Court File and Parties

COURT FILE NO.: CV-18-608271-00CL DATE: 20210503

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Gary Stevens, Linda Stevens and 1174365 Alberta Ltd., Applicants

AND:

Sandy Hutchens, also known as Sandy Craig Hutchens, also known as S. Craig Hutchens, also known as Craig Hutchens, also known as Moishe Alexander Ben Avrohom, also known as Moishe Alexander Ben Avraham, also known as Moshe Alexander Ben Avrhohom, also known as Fred Hayes, also known as Fred Merchant, also known as Alexander MacDonald, also known as Mathew Kovce, also known as Ed Ryan, and Tanya Hutchens, also known as Tatiana Hutchens, also known as Tatiana Brik, also known as Tanya Brik-Hutchens, Respondents

BEFORE: C. Gilmore, J.

COUNSEL: Justin Necpal, Counsel for the Applicants Trent Morris, Counsel for the Respondent Sandy Hutchens Bobby Sachdeva and John Philpott for JBD Hutchens Family Holdings Inc. aka JBD Hutchens Family Holdings Inc. Daniel Naymark and Jamie Gibson for the Receiver, A. Farber and Partners Barbara VanBunderen for the Colorado Plaintiffs No one appearing for Tanya Hutchens

HEARD: April 20, 2021

ENDORSEMENT on motions

OVERVIEW

[1] There are two motions before the Court. The first motion is brought by the trust entities JBD Hutchens Family Holdings Inc. (a.k.a. JBD Hutchens Holdings Inc.), 29 Laren Street Inc., 3415 Errington Avenue Inc., 367-369 Howey Drive Inc., 3419 Errington Avenue Inc., 110-114 Pine Street Inc., 15-16 Keziah Court Inc., 193 Mountain Street Inc., 625 Ash Street Inc., 364 Morris Street Inc., and 146 Whittaker Street (collectively “the Trusts”). The Trusts seek to strike the Receiver’s Eleventh Report, preventing the Receiver from providing any evidence related to that Report or collecting its fees related to the preparation of the Report.

[2] The second motion is brought by the Applicants. They seek to discontinue the payment of ordinary living expenses and legal fees to Tanya and Sandy Hutchens (the “Hutchens”) pursuant to the Judgment dated July 5, 2019, as well as the legal expenses for the Trusts.

[3] As part of their motion, the Trusts seek an Order directing A. Farber & Partners (the “Receiver”) to pay the Trusts’ current ongoing legal fees including a lump sum of $100,000 to retain counsel in the Colorado action and a lump sum of $100,000 to retain an independent forensic accounting expert to re-conduct the tracing of funds set out in the Receiver’s Eleventh Report. This motion was argued effectively by way of response to the Applicants’ motion to discontinue living expenses and legal fees as both motions related to terms contained in the July 5, 2019 Judgment.

[4] Tanya Hutchens (“Tanya”) did not file any material on these motions nor did she appear. She is not represented by counsel.

[5] As will be set out below, there are no grounds to strike the Receiver’s Eleventh Report. Further, the Hutchens are judgment debtors who are no longer entitled to either living expenses or legal fees at the expense of an ever-diminishing estate for creditors. The issue with respect to the validity of the Trusts will be scheduled, but the judge presiding over that hearing should have the benefit of the findings in this Ruling and the Eleventh Report.

FACTUAL BACKGROUND

[6] The Applicants are judgment creditors under the Judgment dated July 5, 2019 (the “July Judgment”). Gary and Linda Stevens are the sole shareholders of the Applicant 1174365 Albert Ltd. The July Judgment recognizes two judgments of the United States District Court for the Eastern District of Pennsylvania, entered in 2018 against the Hutchens for $26,774,736.09 (the “Pennsylvania Judgments”).

[7] The background to the Pennsylvania Judgments is relevant for these motions. In July 2014, the Applicants sought mortgage refinancing for a property they were developing in Saskatchewan. They were referred to Westmoreland Equity Fund LLC (“Westmoreland”), allegedly located in Philadelphia. Westmoreland required the Applicants to pay an advance fee of $80,000 USD which the Applicants paid by mortgaging another property they owned in Arizona. Westmoreland reneged on its financing commitment and the Applicants lost both the Saskatchewan and Arizona properties by way of foreclosure.

