Court File and Parties

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

DATE: 2022/02/01

SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

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 Respondents Sandy Hutchens and Tanya Hutchens

Jamie Gibson for the Receiver, A. Farber and Partners

Barbara VanBunderen for the Colorado Plaintiffs

Brett Moldaver for Adroit Advocacy LLC

HEARD: December 16, 2021 and in writing

ENDORSEMENT on motion

INTRODUCTION

[1] This is the Applicants’ motion to have certain trusts declared invalid so that the assets of those trusts are available to creditors in the Receivership.

[2] The Respondents on this motion, Sandy and Tanya Hutchens (“the Hutchens” or “Sandy” or “Tanya”), sought an adjournment of the motion. The adjournment was not granted but I permitted the Hutchens to file further responding material in writing. The Receiver and the Applicants were permitted to file their reply by January 21, 2022. Those submissions have now been received.

[3] As will be set out below, the motion will be allowed. The Hutchens have failed to produce any evidence to refute the findings in the Receiver’s 11th Report. The responding material provided by the Hutchens is not persuasive and does not change this Court’s view of the status of the validity of the Trusts.

BACKGROUND

[4] The Applicants herein are judgment creditors for $26,774,736.09 USD in an action commenced in Pennsylvania. The judgment was unsuccessfully appealed. The Applicants are also creditors for $24,239,101 USD in a class action commenced in Colorado. That judgment was also appealed. Certain issues raised on appeal were remanded to the trial court. The remand was not pursued. Both the Colorado and Pennsylvania proceedings involved similar allegations of fraudulent lending schemes.

[5] In July 2019 a judgment was granted by this Court recognizing the Pennsylvania judgments and requiring the Hutchens to pay the Applicants an amount in Canadian dollars sufficient to purchase $26,774,736.09 USD. The July 2019 Order permitted living expenses and legal fees to be paid to the Hutchens as administered by the Receiver. Challenges to the Hutchens’ Trust claims were left to a later determination by the Court.

[6] In April 2021 the trust entities brought a motion to strike the Receiver’s 11th report. The Applicants also brought a motion to discontinue the payment of living expenses and legal fees to the Hutchens and the Trusts.

[7] By way of my endorsement dated May 3, 2021, the motion brought by the Trusts to strike the Receiver’s 11th Report was dismissed. The Applicants’ motion was allowed, however, the Hutchens were permitted to schedule this hearing as long as they funded their legal fees privately.

[8] The Applicants’ motion in relation to the Trusts was originally served in December 2020. However, in my endorsement of January 14, 2021 I ordered that the motions related to the Receiver’s report and the funding motion should be heard first. Those motions resulted in my endorsement of May 3, 2021.

[9] The May 4, 2021 order resulting from my endorsement is under appeal. The appeal has been perfected but not yet scheduled. The Applicants submit that the appeal should not be brought in the Court of Appeal because the decision under appeal is interlocutory in nature. They submit that leave should be sought from Divisional Court. The Applicants are considering bringing a motion to quash. The Hutchens have not brought a motion to stay the May 4, 2021 Order.

[10] This motion was originally scheduled for September 30, 2021 but when that date was declared a provincial holiday, the motion was moved to December 16, 2021.

[11] By way of background, I rely on the factual background set out in paragraphs six through 19 of my May 3, 2021 endorsement. No significant events have occurred since then other than the Receiver delivering five further Reports. The contents of the Receiver’s 11th Report remains most relevant for this motion.

[12] The background specific to the Trusts is as follows. The subject properties were acquired by the Hutchens starting in 2005, the same year that Sandy began engaging in fraudulent conduct. The acquisition of trust properties continued until 2016. There are Trust Agreements for most of the properties which were executed at the time of acquisition of the property properties.

[13] The Trust Agreements stipulate that the trust properties and related mortgages are held in trust for the Hutchens’ children, that the Trustee must have written authority to deal with the properties and that any proceeds from the properties are to be remitted to the Hutchens’ children.

[14] In January 2011 the Hutchens entered into a Separation Agreement which transferred Sandy’s interest in the alleged trust properties to Tanya for support and equalization purposes. However, some of the properties referred to were held in trust at the time but not referred to as trust properties.

