Court File and Parties

COURT FILE NO.: CV-18-601252-00CL DATE: 20190730 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2384419 ONTARIO INC. and ROMAN TURLO, Plaintiffs/Moving Parties AND: 1 PLUS 12 CORPORATION, GLENN ESTRABILLO, DOMINIC KAWA, MOHAMED MOSHIN JIWANI also known as SAI R.A. MOHAMMED, JAMES DESTEPHANIS, ARASH MISSAGHI, TROY WILSON, JONATHANE RICCI, 2496050 ONTARIO CORP., XAFIRA CORPORATION, WORLD PROPERTIES CORPORATION, CURAH CAPITAL CORPORATION, MON8TA CORPORATION, MICHELLE DESPAULT, CHRISTOPHER MATUKAS, MARK MIZIOLEK and DAVID SINCLAIR, Defendants

BEFORE: Dietrich J.

COUNSEL: Mitchell Wine, for the Plaintiffs/Moving Parties Eliezer Karp, for the Defendants/Responding Parties: 2455657 Ontario Corporation and Curah Capital Corporation

HEARD: June 12, 2019

Endorsement

[1] The Plaintiffs Roman Turlo and 2384419 Ontario Inc. (“238”), which is wholly owned by Mr. Turlo, bring this motion for an order for an interlocutory Mareva injunction. The motion is brought against the Responding Parties 2455657 Ontario Corporation (“245”) and Curah Capital Corporation (“Curah”).

[2] A receivership was ordered over a real property known as 1 William Morgan Drive in the City of Toronto (the “Property”). The receiver sold the Property and was prepared to make an interim payment of $200,000 to 245, which held a second mortgage over the Property. This court ordered that the $200,000 be paid, in trust, to the lawyers for 245 pending the outcome of this motion. The Plaintiffs seek an order that the $200,000 instead be paid into court pending the outcome of the trial of this action.

[3] The Plaintiffs’ claims in the action are based in fraudulent misrepresentation, breach of contract, conspiracy and breach of fiduciary duty by 245 and several of the Defendant companies and individuals with which 245 is associated. Curah is the controlling shareholder of 245. For the purposes of this motion, the Plaintiffs narrowed their claims to fraudulent representation and breach of fiduciary duty.

[4] Through an investment company named Mon8ta Corporation (“Mon8ta”), the Plaintiffs invested in the second mortgage over the Property, the principal amount of which is $600,000. The mortgage is registered in the name of 245, purportedly in trust for Mon8ta and other investment companies. The mortgage investment was brought to Mon8ta’s attention by Curah.

[5] On this motion, the Plaintiffs endeavour to demonstrate a strong prima facie case of fraudulent misrepresentation and breach of fiduciary duty and to meet the other legal tests in support of their request for a Mareva injunction with respect to the $200,000.

[6] For the reasons that follow, I find that the Plaintiffs have not, at this point in the proceedings, met the high test for the extraordinary relief they seek. I make no finding on the merits of their action.

Facts

[7] Mr. Turlo’s company, 238, is one of twelve shareholders and investors in Mon8ta Corporation. It made an investment in Mon8ta for which it received preferred shares in Mon8ta. The preferred shares carry no set coupon or guarantee of repayment. Mr. Turlo is not a director or officer of Mon8ta. Mark Miziolek, a Defendant in this action, is a director and the Chief Financial Officer of Mon8ta. He provided evidence on behalf of 245 in this proceeding.

[8] Mon8ta, an Ontario corporation formed in late 2013, invested in real estate opportunities presented to it by the Defendant 1 Plus 12 Corporation (“1 Plus 12”), an investment and educational company.

[9] 1 Plus 12 is related to Curah, which sourced investment opportunities and invested the funds raised by 1 Plus 12. The Defendant Glenn Estrabillo is the sole director of 245 and he is an officer and director of Curah. The Defendant Mohamed Moshin Jiwani (also known as Sai R.A. Mohammed) was the sole director of 245 until July 19, 2018. He is also an officer and director of Curah.

