BMO Harris Bank, N.A. Plaintiff - v. -, 2015 ABQB 749

Court of Queen ’ s Bench of Alberta Citation: BMO Harris Bank, NA v Reid, 2015 ABQB 749 Date: 20151127 Docket: 1403 00239 Registry: Edmonton Between: BMO Harris Bank, N.A. Plaintiff - and - Emilie Anne Reid, In Her Capacity As Personal Representative for the Estate of Arthur Murray Reid and Emilie Anne Reid Defendants _______________________________________________________ Reasons for Judgment of S. L. Schulz , Master in Chambers _______________________________________________________ [ 1 ] The Plaintiff, BMO Harris Bank, N.A., seeks

Summary Judgment for the whole of its claim against the Defendants, Emilie Anne Reid in her personal capacity (“Ms. Reid”) and Emilie Anne Reid in her capacity as the Personal Representative (“Personal Representative”) of the Estate of Arthur Reid (“Estate”). In the alternative, it brings an application to enforce an Arizona Judgment against the parties named in the Arizona action, being the Estate and the Personal Representative. For the reasons that follow, the registration of the Arizona Judgment against the Personal Representative is allowed. The application for

summary judgment of the “new

claims” against the Personal Representative and Ms. Reid is dismissed. [ 2 ] The Defendants bring a cross-application for

Summary Dismissal of the ‘new claims” against Ms. Reid and the Personal Representative. For the reasons that follow,

Summary Dismissal of the “new claims” in the Statement of Claim against the Defendants Ms. Reid and the Personal Representative is granted. Background [ 3 ] In March of 2005, Arthur Reid (“Arthur”) purchased a property in Arizona (“Arizona Property”). Part of the mortgage financing was a Promissory Note (“Note”) executed by Arthur in his personal capacity in favour of M&I Marshall and Ilsley Bank for a principal amount of $2,562,000.

BMO is the legal successor in interest to M&I Marshall and Ilsley Bank (both of which are herein referred to as the “Bank”). [ 4 ] In 2008, the Bank became aware that the property was valued at less than the loan balance and assigned responsibility for monitoring this asset to its Risk Department. [ 5 ] On January 1, 2009, Arthur passed away. Pursuant to the terms of Arthur’s Last Will and Testament (“Will”), Arthurs’s wife, Ms. Reid was appointed the Executrix and Personal Representative of the Estate.

Under the Will, she was the sole Personal Representative and the sole beneficiary. [ 6 ] The Personal Representative retained Mr. Dubrule of the Edmonton law firm Parker Dubrule to probate the Estate. [ 7 ] By way of a letter dated January 27, 2009 and received by the Bank on February 4, 2009, Mr. Dubrule advised the Bank of Arthur’s death. In that letter, the Bank was specifically asked to confirm the values/balances of any assets and debts as at the date of death.

No response was received from the Bank in response to this request for information. [ 8 ] On March 4, 2009, the Bank received a copy of the Will from Mr. Dubrule and alerted the “probate—deceased department” of the Bank’s corporate office. [ 9 ] On December 1, 2009, a Grant of Probate was issued in Alberta. [ 10 ] Around this time, real estate values in Phoenix began to exhibit a downward trend.

On January 29, 2010, Bank employees anticipated a deficiency if payments on the Note were to stop. and on February 12, 2010, Bank employees sought legal advice regarding its ability to pursue the Estate should there be a default under the Note. [ 11 ] By April 20, 2010, Bank employees knew that a sale of the property would likely result in a $1 million dollar shortfall on the Note. [ 12 ] Payments continued to be made and the Note remained in good standing. [ 13 ] In September of 2010, the Estate was distributed to the sole beneficiary, Ms.

Reid. [ 14 ] On February 28, 2011, the Bank was provided with a copy of the Grant of Probate from Alberta and was advised that “Emilie [Ms. Reid] now owns everything from the [E]state”. Internal Bank emails show that Bank employees were aware that “everything went” to Ms. Reid. [ 15 ] On February 28, 2011, the Bank sought legal advice on its next steps from their in-house legal counsel.

