CEF: Higgerty Law Statement of Claim Section F – Transfer of the POP Village Lands to Encharis

This article is part of the series from the Higgerty Law statement of claim. You can read what a statement of claim and a Quistclose Trust is in the first article in this series.

This portion of the statement alleges that

  • ABC District created ECHS (Encharis Community Housing and Services) and EMSS (Encharis Management Support and Services),
  • the POP development was transferred to ECHS in exchange for a mortgage,
  • that ECHS was insolvent from its creation,
  • CEF transferred substantial funds to ECHS so it could continue to operate,
  • the sole purpose of this action was to divest ABC District of the failing POP Village development and its associated financial liabilities and instead record POP Village CEF Mortgage Loan as an asset in the CEF’s mortgage portfolio,
  • these loans contravened CEF’s mandate and operational policies,
  • LCC / CCFM were aware of and approved of this action or were wilfully blind to this action.

The closing paragraph is the most telling:

81. By March, 2004, the ABC District, its Officers and Directors, knew or were willfully blind to the fact that the POP Village was losing money every month and that the POP Village  was in significant financial difficulty.

By 2006, the ABC District, its Officers and Directors knew or were willfully blind to the fact that ECHS was insolvent and was operating at a deficit.

Acting in bad faith, and in league with each other, the ABC District, its Officers and Directors from 2004 until 2015:

a. failed to advise the depositors to the CEF that the POP Village was in significant financial difficulty;
b. failed to advise the depositors to the CEF that ECHS was insolvent and was operating at a deficit;
c. willfully concealed the ABC District’s financial difficulties from the CEF depositors; and
d. misrepresented the ABC District’s financial situation to the CEF depositors.

Please note that these are allegations only and this case has not been adjudicated in a court of law. As always, if you have any legal questions or need legal advice please consult appropriate legal counsel.


From Higgerty Law Statement of Claim

F. Transfer of the POP Village Lands to Encharis
61. On November 9, 2005, ABC District, on the advice and with the assistance of Taman, incorporated Encharis Community Housing and Services (“ECHS”) to act as the developer of the POP Village.

62. At all times material to these proceedings, ABC District and ECHS were under common control, in that several members of ECHS’s Board of Directors were also members of ABC District’s Board of Directors, including but not limited to:

a. Donald Schiemann;
b. Mark Ruf; and
c. Jim Kentel.

63. Further, the Defendant Ted Ulmer, an Officer of the ABC District, was also a member of the ECHS Board of Directors.

64. On June 10, 2006, the ABC District transferred to ECHS all of its interest in the POP Village Lands in exchange for a mortgage loan in the amount of approximately $38,000,000.00 (the “POP Village CEF Mortgage Loan”) and the assumption of ABC District’s contingent liabilities of approximately $33,000,000.00 with respect to the POP Village life leases. The POP Village CEF Mortgage Loan was secured by a mortgage registered against the POP Village Lands and a 101 acre parcel of real property in Chestermere, Alberta.

65. On February 17, 2006, ABC District, on the advice and with the assistance of Taman, also incorporated Encharis Management Support and Services (“EMSS”) to provide operational services to The Manor and the Harbour.

66. LCC and LCCFM were aware of and approved the transfer of the POP Village Lands from ABC District to ECHS, and the extension of the POP Village CEF Mortgage Loan. Alternatively they were willfully blind to said facts.

67. The ABC District, its Officers and Directors, did not inform the depositors to the CEF that it had transferred to ECHS all of its interest in the POP Village Lands in exchange for the Mortgage Loan.

68. The ABC District transferred its interest in the POP Village lands to ECHS and authorized the POP Village CEF Mortgage Loan and the POP Village CEF Unsecured Loans for the sole purpose of divesting ABC District of the failing POP Village development and its associated financial liabilities and instead recording the POP Village CEF Mortgage Loan as an asset in the CEF’s mortgage portfolio.

69. However, to the knowledge of ABC District, its Officers and Directors, LCC and/or LCCFM, and ECHS and its Officers and Directors, ECHS was insolvent from its inception and continued to operate at a deficit.

70. Subsequent to the transfer of ABC District’s interest in the POP Village to ECHS, ECHS was unable to service its mortgage debt to ABC District. Despite this, ABC District approved additional advances of approximately $7,000,000.00 to ECHS under the POP Village CEF Mortgage Loan and also made unsecured loans to ECHS from the CEF Trust or in the alternative from the CEF Quistclose Trust in the amount of approximately $28,500,000.00 (the “POP Village CEF Unsecured Loans”) in order to allow ECHS to service its mortgage debt and finance its operating deficit in respect of the POP Village.