[8] The Applicants later discovered that Westmoreland was a front for Sandy Hutchens’ (“Sandy”) fraudulent lending business which had no real office or employees. Sandy used various aliases and conducted fraudulent schemes in both the U.S. and Canada. In 2005, he was convicted of three counts of fraud in Ontario.

[9] In January 2017, the Applicants brought a claim in the Pennsylvania State Court against Westmoreland and Sandy (then using the alias “Ed Ryan”). The claim was brought in Pennsylvania because Westmoreland’s business address was in Philadelphia. The Hutchens defended the claim based on what they said were material misrepresentations in the mortgage application which would never have been approved. However, those defences were never adjudicated upon as the Pennsylvania State Court entered a judgment against Westmoreland and Sandy for $9,117,817 USD because of their repeated violations of court discovery orders.

[10] A trial was also ongoing in the U.S. District Court of Colorado which involved the Hutchens and other parties involved in a fraudulent scheme. When the Hutchens did not comply with discovery orders in that Court, the Applicants sought to compel responses and when the Hutchens still did not respond, the Court entered judgment for $26,774,736 USD on October 11, 2018.

[11] Sandy attempted to vacate the default judgment but when Sandy failed to comply with Federal Court Orders, the default judgment was re-entered on December 19, 2018. That Court made several very negative findings against Sandy, including a finding that Sandy filed false interrogatory answers incorporating forged documents, had shown an obstructive and fraudulent pattern of behaviour during the litigation, had a history of missed court deadlines, ignored court orders and that default judgment was an appropriate sanction because “alternate sanctions would not be effective.” The Court found that Sandy had no bona fides defence to the Plaintiffs’ claims.

[12] Tanya also unsuccessfully attempted to dismiss the default judgment. In refusing her motions, the Court found that she had no meritorious defense and that the default judgment was “the result of her own considered choice to ignore the Plaintiffs’ suit.”

[13] In the Colorado matter, a jury verdict found the Hutchens joint and severally liable in a nationwide class action and the jury awarded damages of $8,421,367 USD. Post-trial motions, costs, and interest resulted in a total judgment of $24,239,101 USD. The Colorado Judgment was affirmed on appeal on September 14, 2020; however, the Appeals Court reversed a finding of constructive trust and remanded only that issue back to the District Court. While Sandy claims he needs legal fees for the remand hearing, counsel acting for the Class Plaintiffs in the Colorado action has deposed that no further avenues of appeal are available for Sandy in Colorado.

[14] Both the Colorado and Pennsylvania proceedings involved similar allegations of fraudulent lending schemes.

[15] The Applicants brought the within proceeding to recognize and enforce the Pennsylvania Judgments as the Hutchens live in Ontario and their known assets are here. On the objections of the Hutchens, an Interim Receiver was appointed in this proceeding by Justice Penny on February 28, 2019. In doing so, Justice Penny found that Receivership Order was necessary because private enforcement was insufficient to protect the U.S. judgment creditors.

[16] On March 18, 2019, Justice Penny expanded the Receivership Order to include powers of management and sale over the Hutchens’ property.

[17] The Hutchens consented to the Application for recognition and enforcement but maintained that their assets were not theirs but held in trust for their children (the “Trusts”). Therefore, in July 2019, the July Judgment was granted which recognized the Pennsylvania Judgments and required the Hutchens to pay to the Applicants an amount in Canadian dollars sufficient to purchase $26,774,736 USD. The July Judgment also stayed the payment Order pending the Hutchens’ appeals of the Pennsylvania Judgments, continued the Receivership, allowed the payment of living expenses and legal fees to the Hutchens to be administered by the Receiver, and left challenges to the Hutchens’ Trust claims to a later determination by the Court.

[18] The Hutchens’ Appeals of the Pennsylvania Judgments were subsequently dismissed. However, Sandy seeks legal fees to fund an application for review of the dismissal of his appeal. According to the affidavit of Mr. Howard Langer, counsel for the Applicants in the U.S., no such further appeal exists.

