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Sydney H. Pfeiffer and Pfeiffer & Pfeiffer Inc. (Quebec) – July 13, 2005

Read the appendices to this decision

Canada
Province of Quebec

In the Matter of Professional Disciplinary Proceedings Under the Bankruptcy and Insolvency Act ("the ACT")

District of Montreal

Opposing: Ms. Sylvie Laperrière
Senior Analyst in the Sainte-Foy District Office of the Office of the Superintendent of Bankruptcy
(hereinafter "the Senior Analyst")
and
Sydney H. Pfeiffer
(hereinafter the "Trustee")
and
Pfeiffer & Pfeiffer Inc.
(hereinafter "the Corporate Trustee")
(the Trustee and corporate trustee hereinafter together referred to as "the trusteeS")

Presiding: The Honourable Benjamin J. Greenberg, Q.C.
Delegate of the Superintendent of Bankruptcy
(hereinafter sometimes referred to as "the Delegate")

Montreal, July 13, 2005

Decision on the Merits and the Sanctions

  1. Pursuant to section 5(1) of the ACT, Me Marc Mayrand, of Gloucester, Ontario, was by Order of the Governor-in-Council (P.C. 1997-693, April 26, 1997) appointed Superintendent of Bankruptcy, effective May 1, 1997. He is hereinafter referred to as "the SUPERINTENDENT".
  2. Sub-section (2) and sub-paragraph (e) of sub-section (3) of Section 5 of the ACT place upon the SUPERINTENDENT the duty to supervise the administration of all estates and matters to which the ACT applies and from time to time, as he may deem it expedient, to "make or cause to be made…" "inspection or investigation of estates…" "including the conduct of a trustee…".
  3. Pursuant to the exercise of that duty, on May 28, 1998, in virtue of Section 14.01(2)1 of the ACT, the SUPERINTENDENT delegated to the SENIOR ANALYST certain of his powers, duties and functions, other than the duty to afford a trustee a reasonable opportunity for a Hearing.
  4. Thereafter, the SENIOR ANALYST conducted an investigation into certain conduct of the TRUSTEES and, after completing such investigation, submitted a report dated December 16, 2003 to the SUPERINTENDENT respecting their conduct (hereinafter, together with the 53 Exhibits annexed thereto, called "the REPORT"), giving "(…) grounds for the Superintendent to choose to exercise the powers provided in subsection 14.01(1) of the Act".
  5. Pursuant to the REPORT, the SENIOR ANALYST recommended to the SUPERINTENDENT that he exercise against the TRUSTEES the former's powers set out in Sub-section 14.01(1) of the ACT.
  6. Consequently, acting as the SUPERINTENDENT's delegate, the SENIOR ANALYST gave written notice to the TRUSTEES of her said recommendations to the SUPERINTENDENT, as well as the reasons for same, and furnished to the TRUSTEES a copy of the REPORT.
  7. Thereafter, the SUPERINTENDENT determined that, in the interests of natural justice and of proceeding in a timely manner with the hearing of the herein disciplinary proceedings against the TRUSTEES, it would be advisable to delegate certain of the adjudicative and associated conservatory measures powers, duties and functions of the SUPERINTENDENT to an independent jurist.
  8. Accordingly, on February 27, 2004, pursuant to Section 14.01(2) of the ACT, the SUPERINTENDENT delegated to the undersigned the aforementioned powers, duties and functions in respect of the herein disciplinary proceedings against the TRUSTEES.
  9. At a Preliminary Conference presided by the undersigned and held on June 9, 2004, there were also present Mtre Allan Matte, counsel for the SENIOR ANALYST, and Mtre Aaron G. Rodgers, counsel for the TRUSTEES.
  10. Formal MINUTES of that Preliminary Telephone Conference were thereafter prepared by the undersigned and transmitted to counsel on June 18, 2004. A copy of same are annexed as Appendix "A" to this DECISION.
  11. At that Preliminary Conference, we provisionally fixed the Merits Hearing for the two weeks of November 22 and 29, 2004.
  12. However, by his letter submission of June 30, 2004, Me Rodgers filed his Motion for a Stay of the Proceedings herein "pending final judgment by the Federal Court of Canada concerning docket number T-1094-04 and the Superior Court of Quebec, Commercial Division concerning the taxation of receipts and disbursements".2
  13. The Federal Court proceeding filed by the TRUSTEES and referred to above attacked the validity of the decision of the SUPERINTENDENT to appoint the SENIOR ANALYST to carry out the investigation leading to the proceedings herein.
  14. Counsel for the TRUSTEES argued that should the Federal Court ultimately rule that the decision to investigate the TRUSTEES was invalid or illegal, the same invalidity or illegality would apply to the delegations by the SUPERINTENDENT both to the SENIOR ANALYST and the undersigned DELEGATE.
  15. Moreover, based on the legal principle of lis pendens, Me Rodgers evoked the "clear possibility of conflicting judgments" as between, on the one hand, the undersigned and the Federal Court of Canada and, on the other hand between the undersigned and the Quebec Superior Court.
  16. In his written submission, Me Rodgers also reviewed the jurisprudence which established the threefold test to determine if a request for a stay of proceedings should be granted, namely:
    1. is there a serious issue to be tried;
    2. will the applicant suffer irreparable harm if the stay is not granted; and
    3. the balance of convenience.
  17. In his written response dated July 20, 2004 Mtre Matte advanced his arguments. He cited the judgment in Anheuser-Busch3 to the effect that, although as part of his inherent authority to control the process before him the SUPERINTENDENT or his delegate has the right to adjourn a hearing on procedural grounds, he does not have the authority to grant a stay of proceedings pending the conclusion of related litigation.
  18. Mtre Matte also contested the argument advanced by the TRUSTEES based upon lis pendens, for which there is also a threefold test:
    1. identity of parties;
    2. identity of object; and
    3. identity of cause.
  19. At the Hearing of Me Rodgers' Motion for a Stay of Proceedings that was held on October 7, 2004, Mtre Matte argued that although here there is identity of parties and the same facts, there is no identify of object between, on the one hand, these proceedings and, on the other hand, those before the Federal Court and the Quebec Superior Court. Each one seeks different relief.
