COURT FILE NO.: CV-17-73750
DATE: 2022/09/07
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Salvatore Falsetto
Plaintiff
– and –
Salvatore Fillipo Falsetto a.k.a. Sam Falsetto and Falsetto Homes Inc., 99 Cartier St. Apartments Inc., Clarence Street Apartments Inc., and Bronson Ridge Apartments Inc. and Canadian Imperial Bank of Commerce
Defendant
Raymond Murray, Avery Yandt, and Joseph Griffith, for the Plaintiff
Thomas G. Conway, Chris Trivisonno, and Abdalla Barqawi, for the Defendant
HEARD: In Writing
DECISION On costs
R. Smith J.
Overview
Salvatore Falsetto (“Salvatore”) sued his only son, Salvatore Fillipo Falsetto (“Sam”), claiming over $11 million in damages. In his pleadings, Salvatore also claimed an interest in the properties Sam had acquired using the funds Salvatore gave to him.
Salvatore’s claim was dismissed based on my finding that he had gifted both money and property to Sam, which he used to acquire or develop several properties in Ottawa between 2011 and 2016. As a result, Salvatore’s claim for a resulting trust, a constructive trust, and his allegation of a breach of fiduciary duty were dismissed because Salvatore intended to and made these gifts to Sam over several years.
The trial took place over six weeks and both parties made lengthy written submissions. Each party was represented by three lawyers during the trial and so a substantial amount of time was spent on this case by lawyers for both parties.
Positions
The successful Defendants seek costs on a substantial indemnity basis of $1,080,285 mainly because Salvatore failed to prove a serious allegation similar to fraud against Sam. Salvatore alleged claims that Sam had stolen all of his money, committed elder abuse, and breached his fiduciary duty to him by wrongfully putting the properties purchased in his own name rather than in Salvatore’s name. These allegations constitute a serious attack on Sam’s integrity and are similar to an allegation of fraud. Sam also seeks costs on a substantial indemnity basis because: a) Salvatore refused to accept Sam’s Rule 49 offer to settle for $1.5 million and failed to achieve any recovery whatsoever; b) Salvatore refused to speak to Sam or express any concerns to him before sending him a lawyer’s letter threatening litigation; and, c) based on a finding by Justice Corthorn that Salvatore had misled the court in the materials filed to obtain Certificates of Pending Litigation (“CPLs”) against several properties.
Salvatore submits that either no costs should be awarded against him or he should only be ordered to pay $100,000 in costs for the following reasons:
a) he is or will become impecunious if a substantial costs award is made against him;
b) that commencing the claim against his son, while unsuccessful, was not reprehensible, scandalous or outrageous conduct that should be punished or deterred by an award of costs on a substantial indemnity scale;
c) that Sam’s lawyers failed to provide documents to him in a timely manner throughout the litigation;
d) that Salvatore was successful on some interim motions; and,
e) that Salvatore should not be penalized for refusing to speak to his son (with whom he previously had a very close relationship with) about any of his concerns regarding the ownership of the properties before sending him a lawyer’s letter, and then refusing Sam’s request to meet to discuss the matter.
Factors
- The factors to be considered when fixing costs are set out in Rule 57 of the Rules of Civil Procedure and include, in addition to success, the complexity and importance of the matter, the principle of indemnity, the hourly rate claimed, the time spent, refusing to accept a reasonable offer to settle, and the amount that a losing party would reasonably expect to pay. In addition, the fact that Salvatore alleged that Sam stole all his money and registered the properties in his own name rather than Salvatore’s are equivalent to a serious allegation of fraud, which was not proven at trial. Finally, Salvatore’s potential impecuniousity must be considered if a substantial award of costs is made against him.
Success
- Sam was completely successful after a lengthy, hard fought six-week trial as Salvatore’s claim was dismissed. Salvatore did not recover any damages whatsoever and was unsuccessful in obtaining any relief on any of the claims he advanced.
