CIBC Mortgages Inc. v. Lucas, 2012 ABQB 402

Court of Queen ’ s Bench of Alberta Citation: CIBC Mortgages Inc. v. Lucas, 2012 ABQB 402 Date: 20120618 Docket: 0901 11191 Registry: Calgary Between: CIBC Mortgages Inc. Plaintiff - and - Tennille Natasha Lucas Defendant _______________________________________________________ Memorandum of Decision of Jodi L. Mason, Master in Chambers _______________________________________________________ Introduction [ 1 ] CIBC Mortgages Inc. applies for

summary judgment for the deficiency balance owing under a high ratio mortgage, in yet another in a long line of straw buyer mortgage fraud scenarios that have come to light in the Calgary real estate market. Background to the application [ 2 ] In April, 2008 the defendant, Tennille Natasha Lucas was 22 years old and employed at a branch of a Canadian chartered

bank in northwest Calgary. She was approached by an acquaintance, Adil Keshvani, who told her she could earn $5000 by allowing a property to be purchased in her name for new immigrants to Canada who could not yet qualify for their own mortgage. [ 3 ] Ms. Lucas expressed doubt as to her own ability to qualify for a mortgage, but Mr. Keshvani assured her that it would not be a problem, as banks understood that such arrangements were short term and further, were willing to assist new immigrants by setting up these arrangements. [ 4 ] Mr. Keshvani told her the mortgage term would be six months.

During this period, deposits would be made to her account to cover the mortgage payments, and in turn be directly withdrawn by the bank. The new immigrant would live in the property as a tenant under a rent to own arrangement. The rent would be used to pay the mortgage, taxes and condo fees. All these details would be looked after by others, and involve little time or effort on her part. After six months, the immigrant would have established a credit history in Canada, the property would be transferred and the mortgage paid out in full, with no further obligation on the part of Ms.

Lucas. [ 5 ] In the following weeks, Ms. Lucas provided her personal information, social insurance number, and her income, employment and banking information and records to Mr. Keshvani. She deposes that this information and documentation was true and accurate as at the date it was provided. Mr. Keshvani advised her that a representative of CIBC, Mr. Raja, would be faxing documents for her to sign and return, and that she would also be contacted by Mr. Choudhary, who would be finalizing the arrangements. [ 6 ] Mr. Choudhary telephoned Ms. Lucas to set up a meeting with a lawyer to attend to the paperwork.

He advised he was a friend of Mr. Keshvani and a business partner of Mr. Raja. [ 7 ] Mr. Choudhary picked Ms. Lucas up from a shopping mall parking lot and brought her to a lawyer’s office. Mr. Choudhary was present during the meeting with the lawyer. Ms. Lucas does not deny signing the mortgage. Mr. Choudhary provided her with a cheque for $3500.00. Arrangements were made to have the mortgage payments deposited into her bank account. [ 8 ] As the six months drew to a close, the deposits to Ms. Lucas’ account to cover the mortgage payments starting coming in late. By April, 2009 they stopped altogether.

The mortgage went into default and the bank commenced foreclosure proceedings in July, 2009. The bank took title to the property pursuant to Master Laycock’s order dated October 5, 2009. The application for deficiency judgment was adjourned. [ 9 ] Ms. Lucas does not dispute that the mortgage is high ratio and permits deficiency judgment. Ms. Lucas alleges, however, that she is not responsible for the deficiency because she was the victim of a mortgage fraud scheme, perpetuated by Mr. Keshvani, Mr. Choudhary, and Mr. Raja. Mr. Raja is a former employee of the bank. Ms. Lucas alleges that Messrs.

Keshvani, Choudhary and Raja modified the records and information supplied by Ms. Lucas and fabricated other records, in order to obtain the mortgage in an amount that grossly exceeded the value of the property. The parties agree that these defences rest on principles of illegality and ex turpi causa non oritur actio . [ 10 ] CIBC submits that there is insufficient evidence of Mr. Raja’s involvement in the fraud to raise a genuine issue for trial, and in any event, it was not aware of issues with Mr. Raja’s mortgages at the material time and has never had any contact with Mr. Keshvani or Mr. Choudhary.

It asserts that the general rule that knowledge and activities of the agent shall be imputed to the principal does not apply in these circumstances, and that accordingly CIBC is entitled to

summary judgment for the deficiency balance owing under the mortgage. [ 11 ] For the reasons that follow, the application is dismissed. There are genuine issues for trial. Test for

Summary Judgment [ 12 ] Rule 7.3 of the Alberta Rules of Court provides that a party may apply for

summary judgment in respect of all or part of a claim, on the ground that there is no merit to a claim or part of it.

