Fearon v. Ghelichkhani, 2019 ONSC 2273

Court File and Parties

COURT FILE NO.: 5413/18 DATE: 2019-04-08 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CLAYTON FEARON and CLAYTON FEARON INVESTMENTS INC., Applicants AND: HALEH GHELICHKHANI also known as Holly Khani, 2433552 ONTARIO INC. operating as GreenTerraHomes, 2331705 ONTARIO INC. operating as Green Terra Farms, 2557541 ONTARIO INC. and GREEN TERRA HOMES INTERNATIONAL, INC., Respondents

BEFORE: Kurz J.

COUNSEL: Cameron D. Neil, for the Applicants Holly Khani, self-represented

HEARD: April 8, 2019

Endorsement

[1] The Respondents, Haleh Ghelichkhani (“Haleh”) and 2433552 Ontario Inc. (“Newco”) are presently assigned in bankruptcy as set out in my handwritten endorsement of earlier today. As that endorsement also stated, the appearance of the remaining Respondents has been struck and in any event, no one has appeared on behalf of those corporations.

[2] The Applicants seek an oppression remedy against the remaining Respondents. They seek a declaration of oppression against those Respondents and an order for a monetary judgment equivalent to the amount that they invested in any and all of the Respondent corporations at the behest of Haleh and others.

[3] For the reasons that follow I grant the relief that they seek.

Background

[4] Haleh solicited Clayton Fearon (“Clayton”) to invest in a business that built modular “little homes”, known as Green Terra Homes. Both personally and through his co-applicant, Clayton Fearon Investments Inc., he invested a total of $1,655,153.38. He originally understood that the company that he was investing in was a newly incorporated company, 2433552 Ontario Inc. (“Newco”), which went by the registered business name of “GreenTerraHomes”. Newco is now in bankruptcy.

[5] However, Clayton’s direct and indirect investment flowed into 2331705 Ontario Inc. (“Oldco”), also known as Green Terra Farms, 2557541 Ontario Inc. (“Landco”) and Green Terra Homes International (“Delawareco”).

[6] The scheme at the centre of this case is relatively simple. It resembles a shell game used to extract money from Clayton, ostensibly to invest in an iteration of a company carrying a business style using the term “Green Terra”, but which in reality resulted in the stripping of his assets.

[7] The hook that convinced Clayton to invest a great sum of money with Haleh, and the Respondent corporations was the notion that her business was doing well. It just needed to buy a building in order to expand. That hook was planted by Haleh and her ostensible associate, Max Broojerd (“Max”), who turned out to be her husband. Clayton was not informed either that “Max” was Haleh’s husband or that he was not really Max Broojerd at all. That name was just an alias.

[8] To enable the investment to proceed and land for the factory to be bought, Newco was incorporated. On November 9, 2016, it registered the business style of GreenTerra Homes. On December 20, 2016 Clayton and Haleh signed a share purchase agreement and unanimous shareholder agreement. Neither was prepared by Clayton’s lawyers.

[9] Newco was to have both Haleh and Clayton as shareholders. Clayton was assured by Haleh that he would be CEO of the company. That never occurred. In fact, Clayton never received a share certificate for any of the Respondent corporations, despite the substantial investments he and his company made. He was never allowed to assume any directing role in any of the related Respondent corporations.

[10] On December 16, 2016, Newco offered to purchase the property located at 60 West Street, Trenton, Ontario (“the property”). Landco had yet to be incorporated when that offer was made.

[11] On December 29, 2016, Clayton provided a $100,000 cheque for the deposit. The money was provided to Royal LePage, the real estate agent for the vendor, as the deposit for the purchase. The deposit was supposedly paid by Newco.

[12] Landco was electronically incorporated by Haleh on January 23, 2017. Its articles of incorporation refer to a shareholders agreement, using the plural term to refer to the number of its shareholders. Haleh would later claim that she is the sole shareholder.

[13] Between January 31 and February 7, 2017, Clayton provided $1.225 million to Newco for the purchase of the property. He had yet to be informed about Landco.

[14] When it came time to close the transaction, title was taken in the name of Landco. Title was taken in that manner despite the facts that the offer was made by Newco, the deposit money came from Clayton, and Landco put no money of its own into the purchase.

[15] Clayton was informed about the switch in title shortly before the closing. He was reassured by “Max”, on behalf of Haleh, that the share structure of Landco would be identical to that of Newco. Thus Clayton would have a substantial equity interest in that corporation. Haleh also confirmed the share structure in an email sent to Clayton on February 7, 2017. This was further confirmed by Haleh’s accountant on February 9, 2017.

[16] The transaction for the purchase of the property closed on February 10, 2017. That day, “Max” texted to Clayton “…congratulations you own a 120sq ft factory”. He went on to speak about the value of “your investment”. He closed by saying “wise move boss”.

[17] Newco ended up making all of the vendor take-back mortgage payments on the property, using money supplied by and on behalf of Clayton.

[18] Despite the representations of Haleh and “Max”, Clayton never received any share certificates for any of the related companies in which his investments flowed. Those representations were to the effect that the Respondent corporations were related and that Clayton had a substantial interest in them. Those representations were made in credit applications and net worth statements made to suppliers and lenders, an executive summary prepared for investors, an investor “pitch deck”, and in various corporate graphics placed on a corporate website for Green Terra Homes.