[10] Mr. Turlo took leadership training courses from Mr. Estrabillo who acted as his coach. In 2013 Mr. Estrabillo told Mr. Turlo that he was creating a new company, 1 Plus 12, as a means for people to build personal wealth through real estate investments while experiencing personal growth. Participation in the 1 Plus 12 program required certain financial commitments. Mr. Turlo applied to participate in the program and he and 11 other individuals, unknown to him, through limited companies formed by each of them, became the shareholders in Mon8ta. Mr. Estrabillo is a director and the Chief Executive Officer of 1 Plus 12.

[11] 1 Plus 12 would present a deal to Mr. Miziolek. If he decided that Mon8ta should invest, he typically prepared a Memorandum of Understanding (“MOU”) setting out representations made by 1 Plus 12 that he relied on and that were pertinent to the investment. From that MOU he would prepare a Letter of Intent and Direction regarding the investment of the funds. For Mon8ta’s investment in the Property, Mr. Miziolek did not use an MOU, but used a Letter of Intent.

[12] Mr. Miziolek presented each investment to the Mon8ta investors at a shareholders meeting. All investments were approved unanimously by the Mon8ta shareholders.

[13] Starting in 2015, Curah made a series of loan advances to Arash Missaghi, who controlled Skymark 1 Corporation (“Skymark”). Mr. Missaghi and Curah agreed that the loans would be secured by a mortgage against the Property. The registered mortgage loan payable by Skymark had a face value of $600,000 and an annual rate of interest of 12%.

[14] Mon8ta provided $120,000 toward this $600,000 loan to 245 and would thus have an indirect beneficial interest in 20% of the registered mortgage. Other entities, including Curah, owned the remaining 80% of the mortgage. Mon8ta’s interest in the mortgage was never registered on title.

[15] The Responding Parties admit that they never told Mon8ta that the Property had gone into receivership, was sold by the receiver, and that 245 would suffer a significant loss on its mortgage.

[16] Mr. Missaghi has a history of raising capital through real estate mortgage transactions and has been charged criminally for mortgage fraud on several occasions as recently as 2018.

[17] All funds raised by Mon8ta from its shareholders appear to have been invested with Mr. Missaghi and his close business associate Troy Wilson. Mr. Wilson has also been charged criminally with respect to his business activities with Mr. Missaghi or companies controlled by them.

[18] Documentation was provided to the Mon8ta shareholders in 2013 and 2014 that disclosed Mr. Missaghi’s name, but no other details. It was never disclosed to the Mon8ta investors that Mr. Missaghi and Mr. Wilson were facing criminal charges for fraud.

[19] In 2018, 1 Plus 12, its principals, including Mr. Estrabillo and Mr. Jiwani, and Curah broke with Mr. Missaghi and Mr. Wilson and Mr. Missaghi’s related companies. Curah commenced litigation against them and others. In Curah’s Statement of Claim in that litigation it is stated that Curah advanced Mr. Missaghi and his companies over $20 million and that Mr. Missaghi defrauded Curah with respect to properties in which Mon8ta had an investment.

[20] In August 2018, Mon8ta assigned all its rights, including any causes of action against Missaghi and Wilson, to Curah. It also released the 1 Plus 12 principals, 1 Plus 12 and Curah from any liability any of them might have to Mon8ta.

[21] It is unclear whether Mon8ta still has a financial interest in the Property. Some of the Defendants testified in cross-examination that it does, while other Defendants testified that it does not. There is an undated note that refers to a transfer of Mon8ta’s interest on October 27, 2018 for shares of another company.

[22] Mr. Turlo has brought an action against the Mon8ta directors for oppression.

The Moving Parties’ Position

[23] The Plaintiffs submit that they were fraudulently induced to invest in Mon8ta based on misrepresentations made by Curah, via 1 Plus 12, to Mr. Turlo. They assert that the conduct of 245 and its associated Defendant companies and individuals with respect to the Plaintiffs amounts to fraudulent misrepresentation. They further submit that they can demonstrate a prima facie case of fraudulent misrepresentation and breach of fiduciary duty and can also meet the other tests in support of the Mareva injunction they seek.

