McDowell v. Fortress Real Capital Inc., 2026 ONSC 1147

CITATION: McDowell v. Fortress Real Capital Inc., 2026 ONSC 1147

COURT FILE NO.: CV-16-558165-00CP

DATE: 20260421

SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-16-558165-00CP

RE: ARLENE MCDOWELL and SAVERIO AVERSA, Plaintiffs

– and –

FORTRESS REAL CAPITAL INC., FORTRESS REAL DEVELOPMENTS INC., CENTRO MORTGAGE INC., ESTATE OF ILDINA GALATI by its Trustee in Bankruptcy CROWE SOBERMAN INC, FFM CAPITAL INC., ROSALIA SPADAFORA, SAUL PERLOV, DEREK SORRENTI and

SORRENTI LAW PROFESSIONAL CORPORATION, Defendants

COURT FILE NO.: CV-16-560268-00CP

AND RE: ARLENE MCDOWELL, Plaintiff

– and –

FORTRESS REAL CAPITAL INC., FORTRESS REAL DEVELOPMENTS INC., EMPIRE PACE (1088 PROGRESS) LTD., BUILDING & DEVELOPMENT MORTGAGES CANADA INC., ESTATE OF ILDINA GALATI by its Trustee in Bankruptcy CROWE SOBERMAN INC., DEREK SORRENTI, SORRENTI LAW PROFESSIONAL CORPORATION and MICHAEL CANE, Defendants

COURT FILE NO.: CV-16-561293-00CP

AND RE: SANDRA MEDLAND, Plaintiff

– and –

FORTRESS REAL CAPITAL INC., FORTRESS REAL DEVELOPMENTS INC., ADI DEVELOPMENTS (LINK) INC., ADI DEVELOPMENT GROUP INC., BUILDING & DEVELOPMENT MORTGAGES CANADA INC., ESTATE OF ILDINA GALATI by its Trustee in Bankruptcy CROWE SOBERMAN INC., FFM CAPITAL INC., ROSALIA SPADAFORA, SAUL PERLOV, DEREK SORRENTI, and SORRENTI LAW PROFESSIONAL CORPORATION, Defendants

COURT FILE NO.: CV-16-565287-00CP

AND RE: THE ESTATE of BRYAN MADRYGA, BY HIS ESTATE ADMINISTRATOR REBECCA SHAW, Plaintiff

– and –

FORTRESS REAL CAPITAL INC., FORTRESS REAL DEVELOPMENTS INC., FORTRESS KEMPENFELT BAY DEVELOPMENTS INC., HARMONY VILLAGE-LAKE SIMCOE INC., CITY CORE DEVELOPMENTS INC., BUILDING & DEVELOPMENT MORTGAGES CANADA INC., ESTATE OF ILDINA GALATI by its Trustee in Bankruptcy CROWE SOBERMAN INC., DEREK SORRENTI, SORRENTI LAW PROFESSIONAL CORPORATION, GRANT EDWARDH APPRAISERS AND CONSULTANTS LTD. and IAN G. MCLEAN, Defendants

COURT FILE NO.: CV-17-570361-00CP

AND RE: ARLENE MCDOWELL and THE ESTATE OF BRYAN MADRYGA, BY HIS LITIGATION ADMINISTRATOR REBECCA SHAW, Plaintiffs

– and –

FORTRESS REAL CAPITAL INC., FORTRESS REAL DEVELOPMENTS INC., JAWAD RATHORE, VINCENZO PETROZZA, LAMB CALGARY INC., ORCHARD CALGARY INC., BUILDING & DEVELOPMENT MORTGAGES CANADA INC., ESTATE OF ILDINA GALATI by its Trustee in Bankruptcy CROWE SOBERMAN INC., FFM CAPITAL INC., ROSALIA SPADAFORA, FMP MORTGAGE INVESTMENTS INC., MICHAEL DARAMOLA, TONINO AMENDOLA, GRAHAM MCWATERS, DEREK SORRENTI, GRANT MORGAN and SORRENTI LAW PROFESSIONAL CORPORATION, Defendants

BEFORE: Justice E.M. Morgan

COUNSEL: Margaret Waddell, Karine Bédard and Mitchell Wine, for the Plaintiff

Murray Stieber and Douglas Treilhard, for the Defendants Michael Cane, Grant Edwardh Appraisers and Consultants Ltd., and Ian G. McLean

Natalia Paunic, for the Defendant Empire Pace (1088) Progress Ltd.

HEARD: February 24-25, 2026

REASONS FOR DECISION

I. The package of motions

1The Plaintiffs in these related actions have settled their claims against some of the Defendants. See McDowell v. Fortress Real Capital Inc., 2025 ONSC 635, McDowell v. Fortress Real Capital Inc., 2025 ONSC 3343. They now seek to certify the actions under section 5(1) of the Class Proceedings Act, 1992, SO 1992, c. 6 (“CPA”) as against other Defendants, some of which are in default and others of which oppose the certification motion.

2The proposed class actions all relate to losses the Plaintiffs and putative class members suffered from investing in syndicated mortgage loans (“SMLs”) promoted by the Defendants Fortress Real Capital Inc. and Fortress Real Developments Inc. (collectively “Fortress”) on five different real estate projects. Fortress is Defendant in all five of the actions. The principals and directing minds of Fortress are Jawad Rathore and Vincenzo Petrozza (together, the “Fortress Individuals”), who are defendants in McDowell and Estate of Bryan Madryga [CV-17-570361-00CP] (the “Orchard action”).

3Fortress and the Fortress Individuals are all noted in default and have not responded to this certification motion.

4The projects in which investments were sold to the Plaintiffs in two of these actions were the subject of appraisals done on behalf of Fortress. The appraisal for the Harmony Village project, which is the subject matter of Estate of Bryan Madryga v. Fortress et al. [CV-16-565287-00CP] (the “Harmony Village action”) was done by the Defendants Ian G. McLean and the firm with which he was associated at the time, Grant Edwardh Appraisers and Consultants Ltd. (together, “McLean”). The appraisal for the 1088 Progress project, which is the subject of McDowell v. Fortress et al. [CV-16-560268-00CP] (the “1088 Progress action”) was done by the Defendant Michael Cane (“Cane”).