  20. An analogy to the situation here would be a case of a criminal assault charge against A for having assaulted B and a civil claim by B against A for the damages sustained by him as a result of the assault. Although both legal processes stem from the same set of facts, each one seeks different relief in a different legal jurisdiction and there would be no lis pendens.
  21. For all those reasons, in our INTERLOCUTORY DECISION dated October 29, 2004, we agreed with the position of counsel for the SENIOR ANALYST in regard to the question of lis pendens.
  22. As to our jurisdiction to grant a Stay of Proceedings, we had studied in depth the decisions of delegates Kaufman, Meyer and Poitras.4
  23. Generally, these decisions held that a delegate of the SUPERINTENDENT does not have the jurisdiction to grant a Stay of Proceedings since to do so would be a refusal to exercise his jurisdiction under the ACT and his delegation.
  24. We agreed and therefore concluded that we do not have that jurisdiction.
  25. If it should be determined by higher judicial authority that we indeed had the jurisdiction to grant a Stay of Proceedings, in view of the directive in Section 14.02 of the ACT which calls for a "speedy and expeditious" hearing, we would in any event have exercised our said jurisdiction by refusing a Stay of Proceedings in the circumstances of this case.
  26. At the Oral Hearing referred to in footnote 2 above, Me Rodgers presented a subsidiary motion, should we refuse to grant a Stay of Proceedings. That is, he requested an adjournment (postponement) of the Merits Hearing until the final decision of the Federal Court concerning the TRUSTEES.
  27. After study and consideration, we concluded that such a request for an adjournment (postponement) was a disguised request for a Stay of Proceedings and must also be refused.
  28. However, we were of the view that when such an adjournment is requested, a delegate can always grant less, i.e. an adjournment to a given date, as part of the exercise by the delegate of his unchallenged authority to control the process before him.
  29. Because of the schedules and commitments of both counsel and the undersigned, we believed that as at that late date (i.e. October 29, 2004, in relation to the then scheduled Hearing on the Merits in late November, 2004) it would have been unfair to counsel for the TRUSTEES to force on the Merits Hearing on the dates referred to in paragraph 11 above.
  30. Seeing those schedules and commitments, we undertook to fix the Merits Hearing, based on the availability of counsel, the parties and the witnesses, to any two consecutive weeks during the five-week period from January 24 to February 26, 2005. We indicted that we would consult with counsel to determine the exact dates for the two week Merits Hearing within that five-week timeframe.
  31. Thereafter, on November 1, 2004, we consulted with both counsel as to the fixing of the exact dates for the Merits Hearing within the period described in paragraph 30 above. On November 5, 2004, both counsel requested that the Merits Hearing be held during late March or in April 2005, whereupon we fixed that Hearing for the two weeks of April 4 and 11, 2005.
  32. Subsequently, on November 10, 2004, the Hearings Co-ordinator of the Federal Court of Canada informed Me Rodgers and his adversary in another case that the said case was peremptorily fixed for Hearing before that Court on April 4 and 5, 2005.
  33. As a result of the foregoing, the Hearing dates herein were modified such that the Merits Hearing would take place on April 7, 8, 11 to 15 and 18 to 22, 2005.
  34. On March 14, 2005, the Trustees' counsel, Me Aaron Rodgers filed their Reply to the REPORT.
  35. On March 16, 2005, we wrote to both counsel regarding Section 14.02(3) of the ACT, which refers to the public nature of the Hearing and the Record herein, unless the Trustees could satisfy us that the indicated exception should apply in this case.
  36. Subsequently, after a joint voice mail message from both counsel received on March 22, 2005, it was stipulated that Me Rodgers would provide his written submissions, if any, concerning that Section 14.02(3) of the ACT by April 1, 2005 and that if he did, that Mtre Matte would reply on or before April 5, 2005.
  37. The Merits Hearing was then re-scheduled to take place on April 11th to 15, 18 to 22, 26 and 27, 2005.
  38. However on April 1, 2005, Me Rodgers sent a long letter to us in which he complained about the "… tactics adopted by counsel to the Superintendent …", which "… give rise to serious misgivings concerning the fairness of the process …", adding that "(Our) decision of October 29, 2004 did nothing to alleviate these misgivings." Me Rodgers' letter of April 1, 2005 is attached as Appendix "B" to this DECISION.
  39. At the same time, Me Rodgers sent to us a copy of the Judgment issued in another case on February 8, 2005 by Madam Justice Danièle Grenier of the Superior Court of Quebec. He also decried "… the tactics adopted by the Superintendent to date …" and then concluded "… the Trustees have no confidence in the independence or impartiality of the tribunal or its proceedings …" and that "As a result of all of the foregoing, the Trustees will not participate."
  40. Me Rodgers also sent to us, along with his letter of April 1, 2005, a copy of the confidential letter of December 16, 2003 sent by the Senior Analyst herein to the Trustees, in which the former set out the Sanctions that she would seek against the Trustees. A copy of that letter is attached as Appendix "C" to this DECISION.
  41. That letter would normally not have been made known to us unless and until we would determine that either or both TRUSTEES had breached or violated provisions of ACT, the Rules thereunder and/or the Superintendent's Directives.
  42. Consequently, there was no longer any raison d'être to conduct the proceedings in two stages, i.e. first the liability stage and then, if required, the sanction stage.
  43. Thereafter, counsel for the Senior Analyst requested that the Hearing proceed ex parte and that we proceed on both liability and, if applicable, the sanction(s) at the same Hearing.
  44. As we advised counsel in our letter of April 5, 2005:

