US Income Partners LLC v. South Beach Street Development Ltd. et al.

Court File No.: CV-20-00649634-0000 Date: 2021-02-05 Ontario Superior Court of Justice

Between: US Income Partners LLC (Plaintiff) – and – South Beach Street Development Ltd., Amaryco Inc. and Fabrizio Lucchese (Defendants)

Counsel: Yeganeh Pejman, for the Plaintiff Richard Payne, for the Defendants

Heard at Toronto: February 3, 2021

Reasons for judgment

S.F. Dunphy J.

[1] This motion came before me as a motion to obtain judgment pursuant to a consent to judgment signed by the defendants. While it would have been preferable were the matter to have been framed as a motion for judgment on the actual claim before me pursuant to Rule 20 of the Rules of Civil Procedure, the intention of and grounds for the motion have been clear from the outset. The parties have been to CPC on at least two occasions and have filed voluminous material. I am satisfied that I have all that I need before me to do justice between the parties and sending this motion back to be reformulated under a different rule would be to permit form to triumph over substance. I have the jurisdiction under rule 1.04 of the Rules of Civil Procedure to rule on the substance of the issues raised here and I propose to do so.

[2] The essential background facts are not contested. I shall refer to some of the contested facts below, but none of them touches upon matters material to my decision.

[3] In 2018, the two corporate defendants entered into a borrowing agreement with the plaintiff while Mr. Lucchese provided a guarantee. Security for the loan included a mortgage on 2.73 acres of land in Daytona Beach, Florida held by South Beach Street Development Ltd. as registered owner. The original amount that was subject to the loan was US$2,000,000 plus interest (at 16%). Default occurred soon after the loan was advanced. Enforcement proceedings followed resulting in a New York State a default judgment in May 2020 and a Florida bankruptcy filing in April 2020. There were other aspects to this not material to this proceeding that I have omitted, including proceedings involving a limited partnership (Strawberry Fields).

[4] In July 2020, the plaintiff and the defendants entered into a comprehensive settlement agreement dated as of July 29, 2020. Mr. Lucchese is a Canadian citizen and a principal of the defendant corporations. The plaintiff was concerned that the Settlement Agreement mitigate the uncertainties for a United States plaintiff of enforcing obligations arising out of the settlement in another country and the Settlement Agreement ultimately entered into included a consent to judgment in Ontario to be held in escrow as I shall describe below.

[5] For present purposes, the material terms of that settlement agreement included the following:

a. The defendants agreed to make certain scheduled monthly payments;

b. Mr. Lucchese and Amaryco agreed to provide a consent to judgment in Ontario in the form of the consent attached as an exhibit thereto;

i. The consent was undated but signed by Mr. Lucchese on his own behalf and as president of Amaryco;

ii. The attached Ontario form of judgment (referenced in the consent) was also undated, in a style of cause of a proceeding not yet commenced and was thus without court file number;

iii. The amount of the judgment consented to jointly and severally by Mr. Lucchese and Amaryco was "US$2,750,000 plus 10% interest accruing as of July 2, 2020 plus legal costs" plus post judgment interest of 10% per annum;

c. The plaintiff agreed to hold the consent to judgment in escrow during the "Stay Period" provided for in the Settlement Agreement while Mr. Lucchese and Amaryco agreed that the agreement to provide such consent contained in the settlement agreement "shall constitute an absolute estoppel and bar to any defense or counterclaim with respect to such Consent Judgment";

d. Failure to make any of the required installment payments entitled the plaintiff to register a Warranty Deed in respect of the mortgaged property and, upon such registration, "the balance due on the Settlement Amount shall be reduced by $1,500,000 to reflect the credit for value received" by the plaintiff; and

e. Each party represented that they had made "such investigation as it deems necessary or desirable of all matters contained in or related to this Agreement".

[6] The forbearance purchased with the settlement agreement was not long-lasting as it turned out. The defendants defaulted on the first installment payment due in September 2020 and have not cured that default.

[7] This proceeding was commenced by way of Statement of Claim issued October 19, 2020. The statement of claim seeks "the sum of USD $2,750,000 plus 10% interest accruing as of July 1, 2020 and ongoing, pursuant to a Consent Judgment signed by the Defendants" as part of the settlement agreement plus post-judgment interest at the rate of "2% per annum, calculated monthly, compounded semi-annually" starting from the date of the judgment to be rendered. The defendants have not contested the defaults under the settlement agreement evidenced in the plaintiff's affidavit material.