71. The ABC District, its Officers and Directors approved the POP Village CEF Unsecured Loans in circumstances where they knew or were willfully or recklessly blind to the fact that:

a. ECHS was insolvent; and
b. ECHS was operating at a deficit.

72. LCC and LCCFM were aware of and approved the initial and further advances made to ECHS under the POP Village CEF Mortgage Loan and the extension of the POP Village CEF Unsecured Loans to ECHS in circumstances where LCC and LCCFM knew or were willfully blind to the fact that:

a. ECHS was insolvent, and
b. ECHS was operating at a deficit.

73. The POP Village CEF Mortgage Loan and the POP Village CEF Unsecured Loans (collectively, the “POP Village CEF Loans”) contravened the mandate of the ABC District’s Church Extension Program and the terms of the CEF Trust, in that they were not made for the purpose of building churches and/or schools in which to carry out the ministry of the Lutheran faith, but rather for the purpose of enabling ECHS to engage in speculative real estate development.

74. The POP Village CEF Loans contravened the terms of the CEF Quistclose Trust in that the CEF funds were not used to provide assistance to a congregation or agency of the LCC, but rather for the purpose of enabling ECHS to engage in speculative real estate development.

75. The Officers and Directors of the ABC District knew or were willfully or recklessly blind to the fact that the CEF POP Village Loans contravened the terms of the CEF Trust or in the alternative the terms of the CEF Quistclose Trust.

76. At all times material to these proceedings, Taman was a director, trustee or like official of ECHS, and also counsel to both ECHS and ABC District.

77. Further, at all times material to these proceedings, Taman was a member of the POP
Congregation. As such:

a. he knew or was willfully blind to the existence of the CEF Trust;
b. he knew or was willfully blind to the existence of the CEF Quistclose Trust; and
c. he had a personal stake in the development of the POP Village.

78. The POP Village CEF Loans contravened the ABC District’s Church Extension Program Loan Eligibility Policies, Loan Criteria and Loan Conditions in respect of the CEF Trust in that:

a. ECHS was not a “congregation of the ABC District in good standing” nor an institution or entity of the LCC whose constitution, policies and practices were consistent with those of LCC;
b. The loan-to-value ratio in respect of each of the Loans was greater than that which
would be commercially acceptable, or alternatively was based on an inflated valuation of the POP Village Lands;
c. The POP Village development was commenced and continued in the absence of any, or any reliable, financial projections;
d. ECHS lacked the experience and qualifications to bring the POP Village to successful completion;
e. ECHS had no ability to service the POP Village Loans;
f. ECHS did not and was not required to provide financial support to ABC District and/or LCC in exchange for the POP Village Loans;
g. The POP Village Loans were unsecured or alternatively inadequately secured;
h. The officers of ECHS were not required or alternatively failed to sign Loan Repayment Agreements with ABC District in respect of the POP Village Loans;
i. ECHS was not required or alternatively failed to make a commitment to promote Church Extension deposits among its members or others;
j. ECHS was not required or alternatively failed to submit financial statements to the ABC District or alternatively the ABC District failed to scrutinize those financial statements to assess the risk to the POP Village Loans.

79. Further, the POP Village CEF Loans contravened the terms of the CEF Quistclose Trust in that:

a. ECHS was not a congregation or agency of the LCC;
b. The loan-to-value ratio in respect of each of the Loans was greater than that which would be commercially acceptable, or alternatively was based on an inflated valuation of the POP Village Lands;
c. The POP Village development was commenced and continued in the absence of any, or any reliable, financial projections;
d. ECHS lacked the experience and qualifications to bring the POP Village to successful completion;
e. ECHS had no ability to service the POP Village Loans;
f. ECHS did not and was not required to provide financial support to ABC District and/or LCC in exchange for the POP Village Loans;
g. The POP Village CEF Loans were unsecured or alternatively inadequately secured;

80. The POP Village development was ultimately unsuccessful and ECHS defaulted on the POP Village CEF Loans. There is insufficient equity in ECHS’s interest in the POP Village Lands to satisfy the POP Village CEF Loans.

81. By March, 2004, the ABC District, its Officers and Directors, knew or were willfully blind to the fact that the POP Village was losing money every month and that the POP Village  was in significant financial difficulty. By 2006, the ABC District, its Officers and
Directors knew or were willfully blind to the fact that ECHS was insolvent and was operating at a deficit. Acting in bad faith, and in league with each other, the ABC District, its Officers and Directors from 2004 until 2015:

a. failed to advise the depositors to the CEF that the POP Village was in significant financial difficulty;
b. failed to advise the depositors to the CEF that ECHS was insolvent and was operating at a deficit;
c. willfully concealed the ABC District’s financial difficulties from the CEF depositors; and
d. misrepresented the ABC District’s financial situation to the CEF depositors.

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