    "The raison d'être for the previous separation into two phases of the liability and, if applicable, the sanction processes is that, unless and until the Delegate has made a finding of liability, the "written notice" pursuant to Section 14.02(1) of the Act (in this instance, the letter of December 16, 2003) is normally not revealed by the Senior Analyst to the Superintendent or, where applicable, to his Delegate. That procedure is followed in order to assure fairness to the affected trustee(s) by separating the investigative function of the Superintendent or his representative from his adjudicatory function.

    However, by sending to me a copy of the Senior Analyst's letter of December 16, 2003, the Trustees themselves have made me aware of its contents and consequently there is no further purpose to proceed in two stages. Thus, at the upcoming Hearing, the Senior Analyst will be permitted to present evidence and submissions regarding both liability and sanction(s).

    In my letter of March 30, 2005, a copy of which is also transmitted herewith for ease of reference, I indicated that Me Rodgers' group have been assigned the B.C. boardroom on our 41st floor for their use throughout the Hearing. I am today cancelling my reservation of that boardroom, but it can be re-instated at any time if Me Rodgers and/or his clients change their position and he and/or they decide to attend at and participate in the Hearing.

    Me Rodgers and his clients are invited to change their position and participate in the Hearing, which he (they) may do at any point during the Hearing."

    Our letter of April 5, 2005 is attached hereto as Appendix "D" to this DECISION.

  45. Moreover, we determined that a trustee who (which) is the object of disciplinary proceedings under the ACT cannot be permitted to undermine and derail those proceedings simply by refusing to participate in them.
  46. Consequently, at the request of counsel for the Senior Analyst, we decided to proceed ex parte.
  47. The entire Hearing proceeded ex parte and neither of the TRUSTEES nor their counsel made any appearance thereat.
  48. At the ex parte Hearing, the Senior Analyst testified and moreover called the following persons as witnesses:
    1. Mr. Robert Massé, Senior Evaluation Officer with the Office of the Superintendent of Bankruptcy (hereinafter "the OSB");
    2. Mr. Patrick Kabrita, Legal Affairs Analyst at National Bank Financial Inc.;
    3. Mr. Robert M. Malo, Trustee in Bankruptcy, formerly employed by the firm Samson Belair Deloitte & Touche, the Guardian Trustee with regard to the files of the TRUSTEES herein; and
    4. Mr. Louis Nolet, Senior Evaluation Officer with the OSB.
  49. Also, Mr. Marco Garberi, an employee of the Royal Bank of Canada, was heard as a witness pursuant to an Order addressed to him by Mr. Justice Blanchard of the Federal Court of Canada dated April 15, 2005 and an accompanying subpoena issued to that witness by C.H. Beaulieu, Registry Officer at the Federal Court.
  50. After the Hearing, on April 28, 2005 we addressed a further letter to Mes A. Rodgers and Matte. In the case of Me Rodgers, we delivered that letter to him together with the Procès-verbaux and the Court Stenographers' transcripts regarding those four days of Hearing.
  51. In that letter, we invited Me Rodgers to submit to us by May 13, 2005 any comments/legal arguments in regard to the Hearing that he would wish to bring to our attention and stating that we would maintain the Argument Phase open until that date. That letter is attached as Appendix "E" to this DECISION.
  52. We received no comment whatsoever from Me Rodgers and we now proceed to consider the Merits of this case.
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    The Merits