[19] Since its appointment, the Receiver has investigated the affairs of Sandy, Tanya and the Trusts (together the “Debtors”) and taken control and managed numerous real estate properties in Ontario. Most of the properties have been sold. The Receivership has been very expensive ($2M CDN to date). The Receiver has recovered net assets to date of between $6.3 to $6.8M CDN. The Receiver’s Eleventh Report is the subject of one of the within motions.

THE TRUSTS’ MOTION TO STRIKE THE RECEIVER’S ELEVENTH REPORT

Factual Background

[20] Following its appointment as interim Receiver, the Receiver investigated the Debtors’ affairs and property. In its first report, the Receiver proposed to report its observations and assessments of the Hutchens’ trust claims. As such, the Receiver began requesting information and records relating to the trust claims as early as March 6, 2019. The Receiver continued its work with respect to the trust claims in light of the intention of the Court to schedule a future hearing to resolve the trust claims. The Applicants’ position was always that the Trusts were a sham.

[21] Pursuant to its investigatory mandate, the Receiver gathered evidence in relation to the assessment of the validity of the trust claims and made extensive requests for information in that regard. No objection was made to those requests nor to the scope of the Receiver’s intended investigation which was detailed in its First Report.

[22] Tanya has failed to respond to requests for information from the Receiver as well undertakings given at her examinations in April and June 2019.

[23] A motion to determine the validity of the Trusts was originally scheduled for June 3, 2020. That motion was adjourned sine die given the pandemic related disruptions to Court scheduling.

[24] On September 15, 2020, the Receiver circulated a draft of its Eleventh Report. The Debtors made comments on the draft report, claiming it was prejudicial and made findings that were properly the jurisdiction of the Court. The final version of the Eleventh Report was served on November 20, 2020. The Eleventh Report makes several significant observations which are at the heart of the motion to strike:

a. The Receiver traced proceeds of the fraud into the acquisition of properties owned by the Trusts.

b. The Receiver observed that several badges of a sham trust were present.

c. The Receiver concluded that the Trusts were not valid and binding. The position was subject to change if additional facts emerged.

[25] On December 3, 2020, the Applicants moved for a declaration that the Trusts were invalid and that the Trusts’ assets should form part of the assets of the receivership estate. The Applicants relied, in part, on the observations made by the Receiver in the Eleventh Report. The Debtors then moved to strike the Eleventh Report including an Order that the Receiver should not receive its fees in relation to the Eleventh Report.

The Issues

[26] The Court has considered motions for striking Receiver’s reports in the past although it is not common. In Farber v. Goldfinger, 2011 ONSC 2044, the Court considered a motion to strike a Trustee’s report and to prevent its use on a pending motion to remove the Trustee. The Court concluded that such reports are admissible evidence and an exception to the hearsay issue “in the same way as an official statement is excepted”: at para. 36.

[27] Where allegations are made that the report is not balanced or neutral, that issue should go to the weight to be given to the report by the motion’s judge: Goldfinger, at para. 38. In this case, the Receiver submits that any issues related to the objectivity of the Receiver should be determined by the judge presiding over the hearing related to the Trusts.

[28] The Debtors raised four main issues in support of their motion to strike the Eleventh Report: 1) the scope of permissible investigation by the Receiver was limited because it was appointed only on an interim basis, 2) the investigation was disproportionate to the Applicants’ loss, 3) the Receiver did not have the authority to trace funds or investigate funds outside of Ontario and 4) the Receiver usurped the role of the Court by making legal determinations. As will be set out below, this Court rejects all of those arguments.

The Receiver’s Authority to Investigate the Trusts

[29] In addressing the issue of the Receiver’s authority, it is important to review the endorsement of Justice Penny, dated February 28, 2019. It is clear that Justice Penny was well aware of the findings of fraud against the Hutchens, their failure to comply with court orders, and their propensity to cause delay, be untruthful and failure to provide disclosure. He felt it necessary to appoint a Receiver because relying on Certificates of Pending Litigation and private enforcement would be insufficient for the U.S. creditors. Justice Penny specifically set out that the Receiver’s powers in this case would be investigatory and monitoring in nature.

