Rudrakumar & Pawar v. FIC Investments et al. Date:, 2011 BCPC 46

Citation: Rudrakumar & Pawar v. FIC Investments et al. Date: 20110211 2011 BCPC 0046 File Nos: 0927239 & 0927240 Registry: Vancouver IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: ARJUNA RUDRAKUMAR & FALJIT PAWAR CLAIMANTS AND: FIC INVESTMENT LTD., MIKE LATHIGEE & EARL PASQUILL DEFENDANTS RULING ON APPLICATION TO SET ASIDE DEFAULT JUDGMENTS OF THE HONOURABLE JUDGE N.N. PHILLIPS Counsel for the Claimants: J. Schenk Appearing on their own behalf: Mike Lathigee & Earl Pasquill Place of Hearing: Vancouver , B.C.

Date of Hearing: January 25, 2011 Date of Judgment: February 11, 2011 Overview [ 1 ] On March 15, 2010, the defendants, Mike Lathigee and Earle Pasquill (hereinafter “Lathigee” and “Pasquill”) did not attend settlement conferences which had been jointly set for two small claims cases. Consequently, default judgments were obtained and the claimants, Arjuna Rudrakumar and Faljit Pawar (hereinafter “Rudrakumar” and “Pawar”), commenced collection proceedings against the defendants.

Upon being served with a Summons to a Payment Hearing on December 19 th , 2010, the defendant Pasquill applied, along with Lathigee, to set aside the default judgments. This is the decision of the court in relation to the two applications to set aside the default judgments. The History of the Cases [ 2 ] At an investment event hosted by an FIC company on June 17, 2008, the claimants heard what might be described as an introduction and sales promotion by Lathigee regarding an investment opportunity in the United States.

Material presented at this meeting set out that a company in the US (Mohawk) was offering for re-sale homes purchased at significantly discounted amounts in the foreclosure market in the US. If enticed to purchase, prospective buyers were told the home could then be rented and managed by another US company (Pro Financial Services) which would apparently lead to significant rates of return for the home buyers.

[ 3 ] The claimants purchased two homes through this investment plan for $18,000 each and an additional $1,000 each for property management costs. On August 6, 2008, the claimants attended a second investment event hosted by an FIC company and purchased a third property, paying the same amounts. [ 4 ] The claimants filed a Notice of Claim on September 8, 2009, in relation to the June 8 th transactions and claiming $25,000 against all three defendants (a greater amount was abandoned to bring the case within the monetary jurisdiction of this court).

On that same date a second claim was filed in relation to the home the claimants purchased at the August 6 th event. Both Notices of Claim set out that the Defendant, FIC Investment, made $3,500 US on each of the three home deals.

In both claims, Rudrakumar and Pawar sought a return of their investment monies and claimed they did not receive the property they paid for. [ 5 ] BC Company Search documents, which the claimants were required to file with the court to commence the action against FIC Investment Ltd., name Lathigee and Pasquill as the only directors and officers of the company. [ 6 ] On September 23, 2009, all three defendants filed joint Replies to the two claims. The address for service set out on the Reply for all three defendants was #990 – 555 West Hastings Street in Vancouver.

In their Replies, the defendants stated that the claimants had sued the wrong parties and that none of the three defendants were parties to the real estate transactions in issue. [ 7 ] On October 13 th , 2009, the court mailed out notices to the claimants and the defendants to attend a Mediation Session on November 25, 2009. On October 27, 2009, the defendants filed an application seeking to move the case directly to trial. Clearly effective delivery of the Notice of Mediation had been made on the defendants at their West Hastings Street address.

In their application, the defendants submitted the claims were not amenable to mediation given the defense was that the claimants had sued them in error and other persons should have been sued instead. [ 8 ] The application was heard by Judge Yee on November 17, 2009. The Application Record/Order sets out the following rulings: Judge advises claimants to get legal advice. The mediation date of November 25, 2009 is vacated.

A pre-trial conference should be set or if possible a settlement conference. [ 9 ] I take judicial notice of the fact that the Application Record/Order document is a multi-copy carbon document and the practice of the court at Robson Square is to complete the record while the case is before the court and hand a copy of the document to each party in attendance at the conclusion of the application.

