Rodin Law Firm v Noelle, 2021 ABQB 577

Court of Queen’s Bench of Alberta Citation: Rodin Law Firm v Noelle , 2021 ABQB 577 Date: 20210723 Docket: 1901 15085; B201 208517; B201 208520 Registry: Calgary Between: Rodin Law Firm Applicant (Not a party to the Appeal) - and - David Noelle, Angela Noelle, the Trustee of the Estate of David Bradley Noelle and the Trustee of the Estate of Angela Lynn Noelle Respondents (Respondents to the Appeal) AND Docket: B 201 208520 Registry: Calgary IN THE MATTER OF THE BANKRUPTCY OF DAVID BRADLEY NOELLE Between: Cameron Okolita Inc. Applicant (Appellant) - and -

David Bradley Noelle Respondent (Respondent to the Appeal) AND Docket: B201 208517 Registry: Calgary IN THE MATTER OF THE BANKRUPTCY OF ANGELA LYNN NOELLE Between: Cameron Okolita Inc. Applicant (Appellant) - and - Angela Lynn Noelle Respondent (Respondent to the Appeal) _______________________________________________________ Decision

of the Honourable Justice April Grosse _______________________________________________________ Appeal from an Order of Registrar Farrington, Registrar in Bankruptcy Dated the 24 th day of August, 2021 Introduction [ 1 ] The underlying issue in this appeal from a Registrar in Bankruptcy is whether funds received by the bankrupts after discharge, but in settlement of a claim for lost wages that pre-dated the bankruptcy, are payable to the trustee for the benefit of the estates. However, the way in which the dispute has unfolded gives rise to other issues.

Facts and Procedural Context [ 2 ] There are a number of facts in dispute. However, I find that the appeal can be decided without resolving them. The following factual and procedural context is uncontested. [ 3 ] On January 19, 2017, both David Noelle and Angela Noelle filed assignments into bankruptcy.

The firm Cameron Okolita was appointed as the trustee of both estates. [1] As first-time bankrupts, both Noelles were automatically discharged on or about October 20, 2017. [ 4 ] Prior to the assignment into bankruptcy, the Noelles had retained Rodin Law Firm to represent them in a claim arising out of a 2011 motor vehicle accident (“MVA”). In January 2019, Rodin contacted Cameron Okolita to obtain bankruptcy records for use in the MVA claim. The trustee responded by saying they may have an interest in the MVA action to the extent it included a claim for general damages or loss of income.

The Noelles ultimately settled the MVA claim in mediation in June 2019. The trustee continued to claim an interest in some of the settlement funds and the Noelles opposed. A significant factual dispute arose between the Noelles and the trustee as to whether the Noelles had disclosed the existence of the MVA claim at the outset, or in the course, of their bankruptcy. [ 5 ] On October 28, 2019, faced with competing demands by the trustee and the Noelles, Rodin Law Firm filed an application to interplead the disputed portion of the MVA settlement funds into court.

The trustee and the Noelles both had notice, but neither appeared at the interpleader application. On November 29, 2019, a Master granted an interpleader order, directing payment of $32,279.44 (the portion of the MVA settlement funds claimed by the trustee) into court, and directing the following procedure for claimants to the funds: 4. The Interpleader Respondents who wish to appear and state the nature and particulars of their claims shall file Affidavits with the Court and serve copies of said Affidavits on all other Interpleader Respondents on or before January 31, 2020. 5.

Interpleader Respondents who have not filed Affidavits by the date set out in paragraph 4 of this Order shall not be entitled to any further notice of proceedings relating to the monies paid into Court pursuant to this Order. 6. The claims of the Interpleader Respondents shall be determined by way of

summary application. (the “Interpleader Order”) [ 6 ] The Noelles filed an affidavit in support of their claim within the time directed by the Interpleader Order. The trustee did not file an affidavit. However, before the Noelles took steps to have the funds paid out of court, the trustee filed an Application to Direct Funds and an Application for Advice and Directions in the bankruptcy actions. The applications were filed February 11, 2020 to be heard April 14, 2020 on the bankruptcy list. Both applications stated that the grounds would be further set out in an affidavit to be filed. No such affidavit was filed and the April 14 hearing did not proceed due to interruptions in the court

schedule caused by the Covid-19 pandemic. [ 7 ] On August 4, 2020, the trustee filed a fresh Application to Direct Funds and a fresh Application for Advice and Directions in the bankruptcy actions, again referencing an affidavit to be filed. The application was set for August 24, 2020. The trustee filed an affidavit in support on August 11, 2020. [ 8 ] When the trustee’s applications came before the court on August 24, 2020, the trustee and the Noelles made submissions.

