Marino (Re), 2019 ABQB 903

Court of Queen’s Bench of Alberta Citation: Marino (Re), 2019 ABQB 903 Date: 20191126 Docket: B201 434044 Registry: Calgary In the Matter of the Bankruptcy of Marco Joseph Marino _______________________________________________________ Memorandum of Decision of J. T. Prowse, Registrar in Bankruptcy _______________________________________________________ [ 1 ] Mr. and Ms. Marino are spouses involved in matrimonial litigation, including competing claims under the Matrimonial Property Act , RSA 2000, c M-8 (the “ MPA ”). [ 2 ] Mr.

Marino is an undischarged bankrupt under the Bankruptcy and Insolvency Act , R.S.C., 1985, c. B-3 (the “ BIA ”), [ 3 ] Questions arise as to how the bankruptcy of Mr. Marino alters the normal course of the parties’ matrimonial litigation, either substantively or procedurally. [ 4 ] I will consider first the MPA claim which Mr. Marino is asserting against Ms. Marino, and next the MPA claim she is asserting against him. It is important to deal with these two issues as separate topics.

Summary of conclusions [ 5 ] For the reasons which follow I have concluded: • Mr. Marino’s MPA claim against Ms. Marino’s property is a nullity because that cause of action is vested in MNP Ltd and not in

Mr. Marino. • Ms. Marino’s MPA claim against Mr. Marino’s property is not released by his eventual discharge from bankruptcy, however herclaim is currently stayed. Procedural history [6] Ms. Marino filed a statement of claim for divorce and division of matrimonial property on October 11, 2018. She seeks anunequal division of matrimonial property in her favour under the MPA. [7] The matrimonial assets which she is seeking, in diminishing order of value, are: • Mr. Marino’s pension, valued at approximately $200,000. • Mr. Marino’s equity in the jointly owned matrimonial home, valued at approximately $20,000. • Mr.

Marino’s equity in a jointly owned Mustang automobile, which has since been sold with the $9,800 proceeds being held intrust pending the outcome of the MPA proceedings. [8] On October 22, 2018, Mr. Marino assigned himself into bankruptcy. MNP Ltd was appointed his trustee. [9] Mr. Marino then filed a statement of defence and counterclaim against Ms. Marino on November 5, 2018, without theinvolvement of MNP Ltd. Mr. Marino asserts a claim under the MPA against: • Ms. Marino’s interest in the jointly owned matrimonial home. • Ms.

Marino’s interest in the sale proceeds of the jointly owned Mustang automobile. • Potentially other matrimonial assets of Ms. Marino which Mr. Marino says have not been fully disclosed to him. Claims by the undischarged bankrupt, Mr. Marino [10] Mr. Marino could simply have filed a statement of defence to Ms. Marino’s MPA claim, seeking to prevent Ms. Marino fromobtaining ownership of Mr. Marino’s assets, but instead he chose to counterclaim and assert a MPA claim to Ms. Marino’s assets. [11] This potential claim against Ms. Marino’s assets under the MPA is a chose in action which in my view vested in MNP whenMr.

Marino assigned himself into bankruptcy. [12] This is because the chose in action is considered to be a ‘thing in action’ which vests in the trustee in bankruptcy pursuant tosection 71 of the BIA, which states: On a bankruptcy order being made or an assignment being filed with an official receiver, a bankrupt ceases to have any capacity todispose of or otherwise deal with their property, which shall, subject to this Act and to the rights of secured creditors, immediately pass toand vest in the trustee named in the bankruptcy order or assignment, and in any case of change of trustee the property shall pass fromtrustee to trustee without any assignment or transfer. (emphasis added) [13] The definition of property in

section 2 of the BIA is as follows: property means any type of property, whether situated in Canada or elsewhere, and includes money, goods, things in action, land andevery description of property, whether real or personal, legal or equitable, as well as obligations, easements and every description ofestate, interest and profit, present or future, vested or contingent, in, arising out of or incident to property; (emphasis added) [14] For example, in Wallace v United Grain Growers, (SCC), 1997 CarswellMan 455, [1997] 3 S.C.R. 701, 3C.B.R. (4th) 1, at para 41, the Supreme Court of Canada held that the bankrupt’s cause of action for breach of contract against his formeremployer was a cause of action which vested in his trustee in bankruptcy. [15] Wallace expressly approved the Ontario Court of Appeal’s decision in McNamara v Pagecorp Inc., 1989 CarswellOnt 183,76 C.B.R. (N.S.) 97. [16] McNamara stated as follows, at paragraph 4: The scheme of the Bankruptcy Act is that all property of the bankrupt owned at the date of bankruptcy and which is acquired by thebankrupt prior to his discharge vests in the trustee.

There is no doubt that an undischarged bankrupt cannot bring action to enforceproperty claims and we are satisfied that such is the law even where, as here, the property is allegedly sold by the trustee to the bankruptprior to his discharge. [17] It is clear that Mr. Marino’s MPA claim against Ms. Marino vested in MNP Ltd when he assigned himself into bankruptcy.His counterclaim filed on November 5, 2018 is therefore a nullity, as only MNP could bring the claim at that time.