I take from this that Pasquill, who was in attendance for the defendants at the hearing of the application, would have been given a copy of this document at the end of the hearing of the application. [ 10 ] On December 1, 2009, the court mailed Notices of Settlement Conference on both claims to all of the parties. This second document was mailed to the defendants’ address for service, namely 990-555 West Hastings Street, Vancouver, BC. The settlement conferences on the two claims were scheduled to be heard together on March 15, 2010.

The Notice of Settlement Conference document cautions: What happens if someone does not attend? The judge may dismiss the claim or make a payment order or other appropriate order against a party who does not attend a settlement conference. [ 11 ] On January 26, 2010, the Court Registry received notice from Price Waterhouse Coopers setting out that on January 12, 2010, the Alberta Queen’s Bench Court placed the corporate defendant (and others) into receivership.

Consequently, the proceedings brought in these two small claims cases against FIC Investment Ltd. were stayed by operation of law. [ 12 ] On March 15, 2010, the two individual defendants did not attend the joint settlement conference and default judgments were entered against them. [ 13 ] The claimants then set out to collect on the judgments. A number of Payment Hearings were adjourned at the request of the claimants in the fall of 2010 due to their inability to serve the defendants.

On November 29, 2010, the claimants filed an affidavit of attempted service detailing that a process server had attended the Pasquill home many times in November but, despite the fact there were vehicles in the driveway, there was no answer at the door. The affidavit attested that on November 24, 2010, a process server spoke on the phone with a person who identified himself as the defendant Pasquill. Pasquill confirmed he lived at the address where the process server had been attending.

Pasquill further told the process server “that he was going to be home only for a brief time and would not say when a good time to come by would be and to leave whatever we had in the mail box.” [ 14 ] A substitutional service order was obtained shortly thereafter permitting service of the Summons to a Payment Hearing by posting the documents on the door of the Pasquill residence.

In the affidavit material filed by the defendants in support of their application to set aside the default judgments, Pasquill attested he discovered the Summons on December 20 th , 2010 (the day after it was posted), and that he immediately sought legal advice. [ 15 ] On December 23, 2010, the defendants filed their applications to set aside the default judgments. In their applications, the defendants state that they: “…were not notified of the hearing and did not know about it.

Consequently, they did not have any opportunity to defend themselves”. [ 16 ] In the brief affidavits attached to their applications, both Lathigee and Pasquill stated they were not served with the Notice [to

attend the settlement conference] and were not aware of the conference. Both men maintained they were not parties to the real estate purchase contracts in question and were not legitimate defendants to the claims brought by the claimants.

Moreover, the defendants attested that the seller (Mohawk) disputed the claimants’ assertion that they did not receive the real estate in question. [ 17 ] On December 23, 2010, both Pasquill and Lathigee filed Notices of Change of Address with the court wherein they each provided addresses for service other than at 990-555 West Hastings Street, Vancouver, BC. [ 18 ] Short leave was subsequently granted to have the applications heard on December 30, 2010 but the matter was adjourned on that date by Judge Meyers (after a lengthy discussion about the cases) to the contested hearing upon which I am now ruling. [ 19 ] On January 14, 2011, the defendants filed lengthy affidavit materials in support of their applications to set aside the default judgments.

I have read and considered all of the affidavit materials although I do not intend to refer to all of what is said in them. The affidavits make clear that Lathigee and Pasquill maintain that the claimants, if they have any claim at all, should have instead sued the US seller (Mohawk) and the US property management company (Pro Financial Services). To that end, the affidavits attach some of the property purchase and management agreements in which no mention is made of either Lathigee or Pasquill.

The defendants also maintain that the facts herein do not support the court piercing the corporate veil and finding the directors/officers personally liable. [ 20 ] In relation to their non-attendance at the March 15 th , 2010 Settlement Conferences, the defendant Pasquill sets out the following in his January 14 th affidavit: 11. [After the judge ordered the matter bypass mediation] … the defendants heard nothing more and assumed that the Claimants had been advised by a lawyer to drop the Claim. 16. The Defendants did not know about the March 15 hearing and certainly would have attended had they known about it.

