Court File and Parties
COURT FILE NO.: CV-17-131492-00 DATE: 2022-06-09
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
LESLIE RIVAS Plaintiff
– and –
MICHAEL ANOBILE Defendant
COUNSEL: Doug LaFramboise, for the Plaintiff Domenic Saverino, for the Defendant
HEARD: December 2, 3, 9, 10, 2021 (virtually by Zoom)
REASONS FOR JUDGMENT
mccarthy j.
Introduction
1The Plaintiff advanced the following claim against the Defendant:
General damages in the amount of $523,000 for fraudulent diverting of the Plaintiff’s equity in her home;
$255,000 for loss of opportunity as a result of the Defendant’s sale of her home in 2015;
Punitive damages in the amount of $250,000 for fraud and theft; and
Interest and costs.
2The trial of this matter proceeded in a hybrid fashion in accordance with an endorsement given by Justice Sutherland. The court received evidence by way of affidavit and oral evidence. After the close of evidence, the parties furnished the court with written submissions.
3The claim arises out of two transfers of a property located at 99 Bestview Crescent, Vaughan (“the property”). Those transfers took place in June 2013 (“the first transfer”) and in September 2015 (“the second transfer”).
4The parties asked the court to determine the following issues:
Did the Defendant fraudulently divert equity in the property away from the Plaintiff?
Is the Plaintiff entitled to any damages? If so, for what amount?
What was the nature of the relationship between the parties?
Has the Defendant provided an acceptable accounting for the two transfer and sales of the property?
Implicit in the issues raised by the parties is a fifth issue: did the Defendant breach any duty as a fiduciary or trustee for the Plaintiff?
The Parties
5The Plaintiff has a post-secondary education at the college level.
6The Defendant is well-educated, having studied post-secondary economics, mathematics, statistics and accounting. He was, in his own words, an “in-house bookkeeper” for 16 years. He runs 17 companies with assets. He has experience in property management and real estate restoration. He is involved with financing and is familiar with both conventional and private lending.
The Dealings Between the Parties (“The Management Plan”)
7The Plaintiff and her spouse were experiencing marital problems in the spring of 2013. The couple owned the property as their matrimonial home. The Plaintiff wished to remain at the property with her children. She was facing financing problems. The Plaintiff and her spouse entered into a separation agreement which valued the residence at $500,000.
8The Plaintiff and Defendant met in early 2013. They were neighbours, became friends and eventually entered into an unconventional type of business/trust arrangement. The Plaintiff agreed to transfer the Defendant the property. The Defendant would hold the property in trust for her while he attempted to secure better financing. The Plaintiff would continue to reside at the property. I refer to the agreement between them as the “management plan.”
i) The First Transfer
9The parties entered into an agreement of purchase and sale (“the agreement”) for the first transfer. The sale price was fixed at $610,000. The parties set up a joint bank account (“the account”). The Defendant provided a deposit of $50,000 on June 5, 2013 (“the Anobile deposit”); it was placed in the account.
10Aside from the agreement, the parties put none of the management plan in writing. On its face, the first transfer was a straightforward conveyance for consideration. Beneath it lurked the implications of the management plan.
11The Defendant secured financing for the first transfer and paid out the following mortgages upon closing: i) a first registered mortgage of Hometrust in the amount of $400,302.78 which bore an interest rate of 9.9% (“the Hometrust mortgage”); and ii) a privately held second mortgage in the amount of $57,441.92 at an interest rate of 12.5% (“the Ricci mortgage”).
12The Defendant paid the sum of $571,300 upon closing. That closing sum was partially made up of third-party financing as follows: i) a TD first mortgage (“the TD first mortgage”) in the amount of $100,000; and ii) a TD second mortgage with funds from a secured line of credit in the amount of $329,700 (“the TD line of credit”).