In addition, Bank employees contacted external counsel on March 2, 2011 to review the matter and advise the Bank on the best way to handle the Note so that the Bank would retain its deficiency rights should the loan go into default. [ 16 ] Payments continued to be made and the Note remained in good standing until it went into Default on August 1, 2011. [ 17 ] On October 28, 2011, the Bank commenced an action on the Note in Arizona against the Estate and the Personal Representative of the Estate. The Arizona action did not seek judgment or relief against Ms.

Reid in her personal capacity or as the sole beneficiary of the Estate. [ 18 ] On January 30, 2012, an Answer to Complaint was filed in the Arizona action on behalf of the Personal Representative confirming that all Estate assets had been distributed. [ 19 ] On November 11, 2013, the Bank obtained judgment against the Estate and the Personal Representative in the Arizona action in the principal amount of $1,129,460.14. An Appeal of this decision was dismissed on April 16, 2015, awarding costs to the Bank.

The Arizona action is at finality and there are no further appeals pending. [ 20 ] On January 7, 2014, an action was commenced in Alberta. Claims Advanced in the Alberta Action [ 21 ] The claims advanced in the Statement of Claim can be divided into two categories. The first relates to the recognition by the Alberta Courts of the Arizona judgment against the Personal Representative (paragraph 22 of the Statement of Claim). [ 22 ] The second category is “new claims" against Emilie Anne Reid as the Personal Representative of the Estate, and Ms.

Reid as an individual (paragraph 23 of the Statement of Claim—note what appears to be a typographical error in paragraph 23 claiming against

the Defendant Mr . Reid). These claims are grounded in breach of fiduciary duty, Devastavit, fraudulent transfer, knowing receipt, and unjust enrichment. These claims were not advanced in the Arizona action and are therefore referred to in this decision as the “new claims”. Category 1: Recognition of Arizona Judgment Against the Personal Representative [ 23 ] The Brief filed on behalf of the Bank advises that an appeal of this decision was dismissed on April 16, 2015, awarding costs to the Bank. Counsel advises the Arizona action is now at finality and there are no further appeals.

The Defendants concede in their Brief that the Bank has a final money judgment granted by a court of competent jurisdiction in Arizona. [ 24 ] Section 2(1) of the Reciprocal Enforcement of Judgments Act ,

chapter R.6 RSA 2000 (“ Act ”), stipulates that only judgments of a reciprocating jurisdiction can be registered: 2(1) When a judgment has been given in a court in a reciprocating jurisdiction, the judgment creditor may apply to the Court of Queen’s Bench within 6 years after the date of the judgment to have the judgment registered in the Court, and on the application the Court may order the judgment to be registered accordingly. [ 25 ] For the purpose of the Act , reciprocating jurisdictions are declared in the Reciprocating Jurisdictions Regulation , Alt. Reg. 344/85 as amended from time to time.

Arizona has not been declared to be a reciprocating jurisdiction. [ 26 ] The requirements of the Act have not been met and accordingly registration of the Arizona judgment must meet the common law principles of the enforcement of judgments as set out in the decisions of Skaggs Companies Inc v Mega Technical Holdings Ltd , 2000 ABQB 480 at paragraphs 17 to 18 and Magellan Morada Investment Ltd Partnership v Miller , 2009 ABCA 124 at paragraph 19 :

a) The foreign court must have jurisdiction over the non-resident, alternatively, the non-resident must submit to the jurisdiction of the foreign court;

b) If there has not been submission to the jurisdiction of the foreign court, the foreign court must have proper jurisdiction on the basis of the real and substantial connection test;

c) The foreign judgment must be for a fixed sum of money; and

d) The foreign judgment must be final and conclusive. [ 27 ] The evidence shows that there was submission to the jurisdiction of the Arizona court, the foreign judgment is for a fixed sum of money and the foreign judgment is final and conclusive. The Defendants do not take issue with those facts. The Bank has not asked in the Statement of Claim for recognition of the Arizona judgment against the Estate and has not named the Estate as a party in this action. Accordingly, the Arizona judgment is recognized against the Personal Representative as named in the Arizona action.

