Court File and Parties

COURT FILE NO.: CV-22-00683040-00CL DATE: 2023-05-16 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: BARRY THOMAS NAGLE, PAOLA MARIA ROMERO PIZZARO, CRAIG WILLINGMYRE ESCALANTE and MELLOW FELLOW CORP., Applicants AND: VALDEMIRO PACHECO, COHEN PACHECO MERVYN, MICHAEL MONTGOMERY HARRIS, MARIA CLARA VIEIRA PACHECO, JANE DOES, JOHN DOES AND DOE CORPORATIONS, Respondents

BEFORE: Kimmel J. (Orally)

COUNSEL: Russell Bennett, for Barry Thomas Nagle W. Rapoport, for Valdemiro Pacheco and Cohen Pacheco Mervyn

HEARD: May 16, 2023

ORAL REASONS FOR DECISION ON SENTENCING (CONTEMPT)

[1] Okay, I am going to read you my oral endorsement. Hopefully it covers everything.

[2] On March 7, 2023, I found the respondents, Valdemiro Pacheco and Cohen Pacheco Mervyn, to be in contempt of the Court’s prior orders.

[3] Mr. Pacheco was found to be in breach of the Court’s prior orders, dated October 19 and November 21, 2022 and February 23, 2023, and Mr. Mervyn was found to be in breach of the Court’s prior order of November 21, 2022.

[4] The contempt sentencing hearing on April 5, 2023 resulted in a further order that required Mr. Pacheco and Mr. Mervyn to do certain things that might have been considered mitigating factors in their sentencing hearing. That was adjourned to today, May 16, 2023.

[5] They have done little, aside from eventually depositing their passports and with their counsel, as required by paragraphs 6 and 7 of my April 5, 2023 order. Mr. Pacheco has not made the payments required by paragraphs 2 and 3 of the April 5, 2023 order, and has only provided limited information and disclosure in respect of what was ordered in paragraphs 4A and B of the April 5, 2023 order. These latter paragraphs repeated earlier orders for Mr. Pacheco to provide a sworn statement of worldwide assets and liabilities, and a sworn accounting, disclosure and tracing.

[6] Mr. Pacheco did deliver an affidavit in advance of today’s appearance in which he attempts to explain the delays, apologizes for the delays, and provides some of the information and disclosure that was required under the April 5, 2023 order.

[7] There is, however, no question that the contemnors, Valdemiro Pacheco and Cohen Pacheco Mervyn, have not purged their contempt, and that they remain in contempt of not only the orders that they were previously found to be contempt of, but Mr. Pacheco is now also in contempt of the April 5, 2023 order.

[8] The contemnors appear today as they undertook to do. Their counsel requested a further adjournment of this contempt sentencing hearing to afford additional time for compliance with the April 5, 2023 order. The adjournment request was opposed by the applicants for a variety of reasons, outlined in both written and oral submissions today. They asked the Court to impose a sanction today for the continuing contempt by these respondents, and they ask the Court to do the following:

[9] First, to reinstate the previous orders for disclosure that were not covered by the April 5, 2023 order, and requiring now that, in addition to the sworn statements required by paragraphs 4A and B of the April 5 order, the previous disclosure orders now also be ordered to be complied with including paragraph 6 of the March 7, 2023 order regarding disclosures from both Mr. Pacheco and Mr. Mervyn about the expenses for the house at 49 Day Avenue, paragraphs 8 to 10 of the November 21, 2022 order, that includes the requirement for sworn statements from Mr. Mervyn, in addition to those required for Mr. Pacheco by the April 5, 2023 order, as well as disclosure of their banking records and disclosure about the Home Equity mortgage.

[10] The next request from the applicants for today’s sanction is that each of Mr. Pacheco and Mr. Mervyn be sentenced to a term of imprisonment; Mr. Pacheco for 3 months and Mr. Mervyn for 30 days, to incentivize them to comply with the outstanding court orders.

[11] Thirdly, the applicants ask that the Court schedule a merits hearing at which the applicants may ask for an order for final judgment against these defendants in respect of the claims asserted against them in this application.

[12] The applicants say that the contemnors have been given many opportunities to purge their contempt, and have been granted many indulgences by the Court, and have come to the end of the line and it is time to impose a sanction for their contempt.

[13] I agree.

[14] Counsel for the contemnors ask the Court to consider staying any sentence imposed today to afford his clients further time to purge or mitigate their contempt, and the opportunity to comply with the April 5, 2023 order with the overhang of the sentence from today if they fail to do so. He was unable to provide a firm date by which that compliance could be expected, but suggested that June 22, 2023 might be a reasonable target.