The learned Registrar dismissed the trustee’s application with oral reasons, including the following: • The trustee did an “end-around” by failing to comply with the procedure set by the Interpleader Order for determining priority to the funds in court, and then bringing the applications in the bankruptcy actions.

• The trustee failed to meet its burden to show entitlement to the funds. The trustee relied on hearsay evidence and did not demonstrate an allocation of settlement funds across the covered time period except in without prejudice correspondence, which was not properly before the court. [ 9 ] The Registrar directed that the funds held in Court be paid out to the Noelles. [ 10 ] The trustee was self-represented until after the hearing before the Registrar. The Noelles have been self-represented throughout.

Since the hearing before the Registrar, the trustee obtained a stay of the order to pay out funds pending this appeal, and a procedural direction that any further filings would occur in the bankruptcy actions and not in the interpleader action. [ 11 ] The trustee has never been discharged. Grounds of Appeal [ 12 ] The trustee argues that the learned Registrar made the following errors of law: (

a) He erred in finding that the trustee had not complied with the Master’s Interpleader Order. The Interpleader Order simply set deadlines for participation in the interpleader process. The only consequence of missing those deadlines was not receiving further notice of proceedings by other claimants to the money in court. The Interpleader Order did not preclude the trustee from making a claim to the funds in court in the future. The Noelles did not make any

summary application as anticipated by the Interpleader Order and suffered no prejudice as a result of the procedure chosen by the trustee. (

b) He erred in finding that the trustee could not rely on a without prejudice letter setting out the terms of the Noelles’ MVA settlement. (

c) He erred in finding that the trustee’s supporting affidavit was primarily or entirely hearsay. (

d) He erred in finding that the trustee had not made out its claim to the funds, either as property or surplus income. Standard of Review [ 13 ] The parties agree that an appeal from a Registrar in Bankruptcy is a true appeal and is not de novo . The trustee cited Alberta Motor Products Ltd v English , 2003 ABQB 518 , where the Court found that the appellant must demonstrate an error of law.

In Morrison (Re) , 2019 ABQB 757 , the Court adopted the full appellate standard of review as set out in Housen v Nikolaisen (correctness for questions of law and palpable and overriding error for questions of fact and questions of mixed fact and law): Re Morrison at para 24, citing Re Sally Creek Environs Corporation , 2010 ONCA 312 at paras 68-70 ; Housen v Nikolaisen , 2002 SCC 33 .

Analysis The Interpleader Order and Entitlement to Funds in Court [ 14 ] I find no error in the learned Registrar’s conclusion that the trustee’s failure to participate in the interpleader process meant that the trustee gave up its claim to the funds paid into court. [ 15 ] The trustee claimed an interest in the funds held by Rodin Law Firm. Given that the entitlement to those funds was disputed, Rodin Law Firm applied to interplead the funds and take itself out of the dispute. The propriety of the interpleader application itself has never been raised and is not in issue in this appeal.

In any event, the Bankruptcy and Insolvency Act (“ BIA ”) and the Bankruptcy and Insolvency General Rules contemplate application of provincial law and procedure where something is not covered in the BIA or the General Rules and the provincial law or procedure is not inconsistent: Bankruptcy and Insolvency Act , RSC 1985, c B-3 , s 72; Bankruptcy and Insolvency General Rules , CRC, c 368 , r 3. [ 16 ] Upon payment of the disputed funds into court, Rodin Law Firm was discharged of all of its obligations in respect of those funds to any interested party, including all Directions to Pay and all obligations pursuant to the BIA .

The process set out in the Interpleader Order then governed entitlement to the interpleaded funds. The Noelles filed their claim to the interpleaded funds in the manner directed by the Master. The trustee chose not to participate in the process established for claiming those funds. [ 17 ] The funds were in court only because of the Interpleader Order. In my view, subject to obtaining some sort of relief from the Interpleader Order, the only way to obtain those funds was by following the procedure set out in that Order.