[13] The bar on a motion for

summary judgment is high: Canada (Attorney General) v. Lameman, 2008 SCC 14, [2008] 1 S.C.R.372. A party bringing a motion for

summary judgment bears the legal onus of showing no genuine issue for trial: Murphy Oil Co. v.Predator Corp. 2006 ABCA 69, 384 A.R. 251. [14] Ms. Lucas raised other defences in her pleadings in addition to her allegations of illegality and ex turpi causa non oritur actioconcerning the bank’s employee Mr. Raja. She did not rely on those defences in her written or oral submissions to resist this application.Accordingly I will not address these other defences. [15] In the context of this application, then, the court must determine the following questions: 1.

Is there a genuine issue for trial as to whether CIBC’s employee Mr. Raja was involved in the fraudulent scheme? 2. Assuming Mr. Raja was involved in the fraudulent scheme, is there a genuine issue for trial as to whether CIBC should be imputedwith Mr. Raja’s knowledge and activities? Is there a genuine issue for trial as to whether an employee of the bank was involved in the fraudulent scheme? [16] Ms. Lucas accepted $3500.00 in exchange for obtaining a mortgage loan from CIBC, purportedly for another, non-qualifiedbuyer, expending little of her own time or effort in the process.

She did not intend to reside in the property, nor make payments on themortgage from her own funds. She did not disclose the true nature of the transaction to the CIBC. While it appears Ms. Lucas was dupedby Mr. Keshvani and Mr. Choudhary, she is clearly not an innocent victim. [17] As Master Hanebury notes in MCAP v. Molina-Tan, 2009 ABQB 472 at paragraph 53, participants in a scheme of this kindcannot then ask the court to refuse to enforce the contract that they signed on the basis of its illegality. [18] However, as Master Hanebury points out in First National Financial GP Corporation v.

Kulaga, 2012 ABQB 8 at paragraph24, this principle cuts both ways. If the lender was involved in some way in the fraud, it too may have difficulty enforcing the contractdue to its legality: Letkeman v. Zimmerman (SCC), [1978], 1 S.C.R. 1097. [19] In First National GP Corp. v. Kulaga, the mortgagor Dr. Kulaga admitted he was a straw buyer. He defended the claim, inpart, by alleging that the bank knew or should have known of the fraud, just as Ms. Lucas does here. He alleged fraudulent involvementby the bank’s agent, the lawyer.

It was not disputed that the lawyer was acting for the bank and that it may be bound by his acts as itsagent. There was some evidence raising questions as to the lawyer’s knowledge or acquiescence in the fraud. The bank relied on a typicalaffidavit of default and did not provide evidence on the involvement of the lawyer. [20] Master Hanebury concluded that it was not obvious that the lender came to court with clean hands and that a trial was requiredto determine “whether the lender is entitled to the entire claim it is making against Dr. Kulaga” (at paragraph 30). [21] Similarly, in Royal Bank v.

Levy, 2012 ABQB 310, the bank brought an application for

summary judgment against thedefendant purchasers who acted as straw buyers of properties secured by high ratio mortgages. The mortgagors alleged they were victimsof a fraudulent scheme orchestrated by the bank’s employee, Mr. Levy, that the lawyer handling the transaction, David Steed, was alsoinvolved in the fraud, and that the bank’s polices had induced or contributed to the fraud. These allegations are very similar to thosecontained in Ms. Lucas’ pleadings. [22] Romaine J. held that the defendants had raised sufficient evidence of involvement in the fraud on the part of Mr. Levy andMr. Steed to justify denial of

summary judgment at this stage of the proceedings (at paragraph 19).

[ 23 ] Here, Ms. Lucas relies on the following evidence in support of her submission that there is a genuine issue for trial as to Mr. Raja’s involvement in the fraud scheme: 1. Ms. Lucas deposed that Mr. Choudhary told her Mr. Raja was his business partner; 2. She stated that Mr. Choudhary arranged for her to meet with the lawyer to sign the mortgage documents. Following that meeting, Mr. Choudhary drove Ms. Lucas to Mr. Raja’s home where Mr. Choudhary and Mr. Raja met, while Ms. Lucas waited; 3. Falsified documents, including Ms.

Lucas’ income tax returns, purchase contract, employment letters and pay stubs were sent from a fax number registered to a company operated by Mr. Raja and Mr. Choudhary, Pehchan Ltd.; 4. Various documents produced by the bank indicate Mr. Raja’s involvement in the application and approval process, as either a CIBC Mortgage Specialist, or a representative of Home Loans Canada, a subsidiary of CIBC; 5. In 2007, about a year before Ms. Lucas signed the mortgage, a “Jamal Raja” and a “Sadat Choudry [sic]” held executive positions in an organization called “The Friends of Pakistan”. 6.

When the deposits to her account stopped in April, 2009, Ms. Lucas called Mr. Raja to get the name of the lawyer she met with. She deposes that he gave her a false name. She subsequently attempted to contact Mr. Raja and Mr. Choudhary numerous times, with no success. [ 24 ] CIBC is critical of Ms. Lucas’ evidence. It asserts that Ms. Lucas does not provide supporting details of how she knew she was taken to Mr. Raja’s home, nor of her statement that Mr. Raja and Mr. Choudhary together operate Pehchan Ltd.

