Royal Bank of Canada v. Lee, 2012 ABQB 320

Court of Queen ’ s Bench of Alberta Citation: Royal Bank of Canada v. Lee, 2012 ABQB 320 Date: 20120516 Docket: 0901 06536 Registry: Calgary Between: Royal Bank of Canada Plaintiff - and - Kenneth Lee Defendant - and - Ali Baba, Aabid Keshvani, Brad Hardy, Michael J. Bondar, Michael J. Bondar Professional Corporation and Royal Bank of Canada Third Parties _______________________________________________________ Memorandum of Decision of R. P. Wacowich, Master in Chambers _______________________________________________________

[ 1 ] The Plaintiff Royal Bank of Canada (RBC) issued a Statement of Claim in May, 2009 against the Defendant seeking foreclosure on a mortgage between the parties.

The mortgage in default is a high ratio mortgage given to secure a loan under the National Housing Act. [ 2 ] The Defendant Kenneth Lee (Lee) filed a Statement of Defence alleging that the Third Parties Ali Baba (Baba), Aabid Keshvani (Keshvani), Michael Bondar (Bondar) and Brad Hardy (Hardy) fraudulently induced him to execute the mortgage. [ 3 ] The Plaintiff obtained an Order for Sale to the Plaintiff on January 17, 2011 and purchased the land for $125,000.00 leaving a deficiency of $199,390.38 as at January 17, 2011. This application seeks

summary judgment. The deficiency judgment sought, including interest, is $214,998.69. [ 4 ] The fraudulent scheme involved a scam which occurs too often. A co-employee of Lee, Hardy, advised him that he had been paid to take title to a property with a mortgage in order for Baba to obtain financing for the property. It would be “ flipped ” and after three months Hardy would be removed from the title. If Lee wished to do the same thing he could earn $7,000.00. [ 5 ] Lee met with Baba three times, each time in Baba ’ s car.

During the first meeting Baba advised Lee that he would pay Lee $7,000.00 to take title to a property for three months. After the three months passed Baba would be in a position to sell the property and remove Lee from title to the property. Further, a mortgage specialist would structure the transaction for them. [ 6 ] During the second meeting Baba introduced Lee to Keshvani who was a mortgage specialist employed by RBC, the mortagee. The second meeting took place in Baba ’ s car during Lee ’ s lunch hour. Keshvani arrived at the meeting with Baba in Baba ’ s car.

During the meeting Baba and Keshvani had Lee sign documents for him to apply for the mortgage from RBC. The meeting lasted about fifteen minutes and involved mostly small talk. Lee left the car once he had signed the documents that were presented to him with little or no discussion as to the significance of the transaction including potential liability on his part. [ 7 ] A few days after Lee had signed the documents he received a call from Baba advising him that Keshvani needed a gift letter indicating that Lee ’ s father had provided Lee with a gift of $20.000.00.

At the request of Baba, Lee had his father sign the gift letter. Lee also signed the gift letter after which he phoned Keshvani. He was advised to fax the letter to Keshvani which he did. [ 8 ] The gift letter appears to be a form document. When it was faxed to Keshvani only the bottom half had been filled out. Lee does not know who filled out the top half of the gift letter. However, RBC has offered no evidence as to who filled out the top half of the gift letter which was faxed directly to Keshvani at RBC.

On questioning on Affidavit Lee was not entirely clear on some aspects of the letter but he was clear in his deposition that the top half was not filled out when he sent it to Keshvani. The top half included the amount of the gift, $20,000.00, and Lee ’ s address. This was the only document Lee provided directly to Keshvani. He provided other documents with his financial information to Baba who passed the documents on to Keshvani. [ 9 ] An employment letter indicating that Lee was employed part time by G & G Auto Sales was part of RBC ’ s file.

Lee was never employed by G & G Auto Sales and did not provide the letter to anyone and in fact was not aware that the letter existed until litigation commenced and there was an exchange of documents. [ 10 ] Bondar is a lawyer who acted on behalf of RBC and Lee with respect to the mortgage. At the time residential real estate constituted 40 to 50 per cent of his practice. [ 11 ] Baba attended Bondar ’ s office with Lee and was present when Lee signed the mortgage documents with Bondar.

