DIL: A Summary of the Representative Action

As part of the Representative Action counsel for the DIL Subcommittee has drawn up a Notice of Civil Claim that it’s filed in the BC Supreme Court. A Statement of Claim has also been filed with the AB court – as far as I can tell it is largely identical to the BC Notice of Claim.

This article contains a summary of what the Notice says.

But before we get to the meat of the matter –

  1. if you need to make a legally binding decision you must consult with appropriate legal counsel. I’m just one blogger with a computer, keyboard, and a website whose trying to make sense of all this just like everyone else.
  2. Counsel’s Notice makes a number of assertions about who is responsible for what and who should’ve and shouldn’t have done certain things – these assertions have yet to be tested and stand up to the scrutiny of an appropriate court of law.
  3. In a number of places this summary takes a number of paragraphs and merges them into one for conciseness. If you have any questions about what you’ve read you’ll need to consult the original document.

My summary of the summary:

All told, this case is about what Concentra, DIL, and ABC District and what

  • they were setup to do – namely take deposits and make investments on behalf of and for the benefit of the DIL depositors,
  • the depositors could reasonably expect in terms of how these companies executed their mandate,
  • duty of trust these organizations had to their depositors,
  • how the people in charge of these organizations allegedly breached those duties by making loans that were
    • outside of the funding organization’s mandate,
    • not matched by assets of corresponding or greater value,
    • were received despite the recipient organization knowing that the funds were wrongly obtained,
    • not disclosed to the DIL Trust beneficiaries as not being in their interests,

In addition there are allegations –

  • of failure to register loans in 1st position in DIL / Concentra’s favor
  • that various parties rendered knowing assistance to breach of trust and breach of fiduciary duty,
  • that various parties knew, ought to have known, were wilfully or recklessly blind to various breaches of trust and duties,

Where Synod is concerned, the challenge for the plaintiff and LCC / Lutheran Church Financial Ministries is to demonstrate :

  • whether or not ABC and LCC are separate and distinct companies,
  • what, if any, control LCC had over ABC District and its CEF operation,
  • what, if any, duty LCC had to monitor ABC’s ongoing finances,
  • what, if any, duty LCC had to report to DIL depositors when ABC failed to submit or explain their finances,
  • what, if any, duty LCC had to monitor ABC’s CEF actions and report breaches of trust if/when they happened.

The full summary follows. The leading numbers are paragraphs in the Notice.

Part 1 – Statement of Facts: Lists all the defendants and where they live. The 48 entries look like a who’s-who of everyone remotely involved with CEF.

A: LCC – Who LCC is, what it does, and it’s relationship to CEF funds.

B: Lutheran Church Financial Ministries – Who LCCFM is, what it does, and its responsibility for administering the CEF program on a sound financial basis.

C: LCC – ABC District – A short history of the ABC district.

D: The LCC/ABC District Church Extension Program

  • 56: When the CEF was established
  • 57: Asserts that the ABC CEF
    • was a joint enterprise of LCC, LCCFM, and ABC,
    • can only exist with LCC’s approval,
    • can only operate in conformity with LCC/LCCFM policies,
    • is aided in marketing by LCC/ LCCFM,
    • is provided leadership by LCC/LCCFM
    • is required to provide LCC/LCCFM with complete financial statements on an annual basis
    • has to share its revenues with LCC/LCCFM
    • as well as LCC/LCCFM all benefit from the CEF program
  • 58-62: Who was president when the CEF / DIL was established, Concentra’s relationship to the various RRSP and TFSA trusts established to hold depositor funds (DIL Trusts)
  • 63: DIL Trusts required that all funds be invested in accordance with certain policies and funds paid to depositors accordingly.
  • 64-65: Concentra retained DIL act as its agent, and DIL subcontracted the work to ABC District
  • 66-69: ABC Dept of Stewardship and Financial Ministries (DSFM) established loan policies – who can get loans, what can be funded, parameters used to determine eligibility, and the like.
  • 70: Loans in excess of $100K required District BOD approval.
  • 71: District guaranteed DIL deposits in CEF