Category 2: New Claims against the Defendants Based on Breach of Fiduciary Duty, Devastavit, Fraudulent Transfer, Knowing Receipt, and Unjust Enrichment (“new claims”) [ 28 ] The

summary judgment and

summary dismissal applications turn on the determination of the commencement of the limitation period. The applicable sections of the Limitations Act , RSA 2000 C. L-17 (“ Limitations Act ”) are as follows: 1. In this Act, ... (

d) duty means any duty under the law; (e) “injury” means (

i) personal injury, (ii) property damage, (iii) economic loss, (iv) non-performance of an obligation, or (

v) in the absence of any of the above, the breach of a duty; ... 3(1) Subject to section (1.1) and (1.2) and

section 11, if a claimant does not seek a remedial order within

(a) 2 years after the date on which the claimant first knew, or in the circumstances ought to have known, (

i) that the injury for which the claimant seeks a remedial order had occurred, (ii) that the injury was attributable to conduct of the defendant, and (iii) that the injury, assuming liability on the part of the defendant, warrants bringing a proceeding... [ 29 ] A careful consideration of

section 3 was made by Justice Renke in Condominium Plan 0125764 v Amber Equities , 2015 ABQB 235 (“ Amber Equities ”): [93] The three elements of discoverability in s. 3(1)(

a) must be considered in relation to what the claimant ‘knew or in the circumstances ought to have known.’ According to Justice Hunt, the test for ‘ought to have known’ is that of ‘ reasonable diligence’ analyzed in the light of the three s. 3(1)(

a) factors..... [94] With respect to s.3(1)(a) (i), ‘knowledge refers to knowledge of the facts supporting a claim —not knowledge that, in law, the facts support a claim...To know that an ‘injury’ has occurred, a plaintiff is not required to know that the elements of a cause of action have occurred... [95] The Court of Appeal has warned against adding language to the Limitations Act . In particular, there is no statutory requirement that a claimant have ‘clear information’ respecting an injury...

The test, as set by the Limitations Act , is whether the claimant ‘ in the circumstances ought to have known’ of the claim—whether the claimant was reasonably diligent in determining whether it had a claim, in the claimant’s circumstances. [96] With respect to s.3(1)(a)(iii), the test for whether injuries ‘warrant’ bringing a proceeding is whether a reasonable person would consider that someone in the plaintiff’s position, acting reasonably in light of his or her own circumstances and interests, could—not necessarily should—bring an action . This approach is neither purely subjective nor purely objective.

The question becomes: ‘in light of his or her own circumstances and interests, at what point could the plaintiff reasonably have brought an action?’ The reasonable person would only consider that the plaintiff could not have brought an action at the time the right to do so first arose if the plaintiff’s own interests and circumstances were serious, significant, and compelling . Purely tactical considerations have no place in this analysis... [97] Since s. 3(1)(a)(iii) ‘[assumes] liability on the part of the defendants,’ this provision does not relate to whether claimants knew or should have known of an ‘injury’.

The s. 3(1)(a)(iii) issue is whether, given an injury, proceeding was warranted. Factors relevant to s 3(1)(a)iii) , then, would not concern whether the claimant knew or should have known about the injury, but whether there were circumstances that did not warrant (or urged or militated against) bringing and action ... As Justice Clackson has observed, It is not every nick, bump, bruise, failing or deficiency that warrants action... The question of whether an injury warrants proceedings is not strictly an issue of fault, or even potential economic gain.

What warrants proceedings embraces a consideration of the extent of the injury in comparison to the economics of a prospective action . This assessment involves a blended objective/subjective analysis... Citations Omitted; Emphasis added; Condominium Plan 0125764 v Amber Equities , 2015 ABQB 235 [ 30 ] The commencement of the limitation period is further clarified by the Alberta Court of Appeal: [41] ...[T]here will be cases where the claimant will have sufficient knowledge to throw an obligation on it to make reasonable inquiries about its rights .

That will start the running of the limitation period, even if the claimant’s knowledge could not be described as ‘clear information.’ Canadian Natural Resources Limited v Jensen Resources Ltd , 2013 ABCA 399 at para 41 (“ CNR LTD ”) Analysis of the Evidence [ 31 ] Each cause of action must be examined to determine when the limitation period began to run. There is one common element for each cause of action that is determinative of these applications: the Bank’s knowledge of the transfer of Estate assets to Ms. Reid personally. [ 32 ] For the Bank to be successful in bringing its

summary judgment application, there must be clear and uncontradicted evidence that the Bank brought the Alberta action within two years of the date that it knew or ought to have known of the transfer of the Estate assets to Ms. Reid. The Bank maintains that it first learned of the distribution of Estate assets when it received the Answer to Complaint filed January 30, 2012, less than 2 years before the commencement of the Alberta proceedings. The Bank argues that a Grant of Probate does not state whether assets have been transferred, nor does it authorize or approve a distribution of the assets.