The combined effect of the Interpleader Order and the trustee’s failure to participate have some analogy to a noting in default. It does not fit perfectly because the trustee was a potential claimant, not a defendant. However, absent an order relieving the trustee from the effect of paragraph 5 of the Interpleader Order, the process for determining entitlement to the funds paid into court by Rodin Law Firm would go ahead without further notice to, or involvement by, the trustee. The net result is that the trustee lost its ability to claim the funds held in court.

[ 18 ] The trustee draws a distinction between not being entitled to notice and having no further entitlement to the funds in court. I do not accept that distinction. The Interpleader Order cannot reasonably be interpreted as permitting an interpleader claimant to unilaterally establish their own process for obtaining the funds in court after choosing not to participate in the process directed.

Similarly, while I appreciate the trustee’s argument that the Noelles suffered no prejudice in the way the matter unfolded, since the monies were still sitting in Court when the trustee filed the Applications in the bankruptcy actions, any lack of prejudice on the part of the Noelles cannot be converted into a right on the part of the trustee to ignore the Interpleader Order. I also reject the trustee’s suggestion that the Noelles failed to perfect their claim to the interpleaded funds because they filed only an affidavit and not a

summary application to have the funds paid out of court. The Interpleader Order directs affidavits by a certain date, and the Noelles complied. That the Noelles were unaware that some further step was required to actually obtain the monies from court has no significance in the circumstances of this case. [ 19 ] The Applications filed by the trustee in the bankruptcy actions did not request any relief from paragraph 5 of the Interpleader Order. However, if one viewed them as doing so implicitly, there was no reviewable error in the way that the Registrar exercised his discretion in that regard.

He clearly rejected the process adopted by the trustee, which conclusion is supported by the record. [ 20 ] The trustee’s materials included no explanation for the failure or refusal to engage in the interpleader process. There is no dispute that the trustee had notice of the interpleader application in advance. If the trustee, for example, wanted to make arguments that the funds should not be subject to civil interpleader because entitlement should be established solely by the bankruptcy court, it could have raised them at that time.

Then, with full notice of the Interpleader Order and the process it established, the trustee again chose not to participate. The trustee did not attempt to reserve its rights by, for example, advising the Noelles or the Court that it was not participating in the interpleader process because it planned to address the matter in bankruptcy. I also note that the trustee is not a party like all others. The trustee is a regular participant in court proceedings, and has a role as an officer of the court.

In all of these circumstances, there is nothing unjust in a finding that the trustee gave up any claim it may have had to the interpleaded funds by failing to participate in the interpleader process. [2] The Trustee’s Claim against the Noelles [ 21 ] Notwithstanding his finding that the trustee had failed to enter the contest for the interpleaded funds, and the trustee’s failure to mention sections 67 and 68 of the BIA in the filed Applications, the learned Registrar gave the trustee the benefit of considering its claim against the Noelles on the merits.

Arguably, even if the trustee could not receive the specific funds interpleaded into court because of its failure to participate in the process established by the Interpleader Order, it could still have an in personam claim against the Noelles for the same amount. Rule 6.58(3) of the Rules of Court seems to contemplate such a distinction. In the case of an in personam action distinct from a claim to the interpleaded funds, the trustee would be left to collect any judgment against the Noelles in the ordinary course.

I need not decide whether the trustee could maintain such an in personam claim, because assuming they could, I have concluded that the Registrar made no reviewable error in dismissing the trustee’s claim on the merits. [ 22 ] The second, third and fourth grounds of appeal raised by Cameron Okolita, as listed above, relate to the Registrar’s findings on the merits. Without Prejudice Letter [ 23 ] I agree with the trustee that the learned Registrar erred in refusing to consider the letter setting out the breakdown of settlement funds.

The learned Registrar appears to have thought that the “without prejudice” correspondence was between Rodin Law Firm and the trustee, presumably as part of their discussions about the trustee’s entitlement to settlement funds. This is understandable, given the way the submissions unfolded before him, and the confusion that arose because some materials had not made their way to the file for his review. However, in fact, the letter in question was a letter from the mediator who had assisted in resolving the MVA claim.