[30] When the Receivership Order was continued in March 2019, the Receiver had filed its First Report making it clear that it proposed to “report its observations and assessments regarding the validity and relative priority of the unsecured proprietary and unsecured claims to date.” The proprietary claims were identified as the claim that all of the Hutchens’ assets were held in trust for their children. The Receiver advised that it would provide observations about the validity and priority of the Hutchens’ trust claims. There was no objection raised at that time with respect to the Receiver’s proposed scope of further work. At the time of the March 2019 Order Justice Penny recognized that the beneficial ownership of the Trust properties was a threshold issue.

[31] Thereafter, the Receiver began to trace the flow of funds. In its information request letters the Receiver sought specific information about the Trusts from the Debtors including trust documents, financial statements and tax filings. Again, no objection was taken to these requests or the scope of the Receiver’s investigation.

[32] The Receiver was authorized to and did conduct examinations of Sandy and Tanya. The nature of the trust claims and the tracing of funds were a significant part of those examinations. No objection was made to the scope of those questions during the examination. Tanya gave a number of significant undertakings at her examination but has never provided those undertakings despite follow up by the Receiver.

[33] The Trusts rely on the case of Akagi v. Synergy Group (2000) Inc., 2015 ONCA 368, 125 O.R. (3d) 401. In that case the Court considered Receivership Orders in which receivers were granted investigatory powers. The Court did not reject such Orders but made it clear that they were to be made in appropriate circumstance and with “appropriate restraints”: at para. 66. However, the Court in Akagi was critical of the broad ex-parte powers accorded the Receiver because they extended to the investigation of unrelated, non-party individuals.

[34] The Court in Akagi relied on Loblaw Brands Ltd. v. Thornton, [2009] O.J. No. 1228 (S.C.) and General Electric Canada Real Estate Financing Holding Co. v. Liberty Assisted Living Inc., 2011 ONSC 4136, aff'd 2011 ONSC 4704 (Div. Ct.), which were the first cases recognizing investigatory receivers as a class of receivers. The Court in Akagi, at para. 90, describing the themes emerging from these decisions, described one of the principles as follows:

The primary objective of investigative receivers is to gather information and “ascertain the true state of affairs” concerning the financial dealings and assets of a debtor, or of a debtor and a related network of individuals or corporations: General Electric (Div. Ct.), at para. 15. One authority characterized the investigative receiver as a tool to equalize the “informational imbalance” between debtors and creditors with respect to the debtor’s financial dealings: East Guardian SPC v. Mazur, 2014 ONSC 6403, at para. 75.

[35] In the case at Bar, the Receiver’s powers were expanded over time and in accordance with the Receiver’s justification for such requests in its reports. Its conduct and information requests were fully disclosed and never questioned.

[36] The Receiver’s powers were expanded and then finalized in paragraphs three and four of the July Judgment. I find that there can be no issue about the Receiver’s powers to investigate the Trusts. Notice of their intentions and the scope of their investigations was given to the Debtors. Steps taken to carry out those investigations were also not objected to either by complaint to the Court, by response to letter requests for information and documents or at the examination of the Hutchens. The objections only surfaced when the Receiver circulated a draft of its Eleventh Report, which contained negative observations about the validity of the Trusts.

The Investigation was Disproportionate to the Applicants’ Loss

[37] While it is true that the Applicants’ original loss was the advance fee of approximately $80,000 USD they also sued for damages. The Applicants were awarded damages of $9M USD which was increased to over $26M USD under relevant U.S. statutes.

[38] The Applicants are judgment creditors for a significant amount. Their original loss does not factor into the Court’s consideration with respect to the Receiver’s investigation and is irrelevant. In any event, the Receiver’s mandate did not include any investigation into the Applicants’ original loss.

The Receiver did not have Authority to Trace Funds or Investigate Funds Outside of Ontario

[39] The Debtors submit that the Receiver’s authorization to investigate their affairs, assets, undertakings and properties did not include an authorization to engage in a tracing exercise.

[40] As set out above, Akagi also stands for the proposition that a Receiver’s mandate to investigate a debtor’s affairs includes the ability to trace funds. As Justice Blair stated in Akagi, at para. 65:

Suffice it to say that the idea of appointing a receiver to investigate into the affairs of a debtor is not itself unsound. Rather, it is the runaway nature of the use to which the concept has been put in this case that gives rise to the problem.