The information about the transfer of Estate assets was communicated to the Bank in February of 2011 in the context of a request for advice on who was in charge of the Estate. That request was made so the Bank could decide whether to change the loan from a construction loan to a permanent loan. As such, the Bank understood the information to mean that Ms. Reid was in charge of the Estate. The Bank relies on the fact that the loan was still in good standing at the time that the information was conveyed. Further, the Bank takes the position that it did not have a claim against Ms.

Reid personally until the Arizona Judgment was obtained and the Estate failed to satisfy that judgment.

[ 33 ] Conversely, to be successful in the

summary dismissal application, the Defendants must adduce clear and uncontradicted evidence that the Bank knew about the transfer of the Estate assets more than two years before the filing of the Statement of Claim. The Defendants argue that the Bank “knew or ought to have known” of the transfer of assets to Ms.

Reid personally when that information was conveyed in February of 2011, making the filing of the Statement of Claim on January 7, 2014 outside the time prescribed by the Limitations Act . [ 34 ] Determination of these two diametrically opposed applications is dependent on what the Bank knew and when the Bank knew it. [ 35 ] The Bank is a lending institution. It has a Risk Department and a “probate-deceased department”. It has in-house counsel and access to outside counsel.

In other words, the Bank is a sophisticated lender/litigant and what it “knew or ought to have known” must be examined in that light as well as in the context of the events that occurred. [ 36 ] By August 1, 2011, the Bank had the following information and the following events had occurred: • January 1, 2009: Death of Arthur • January 29, 2010: The value of real estate in Arizona was trending downward and Bank employees anticipated a deficiency if payments on the Note were to stop.

Employees of the Bank sought legal advice regarding its ability to pursue the Estate should there be a default under the Note. • April 20, 2010: Bank employees knew that a sale of the property would likely result in a $1 million dollar shortfall on the Note. • February 28, 2011: The Bank received a copy of the Grant of Probate of the Estate plus an email from a representative of Reid Worldwide Corporation to Diane Vandenberg, BMO Account Manager and Asset Disposition Specialist, stating that “Emilie [Ms.

Reid] now owns everything from the [E]state (shares of corporations as well as personal assets) and is indicated as such in the Probate [emphasis added]”. • February 28, 2011: Bonnie Tobin, Residential CART Manager, emailed Diane Vandenberg, BMO Account Manager and Asset Disposition Specialist, asking inter alia , “We need to know what is to happen with the decedent’s estate/assets.” Diane Vandenberg responds “...everything went to his wife, Emilie Ann Reid [emphasis added]”.

The Bank sought legal advice from in-house counsel at this point. • March 2, 2011: The matter was referred to external counsel to review and advise the Bank “on the best way to handle so that the Bank retains their deficiency rights if the loan should go into default”. • August 1, 2011: The Note went into default. [ 37 ] The Bank had sufficient knowledge by August 1, 2011 to throw an obligation on it “to make reasonable inquiries about its rights” and to start the limitation period running (See CNR Ltd , para 41). [ 38 ] The Bank was given the Grant of Probate and in that context was told that Ms.

Reid “now owns everything”. The Bank understood this to mean that “everything went ” to Ms. Reid and used that phrase in an internal email between management employees. The Bank’s email used the past tense-- “went”. It did not use the future tense-- that everything “goes” to Ms. Reid. This indicates that Bank employees at the management level, were aware that the assets had been distributed. The Bank is fixed with the knowledge of its senior employees. [ 39 ] Furthermore, the Bank was obtaining legal advice from in-house counsel and from local outside counsel as the listed events unfolded.

It is clear that access to legal advice was not an issue for the Bank.