[24] The Plaintiffs also submit that the court should draw an adverse inference with respect the refusals by counsel to 245 to produce relevant documents on a timely basis and their refusal to allow questioning relevant to the facts in dispute on this motion.

The Responding Parties’ Position

[25] The Responding Parties submit that the strong prima facie case of fraudulent misrepresentation and breach of fiduciary duty required for an interlocutory Mareva injunction to be awarded cannot be made out by the Plaintiffs.

[26] The Responding Parties further assert that 238, as a shareholder of Mon8ta, has no standing to claim directly against 245 and Curah for losses suffered by Mon8ta, if indeed Mon8ta suffered losses. They submit that the Plaintiffs have no cause of action for a wrong done to Mon8ta. In their view, the Plaintiffs’ action, if any, would be against the directors of Mon8ta for oppression or negligence and not against 245 and Curah.

[27] The Responding Parties further assert that the Plaintiffs cannot meet the test for a Mareva injunction, which is an extraordinary remedy. They assert that there is no evidence before the court that Mon8ta will suffer any losses, and, if it will suffer losses, the extent of those losses.

Issue

[28] The issue in this matter is whether the Plaintiffs have met the test for a Mareva injunction over the $200,000 payable to 245 by the receiver.

Law and Analysis

Mareva Injunction

[29] To obtain a Mareva injunction, which is an extraordinary remedy, a plaintiff must meet a high bar. The test is set out in RJR MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, at p. 334. The plaintiff must: i) demonstrate a strong prima facie case on the merits; ii) demonstrate that it will suffer irreparable harm if the injunction is not granted; and iii) demonstrate that the balance of convenience favours granting the injunction.

[30] A Mareva injunction may be granted where the plaintiff’s evidence demonstrates that there is a risk or danger that the defendant may remove its assets from the jurisdiction before judgment.

i) Prima Facie Case – Fraudulent Representation

[31] The Plaintiffs, who are shareholders of Mon8ta, but not officers, do not have standing to bring a claim for alleged damages suffered by Mon8ta. They have no personal cause of action for a wrong done to Mon8ta: Hercules Management Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, at pp. 211-212.

[32] To succeed, the Plaintiffs must show that their investment in Mon8ta was made in reliance on a fraudulent misrepresentation made by the Responding Parties and that the fraudulent misrepresentation was the cause of the damages. Fraudulent conduct must be distinctly alleged and as distinctly proved, and it is not allowable to leave fraud to be inferred from the facts: Koughan v. Dalzell, 1988 CarswellPEI 82 (Trial Div.), at para. 7.

[33] To establish a claim in fraudulent misrepresentation, the claimant must prove: 1) a false representation made by a defendant to the claimant; 2) some level of knowledge of the falsehood of the representation on the part of the defendant (whether through knowledge or recklessness); 3) that the falsehood caused the claimant to act; and 4) the claimant’s actions resulted in a loss: Bruno Appliance and Furniture Inc. v. Hryniak, [2014] 1 S.C.R. 126.

[34] On the third element, regarding inducement and reliance, in Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2016 ONCA 922, the Court of Appeal held at para. 43, with reference to the Ontario Divisional Court decision in Canadian Imperial Bank of Commerce v. Deloitte & Touche: “The claims of negligent and reckless misrepresentation both require the plaintiffs to prove at trial that there have been representations of fact by each of the defendants upon which they relied.”

[35] The Plaintiffs submit that the investments made by Curah were not as represented to Mon8ta. Regarding its investment in the Property, the Plaintiffs submit that following Mon8ta’s investment in the mortgage against the Property, Mon8ta’s interest in the mortgage remained in the name of 245 and not Mon8ta. The Plaintiffs further submit that it was not disclosed to them that: the Property was owned by a company controlled by Mr. Missaghi, an individual charged with mortgage fraud; the Property had gone into receivership; the Property had been sold by the receiver; and that 245 would suffer a significant loss on the Property. The Plaintiffs further submit that they were induced to invest in 245 because Mr. Miziolek repeated the representations that were made to him by Curah to the shareholders of Mon8ta verbatim and the shareholders then voted on whether they would invest. The Plaintiffs also submit that an investment recommended by Curah was only made if the vote was unanimous. The Plaintiffs also submit that as a consequence of their reliance on the representations, they suffered losses.