A. We learned from the registry... that the notice of hearing had been sent, by mail, to all defendants at the company address of Suite 950 [sic] – 555 West Hastings St., Vancouver in December 2009. B. At that time, the office was in turmoil as the companies were about to go into receivership. Staff had been laid off and there were not enough people to do everything that needed to be done. Mail was not picked up for extended periods of time and I am aware that some mail went missing. C. If the notices got to the office, they did not get to the defendants. Mr.

Lathigee was out of the country and I did not see any such notices. [ 21 ] The defendants also attested in their January 14 th affidavits that Mohawk had told them the claimants had received their real estate. However, the correspondence (dated September 18, 2009) said to be from Pro Financial to Pasquill in relation to the claimants’ real estate sets out the following: 3007 Monroe Ave., Kansas City: This property was assigned to Client 2816 on 24 March 2009. The home was put on a land contract with payments scheduled to begin from the occupant on 15 April 2009.

As of today, we still have not received any payments from the occupant. We have taken collection actions against the occupant. Currently the property is still assigned to the client, yet it is not deeded to the client . We do not deed properties to our clients until the property is occupied and the occupant is making consistent payments… 209 Burley Street, Morenci, MI: This property was previously assigned to the client. It was occupied and cash flowing.

Per our policy, we attempted to have the property deeded to the client and discovered a past due tax bill….Rather than continue and place this burden on the client, we cancelled the transfer of title and sold the property to recover the costs of the tax bill. We have committed to providing the client with a replacement property in due time . 124 Cologne Street, Pittsburgh This property is currently assigned to Client #3938. It is occupied and the occupant has made payments for four months. Though the property is not deeded in their name(s), we continue to remit payments received from the occupant.

We are scheduled to have our title company begin the deeding process to the client on Monday 21 September. [emphasis added] [ 22 ] Given this information tending to suggest the claimants did not receive the property they paid for, for the defendants to argue in this court that the claimants should have mitigated their loss by selling off the property is not tenable.

Move over, mitigation herein would go to the amount of damages to be assessed after a finding of liability and the failure to mitigate would not be a defense per se . [ 23 ] In their affidavit materials, the defendants point out that there were many other investors involved with the US companies in question, including the defendants. Both Lathigee and Pasquill question why the claimants were the only ones to have sued them and put forward the prospect of suing others in the US as a defense to the claims herein.

The defendants also highlighted the fact that many investors got their money back as a result of the involvement of the BC Superintendent of Real Estate. The defendants say the claimants have had other options to recoup any loss they might have suffered, including to await the on-going efforts said to be underway by Pasquill and Lathigee to try to help “their clients” recover their money.

At the hearing of the applications to set aside default, both Lathigee and Pasquill referred to their “clients” and included the claimants in that category. [ 24 ] In their January 14 th , 2011 affidavit material, both Lathigee and Pasquill maintained that the FIC group of companies (and not

FIC Investment Ltd. itself) acted only as a host for the June and August investment meetings at which the claimants bought the property in question. Further to that end, the defendants provided the court with extracts from Orders imposed by the BC Superintendent of Real Estate on August 27 th , 2008. An entire copy of the 22 page ruling was provided by the claimants at this hearing. [ 25 ] As a result of information received by the Financial Institutions Commission regarding two unusual and large bank deposits, an investigation was undertaken by the Office of the Superintendent of Real Estate in BC.

The investigation led to an examination of the FIC Website registered in the name of FIC Investment Ltd. with an address at 990-555 West Hastings Street, Vancouver, BC. The FIC website advertised a “Vancouver FIC foreclosure event”. An investigator went to this event on August 6, 2008 in Vancouver.

Lathigee gave the first part of the sales presentation at the event and stated: … in San Francisco, the night before, 103 investors attended his presentation and 146 homes were purchased…(at paragraph 14). [ 26 ] Lathigee then introduced the Mohawk representative who, in turn, later re-introduced Lathigee who provided information regarding the mortgages in the form of Promissory Notes to the audience of prospective purchasers (see ruling at paragraphs 15 & 18). [ 27 ] The Superintendent made a number of findings and orders in relation to Lathigee and Pasquill (and others) including finding that both men were engaged in soliciting for the provision of trading services by Mohawk for a fee, or were otherwise engaged in providing trading services since they found buyers for Mohawk real estate for a fee (at paragraph 47).