See Casekey Estate(Trustee of) v Guardian Insurance Co of Canada, 1999 ABQB 1065, 1999 CarswellAlta 926, 14 C.B.R. (4th) 45. [18] MNP will have to decide what to do with this chose in action. Among its choices are pursuing the MPA claim itself, offeringit to creditors pursuant to s. 38 of the BIA or, failing that, selling the claim to someone else, including potentially to Mr. or Ms. Marino. [19] At the hearing of November 22, 2019, I requested that MNP advise the parties of its choice in this regard by December 31,2019.

Claims by Ms. Marino against the undischarged bankrupt, Mr. Marino [20] The property belonging to Mr. Marino, which Ms. Marino is presently pursuing in her MPA claim, is currently vested inMNP, even though it is ‘exempt’ property. See Ramgotra (Trustee of) v North American Life Assurance Co, (SCC),[1996] 1 S.C.R. 325, 1996 CarswellSask 418, at para. 64. [21] There are two questions which arise: • is Ms. Marino’s claim under the MPA a ‘claim provable in bankruptcy’ so that it is released when Mr. Marino is discharged frombankruptcy? For the reasons given below my answer to that question is ‘no’. • is Ms.

Marino’s MPA claim stayed? For the reasons given below my answer to that question is ‘yes’. Is Ms. Marino’s MPA a claim provable in bankruptcy and therefore released? [22] If Alberta’s legislation was the same as Manitoba’s legislation, then Ms.

Marino’s claim would be a claim provable inbankruptcy and would be released, but Alberta law is different. [23] This issue was discussed in Schreyer v Schreyer, 2011 SCC 35, 2011 CarswellMan 335, [2011] 8 W.W.R. 413. [24] In Schreyer, the wife petitioned for divorce in March of 2000 and sought an equal division of marital property pursuant toManitoba’s Family Property Act.

Included in her claim was an equal division of a farm which had been bought in the husband’s namealone. [25] The husband then assigned himself into bankruptcy. [26] The Supreme Court of Canada ruled that the husband’s subsequent discharge from bankruptcy effectively released thehusband from the wife’s matrimonial property claim.

He was allowed to keep the farm, an exempt asset, free and clear from her claim. [27] The wife’s equalization claim in Schreyer, made under Manitoba’s Family Property Act, was released because it was held tobe a ‘claim provable in bankruptcy’. [28] So far as matrimonial property legislation is concerned, Manitoba, where the Schreyer’s resided, is classified as an‘equalization’ province along with Ontario and Prince Edward Island. [29] Alberta is classified as a ‘division’ province, along with New Brunswick, Nova Scotia, Newfoundland, and Saskatchewan. [30] In Schreyer, the wife argued that her claim was not a claim provable in bankruptcy because it was allegedly a proprietaryclaim and, for this reason, not affected by the bankruptcy of her husband. [31] The Supreme Court of Canada disagreed.

It held that Mrs. Schreyer’s claim was not a proprietary claim. It reasoned asfollows, at paragraphs 14 and 15 of the decision: 14 Every Canadian province has tried to address in some way the inequities or difficulties arising out of the distribution of familyassets after the breakdown of a marriage or of a common law relationship to which the same rules apply. Broadly speaking, theprovincial legislatures have chosen between two different models: equalization and division of property (R. A.

Klotz, Bankruptcy,Insolvency and Family Law (2nd ed. (loose-leaf)), at pp. 4-29 to 4-30). 15 The equalization model involves a valuation of the family assets and an accounting. The value of the assets is then dividedbetween the spouses, usually in equal parts, although family courts have a limited discretion to order an unequal division. The valuationand the division give rise to a debtor-creditor relationship in the sense that the creditor spouse obtains a monetary claim against thedebtor spouse. But the assets themselves are not divided.

Each spouse retains ownership of his or her own property both before and afterthe breakdown of the marriage. Neither acquires a proprietary or beneficial interest in the other's assets. Assets are transferred only at theremedial stage, as agreed by the parties or as ordered by the family court in exercising its discretion, as a form of payment or executionof the judgment (T. A. Gutkin, "Family Law and Bankruptcy" (1999), 16 Nat'l Insolv. Rev. 26, at pp. 31-32; Balyk v. Balyk (1994), (ON SC), 113 D.L.R. (4th) 719 (Ont. Gen. Div.), at pp. 723-25; Burson v. Burson (1990), (ON SC), 4C.B.R. (3d) 1 (Ont. Gen.