Lee observed that Baba and Bondar seemed familiar with each other and appeared to have dealt with each other before. [ 12 ] Approximately one month before having Lee sign mortgage documents Bondar had discussions with six or seven individuals

who had purchased the building the condominium which is the subject of the lawsuit is located in. Bondar had acted for the original owner of the building who sold the building to the six or seven individuals. Lee was not advised of these previous dealings between Bondar and the previous owners. [ 13 ] The residential real estate purchase contract in question was between Zenia Home Builders Ltd. (the seller) and Lee for the amount of $298,500.00 with an initial deposit of $5,000.00 and an additional deposit of $92,500.00.

The Transfer of Land for the property is from Priyambida Bedi, Mahmoud Youssef Saifeddine, Ahmed Abdallah, Wassim Saghir and Khuyen The Tran. Bondar on questioning indicated that the fact that the name of the vendor on the agreement for sale did not match the name of the registered owner did not raise any red flags for him and he would not have discussed that with Lee. Bondar did not take any cash to close from Lee. His evidence was that someone had advised him it had been paid. However, he was confused as to who that could have been. [ 14 ] Bondar did not present Lee with an Affidavit of Transferee.

He swore it himself and deposed he knew the circumstances of the transfer. Bondar sought to discharge the vendor ’ s mortgage even though other lawyers were acting for the vendors. He has no trust letters or evidence of communications with other lawyers. [ 15 ] On March 3, 2008, Bondar sent a Power of Attorney to Land Titles for registration on behalf of one of the vendors. He did not advise Lee he was taking steps on behalf of the vendors and did not ask Lee for instructions on how to distribute the mortgage funds.

There was no assignment of mortgage proceeds and the funds were distributed to parties that were not vendors and to parties that were not connected with the transaction. Bondar has no explanation for this. In dealing with condominium purchases it was Bondar ’ s standard practice to obtain an estoppel certificate for the condominium. His Affidavit of Record ’ s does not contain an estoppel agreement nor does it contain a statement of adjustments or a reporting letter. [ 16 ] Lee made a few mortgage payments before realizing he had been defrauded by Baba and whoever may have worked with Baba.

He researched the situation and realized he was party to a fraudulent transaction and consulted a lawyer who acts for him on this application. [ 17 ] In questioning on his Affidavit Mr. Lee was very straightforward in his evidence. He recognizes he was part of a fraudulent transaction. He was duped into becoming part of it. He received a payment of $7,000.00 from which he made some mortgage payments and from which he now faces a judgment in excess of $200,000.00. This likely cannot be avoided by bankruptcy due to the fraudulent nature of the transaction.

The old adage is true, when something seems too good to be true it is too good to be true. Law [ 18 ] An Applicant for

summary judgment bears the initial burden of proving its cause of action on a balance of probabilities. If the Applicant proves its case on a balance of probabilities the evidentiary burden moves to the Respondent to show that there is a genuine issue for trial. If the Defendant meets this evidentiary burden, the Plaintiff fails to meet its ultimate burden. It must be beyond doubt that no genuine issue for trial exists. Pioneer Exploration Inc. (Trustee of) v.

Euro-Am Pacific Enterprises Ltd. 2003 ABCA 298 at paras 18 and 19 . [ 19 ] As recognized by Justice Watson, then of the Alberta Court of Queen ’ s Bench, the test is similar to the criminal law test of whether the defence to the claim holds “ an air of reality ” to it. Ghermezian v. Corey Developments Inc., 2001 ABQB 914 , at paras 79 to 81 . [ 20 ] After reviewing the evidence in Ghermezian Watson, J. concluded there was no possibility of success and awarded

summary judgment. Although he acknowledged that there were factual inconsistencies in the evidence he concluded that those inconsistencies supported rather than detracted from his conclusion that there was no agreement. (para. 100 from Ghermezian ). [ 21 ] A factual inconsistency in and of itself does not negate

summary judgment. Any factual inconsistency must be material. In Stone Sapphire Ltd. v. Transglobal Communications Group Inc. 2007 ABQB 236 , Justice Lee stated: The Court must take a good, hard look at such evidence to determine whether there is a genuine dispute as to the material fact requiring a

trial to resolve the matter. Evidence of alleged wrongdoing must have a “ ring of truth ” to them to establish a genuine issue for trial, ... ” [ 22 ] The Alberta Courts have dealt with a number of mortgage fraud situations in which lenders have sought

summary judgment against straw buyers. The written decisions indicate, as do the above cases, that the evidence in each case has to be carefully considered. [ 23 ] The legal principle requiring litigants to have clean hands has been applied to lenders in Alberta. If there is evidence that a lender was involved in some way in the fraud, the lender may have difficulty enforcing the contract due to its legality. ( Letkeman v. Zimmerman [1979] 1 SCR 1097 at pg 1104). [ 24 ] In Toronto-Dominion Bank v.