[8] While the Statement of Claim herein names South Beach as a defendant, South Beach did not sign the consent to judgment and is not named as a defendant therein. There is no basis to issue a judgment as against South Beach based upon the evidence before me. Given that the claim as framed is premised upon the consent to judgment provided pursuant to the settlement agreement and neither the settlement agreement nor the consent entered into pursuant thereto contemplates South Beach being a party to the Ontario consent judgment, there is no basis stated in the claim at least for any relief against South Beach. The respondent, Mr. Lucchese, filed an affidavit in these proceeding questioning the inclusion of South Beach and that observation is well-founded.

[9] I shall pause here and mention the technical issue I raised with counsel at the outset of the motion – a difficulty which I am satisfied can be resolved with a judicious application of rule 1.04 of the Rules of Civil Procedure where – as here – I am satisfied that the subject-matter of this motion has at all times been quite clear and the evidence filed by both sides addressed the underlying merits of the claim.

[10] It is not at all uncommon for settlements that arise after a claim has been filed in court to include an undated consent to judgment of the claim stated in that proceeding with the consent held in escrow against the possibility of a default arising in the performance of the settlement. That is not quite what occurred here. The consent in question makes no specific reference to an outstanding statement of claim because none existed, nor does it reference a draft statement of claim that could be compared to the statement of claim issued here.

[11] The reason why this is of some importance is that the claim will normally merge with the judgment. The consent is not a stand-alone claim in and of itself. It is a consent to judgment in respect of a particular claim. The claim in question is not difficult to identify – but its identification requires some extrinsic evidence about the settlement agreement (evidence that I have before me in fact).

[12] After these proceedings were commenced – and indeed after this motion was booked – the plaintiff was able to obtain a warranty deed in respect of the land owned by South Beach and foreclosed on the Florida property. This occurred on January 8, 2021. This fact is not contested by the plaintiff and was attested to in a supplementary affidavit of Mr. Lucchese who asked that the value of the property should be deducted from any claim advanced in this proceeding.

[13] Mr. Lucchese's affidavit makes mention of certain appraisals that the defendants obtained prior to the settlement agreement that suggest a higher value for the foreclosed-upon land than the US$1,500,000 stipulated credit value in the settlement agreement. While it is certainly possible that the lands in question may have a value higher than the stipulated amount negotiated and agreed to in the settlement agreement, there is really no evidence from which I may make such a conclusion. The valuations are of course no more than opinions of what someone might pay in certain circumstances. The defendants, armed with that information, agreed to a lower stipulated value to be credited against the debt on foreclosure in the settlement agreement. They had legal advice at the time. The weight that might be attributed to the appraisals must therefore be tempered by the limited faith the defendants themselves placed in them be agreeing in the settlement agreement to the valuation they agreed upon.

[14] Regard might also be had to the fact that the defendants were unable to service the debt secured by the land before or after the settlement agreement and the owner of the land South Beach itself was in bankruptcy proceedings - all facts that tend to support an inference that the appraisal opinions might just be on the optimistic side.

[15] I turn now to consider the grounds raised by the defendants as to why judgment ought not to be granted notwithstanding the terms of the settlement agreement and the consent they signed only a few months ago.

[16] The defendants raised three issues in their factum:

(a) whether South Beach Street Development Ltd. should be a party to this proceeding;

(b) whether the consent executed by the remaining defendants should be effective in granting judgment to be entered in the Province of Ontario in light of the failure to allow for independent legal advice by an Ontario lawyer;

(c) whether the plaintiff has received satisfaction of its judgment in the United States by way of the recording Warranty Deed in Lieu of Foreclosure and that, as a result, the US judgment has been satisfied and there is no judgment to enforce in the Province of Ontario.

[17] I have already dealt with the fact that South Beach signed no consent and the settlement agreement itself does not contemplate South Beach being a part of the judgment consented to. The claim before me is founded exclusively upon the settlement agreement and the consent to judgment provided therein. South Beach will not be named in any judgment issued under the claim as it now stands and there is no request to defer judgment to permit an amendment to the statement of claim. The first issue raised must be resolved in favour of the defendants.