E: The Prince of Peace Village Loans

  • 72-73: ~1993 District BOD used CEF funds to purchase property for multi-use residential and commercial development (POP Village), a church, and a school.
  • 74: This speculative development decision was contrary to the CEF’s mandate.
  • 75: LCC/LCCFM was aware of or should’ve been aware of ABC District’s decision to use CEF funds for developing POP Village.
  • 76: POP Village was under development from 1993-2006
  • 77-78: Taman and Schiemann were both material to these developments as a result of their role in the organization(s)
  • 79: POP Village opened in 1998 and was running at a deficit. District funded this deficit from CEF funds while soliciting more funds from the membership.
  • 80: Nov 2005 – ECHS incorporated as the POP village developer
  • 81: Taman and Bishop & McKenzie solicitors for District and ECHS
  • 82: Taman was also an official in District and ECHS
  • 83: 2006 – all of POP Village transferred to ECHS in exchange for a loan and assumption of District’s contingent liabilities
  • 84-85: Names of the lawyers involved in these transfers
  • 86-87: District knew ECHS was insolvent from its inception and continued to run it at a deficit. Even so it still approved unsecured loans to ECHS to service its mortgage and pay its operating deficit.
  • 88-89: Nov and Dec 2011 – Concentra and/or DIL approved a loan to ECHS in the amount of ~$8M. These loans were fraudulent / dishonest in that they were used for reasons other than the benefit of their depositors.
  • 90-98: Identities of the District, DIL, POP, and ECHS Directors and Officers. In some cases people were directors in more than one organization.
  • 99-101: Names of the solicitors for DIL, District, and ECHS
  • 102: In 2011 District, DIL, and ECHS Directors and Officers knew or were wilfully blind or reckless to the fact that ECHS was insolvent and the loans ECHS received was not secured by sufficient assets.
  • 103-107: DIL extended various loans to District, the loans were registered in 2nd priority behind the District/ECHS loan contrary to a prior agreement between District / DIL.
  • 108: The 2014 Mortgage transfer was dishonest and fraudulent in that it was used for the benefit of DIL Trusts and exposed the DIL depositors to unnecessary risk for someone else’s benefit.
  • 109-111: Jan 2014 names of the District and DIL directors
  • 112: These Directors approved the mortgage transfer and knew or were wilfully blind or reckless to the fact that ECHS was insolvent and there wasn’t enough equity to cover the loan
  • 114: Jan 2014 District and DIL had the same Directors
  • 115-116: The same lawyers were solicitors for Concentra, DIL, and District when the Mortgage Transfer took place.
  • 117- 119: another loan was not registered in first position and there was insufficient assets to cover the amount of the loan.
  • 120: As a result the DIL loans to CEF were registered in 2nd and 3rd positions.
  • 121: In 2011 and 2014 the District and DIL Directors knew the various loans contravened CEF’s mandate, were contrary to DIL’s terms on what constituted a “qualifying investment”, along with a long list of issues with ECHS / POP Village.
  • 122: In spite of everything in 121, the District / DIL Directors still authorized loans to POP Village.
  • 123: DIL and District Directors failed to disclose that the DIL loans to POP were likely to be uncollectable.
  • 124: POP Village was unsuccessful and ECHS defaulted on its various loans.