Amount Claimed and Recovered
- Salvatore claimed damages of $11.5 million, which was largely based on the amount of money, or the value of properties gifted by him to Sam. Sam was completely successful at trial and Salvatore was completely unsuccessful on all of his serious allegations of fraud-like conduct by Sam.
Complexity and Importance
- The facts were complex as they involved a lengthy acrimonious family history and many gifts of funds to assist Sam to acquire many different properties over a six-year period. Salvatore unsuccessfully advanced several legal arguments including that the properties were held in a resulting trust for his benefit, a claim for a constructive trust, an allegation that Sam breached the terms of a trust, that Sam breached his fiduciary duty to him, and involved the law applying to the making of a gift. The issues were very important to both parties as they involved large amounts of money gifted to Sam on about 11 separate occasions over six years. Salvatore claimed that Sam stole all of his money and deceived him by registering all of the properties in his own name rather than in Salvatore’s name. Salvatore’s allegations were very similar to an allegation of serious fraud by Sam. Salvatore’s allegations were a serious attack and go to the heart of Sam’s integrity, which was extremely important to him.
Unreasonable Conduct
a) Unproven allegations similar to Fraud
Salvatore alleged that Sam engaged in “elder abuse”, “stole all his money”, executed a scheme to misappropriate his father’s life savings by registering several very valuable properties in his own name rather than in Salvatore’s name, and arranged for him to use professional lawyers and an accountant to assist Sam to enable him to carry out this scheme to deprive Salvatore of his money and properties. Salvatore failed to prove any of these serious allegations of deceitful and dishonest conduct by Sam. In fact, the evidence was overwhelming and supported by the several independent witnesses who testified that Salvatore had expressed his intention to gift the $6.5 million settlement with his brother and nephew to Sam. In addition, Salvatore actually went to the bank to obtain some of the funds that were used to purchase the properties. The representative of the bank independently confirmed that Salvatore had approved in person or by phone each of the large transfers of funds from his account that were used to purchase three of the large apartment buildings. Salvatore testified that he did not remember signing any of the bank documents or speaking with Ms. Mead from the CIBC to approve each transfer of funds but agreed that it was his signature on the bank documents.
In addition, Salvatore’s long-time lawyer and cousin, Mr. Falsetto, would testify that he handled the transfers of many of the properties in question and in particular the three large properties and registered the ownership of the properties as he was instructed.
In Expoed Inc. v. Anaca Technologies Ltd., 2017 ONSC 6513, para 2, F L. Myers J. referred to the decision of Strathy J. (as he then was) in Nazarinia Holdings Inc. v. 2049080 Ontario Inc., 2010 ONSC 2559 setting out the law with regards to awarding costs on a higher scale as follows:
[10] I start with the proposition that substantial indemnity costs are very much the exception and should only be awarded in "rare and exceptional cases to mark the court's disapproval of the conduct of the party in the litigation": Hunt v. TD Securities Inc. (2003), 2003 3649 (ON CA), 66 O.R. (3d) 481, [2003] O.J. No. 3245 (C.A.) at para. 123. The conduct in question must be "reprehensible, scandalous or outrageous": Young v. Young, [1993] 4 S.C.R. 3, 1993 34 (SCC), 1993 34, at para. 250; United States of America v. Yemec (2007), 2007 65619 (ON SCDC), 85 O.R. (3d) 751, [2007] O.J. No. 2066 (Div. Ct.) at para. 30.
[11] I also note that it is not every case of unsuccessful allegations of fraud that will result in an award of substantial indemnity costs. In Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, [2003] S.C.J. No. 72, Arbour J., after referring to Young v. Young, stated at para. 26:
An unsuccessful attempt to prove fraud or dishonesty on a balance of probabilities does not lead inexorably to the conclusion that the unsuccessful party should be held liable for solicitor-and-client costs, since not all such attempts will be correctly considered to amount to "reprehensible, scandalous or outrageous conduct". However, allegations of fraud and dishonesty are serious and potentially very damaging to those accused of deception. When, as here, a party makes such allegations unsuccessfully at trial and with access to information sufficient to conclude that the other party was merely negligent and neither dishonest nor fraudulent (as Wilkins J. found), costs on a solicitor-and-client scale are appropriate: see, generally, M. M. Orkin, The Law of Costs (2nd ed. (loose-leaf)), at para. 219.
[12] I respectfully adopt the observations of Lax J. in Manning v. Epp, [2006] O.J. No. 4239 (S.C.J.) at paras. 7 - 9:
Costs on the higher scale can be awarded as a form of chastisement and as a mark of the court's disapproval of a litigant's conduct. This is intended to punish as well as to deter others from engaging in similar conduct. Unproved allegations of fraud frequently attract awards on the higher scale. Unproved allegations of breach of trust, conspiracy, misrepresentation, breach of fiduciary duty, and the like, may also attract this kind of award: Beaver Lumber Co. v. 222044 Ontario Ltd. (1997), 5 C.P.C. (4th) 253 (Ont. Gen. Div.) at p. 256.
Cost sanctions are imposed for these kinds of unproved allegations because they are rooted in assertions of dishonesty and deceit and go to the heart of a person's integrity: Bargman v. Rooney (1999), 30 C.P.C. (4th) 259 (Ont. Gen. Div.) at pp. 268-269; Dyer v. Mekinda Snyder Partnership Inc. (1998), 1998 14847 (ON SC), 40 O.R. (3d) 180 (Gen. Div.) and see cases referred to at pp. 184-185. Where serious allegations of dishonest or illegal acts are made, but are so inadequately pleaded that they are not permitted to go forward, costs consequences should likewise follow. These allegations have stood in the public record and over the heads of the Defendants. The plaintiffs admitted that the allegations were akin to or as serious as fraud. The allegations were made against public officials in the course of carrying out their public duties. To strike recklessly at the integrity of a person occupying a position of public trust is a serious matter.
The task for the court is to punish and deter unwarranted allegations and egregious conduct, but without discouraging the tenacious pursuit and advancement of serious claims of impropriety in a proper case. This was not a serious claim of impropriety. Essentially, the plaintiffs sought to recover damages in respect of a solicitor's retainer in which they had no prospective economic interest and made unsupported allegations of illegal conduct on the part of the Mayor and his co-Defendants. The allegations were designed to harm and embarrass. It is appropriate to award costs to the Epp Defendants on a substantial indemnity scale.
To attract an award of costs on the higher scale, the conduct involved must be “reprehensible, scandalous, or outrageous”. Salvatore’s allegations of dishonesty and deceit, namely the theft of all of his money, committing a breach of trust, engaging in a conspiracy to deprive him of his money and property, a breach of fiduciary duty, and engaging in elder abuse are all serious allegations and were very damaging to Sam, who was accused of the deceptions which go to the heart of his integrity.
In Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, Arbour J. stated that the allegations of fraud or its equivalent which are unproven will attract the higher level of costs to deter such conduct “where the Plaintiff had access to information sufficient to conclude that the other party was merely negligent and neither dishonest or fraudulent”.
In this case, Salvatore and his legal counsel would have been aware that Ms. Mead from CIBC would testify that Salvatore approved each of the large transfers from his account which Sam used to acquire the three large properties in question. In addition to Sam, both Mr. Crowe (the accountant) and Mr. D’Angelo (Salvatore’s lawyer for the settlement with his brother and nephew) would testify that Salvatore had expressed his intention on two separate occasions to gift the settlement funds to Sam to acquire properties. This is exactly what occurred.
This case is also unusual in that Salvatore, who made the gifts to Sam, testified that he did not remember giving instructions to Ms. Meade at CIBC to approve the transfers of funds from his bank account allowing Sam to acquire the three large rental properties. Salvatore also denied stating on two occasions that he intended to gift the $6.5 million settlement funds to Sam to acquire rental properties. His evidence was contradicted by Sam and several other independent witnesses, one of whom made a note at the time of Salvatore’s statement that he intended to gift the funds to Sam.
The other significant fact is that Louisa, while not a party, played a major role in assisting Salvatore with the litigation by relaying instructions and hiring lawyers for him. Louisa wrote over 496 e-mails to Salvatore’s main litigation counsel. She also retained Mr. Griffith, who had been her lawyer previously, 3 weeks before trial. Louisa had started investigating the transfer of money from Salvatore to Sam which assisted him to acquire various properties shortly after she reconciled with her father. Salvatore either knew or ought to have remembered that he had gifted properties and money to allow Sam to acquire rental properties as confirmed by several independent witnesses at trial.
Salvatore did not present any evidence at trial that Sam had engaged in any “elder abuse” towards him. Salvatore initially testified that he made a Will leaving everything to Sam in 2012 because he was “scared” of Sam. However, in cross examination, Salvatore recanted and testified that Sam had never acted in an abusive manner towards him, and he made his decision about his 2012 Will by himself, without any undue influence. The lawyer who prepared the will was Salvatore’s long-time lawyer and cousin, Mr. Frank Falsetto.
Salvatore’s allegations of theft, conspiracy, and breach of fiduciary duty were not made for an ulterior purpose or to embarrass Sam. They were the essence of the allegations he made against Sam. Where assets are transferred from an elderly parent to a child for no consideration there is a presumption of a resulting trust. The onus is on the child to prove with clear, cogent, and compelling evidence that the transfers were gifts. Sam met his onus to prove that the transfers were gifts.
The facts in Nimchick v. Nimchick, 2019 ONSC 6653 are quite similar to those in this case. In Nimchick, two siblings claimed that their brother, Bruce, had abused his elderly mother. They alleged elder abuse, misappropriation, breach of good faith, breach of trust, and breach of fiduciary duty over what was determined to be a gift of £67,000. In Nimchick, the siblings alleged and failed to prove fraud against their brother. While Louisa was very involved in assisting her father and unsuccessfully advanced similar claims of fraud and deceitful conduct against Sam, she was not a party to this litigation. The only Plaintiff was Salvatore, whose evidence I found was unreliable and not credible.
Salvatore, with Louisa’s encouragement and assistance, decided to proceed with the litigation either knowing that he could not remember what had transpired in the transactions where he had gifted and approved the transfer of funds to Sam to allow him to acquire the properties in question, or alternatively he decided to change his mind after he started living with Louisa and Sandra, and wanted to revoke his gifts to Sam and distribute his wealth to other family members.
In either case, if Salvatore knew he could not remember the circumstances of the transfer of funds or property to Sam, then he should have made inquiries from witnesses who were present (such as Ms. Mead) at his bank, Frank Falsetto (his longtime lawyer), his accountant, and Paul D’Angelo (his lawyer for the settlement with his brother and nephew).
At a minimum, he should have spoken to his son about any concerns and discussed resolution, with or without legal representation, before making these very serious allegations of dishonesty and deceit against Sam, without any memory of what happened.
Ultimately, Salvatore made serious allegations of theft, conspiracy, and breach of fiduciary duty without any evidence or memory of what happened or because he decided to change his mind after he had made these gifts to Sam. No evidence was presented at trial that Salvatore suffered from a medically caused inability to remember the recent past and so the only alternative is that Salvatore decided to revoke his gifts to Sam for reasons that are unknown. Whatever his reason, Salvatore’s conduct is reprehensible and should be sanctioned and deterred by the court. If this action had been commenced by Louisa, then the higher scale of costs would be awarded as the facts are similar to those in Nimchick.
b) Alleged failure to make prompt disclosure of documents
- Salvatore alleges that Sam failed to make prompt disclosure of documents before discovery and before trial. Sam alleges that Salvatore moved to obtain CPLs as a tactical strategy to put pressure on Sam to settle. I am not in a position to assess the accuracy of either of these submissions and as such they are not a factor that will be given any weight. This was hard fought litigation with complicated factual and legal issues to address.
c) Salvatore misled the Court on motion to obtain CPLs
- In her decision to permit the registration of certificates of pending litigation on the three large rental properties owned by Sam, Corthorn J. found that Salvatore misled the court in the affidavit he filed in support of his ex-parte motion. Misleading the court is conduct that should be deterred with an award of costs.
Impecuniousity of Salvatore
Salvatore submits that either he should not be ordered to pay any costs or only $100,000 of costs should be ordered because he would become impecunious, if costs as requested were ordered. He submits that his home requires $87,000 in repairs, he has a balance of $12,551 on his credit card, and he owes $262,000 on his line of credit; therefore, he cannot afford to pay any costs.
Salvatore has been living with his daughters Louisa and Sandra for the past 5 years and is now 92 years old. I have no evidence that he pays any rent and his sister testified that she brings them food on a regular basis. Salvatore receives $1,702 per month in CPP and OAS benefits and $3,000 per month from Sam. As a result, Salvatore’s income is $4,700 per month and he appears to be paying minimal living expenses except for taxes, insurance, and heat for his house on Skeena Avenue.
Salvatore’s house is valued at the approximate price of $1,000,000 based on listings for houses in the neighbourhood. He has decided not to sell it, repair it, or rent it for the past 5 years. His failure to sell his house has contributed to his financial situation. Salvatore has not used his house for the past five years. Sam has offered to pay for the costs to allow Salvatore to live in a retirement home if he wishes to move to one. In any event, it is Salvatore’s decision about what, if anything, he wishes to do with his house.
Section 131(1) of the Courts of Justice Act, RSO 1990, c C.43 and rule 57.01(1)(i) of the Rules of Civil Procedure, RRO 1990, Reg 194 provides the court a broad discretion in awarding costs. Salvatore submits that he should not be ordered to pay any costs due to his impecuniosity if he is ordered to pay costs, in order to promote access to justice. In this case, I have found that commencing an action and making serious allegations of theft, conspiracy, and fraud against his son was reprehensible, and in these circumstances, should be deterred and not encouraged.
In Aguas v. The Estate of Curtis Rivard, deceased, Premier Express Lines and Associates Leasing, 2018 ONSC 401, at paras 9 to 13, the court held that although impecuniousity is not listed as a factor in rule 57, it may be considered by the court in “exceptional sympathetic circumstances”.
In Aguas, the unsuccessful Plaintiff was in receipt of ODSP as her sole source of income. The court reduced the reasonable costs claimed from approximately $100,800 to $50,000 in consideration of her impecuniousity. While the court reduced the reasonable costs by approximately 50% due to her impecuniousity, the court stated that reductions in a reasonable award of costs because of impecuniousity would be a rare event based on very sympathetic circumstances.
I have found that making serious accusations of a fraudulent nature against Sam in these circumstances was reprehensible. Additionally, I have also considered that Salvatore misled the court in the materials filed to obtain the CPLs, which counterbalances the weight of the impecuniousity factor. In addition, Salvatore owns a house worth in the range of $800,000 to $1,000,000 that he is not using and has not used for the past five years. In this case, Salvatore’s actions and his circumstances are not the rare sympathetic circumstances to justify a substantial reduction in costs. So, while Sam’s impecuniousity is a factor which I will consider, its weight is substantially reduced by the above factors as well as his rejection of an offer to settle for $1.5 million, which I will discuss below.
Offer to Settle
On January 21, 2022, Sam offered to settle Salvatore’s claims for $1.5 million. The offer was open until the commencement of trial and complied with the requirements of Rule 49.10(2). Salvatore did not accept this reasonable offer to settle.
Rule 49.10(2) states that when a Defendant makes an offer to settle and the Plaintiff obtains a judgment that is less favourable than the offer, the Defendant is entitled to partial indemnity costs from the date of the offer to settle. This is in contrast to where a Plaintiff exceeds his or her offer to settle and is entitled to substantial indemnity costs from the date of the offer to settlement.