5McLean and Cane oppose the certification motion in the respective actions against them. In the first place, they submit that the Plaintiffs failed to respond in a timely fashion to a Request to Admit served on them on May 8, 2019, and they therefore rely on the statements in the Request to Admit as admissions pursuant to Rule 51.03(2) of the Rules of Civil Procedure. They further submit that, regardless of the admissions made under the Request to Admit, there is no legally sustainable cause of action pleaded against them and no basis in fact for identifying any common issues against them.

II. Certification against Fortress and the Fortress Individuals

6In the present motion, the Plaintiffs seek certification against Fortress in all five actions and, as indicated above, against the Fortress Individuals in the Orchard action.

7The basic facts alleged against Fortress are common for all of the actions and, as noted above, apply to the Fortress Individuals in the Orchard Action. The following is a very general, undetalied overview of the facts leading to the multiple actions.

8The proposed class members are the lenders/investors in the SMLs advanced in respect of each of the five developments. As described by Plaintiffs’ counsel and in the supporting affidavits found in the motion records, each of the developments was a financial disaster, and the investors have lost substantially all of their investments.

9The purchase price for each property, the amount of the prior ranking security to the SMLs, and the total amount of the fully advanced SMLs for each of the projects, was as follows:

Development and Court File No.

Purchase Price

Prior Mortgage(s)

SML

Collier Centre

CV-16-561293-00CP

$6,951,000

July 3, 2012

$4,000,000

$3,500,000

$16,923,077

Progress

CV-16-560268-00CP

$8,800,000

August 14, 2012

$6,000,0000

$7,476,000

Sutton/The Link

SML #1 (4 parcels)

(5th parcel)

CV-16-558165-00CP

$1,900,000

November 8, 2012

$733,067

June 14, 2013

$1,800,000

$3,275,000

November 8, 2012

Replaced with a

$75,000,000

construction loan to

Meridian Credit Union Limited

April 5, 2016

$11,600,000

Sutton/The Link

SML #2

CV-16-558165-00CP

As above

As above

$17,600,000

Harmony

Simcoe/The Kemp

CV-16-565287-00CP

$6,750,000

May 25, 2012

$4,750,000

May 25, 2012

$19,830,000

Orchard

CV-17-570361-00CP

$8,300,000

May 9, 2014

$4,300,000

June 2014

$12,300,000

10The material terms of the SMLs were for the most part the same. The loans were to be for a short term of 2 to 4 years, interest only was payable in quarterly installments for the term of the loans at 8% per year, principal and accrued interest was to be repaid at the end of the term (which could be extended for 6 months), and the SMLs were to be subordinate to prior mortgages and to any construction financing advanced up to a set amount.

11The SML funding arrangement was conceived and promoted by Fortress and the Fortress Individuals as a safe, short-term investment that would be fully secured on the five development properties. It was promoted as generating a substantial return on investment at 8% per year, together with the prospect of a profit-sharing upside for investors. Fortress and the Fortress Individuals also represented that the SMLs qualified to be held in a registered account – i.e. that the mortgages had a loan to value ratio of under 100%. The Plaintiffs plead, and the affidavit material establishes, that none of the promotional materials disclosed the true risks associated with the SML investments or that the true loan to value ratio of the mortgages well exceeded 100%.

12Fortress followed the same business model in each of the projects underlying the Actions. As Plaintiffs’ counsel describe it, Fortress entered into a “development agreement” with the developer whereby it agreed to arrange preconstruction financing for the developer, in exchange for 50% of the profits. Rather than waiting for each project to be built out, Fortress was paid 35% of the amounts advanced by the investors up front, and a further 16% of the SML proceeds were held back to pay two years of the developer’s interest obligations under the SML.

[13] As a result, the developer received less than 50% of the SML mortgage proceeds – a fact that considerably hampered the developments and that was not disclosed to the investors. In all five of the actions, the Plaintiffs allege, and there is supporting evidence in the record, that Fortress misled them about the true nature and risks of the SMLs. None of the promotional materials disclosed the true risks, or that the true loan to value ratio of the mortgages well exceeded 100%.

14Counsel for the Plaintiffs have summarized in their factum the allegations pleaded and affidavit evidence deposed to by the proposed representative Plaintiffs. Their experiences are all very similar:

• The development agreement between the developer and Fortress was not disclosed, so the investors were not aware that 35% of the funds they advanced was paid out immediately to Fortress as advanced profit sharing, even before they development was built or any profits had been generated;

• No proper ‘know your client’ review was undertaken by their mortgage brokers that correctly articulated their investment risk tolerance;

• The same forms of documents were produced to and signed by them, including the Investor/Lender Disclosure Statement for Brokered Transactions (“Disclosure Statement”) and the Form 9 Investment Authority, both of which misrepresented that there was an ‘as is’ appraisal of the vacant land that was greater than the value of the combination with the prior charge(s) and the SML(s);

• Material facts about the risks associated with the SML investments were not disclosed including that the alleged ‘as is’ appraisals of the vacant land were no such thing, but were ‘as built’ valuations, and as such the SMLs did not qualify to be held in registered accounts. None of the development lands had a loan to land value ratio that was less than 100%. Hence, none of the SMLs were low risk, and none of them qualified to be held in a registered account. They were not appropriate investments for the investors;

• The actual terms of the postponement and subordination agreements registered on title to the property was not disclosed to the Plaintiffs at the time each SML Agreement was executed, and included onerous terms that effectively precluded the investors from taking any enforcement action in the event of default by the developer/borrower;

• According to each SML Agreement, the developer/borrower was required to pay the interest through a ‘preauthorized payment’ system for automatic withdrawals, but, in fact, the Trustee or Mortgage Administrator held back 16% of the SML proceeds to make the ‘interest’ payments for the first two years, which was not disclosed to the investors;

• he trustee or mortgage administrator was not to advance any amount to the developer/borrower unless it had received an opinion establishing that the value of the land equalled the appraised value as set out in the Disclosure Statement, and a certificate confirming there had been no Event of Default, among many other things, but this did not happen;

• The mortgage brokers arranged for the investors to receive ostensibly ‘independent’ legal advice from Sorrenti Law or another law firm, and did not disclose that the advice was not, in fact, independent due to the close relationship between Sorrenti and Fortress, including that the lawyers’ legal fees were paid by Fortress or the developer; and,

• The advice received was pro forma and did not discuss the actual risks associated with the SML investments or the investor’s risk profile, or the true state of affairs regarding the SMLs and the land value and did not disclose the terms of the postponement agreements.