Khosa , 2010 ABQB 652 , Master Hanebury noted that the case law in Alberta indicates that “ when the pleadings and facts indicate a possible involvement in the fraud of a bank employee or agent, or misrepresentation by them,

summary judgment may be denied ” . (para 19) [ 25 ] In MCAP Service Corporation v. Doiron , 2006 ABQB 821 , Justice Burrows refused to grant

summary judgment in circumstances where the lender had not offered any evidence to meet the allegations that its agents had knowledge of and participated in a fraud. [ 26 ] In Doiron , Justice Burrows noted there was evidence that agents for the lender, including the mortgage broker and the lawyer, misrepresented to the straw buyer that there was a house on the property when there was not, and that the straw buyer had relied on this misrepresentation. Because the lender did not advance any evidence to address the involvement of its mortgage broker and lawyer, Justice Burrows held that there were genuine issues that required a trial and the lender ’ s application for

summary judgment was denied. [ 27 ] In First National GP Corporation v. Kulaga , 2012 ABQB , Master Hanebury noted that the plaintiff lender had filed no affidavit dealing with the specific allegations of the defendant that agents of the lender had participated in a fraud. The lender did not deny that it could be bound by the acts of the lawyer as its agent and did not explain the facts that raised questions as to the lawyer ’ s knowledge of, and acquiescence in, the fraudulent scheme. Master Hanebury noted that the lender chose to provide no explanation of the situation. She states at para. 30: [30] Dr.

Kulaga is not an innocent party. However, it is not obvious that the lender itself comes to this court with clean hands.

Summary judgment is not a remedy available on the facts as presented. It requires a trial to determine whether the lender is entitled to the entire claim it is making against Dr. Kulaga. [ 28 ] Evidence similar to that in this case were considered in other cases. For example, in Royal Bank of Canada v. Parmar , 2005 BCSC 1155 , the court considered and rejected evidence by the mortgagor as to what she believed the bank knew about the transaction, such as her belief that the bank knew the property was over-valued. Also in Capital City Savings and Credit Union Limited v.

Prostilo, 2002 ABQB 1004 , the court dismissed evidence by the mortgagor that a rogue “ arranged for the mortgage approval ” with the lender as being without any factual basis. See also Isaacs v. Royal Bank of Canada , 2010 ONSC 3527 and on appeal 2011 ONCA, where

summary judgment was granted against a straw man. [ 29 ] In this case, during the foreclosure the Affidavit of Value indicated that the value of the property is $125,000.00. Yet the mortgage was for $293,074.76.

It was not plead or argued that the wide discrepancy between the value of the property and the amount of the mortgage indicated negligence on the part of the Plaintiff who did not use due diligence and simply choose to rely on the fact that the mortgage was insured. [ 30 ] Counsel for Lee submits that RBC ’ s application and submissions would have this court ignore or suppress the evidence that indicates Keshvani, an employee of RBC, was an associate of Mr. Baba and helped perpetrate the mortgage fraud. These facts include:

a) Lee was introduced to Keshvani by Baba during a short meeting which took place in Baba ’ s car;

b) Lee ’ s observation that Baba and Keshvani arrived together in Baba ’ s car and knew each other;

c) Keshvani had Lee sign documents for a mortgage application during the meeting in Baba ’ s car and without asking any questions of Lee;

d) Keshvani accepted documents for the mortgage application from Baba as opposed to Lee himself;

e) The top half of the gift letter was filled in by someone after Lee faxed it to Keshvani; this would have to have been by Keshvani or someone else at RBC; and

f) The fraudulent employment letter from G & G Auto Sales in RBC ’ s file. Lee had not seen this letter until this litigation had commenced and Affidavits of Records were exchanged. Lee did not provide this letter to either Baba or Keshvani. RBC offers no explanation as to how the letter made it to its file. [ 31 ] In the present case, RBC has chosen not to provide an explanation for any of the above. Despite the facts that raise questions as to Keshvani ’ s knowledge of, and acquiescence in, the within mortgage fraud, RBC has chosen to not advance any evidence to explain the situation.

