Lepitre v. Welder, 2013 ABQB 586

Court of Queen ’ s Bench of Alberta Citation: Lepitre v. Welder, 2013 ABQB 586 Date: 20131004 Docket: 0901 19222 Registry: Calgary Between: Michael Lepitre Plaintiff - and - Douglas Welder Defendant _ ________________________________________ ______________ Oral Reasons for Judgment of the Honourable Chief Justice Neil C. Wittmann _________________________________________ ______________ Introduction [ 1 ] This action is a proceeding under the Class Proceedings Act , SA 2003, c. C-16.5.

The representative Plaintiff, Michael Lepitre and the Defendant, Douglas Welder were granted an Order of this Court certifying the action as a Class Proceeding, defining the Alberta Settlement Class, approving a Multi-Jurisdictional Settlement Agreement and approving a Distribution Plan, among other relief: Lepitre v. Welder, 2013 ABQB 18 . [ 2 ] The approved Distribution Plan defines the Administrator as the law firm, Camp Fiorante Matthews Mogerman, appointed to

administer the claims of class members. The Administrator has now brought an application pertaining to the Distribution Plan. The application is to approve the claims of ten Alberta class members, in terms of the amount invested, the net loss and the resultant settlement amount available to each of them.

Central to the application is the claim of Class Member #12, Michael Lepitre, who is also the representative Plaintiff in this action and whether his wife, Stacey Lepitre is entitled to any distribution as a joint owner of Michael Lepitre’s investment in IFC. [ 3 ] The Court’s authority is derived from s.13 of the Class Proceedings Act and paragraphs 3 and 14 of the Distribution Plan.

Section 13(1) of the Class Proceedings Act gives the Court broad authority to make any Order considered appropriate with respect to the conduct of the class proceeding to ensure a fair and expeditious result and also indicates that the Court can impose any terms or conditions that it considers appropriate in so doing. Paragraph 3 of the Distribution Plan indicates that the Alberta Court shall have the primary supervising role over the administration of the settlement in the Alberta action, including the distribution of the settlement fund to resident class members in Alberta.

Paragraph 14 of the Distribution Plan allows the Administrator to seek direction from the Alberta Court at any time. The Submissions [ 4 ] Counsel for the Administrator, Stacey Lepitre and Roy Terry Jr., Receiver of International Fiduciary Corp. S.A. (“IFC”), as well as counsel for Chadwick Ventures Inc. appeared before me September 3 rd , 2013. At that time, Michael Lepitre appeared and represented himself. All appearances were by telephone. By consensus, it was agreed that written submissions would be received by the Court and an oral decision rendered October 4 th , 2013.

Counsel for Chadwick Ventures Inc. did not make a written submission. Submissions of the Administrator [ 5 ] The Administrator noted that in another action, Chadwick Ventures Inc. v.

Douglas Welder (Court file no. 1101 00609), Master Mason of this Court granted an Attachment Order on March 12 th , 2013 providing that any funds payable to Michael Lepitre from the Class Action Settlement in this action shall be paid into Court pending further Order of this Court, without prejudice to any claims which may be made against those funds by the Alberta Securities Commission or the Plaintiff. [ 6 ] The Administrator’s position details the Distribution Plan provisions, approved by this Court, including reducing the claim for insubstantial and substantial marketers as defined in the Distribution Plan.

An insubstantial marketer is a person who received directly or indirectly, less than $1,000.00 in compensation or any other financial benefit in connection with obtaining investor funds which were ultimately invested in the IFC scheme. A substantial marketer is a person who received more than $1,000.00 in compensation or other financial benefits for the same activity.

The Distribution Plan, as submitted by the Administrator, also provided that the determination of the total amount invested by a class member in the IFC scheme through Welder’s trust account is to be determined; then a deduction for any amounts received by a class member from the IFC scheme or its principals; then deduct any amounts received from the Receiver; then deduct any amounts received from other class members in settlement of any dispute related to the IFC scheme; finally, reducing the claim according to whether the class member was a substantial or insubstantial marketer. [ 7 ] Michael Lepitre did not file a claim with the Receiver for IFC, but has argued that 50% of his personal investment in the IFC scheme was the property of his wife, Stacey Lepitre.

The issues put to the Court by the Administrator include whether the claim of Michael Lepitre is the joint property of Michael Lepitre and his spouse, Stacey Lepitre and if so, should it be allocated on a 50/50 basis between them? Further, if that is the finding of this Court, should Stacey Lepitre’s claim be subject to the Attachment Order?

Then, depending on the Court’s findings, what deductions or reductions should be applied to the valuation of Michael Lepitre’s claim and Stacey Lepitre’s claim? [ 8 ] The recommendation of the Administrator is that the investment ought to be allocated on a 50/50 basis between Michael Lepitre and Stacey Lepitre and that Stacey Lepitre’s claim is not subject to the Attachment Order and any proceeds, applying the Distribution Plan, should be paid directly to her.