[41] The facts in the case at Bar are different from the facts in Akagi, which involved an ex-parte runaway investigatory receivership that bordered on a criminal investigation.

[42] As far back as March 6, 2019, the Receiver sent detailed request letters to the Hutchens with respect to their personal financial information, information related to property they owned and information with respect to the Trusts. These information requests, combined with the powers of the Receivership, which were expanded over time without objection from the Debtors, made it clear what powers the Receiver had and how it intended to exercise them.

[43] The Eleventh Report sets out the assets that form the Estate as well as the source of funds flowing through the Hutchens’ accounts. As many of the fraudulent lending schemes originated in the U.S., it is not surprising that funds from U.S. sources were used to buy the Trust properties. As the Receiver made it clear, as far back as March 2019, it intended to investigate the Trust properties given that the Trusts were identified as a “threshold” issue by the Court. It would have been absurd if the Receiver’s authority did not extend to an investigation as to the source of the funds used to purchase the Trust properties. Indeed, such information goes to the very heart of this case since the allegation by the Applicants is that all of the property owned by the Trusts should from part of the Estate.

[44] In summary, I find that the Receiver’s authority extended to tracing funds in both Ontario and the U.S., and that such authority is easily found in the Receivership Orders which were made on notice to the Debtors at every step.

The Receiver has Usurped the Role of the Court in its Eleventh Report by making Legal and Factual Findings

[45] The most contentious part of the Eleventh Report relates to section 8.3, entitled “Badges of Sham Trust.” The Receiver noted the badges of a sham trust, as set out in Re McGoey, 2019 ONSC 80, and then went on to apply its observations based on the findings in McGoey:

a. The Hutchens sold five properties before the appointment of the Receiver. The existence of a trust was not disclosed to those purchasers.

b. The Trust properties listed for sale as of the date of the receivership did not disclose a trust in their listings.

c. The Receiver found no evidence that the Hutchens disclosed the existence of a trust to any lenders for private loans or mortgages.

d. The Trust documents require Tanya to remit rent from the income producing properties to the beneficiaries. It appears that Sandy and Tanya used the rent for their personal expenses.

e. The Trust Agreements (except with respect to one property) required written authority from the beneficiaries before Tanya could “take any action” with respect to the properties. It does not appear that such authority was ever given.

f. The Properties were not properly maintained and were subject to breaches of municipal by-laws, rodent infestations, water damage and arrears of property taxes.

g. Sandy included the Trust Properties on a net worth statement for one of his companies.

h. The Receiver was unable to obtain any evidence of the Hutchens having disclosed the existence of the Trusts to a third party except in this proceeding and the Colorado proceeding.

i. The Hutchens have treated the Trust Properties as their own by authorizing their Colorado counsel to register a $2M mortgage against title to six of the Trust Properties as security for legal fees.

j. The Trusts’ bank accounts were used to receive and pay out funds that were generated by the Trusts but appear to have been received during the “Colorado scheme” period.

k. There is no evidence of any contribution by the beneficiaries to the Trust Properties.

l. Tanya and Sandy each accuse the other of improperly using funds from the Trust for personal use. Tanya claims to have paid herself an 8% “management fee” from the Trusts but such a fee is not mentioned in the Trust agreements.

m. None of the Trust Agreements were ever registered on title to the Trust Properties.

n. The Hutchens’ have not provided completed documentation with respect to the Trusts and some Trust Agreements are missing despite a court order in the Colorado proceeding requiring them to do so.

o. The timing of the purchase of the Trust Properties is concerning as the Hutchens began to purchase the properties three years prior to the start of the Colorado Scheme. The Receiver concedes there has been no judicial finding with respect to the connection of the purchase of the Trust Properties to any fraudulent scheme.

[46] It is important to note that nowhere in the Eleventh Report does the Receiver give an opinion on the validity of the Trusts. The Receiver made observations based on its tracing and review of documents and further observed that the results of its tracing exercise revealed certain “badges of fraud.”