13In addition, the Defendant contributed $141,600 of his own funds (“the Anobile advance”) to arrive at the total of $621,300. From that total, the deposit of $50,000 was at first notionally deducted, to arrive at the net amount of $571,300. And from that net amount, further charges for land transfer tax, registration fee, and purchasing solicitor’s fees were deducted. The result was that the vendor’s solicitor received in trust the sum of $560,019.10. That amount was distributed as follows:
i. The Home Trust Mortgage $400,302.78
ii. The Ricci Mortgage $ 57,441.92
iii. Ricci Discharge Legals $ 636.30
iv. Registration Costs $ 71.30
v. Vendor’s Solicitor Fees $ 2,023.81
vi. Leslie Rivas (the Plaintiff) $ 99,542.99
14A cheque in the amount of $99,542.99 and payable to Plaintiff was deposited into the account. The Anobile deposit was recovered by the Defendant from the account in separate installments between June 5, 2013, and July 15, 2013.
15Following the first transfer, a third mortgage was granted to the Defendant’s sister Grace Ferri in exchange for the sum of $75,000 at 10% interest (“the Ferri mortgage”). These funds were partially used to pay off a car loan in the Plaintiff’s name; there were legal fees associated with the Ferri mortgage. Finally, the remaining sum of $72,503.69 from those funds was deposited into the account.
16The Defendant was then paid back the Anobile advance from the account in three instalments as follows: i) $58,000 on July 2, 2013; ii) $15,000 on July 5, 2013; iii) $68,600 on July 22, 2013.
17For the next two years, the Plaintiff resided at the property together with her children. She was responsible for mortgage payments and all expenses. The Defendant borrowed a further $20,000 from his sister Grace Ferri (“the Ferri loan”) in February 2015. This amount was deposited on to the Defendant’s line of credit and used to pay bills and expenses for the Plaintiff.
18The ongoing burden of mortgage payments and expenses caused the parties to discuss selling the property on the open market. The property was listed for sale in August 2015 with real estate agent Nadia Curci.
19The Defendant then paid a series of expenses and miscellaneous items on behalf of the Plaintiff. These included insurance, final utility bills, car lease payments, moving expenses, and renovations to her father’s home (where she intended to move with her children). The Defendant had earlier loaned the Plaintiff the sum of $53,200.58 either personally or through his company. These loans were advanced through a series of cheque payments deposited into the account. The Plaintiff used these funds to pay her ongoing expenses.
20The second transfer was to a third-party purchaser for $645,000. The solicitor Russo completed the sale transaction on behalf of the Plaintiff and the Defendant as vendors. After a portion of the real estate commission was deducted, solicitor Russo received the total of $625,630.70 as proceeds of sale. These funds were disbursed as follows:
i. TD Line of Credit $330,997.83
ii. TD First Mortgage $100,672.87
iii. Ferri Mortgage and Ferri Loan $101,890.87
iv. Outstanding Realty Taxes $ 7,095.93
v. Balance of Commission Due $ 5,509.75
vi. Paid to Defendant Anobile $ 76,990.90
vii. Registration Fee $ 71.30
viii. Legal Fees to solicitor Russo $ 2,401.25
21The Ferri mortgage and Ferri loan payment included accumulated but unpaid interest. Following receipt of his share of the funds, the Defendant paid the Plaintiff the sum of $30,736 in instalments throughout September 2015.
The Position of the Parties
i) The Plaintiff
22The Defendant designed a purchase agreement for the first transfer for his sole benefit. In doing so, the Defendant diverted the Plaintiff’s equity in the property.
23At Tab “G” of its written submissions, the Plaintiff provides a “Rivas Analysis” chart which sets out the calculations by which the total net claim of $130,321.63 is arrived at.
24The Plaintiff begins from the premise that at the time of the first transfer, she enjoyed equity in the property of $152,800. She arrives at that figure by taking the sale price ($610,000) and subtracting the total mortgage debt ($457,200).
25To that figure she adds the amount of $12,425, which is the “additional equity in home on final sale to the third party for $645,000” (ie the second transfer).
26After giving credit to the Defendant for certain payments and contributions to the Plaintiff’s expenses between April 2014 and July 2015 (totaling $38,075), the Plaintiff arrives at the net amount for wrongfully diverted equity of $127,150.