[36] Based on the record before the court, I find that the Plaintiffs have not established, on a balance of probabilities, that fraudulent representations were made to the Plaintiffs by the Responding Parties regarding the investment in 245, that they were induced by the Responding Parties to invest in 245, or that they suffered losses as a consequence of that investment.

[37] Mr. Miziolek’s sworn testimony is that the Plaintiffs made at least a portion of their investment in Mon8ta prior to Mon8ta receiving any representations on proposed transactions from Curah. The Plaintiffs do not dispute this fact. Accordingly, it is evident that the Plaintiffs committed to investing in Mon8ta without knowing what investments would eventually be made by it.

[38] The Plaintiffs assert that certain principals of 1 Plus 12 presented investment opportunities directly to Mon8ta shareholders. Mr. Miziolek concedes that 1 Plus 12 principals, including Mr. Estrabillo and Mr. Jiwani, may have attended meetings of Mon8ta shareholders, but he deposed that representations on investments were made to Mr. Miziolek alone. Accordingly, the Responding Parties submit that the Plaintiffs did not invest in Mon8ta because of any representations made by Curah to them directly and were therefore not induced to act.

[39] Mr. Miziolek deposed that the directors of Mon8ta had instituted a policy, accepted by the shareholders, under which sole authority for making investments was delegated to Mr. Miziolek and that all decisions regarding whether Mon8ta would invest or not were made by him alone. Mr. Turlo deposed that once he invested in Mon8ta, he relinquished control over the funds and Mon8ta’s investment policy applied. Mr. Miziolek further deposed that once Mon8ta had enough capital to invest, he alone would seek out and approve an investment opportunity. Mr. Miziolek also deposed that once an investment decision was made, he informed the shareholders of the details relating to that investment.

[40] Further, the evidence is that the representations by Curah were not made in writing. Accordingly, there is no evidence before the court with respect to the representations passed on by Mr. Miziolek to the shareholders and whether they were indeed verbatim. Curah would have no control over what representations were passed on to the shareholders.

[41] Though Mr. Miziolek concedes that the shareholders did approve all investments unanimously, there is conflicting evidence between Mr. Turlo’s evidence on cross-examination and Mr. Miziolek’s testimony on whether the shareholders were required to vote on a particular transaction. There is also conflicting evidence on whether Mr. Miziolek performed due diligence of his own respecting investments proposed by Curah.

[42] This conflicting evidence does not assist the Plaintiffs in establishing a strong prima facie case against Curah in fraudulent misrepresentation for the purposes of granting a Mareva injunction.

[43] Regarding losses suffered by the Plaintiffs, the Responding Parties submit that there is no evidence before the court that the investments made by Mon8ta on the recommendation of Curah, including the investment in 245, are not secure or are in a loss position. They submit that Curah agreed to provide Mon8ta with security on its own assets.

[44] The Responding Parties assert that prior to October 27, 2018, Curah acted as trustee of the 20% interest in the mortgage beneficially owned by Mon8ta. Then, according to Mr. Miziolek’s testimony, on October 27, 2018, Mon8ta agreed to exchange its share in the proceeds of the Property for shares in another company. Accordingly, the Responding Parties assert that Mon8ta has no continuing interest in the Property proceeds.

[45] The Plaintiffs assert that there is a great deal of confusion regarding whether Mon8ta continues to have a financial interest in the Property. They assert that the Responding Parties have failed to provide a date for the security transfer and have not explained why this fact had not been disclosed to the Plaintiffs earlier. There is no documentary evidence of the transfer before the court.