  53. The TRUSTEE has been a Chartered Accountant since March 18, 1971 and is also a member of the Quebec Bar since November 28, 1989.
  54. The OSB first issued a bankruptcy trustee licence to the TRUSTEE on March 25, 1974. It has been renewed periodically since that date and is still in force and active, all fees having been paid to date.
  55. The CORPORATE TRUSTEE received its licence on October 28, 1980. It is has not been renewed since January 1, 2004 as a consequence of the non-payment of the requisite fees and for the reason indicated in paragraphs 70 and 71 below.
  56. As of May 1, 2002, Mr. Robert Massé conducted an audit of the professional practice of the TRUSTEES.
  57. During that audit, Mr. Massé learned from the TRUSTEE that surplus funds in the consolidated trust account for summary administration bankruptcy files, No. 160‑560–9, maintained at the Royal Bank of Canada (hereinafter "the CSA"), were being invested with National Bank Financial Inc. (hereinafter "NATIONAL"), which is an investment dealer.
  58. In consequence thereof, Mr. Massé requested that the TRUSTEES produce copies of the portfolio statements of that account, which the TRUSTEE did in part.
  59. However, Mr. Massé noticed that certain key elements of those statements had been removed from the photostated copies furnished to him, particularly with regard to the statement dated June 30, 2001.
  60. Mr. Massé accordingly asked the TRUSTEE to produce to him the original portfolio statements as issued by NATIONAL or that the CORPORATE TRUSTEE authorize Mr. Massé to obtain copies of same directly from NATIONAL. The TRUSTEES refused to do so.
  61. As a result of the foregoing, Mr. Massé suspended the audit.
  62. Notwithstanding such refusal, on July 9, 2002, Messrs. Massé and Nolet did obtain copies of the portfolio statements directly from NATIONAL.
  63. Those statements confirmed that the funds held by the CORPORATE TRUSTEE in account No. 1ATT5H-E at NATIONAL, being surplus amounts from the CSA, had been pledged to NATIONAL as security for amounts owed to it by the CORPORATE TRUSTEE personally.
  64. Consequently, given the deficiencies noted by Mr. Massé in the TRUSTEES' management of funds held in trust and their non-cooperation in providing requested information and documents, Mr. Alain Lafontaine, a Deputy Superintendent of Bankruptcy, issued instructions for the first conservatory measures against the TRUSTEES on July 5, 2002 in regard to the copying of all data recorded in the "NEWVIEWS" software employed by the TRUSTEES, as well as all computerized data related to Estate files contained in the TRUSTEES' computer system and to turn all such data over to Mr. Massé.5
  65. As well, on that same date, further conservatory measures were issued directing the Official Receiver not to appoint the TRUSTEES to administer any new files.6
  66. Moreover, also on July 5, 2002, still further conservatory measures were issued against the TRUSTEES to the Royal Bank of Canada directing that no funds be withdrawn from the TRUSTEES' trust accounts without the signature of a designated OSB representative.7
  67. Upon further conservatory measures being issued against the TRUSTEE by the OSB on July 24, 2002, on July 25 and 26, 2002 the Official receiver took possession of the TRUSTEES' files and the assets related thereto and turned them over to Samson Belair Deloitte Touche, as Guardian Trustee to continue and complete the administration of those files.8
  68. At that time, the TRUSTEES had 1,087 files open, composed of the following:
    1. 119 Ordinary Administration Bankruptcy files, of which 91% were older than 36 months;
    2. 874 Summary Administration Bankruptcy files, of which 49% were older than 36 months;
    3. 13 Division I Proposal files; and
    4. 81 Consumer Proposal files.
  69. Finally in regard to conservatory measures, further such measures were issued on August 13, 2005 regarding the accounts of the CORPORATE TRUSTEE of the Bank of Montreal9 and the Guardian Trustee10 and on September 17, 2002 regarding the re-direction of mail.11