[47] The Receiver concedes that its view may change if further evidence comes to light and that the record at the hearing in relation to the validity of the Trusts will be different than the record before the Court on this motion.

[48] I do not find that the Eleventh Report attempts to usurp the Court’s jurisdiction. I agree with the Receiver that the Eleventh Report is presumptively admissible, contains observations (as opposed to findings) and may be given whatever weight is deemed appropriate by the judge determining the validity of the Trusts.

[49] Further, as per YBM Magnex International Inc. (Re), 2000 CanLII 28169 (Alta. Q.B.) [YBM], it is presumed that Receivers will act impartially. However, acting impartially does not mean that a Receiver is precluded from taking a position which may favour certain stakeholders over others.

[50] In Ernst & Young Inc. v. Essar Global Fund Limited, 2017 ONCA 1014, 139 O.R. (3d) 1, the Court considered a challenge to the Monitor’s standing as a complainant under the provisions of the CBCA. Although that case involved a monitor under the CCAA, the principles are similar given the duties that both Monitors and Receivers have to the Court. The Court of Appeal for Ontario, at para. 109, said:

The monitor is to be independent and impartial, must treat all parties reasonably and fairly, and is to conduct itself in a manner consistent with the objectives of the CCAA and its restructuring purpose. In the course of a CCAA proceeding, a monitor frequently takes positions; indeed it is required by statute to do so.

[51] It is unavoidable that, in investigating a stakeholder’s affairs, some of the Receiver’s decisions may not be popular. In YBM the Court was clear that this does not mean that a Receiver is not objective or “playing favourites.”

[52] Given all of the above, I find that the Debtors’ claims that the Receiver has not acted impartially or that the Receiver has usurped the role of the Court are without foundation.

THE APPLICANTS’ MOTION TO TERMINATE THE LIVING ALLOWANCE AND LEGAL FEES AND THE DEBTORS’ MOTION FOR LEGAL FEES

Background

[53] The July Judgment provides as follows, at para. 12 (a):

[P]ay to the Debtors reasonable amounts from the funds in the Receiver’s possession as a result of the Appointment Orders or this Order, subject to the availability of such funds for spending on ordinary living expenses and legal advice and representation…

[54] The Receiver advised during the course of the hearing that it has paid out living expenses of $290,000 (approximately $12,000 per month) plus legal fees of approximately $330,000. Legal fees are paid in full (other than some work in progress owed to Sandy’s counsel) up to November 20, 2020. While the Receiver continues to pay the living expenses, it ceased paying legal fees as of November 20, 2020, given the challenges to those fees and the additional fee requests by the Debtors for:

a. $100,000 for fees for a forensic accountant to do a re-tracing exercise by way of challenge to the Receiver’s Eleventh Report,

b. $100,000 for legal fees for U.S. counsel for the Colorado remand hearing and

c. legal fees for the hearing in Ontario in relation to the validity of the Trusts.

[55] The Receiver takes no position on these motions.

[56] The Applicants’ position is that as a result of the dismissal of the last of Hutchens’ appeals and their consent to the recognition of the U.S. Judgments for $26M USD, the Hutchens are now judgment debtors and any assets in the Estate belong to the creditors. Further, the Receiver has only identified approximately $6M CDN in net assets, which is being rapidly depleted by the Hutchens’ unmeritorious defences.

[57] The Applicants submit that the Hutchens have been dissipating assets derived from their fraudulent scheme while abusing the judicial system in both the U.S. and Canada. The Applicants make three main arguments:

a. There is an ample record of the Hutchens’ liability for the fraud as well as an obstructive and fraudulent pattern of behaviour. This has been repeated in both U.S. and Canadian courts. This is also evident in their indefensible position of seeking to be paid out living expenses and legal fees from funds which they say do not belong to them—they belong to the Trusts.

b. There is certain to be a shortfall of considerable magnitude in this case which militates against any further payments to the Hutchens.

c. The Receiver’s Eleventh Report makes significant observations concerning their uncovering of information consistent with badges of a sham trust. Of further concern is the tracing evidence that the Trust Properties were funded by the proceeds of fraud.