15Given the thoroughness of the Plaintiffs’ pleadings and the state of the five motion records, I have little doubt that the criteria for certification as against Fortress and the Fortress Individuals have been met. Since the motion against them is undefended, the following is a rather brief review of the certification criteria apply to the cases at hand.

a) Causes of action – section 5(1)(a)

16The case law has established a rather lenient test for the first requirement of certification. In determining whether there is a viable cause of action, the pleadings are to be considered on their own, without any evidence. A claim will only fail the test if it is plain and obvious that the Plaintiff cannot succeed, or if the action is certain to fail because it contains a radical defect: Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 SCR 158, at para. 25.

17The causes of action asserted against Fortress and the Fortress Individuals are fraudulent and negligent misrepresentation, and negligence The material facts and allegations in the pleadings supporting these claims are summarized by Plaintiffs’ counsel as follows:

a) misrepresenting that the SMLs were a safe and secure investment, fully secured on the various development lands, and omitting to disclose the material risks associated with the investment;

b) misrepresenting that the SML qualified as an investment that could be held in registered accounts, and that the loan-to-land value ratio of the development projects was under 100%;

c) misrepresenting that the current ‘as is’ value of the subject lands was set out in the appraisals. In fact, many of the valuations described as ‘appraisals’ to investors were only opinions of value. These could not be legally described as appraisals as they had not been prepared by an appraiser licensed by the Appraisal Institute of Canada. Further, the Defendants intentionally concealing that all valuations were not current or ‘as is’ appraisals as defined by the Appraisal Institute of Canada and its professional standards and as required to be given to prospective investors under the provisions of the MBLAA [Mortgage Brokerages, Lenders and Administrators Act, 2006, SO 2006, c. 29] because they were prospective ‘as built’ valuations;

d) failing to disclose that 35% of the funds paid by the Plaintiffs and the class members would be paid to Fortress as an advance on profits immediately following the closing, and before any profits had actually been earned;

e) failing to disclose that 16% of the funds paid by the Plaintiffs and class members would be used to fund an ‘interest reserve’ that was used to pay the first two years of interest payments due under the SML, and that the funds of future investors in the SML would be used to pay the interest thereafter, and therefore the payment of interest under the SML was actually a return of capital, and not interest income paid by the developer, and was structured effectively as a Ponzi scheme, and in breach of section 23 of Regulation 189/08 of the MBLAA;

f) failing to disclose the excessive brokerage commissions would be paid to various brokers, agents and referring parties from the principal advanced, and that these commissions were substantially higher than typical commissions in the mortgage industry, and were not fully disclosed to investors;

g) misrepresenting to Investors that they would receive ILA from the Sorrenti Defendants, when that advice was not independent and would not disclose the risks associated with the SML investments;

h) misrepresenting that advances under the SMLs would only be made to the developers if they met their obligations under the SML Agreements, when in fact the funds were immediately disbursed without regard to the developers’ compliance with their obligations;

i) misrepresenting the effect of the subordination and postponement terms of the SMLs and not disclosing the terms of the subordination and postponement charge registered on title; and,

j) misrepresenting that the SMLs would be repaid when they came due when Fortress and the Individual Defendants [Fortress Individuals] knew, in many cases, that construction could not be completed by the date the SMLs came due delaying repayment of principal to investors.

18The causes of action in fraudulent and negligent misrepresentation, and negligence, are well established causes of action and are the subject of numerous class actions. The same claims as outlined above were also asserted against the brokers and other Defendants in the actions and were certified. The claims have already been determined to be properly pleaded, and there is no one in this motion arguing otherwise: McDowell, supra, 2025 ONSC 635, at para. 8.

19Furthermore, the pleading in the Orchard action contains specific material facts and allegations in regard to the claim against the Fortress Individuals. These include:

a) The Fortress Defendants were incorporated by Rathore and Petrozza for the purpose of facilitating a fraud on the Investors. Fortress’ agreements with developers/builders called for advance payments to Fortress of ‘anticipated profits’ at the time the financing was raised. This resulted in a substantial portion of investors’ money (approximately 35%) being retained by Fortress years before any profits were actually earned, if at all. It diverted the loan money away from the developer/builder. In turn, Fortress paid Rathore and Petrozza unearned fees as secret commissions from real estate developers contrary to s. 426(1)(a) of the Criminal Code.68

b) Rathore could not directly sell the SMLs to investors because he was not licensed to do so. Fortress, Rathore, Petrozza, BDMC and Galati arranged for BDMC to be their front, to sell the SMLs.70 Rathore acted as an unlicensed mortgage broker in breach of the statutory duties established under the MBLAA. Petrozza allowed Rathore to fulfil mortgage broker functions that ought to have been performed by Petrozza.

c) Rathore and Petrozza spoke directly to prospective investors at sales seminars to ‘sell’ the SMLS. Fortress developed professional sales and marketing packages in respect of the developments in which it was involved, which were disseminated widely to its network of mortgage brokers and agents. The marketing packages were also circulated directly to members of the public, and Fortress held in-person sales events or “seminars” to promote investments in its SMLs. Rathore usually spoke at these events to “sell” the syndicated mortgages. It is at one of these events that Rathore made these misrepresentations to Mr. Madryga.

20There is ample basis for certifying these causes of action against Fortress and the Fortress Individuals. It is not plain and obvious that the claims will not succeed; in fact, to the contrary, the Plaintiffs have pleaded numerous specific details illustrating their allegations, and Fortress and the Fortress Individuals have failed to defend. The claims appear likely to succeed.

21The causes of action pleaded by the Plaintiffs in all five actions meet the criteria for certification as against Fortress and the Fortress Individuals, as set out in section 5(1)(a) of the CPA.