27To that total however the following expenses incurred during the term of the management plan should be properly added back to the Plaintiff’s side of the equity ledger:
i. $20,000 for the Ferri loan
ii. $1,500 interest on the Ferri loan
iii. $15,000 interest on the $75,000 Ferri mortgage
28Yielding a sum of $163,650.00. And from that total, the Plaintiff proposes a deduction of $30,000 for the equity monies received by the Plaintiff plus the amount of $25,332.37 remaining in the joint bank account at the termination of the parties’ relationship. This leaves a subtotal of $108,317.63. The Plaintiff then adds interest at a rate of 3% from 2015 which yields $22,004 (presumably to the date of trial) which results in a total claim of $130,321.63 for wrongfully diverted equity.
29The balance of the claim is combined under the heading “Lost opportunity, costs and punitive.” Had Anobile not forced the 2015 sale upon her, she would still own a residence worth more than $1 million in today’s market. She has therefore lost approximately $400,000 in potential equity.
ii) The Defendant
30The Plaintiff was a full, willing, and knowing participant in both the transfers and the management plan. There is no basis for the allegation that she was the victim of a fraud or has suffered a loss of equity or opportunity.
31The Plaintiff understood how she would benefit from the two transfers. She acknowledged that these transactions were to at no cost to the Defendant. The management plan called for the Defendant to be repaid everything he advanced or lent to the Plaintiff.
32The Plaintiff is unable to demonstrate that she has suffered any damages. It is apparent that she received a benefit from the management plan: she was able to stay in a home that she could not afford for more than two years. She was able to extract some equity from that home to pay off some of her bills. The Defendant arranged for additional mortgages and loans for her benefit. The Defendant also used his own resources to prop the Plaintiff up financially.
33The Defendant has provided a full accounting to both the court and the Plaintiff for the proceeds of sale from the two transfers and for any funds he loaned and recouped during the period of the management plan.
Analysis
The Plaintiff ‘s Evidence
34The Plaintiff’s overall credibility was damaged when, under cross-examination, she contradicted or recanted much of what was contained in her affidavit of October 26, 2021. In that affidavit, the theme was very much that she had been largely ignorant of many of the transactions involved in the sale of the property and the joint bank account and had been the victim of fraud and even forgery.
35That was patently not true.
36At trial, she largely conceded that the payments made by the Defendant were on her behalf and for her benefit. She admitted to being aware of both transfers. She admitted to knowing about the terms, conditions and amounts of the mortgages. She admitted to having online access to statements for the joint account. She admitted that she held the only bank card for the account and used the funds in it to pay monthly bills and her day-to-day expenses. The Plaintiff acknowledged receipt of the loans and payments documented by the Defendant. She acknowledged that the first transfer was designed to be at no expense to the Defendant and that he was entitled to recover all funds that he advanced. The Plaintiff was not in any position to challenge or contradict the accounting provided by the Defendant.
37Her testimony was, in any event, not germane to the central issues in this case.
The Accounting
38At the end of the day, this matter comes down to a simple accounting and a consideration of whether, under the management plan, the Defendant breached any fiduciary duty he owed to the Plaintiff.
39I find that the affidavit of the Defendant dated November 24, 2021, provides an adequate, accurate and acceptable accounting of the Defendant’s dealings with the property, the proceeds of disposition and the management plan during its term. Except for a $2,000 item which was double counted (as signaled by the Defendant in submissions), there is back-up, justification, and documentation in support of all the transactions.
40In short, the arithmetic adds up and is largely if not entirely unassailable. I find that none of the Plaintiff’s money or assets went missing or were unaccounted for.
Diversion of Equity and Loss of Opportunity
41This leaves me to consider the Plaintiff’s twin claims of loss of equity and loss of opportunity.
42Those claims cannot succeed.