F: The Strathmore Loan

  • 125: 2007 ECHS purchased property in Strathmore
  • 126: 2008 District purchased the property from ECHS for $1
  • 127: Names the solicitor for the purchase
  • 128: July 2008 Concentra or its agent loaned District ~$5.8M using the Strathmore property as security
  • 129-131: The Directors and Officers of DIL are named
  • 132: The Directors and Officers of District are named
  • 133: District and DIL were under common control by the same people
  • 134: The Strathmore loan was approved by people who knew or should’ve known the property wasn’t worth the value of the loan
  • 135-138: District was supposed to execute a mortgage in favor of Concentra and it didn’t happen
  • 139: Names the solicitor for the Strathmore loan
  • 140-144: In spite of all this Concentra / DIL still sent the funds to CEF, in contravention of its mandate, was not in the interest of DIL’s depositors, was not a qualifying investment as defined in the Income Tax Act, and not done according to DIL policy
  • 145: LCC/LCCFM were aware, wilfully blind, or reckless about the nature of the Strathmore Loan.
  • 146-147: Dec 2014 – District executed a mortgage against the Strathmore property in regards to the Strathmore loan, and Concentra / DIL registered the mortgage against the property. (ANO: District declared bankruptcy in Jan 2015). Due to the six year delay the mortgage was unenforceable and Concentra was not able to collect on the loan.
  • 148: various DIL and District Directors failed to disclose to the beneficiaries of the DIL trust the pertinent details pertaining to the Strathmore loan.

G: CCAA Proceedings 

  • 149-150: Despite being unable to meet their obligations, the DIL, Concentra, and ABC Directors continued to encourage and accept deposits to DIL w/out disclosing that they were at risk for insolvency proceedings.
  • 151: LCC/LCCFM were aware or ought to have been aware of this and failed to take any steps to halt the operations of ABC District CEF, DIL, or inform the DIL depositors that their deposits were at risk.
  • 152:
    • Jan 2015 – District, DIL, ECHS, and EMSS all entered CCAA protection.
    • Aug 2016 – the DIL plan was sanctioned by the Court.
  • 153: Names of the solicitors for the Applicants in the CCAA proceedings
  • 154-156: How the mortgages were settled – the loan value was split in half between CEF and DIL instead of DIL getting full value on the property.

H: The Plaintiffs 

A listing of the two representative plaintiffs and how they’ve been affected.

Part 2: Relief Sought

  • 166: Damages sought against various defendants to cover such
      • breach of fiduciary duty,
      • breach of trust,
      • negligence,
      • an accounting,
      • a constructive trust,
      • order of restitution, interest,
      • rendering knowing assistance to a breach of trust,
      • rendering knowing assistance to a fiduciary duty,
      • and any other relief as the Court deems just.
    • in the case of
      • the Strathmore Loan
      • the First POP Village Loan
      • the 2014 Mortgage Transfer

(ANO: There’s a fair amount of detail here and I’ve combined the material in the filing for the sake of brevity – see the filing for the specific details).

Part 3: Legal Basis 

  • 167: The class is for people that were depositors in the CEF and DIL.

A: Liability of Concentra: Breach of trust, breach of fiduciary duty, and negligence

  • 168: List of duties that Concentra owed the beneficiaries of DIL Trusts.
  • 169: List of actions that Concentra authorized or permitted that was in breach of trust
  • 170: List of actions that Concentra authorized or permitted DIL and ABC District to do that was in breach of trust
  • 171: List of breach of duty of care that Concentra and failed to comply with applicable loan policies and conditions

B: Liability of DIL: Breach of trust, breach of fiduciary duty, and negligence

  • 172: As Concentra’s agent, DIL had the same duties as Concentra as laid out in 168.
  • 173: List of duties DIL breached
  • 174: DIL engaged in this behavior as a normal course of action and as such Concentra’s vicariously liable for these actions

C: Liability of DIL Officers and Directors: Breach of trust, breach of fiduciary duty, and negligence

  • (a) The 2008 DIL Officers and Directors
  • 175-178: the 2008 DIL Officers and Directors trust and fiduciary duties and how those trusts were breached in the matters of the Strathmore Loan for the benefit of ABC CEF and failing to disclose this with the result that members of the DIL Classes have suffered loss.
  • (b) The 2011 and/or 2014 DIL Officers and Directors
  • 179-184: Similar to 175-178 pertaining to the first and second POP Village DIL Loans

D: Liability of ABC District: Breach of trust, breach of fiduciary duty, and negligence

  • 185-187:  ABC District owed various duties to the beneficiaries of the DIL Trust (172), it breached those duties in various ways, and as a result the DIL classes experienced loss.