Div.), at paras. 24-25). The division of property schemes, on the other hand, give rise to a proprietary orbeneficial interest in the assets themselves, not just in their value (Balyk, at pp. 723-24). (emphasis added) [32] Alberta, as stated, is a division of property jurisdiction. The primary provisions of the MPA in this regard are sections 7(1)and 9(2), which state: 7(1) The Court may, in accordance with this section, make a distribution between the spouses of all the property owned by both spousesand by each of them. 9(2) The Court, in order to effect a distribution under

section 7, may do any one or more of the following: ... (

c) by order declare that aspouse has an interest in property notwithstanding that the spouse in whose favour the order is made has no legal or equitable interest inthe property. [33] There is a fine line between an ‘equalization’ jurisdiction and a ‘division’ jurisdiction, because even in an ‘equalization’jurisdiction the Court can secure the ultimate award against the other spouse’s property. [34] However fine the line is, it makes all the difference in outcome.

[35] Pursuant to Schreyer I rule that Ms. Marino’s MPA claim is a proprietary claim and hence not a ‘claim provable inbankruptcy’. Her claim will not be released when Mr. Marino is discharged from bankruptcy. In addition, Ms. Marino has no right to filea Proof of Claim with respect to her MPA claim. Is Ms. Marino’s MPA action stayed? [36] Ms. Marino’s MPA claim against Mr.

Marino’s property is stayed pursuant to rule 4.34(1) which states: If at any time in an action prior to judgment the interest or liability of a party is transferred or transmitted to another person byassignment, bankruptcy, death or other means, the action is stayed until an order to continue the action by or against the other person hasbeen obtained. [37] The interest of Mr.

Marino in his matrimonial property (pension, home, Mustang automobile) was transmitted to MNP Ltdwhen he assigned himself into bankruptcy, thus triggering the stay of her action against him under r. 4.34(1). [38] As noted earlier in this decision, pursuant to the Ramgotra decision, the transmittal to MNP Ltd occurs even though theproperty in question is exempt and thereby not divisible amongst Mr. Marino’s creditors in his bankruptcy. [39] As contemplated by r. 4.34(1) I could lift the stay and allow Ms. Marino’s MPA claim to proceed, but I decline to do so. [40] It is hard to fathom the Court evaluating Ms.

Marino’s claim against Mr. Marino’s interest in matrimonial property, knowingthat Mr. Marino might later regain the right to pursue a MPA claim against Ms. Marino’s interest in the matrimonial property (seeparagraph 18 above). [41] Given my conclusion that there is a stay of Ms. Marino’s MPA claim under r. 4.34(1), I need not consider whether that claimis also stayed pursuant to the BIA. [42] The trustee is encouraged to decide, by December 31, 2019, whether it will return Mr.

Marino’s property to him, so as toextricate MNP from involvement in this aspect of the litigation. [43] The trustee can ‘return’ this exempt property (pension, home, Mustang automobile) to Mr. Marino. As stated in Ramgotra atparagraph 68: ... The RRIF is an exempt asset pursuant to the provincial legislation incorporated into s. 67(1)(b), meaning that it is not propertywhich is divisible among creditors. Given this, even though Mrs.

Ramgotra's future contingent interest in the RRIF had passed into thepossession of the trustee through the application of s. 91(2), the RRIF was property "incapable of realization" by the trustee pursuant tos. 40(1) of the BIA. Therefor, the trustee was obliged to return it to Dr. Ramgotra prior to applying for his discharge: Thompson v.Coulombe (1984), 54 C.B.R. (N.S.) 254 (C.A. Que.), at page 257; Zemlak (Trustee of) v. Zemlak (1987), (SK CA),66 C.B.R. (N.S.) 1 (Sask.

C.A.), at pages 9 and 11. ... (emphasis added) [44] See to the same effect Direct Rental Centre (West) Ltd v Norkus Estates (Trustee of), (AB KB), 1997CarswellAlta 912, 50 C.B.R. (3d) 200, at para. 19. Awaiting MNP’s decisions [45] Once MNP has made the decisions reference in paragraphs 18 and 42 above, the parties may seek further rulings from meregarding issues which arise from those decisions. At that time costs can be addressed.

Cases reviewed [46] In addition to the cases cited in these reasons, the following cases were considered: - Deloitte, Haskins & Sells Ltd v Graham, (AB KB), 1983 CarswellAlta 255, 47 C.B.R. (N.S.) 172. - Long v Brisson,1992 ABCA 184 , 1992 CarswellAlta 288, 13 C.B.R. (3d) 181. - Dinapoli v Yeung, 2002 ABQB 714, 2002 CarswellAlta 1068. - Tinant v Tinant, 2003 ABCA 211, 2003 CarswellAlta 974, 46 C.B.R. (4th) 150. - Lecerf v Lecerf, 2004 ABQB 501, 2004 CarswellAlta 1026, 2 C.B.R. (5th) 260. - Stanley v Stanley, 2015 ABQB 773, 2015 CarswellAlta 2260. Heard on the 22 day of November, 2019.

Dated at the City of Calgary, Alberta this 26th day of November, 2019

J. T. Prowse, Q.C. Registrar in Bankruptcy Appearances: Barry W. McMullan for Marco Joseph Marino Adam S. Benarzi for Traci Marino Donna Carson for MNP Ltd. Trustee of the Estate of Marco Joseph Marino