(b) Recognizable class – section 5(1)(b)

22The approach to an analysis of a proposed class are by now well established. The Supreme Court of Canada has sated that, “The definition should state objective criteria by which members of the class can be identified... [and] should bear a rational relationship to the common issues asserted by all class members: Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46, [2001] 2 SCR 534, at para. 38.

23In addition, the Court explained in Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 SCR 158, at para. 21, that “a Plaintiff must propose a class definition that “is not unnecessarily broad – that is, that the class could not be defined more narrowly without arbitrarily excluding some people who share the same interest in the resolution of the common issue.”

24The proposed classes in the five actions are:

a) in Action CV-16-558165-00CP (Collier Centre), Arlene McDowell and Saverio Aversa seek to represent: All persons in Canada who invested prior to January 30, 2015 in a syndicated mortgage in respect of the Collier Centre Project No. 1, registered against title to lands located at 90 Collier Street and 55 Mulcaster Street, Barrie, Ontario, as Instrument SC1005953;

b) in Action CV-16-550268-00CP (Progress), Arlene McDowell seeks to represent: All persons in Canada who invested in a syndicated mortgage in respect of the Progress/Ten88 Project, registered against title to lands located at 1088 Progress Avenue in Toronto, Ontario as Instrument AT3101004 or AT3127137;

c) in Action CV-16-561293-00CP (Sutton/The Link), Sandra Medland seeks to represent: All persons in Canada who invested in either of the syndicated mortgages in respect of the Sutton/The Link Project, registered against title to lands located at 5210, 5218, 5226, 5236 Dundas Street and 2500 Burloak Drive in Burlington, Ontario as Instrument HR1062915, HR1163239, or Instrument No. HR1174204;

d) in Action CV-16-565287-00CP (Harmony Simcoe), the Estate of Bryan Madryga by his Estate Administrator Rebecca Shaw seeks to represent: All persons in Canada who invested in a syndicated mortgage in respect of the Harmony Village Simcoe Project/The Kemp, registered against title to lands located at 51, 53, 55 and 75 Bradford Street, Barrie, Ontario as Instrument SC983678; and

e) in Action CV-17-570361-00CP (Orchard), Arlene McDowell and the Estate of Bryan Madryga by his Estate Administrator Rebecca Shaw seek to represent: All persons in Canada who invested in a syndicated mortgage in respect of the Orchard Project, registered against title to lands located at 602, 606, 610, 620, 624, 626 and 628 12th Avenue S.E., in Calgary, Alberta as Registration Number 141 112 373.

25The class members are identifiable. The court-appointed Trustee administering the SMLs, FAAN Mortgage Administrators (“FAAN”), has access to the books and records related to the SMLs which contain the contact details of the investors and the amount of the Investors’ investments in each of the SMLs. FAAN’s information is that there are 361 investors who participated in the SML with respect to the Collier Centre Project No. 1, 456 investors who participated in the two SMLs with respect to the Sutton Project, and 342 investors who participated in the SML with respect to the Orchard Project.

26Plaintiffs’ counsel point out that the proposed class members will also be able to self-identify from their copies of their investment documents. Further, for those investors who held their investments in a registered account, the records of Olympia Trust, the trust company where the investors were obliged to hold their SML investments if they were held in a registered account, will identify them.

27The five class definitions all meet the criteria for certification contained in section 5(1)(b) of the CPA.

c) Common issues – section 5(1)(c)

28In order to identify a set of common issues for a proposed class action, “[t]he underlying question is whether allowing the suit to proceed as a [class proceeding] will avoid duplication of fact-finding or legal analysis”: Dutton, at para. 39.

29Further, for an issue to be a common issue, it must be a substantial ingredient of each class member’s claim and its resolution must be necessary to the resolution of each class member’s claim: Doucet v. The Royal Winnipeg Ballet, 2018 ONSC 4008, at para. 86 citing Hollick v Toronto (City), 2001 SCC 68, [2001] 3 SCR 158, at para. 18.The “some-basis-in-fact” standard applicable to common issues requires that there be evidence that the proposed common issue actually exists and can be answered in common for the class members: Doucet, at para. 90, citing Hollick, at para. 41.

30That said, the test for common issues has long been characterized as erecting a low bar: Carom v. Bre-X Minerals Ltd., (2000), 2000 16886 (ON CA), 51 OR (3d) 236, at para. 49 (CA).

31The proposed common issues as against Fortress and the Fortress Individuals are:

(a) Did Fortress Real Capital Inc., Fortress Real Developments Inc., Jawad Rathore,and/or Vincenzo Petrozza owe a duty of care to the class members with respect to the claims asserted against them in negligence and negligent misrepresentation? If yes, which defendants owed a duty of care, and what was the applicable standard of care for those defendants?

(b) If any of the Fortress or Fortress Individuals owed a duty of care to the Class members with respect to the claims asserted in negligence and negligent misrepresentation, did either of those defendants breach the relevant standard of care? If yes, which defendants breached the standard of care, and how?

(c) If any of the Fortress defendants breached their duty of care owed to the class, did the class suffer damages as a result of the breach?

(d) Did Fortress or the Fortress Individuals make fraudulent misrepresentations to the class members? If yes:

(i) What representations were made fraudulently?

(ii) Which defendants made the fraudulent misrepresentations?

(iii) Are any of the Fortress defendants liable to the class with respect thereto, and if so, which Fortress defendant(s) are liable?

(iv) Did the Class suffer damages as a result of their reliance on the fraudulent misrepresentations?

(e) Did any of the Fortress or the Fortress Individuals conspire with any one or more of Building & Development Mortgages Canada Inc. (“BDMC”), the Fortress Brokers as defined in the Fresh as Amended Statement of Claim, or others, with the intent to cause harm to the class members? If so, did the conspiracy cause harm to the class members, and how?

(f) Did Fortress or the Fortress Individuals act as mortgage brokers for the class with respect to their investments in the Orchard syndicated mortgage loan?

(g) If so, did Fortress or the Fortress Individuals owe a fiduciary duty to the class? If yes, did any of those defendants breach their fiduciary duty owed to the class? If yes, which defendants breached their fiduciary duty, and how?

(h) Should Fortress or the Fortress Individuals disgorge to the class all of the profits that they earned as an equitable remedy for the harm caused by the conspiracy or fraudulent misrepresentations, or based upon their breach of fiduciary duty?