[15] A class action was commenced against the Hutchens and others in Colorado in April 2011. The Colorado court did not find the Hutchens’ testimony in relation to the Separation Agreement to be credible and found that the transfers made pursuant to the Separation Agreement were a cover to get the properties into the “safer” hands of Tanya

[16] The investigative report took two years to complete and cost the Estate $2M. It is thorough and comprehensive. Through its investigations, the Receiver was able to trace $3.899M either directly from fraudulent based activity in Colorado or Pennsylvania or from banks accounts related to those schemes. These funds were traced to down payments, mortgage assumptions and payouts and property holding costs.

The Position of the Applicants

[17] The Hutchens have not produced any new evidence since the release of the Receiver’s 11th Report in November 2020. Both the Court and the Receiver indicated that they were open to receiving new evidence to counter the investigation results in the Receiver’s 11th Report. To date, the Hutchens continue to rely solely on the bare Trust Agreements.

[18] The Applicants submit that the evidence the Trusts are shams is overwhelming. The Receiver gave an extensive list of evidence to support the badges of fraud as set out in Re McGoey, 2019 ONSC 80. The evidence is set out in section 8.3 of the Receiver’s 11th Report and also at paragraph 45 of my May 3, 2021 endorsement. The evidence supports almost every badge of fraud. The Applicants submit that the Trusts were created solely to insulate the proceeds of fraud from its victims and that such an abuse should not be permitted to carry on.

[19] The Receiver’s investigative report found that to a significant extent, payments from the fraudulent schemes were used to acquire or refinance the Trust properties.

[20] The Hutchens used the Trusts at their convenience and inconsistently, sometimes revealing their existence and sometimes not, depending on what suited them. By way of example, a net worth statement of Sandy which he sent to a work colleague on December 5, 2009, includes a list of all of the Trust properties. None of the properties are identified as being held in trust.

[21] The evidence presented by the Hutchens is uncorroborated. The most recent affidavit of Tanya contains extensive references to the Colorado matter but no further evidence to support her contentions with respect to the Trusts. The evidence provided by the Hutchens does not address the central points concerning the badges of sham trust.

[22] The Hutchens spend much time in their factum discussing irrelevant matters such as their challenge to the legitimacy of the U.S. Federal Court Judgment in the Pennsylvania matter. This is of little use to the Court as the Hutchens have already conceded recognition of the Pennsylvania Judgment in this Court.

[23] The Hutchens continue to assert that there are errors in the Receiver’s investigation but have failed to produce any evidence of those errors. The Hutchens have had significant time to put forward their own case in relation to refuting the Receiver’s findings but have failed to do so, even when their legal fees were being funded.

The Position of the Hutchens

[24] The Hutchens submit that, contrary to the assertions of the Applicants, 1) the majority of the Trusts were established prior to any claims of any class members in the Colorado proceeding (2011) or the Applicants’ proceeding (after 2013), 2) the Trusts were established with the assistance of a lawyer; and 3) the beneficiaries of the Trusts benefited from the Trusts including the beneficiaries residing at the 33 Theodore Trust property.

[25] The Hutchens submit that the Applicants cannot trace more than $80,000 USD in relation to the Colorado Judgment. They are using the Receiver’s11th Report to bypass this problem and other difficulties related to the Colorado Plaintiffs including their election to abandon their claims that the Hutchens have an interest in the Trusts.

[26] The Hutchens have not been afforded the opportunity to provide further cogent evidence to establish the legitimacy of the Trusts as a result of a denial of funding.

[27] All of the relevant properties have been sold or there is a consent to sell them. Argument related to a significant portion of the assets of the Receivership will be heard on February 22, 2022. There is therefore no prejudice in leaving any decision in relation to the Trusts to a date following the hearing of the appeal of the May 4, 2021 Order.

[28] The Applicants oppose any request for an adjournment by the Hutchens. They are concerned about the history of delay by the Hutchens and the numerous frivolous appeals filed in their U.S. matters all of which were dismissed due to the Hutchens’ own delay.