[58] The Trusts make the following arguments:

a. The Trusts and the Debtors consented to the July Judgment on the condition that they receive living expenses and legal fees. The July Judgment is also clear that it was made without prejudice to the parties’ positions on the Trusts.

b. The Applicants should not be permitted to rely on the Receiver’s Eleventh Report as determinative of the status of the Trusts. A hearing must be scheduled for that determination. Given the tracing and advocacy contained in the Eleventh Report, the Trust should be entitled to retain itd own forensic accountant to investigate and review the Receiver’s conclusions.

c. On September 14, 2020, the U.S. Court of Appeals for the Tenth Circuit reversed the constructive trust declaration and remanded that issue to trial for reconsideration. The Debtors require legal fees to retain counsel for the remand hearing.

d. The July Judgment was a consent Order which is not subject to variance. Any variance would undermine the Trusts right to counsel, which all parties already consented to.

The Legal Issues

A) Can the Consent July Judgment be Varied?

[59] The Debtors and the Trusts argue that the July Judgment can only be amended if it does not express the parties’ real intentions or where there is fraud. The Applicants disagree. Their view is that the July Judgment can be varied pursuant to Rule 59.06(2) which permits an Order to be varied on the grounds of “facts arising or discovered after it was made.”

[60] I do not agree that the July Judgment cannot be varied. The July Judgment stayed the Hutchens’ consent to judgment pending their appeals. The appeals in the U.S. Appeals Court for the Third Circuit have been exhausted. As for proceedings in the Tenth Circuit, I rely on the affidavit of Mr. Kevin P. Roddy sworn February 21, 2021. Mr. Roddy has been practicing law in the U.S. for 40 years. He served as co-lead counsel for the Plaintiffs and the members of the Class in the Colorado Class Action.

[61] Mr. Roddy deposed that there are no proceedings currently pending in the Tenth Circuit. The time to file a petition for a rehearing was extended to Monday October 19, 2020 with no further extensions granted. The Hutchens did not file a petition for a rehearing prior to the deadline. Mr. Roddy confirms that there are no imminent proceedings in the Colorado Class Action. Mr. Roddy further deposes that any request for legal fees to pursue a certification petition in the United States Supreme Court is another attempt by the Hutchens to perpetrate a fraud as the limitation period for such a petition has long expired.

[62] Mr. Howard Langer is a U.S. attorney and was the Applicants’ counsel in its proceedings against the Debtors in both the Pennsylvania State Court and the Federal Court. Mr. Langer deposed that the judgment against Tanya in Pennsylvania is final. Tanya is out of time to appeal that judgment and has not sought a stay pending appeal. As for Sandy, default judgment was ordered against him based on his lack of compliance. The Federal Court judge made the following observations about Sandy:

[Sandy] Hutchens has an extensive history of missed deadlines, appearances, and ignored Orders. Even now, he ignores the electronic filing system and defies my Standing Order governing motions practice…. His discovery responses [are] virtually non-existent and his discovery objections are frivolous. Moreover, they appear rife with inaccuracies and falsehoods, supported only by forged or fraudulent documents…. In responding to the instant Motion, he has appended documents and exhibits that he told Plaintiffs did not exist or were irrelevant to the litigation…. His actions are obviously both dilatory and taken in bad faith.

[63] In summary, there are no realistic further avenues of appeal in the U.S. for the Debtors. This means that the stay in the July Judgment has come to an end and the Debtors are now judgment debtors of the Applicants. If there does remain some remote prospect of a remand in the Colorado matter, I do not think that has any effect on this ruling given the amount of the Pennsylvania judgment.

[64] As such, new facts have arisen, the stay is lifted and the Court can vary the July Judgment accordingly. In B & M Handelman Investments Ltd. v. Curreri, 2011 ONCA 395, the appellant was subject to a $2M default judgment. He brought a motion for living expenses and legal fees for the civil action and a related criminal proceeding as there was $250,000 that had been paid into court to the credit of the action. The appeal was dismissed as the Court found that the subject funds no longer belonged to the appellant.

[65] Similarly, in the case at Bar, not only do the available funds not belong to the Hutchens, their position is that the funds are proceeds of the sale of Trust Properties belonging to their children who are the beneficiaries of the Trust.