RBC offers no denial that Keshvani participated in the mortgage fraud. [ 32 ] The only explanation that RBC offers for the fraudulent information on its file is to speculate that the fraudulent information could have come from either Baba or Hardy.

RBC offers no evidence to support this speculation and says that Lee is speculating that there was fraud by an employee or agent of RBC. [ 33 ] If the fraudulent information did come from Hardy or Baba, RBC offers no explanation as to why its employee, Keshvani, would have accepted the information from any source besides Lee, the applicant for the mortgage. [ 34 ] RBC also offers no explanation for the conduct of Bondar which suggests that he had knowledge of or acquiesced in the mortgage fraud. These facts include:

a) Bondar failed to disclose his prior dealing with individuals who owned the building, his knowledge of the circumstances under which they acquired the building, and disputes among them;

b) Lee ’ s observation that Baba and Bondar seemed to be acquainted with each other and had prior dealings;

c) Bondar allowed Baba to be present while he had Lee sign the mortgage documents;

d) Bondar failed to advise Lee that the registered owner on the agreement for sale did not match the registered owners of the subject property;

e) Bondar did not ask Lee to provide any cash to close or make any inquires with respect to the cash to close. This is particularly important given that Bondar signed the Affidavit of Transferee and deposed that he knew the circumstances of the transaction;

f) Bondar took steps on behalf of the vendors; and

g) Bondar distributed the mortgage proceeds in a questionable manner without asking Lee for instructions. This raises questions as

to who Bondar was taking instructions from, particularly since he had knowledge of the prices the vendor had acquired the building for. [ 35 ] It should also be noted that Lee deposed that he did not recall that the mortgage was CMHC insured or that he would be personally liable for a deficiency on the mortgage. Surely he would have recalled this if it had been stated. In his Affidavit Bondar disagrees with this saying that in his practice this would have been indicated. He does not specifically recall doing so. Decision [ 36 ] As noted, there are cases involving straw men where

summary judgment has been granted and others where it has been refused. Each decision depends on its facts. [ 37 ] Based on the Affidavit of Bondar and the questioning of Bondar I cannot say that Bondar was part of a fraudulent transaction in terms of being directly and knowingly involved. However, the possibility exists. Also, there is certainly enough to suggest he could be found negligent in the manner in which he conducted himself on this transaction.

And of course, further new evidence could be adduced to assist Lee on those points. [ 38 ] It must be remembered that at this point all we are dealing with is Affidavits and the Questioning on Affidavit of Lee and Bondar which Affidavit was in relation to an application Bondar made to be removed from the action. As of yet that application has not been proceeded with even though the questioning of Bondar was held on August 25, 2011. [ 39 ] In my view this application for

summary judgment should be dismissed. The gift letter went directly to Mr. Keshvani and he or someone at RBC must have completed it. Also, there is no explanation as to how the employment letter from G & G Auto Sales reached the RBC file. All this occurred after a very perfunctory meeting between the employee of the mortgagee and the mortgagor in a car at lunchtime to obtain signatures to allow for the mortgage completion. This is an unusual setting for the completion of mortgage documents.

Without more these facts are sufficient to deny the application. [ 40 ] The evidence to date certainly requires the matter to proceed to questioning of the parties to discover relevant and material information pursuant to Rule 5.17. There are many things which are relevant which we do not know at this juncture. Keshvani has not been questioned nor has anyone else been questioned pursuant to Rule 5.17. How many times did Bondar act in transactions involving Baba? How many similar situations has RBC had on files conducted by Keshbvani?

Who are the vendors on the transfer and what is their relationship to Zenia Home Buildings Ltd.? These are only a few of the areas of questioning that need to be answered to assist Lee in his defence. [ 41 ]

Summary judgment should only be granted where it is clear there is no genuine issue for trial. It must be shown that the defence has no reasonable prospect of success and I am not satisfied that there is no reasonable prospect of success for Lee ’ s defence. Further, there are conflicts on the Affidavits and there will be questions of credibility all of which will need to be determined at a trial. [ 42 ] As indicated, the application for

summary judgment is dismissed. The Respondent shall have his costs on this application. If costs cannot be agreed upon, the matter can be spoken to before me. Heard on the 7 th day of May, 2012. Dated at the City of Edmonton, Alberta this 16 th day of May, 2012.

R. P. Wacowich M.C.C.Q.B.A. Appearances: Ellery Lew Witten LLP for the Plaintiff Jose Delgado Bishop & McKenzie LLP for the Defendant