  70. In December 2002, the CORPORATE TRUSTEE changed its name to 177751 Canada Inc., without informing the SUPERINTENDENT, thereby violating Directive 13 on Trustee Licensing which requires approval by the SUPERINTENDENT of the choice of name of a corporate trustee.
  71. The TRUSTEE was informed on November 19, 2003 that the licence of the CORPORATE TRUSTEE would not be renewed for 2004 unless it changed its name to one approved by SUPERINTENDENT no later than December 10, 2003. That has not been done.
  72. The Senior Analyst alleged in the REPORT and then proved many breaches by the TRUSTEES in regard to the ACT, the Rules thereunder and the Directives. We will not analyse all of them in detail here, since our conclusions finding liability are adequately supported by several major breaches committed by the TRUSTEES, even without going into the numerous further lesser breaches.
  73. The offences which have been alleged and generally made out by the SENIOR ANALYST are grouped as follows:
    1. False documents and refusal to co-operate;12
    2. Use of an unauthorized bank account to deposit funds administered under the ACT;
    3. Offences associated with the operation of the CSA;
    4. Offences associated with the operation of the consolidated trust account for consumer proposal files;
    5. Unauthorized fee withdrawals and non-permitted reimbursement of expenses in ordinary administration files;
    6. False trustee Statements of Receipts and Disbursements in ordinary administration bankruptcy files;
    7. Failure to repay money to an Estate following taxation lowering the TRUSTEE's fees;
    8. Failure to comply with a Court decision with regard to the payment of disbursements in an ordinary administration file; and
    9. Offences related to the administration of a Division I proposal.
  74. In regard to item 5 of paragraph 73 above, namely that in several ordinary administration Bankruptcy files the CORPORATE TRUSTEE withdrew substantial fees and took reimbursement of expenses, either, as regards the fees, without the required authorization in the form of a resolution of a duly constituted meeting of creditors or of a majority of the inspectors or of an order by the Court, or, as in CDV Packaging Inc., an overpayment of expenses of $8,129 together with an unauthorized withdrawal of $75,000 in fees, for a total of $83,129; or, as in André Robitaille, the withdrawal of fees and expenses in excess of the amounts permitted by the ACT; or, as in the Calfund, Calpen and Fundcal Estates, the amount of $10,000 was received by the TRUSTEES from a third Party, was never recorded in the ledgers for those Estates and was never accounted for; all those allegations have been clearly established by the evidence adduced by the SENIOR ANALYST.
  75. Those unauthorized withdrawals of fees and non-permitted expenses are accurately set out as follows at paragraph 61 of the REPORT, as follows:
    File name Amount withdrawn without authorization
    125851 Canada Inc. (El Paso Restaurant) 30,000.00
    3004368 Canada Inc. (J & T International) 30,000.00
    CDV Packaging Inc. 83,129.00
    André Robitaille 548.00
    Calfund Realty Inc.
    Calpen Realty Inc.
    Fundcal Realty Inc.     		10,000.00
    2753-8735 Québec Inc. (Etcetera Dépanneur Plus Enr.) 6,567.45
    Total 13$160,244.45
  76. Moreover, the TRUSTEES failed to furnish to the representatives of the OSB the NATIONAL portfolio statements for the account entitled "Pfeiffer & Pfeiffer Inc., in trust No. 2" and for the NATIONAL margin accounts 1ATT5G-E and 1ATT5G-F, which indicated a total of $1,294,422.51 owing by the CORPORATE TRUSTEE to NATIONAL.14
  77. Generally speaking, over several years, the TRUSTEES exhibited a cavalier disregard for their obligations as Trustees in Bankruptcy. The TRUSTEE dealt with trust funds in the various Estates under the administration of himself and the CORPORATE TRUSTEE as if they were his personal funds.
  78. The evidence adduced by the SENIOR ANALYST has convinced us of the veracity and accuracy of paragraphs 104, 105, 106 and 107 of the REPORT, which declare:

    "104. In his capacity as designated individual trustee, Mr. Sydney H. Pfeiffer failed to perform his duties with respect to the administration of estates, and failed to comply with the Act, Rules and Directives of the Superintendent.

    105. The trustee demonstrated a lack of honesty and integrity in his management of estate and insolvency funds held in trust. He caused prejudice to hundreds of creditors by depriving them of money that should have been used to pay dividends to them.

    106. The total amount of money missing from the CSA, as of July 5, 2002, was $1,034,447.78. In the ordinary administration files discussed in this report, unauthorized fees drawn by the trustee total $160,244.45.

    107. The trustee must assume full responsibility for all the unauthorized fees drawn in estate and insolvency files of the corporate trustee and for the altered and incomplete documents related to the portfolio statements that were submitted to the representatives of the Superintendent and filed in Federal Court."

  79. In addition to the CSA, which had been authorized by and was known to the officials of the OSB, the CORPORATE TRUSTEE opened unauthorized accounts at the Bank of Montreal and at NATIONAL.
  80. Insofar as the accounts at the Bank of Montreal, they were a vehicle that the TRUSTEES adopted to illegally circumvent the conservatory measures imposed on and after July 5, 2002. Since those measures put in place tight controls on the CSA, unbeknownst to the officials of the OSB, the CORPORATE TRUSTEE opened accounts at the Bank of Montreal and illegally deposited there funds received in trust with regard to Estates under the administration of the TRUSTEES.
  81. It should be emphasized that the TRUSTEE was the only bankruptcy trustee within the CORPORATE TRUSTEE and that he was the sole shareholder, sole Director/and the controlling mind of the latter. In those capacities, the TRUSTEE controlled all the operations of the CORPORATE TRUSTEE, and particularly its banking operations.
  82. Moreover, pursuant to paragraphs 33 and 34 of Directive No. 13, the CORPORATE TRUSTEE is responsible for all the actions and omissions of the TRUSTEE.
  83. Insofar as NATIONAL, the TRUSTEES pledged trust funds belonging to Estates under their administration to guarantee the personal indebtedness of the CORPORATE TRUSTEE to NATIONAL.
  84. Moreover, when during the audit Mr. Massé learned of the existence of the account at NATIONAL and requested portfolio statements in regard thereto, the TRUSTEE presented him with photostated copies of such statements that had been illegally altered ("doctored") by him in order to conceal the fact that the principal trust account there was a "margin" account.
  85. The TRUSTEES tendered that same illegally altered and false ("doctored") statement when, on July 10, 200215, the TRUSTEES responded to the letter of June 21, 2002 sent to the TRUSTEE16 by Mr. Raymond Villemure, Assistant Superintendent, Audit East.
  86. Moreover, on July 10, 2002 the TRUSTEES filed in Federal Court an "Application for Judicial Review" in regard to the decision of the SUPERINTENDENT to undertake an investigation of the TRUSTEES and thereafter to issue conservatory measures.17
  87. In support of that Application, the TRUSTEES had the temerity to file an Affidavit by the TRUSTEE dated July 10, 2002, in which paragraph 16 refers to and files as Exhibit "H" the letter dated July 10, 2002 described in paragraph 85 above, together with the documents that accompanied that letter, including in particular the said "doctored" portfolio statement.18
  88. Following the issuance of the first conservatory measures on July 5, 2002, on July 11, 2002 the TRUSTEES applied to the Federal Court for an "Order Suspending the Effect of the Conservatory Measures".
  89. In connection with that Application as well, the TRUSTEES again had the audacity to tender that same "doctored" portfolio statement.
  90. On July 17, 2002, the Honourable Mr. Justice Beaudry rejected that Application, Reasons to Follow. Those reasons were issued on July 19, 2002.19
  91. In his REASONS FOR ORDER, Justice Beaudry wrote the following at paragraphs 18 to 21:

    "18. In the motion before this Court, the public interest is in the ability of the Superintendent to carry out thorough investigations in order to police trustees and ensure the integrity of the administration of bankruptcy matters in Canada. When the public interest is viewed in light of the present case, it is as important to protect parties involved in future bankruptcy files from being affected by the alleged malpractice of the Applicants as it is to protect current clients of the Applicants by ensuring that their interests are not compromised by the assumption by the Applicant of new files pending the investigation.

    19. The most compelling factor which tilts the balance of convenience in favour of the Respondents is the conduct of the Applicants. The record indicates that the Applicants have altered some of the financial records which they were asked to produce and of which the Respondents ultimately had to retrieve true copies directly from financial institutions owing to the lack of cooperation on the part of the Applicants.

    20. An example of such discrepancies can be seen by comparing of statements from National Bank Financial Inc. provided by the Applicants (pp. 79, 80 and 81 of the Respondents' Record, Vol. 1) with copies of the same statements provided directly by that institution (pp. 82, 83 and 84 of the Respondents' Record, Vol. 1). It is evident that the Applicants were attempting to conceal information about the nature of the interests that they had in their portfolio holdings. Assets which have been pledged as collateral for margin loans to the Applicants have been represented as being owned by the Applicants without being charged with such pledges.

    21. In addition to discrepancies found in statements from financial institutions and manipulation of the internal records of the Pfeiffer Inc., the investigation by the Superintendent indicates a difference of over $1,000,000 between the amount that, according to the register kept by the Applicants, is supposed to be in the trust funds of the Applicants and the amount that in fact is currently present in those funds. There is clearly a public interest in limiting further opportunities for misconduct by the Applicants and for a thorough investigation of their past conduct."

  92. We concur entirely with those REASONS articulated by Justice Beaudry.
  93. At the end of the day, after NATIONAL applied Estate trust funds to cover the CORPORATE TRUSTEE's personal indebtedness, and all the remaining available trust funds were recovered by the Guardian Trustee from NATIONAL, from the Royal Bank and from the Bank of Montreal, there resulted a shortfall of over $1,000,000 in trust funds, which in turn caused substantial losses to the creditors of the various Estates under administration by the TRUSTEES, which creditors were for all practical purposes deprived of the dividends that they should have received.
  94. That immense shortfall in the funds that the CORPORATE TRUSTEE should have been holding also explains why the TRUSTEES could not close files as they did not have the required trust funds to pay the dividends to creditors.
  95. Consequently, we can understand why such a very high proportion of the TRUSTEES' files were older than 36 months, as described in paragraph 68 above.
  96. In brief, the TRUSTEES repeatedly breached the provisions of the following:
    1. Sections 5(5), 13.5, 25(1), 25(1.3), 26(1), 152(1) and 197(4) of the ACT;
    2. Articles 34, 36, 37, 39, 45, 48, 61(2)(c) and 61(2)(e) of the Rules under the ACT; and
    3. Various provisions of Directives 5, 13 and 24.
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    The Sanctions

  97. In the confidential letter of December 16, 2003 referred to in paragraphs 40 and 41 above, which is Appendix "C" to this DECISION, the SENIOR ANALYST had recommended that the Sanctions to be imposed on the TRUSTES be comprised as follows:
    1. that the corporate license of Pfeiffer & Pfeiffer Inc. be cancelled;
    2. that the licence of Sydney H. Pfeiffer be cancelled;
    3. that the TRUSTEES, Pfeiffer & