COURT FILE NO.: CV-21-00666018-0000

CV-23-00693696-0000

DATE: 20231221

ONTARIO SUPERIOR COURT OF JUSTICE

RE: Lilla Email Runco, Applicant

-and-

Marcel Lopes Engenheiro, Respondent

BEFORE: Robert Centa J.

COUNSEL: Lucas E. Lung and Marshall Dupuy, for the Applicant

Peter Neufeld, for the Respondent

James S. Quigley and Sean N. Zeitz, for Albert Gelman Inc., the Receiver

HEARD: December 20, 2023

ENDORSEMENT

[1] On August 18, 2023, I appointed Albert Gelman Inc. as the receiver to sell property belonging jointly to the applicant, Lilla Runco, and the respondent, Marcel Engenheiro.[^1] The Receiver brings this motion to approve a sale transaction and for ancillary relief.

[2] I will not repeat all of the facts that led me to appoint the Receiver to sell the property. In my view, there were special circumstances that justified the appointment of a receiver, namely, Mr. Engenheiro’s deliberate steps to undermine a series of prior court orders and his deliberate steps to thwart the earlier attempts to sell the property. I found as follows:

I find that Mr. Engenheiro has taken deliberate steps to thwart the sales process. The prior decisions of this court and the New York court are very critical of his conduct. In my view, he deliberately breached the order of Sanderson J., which required him to sign a listing agreement with Mr. Poretta. He did not do so. Instead, he complained about Mr. Poretta to Sanderson J. and then filed complaints about Mr. Poretta to his regulator. For over three years, Mr. Engenheiro has undermined a series of court orders in order to prevent Ms. Runco from obtaining the money to which she is clearly entitled. Mr. Engenheiro’s conduct cannot be rewarded or tolerated. I have no confidence that Mr. Engenheiro will now cooperate in good faith with any sales process in which he is permitted to have a role.[^2]

[3] I was satisfied that it would be very difficult, and it might be impossible, for Ms. Runco to obtain her entitlements under the divorce agreement and the prior order of Sanderson J. through any process other than a receivership. I was satisfied that the benefits of appointing a receiver would more than justify the additional cost of a receiver.[^3]

[4] Mr. Engenheiro opposes the Receiver’s motion to approve the sale. He questions the quality of the appraisals obtained by the Receiver and suggests that they undervalued the property (although the proposed sale price after market exposure falls within the range of appraised values). He submits that the Receiver should have accepted his bid (although it was an equity bid that would have defeated the purpose of the receivership and sale and was inferior in every material way to the bid selected). He challenges the fees of the Receiver and counsel (although the Receiver filed evidence that Mr. Engenheiro’s conduct drove up the complexity and costs of the receivership, which he did not dispute in his own affidavit). He submits that his own legal fees should be paid out of the proceeds of sale in priority to Ms. Runco receiving her entitlements under prior court orders (No.)

[5] Mr. Engenheiro, it appears, will stop at nothing to interfere with the approval of this sale. How far will he go? So far as to return to the New York Supreme Court on December 14, 2023, to file an Order to Show Cause “for a Stay of the approval hearing next week for the sale of Canadian property at issue.” In a victory for limited territorial jurisdiction and comity, Judge Ondrovic declined to sign the order to show cause and simply endorsed the record “Decline to sign – this court has no jurisdiction over the Canadian proceedings.”

[6] At the conclusion of the hearing, I approved the sale of the property and an interim distribution of the proceeds of sale to Ms. Runco and indicated that I would be making the ancillary orders sought by the Receiver. These are my reasons for decision.

The sale is approved

[7] The Receiver filed its first report dated December 11, 2023, along with a confidential addendum and supplementary confidential addendum to the report. Ms. Runco filed a responding motion record on December 14, 2023. Mr. Engenheiro filed a responding motion record and a supplementary responding motion record, both dated December 19, 2023.

[8] The Receiver brings this motion seeking approval of the sale as a court appointed officer. Ms. Runco supports the motion and Mr. Engenheiro opposes the sale.

[9] The Receiver is a party without an interest in the sale. The Receiver acts for the benefit of the applicant and the respondent and has a duty to act fairly, impartially, and in the best interest of those parties. The factors to be considered by the court when asked to approve the sale of an asset in a court-appointed receivership are found in Royal Bank v. Soundair Corp. (1991), 1991 CanLII 2727 (ON CA), 4 O.R. (3d) 1 (C.A.). The court must perform the following duties when deciding whether a receiver who has sold a property acted properly:

a. It should consider whether the receiver has made a sufficient effort to get the best price and has not acted improvidently.

b. It should consider the interests of all parties.

c. It should consider the efficacy and integrity of the process by which offers are obtained.

d. It should consider whether there has been unfairness in the working out of the process.

[10] Soundair cautions that the court should exercise extreme caution before interfering with the process adopted by a receiver to sell an asset.[^4] For the reasons that follow, I am satisfied that Receiver acted properly in all ways.

A. The Receiver made sufficient effort to get the best price and has not acted improvidently

[11] The Receiver complied with all aspects of my order, which appointed the Receiver and sketched out the sales process to be followed. The order provided:

4. THIS COURT ORDERS that the Receiver is hereby empowered and authorized, but not obligated, to act at once in respect of the Property and, without in any way limiting the generality of the foregoing, the Receiver is hereby expressly empowered and authorized to do any of the following where the Receiver considers it necessary or desirable:

(a) to take possession of and exercise control over the Property and any and all proceeds, receipts and disbursements arising out of or from the Property subject to the terms set out herein;

(b) to obtain two appraisals of the Property from certified real estate appraisers;

(c) to obtain a Phase 1 environmental site assessment of the Property;

(d) to enter into and execute a listing agreement for the sale of the Property having regard to the values as contained in the two appraisals;

(e) to list the Property for sale for a period of three weeks and at the end of the three-week period, to accept the highest and best offer over the amount as set out in a report from the Receiver, conditional upon the Receiver obtaining court approval on notice to the Applicant and Respondent;

[12] The Receiver entered into a listing agreement with Lennard Commercial Realty Broker to list the property for sale and negotiated an appropriate commission structure with Lennard. The Receiver obtained two appraisals from certified real estate appraisers. I have reviewed their reports, which the Receiver wishes to have sealed for the time being.

[13] On October 26, 2023, the property was publicly listed for sale on MLS for $2.4 million. Lennards marketed the property on MLS and on several other websites, on LinkedIn, and through a direct mailing to Lennards’ mailing lists for brokers and investors. Lennards also created a detailed marketing brochure for interested buyers.

[14] The property was marketed for a three-week period, which was the length of market exposure contemplated in the parties’ original marriage settlement and in the earlier order of Sanderson J. Lennards set the bid date for November 16, 2023.

[15] The marketing generated over a thousand website visits, 45 inquiries, and 13 property tours from 8 prospective buyers. Ultimately, the Receiver received four offers and, on November 20, 2023, the Receiver accepted one conditional offer that is now firm. I have reviewed the four offers, which are provided in a confidential addendum to the Receiver’s report.

[16] Mr. Engenheiro has a number of complaints about the appraisals obtained by the Receiver. I do not find them to be material to the conclusions reached by the appraisers. Most importantly, he did not provide an alternate appraisal to demonstrate that a professional appraiser shared his concerns. There is no expert evidence to support his lay opinion that the property should have been listed at a higher amount. In my view the listing price was supported by the appraisals the Receiver obtained.

[17] Moreover, an appraisal is only an opinion or an estimate of an asset’s value in the market. Here, the property was exposed to the market and four bids were received. The market has spoken.

[18] I am satisfied that receiver made best efforts to get the best price and has not acted improvidently.

B. The Receiver considered the interests of all parties

[19] I am satisfied that the Receiver considered the interests of all parties.

[20] Mr. Engenheiro submits that the Receiver did not adequately consider the interests of all parties. Mr. Engenheiro submits that he made an offer of $2.9 million, which is higher than the sale price accepted by the Receiver. He also submits that, although his bid unilaterally lowered the amount of withholding tax required, he believes that he has correctly calculated the amount to be withheld. Mr. Engenheiro’s objections have no merit.

[21] First, Mr. Engenheiro did not make a cash bid of $2.9 million. That amount included the value he attributed to his own equity in the property. It was a blended equity/cash bid, not a straight cash bid. Tellingly, in his affidavit filed on the approval motion, Mr. Engenheiro never says that he was prepared to pay $2.9 million cash for the property. In actuality, his bid was $1.45 million, which is markedly inferior to all other offers received.

[22] In each and every respect, Mr. Engenheiro’s offer was inferior to the offer that was accepted. The deposit was lower and was not in cash. The cash on closing was lower. The tax withholding condition was not met. The proposed closing date was far past the Receiver’s set date.

[23] The Receiver, correctly in my view, notes that “it is likely that amounts to be paid from the sale proceeds may exceed the sum of $1,450,000, and therefore $1,450,000 is likely insufficient to accomplish the goals of the receivership.”

[24] I find that the Receiver considered the interests of both Mr. Runco and Mr. Engenheiro when it decided to reject his offer to purchase the property.

C. The Receiver obtained the offers with efficacy and integrity

[25] I see no problems at all with the process by which the Receiver obtained and considered the offers.

[26] Mr. Engenheiro objects that the Receiver asked him to demonstrate that he had the financial resources to purchase the property at that price. He says that request was unfair. I do not accept his submission.

[27] The Receiver explained that there were several reasons why it doubted the ability of Mr. Engenheiro to be able to close on his offer, including that:

a. Mr. Engenheiro has several unpaid costs orders; and

b. Mr. Engenheiro told the Receiver that he did not have the money to float the Receiver’s expenses (Ms. Runco ultimately provided the necessary funds).

[28] I see nothing inappropriate in the Receiver’s request. Indeed, it is the type of due diligence that I expect an officer of this court to exercise when considering offers to purchase properties, especially when the offer is coming from a non-arm’s length party.

D. There is no unfairness in the working out of the process

[29] In conclusion, I see no unfairness in the process undertaken by the Receiver.

[30] I approve and authorize the sale transaction contemplated by the agreement of purchase and sale dated November 16, 2023, along with any further amendments deemed necessary by the Receiver.

[31] I also order that the Confidential Addendum and the Supplementary Confidential Addendum to the First Report of the Receiver be sealed pending the closing of the sale transaction. Counsel for the Receiver is to file these documents with the court office in a sealed envelope marked: “Confidential and not to form part of the public record on the terms ordered by this Court and subject to further Court order”. These Addendums shall be unsealed upon closing of the sale transaction.

Distribution of funds

[32] It is appropriate to authorize a receiver to make distributions of sale proceeds concurrently with the approval of such sale to maximize efficiency and avoid the need for additional motions: GE Canada Real Estate Financing Business Property Co. v. 1262354 Ontario Inc., 2014 ONSC 1173 at para. 53.

[33] The Receiver provided a chart setting out the sources and proposed uses of the sale proceeds. Ms. Runco and Mr. Engenheiro largely agreed with items included and the estimated amounts to be paid. I will address the few issues in dispute below.

Disputed items

[34] First, I approve the Receiver retaining $50,000 to be held in trust and applied to the future fees of the Receiver and its counsel. This amount seems reasonable and prudent in the circumstances.

[35] Second, Mr. Engenheiro submitted that amounts owing to a landscaping/snow removal service and a cleaner for the property should not be deducted from the sale proceeds. In my view, it is appropriate for service providers who have performed work at the property without payment to be compensated for their contributions to achieving the successful sale. In my view, it is essential that the court minimize opportunities for future disputes between the parties. I direct that the Receiver pay the invoices for these services providers once the Receiver is satisfied as to their authenticity and appropriateness.

[36] Third, Mr. Engenheiro submits that the Receiver should not be able to claim the cost of the appraisals as disbursements. This objection arises from his disagreement with the methodology and conclusions of the appraisals. He submits that the expenses should be disallowed in their entirety. I disagree. My initial order directed the Receiver to obtain two appraisals. Mr. Engenheiro did not provide a competing appraisal. In my view the listing price was appropriate and was supported by the appraisals. I allow the expenses in their entirety.

[37] Fourth, the Receiver seeks payment its fees and the legal fees charged by its counsel. Fees to date total approximately $85,000. Mr. Engenheiro objects to this amount. In his affidavit, he states as follows:

I am concerned with the quantum of legal fees charged by the Receiver's counsel in such a short amount of time. The Receiver's counsel is asking for $85,658.22 in fees and disbursements to be paid out at first instance. I find this amount to be very high and well beyond my expectations of fees being in the range of $50,000 to $75,000.

[38] I do not accept Mr. Engenheiro’s submissions. I find that Mr. Engenheiro was himself responsible for the legal fees exceeding the initial estimate.