It is dated June 24, 2019, addressed to the Rodin Law Firm and counsel for the defendant in the MVA claim and marked “Without Prejudice”. The letter confirms the MVA litigation was resolved at the mediation, and summarizes the terms of the agreement reached, including the total amount payable to each of the Noelles, with a specific allocation to “past loss of income, inclusive of pre-judgment interest”.

The trustee obtained the letter from Rodin Law Firm in the course of their correspondence about the MVA settlement, but nothing on the record suggests it was provided “without prejudice” as between the Noelles/Rodin and the trustee. The trustee relied on the letter as part of its calculation of which MVA funds should be considered part of the estates. [ 24 ] Whatever the original basis for marking the letter “without prejudice”, by the time it was before the Registrar, both the trustee and the Noelles accepted it as the memorialization of the MVA settlement agreement.

Even as between parties to otherwise without prejudice communications, there can be an exception to the privilege to demonstrate that an agreement was reached: see, for example, Bellatrix Exploration Ltd v Penn West Petroleum Ltd , 2013 ABCA 10 at para 29 .

In this case, the privilege is one step further removed, because the correspondence relied upon by the trustee was not between the trustee and the Noelles, but rather, provided to the trustee by counsel for the Noelles as a statement of the terms of the MVA settlement. [ 25 ] It does not matter whether the Registrar’s error in refusing to consider the letter of the mediator was an error of law or a palpable and overriding error of mixed law and fact, based on a misapprehension of the evidence; the result is the same. It was a reviewable error.

However, it does not ultimately assist the trustee in overturning the Registrar’s decision. Whether the Trustee made out its claim

[26] Even considering the mediator’s letter, and the entirety of the trustee’s supporting affidavit, without discounting hearsay, thetrustee did not prove its claim against the Noelles. In particular, while the trustee claims to be entitled to settlement funds for pre-discharge wage loss as both an asset, and as surplus income, the ultimate calculation of the amount owing in either case was based on thesurplus income calculation, as set out in

section 68 of the BIA and Directive No. 11R2-2019 (the “Directive”). Moreover, the conflictinglaw that the trustee referred to in terms of treating claims for lost income as property vesting in the trustee under

section 67, versus asincome under

section 68, seems to have largely been resolved in favour of the latter: see for example, Re Landry (2000), (ON CA), 192 DLR (4th) 728 (Ont CA); 2000 CarswellOnt 3066 (CA); Re Cole (2001), (NS SC), 25 CBR (4th)225 (NSSC); 2001 CarswellNS 149 (Registrar), Re Conforti, 2015 ONCA 268 and more generally, the outline of law and authorities in L.W. Houlden and G.B. Morawetz, Bankruptcy and Insolvency Law of Canada, 4th ed (Lexis) at F§111 (Attaching Earnings ofBankrupt). [27] The surplus income calculation involves more than just the allocation of settlement funds to the pre-discharge period.

As afirst step, the surplus income calculation requires the trustee to determine the family unit’s total available monthly income and thendeduct various expenses. The evidence filed by the trustee in support of its application includes surplus income calculations. It does notstate who prepared them.

Even if I assume that the affiant prepared them or if not, that they are admissible as business records orotherwise, they do not establish, either on their face, or with supporting explanation or records, how the trustee arrived at the startingpoint family monthly income for each of the Noelles. [28] The number used for monthly family income is different than the one used in the Form 65 documents prepared and signed bythe trustee at the outset of the bankruptcy in January 2017.

It also differs from the income amounts set out by the Noelles in theircalculations, which were attached to their affidavit filed in the interpleader action in January, 2020, and therefore available to the trusteefor a long period before it filed its first affidavit in the bankruptcy applications in August 2020.

The trustee provided an explanation forthe figures in argument before me, but acknowledged that neither the explanation nor any source documentation was on the record. [29] There is also authority for the proposition that in determining a bankrupt’s obligation to pay surplus income, a trustee is notrestricted to applying the mathematical formula established by the Directive. The trustee must also consider the personal and familysituation of the bankrupt: Re Wilson, 2012 ONSC 2034 and authorities cited therein; BIA, s 68(3).

The trustee has not provided anyevidence that it did so here. [30] In my view, this is not simply a factual dispute on the evidence, the answer to which would be directing a trial. Rather, thetrustee had the onus to demonstrate entitlement to the relief sought in its applications filed in the bankruptcy actions.

