Bank of Montreal v. Cochrane, 2011 ABQB 386

Court of Queen ’ s Bench of Alberta Citation: Bank of Montreal v. Cochrane, 2011 ABQB 386 Date: 20110620 Docket: 0901 07347 Registry: Calgary Between: Bank of Montreal Plaintiff - and - Cochrane, et al Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice G.C.

Hawco _______________________________________________________ [ 1 ] On April 14, 2010, the Bank of Montreal (“BMO”) filed a Statement of Claim against all of the Defendants seeking, among other things, a receivership order, an Anton Piller Order, a Norwich Pharmaceutical Order and attachment orders against all of the Defendants. There are hundreds of Defendants. Many of them are referred to as belonging to certain groups. The group to which these reasons are concerned is known as the Blatz/Kahn/Belmonte group.

Nixious Investments Inc. and Lachesis Investments Ltd. are the Defendants who have brought this application to review the ex

partie orders granted to the Plaintiff in respect to those Defendants. [ 2 ] BMO alleges that all of the Defendants were engaged in a series of conspiracies against BMO through which the Defendants obtained mortgages in their names or the names of third party “straw buyers” and which mortgages were based on false information or representations, including inflated values of properties, false information used to support the loans, and false representations about the borrower’s intentions to reside in the properties. BMO alleges that as a result of these schemes, the Defendants obtained millions of

dollars in illicit profits. In this application, Nixious and Lachesis seek an order to review the ex parte orders granted against them. Although many orders were granted by Madam Justice Kent against all Defendants, the orders that Nixious particularly takes exception to are an Attachment Order and a Receivership Order. [ 3 ] BMO acknowledges that it has the onus to justify these orders and their continuance. Plaintiff’s Submissions [ 4 ] The Plaintiff argues that Nixious is the key corporation within the Blatz group, of which Mr. Ken Blatz and Mr. Alex Karmis were the primary individuals or principals.

It was they who operated through Nixious and its subordinates. [ 5 ] Blatz and Karmis operated a development partnership which involved acquiring, renovating and selling real estate. Following the granting of a number of Norwich Orders and following the acquisition of information and documents which was received through those orders, BMO hired Robert Taylor of RSM Richter as a forensic consultant. Mr.

Taylor prepared a number of reports (the “RSM Reports”) which identified Nixious as having been one of the parties involved in what appeared to be a scheme whereby properties were acquired, mortgages were obtained based upon the false information and the properties subsequently were either foreclosed or were sold. [ 6 ] Having identified certain properties and the information which BMO alleged had been obtained through false information and fraud, BMO then obtained an Attachment Order which froze certain assets of Nixious and other Defendants and placed Nixious and a number of other Defendants under receivership.

The primary evidence which BMO relies upon as to the involvement of both Nixious and Lachesis comes from Mr. Blatz, who deposed to the activity of Nixious in the sort of real estate fraud at issue. [ 7 ] Further evidence came from Natalya Borosh with respect to obtaining “straw buyers” and from Mr. Darcy Deering, who testified that he was made aware that Mr. Karmis and Ms. Gilluley, a director of a number of companies within the Blatz group, including Nixious and Lachesis, were involved in falsifying information with respect to obtaining mortgages. [ 8 ] Mr.

Taylor’s first report is also supportive of there being a fairly large scale mortgage fraud having taking place. He referred in detail to particulars of three properties in which Nixious was involved, including a group of condominiums which are referred to as the European Condos, which appear to have involved conduct which was fraudulent, or at the very least, highly suspicious. Defendants’ Submissions [ 9 ] The Defendants submit that the people identified by the Plaintiff, being Mr. Blatz, Ms. Borosh and Mr.

Deering, were not as involved as they claim to be and did not have sufficient knowledge of the financial workings of Nixious. They argue that there were not enough facts known prior to the orders being granted to justify them and that BMO has not produced sufficient evidence to establish a reasonable likelihood that its claim against the Defendants would be successful. These Defendants, it is argued, were simply caught up in the huge net cast by BMO.

Finally, the Defendants argue there is certainly no reason for the Court to continue BMO’s Attachment Orders or Receivership Orders as these prevent the Defendants from using their property in a reasonable manner and there is nothing to suggest that the use of that property would prevent BMO realizing upon any judgment they might ultimately obtain. Decision [ 10 ] I am satisfied that the Plaintiff has shown evidence of highly suspicious conduct, together with sufficient evidence which, on its face, supports the allegations of fraud. There is no evidence which contradicts any of the direct evidence from Mr.

Blatz, Ms. Borosh or Mr. Deering. The only attempt to deny the allegations and evidence comes from Ms. Gilluley. Her evidence is, quite simply, not credible. [ 11 ] Some examples of the nature of the evidence provided by the Plaintiff which has satisfied me with respect to the strong prima facie case involves the evidence relating to 431 - 1st Avenue N.E., a multi-unit building in the city of Calgary, 3911 Parkhill Place S.W., another multi-unit building in the city of Calgary and 115 Aspenstone Terrace S.W., a single family dwelling in Calgary.

There has been no explanation with respect to instances of obtaining straw buyers and flipping the property and providing what is obviously false information to obtain mortgages. The evidence of Ms. Gulluley with respect to lack of records is not believable. Mr. Karmis, a key member in Nixious, has demonstrated an absolute failure to comply with orders and to cooperate.

[ 12 ] There is a strong prima facie case of fraud. The Mareva Orders and the Receivership Orders, were legitimately granted. The Defendants have presented no evidence. The Plaintiff has the onus to justify continuation and have done so. [ 13 ] I am satisfied that there is still a significant risk to the Plaintiff should the orders be vacated.

I am satisfied that a Receiver is required to protect the interests of the Plaintiff pending resolution of these actions. [ 14 ] Given the actions of Nixious in servicing so many mortgages (150) at so many financial institutions (15) and given the attempt to divest itself of the properties, it is appropriate that the Receivership Order remain in order that the extent of the assets may be determined and recovery ultimately made. Heard on the 17 th day of March, 2011. Dated at the City of Calgary, Alberta this 20th day of June, 2011. G.C. Hawco J.C.Q.B.A. Appearances: Munaf Mohamed and Michael D.

Mysak Bennett Jones LLP for the Plaintiff Norman D. Anderson Shea Nerland Calnan LLP for the Defendant