43It is undeniable that the management plan brought with it three major benefits for the Plaintiff: one, it replaced the existing high interest mortgages with loans at better rates of interest and more flexibility which the Plaintiff could afford to manage, at least for a time; two, it allowed the Plaintiff to free up and access equity in her property which she used to pay off existing, unmanageable debt and to finance her lifestyle going forward; and three, perhaps most importantly, it allowed the Plaintiff and her children to continue to reside in their home at a time when her impending separation and difficulties with obtaining financing would likely have forced her to sell the property on the open market and find alternate living arrangements.
44Like any unorthodox and hastily constituted scheme, however, the management plan had its problems.
45First, I find that the Defendant overstated the value of the property in order to obtain the necessary replacement financing for the first transfer. It was not lost upon the court that conventional lenders will often advance 70% of a property’s value in mortgage loans. When one applies 70% to the stated purchase price of $610,000, one arrives at the sum of $427,000 which, not coincidentally, is just a few thousand dollars less than the total of the two TD mortgages ($429,700).
46Second, by overstating the value of the property, the Defendant created the illusion that the Plaintiff enjoyed more equity in the property than she did. This would prove to be the genesis of the litigation.
47Third, to complete the first transfer, the Defendant was obliged to contribute private resources—this created the rather odd situation where the Defendant was refunded the Anobile deposit and the Anobile advance immediately or within a short period of time after the first transfer closed.
48Finally, in devising and implementing the management plan, the Defendant found himself, wittingly or not, in charge of the Plaintiff’s principal asset and therefore in a fiduciary capacity towards her.
49The Defendant’s evidence was not without its problems. He made for a combative and surly witness who talked over people, including the trial judge and his own counsel. The Defendant oozed disrespect, avoided answering direct questions and seemed bent on accusing Plaintiff’s counsel of sinister motives of his own. The Defendant’s explanation as to why he would not have simply co-signed with the Plaintiff for mortgage loans made little sense. If, as he stated, the Plaintiff was unemployed and was seen by the banks as a poor credit risk, it begs the question how he expected her to pay the mortgage and expenses on an ongoing basis. Her prospects as a business partner were poor. I also do not accept the Defendant’s evidence that a sale transaction was a faster solution than the option of him co-signing a loan or series of loans for the Plaintiff. There is certainly no evidence of any efforts or inquiries made in that regard. The Defendant’s assertion that “it was a timing issue” did not ring true and was unsupported by any independent evidence. The Defendant was palpably anxious to deny that he stood in the role of trustee for the Plaintiff, as if he was all too aware of the onerous duties and responsibilities accompanying that office.
50I struggle to comprehend the rationale for the Defendant devising and implementing the management plan. I certainly do not accept that he participated in the transfer/trust scheme simply as a good neighbour or for other benign personal reasons. Perhaps he was hoping to reap the benefit of an upturn in the housing market. Perhaps he was looking to increase property values in his own neighbourhood by comparison. Perhaps he saw the purchase of the property as a long-term investment. Perhaps he hoped to establish or enhance his reputation as a dealmaker/broker. Perhaps he wished to increase his creditworthiness. The Defendant impressed me as a shrewd and experienced businessperson who would have been unlikely to involve himself in such a venture without some expectation of profit.
51I have no hesitation in concluding that by engaging with the Plaintiff, devising and implementing the management plan, obtaining new and manageable financing, and maintaining and co-managing a joint bank account with the Plaintiff for several years, the Defendant did establish himself as a trustee, with fiduciary duties owing to the Plaintiff as a result.
52At the same time, I am unable to find any breach of those fiduciary duties. In particular, I am unable to find any “fraudulent diverting” of the Plaintiff’s equity in her home for the following reasons:
The evidence establishes that in the spring of 2013, the Plaintiff was faced with an imminent separation, a limited income, the upcoming maturation of unattractive mortgage loans, and the inability to secure financing to continue ownership of her home. The Plaintiff had little choice but to either sell the property or turn to a private lender/broker such as the Defendant.