[15] Both sides are familiar with my Reasons for Decision in another case that I decided in which the applicable law is summarized regarding orders for incarceration for civil contempt; see Thrive Capital Management Ltd. v. Noble 1324 Queen Inc., 22 ONSC 4081.

[16] The Court understands well that a custodial sentence is reserved for the most serious contempt, or in circumstances where there is no choice but to jail a contemnor in order to coerce compliance or express deterrence and denunciation. The persistent refusal of a party to produce documents and comply with disclosure orders over many months can be a circumstance that warrants an order for a custodial sentence.

[17] The persistent failure of Mr. Pacheco, in particular, to comply with the Court’s prior orders for disclosure, and accounting, and tracing demonstrates a lack of remorse and respect for the Court’s process. Given his apparent lack of funds, a fine would not appear to serve any purpose. The real threat of a penalty of incarceration is the only sanction that would appear to have the potential to incentivize Mr. Pacheco to comply with the Court’s disclosure and accounting orders.

[18] I consider a sentence of 30 days incarceration to be appropriate.

[19] I will sign a warrant for his committal today but will stay it until June 15, 2023. If Mr. Pacheco has not provided the required sworn statements of his worldwide assets and liabilities, and the required sworn statement of accounting and tracing with available supporting documents as previously ordered, as well as the disclosure previously ordered about the Home Equity mortgage and the expenses for the care and cost of the house at 49 Day Avenue, all by June 12, 2023, to be confirmed by written submissions from both sides to be sent to my assistant by June 14, 2023, then the warrant for committal for Mr. Pacheco’s arrest will be processed and he will be required to start serving his 30 day sentence commencing on June 19, 2023.

[20] Mr. Mervyn’s conduct is less egregious. He may face an order for committal and imprisonment in the future, but since his disclosure was not the subject of the April 5, 2023 order, he will be given a further opportunity to provide the disclosure that he was ordered to make, and to do so by June 12, 2023 as well. This is also to be confirmed by written submissions from both sides to be sent to my assistant by June 14, 2023.

[21] The monetary requirements of the April 5, 2023 order are still in play, and I am extending the deadline for compliance with those to June 12, 2023 as well. If they are complied with, then the matter will proceed in the normal course. If they are not, then the applicants may attend on a 9:30 a.m. scheduling appointment before me to schedule a motion for a judgment based on the continuing defaults of these contemnors, which will involve a merits-based inquiry. For guidance about his process, the parties may have regard to my previously referenced decision in the Thrive Capital case. The procedure to be followed and permitted materials to be filed for the Court’s consideration on this motion will be determined at the scheduling appointment.

[22] The applicants are entitled to their costs of the contempt sentencing hearing that commenced on April 5, 2023 and continued today. They seek full indemnity all inclusive costs of $38,952.16.

[23] The respondents submit that, while the applicants should be entitled to some costs, this amount is excessive, and that a more appropriate cost award would be for $20,000 to $25,000, payable 80 percent by Mr. Pacheco, and 20 percent by Mr. Mervyn.

[24] Given that this is a contempt sentencing hearing, substantial indemnity costs is the appropriate scale. However, I do agree that the amount claimed is objectively more than what might be expected for these two attendances. In the exercise of my discretion under Section 131 of the Courts of Justice Act, and having regard to the factors under Rule 57, I order the contemnors to pay the applicants their costs of the sentencing hearing, including the two appearances of April 5 and today, in the all-inclusive amount of $30,000, 80 percent of which is to be paid by Mr. Pacheco, and 20 percent to be paid by Mr. Mervyn, forthwith.

[25] I wish to reiterate to Mr. Pacheco and Mr. Mervyn that their compliance with the Court ordered production and disclosure will not be relieved by the payment of funds. These obligations are not mutually exclusive, although the payment of funds will allow them to avoid the further possibility of judgment being granted at the merits hearing. The compliance with the disclosure obligations may allow Mr. Pacheco to avoid the order for incarceration that has been stayed pending the further opportunity that he has requested the Court grant him for that compliance.

[26] In conclusion, I thank counsel for their helpful and thorough submissions. I hope that the outcome of today will provide the intended incentives to allow this matter to get back on track, and to proceed in the normal course, rather than being distracted by continuing contempt proceedings.

[27] So, that is all I have to say. As I said, the warrant for committal will be signed today, but I will not be providing it to the police for execution until after I receive the submissions following the June 12 deadline, and we will then take further steps as needed, or not. Hopefully not, for Mr. Pacheco’s sake. So, I will leave that in everyone’s hands to deal with, okay.

[28] Thank you all.

Kimmel J.

Date: May 16, 2023