(i) Were the funds received by Fortress from Lamb Calgary Inc. or Orchard Calgary Inc. impressed with a constructive trust in favour of the class, and if so, should those funds be disgorged by Fortress, or have Fortress or the Fortress Individuals been unjustly enriched by the payment, and if so in what amount?

(j) Are the class entitled to an accounting an equitable tracing of all the funds that Fortress received from Lamb Calgary Inc. or Orchard Calgary Inc.?

(k) Are the class creditors of Fortress or the Fortress Individuals, and if so, did any of these defendants act in a manner that was oppressive, unfairly prejudicial to, or that unfairly disregarded the class’s interests? If yes, which defendants, and what relief from oppression are the class entitled to receive?

32The proposed questions each represent a substantive ingredient in the claims put forward in the five actions. Indeed, the answer to each question is necessary to the resolution of their claims. Addressing them in common would avoid duplication of fact-finding and legal analysis. The damages question can also be answered in common, as all class members suffered losses in proportion to their investment, and the loss is a straightforward mathematical equation for the whole of the SML and then proportionately allocated to each class member.

33There is evidence in the record that amounts to considerably more than ‘some basis in fact’ that Fortress and the Fortress Individuals engaged in a fraud – in particular, there is evidence that the SML scheme was premised upon obtaining appraisals for the properties that misrepresented their “as is” current value to make the SMLs appear fully secure. There is also evidence showing that Fortress paid itself 35% of the SML proceeds pay itself and its sales agents, and that Fortress and the Fortress Individuals were paying this before earning profits, and that this was not disclosed to the class members. earned was not disclosed. The evidence also indicates that class members were not told that a further 16% of their investment was being withheld as an “interest reserve” such that Fortress was effectively paying itself the interest as a return of capital.

34Additionally, the record also provides some basis in fact that the Fortress Individuals’ involvement in the wrongful conduct went well beyond their role as Fortress’ officers and directors. The Fortress Individuals often spoke directly to prospective investors at seminars to “sell” the SMLs, despite Rathore not being licensed under the MBLAA to sell mortgages. The Fortress Individuals also met with other brokerages to encourage them to act as sub-agents for the Fortress Brokers. In all, there is ample evidence in the record showing that the Fortress Individuals made misrepresentations that directly impacted the class members as investors in the SMLs.

35All of the proposed common issues are common to the five classes. The classes are each composed of investors in the same SMLs. The proposed questions meet the requirements for common issues contained in section 5(1)(c) of the CPA.

d) Preferable procedure – section 5(1)(d)

36Generally speaking, the preferability analysis for a proposed class proceeding is informed by the three overall objectives of class actions: access to justice, judicial economy, behaviour modification: Cloud v. Canada (Attorney General), 2004 45444, at para. 73 (ONCA); AIC Limited v. Fischer, 2013 SCC 69, [2013] 3 SCR 949, at paras. 24-38.

37Plaintiffs’ counsel observe that in the present case there is no evidence that an alternative procedure exists. The proposed class actions are the only realistic means for the classes to recover anything from Fortress or the Fortress Individuals. For each class member to bring individual actions would be duplicative, expensive, and an undue burden on them and on the judicial system. The barriers imposed by individual proceedings would therefor far outweigh the benefits of a class proceeding.

38The proposed class proceeding therefore meets the requirement in section 5(1)(d) of the CPA that it be the preferable proceeding.

e) Representative Plaintiff and litigation plan – section 5(1)(e)

39The following analysis applies to each of the representative Plaintiffs except for Rebecca Shaw. Her unique situation is discussed in Part IV below.

40The proposed representative Plaintiffs each invested in the SMLs promoted by Fortress and the Fortress Individuals. They depose that they understand the claims that have been asserted, and they have participated in the prosecution of the within actions. There is no suggestion that they have a conflict with other members of the respective classes: see generally Dutton, at para. 41.

41The Plaintiffs have jointly engaged competent class counsel, and the actions are being capably prosecuted. In earlier settlement approval motions against other Defendants in these actions, the Plaintiffs have already been approved as representative Plaintiffs. There is nothing in the record that suggests that they should be approved here as well.

42The Plaintiffs, with their counsel, have produced a workable litigation plan which sets out their vision of the ongoing prosecution of the actions. The plan is designed to reduce costs, create efficiencies, and enhance judicial economy.

43The Plaintiffs therefore fulfill the requirements of representative Plaintiffs. In addition, the litigation plan is an efficient and workable one. The requirements for certification set out in section 5(1)(e) of the CPA are therefore met.

III. The claims against the Appraisers

44As indicated at the outset of these reasons for decision, both of the within actions contain claims against appraisers who were retained by Fortress in respect to two of the projects: the Harmony Village action includes a claim against McLean, and the 1088 Progress action includes a claim against Cane. The claims against each of McLean and Cane (together, the “Appraisers”) contain certain minor factual differences, but are the same in terms of the overarching principles that they raise and can be analyzed in unison.

a) Cause of action and material facts as pleaded

45The claim against the Appraisers is framed in negligent misrepresentation and/or negligence. The Appraisers submit that there is no viable claim against them in that the Plaintiff’s pleading – the Second Fresh as Amended Statement of Claim – contains no material facts to support either cause of action. While the majority of the statements and allegations contained in the pleading do not pertain to the Appraisers, there are several key paragraphs, along with the documents referred to therein (which are incorporated by reference into the pleading), which need to be closely examined.

46An appraisal is, in essence, a representation of value, and claims of professional negligence against appraisers most often are framed in negligent misrepresentation or negligent performance of a service causing economic loss. In Deloitte & Touche v. Livent Inc., [2017] 2 SCR 8, the majority of the Supreme Court held that proximity of defendant to plaintiff is a necessary ingredient to liability in negligent misrepresentation, and that two factors are crucial to the proximity analysis: defendant’s undertaking and plaintiff’s reliance. The rights and obligations, in other words, flow in both directions down a two-way street:

In cases of pure economic loss arising from negligent misrepresentation or performance of a service, two factors are determinative in the proximity analysis: the defendant’s undertaking and the plaintiff’s reliance. Where the defendant undertakes to provide a representation or service in circumstances that invite the plaintiff’s reasonable reliance, the defendant becomes obligated to take reasonable care. And, the plaintiff has a right to rely on the defendant’s undertaking to do so...