Analysis and Ruling

The Adjournment Request

[29] I decline the Hutchens request for an adjournment for three reasons. First, there is no stay of the May 4, 2021 Order. Second, the appeal appears to have been filed in the wrong Court and even with the warning of Court of Appeal staff, the Hutchens have refused to seek leave from the Divisional Court. Finally, having been involved in this case for almost two years, I am well aware of the Hutchens history of delay both in Canada and the U.S. There is, therefore, no reason to further delay matters by granting an adjournment with respect to an appeal which may be in the wrong Court, may be out of time and has not even been scheduled to be heard.

[30] Given the Hutchens’ submission that they had insufficient time to file proper material, I permitted counsel to file their factum by January 14, 2022. The Hutchens were given an additional month to ensure their case was properly presented.

The Validity of the Trusts

[31] Turning to the Trust issues, as set out in the McGoey case the Court must examine a number of factors to determine whether a trust is a sham. The “badges of fraud” or “red flags” as Justice Penney called them in McGoey are set out below as per paragraph 22 of that case:

Whether a purported trust is sham must be assessed in all of the circumstances. Over many years, the common law has developed a non-exhaustive list of red flags (or what are sometimes called "badges of fraud") which may place upon the party asserting the trust an obligation to explain. These red flags include:

(a) listing a trust property for sale without disclosing the existence of the trust;

(b) failing to notify a bank or mortgagee as to the existence of the trust and its effect on title;

(c) operating in a manner which disregards the proper operation of the trust;

(d) treating the property as one's own and only invoking the alleged trust when convenient to do so;

(e) using a property to secure financing (particularly where the trust is not disclosed);

(f) the payment of all expenses for property by the settlor, while the alleged beneficiaries contribute nothing;

(g) retaining personal control of an asset for one's own use;

(h) encumbering an asset by using it as security for personal finances;

(i) not registering a Trust Agreement on title; and

(j) a general lack of documentation.

[32] The evidence in the Receiver’s 11th report in support of the McGoey “red flags” is set out in my May 3, 2021 endorsement but is worth repeating as there has been no further evidence tendered by the Hutchens to contradict the results of the Receiver’s investigation:

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 Trust 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. 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

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

[33] I agree with the Applicants that the minimal documentation of the Trusts provided by the Hutchens demonstrates that the they used the Trusts at their convenience, sometimes declaring them and sometimes not.

[34] The investigation into the Trusts by the Receiver was very costly and only made necessary because of the Hutchens delay and refusal to produce documents and meaningfully participate in the Receiver’s investigation. This pattern of behaviour was repeated and commented upon by judges in the U.S. proceedings. I do not agree with the Hutchens’ statements that they have provided voluminous disclosure in this proceeding and the Colorado proceeding. Sandy was found in contempt in the Colorado proceeding for failing to provide financial disclosure. The disclosure provided in this proceeding was minimal and consisted mostly of denials of the trust sham allegations.

[35] The Hutchens have been given every opportunity to produce documentation to confirm that the Trusts were legitimate and properly documented. They have failed to do so leaving the Court to draw no other conclusion than the Receiver’s findings in its 11th report remain valid and uncontradicted. The Receiver’s Investigative Report has been available since September 2020. The Hutchens had their legal fees funded until May 3, 2021. They have failed to provide any cogent evidence to refute the findings of the Receiver.

[36] Given all of the above, I find that the Trusts are a sham and that the interests of Tanya, Sandy and any related interests (as per Schedule “A” of the Applicants’ Notice of Motion) are assets of the Receivership Estate and subject to realization for the benefit of the creditors.

COSTS

[37] As the balance of submissions on this motion were received in writing, written submissions on costs are in order. The Receiver and the Stevens’ parties shall provide their written costs submissions of no more than two pages in length (exclusive of any Bill of Costs or Offer to Settle) within 7 days of the release of this endorsement, the Hutchens 7 days after that and any reply by the Stevens and the Receiver within 5 days of the Hutchens submissions. Any references to case law or documents are to be hyperlinked. All written costs submissions are to be delivered to my assistant. If no costs submissions are received with 35 days, costs will be deemed to be settled.

C. Gilmore, J.

Date: February 1, 2022