[46] The Responding Parties further argue that even without this security exchange, the interest of the Plaintiffs in the proceeds is, at best, $5,120. This determination is based on Mr. Turlo’s evidence that he invested $710,000 of a total of $5.6 million of Mon8ta’s paid-up capital, being 12.8%. Accordingly, the Plaintiffs would have a claim of 12.8% of $40,000 (being 20% of $200,000).

[47] However, the Responding Parties maintain that the Plaintiffs’ claim is doubly indirect: 238 is a shareholder in Mon8ta, which made the investment, and the proceeds are legally owned by Curah as trustee for Mon8ta. Therefore, the amount owing, if any, would be owing to Mon8ta and not the Plaintiffs. Accordingly, they assert that the Plaintiffs have no standing to make this claim.

[48] Further, the Responding Parties’ evidence is that in August 2018 Mon8ta assigned its rights and interests in any monetary recovery from Mr. Missaghi to Curah and released its claim to such funds in exchange for a secured position in another corporation.

ii) Prima Facie Case – Breach of Fiduciary Duty

[49] To succeed in a claim for breach of fiduciary duty, a plaintiff must plead the material facts to sufficiently identify: the nature of the fiduciary relationship, the nature of the duty owed by the fiduciary; how the duty was breached; how the defendant put his own interests ahead of the plaintiff’s interests; and the appropriate remedy for the breach: Cooper v. Atlantic Provinces Special Education Authority, 2008 NSCA 94 at para. 14.

[50] The Plaintiffs submit that because Mr. Turlo had a pre-existing relationship with Mr. Estrabillo and Mr. Estrabillo attended Mon8ta shareholders meetings, there is a strong prima facie case that 245 and Curah owed the Plaintiffs a duty of care and that they stood in a fiduciary relationship to the Plaintiffs. That is, Curah and 245 were in a relationship of trust and confidence with the Plaintiffs that required them to act honestly, in good faith, and strictly in the Plaintiffs’ best interests.

[51] I do not find that the Plaintiffs have distinctly specified the duty of care owed by Curah or 245 to them. On the record, there is no evidence to show that Curah and 245 have put their interests ahead of those of the Plaintiffs. It appears that any losses sustained by Mon8ta from bad investments are also sustained by Curah and 245.

iii) Irreparable Harm

[52] To succeed in obtaining a Mareva injunction, the Plaintiffs must demonstrate that they will suffer irreparable harm if the injunction is not granted. The Plaintiffs have not provided any evidence with respect to the irreparable harm they will suffer if the injunction is not granted. Even if the Court were to find that 245 and Curah were liable to the Plaintiffs for fraudulent misrepresentation, the Plaintiffs have not provided sufficient evidence to show that the money they seek to have paid into court is the only asset from which the Plaintiffs could receive an award of damages.

iv) Balance of Convenience

[53] The Plaintiffs led no evidence to demonstrate that the balance of convenience was in their favour.

v) Dissipation of Assets

[54] There is little evidence to support the Plaintiffs’ argument that 245 will dissipate its assets to avoid payment to its creditors. They allege that 245 admits that it did not advise Mon8ta of its pending receipt of the funds and that this indicates that the Responding Parties plan to treat the funds as they choose as opposed to allocating the funds among the investors in the Property. There is no evidence before the court to support this allegation. The Responding Parties submit that the funds will be applied to discharge debts and obligations of 245.

Disposition

[55] The Plaintiff’s motion seeking an order granting a Mareva injunction over the $200,000 payable to 245 by the receiver is dismissed. The Responding Parties, having succeeded in defending against this motion, are entitled to their costs. The parties are encouraged to agree on the matter of costs. If they cannot, the Responding Parties shall file their written costs submissions, not exceeding three pages in length (not including a bill of costs or costs outline) within 14 days and the Plaintiffs shall file their written costs submissions, not exceeding three pages in length (not including a bill of costs or costs outline) 14 days thereafter. Reply submissions may be made with leave.

Dietrich J. Date: July 30, 2019