The Superintendent further ruled (at paragraph 48): I find that … Lathigee and Pasquill conduct trading services in British Columbia by receiving deposit money paid in respect of a trade in real estate on behalf of British Columbia residents and/or Mohawk Diversified, LLC, for a fee directly to WBIC….

Through a related entity within the Freedom Investment Club Group of Companies, with Michael Lathigee and Earle Pasquill as WBIC’s controlling minds, contrary to Section 3(1) of the Act. [ 28 ] The Superintendent further found that neither Lathigee nor Pasquill were licensed to provide real estate services in BC but actively did so for or in expectation of remuneration.

Having concluded it could not hold a hearing in a timely fashion and that further non-compliance would likely result in the interim, the Superintendent made an immediate cease and desist order (relating to both unauthorized real estate services and property management services) against FIC Investment Ltd., Lathigee, and Pasquill (and others). The ruling set out that any appeal would be to the Financial Services Tribunal or requires a hearing before the Superintendent under the Act . No appeal was taken by Lathigee and Pasquill.

It is important to note that in a Consent Order issued by the Superintendent on October 23, 2008, both Lathigee and Pasquill were co-operating fully to facilitate the return of funds which had been frozen when the original tip came in to the Financial Institutions Commissions. The co-operation and consent of the defendants assisted the consumers involved in those transactions to recoup their money.

By way of a further order on January 5, 2009, the Superintendent ordered Lathigee to pay $35,000 in enforcement expenses under the Act. [ 29 ] Claimants’ counsel took the position that the reason the Superintendent ruled as he did was due to the obvious concerns that arise when someone unqualified and unlicensed is involved in real estate sales.

In this case, counsel argued that both defendants had acted negligently toward the claimants including by facilitating the transfer of the purchase funds from the claimants to a company called “Escrow Specialists” in the US and not to a proper trust account (as would happen in the ordinary course of a regulated real estate transaction). [ 30 ] Claimants’ counsel also argued that given the findings of the Superintendent, it was not open in this application for the defendants to maintain they had done nothing wrong in relation to the claimants’ purchases.

To that end, counsel provided the court with the decision in Gemex Developments Corp. v. Coquitlam (City) [2002] BCJ No. 2938 (Justice Wedge) . Counsel for the claimants argued that by Lathigee and Pasquill asking this court to find they had a defense to the claims would be an impermissible collateral attack on the Superintendent’s decision. With respect, I do not read Gemex to state that a defendant is bound by a finding from a regulatory body in relation to a claim brought against the defendant in a court of law that may touch upon the regulatory body’s examination.

I understand the Gemex decision to stand for the proposition that a claimant cannot sue on the same lis when a regulatory body has jurisdiction in a field and has already ruled on the matter. In other words, Lathigee and Pasquill could not challenge the Superintendent’s findings by starting a civil proceeding about the matter (especially where the legislation herein contains a privative clause). However, I do not find that is what the defendants are doing here. Applicable Law [ 31 ] Rule 17(2) of the Small Claims Rules sets out the following in relation to applications of this nature:

(2) A judge may cancel a dismissal order or default order if (

a) the order was made (

i) in the absence of a party, or (ii) for failing to file a reply, and (

b) the party applies (see Rule 16 (7)) and attaches to the application an affidavit containing (

i) the reason the party did not file a reply or attend the settlement conference, trial conference or trial, (ii) the reason for any delay if there has been delay in filing the application, and (iii) the facts that support the claim or the defence.

[ 32 ] Rule 17(2) is a codification of the case law as set out in Miracle Feeds v. D. & H. Enterprises Ltd. [1979] B.C.J. No. 1965 . Justice Hinds, of the County Court, set out what an applicant must establish to obtain an order to set aside a default judgment (at paragraph 5): …it appears that in order for a defendant to succeed on an application to set aside a default judgment, he must show: 1. That he did not wilfully or deliberately fail to enter an appearance or file a defence to the plaintiff's claim; 2.

That he made application to set aside the default judgment as soon as reasonably possible after obtaining knowledge of the default judgment, or give an explanation for any delay in the application being brought; 3. That he has a meritorious defence or at least a defence worthy of investigation; and 4.

That the foregoing requirements will be established to the satisfaction of the court through affidavit material filed by or on behalf of the defendant. [ 33 ] In order to succeed in their applications to set aside the default judgments, the defendants must meet all three elements of the test articulated in the Miracle Feeds decision.