E: Liability of ABC District Directors

  • (a) 2008 ABC District Directors
  • 188-192: Similar to “D” above
  • (a) 2011 and/or 2014 ABC District Directors
  • 193-198: Similar to “D” above

F: Liability of LCC and LCCFM 

  • (a) as joint enterprisers with DIL and District 
  • 199: Since LCC / LCCFM were joint participants in ABC CEF they are jointly and severally liable for District’s and DIL’s actions.
  • (b) For Rendering Knowing Assistance to Breach of Trust and Breach of Fiduciary Duty
  • 200-201:  LCC/LCCFM knew or ought to have known about DIL’s breaches of trust and knowingly assisted with those breaches by reviewing and approving the POP and Strathmore loans, and allowing ABC District to operate a CEF despite it failing to comply with appropriate loan policies, conditions, and criteria, and permitting ABC District to manage and operate the CEF in conflict with its duties to its various depositors.  This all resulted in the DLC class members experiencing loss.
  • (c) Vicarious Liability for Acts and Omissions of ABC District
  • 202: When all this was going on, ABC District was acting as LCC/LCCFM’s agent in the administration of the CEF program. Districts acts and omissions occurred durng the normal course of business of LCC/LCCFM  under the authority granted to ABC District by LCC /LCCFM. This makes LCC/LCCFM vicariously liable for ABC District’s acts and omissions.

G: Liability of Chowne, Williams and Prowse Chown: Rendering Knowing Assistance to Breach of Trust and Breach of Fiduciary Duty

  • 203-208:  Chowne et al were solicitors for ABC District in regards to various loans and knew ABC District was doing things it shouldn’t have. In these matters, Chowne e tal assisted and facilitated Concentra et al’s breaches of trust by rendering services in actions which resulted in the DIL Trust members experiencing loss. This makes them liable for the DIL Trust members.
  • 209-210: Chowne and Williams were acting for Prowse Chown LLP which makes Prowse Chowne liable to the DIL Trust members.

H: Liability of ECHS: Knowing Receipt of Monies Acquired in Breach of Trust 

  • 211-213: ECHS knew or should’ve known that the DIL loan for POP Village breached the mandate of CEF and DIL Trust fund terms, and accepted the monies anyway.

I. Liability of 2011 ECHS Directors

  • 214 -215 : 2011 ECHS Directors knew or were wilfully blind or reckless as to the fact that the POP Village Loans were acquired in breach of DIL’s Trusts, that there wasn’t enough equity to secure the loan, and that ECHS was insolvent and unable to pay the loan, and they accepted the loan anyway.

J. Liability of Taman and Bishop and McKenzie: Rendering Knowing Assistance to Breach of Trust and Breach of Fiduciary Duty

  • 216- 220: Taman was
    • a member of
      • POP Congregation
      • Chairman of the POP Congregational Housing Committee responsible for advancing the POP Village development,
      • counsel for both ABC District and ECHS,
      • a director, officer, like official, or principal of both ABC District and ECHS
    •  In these roles, Taman knew or was reckless or wilfully blind to the fact that DIL Trusts funds contravened the intent of CEF and DIL Trusts. By advising and representing ECHS Taman rendered knowing assistance to ECHS’s receipt of funds acquired in breach of DIL Trusts, which caused the DIL Trust members to experience loss.
    • Because Taman was acting for Bishop & McKenzie,  Bishop & McKenzie is vicariously liable for Taman’s breaches of duty and wrongful acts. If Bishop & McKenzie knew of Taman’s wrong acts, or was reckless or wilfully blind to those acts, then they are liable to the plaintiffs.

 

 

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