Although not argued by either side, and as set above, I infer that the Defendant overpaid on the first transfer to impress a value on the property that it did not bear. This was clearly designed to maximize the availability of conventional financing. Unfortunately, it created false equity in the property that was unsupportable. There is simply no verifiable, independent evidence that the property had a market value of $610,000 at the time of the first transfer. I would assess the value of the property at the time of the first transfer at $500,000. This is the value assigned to it by the separation agreement between the plaintiff and her former husband.
The Defendant did not receive any tangible benefit from the management plan or from acting as trustee. In the aftermath of the first transfer, he merely recouped the monies that he had provided to fund the purchase: the Anobile deposit and the Anobile advance were both required to top up the funds borrowed from third party mortgagees. The Defendant never received any interest on either the deposit or the advance.
The increase in the market value of the home between 2013 and 2015 did benefit the Plaintiff. The equity that built up in the property served as a kind of security for the advancement or repayment of any loans arranged or granted by the Defendant. And, upon disposition of the property in 2015, the Plaintiff did receive a slice of that equity, the balance of which was used or had been used to pay expenses and discharge debt obligations that she had incurred in the two years prior. Indeed, the entire second transfer serves as incontrovertible proof that the property was subject to a trust with the Plaintiff as beneficiary. Otherwise, as neither an owner nor a creditor, the Plaintiff would have received nothing from the proceeds of disposition.
The interest rate given to Grace Ferri for the Ferri mortgage was comparable to the Home Trust mortgage and much less than the Ricci mortgage. There was no evidence that the Defendant benefitted directly or indirectly from this mortgage loan, or the interest earned thereupon. The interest earned and repaid on the Ferri mortgage was not unconscionable.
I accept that during 2015 the Plaintiff required more funds to pay her bills and expenses. I accept that the Defendant borrowed the $20,000 from his sister for that purpose. The Ferri loan was simply paid off out of the proceeds from the second transfer. The Plaintiff thus received a kind of advance on whatever equity she enjoyed in the property.
I accept that the decision to proceed with the second transfer was taken jointly and with the full knowledge and approval of the Plaintiff. The evidence makes it clear that the Plaintiff was made aware of and approved of the essential aspects of the transaction and that by her actions she approved the sale. The property was listed with Nadia Curci, a friend of hers. The Plaintiff received emails and was informed of all dealings and offers.
At no time did the TD line of credit serve to compromise the equity in the home beyond the amount initially advanced upon it. It, along with the TD first mortgage, simply helped to replace the Home Trust and Ricci mortgages. Although the mortgage for the line of credit was registered for $396,500 there is no evidence that any more than $330,000 was ever advanced or was even available.
While the Defendant did gain title to the property by way of the first transfer, it was a property heavily encumbered by conventional charges. The Defendant bore sole responsibility as a mortgage debtor for the duties and obligations under those contracts which not only included regular payments of principal and interest but also realty taxes. While the management plan called for the Plaintiff to make payments of principal, interest, and taxes, it was the Defendant as owner and mortgagor who stood as sole debtor and who would have become responsible for expenses and payments had the Plaintiff defaulted on her responsibilities under the management plan.
The property sold to an arms length third-party for $645,000 in the second transfer. There is no evidence that the property was sold for less than what it was worth. And there is nothing to persuade me that the Defendant benefitted in any inappropriate way from the second transfer. The accounting makes it clear that the proceeds of sale were properly disbursed and used to pay off legitimate mortgages, expenses, charges and loans from which the Plaintiff had derived a benefit.
The Claim for Damages
53Even if I were to find a breach of fiduciary duty on the part of the Defendant, I am unable to conclude that the Plaintiff suffered any damages as a result.
The evidence establishes that the market value of the property in the spring of 2013 was at or near the debt load. Based upon the $500,000 value assigned to the residence in the separation agreement, the equity in the home at the time of the first transfer was modest, no more than $45,000 at best. There is simply no evidence that the value on the open market would have exceeded that amount. If one factors in the cost of selling (registration fees, solicitor fees and real estate commissions) it is a fair estimate that there was little to no equity for the Plaintiff to realize upon a sale of the property on the open market.
