September 13, 2017

Fraud of Homecare Administrator Survives Bankruptcy Discharge

Hoyle (Estate) v Gibson-Heath, 2017 ONSC 4481


Background

Over the course of two years, a retirement home administrator by the name of Melissa Gibson-Heath stole $229,000 from an elderly resident of the retirement home where she worked, the Fairfield Manor East.  The thefts came to light after the resident had passed away.  Gibson-Heath was subsequently convicted of fraud and was sentenced to 18 months’ imprisonment for her dealings with his bank account.  The criminal court also made a free-standing restitution order in the amount of $229,000, less any amounts recovered by the Crown.  

The elderly resident’s estate and his daughters subsequently commenced a civil action against Gibson-Heath for recovery of the stolen funds.  Gibson-Heath filed an assignment in bankruptcy in February 2014 and was automatically discharged from bankruptcy that November. 

After the discharge, the plaintiffs sought judgment against Gibson-Heath for the unrecovered balance and a declaration that the judgment survived her discharge from bankruptcy.  The plaintiffs also sought a summary judgment against Gibson-Heath’s employer.  Their motion required the Court to consider whether the plaintiffs were entitled to obtain a default judgment against Gibson-Heath, notwithstanding her bankruptcy and discharge.   

Section 178(1) of the Bankruptcy and Insolvency Act, RSC 1985, c.B-3 (“BIA”) sets out certain debts that are not released upon a bankrupt’s discharge from bankruptcy:

178 (1) An order of discharge does not release the bankrupt from:

(a) any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order, imposed by a court in respect of an offence, or any debt arising out of a recognizance or bail;

(d) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or administrator of the property of others; …

Decision

Justice Mew cited the Ontario Court of Appeal decision Dickerson v. 1610396 Ontario Inc., 2013 ONCA 653, at paras. 17-44 and 46-52, for the proposition that section 178(1) of the BIA represents an intentional decision by Parliament to recognize the “overriding social policy that certain claims should be protected against the general discharge obtained by a bankrupt because of the reprehensible nature of the bankrupt’s conduct”. 

Justice Mew found that the restitution order ‘clearly’ survived the bankruptcy by virtue of s.178(1)(a).  He therefore saw ‘no reason, in principle or practice’, why a civil judgment should not be entered against Gibson-Heath for the amount outstanding under the restitution order. 

Justice Mew then went on to consider the plaintiffs’ argument that they were also entitled to a judgment which survives bankruptcy because Gibson-Heath had acted in a fiduciary capacity vis-à-vis the deceased.  Justice Mew examined the law on fiduciary relationships and found that, in appropriate circumstances, the relationship between an elderly resident of a retirement home and a personal support worker can also be a fiduciary one.  He concluded that the circumstances in the case before him evidenced the existence and breach of a fiduciary duty, meaning that judgment could also be entered for the outstanding amount under s.178(1)(d). 

Having entered judgment against Gibson-Heath, Justice Mew turned to the issue of whether it was appropriate to determine the vicarious liability of Gibson-Heath’s employer, DC Jain & Sons Inc. (“DC Jain”), on the summary judgment motion.  The evidentiary record on this issue consisted of affidavits from St. John’s lawyer Robert Regular, the sole director, officer and shareholder of DC Jain, who opposed the motion, and one of the elderly resident’s daughters.     

Justice Mew described Regular’s affidavit as being “carefully crafted”.  The affidavit alleges that it was not “reasonably foreseeable” to DC Jain that Gibson-Heath would commit these criminal acts and claims that, prior to the discovery of her dishonesty, there was no indication of her fraudulent activities, theft or conversion, despite the “systems of checks and balances” that DC Jain had in place “to facilitate exposure of unauthorized, improper and/or illegal activities of staff members”.  Justice Mew observed that, notwithstanding these representations of fact, Regular had failed to describe what that system of checks and balances actually consisted of.   

There was also an evidentiary conflict as to how Gibson-Heath came to provide additional services to the deceased.  It was the daughter’s assertion that it had been arranged at the suggestion of the Fairfield Manor East administrator.  Regular, in his affidavit, denied having any knowledge of this, although Justice Mew noted that his affidavit evidence also did not disclose “what, if any, inquiries he made to determine what actually happened”.

Ultimately, Justice Mew found that the evidentiary record did not allow him to resolve the issue of DC Jain’s vicarious liability. 

Takeaways

  • The exceptions to the general discharge represent an intentional decision by Parliament to recognize an overriding public policy interest. 
  • Section 178(1)(d) is available to a creditor of a bankrupt if the bankrupt has abused his or her fiduciary position with the claiming creditor by incurring a debt to the creditor through fraud, embezzlement, misappropriation or defalcation, in violation of the bankrupt’s fiduciary duty to the claiming creditor.

With contributions from Darren O'Keefe.

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Fraud of Homecare Administrator Survives Bankruptcy Discharge

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