COURT FILE NO.: CV-22-628

DATE: 20221004

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Janet Fleming Applicant

– and –

York University and The Toronto-Dominion Bank Respondents

Owen Thompson, for the Applicant

Brian Kolenda and David Salter, for the Respondent, York University

HEARD: September 30, 2022

REASONS ON APPLICATION

McCarthy J.

Introduction

[1] The balance of this Application returns on issues left outstanding from the order of my brother Leibovich J dated June 1, 2022 (“the Leibovich order”). The principal remaining issue is the question of the apportionment of the proceeds of sale from the 211 Osprey property (“Osprey”).

Background

[2] This matter has a long and tortured history, the genesis of which was certain fraudulent activities on the part of Michael Markicevic (“Markicevic”), the one-time partner of the Applicant Janet Fleming (“Fleming”). The Respondent York University (“York”) was one of the victims of those fraudulent activities. In a trial of an action (“the fraud action”) before Conway J of this court, Osprey was found to have been fraudulently conveyed by Markicevic to Fleming on July 5, 2010. York was also successful in obtaining a judgment against Markicevic totalling several million dollars (“the Conway judgment”). Fleming, a Defendant in the fraud action, was ordered to pay York costs of $60,000 (“the costs award”).

[3] At the commencement of the fraud action, an order of Newbould J dated June 14, 2012, (“the Newbould order”) froze Osprey. That same order permitted Fleming to encumber Osprey together with an adjacent lot (“lot 29”), with a mortgage to allow her to obtain a line of credit (LOC) facility from TD (“the TD mortgage”). That LOC was for the sole purpose of allowing Fleming to obtain legal advice and representation. Any funds accessed from the LOC were to be held in trust by Fleming’s counsel. While it was clear from the loan documents that the TD mortgage was to encumber both Osprey and lot 29, through some administrative error TD registered its security only against lot 29.

[4] In the aftermath of the Conway judgment, the court enjoined Fleming or Markicevic or any other person from selling or encumbering Osprey without York’s consent or further court order.

[5] An order from Gilmore J (the Gilmore order) in 2020 went further. While continuing the injunction against Osprey, the Gilmore order permitted the sale of Osprey by either York or TD. As well, and “as a means of facilitating York’s enforcement” York was given the option of obtaining an order vesting Osprey back to Markicevic from Fleming. Because of her finding that Fleming had misused the LOC for purposes not authorized by the Newbould order (“including paying Markicevic’s credit cards), Gilmore J also granted York a priority claim to Osprey and permitted York to execute against funds in trust which had originated from the LOC. The Gilmore order also permitted TD to register its charge on title to Osprey, as had been permitted by previous court orders.

[6] In late 2021, TD took steps to exercise its remedies against lot 29 only.

[7] The two properties were sold under court supervision. The Leibovitch order directed the application of the proceeds first to the TD mortgage, followed by payment of real estate commissions, outstanding taxes, some of Fleming’s legal fees and two amounts owing to York totalling $70,000. The balance of the proceeds was to be paid into court to the credit of the Application.

The Positions of the Parties

[8] Fleming seeks an equitable remedy allocating the payment of the TD mortgage and the costs award from the proceeds of sale of Osprey. In essence, the Applicant wishes to see the equity in Osprey rather than the equity in lot 29 applied to reduce her indebtedness to TD. This outcome would undoubtedly fetter York’s ability to recover on its judgment against Markicevic since, as a result of certain court orders, York enjoys a security interest in Osprey but only as a junior creditor to TD. York has no such security interest in lot 29.

For its part, York seeks an order that would effectively apply the proceeds of sale from lot 29 to pay claims against the lot, and in particular, the TD mortgage and costs award

Analysis

[9] The issue must be resolved in favour of York. Fleming has no entitlement to the equity in Osprey. It follows that she lacks the legal or equitable standing to command or have a say in how the proceeds of sale from Osprey are to be apportioned or distributed.

[10] The reasons for this are straightforward.

[11] One, paragraph 9 of the Gilmore order states that “This court orders that Fleming shall have no claim to any equity in 211 Osprey.” That order was never appealed or varied.

[12] Two, the context in which the Gilmore order was made is crucial. It followed upon the Conway judgment which had the effect of nullifying Markicevic’s fraudulent transfer of Osprey to Fleming. Paragraph 11 of the Conway judgment reads as follows:

The transfer of Michael Markicevic’s interest in 211 Osprey, to Janet Fleming is void as a fraudulent conveyance, and is of no force and effect as it affects the rights of the Plaintiff as a Judgment Creditor of Michael Markicevic, and the Plaintiff is entitled to pursue its just and lawful remedies as a Judgment Creditor against Michael Markicevic and against 211 Osprey as if Michael Markicevic were still the legal and beneficial owner of 211 Osprey [emphasis added.]

[13] Conway J’s reasons were both ample and instructive. In particular, she expressly rejected Fleming’s evidence that the transfer of Osprey was done in lieu of child support. Instead, the court found that the transfer of Osprey was intended to defeat Markicevic’s creditors. The court had no hesitation in concluding that the transfer of Osprey was fraudulent and void.

[14] Three, a subsequent order of Conway J dated March 21, 2017, enjoined the sale or further encumbrance of Osprey without the prior consent of York University or court order. The Gilmore order granted subsequent creditor relief to York: it was permitted to enforce any and all rights and remedies it had as a creditor of Markicevic or Fleming against Osprey. The Gilmore order also permitted York, at its sole option, to require that title to Osprey vest in the name of Markicevic.

[15] The combined effect of these precedent and binding court orders is unmistakeable: not only was the legal and equitable interest of Fleming in Osprey completely nullified, but she was forbidden to sell or encumber the property without the consent of the respondent or a court order. Moreover, York was granted specific rights of enforcement as a creditor of Markicevic against Osprey.

[16] I fully acknowledge that TD held a security interest in both Osprey and lot 29. However, the fact that TD chose to embark on sale proceedings in respect of lot 29 was its prerogative. The law is well settled that a mortgagee enjoys the paramount right to pursue its remedy against either of two secured properties: see Ernst Bros Co v. Canada Permanent Mortgage Corp. (1920), 47 OLR 362, at pp. 367-368 (Ont. H.C.), affirmed (1920), 48 OLR 47, (Ont. CA).

[17] There is simply no evidence of bad faith or collusion on the part of York or TD. While TD informed York of its intention to enforce the mortgage, York was unaware that TD elected in December 2021 to exercise its remedies against lot 29 only. TD was entirely within its rights to do so.

[18] Fleming is undeserving of equitable relief in any event because she does not come to court with clean hands. Gilmore J found that Fleming improperly attempted to draw down equity in Osprey by using the line of credit for purposes other than payment of her legal fees. Conway J had earlier found that Fleming was aware at the time of the Osprey transfer that Markicevic was being investigated for fraud. Fleming’s attempt to apply the funds in the Bennet Jones trust account towards the costs award was denied by Gilmore J, who found that this would not only be a misuse of funds emanating from the fraudulent conveyance but would also result in the dilution of York’s equity in Osprey.

[19] Most startling of all is Fleming’s attempt to list and sell the Osprey property without first obtaining the consent of York or an order from the court. This was in direct contravention of Gilmore J’s prohibition. I find it revealing that Fleming had taken no steps to sell Osprey prior to TD initiating power of proceedings in relation to lot 29 in late 2021. By her own admission, Fleming well understood that if lot 29 were sold on its own, then TD could satisfy its mortgage fully from the proceeds of the lot; whereas if she sold Osprey and was able to satisfy TD from the proceeds of sale of that property, she would be able to recover proceeds from the lot 29 sale (in which York had no security). This would result in the corresponding compromise of York’s recovery against Markicevic on the outstanding judgment. This was clever on Fleming’s part but clearly wrong; indeed, she admits that when she first started working with the agent to sell Osprey, she knew that the transfer or encumbrance of that property was strictly prohibited by the Gilmore order.

[20] Finally, even if TD had chosen to enforce its rights against Osprey, the equitable doctrine of marshalling would have been available to York. This doctrine dictates that if a creditor has two funds to draw upon to satisfy a debt, the court will require her to take satisfaction from that fund upon which another creditor has no security: see Gerrow v. Dorais, 2010 ABQB 560, 503 A.R. 65, at para. 21. Since York had no security interest in lot 29, I find that the doctrine of marshalling would have been available to compel TD to enforce against lot 29 and thereby not compromise York’s own rights as a creditor.

[21] Like Gilmore J, I reject any argument that the costs award should be paid out of the Osprey sale proceeds. This would result in the applications of funds from the sale of a fraudulently conveyed property toward the obligation of a defendant in the fraud action. This is both illogical and inequitable: doing so would also serve to dilute York’s own equity in Osprey and compromise its ability to fully recover its judgment against Markicevic.

[22] I see no double recovery on the part of York. The fact that TD has paid some amount to York out of the proceeds of sale from lot 29 is simply a matter of accounting. To the extent that York is able to recover funds owing on the Conway judgment, it will be required to account for that recovery at some later date. There is no evidence before me that York has recovered anything close to the amount of the judgment. Today is not an accounting exercise in any event. Should an interested party seek a court inquiry into the status of payment of the judgment, it is open to that party to do so.

[23] In my view, the two properties themselves should bear the cost of their disposition. It was in everybody’s best interest that the respective sales take place in a seller’s market. The legal fees, disbursements, commissions and charges associated with the disposition of both Osprey and lot 29 should be paid fully out of the sale proceeds prior to the distribution of the funds remaining in trust.

Disposition

[24] For the reasons set out above, the court orders as follows:

i) counsel for the Applicant shall forthwith and without delay cause the funds in his trust account from the proceeds of sale of Osprey and lot 29 to be paid into court to the credit of the application;

ii) the full amount paid to discharge the TD mortgage shall be paid from the proceeds of lot 29;

iii) York is entitled to recover the entirety of the costs award plus interest from the proceeds of Lot 29;

iv) all legal costs, fees, commissions pertaining to the sale of both Osprey and lot 29 shall be paid from the proceeds of the two properties prior to any final disposition;

v) the balance of funds from the sale of Osprey shall be paid to York in partial satisfaction of the Conway judgment;

vi) prior to any final distribution of the funds remaining from the proceeds of lot 29, the parties shall either agree on the issue of costs or appear before me on a date to be assigned by the trial coordinator at Barrie to address that issue together with any other remaining issues on the application or which arise from these reasons.

[25] There shall be judgment to go in accordance with these reasons.

McCarthy J.

Released: October 4, 2022