in escrow. In the alternative, she seeks an order requiring the escrow funds of approximately $84,000 USD be paid into court to the credit of this action or paid to the parties in equal shares.

[37] The applicant does not seek relief with respect to the escrow funds in his notice of motion or his factum.

[38] The lis pendens and the preservation order are related. Both come down to the question of the security the respondent seeks for her equitable claims to an interest in TCB. No party has given me any framework within which to consider whether to order the respondent to remove the lis pendens in Arizona. I have been given some law about removal of lis pendens in Canada, but there is no evidence before me of any Arizona law that might apply to the question. Thus I consider the questions of the lis pendens and the preservation order together, since the practical and fundamental question is whether security is warranted for the respondent’s claims. This is where the parties focused their argument.

[39] In Taus v. Harry, 2016 ONSC 219, Louise L. Gauthier J. identified the principles applicable to a preservation order. I summarize these below (cites omitted):

a. The Family Law Act is a debtor-creditor statute and each spouse is free, subject to court order, to deal with his or her property as he or she sees fit.

b. The purpose of a s. 12 preservation order is to ensure that if an equalization payment is found to be owing there are sufficient assets available to satisfy that payment.

c. There must be some evidence to establish that an order pursuant to s. 12 is necessary for the preservation of the other party’s property in order to protect the moving party’s interest in an equalization payment.

d. The question to be asked is whether there is a real risk that the equalization claim could be defeated if the preservation order is not made.

[40] In my view, no preservation order should be made and an order shall go directing the respondent to cause the lis pendens to be lifted over the properties in Arizona. I reach these conclusions for the following reasons:

a. There is no evidence before me to support a concern that the applicant will deplete assets. There is no evidence of the applicant behaving in a financially irresponsible manner.

b. The outcome with respect to the respondent’s equitable claims is uncertain. On the record before me, this is a triable issue. Neither party has made out a prima facie case.

c. The record suggests that the applicant’s assets in Ontario are sufficient security for a constructive trust claim over the assets of TCB. On the applicant’s calculation, it is the respondent who owes him an equalization payment, although that determination has not been made, nor has the amount of any equalization payment owing been determined.

d. As I have noted, the property issues here have significant impact on the applicant’s ability to earn income and as such, are causing the applicant hardship. In my view, it is unjust for the applicant’s ability to earn income to be hamstrung by the respondent’s claim for security for her equitable claims, which are uncertain.

e. Moreover, the applicant’s ability to earn income affects his ability to pay child support or obtain his own accommodation, which in turn is relevant to his parenting time with the child. The lis pendens or proposed preservation order thus has or would have direct and negative consequences for the parties’ child.

[41] As I have noted, there is no evidence before me as to the process for removing a lis pendens in Arizona. To the extent doing so requires lifting the parties’ consent stay of those proceedings as ordered by Goodman J., I vary Goodman J.’s order to allow the parties to address the Arizona proceedings for purposes of lifting the lis pendens only. I order the respondent to take steps to remove the lis pendens expeditiously, and to begin those steps within the next two business days. I decline to order a timeframe within which the lis pendens must be removed because I have no evidence to assist me in understanding what timeframe is realistic in Arizona.

[42] With respect to the escrow funds, I note that the applicant has not asked me to make an order releasing them to TCB. The respondent asks for an order that the funds be released equally to both parties. I have no evidentiary basis on which to make such an order disbursing the funds equally.

[43] The only other relief sought with respect to the escrow funds is the respondent’s request that the funds be paid into court to the credit of this action. That order would be another manner of preserving the funds in circumstances where I have determined a preservation order is not warranted.

[44] Given that the parties’ motions included evidence about the escrow funds, the lis pendens, and their effects, and that the relief sought on the motions included the respondent’s request for a preservation order over the escrow funds, and the respondent’s alternative request that those funds be paid into court to the credit of this action, in my view, it is appropriate that I make an order with respect to the escrow funds. I do so in reliance on the primary objective set out in the Family Law Rules, O. Reg. 114/99, r. 2(2), and the obligations of the court to deal with cases justly, promote the primary objective and to manage cases set out in rules 2(3) - (5). In particular I rely on r. 2(5)(f) which requires me to deal with as many aspects of the case as possible on the same occasion.