Further, that Michael Lepitre’s claim should be reduced to reflect his share of the $280,000.00 in profits which his corporation Kustom Design Group Inc. received from the IFC scheme which would effectively reduce the claim of Michael Lepitre to 0; alternatively, the Administrator says that Michael Lepitre was a substantial marketer and that his claim should be reduced to $3,000.00.

Submissions of the Receiver [ 9 ] The position of the Receiver IFC, is that he accepts the Administrator’s submissions with respect to the valuation of Michael Lepitre’s claim, but that the claim ought to be denied in its entirety because it was filed out of time. The Receiver notes that Michael Lepitre as the Class Representative in Alberta knew full well as to the deadline dates for the claims process and there is evidence that he is a substantial marketer.

The Receiver also asked for an Order that Michael Lepitre and Stacey Lepitre make their best efforts to provide to the Receiver the last known address for David Boyer, Martin Harder, Elsie Braun, Robert Harms, Rick Kawa, Glen Miller, Nancy Wolff and Fred Nowicki Enterprises. It is the submission of the Receiver that all of these investors were introduced to the IFC fraud by Kustom Design Group Inc., Michael Lepitre’s company. Submissions of Stacey Lepitre [ 10 ] Stacey Lepitre’s counsel agrees with the factual background set forth in the submissions of the Administrator which will be detailed below.

The position of Stacey Lepitre is that she and her husband, Michael Lepitre, were equal investors in the IFC scheme and that her share of the distribution should not be reduced because she was neither an insubstantial nor a substantial marketer of Kustom Design Group Inc. having no involvement in any marketing activities. She further submits that she should not be subject to Master Mason’s Attachment Order referred to above, as the Order does not refer to funds payable to her; only to her husband, Michael Lepitre.

Submissions of Michael Lepitre [ 11 ] Michael Lepitre states that he agrees with “most of the facts and statements set out in the submissions of the Administrator”, but in his written submission, insists he did not receive any payment or distribution of any kind in respect of the IFC investment and therefore his claim should not be reduced by any amount other than that of an insubstantial marketer. The submission of Michael Lepitre refers to his personally not receiving any money from the IFC scheme in any way, nor did he ever have access personally to any of the funds.

He refers to the correspondence from Mark Jones and indicates that the amount received “into” the Kustom Design Group Inc. was paid out to investors of both Kustom Design Group Inc. and Kustom Design Financial Services. The Court’s Finding on The Evidence [ 12 ] There is no significant dispute as to the evidence before the Court. As has been conceded by others, the submissions of the Administrator accurately set forth that evidence. Mr.

Lepitre and Stacey Lepitre obtained a mortgage line of credit on November 10 th , 2006 of $148,430.00 and on November 22 nd , 2006, $78,912.99 was deposited into a Royal Bank of Canada account in their joint names. On November 22 nd , 2006, $60,030 US was deposited to a US dollar account in the name of Michael and Stacey Lepitre at the Royal Bank of Canada, Crowfoot Branch, in the City of Calgary. On November 24 th , 2006, $60,022.09 US was withdrawn from that account and transferred to Douglas Welder, whose involvement in the IFC scheme is detailed in the Court’s judgment referred to above, Lepitre v.

Welder , 2013 ABQB 18 . Welder was instrumental in perpetrating the IFC scheme fraud on Canadian Investors. He was at all material times a British Columbia lawyer who maintained a trust account in Kelowna, British Columbia. Thus, the claim of Michael Lepitre as Class Member #12 is $60,000 US. [ 13 ] There is no evidence that Stacey Lepitre had anything to do with the marketing of the IFC scheme and no reason why the Attachment Order, which on its face does not apply to Stacey Lepitre, should apply to her.

The joint bank accounts and the joint obligation of Michael and Stacey Lepitre as mortgagors, provides ample evidence for the Court to make a finding that the investment was joint and that the proper allocation, in the absence of any other evidence, is 50/50. That is, 50 % of the $60,000 US investment in the IFC scheme or $30,000 US is that of Stacey Lepitre, not Michael Lepitre. [ 14 ] The evidence with respect to the valuation of Michael Lepitre’s claim is driven by the application of the Distribution Plan and the evidence as to what Michael Lepitre’s involvement was with the IFC scheme.

At the time of the IFC investments, Michael Lepitre was the President and owned 50% of Kustom Design Financial Services Inc. with the other 50% being held by Mark Jones. Michael Lepitre was also the President and Director of Kustom Design Group Inc. and Mark Jones was the Secretary and Treasurer of Kustom Design Group Inc., a company incorporated in Nevada, owned by a Belize company, also named Kustom Design Group Inc..