Ibid., at para. 30 [citations omitted]

47Barkley v. Tier 1 Capital Management Inc., 2018 ONSC 1956 was a case whose facts were quite similar to those in issue here. Disappointed investors in a syndicated mortgage issued a proposed class action commenced against the promoter and appraiser of the project. The promoter of the syndication had retained the appraiser to provide professional services in coming up with an appraisal of the subject property.

48Justice Perell indicated in Barkley that the appraiser had no relationship with the investors and undertook no responsibility to them. There was no contractual relationship or communication between the investors and the appraiser.

49In fact, the Barkley appraisal report contained the express limitation that the appraiser undertook no responsibility to the investors and had no communication with the investors or anyone acting on their behalf. The appraisal report specifically stated that: “The market value estimate determined in this report is for the sole use of the client to whom it is directed and for the defined purpose stated in this report. Any use which a third party makes of this report or any reliance on, or decisions to be made based on it, are the responsibility of such third parties”: Ibid., at para. 19.

50Relying on the principles set out in Livent, Perell J. dismissed the claim of negligent misrepresentation in respect of the appraisers.

51Counsel for the Appraisers submit that a straightforward application of the law as set out in these authorities leads to a dismissal of the motion. In short, the claim is framed in negligent misrepresentation and negligence as against real estate appraisers whose work was aimed not at the class of investors but at Fortress for the purposes of a traditional bank mortgage. The Plaintiff neither pleads nor provides any material facts showing there to have been the proximity and reasonable reliance required for negligent misrepresentation. Likewise, the Plaintiff does not plead any material facts that would support there being a duty of care flowing from the appraisers to the class members.

52In both claims against the Appraisers, the Appraisers are alleged to have been negligent in preparing reports for Fortress that, while stating that they represent an opinion of current value of the undeveloped land were, in fact, opinions of future value of the land once it is developed. As a result of these allegations and the specific references to the Reports, the text of Cane’s and McLean’s appraisal reports are incorporated by reference into the pleading: see Trillium Wind Power Corporation v Ontario (Natural Resources), 2013 ONCA 683, at para. 30. The entirety of the Reports, therefore, may be considered in the analysis of the Plaintiff’s pleadings, and may be factored into the determination of whether there are material facts pleaded that are reasonably capable of supporting the Plaintiff’s allegations.

53The McLean report is introduced by a covering letter which forms an integral part of the appraisal. It reads:

The report has been prepared for Harmony Village – Lake Simcoe Inc. [i.e. Fortress, as developer of the project] to be used in conjunction with first mortgage financing. All others are considered non-intended users and the report may not be relied upon by other parties, except with written authorization of the appraiser.

Please note that the following estimate of value may not be relied upon unless it is accompanied by the signed, original appraisal report. … Furthermore, the section entitled Assumptions and Limiting Conditions is an integral part of the report and must be read. …

54The Assumptions and Limiting Conditions provide:

This report has been prepared for the exclusive use of Harmony Village – Lake Simcoe Inc., to be used in conjunction with first mortgage financing considerations. Possession of this report, or a copy thereof, does not carry with it the right to reproduction or publication, in whole or in part, nor may it be used for any other purpose

55The Cane report is addressed to Fortress, and contains the following introduction:

We have prepared this report for your information and guidance. It may not be reproduced, in whole or in part, without the written consent of the undersigned and is subject to the limiting conditions as set out in Appendix 2.

The function of the report is to estimate the market value of the subject property for mortgage financing purposes.

56Like the McLean report, the Cane report’s limiting conditions explicitly disclaim the right of anyone in possession of the report to rely on the content and appraisal contained within it, with the exception of Fortress for the purpose of mortgage financing alone:

This report is prepared at the request of Fortress Real Capital. It is not reasonable for any person or corporation other than Fortress Real Capital to rely upon this appraisal without first obtaining written authorization from Michael Cane Consultants. There may be qualifications, assumptions or limiting conditions in addition to those set out below relevant to that person’s identity or his intended use. This report is prepared on the assumption that no other person or company will rely on it for any purpose and that all liability to all such persons is denied.

57Both appraisal reports were created for, and were explicitly limited to, use by financial institutions in placing a first mortgage on the respective properties. Indeed, they were used for that purpose, as the properties had conventional first mortgages registered against them. The appraisals were not created for, and not intended to be used by, individual investors in the syndicated loans in issue.

58Paragraph 284 of the Statement of Claim against Cane characterizes his undertaking in a way that is directly contrary to its contents, as follows:

Cane’s undertaking specifically contemplated that the Appraisal:

(a) would be used by Fortress and BDMC to induce investments in the SML;

(b) would be used by BDMC to set out the quantum of the “as is” appraised value of the subject lands in its disclosure statement, as well as to confirm that the SML qualified as a registered account investment;

(c) would be used by the Sorrenti Defendants in providing ILA to the Investors; and

(d) would be relied upon by the Investors for these purposes.

59Paragraph 285 of the Statement of Claim goes on to asset:

Any limiting language in the Appraisal with respect to the use that could be made of the Appraisal was waived by Cane either expressly or implicitly.

60No material facts are alleged to substantiate the allegation of waiver. In fact, these allegations directly contradict the text of the actual appraisal report, which is part of the pleading.

61I note that the claim asserts that Cane provided his appraisal report to the Sorrenti Defendants – i.e. solicitor Derek Sorrenti and his law firm – for their use in providing ILA to the Plaintiffs/investors. Again, however, the material facts pleaded contradict this bald statement.

62In fact, the pleading indicates that Cane consented to having Fortress forward his appraisal report to Mr. Sorrenti because he was at the time solicitor for the first mortgagee, not for the syndicated investors whose loan would ultimately form a second charge. The report specifically states that it was prepared for Fortress for the purpose of obtaining a first mortgage from a bank.