[45] It would serve no one’s interest to require a separate motion to be brought for an order directing the parties to cause the escrow funds to be released to TCB. The conclusion that the funds should be released to TCB follows from the analysis I have undertaken. The funds were at issue in the respondent’s motion. The parties have had the opportunity to make full argument on equitable claims and the extent to which preservation of TCB’s assets are required in order to secure the respondent’s claims.

[46] As a result, I order the parties to cause the funds currently held in escrow in an escrow account at Equity Title Agency Inc. Sun City, Arizona to be released to TCB within ten days.

Costs

[47] Modern family costs rules are designed to foster four fundamental purposes: to indemnify successful litigants for the cost of litigation, to encourage settlements, to discourage and sanction inappropriate behaviour by litigants, and to ensure that cases are dealt with justly: Mattina v. Mattina, 2018 ONCA 867. The cornerstone of costs awards are proportionality and reasonableness: Beaver v. Hill, 2018 ONCA 840 at para. 12.

[48] Subject to the provisions of an Act or the rules of court, costs are in the discretion of the court pursuant to s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. By r. 24(10)(a) of the Family Law Rules, O. Reg. 114/99, the court is directed to make a decision on the costs of a step in the case promptly after dealing with the step, in a summary manner.

[49] Pursuant to r. 24 the successful party on a motion is presumptively entitled to costs, subject to the factors set out in Rule 24 – a caveat the Court of Appeal recently called “important”: Beaver v. Hill, at para. 10.

[50] The factors to consider are set out in r. 24(12), and include the reasonableness and proportionality of a number of enumerated factors as they relate to the importance and complexity of the issues. These factors include each party’s behaviour, the time spent by each party, any written offers to settle, including those that do not meet the requirements of r. 18, any legal fees and any other expenses, and any other relevant matter.

[51] There is no general approach in family law of “close to full recovery costs”: Beaver, at paras. 9-13. Rather, full recovery is only warranted in certain circumstances, such as bad faith under r. 24(8) or besting an offer to settle under r. 18(14): Beaver, para. 13.

[52] In this case, the parties made submissions on costs at the hearing of the motion, and each provided me with their offers to settle contained in a sealed envelope that I did not open until after I had determined the motion on the merits.

[53] In my view, the applicant was the more successful party on the motion. Although there was not much disagreement about the relief he sought with respect to his business or properties not being “community property”, he was successful on the most crucial issue, that the respondent be ordered to cause the lis pendens to be lifted from the Arizona properties. With respect to the relief related to the equitable claims, the applicant did not obtain summary judgment or an order striking those claims for pleading deficiencies, but the pleadings are deficient, and the respondent must amend them.

[54] I have reviewed each party’s offer to settle. Neither beat their offer, which both contained terms that were not sought in this motion.

[55] The parties’ costs are not radically different. If successful, on a full indemnity scale, the respondent would have sought $14,517.16. On a full indemnity scale, the applicant’s costs are $16,660.72. On a partial indemnity scale, the applicant claims $10,996.07.

[56] The issues involved in this litigation were important. They affect the applicant’s ability to earn income, and in turn, his ability to pay child support and his ability to obtain accommodation to allow for more regular parenting time with the parties’ child. It was understandable that the parties would devote resources to this motion.

[57] Having regard to these factors, I conclude that the applicant is entitled to costs from the respondent of $10,000 all inclusive. The respondent shall pay this amount within thirty days.

J.T. Akbarali J.

Date: December 4, 2018

[1] The respondent also has two older children from a previous relationship. The parties disagree as to whether the applicant stands in the shoes of a parent with respect to the older children. That issue is not before me.