[66] I do not believe the Court needs go further than this with respect to legal fees and living expenses for the Hutchens. Their status has changed to judgment debtors and they are no longer entitled to dissipate funds which are now held for the benefit of their creditors. I agree with the Applicants’ counsel that the Hutchens’ position on this issue defies common sense and the payment of living expenses and legal fees must cease immediately.

B) Should Legal Fees be Continued for the Trusts

[67] It is clear that the landscape has changed since the July Judgment. Appeal avenues have been exhausted and the Receiver has provided comprehensive reports to the Court. While the Eleventh Report will not replace the record at the ultimate hearing with respect to the Trusts, it cannot be ignored.

[68] The observations in the Eleventh Report, the scathing scrutiny of the U.S. Courts with respect to the Hutchens’ conduct and credibility, and the significant shortfall of the proceeds of the sale of the Trust Properties in relation to the outstanding judgments are relevant considerations of the Court at this point.

[69] As well, it cannot be overlooked that while the Hutchens could have meaningfully participated in the Receiver’s investigation, they chose not to. They provided bare trust documents and nothing more.

[70] In Canadian Imperial Bank of Commerce v. Credit Valley Institute of Business and Technology, 2003 CanLII 12916 (Ont. S.C.), the Court dealt with a request by the Defendants to seek a variation of an injunction made against them to permit them to pay legal fees and living expenses. Justice Molloy set out the four-part test to permit payout of expenses to a defendant. However, that analysis can only be undertaken where the defendant has provided full disclosure of its assets and liabilities. The Hutchens were severely criticized by the U.S. Courts for their lack of cooperation with respect to both examinations and disclosure. The Receiver also noted their lack of cooperation with respect to document production.

[71] The first part of the Credit Valley test requires the Court to assess whether or not the Defendants have established that they have no other assets with which to pay their legal fees/expenses. I find that the Defendants have not met this part of the test for two reasons. First, the Hutchens failed to provide all of the disclosure sought by the Receiver and second, the Receiver’s investigation unveiled that the Hutchens transferred over $10M CDN to destinations that the Receiver was unable to trace. It is therefore not possible to confirm that the Hutchens are impecunious.

[72] As the Debtors have not met the first part of the Credit Valley test, there is no reason to go further. However, if I am wrong, I would have found that the Debtors do not meet the fourth part of the test which requires the Court to balance the parties’ competing interests. In this case, the interests of the fraud victims outweigh those of the Debtors’ requirements for legal fees to determine the validity of Trusts, which even at a most basic level raise significant questions.

[73] In the end, I agree with counsel for the Applicants. Every dollar spent by the Debtors on living expenses and legal fees for the alleged appeals or on a determination of the validity of the Trusts is one dollar less for those who have been victimized by what has already been found to be a massive fraud.

ORDERS

[74] The Debtors’ motion to strike the Receiver’s Eleventh Report is dismissed.

[75] The Applicants’ motion to discontinue the payment of living expenses and legal fees for Sandy and Tanya Hutchens is allowed with the following conditions:

a. The payment of living expenses shall cease immediately;

b. Legal fees for Sandy’s counsel shall be paid to the date of this ruling and no further legal fees shall be paid on Sandy’s behalf thereafter.

c. Tanya shall not receive any payment for legal fees either retroactively or going forward.

[76] With respect to the Trusts, payment of legal fees for the Trusts shall be discontinued on the following conditions:

a. Legal Fees outstanding by the Trusts’ counsel and/or work in progress to the date of this Ruling shall be paid in full. Thereafter, no further legal fees are to be paid for the benefit of the Trusts, including any lump sum amounts for U.S. counsel or a forensic accountant.

[77] The findings in this Ruling do not preclude the scheduling of the hearing in relation to the validity of the Trusts, but Sandy and Tanya will have to fund their own litigation in that regard.

[78] As per my Endorsement of January 14, 2021, a scheduling appointment before me is set for May 4, 2021, at 9:30 a.m. to schedule the hearing with respect to the validity of the Trusts and any other motions to be brought by Mr. Moldaver or the Receiver. The issue of the costs of these motions can also be discussed on that date.

C. Gilmore, J.

Date: May 3, 2021