[18] Turning to the question of independent Canadian legal advice, I note that the argument in this respect was carefully framed since the defendants had United States legal advice in negotiating and finalizing what was undoubtedly a somewhat complex transaction over what appears to be a period of several days if not weeks. There is of course no evidence that the plaintiffs prevented or in any way discouraged the defendants from seeking Canadian legal advice. There is no evidence that they sought any, but there is no evidence that they were hindered in doing so in any way either.

[19] I asked Mr. Payne to highlight for me what it is about the settlement agreement and the consent provided for therein that called for Canadian legal advice about matters that American counsel would not be in a position to recognize. The only specific Ontario legal advice that Mr. Payne could point to that Mr. Lucchese might have obtained had he sought it was the amount of the stipulated credit on foreclosure of the Florida property provided for in the settlement agreement relative to the appraisals – that is a matter dependent in no way upon Ontario law or facts and Mr. Lucchese admits that he himself sought and obtained those appraisals prior to entering into the settlement agreement.

[20] I can find no basis to attach any weight to an abstract objection about lack of Canadian legal advice on these facts. Mr. Lucchese is a sophisticated businessman who undoubtedly had access to such legal advice as he cared to obtain. The underlying business transaction was an American one, the settled proceedings included three separate Untied States proceedings (on my count) and the settlement agreement was governed by United States law as well. Mr. Lucchese warranted that he had made such investigations as he deemed necessary prior to entering into the settlement agreement (of which the consent forms a part).

[21] As for the allegation that the debt was satisfied by reason of the foreclosure that took place, the answer to that question is contained within the settlement agreement itself which clearly and unambiguously attributed a value to the subject property, a value that was agreed to by the defendants in possession of opinions that may have suggested a higher value. They entered into the transaction for their own reasons but the business context – 16% interest rates, inability to finance or service debt allegedly secured by assets allegedly worth considerably more than the debt – all argue that the true value lies closer to the agreed figure than to the appraisal values suggested.

[22] I am satisfied that the defendants before me (excluding South Beach) entered into the settlement agreement and pursuant thereto consented to judgment in Ontario. I am satisfied that the Statement of Claim herein seeks relief from this court in respect of such defendants that does not go beyond the specific things agreed to in the consent and settlement agreement and indeed asks for slightly less in that post-judgment interest at the rate of only 2% per year is sought. Any ambiguity regarding the nature and extent of the claim resolved by the consent judgment is resolved by an examination of the settlement agreement to which the consent is itself a schedule.

[23] The foreclosure on the Florida property was a subsequent event that the plaintiff has readily agreed to credit against the judgment and in the manner specifically contemplated by the settlement agreement. I have found no genuine issue for trial raised by the defendants on any of these matters. Judgment shall issue as provided for below.

[24] Of course, any judgment obtained must conform to Canadian law and this includes the requirements of s. 121 of the Courts of Justice Act, R.S.O. 1990, c. C-43 for conversion of foreign currency obligations into Canadian funds in the manner prescribed by subsection (1) thereof.

Disposition

[25] Accordingly, I find that the plaintiff is entitled to judgment on the following terms:

a. All payment amounts referenced in United States dollars must reference the amount in Canadian dollars necessary to purchase such amount as provided for in section 121(1) of the Courts of Justice Act;

b. The Recitals to the judgment must reference the Notice of Motion before me and the evidence filed in respect thereof;

c. The judgment shall be in the (to be converted) amount of US$1,250,000 reflecting the credit of US$1,500,000 provided for in s. 17 of the settlement agreement;

d. Pre-judgment interest must be calculated at the rate of 10% per year simple interest from July 1, 2020 until the date hereof (being the date of judgment) on the amount of US$2,750,000 until January 8, 2021 and on the amount of US$1,250,000 from January 8, 2020 until the date of judgment;

e. Post-judgment interest at the rate claimed in the Statement of Claim (being 2% per year, calculated monthly and compounded semi-annually.

[26] At the close of the hearing, I asked the parties to prepare an outline of costs and brief written submissions on that subject. Costs to be awarded by me shall be in respect of this Canadian proceeding only. The plaintiff was to have its costs submissions submitted by February 10, 2021 and the defendants a week later (February 17, 2021). There is no need for the formal judgment to await the costs determination. The plaintiff may take out judgment consistent with these reasons dated as of today and costs will be the object of a separate order to be handed down shortly after February 17, 2021.

___________________________ S.F. Dunphy J.

Released: February 5, 2021