While it appears that the market value of the property increased significantly during the term of the management plan (just over 30%), it is equally apparent that the Plaintiff was living beyond her means and that, without financial support, she was not going to be able to afford to pay the mortgages, taxes and expenses in the longer term. That being the case, the Plaintiff has failed to establish any loss of opportunity. I do not accept that she would have been able to retain and refinance the property for any appreciable length of time. In any event, I find that she agreed to the second transfer in 2015. It does not now lie with her to claim that the sale was improvident, ill-timed, or conducted in bad faith.
There is no evidence that the residence was worth any more than $645,000 in August/September of 2015. It was listed with a legitimate agent and sold to an arm’s length purchaser with the proceeds of the sale being used to discharge the registered mortgages and pay the normal costs, commissions, fees, and expenses associated with a real estate closing after which the net proceeds were paid out to the property vendor (the Defendant). The Defendant has in turn accounted for how the net proceeds of disposition were disbursed (including the $30,776 equity payment to the Plaintiff in instalments)
As stated above, the first transfer created the appearance of equity in the property because the Defendant paid more for the property than it was worth at the time. The Plaintiff should not be able to argue that the inflated sale price in the first transfer created any kind of equity that was not there in the first place.
The Plaintiff agreed that she received all the funds set out by the Defendant in his accounting. In fact, she took almost no issue with the accounting itself. I have accepted the accounting as accurate. That accounting satisfies me that all funds from the proceeds of sale from both transfers have been accounted for.
The damages claim is far too remote. There is not one shred of evidence that, had the property not been transferred in 2015, the Plaintiff would have had the financial ability to cover the cost of borrowing and maintaining the property beyond a few more months let alone many more years.
54Even if the Plaintiff has experienced either a diversion of equity or a loss or opportunity, she has failed to persuade me that she would be entitled to any compensation in damages.
Summary
55The evidence makes it clear that the Plaintiff was a willing participant and partner in the management plan. She was paid out her modest equity from the property following the first transfer. She acknowledges that the Defendant was entitled to be paid back everything that he contributed to the sale. I find that she was consistently aware of the all the dealings involving the property, including the loans and encumbrances affecting that property. Having enjoyed access to online statements throughout the period of the management plan, I conclude that she would have been aware of all the activities on that account. I find that she knew and approved of the second transfer and received whatever remaining equity to which she was entitled. Finally, I find that she has been provided with a complete and accurate accounting in respect of the two transfers and the Defendant’s handling of funds and affairs during the term of the management plan.
56The Plaintiff has failed to satisfy her evidentiary burden to prove diversion of equity, loss of opportunity, breach of trust or fiduciary duty, mismanagement of funds, failure to account or breach of the management plan on the part of the Defendant. The Plaintiff has failed to persuade me that she has suffered any damages as result of the actions of the Defendant.
Disposition
57For the foregoing reasons, I conclude on the issues put before me as follows:
The Defendant did not divert any equity in the property away from the Plaintiff;
The Plaintiff has not suffered any damages in any event;
The parties were in a fiduciary relationship;
The Defendant has provided a full and proper accounting of his handling of the Plaintiff’s affairs; and
The Defendant did not breach any fiduciary duty, obligation as a trustee or any term of the management plan.
58It follows that there cannot possibly be any basis for an award of punitive damages.
59The claim is therefore dismissed. There shall be judgment accordingly.
60The parties are invited to serve and file submissions on costs in writing according to the following timetable and terms by delivering same to the court at NewmarketSCJadmin@Ontario.ca with a copy to my assistant at bev.taylor@ontario.ca as follows:
a) Submissions of the Defendant limited to 10 pages double-spaced on or before July 14, 2022;
b) Submissions of the Plaintiff limited to 10 pages double-spaced on or before August 12, 2022; and
c) Reply submissions of the Defendant, if any, limited to 5 pages double spaced on or before September 2, 2022.
McCarthy J.
Released: June 9, 2022