It failed to do so inspite of being aware its claim was contested, having control of the necessary evidence and ample time to prepare its case. [31] I note that the relief sought by the trustee in all of its applications related only to directing payment of the funds held in court.That was the case even in the Applications for Advice and Directions. In its brief for this appeal, the trustee requested that theRegistrar’s order be set aside, and that the Court direct the funds in court be paid out to the trustee or that the matter be reheard by aRegistrar.

No party requested, for example, that I direct the matter to the mediation process or any other processes set out in

section 68 ofthe BIA. [32] For the purposes of the above analysis, I have assumed that the amounts received post-discharge can be subject to a surplusincome calculation as long as they compensate the bankrupt for wages lost prior to or during the bankruptcy. This point was vigorouslycontested by the Noelles. I understand their confusion, given the strong wording in their statements of discharge, and the lack of expressindication in the legislation, Directive, or elsewhere, that funds received more than a year after discharge could be attached.

However,the Ontario Court of Appeal was quite clear in Landry that discharge is irrelevant if the income was earned pre-bankruptcy or duringbankruptcy. Further, the trustee’s point is well taken that if inclusion in surplus income depended completely on whether the bankrupthad been discharged when the funds were received, many bankrupts could skirt the surplus income requirements by delaying varioustypes of payments, including legal settlements, until post-discharge.

Hearsay in the Affidavit [33] For completeness, and to address the trustee’s other ground of appeal, I do not accept the trustee’s argument that all“evidence…relating to the merits of the Trustee’s claim to the Funds was tendered by the office of Cameron Okolita, which anyrepresentative of Cameron Okolita could swear to, for purposes relevant to this proceeding.” Evidence of a firm member about mattershandled by the firm about which the affiant has no personal knowledge is generally still hearsay. A clear example in this case is theinformation in Ms.

Forget’s affidavit, which relays unsworn statements from former firm member Mr. Steiner as to his discussions withthe Noelles at the time of their assignments. Sometimes, the evidence is admissible as a business record or under some other exception. Ineed not go further into examples as the findings above do not turn on whether any of the evidence was hearsay.

Conclusion on the Registrar’s Consideration of the Merits [34] For the above reasons, I find that to the extent the learned Registrar made any reviewable error in considering the merits ofthe trustee’s claim against the Noelles, such error had no material impact on the outcome. Even if evidence he rejected is considered, hisconclusion that the trustee had not made out its claim to the funds was otherwise correct on the record. Conclusion

[ 35 ] There was no reviewable error in the learned Registrar’s decision in respect of the trustee’s applications. The Noelles had a prima facie claim to the interpleaded funds, as settlement funds that were received by their counsel for them. They made out that claim by way of their affidavit.

Accordingly, the Registrar’s direction that the funds be paid out of Court to the Noelles is affirmed, and the appeal is dismissed. [ 36 ] I have considered whether the way that all of this has unfolded results in undue prejudice to the Noelles’ bankruptcy creditors, who would be the ultimate beneficiaries of the trustee recovering funds in these proceedings. According to the court file, the trustee served the creditors and the Registrar and Official Receiver with all of its applications. None of those parties have participated in any way. That does not mean the creditors’ interests are to be ignored.

However, the creditors were at least given the opportunity to realize that difficulties had arisen between the trustee and the bankrupts, and to make their views known if they wished. Costs [ 37 ] The trustee requested costs throughout on a full indemnity (solicitor and his own client) basis. The Noelles requested costs. I urge the parties to see if they can come to an agreement on costs.

If they have not reached an agreement by August 20, 2021, then the Noelles shall file a written submission of no more than 5 pages outlining why they should be entitled to costs and detailing the costs or disbursements to which they say they are entitled. The Noelles shall file their submission no later than September 3, 2021, and the trustee shall file a response of no more than 5 pages no later than September 17, 2021. Heard on the 16 th day of April, 2021. Dated at the City of Calgary, Alberta this 23 rd day of July, 2021. April D. Grosse J.C.Q.B.A.

Appearances: Corey Davison, Miles Davison LLP for the Appellant Cameron Okolita Inc. David Noelle and Angela Noelle Self-Represented Respondents