63Accordingly, Cane’s letter to Sorrenti of May 23, 2012 extended the scope of authorized users of the appraisal report to include Derek on the following terms:

Dear Mr. Sorrenti,

Please be advised that you may rely on the appraisal of the above noted property dated April 12, 2012, for the purpose of mortgage financing considerations, with the understanding that the appraisal was completed based on typical conventional financing as of the effective date of the appraisal. [emphasis added]

64It is pleaded, and is the case, that Mr. Sorrenti later acted as bare trustee for some of the investors – but, according to the pleadings, not for the named Plaintiffs. Although it is baldly asserted in the pleading that Mr. Sorrenti would be using the appraisal report for the purposes of providing ILA to the investors, there is no indication anywhere in the pleading that he actually did so. In any case, the documentation incorporated into the pleading makes it clear that, whatever Mr. Sorrenti may have eventually done with the appraisal report, Cane did not authorize him to pass it on to the investors and Mr. Sorrenti was given the report for his earlier task – the conventional first mortgage – subject to the express limitations contained within in.

65The McLean claim follows the same pattern. Paragraph 215 contains the following allegations which purport to establish the appraiser’s duty of care in negligence:

The Valuator Defendants were in a proximate relationship with the Investors because these defendants knew and consented to, or acquiesced in, the Appraisal being provided to the Investors as part of the disclosure package regarding the SML, and as proof of the then-current as is value of the Harmony Simcoe lands. The Valuator Defendants also knew and consented to, or acquiesced in, the valuation of the Harmony Simcoe lands from the Appraisal being reported to the Investors as the current, as is, value of the lands based upon CUSPAP standards, as part of BDMC’s disclosure package regarding the SML. The Valuator Defendants knew the Investors would rely upon the Appraisal and the report of the current value of the Harmony Simcoe lands in the Disclosure Statement in making the decision to invest in the SML.

66Paragraph 250 of the claim characterizes McLean’s undertaking as follows:

The Valuator Defendants’ undertaking specifically contemplated that: the Appraisal would be used by Fortress and BDMC to induce investments in the SML; BDMC would use the quantum of the appraised value of the subject lands in its disclosure statement, as well as to confirm that the SML qualified as a registered account investment; it would be used by the Sorrenti Defendants in providing ILA to the Investors; and it would be relied upon by the Investors for these purposes.

67As in the Cane pleading, the McLean claim states, in paragraph 251:

Any limiting language in the Appraisal with respect to the use that could be made of the Appraisal was waived by them either expressly or implicitly.

68Again, no material facts are alleged in the pleading that could substantiate the bald assertion of waiver. In fact, these paragraphs directly contradict the text of the actual appraisal report, which is part of the pleading.

69The bald pleading of reliance by the Plaintiffs cannot create a cause of action where none otherwise exists. The short answer to the claims against Cane and McLeans comes directly from Justice Perell’s decision in Barkley, at para. 97, that none of the essential ingredients for a negligent misrepresentation claim applies to appraisers in the equivalent circumstances:

[T]he Appraiser Defendants made no undertaking and undertook no service to the Class Members. The Appraiser Defendants did not make an invitation to the investors to rely on the appraisal… The investors had no right to rely on the Appraiser Defendants’ undertaking to them, because the Appraiser Defendants made no undertaking to the investors. There was no proximate relationship between the Appraiser Defendants and the investors.

70It is trite law that in order for there to be liability for a negligent misrepresentation causing economic loss, “there must be a duty of care based on a ‘special relationship’ between the representor and the representee”: Queen v. Cognos Inc., 1993 146 (SCC), [1993] 1 SCR 87, citing Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] AC 465. Absent such proximity, the investors/Plaintiffs would not have been reasonable in relying on the representations made in the appraisal reports: see The Pas (Town of) v. Porky Packers Ltd., 1976 147 (SCC), [1977] 1 SCR 51, at 66-68; J. Nunes Diamonds Ltd. v. Dominion Electric Protection Company, 1972 12 (SCC), [1972] SCR 769, at 805-806. This is particularly the case in the face of the express exclusion of liability clause which is patent in the introductory portions of the appraisal reports: Hunter Engineering Co. v. Syncrude Canada Ltd., 1989 129 (SCC), [1989] 1 SCR 426.

71Absent the ingredients of a special relationship and reasonable reliance, there can be no cause of action against Cane and McLean. “Any reliance on the part of the plaintiff which falls outside of the scope of the defendant’s undertaking of responsibility – that is, of the purpose for which the representation was made or the service was undertaken – necessarily falls outside the scope of the proximate relationship and, therefore, of the defendant’s duty of care”: Livent, supra, at para. 31. An appraisal is a representation, and whether or not it fell below the standard of care expected of a professional appraiser, it is not actionable by an investor at whom it was not aimed and who is explicitly excluded from relying on it.

72Accordingly, it is “plain and obvious that the pleadings disclose no cause of action” and that the claims against Canie and McLean cannot succeed: Cloud v. Canada (Attorney General) (2004), 2004 45444 (ON CA), 73 OR (3d) 401, at para. 41. They do not pass the certification hurdle set out in section 5(1)(a) of the CPA.

b) Some basis in fact

73The conclusion with respect to section 5(1)(a) is based on the pleadings alone. It suffices in itself as a basis for dismissal of the certification motion as against the Appraisers.

74That said, much was made at the hearing of the motion about whether or not certain deemed admissions made by the Plaintiffs in the two claims against the Appraisers could stand. Although these are evidentiary points, and are thus outside the analytic ambit of section 5(1)(a), I will digress very briefly to address and dispense with the issue.

75On May 8, 2019, counsel for Cane and McLean served a Request to Admit on the Plaintiffs in their respective actions. Those Requests each set out a proposed admission to the effect that the Plaintiffs never received or read the appraisers’ reports. It is self-evident that if those admissions were to form part of the evidentiary record, not only would there be insufficient material facts pleaded to support the causes of action but there would be no basis in fact on which the balance of the certification criteria could rest: Hollick v. Metropolitan Toronto (Municipality), 2001 SCC 68, [2001] 3 SCR 158, at para. 25.

76Each of the Plaintiffs in the claims against Cane and McLean ultimately served a response to the Request to Admit on March 21, 2024. As counsel for Cane and McLean point out, the responses were out of time by 1,759 days. Neither of the Plaintiffs ever sought leave of the Court to withdraw their deemed admissions. Both Plaintiffs, however, filed affidavits in the within motion seeking to set the record straight.