Application to this case [ 34 ] The first element of the three-part test requires Lathigee and Pasquill to establish that their failure to attend the March 15, 2010 Settlement Conferences was not willful or deliberate. [ 35 ] On November 17, 2009, Judge Yee ruled in favour of the defendants and exempted the claims from mediation.

The claimants were encouraged to seek legal advice but the parties were told the cases would carry on in court through either settlement conferencing or pre-trial conferencing. [ 36 ] Less than two weeks later, the court mailed out Notices of Settlement Conference to the same address for service at which the defendants had been successfully notified in mid-October. In their brief affidavits filed on December 23, 2010, the defendants both swore they were not notified of the March 15, 2010 hearing and did not have a chance to defend themselves.

However, in their January 14 th , 2011 affidavits, the defendants attested that the corporate office was in disarray and they did not know whether the notices were received, only that they did not get brought to their attention. Lathigee and Pasquill go on to swear that, having heard nothing more, they assumed the Claimants had been advised by a lawyer to drop their claims.

Until Pasquill received the Summons to a Payment Hearing on December 20, 2010, the defendants took absolutely no steps whatsoever to inquire about these law suits. [ 37 ] The defendants had provided an address for service to the court and to the claimants and it was to this address that the Court sent the Notices of Settlement Conference to the defendants. The court and the claimants were entitled to rely on the service information provided by the defendants.

Although I accept the defendants’ claim that their corporate office was in a state of disarray in December 2009, it is difficult to accept that legal notices would not be given particular attention in a company heading into receivership. [ 38 ] This is not a situation wherein procedural notice was not given to a party; rather the defendants’ position here is that the notice, properly sent, was not seen by them. They have only themselves to blame for that.

But what is more significant in my opinion, is that despite the passage of a considerable amount of time, neither Lathigee or Pasquill did anything at all to check on the status of these court cases. Both men are reasonably sophisticated litigants and familiar with court processes and legal matters due to their corporate work and the real estate investigation.

Consequently, they had to have known that by failing to make any inquiries at all into the claims brought by Rudrakumar and Pawar, they were avoiding the processes of the court at their peril. [ 39 ] As Judge Stansfield (as he then was) noted in Kleinfelder v. Stoy [1994] B.C.J. No. 2823 (at paragraph 34 ) in reference to the Miracle Feeds test: “…it would seem that Mr. Justice Hinds contemplated a person with a meritorious defence being denied their “day in court” only when their failure to do that which led to the default was, in effect, ‘culpable’”.

Having successfully applied to avoid the mediation process, the defendants ignored this law suit for over a year until Pasquill was served with a Summons and they were forced into action by the collection process. In my opinion, this inactivity has an element of culpability to it. [ 40 ] Having come to this conclusion, I find the defendants have thus failed to discharge the burden upon them of showing that they did not deliberately and willfully failed to appear in court.

This finding is fatal to their application to set aside the default judgments. [ 41 ] Although the defendants acted promptly after Pasquill was served with the Payment Hearing summons on December 20 th , 2010, I do not find he or Lathigee have given an explanation for the delay in the applications being brought before December 23, 2010. The defendants made no inquiries at all between the appearances seeking an exemption from mediation on November 17 th , 2009 until they were forced to act at the end of 2010.

On this basis as well I find the defendants have failed to meet the test required before a default judgment can be set aside. [ 42 ] Having come to these conclusions on the first two aspects of the three-part test, I do not find it necessary to comment further on whether there is a meritorious defence or at least a defence worthy of investigation. Clearly the defendants’ names do not appear on the property purchase documents, but in my opinion it is not as simple as that. The Superintendent of Real Estate’s thorough investigation

found Lathigee and Pasquill acted in a manner contrary to law. The impact of the Superintendents’ findings on any law suits which may be brought by purchasers in relation to the investment scheme will perhaps have to wait for another day in court. Conclusion [ 43 ] Accordingly, I find the defendants have failed to meet the test required to set aside a default judgment and thus their applications are dismissed. The default judgments in favour of the claimants entered March 15, 2010 will stand and the claimants may carry on with their collection proceedings. _______________________ N. N. Phillips Provincial Court Judge