Further, CIBC points out that it is not clear that the “Jamal Raja” and “Sadat Choudry” are the individuals at issue in this action, and in any event, even if they were, simply because Mr. Raja and Mr. Choudhary may have served on a board together at some point prior to the transaction at issue does not establish their concerted efforts in a mortgage fraud scheme. [ 25 ] This is a

summary judgment application. While certainly the courts do not typically reject such applications on the basis of bald conclusions, taken as a whole, I would not put Ms. Lucas’ evidence into that category. She provides a detailed account of the scheme as it was presented to her, and concludes her account by stating that when she became concerned about the late payments and contacted Mr. Raja to get the name of the lawyer involved, he gave her a false name and thereafter did not return her numerous calls. [ 26 ] In contrast, the evidence of Janice M.

Funke, Director, National Credit Risk Management for CIBC as to Mr. Raja’s involvement is limited and cryptic. She deposes that: In June of 2009, a review of a number of mortgages organized by Jamal Raja (“Raja”) was conducted by the Mortgagee as a result of high delinquency and cancellation rates occurring at that specific time in relation to those mortgages. The delinquency and cancellation issues first became apparent to the Mortgagee in June of 2009. At no time before June of 2009 were there any issues with Raja’s mortgages that were apparent to or known by the Mortgagee.

The Mortgagee has never been in contact with Adil Keshvani or Sadat Choudhary. [ 27 ] Ms. Funke does not come out and say so, but her evidence seems to imply that Mr. Raja may have been involved in questionable transactions. She does not directly or specifically address the express allegations made by Ms. Lucas in her statement of defence and addressed in Ms. Lucas’ affidavit.

[28] Similar to First National GP Corp. v. Kulaga and Royal Bank v. Levy, there is some evidence that arguably supports aninference that the bank’s employee, Mr. Raja was also involved in the fraudulent scheme. Ms. Lucas’ evidence certainly raises questionsabout Mr. Raja’s involvement in the scheme that have not been adequately addressed by the bank. Those questions need to be determinedin a trial. Is there a genuine issue for trial as to whether Mr. Raja’s knowledge and activities should be imputed to CIBC? [29] CIBC submits that in any event, even if Mr.

Raja had knowledge of or was involved in the fraud, his knowledge and activitiescannot be imputed to it, as it too was a victim of the fraud. [30] In Royal Bank v. Levy, Romaine J. considered this very argument. The bank argued that the general rule that the actions of anagent in the course of his employment should be imputed to his principal, is not applicable if it is in the interests of the agent to concealthe truth from his principal, relying on Durbin v.

Monserat Investments Ltd. (1978), (ON CA), 20 O.R. (2d) 181(C.A.). [31] Romaine J. concluded that in view of the unanswered allegations of misrepresentation made by the mortgagors, theapplicability of this exception could not be ascertained without consideration of a full record and full legal argument at trial (atparagraphs 19-20), citing MCAP Service Corp. v. Allen, 2007 CarswellOnt 943 (S.C.J.) and Bank of Nova Scotia v. Villafuerte, 2007 CarswellOnt 523, 52 R.P.R. (4th) 148 (S.C.J.). [32] In MCAP Service Corp. v.

Allen, the Court had evidence that the execution of the mortgage was secured by themisrepresentations of Marcia Barrett, a lawyer acting for both parties. At paragraph 21 the Court stated that “...it is at least arguable thatany fraud she committed, and any misrepresentations made to induce the defendant to enter into the transaction, bind the plaintiff.” Theapplication for

summary judgment was dismissed. [33] In Bank of Nova Scotia v. Villafuerte, the Court held that the case law confirms that where the agent acts in the course of hisemployment, a principal may be held liable for the agent’s fraud or misrepresentation, even if the principal was unaware of the facts (atparagraph 21). There was some evidence of misrepresentation by the jointly retained lawyer to the mortgagor and the Court dismissedthe application for

summary judgment. [34] Similar to Royal Bank v. Levy, here too there is some evidence of Mr. Raja’s potential involvement in the fraudulent schemethat has not been adequately addressed by the bank. In the circumstances of this case, the applicability of the exception to the generalrule of imputing knowledge and actions of an agent to his principal cannot be ascertained without consideration of a full record and fulllegal argument at trial. The culpability of both the bank and Ms. Lucas needs to be determined in that process. Conclusion [35] CIBC has not established that there is no genuine issue for trial. The application for

summary judgment is dismissed. [36] If the parties cannot agree on costs, they may approach me.

Heard on the 14 th day of June, 2012. Dated at the City of Calgary, Alberta this 18 th day of June, 2012. Jodi L. Mason M.C.C.Q.B.A. Appearances: Alexis Teasdale Bennett Jones LLP for the Plaintiff Matthew X. James Machida Shewchuk James for the Defendant