[39] The Receiver took possession of the property on August 24, 2023. The property is a 4-unit residential property in mid-town Toronto. In its report, the Receiver describes its many activities preparing the property for sale, dealing with the tenants, obtaining tax advice with respect to the capital gains resulting from the sale, the income earned from the tenants, and the appropriate percentage holdback of the sale proceeds for purposes of obtaining a clearance certificate from Canada Revenue Agency.

[40] The Receiver and its counsel were obliged to spend significant time and energy investigating and attempting to remediate a 2018 notice of Fire Code violations for the property. This included purchasing $16,000 worth of fire retardant paint and attempting to persuade the tenants to permit the remediation to take place. The tenants were not amenable to the remediation efforts, which took significant efforts. On October 22, 2023, Mr. Engenheiro finally advised the Receiver that he had a court date with respect to the fire code violations. The Receiver, understandably, takes the view that “this was a very significant fact that should have been disclosed to the receiver.”

[41] The Receiver reports that Mr. Engenheiro failed to cooperate with the Receiver’s activities and made many demands on the Receiver’s time, which increased the costs of the Receivership. The Receiver reports that Mr. Engenheiro was argumentative and abusive toward one of its employees, complained about the expertise of the listing realtor and Lennards, provided photographs of the property that were actually the property of other brokerages, emailed notices of rent increase to the tenant’s without the knowledge or consent of the Receiver, requested that Receiver delay the offer period, argued with the Receiver that the property was underpriced, and demanded that the Receiver adopt his own interpretation of the Income Tax Act regarding capital gains holdbacks. In summary, the Receiver is of the view that Mr. Engenheiro “has complicated the receivership proceedings and required the Receiver to expend extra time and resources to respond to his many inquiries and complaints, which will result, ultimately, in higher fees.”Although Mr. Engenheiro provided a responding affidavit on the approval motion, he did not dispute any of the Receiver’s comments.

[42] I find the hourly rate and the number of hours spent on the file to be reasonable. Counsel for the Receiver provided unredacted docket entries to support their account. The docket entries are very detailed and provide clear explanations of the work performed. The docket entries amply justify the time spent on the file. Given the detail provided, if Mr. Engenheiro wished to challenge the time spent he needed to provide a much more detailed submission than he did.

[43] I approve the fees of both the Receiver and its counsel to date.

Interim distribution of residue

[44] After the payment of the items listed in the Receiver’s funds from sale chart, there will be a residue sufficient to permit an interim distribution. Ms. Runco and Mr. Engenheiro agree that these funds should be distributed, but disagreed regarding how the funds should be distributed.

[45] In my order dated August 18, 2023, I ordered that the following amounts be deducted from the net sale proceeds:

4(g) The following amounts will be deducted from the net sale proceeds:

(i) any amounts necessary to discharge the mortgage and pay off the three lines of credit with Toronto-Dominion Bank, and satisfy any other liabilities and encumbrances;

(ii) closing adjustments including but not limited to property taxes, utilities and pre-paid rent (along with any accumulated interest);

(iii) transaction costs including but not limited to broker commissions, lawyers' fees, HST;

(iv) withholding tax as required under the Income Tax Act;

(v) payment in the amount of US$500,000 to the Applicant as provided for in subparagraph 1(e)(v) of the Sanderson Order; (vi) payment in the amount of US$2,405.30 as provided for in subparagraph 1(e)(vi) of the Sanderson Order;

(vii) payment of any outstanding costs awards, postjudgment interest and/or other amounts that may be owing to either the Applicant and/or the Respondent in respect of this or related litigation as approved by the Court;

(viii) payment to the Applicant of the amounts set out in the judgment of Judge Ondrovic of the Supreme Court of the State of New York, signed January 17, 2023; and

(ix) the Receiver's fees and disbursements including those of its counsel.

(h) following the deductions as set out in subparagraph [g] above, the balance of the net proceeds shall be paid to the Respondent;

[46] In my view, the interim distribution should be paid toward the US$500,000 referred to in paragraph 4(g)(v). This amount has been outstanding the longest and has the strongest nexus to the property. Recall that in November 2019, the parties signed a divorce agreement that settled all outstanding issues between them. Their divorce agreement was incorporated into a judgment of the Supreme Court of the State of New York dated November 26, 2019.

[47] The judgment required that, no later than June 2020, Ms. Runco would receive US$500,000 in exchange for her interest in the apartment building. The parties agreed that Ms. Runco would receive her money either from Mr. Engenheiro or a third-party purchaser and, in either event, she would receive that payment free and clear of any Canadian tax or other liabilities. Mr. Engenheiro would be entitled to receive the balance of the proceeds of sale.