Knowledge of the distribution of all the Estate assets is sufficient to throw an obligation on the Bank to make reasonable inquiries about its rights, especially a Bank that has in-house legal counsel and its own “probate-deceased department” and where the matter was assigned to the Risk Department at all relevant times. [ 40 ] Finally, the Bank knew that the value of the property was substantially less than the amount owing on the Note, and yet it took no steps to make inquiries or determine the status of the assets of the Estate despite receiving the Grant of Probate and the information about the distribution of the Estate assets.

The Bank cannot extend the limitation period by choosing to do nothing. Due diligence is required. (See Stewart Estate v TAQA North Ltd , 2013 ABQB 691 , para 200 , Romaine, J.) [ 41 ] The three elements of discoverability as discussed by Justice Renke in Amber Equities , are met on these facts by August 1, 2011. [ 42 ] Section 3(1)(

a) and 3(1)(a)(

i) are satisfied given the Bank knew, or ought to have known in the circumstances, the facts supporting the claim. The Bank was a sophisticated lender/litigant who knew that the assets had been distributed and knew that the Note was in default. It does not need certainty and it does not need to have a judgment from the Arizona court in order to know the injury had occurred.

In the circumstances, this sophisticated lender/litigant ought to have known of the injury by August 1, 2011. [ 43 ] Section 3(1)(a)(ii) is satisfied given the knowledge of the employees of the bank that a Grant of Probate had been issued and everything went to Ms. Reid. The injuries from the new claims were clearly attributable to the conduct of the Defendants or their agents. In the circumstances, this sophisticated lender/litigant ought to have known this by August 1, 2011. [ 44 ] Section 3(1)(a)(iii) is satisfied once there is a default under the Note. Circumstances warranted bringing a claim at this point.

A reasonable person would consider that a sophisticated lender/litigant, acting reasonably in light of the circumstances of the default of a loan in excess of 1 million dollars, could bring an action. The circumstances were serious, significant and compelling. The economics of

bringing an action as compared to the extent of the injury certainly warranted proceedings being brought as of August 1, 2011.

Summary Judgment and

Summary Dismissal [ 45 ] With respect to the new claims, the Plaintiffs apply for

summary judgment and the Defendants apply for

summary dismissal. The test and reasoning to be applied in

summary judgment and

summary dismissal applications are set out by the Court of Appeal of Alberta in 776826 Alberta Ltd v Ostrowercha , 2015 ABCA 49 at paragraphs 9 to 13 inclusive and the cases cited in that decision. In the case at bar, the Court must ask itself: Based on the existing record is it fair and just to both parties to grant

summary judgment or

summary dismissal of the new claims in the Statement of Claim, or should the matter be referred to trial for viva voce evidence? Master Schlosser summed up the state of the law succinctly: [10] Modern

Summary Judgment is a function of whether a fair and just determination can be made on the merits without a trial. It is a measure of the confidence the Court has in predicting the outcome of the case. The real risk is weighing whether the truncated procedure will produce the wrong result and create an injustice. Padget Estate (RE), 2015 ABQB 515 at para 10 [ 46 ] The Defendants have satisfied the onus on them to prove there is no merit to the new claims brought against them. The burden shifted at this point to the Bank to adduce evidence that triable issues remain.

The Bank has been unsuccessful in that endeavour. The Statement of Claim was filed on January 7, 2014, more than 2 years after the limitation period began to run. It is therefore barred by the Limitations Act . [ 47 ] Given my finding with respect to the

Summary Dismissal application, it is not necessary for me to address the

Summary Judgment Application brought by the Bank. The Bank has not met the burden of establishing that their claim has merits. Conclusion [ 48 ] The Arizona judgment is recognized in Alberta as against the Personal Representative. [ 49 ] The new claims advanced in the Statement of Claim are summarily dismissed against the Defendants. [ 50 ] The

Summary Judgment Application of the Plaintiff is dismissed. Costs [ 51 ] The Plaintiff was successful in its application to register the Arizona judgment but the Defendants were successful in their application to dismiss the rest of the action. If the parties cannot agree on costs, they can make an appointment to speak to costs at a future date. Heard on the 17 th day of August, 2015. Dated at the City of Edmonton, Alberta this 27 th day of November, 2015. S. L. Schulz M.C.C.Q.B.A.

Appearances: Jordan Deering Dentons Canada LLP for the Plaintiff Sigurd Delblanc Bryan & Company for the Defendants