[19] Those graphics referred to Delewareco as the parent corporation and the other Respondent corporations as related corporations. These graphics were posted on the Green Terra Homes website and crowd funding site. Clayton was variously described as an owner in Landco and Delawareco.

[20] Haleh also signed an offering memorandum that referred to Clayton as a 40% owner of Delawareco.

[21] A great deal of money flowed from Newco to Oldco, unbeknownst to Clayton. $380,000 was transferred after Clayton first became a shareholder of Newco. Clayton also guaranteed the debts of Oldco. As Haleh controlled Oldco, it must be assumed that she took the money. She also left him with a debt of about $50,000 on a Tesla corporate car owned by Oldco.

[22] Haleh and “Max” have from the beginning refused to allow Clayton to see the financial records of the various related corporations. The refusal came despite Clayton’s ostensible interest in all of them and the manner in which his money flowed from Newco to its related corporations (at times, in amounts and to recipients that the Respondents, and in particular, Haleh, have chosen to keep secret).

[23] The property has now been seized and is subject to power of sale proceedings. Despite the order of Gibson J. of this court, the disclosure that may have untangled the financial puzzle between the related corporations has been withheld. It must be assumed that the disclosure would not assist any of the Respondents, whether Haleh or the corporations.

[24] From all of the facts set out above, it is clear that Clayton was duped by Haleh and “Max” to invest money in what became a shell game of corporations that switched, hid and ultimately took his money.

Law

[25] The Applicants’ claim is framed in oppression under s. 248 of the Ontario Business Corporation Act (“OBCA”). The provision reads as follows:

Oppression remedy

248 (1) A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this section.

Idem

(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,

(a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;

(b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or

(c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner,

that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of.

Court order

(3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing,

(a) an order restraining the conduct complained of;

(b) an order appointing a receiver or receiver-manager;

(c) an order to regulate a corporation’s affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement;

(d) an order directing an issue or exchange of securities;

(e) an order appointing directors in place of or in addition to all or any of the directors then in office;

(f) an order directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder;

(g) an order directing a corporation, subject to subsection (6), or any other person, to pay to a security holder any part of the money paid by the security holder for securities;

(h) an order varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract;

(i) an order requiring a corporation, within a time specified by the court, to produce to the court or an interested person financial statements in the form required by section 154 or an accounting in such other form as the court may determine;

(j) an order compensating an aggrieved person;

(k) an order directing rectification of the registers or other records of a corporation under section 250;

(l) an order winding up the corporation under section 207;

(m) an order directing an investigation under Part XIII be made; and

(n) an order requiring the trial of any issue.

[26] The oppression remedy is a flexible equitable remedy that affords the court broad powers to rectify corporate malfeasance (Re Unique Broadband Systems, 2014 ONCA 538). It is available to rectify conduct by directors that amounts to self-dealing at the expense of the corporation and fellow shareholders. (UPM-Kymmene Corp. v. UPM-Kymmene Miramichi Inc., 2014 ONSC 527). A key consideration in determining oppression is the reasonable expectations of the shareholders in regard to the arrangements that existed between the principals. (Krynen v Bugg et al. (2003), 64 O.R. (3d) 393 at para. 72-4).

[27] Here there was clear self-dealing by Haleh personally and by the related Respondent corporations jointly. A great deal of money was invested by Clayton. He did so under the reasonable understanding that he would have a substantial shareholding and decision making role in the corporation(s) which owned the property and ran the tiny home manufacturing business. Instead that money flowed in unknown amounts between the Respondent corporations in a scheme that deprived Clayton of the interest to which he was entitled. Just one example was the $380,000 that secretly flowed from Newco to Oldco. Another was the way that Clayton’s money was used to buy the property, but he was not issued shares in the company that bought the property with his money.

[28] I note that the terms of OBCA s. 248 (2) refer to the oppressive acts or omissions of “a corporation or any of its affiliates”. The Respondent corporations are all affiliates. The related corporate Respondents worked in concert with each other and Haleh to extract Clayton’s money but give him nothing in return. This situation is akin to that in Pitney Bowes of Canada Ltd. v. Belmonte, [2010] O.J. No. 2751 (SCJ), where Murray J. of this court imposed the oppression remedy against three related corporations, given their interrelationship and the entanglement of their affairs. Here, as stated above the four respondent corporations were used in an elaborate shell game to strip and hide money from Clayton.

[29] I also agree with counsel for the Applicant that this case is similar to that of the decision of Lafreniere J. of this court in the unreported case of Joyce v. Andrate, June 29, 2009, Kitchener Court File No. C-271-09. Three minority shareholders put money into a corporation to buy a property. The majority shareholder put the money into a corporation in which he was the sole shareholder and closed the transaction. Again the oppression remedy was applied in the face of the reasonable expectations of the minority shareholders.

[30] I add that the refusal to produce corporate records and documents, both before this proceeding began and after Gibson J. made his order was an act of oppression by all of the Respondent corporations. It went part and parcel with the refusal to produce the share certificates to which he was entitled and the subsequent claim that he had no interest in any company but the bankrupt Newco.

[31] For the reasons set out above, I grant the relief set out above. Order to go in accord with the draft order. I may be spoken to as to costs.

Kurz J. Date: April 8, 2019