77As it turned out, the evidence given by each of the Plaintiffs effectively confirmed that their deemed admissions were factually correct and that the admissions should stand.

78Arlene McDowell, the Plaintiff against Cane in the 1088 Progress action, acknowledged in cross-examination that she never had any direct communication with Cane and that she had only been provided with short excerpts of Cane’s appraisal report rather than with the entirety of the report. She also confirmed that she had never read or paid attention to the limitation provision of the report, although it was printed in plain sight. Further, she confirmed that she never had written permission from Cane to reproduce or rely on the report despite being referred to the wording requiring such permission if she were to do so.

79Rebecca Shaw, the Plaintiff against McLean in the Harmony Village action, had even more limited knowledge given that she is a Plaintiff by virtue of being the estate administrator for her deceased spouse, Bryan Madryga, and it was Mr. Madryga who had actually entered the investment in the syndicated loan. Ms. Shaw deposed that Mr. Madryga has received McLean’s appraisal report, but what she appended to her affidavit, and apparently the only version of the document which Mr. Madryga had left behind, was a brief executive summary of the report rather than the report itself. In cross-examination, Ms. Shaw appeared to be under the impression that the short executive summary was, in fact, the entire appraisal report (which it was not).

80Like Ms. McDowell, Ms. Shaw confirmed in cross-examination that neither she nor her late spouse had any direct communication with McLean. She also confirmed in cross-examination that she had no reason to believe that her spouse had received written authorization from McLean to rely on the appraisal report. The executive summary which she appended, but which her cross-examination seems to indicate that she never read thoroughly, specifically states:

The report has been prepared for Harmony Village-Lake Simcoe Inc. to be used in conjunction with first mortgage financing. All others are considered non-intended users and the report may not be relied upon by other parties, except with written authorization from the appraiser.

Whether the deemed admissions are upheld on the basis of the Request to Admit, or the evidence of the two Plaintiffs replaces those admissions, the evidentiary record does not support the claims against the Appraisers. In fact, the evidence confirms that there was no special relationship, or no proximity, between the Appraisers and the Plaintiffs/investors. The Plaintiffs were specifically warned not to rely on the appraisal reports, and both reports were specifically limited to exclude any authorization that they be relied on by the Plaintiffs or the class.

81Moreover, the Plaintiffs who gave evidence did not have the full appraisals, do not appear to have actually read them, and do not appear to have actually relied on them despite them asserting that they did. In any case, any reliance on the appraisals that they only had in part, and that they were expressly advised not to rely on, would not qualify as reasonable reliance.

82Accordingly, in addition to the lack of a sustainable cause of action against Cane and McLean based on the pleadings, there is no basis in fact in the evidentiary record for the balance of the certification motion against them.

IV. Representative Plaintiff for the Harmony Village action

83Finally, the record demonstrates that Rebecca Shaw, the Plaintiff in the Harmony Village action, does not qualify as a proper representative plaintiff for the purposes of section 5(1)(e) of the CPA. I say this with no disrespect, but Ms. Shaw is almost entirely devoid of any knowledge of the investment made by her late husband and does not seem well versed enough to instruct counsel or to independently contribute to the case. Her evidence merely repeats counsel’s positions, rendering the Harmony Village action far too close to a case in which counsel are in effect instructing themselves.

84When asked why Ms. Shaw is representative Plaintiff, counsel explained that her late husband, Bryan Madryga, was originally the Plaintiff in the Harmony Village action, but that he is now deceased and that Ms. Shaw has stepped into the role of Plaintiff as her late spouse’s estate administrator. That role does, of course, qualify her as a class member, and gives her standing to submit a claim on her spouse’s behalf. But it does not provide her with the qualities that a representative Plaintiff must demonstrate. The evidence that she has provided for the record makes it clear that she knows of the claim and can represent her spouse’s estate in submitting it, but she simply does not know enough about the claim to be instructing counsel on behalf of an entire class of investors.

85The only one of the present actions for which Ms. Shaw is the sole named Plaintiff is the Harmony Village action. As discussed above, on the merits of sections 5(1)(a) through (d) of the CPA that action can be certified against Fortress but not against McLean; but even as against Fortress, it cannot be certified without a qualified representative Plaintiff under section 5(1)(e).

86I am prepared to hold judgment with respect to the certification of the Harmony Village action in abeyance as against Fortress. I will do so for 60 days from the date hereof, in order to give class counsel time to come up with a suitable representative Plaintiff. If a new representative Plaintiff is found, class counsel is to serve a motion record to substitute the new Plaintiff for Ms. Shaw and report back to me (by email to my assistant) that they have done so within 60 days. Likewise, if they are unable to find a new representative Plaintiff, they are to report back to me (again, via email to my assistant) within 60 days.

87There is no need to hold the Harmony Village judgment in abeyance as against McLean, as the certification motion against McLean is in any case dismissed.

V. Disposition

88With the exception of the Harmony Village action, the actions are certified as against Fortress. In the Orchard action, the claim is also certified as against the Fortress Individuals. Plaintiffs’ counsel are confirmed as class counsel. The class in those actions is defined as in paragraph 24 above. The common issues are as set out in paragraph 31 above.

89The Plaintiffs will be the representative Plaintiffs in each of the certified actions, with the exception of the Orchard action in which Arlene McDowell will be the sole representative Plaintiff. Rebecca Shaw is to be removed as Plaintiff in the Orchard action.

90The certification motion in the Harmony Village action continues to be under reserve as against Fortress. Counsel are to report back to me with respect to this action, as set out in paragraph 86 above.

91The motions to certify the 1088 Progress action as against Cane and the Harmony Village action as against McLean are dismissed.

VI. Costs

92The parties may make written submissions on costs.

93Counsel for the Plaintiffs are to send brief written submissions with respect to the claims against Fortress to my assistant within two weeks of today.

94Counsel for Cane and McLean are to send brief written submissions with respect to the claims against the appraisers within two weeks of today. Counsel for the Plaintiffs are to send brief responding submissions with respect to the claims against the appraisers within two weeks thereafter.

95When counsel are in a position to take out formal Orders, they should send draft Orders to my assistant in Word format.

Morgan J.