The Alberta Securities Commission considered Michael Lepitre to be the controlling mind of the Kustom “family” of companies including Kustom Design Group Inc. and the business activity of Kustom Design Group Inc. appears to be the sale of investments in itself and the reinvestment of the invested money in other ventures. Further, the investments of Albertans in Kustom Design Group Inc. from June through December 2006 was in the order of $3.2 Million US and these funds were provided to Knight Capital.

According to Chico Toscano, the controlling mind of Knight Capital, Kustom Design Group Inc. provided a total of $2.8 Million which was forwarded to IFC. There is substantial evidence as to the rate of return that Knight Capital told Kustom Design Group Inc. they would be receiving and according to an email from Mark Jones, Kustom Design Group Inc. received a total of $280,000 in profit, which in turn was paid to Kustom Design Financial Services as a loan.

This information was provided by Mark Jones to the Receiver of IFC. [ 15 ] The Administrator urges upon this Court that the $280,000 dollars profit received by Lepitre’s company be deemed monies earned as a result of the investment in the IFC scheme.

The Administrator suggests that Michael Lepitre’s claim be reduced by 50% of the $280,000 dollars, or $140,000 dollars, tracking his known shareholding in Kustom Design Financial Services Inc. of 50%, and because Michael Lepitre’s claim is valued at $30,000 US, the assessed value of his claim ought to be reduced to 0. [ 16 ] I accept the recommendation of the Administrator in this regard. Michael Lepitre’s claim will be reduced to 0. Notably absent from Michael Lepitre’s submissions or any of the evidence, is any denial of the benefit received by Kustom Design Group Inc. or Kustom Financial Services.

Lepitre owned 50% of the former and cannot hide behind the corporate veil and suggest that he receive no personal benefit in any way with respect to the IFC scheme.

If the reality is otherwise, one would expect some evidence to be forthcoming from Michael Lepitre or Mark Jones other than that related above, showing that the benefits received by Kustom Design Group Inc. were either not associated with the IFC scheme or did not result in any benefit to the shareholders of Kustom Design Group Inc. [ 17 ] The Court also notes that the Administrator has in his submissions taken care to discuss the burden of proof in this regard and accepts that is his burden. I find that he has discharged it.

So soon as he put forward the evidence referred to in his submissions, the evidentiary burden shifts to Michael Lepitre and it is that shifting burden that Michael Lepitre has not discharged. [ 18 ] As for the submission of the Receiver, that the Michael Lepitre claim was filed late, as was the claim of Stacey Lepitre, the Administrator has submitted that the purpose of the deadline for filing claims is that it was intended to expedite the process, that the Administrator accepted a late claim for one other class member without applying any penalty and does not consider it appropriate to use the deadline as the basis to deny class members the opportunity to receive a distribution from the settlement.

The Administrator also points out, in the alternative, that according to paragraph 9 of the Distribution Plan, the deadline can be extended. That he is applying to do, if necessary. I do not find it necessary because I accept the position of the Administrator. The issue is moot insofar as the claim of Michael Lepitre is concerned but, insofar as the claim of Stacey Lepitre is concerned, the claim will be recognised and the deadline extended to any date necessary to effect the distribution with her in it. Accordingly, the requested Orders granted are: 1.

The valuation of the claims by the Administrator for the Alberta Class are as set forth in Scenario 1, Appendix B to the Amended Application. For investor #12, Michael Lepitre, the amount invested is shown as $60,000 US, the net loss is shown as $30,000 dollars, recognizing Stacey Lepitre’s claim only and the gross settlement amount to her will be $15,318.30. That amount will be payable

directly to her and the remaining claims will be paid as approved. 2. The Attachment Order of Master Mason does not apply to Stacey Lepitre. 3. Michael Lepitre’s claim is reduced to zero. 4. The Receiver’s request for an additional Order, as indicated above, that Michael Lepitre and Stacey Lepitre make their best efforts to provide the Receiver the last known address for David Boyer, Martin Harder, Elsie Braun, Robert Harms, Rick Kawa, Glen Miller, Nancy Wolff and Fred Nowicki Enterprises is granted. Heard on the 3 rd day of September, 2013. Dated at the City of Calgary, Alberta this 4 th day of October, 2013.

N.C. Wittmann C.J.C.Q.B.A. Appearances: Joe Fiorante, Q.C. Jen Winstanley for the Administrator, Camp Fiorante Matthews Mogerman Michael Lepitre In person Oliver Fuldaver for Stacey Lepitre Lana K.L. Li for Roy M. Terry Jr. Receiver of International Fiduciary Corp. S.A. J. Peter McMahon for Chadwick Ventures Ltd.