In S & A Strasser Ltd. v. Richmond Hill (Town) (C.A.), 1990 6856 (ON CA), Carthy J. awarded substantial indemnity costs to a Defendant that had made an offer to settle where the claim was completely dismissed. Carthy J. held that the intent of rule 49.10(2) was to award partial indemnity costs to the Defendant from the date of its offer to settle, where the Plaintiff had obtained some relief but was awarded less than the amount of the Defendant’s offer to settle. In those cases, the partially unsuccessful Plaintiff would recover costs on a partial indemnity basis to the date of the Defendant’s offer to settle, and then the Defendant would recover partial indemnity costs from the date of its offer to settle.
However, where the Plaintiff was completely unsuccessful and did not recover any damages or obtain any other relief whatsoever, as is the circumstance before me, the court may award costs on a substantial indemnity basis from the date for the Defendant’s offer to settle. S & A Strasser was recently followed by the Court of Appeal of Ontario in the case of OZ Merchandising Inc. v. Canadian Professional Soccer League Inc., 2021 ONCA 520 at paras 83 to 86. The Court of Appeal upheld the trial judge’s decision awarding substantial indemnity costs to a Defendant based on exceeding its offer to settle, where the Plaintiff’s claim was dismissed and did not make any recovery. The Court of Appeal applied the reasoning in S & A Strasser Ltd.
As a result, based on exceeding their offer to settle, the Defendants are entitled to be awarded costs on a substantial indemnity basis from the date of their offer to settle.
The Amount the Unsuccessful Party Would Reasonably Expect to Pay, Hourly Rate and Time Spent
Salvatore did not make any objection to the hourly rates claimed on the time spent by the Defendants. I find that the hourly rates and time spent by counsel for the Defendants to be reasonable based on the experience of counsel, and in the complicated and serious circumstances of this case.
Salvatore’s counsel submitted their bill of costs showing the value of the actual time spent on the Plaintiff’s behalf was $876,662. This amount is less than the amount claimed but in the same range that the amount the Defendants claim for costs of $1,196,618.
In the Boucher v. Public Accountants Council for the Province of Ontario, 2004 14579 (ON CA), the Court of Appeal of Ontario held that the costs awarded should be in accordance with what the losing party would reasonably expect to pay. The Plaintiff’s counsel have incurred actual costs of $876,662 and as a result, the unsuccessful Plaintiff would have expected to pay approximately this amount subject to reduction to arrive at partial or substantial indemnity rates.
Salvatore submits that the amount of costs awarded should also be reduced for some successes achieved on pretrial motions. I agree with this submission, but this is largely offset by the finding that Salvatore misled the court in the materials filed to obtain the CPLs and the finding by RSJ McLeod that the Plaintiff’s motion to make substantial amendments to his claim shortly before trial was an abuse of process.
Disposition
- I have considered the above factors including the complete success by the Defendants, reprehensible and unfounded allegations of fraud-like behaviour against Sam which were not proven at trial, the Defendants having exceeded their offer to settle after trial where the Plaintiff did not recover any damages or obtain any other relief, the impecuniousity of the Plaintiff, the conduct of the Plaintiff misleading the court and engaging in an abuse of process, and what the unsuccessful Plaintiff would reasonably expect to pay. In all of the circumstances, the Plaintiff is ordered to pay the Defendants costs the sum of 750,000 plus HST and disbursements of 43,959.26, inclusive of HST.
Mr. Justice Robert Smith
Date: September 7, 2022
COURT FILE NO.: CV-17-73750
DATE: 2022/09/07
ONTARIO
SUPERIOR COURT OF JUSTICE
Salvatore Falsetto
Plaintiff/Moving Party
– and –
Salvatore Fillipo Falsetto a.k.a. Sam Falsetto and Falsetto Homes Inc., 99 Cartier St. Apartments Inc., Clarence Street Apartments Inc., and Bronson Ridge Apartments Inc. and Canadian Imperial Bank of Commerce
Defendant/Responding Party
decision Regarding costs
Justice Robert Smith
Released: September 7, 2022