[48] Ms. Runco then commenced an application under the Partition Act for the partition or sale of the property. On March 21, 2022, Sanderson J. granted that application and ordered a sale process that mirrored the one contained in the divorce agreement. Justice Sanderson found that Ms. Runco had acted generally in accordance with the divorce agreement and did not accept Mr. Engenheiro’s submissions that Ms. Runco had acted in bad faith, oppressively, vexatiously, or maliciously. Justice Sanderson concluded:

The sale or disposition of [Ms. Runco’s] interest in the Property pursuant to the [divorce agreement] should have been completed long ago. In the interim since 2019, the husband has not only enjoyed the net rental revenues from the property (approximately $100,000) [while the wife has not yet received the US$500,000] but also as a result of the delays in the implementation of the Agreement the husband will enjoy the increase in value of the property that will result from the delay.[^5]

[49] Once the CRA has determined the tax owing, there will be significantly more funds available for the final distribution. It is not certain, however, that the proceeds of sale will be sufficient to pay all the amounts that are owed to Ms. Runco and that are to be paid out pursuant to my earlier order. For now, there is no dispute that the amount of money available for an interim distribution is less than required to provide Ms. Runco with the Canadian dollar equivalent of US$500,000. I find that the entire amount available for distribution at this time should be paid to Ms. Runco as a credit towards satisfying the US$500,000 she has been owed since June 2020.

[50] Mr. Engenheiro submitted that $175,478.99 should be paid from the interim proceeds to his lawyers. I can see no reason to do so. Mr. Engenheiro’s lawyers can stand in no better position than Mr. Engenheiro. In my view, Mr. Engenheiro is not entitled to any funds from the proceeds of sale before all amounts owing to Ms. Runco have been paid to her. His entitlement to any funds from the proceeds of sale arise under paragraph 4(h) of my earlier order. He is only entitled to receive any funds from the proceeds of sale “following the deductions set out in paragraph 4[g].” He is not yet entitled to any funds and his lawyers stand in no better position than he does.

Conclusion

[51] For the reasons given above, I make an order:

a. approving the first report of the Receiver dated December 11, 2023, and the actions and the activities of the Receiver, including the Receiver’s interim statement of receipts and disbursements as of November 30, 2023;

b. approving the Confidential Addendum and the Supplementary Confidential Addendum to the First Report of the Receiver and seal those documents pending the closing of the sale of the property;

c. approving and authorizing the Receiver to enter into and carry out the terms of the sale transaction contemplated by the agreement of purchase and sale dated November 16, 2023;

d. vesting in the purchaser the owners’ right, title, and interest in and to the property and any and all fixtures and chattels located on the property that are owned by the owners, including any leases for rental properties;

e. approving the professional fees and disbursements of the Receiver and its counsel;

f. approving the proposed interim distribution of sale proceeds after completion of the transaction;

g. discharging or vacating or deleting the registration of the appointment order on title to the property as Instrument No. AT6406333 on closing of the sale transaction.

[52] As Mr. Engenheiro opposed the approval of the sale transaction, both the Receiver and Ms. Runco are entitled to their costs of the approval motion.

[53] If the Receiver and the parties are not able to resolve costs of this approval motion, the Receiver and Ms. Runco may each email their costs submission of no more than three double-spaced pages to my judicial assistant on or before January 5, 2024. Mr. Engenheiro may deliver his responding submission of no more than three double-spaced pages on or before January 12, 2024. No reply submissions are to be delivered without leave.

Robert Centa J.

Date: December 21, 2023

[^1]: Runco v. Engenheiro, 2023 ONSC 6362, leave to appeal refused 2023 ONSC 4767 (Div. Ct.).

[^2]: Runco, at para. 26.

[^3]: Nashaat Aly v. Adel Tohamy, 2013 ONSC 7738, at para. 9; Renard v. Renard, 2019 ONSC 4732 at para. 13; Di Felice v. 1095195 Ontario Limited, 2013 ONSC 4236.

[^4]: See also Eisenstein v. Joel, 2022 ONSC 4104, at para. 75.

[^5]: Runco v. Engenheiro, 2022 ONSC 1720, aff’d 2022 ONSC 6028 (Div. Ct.), at para. 75 (final text in square brackets in original).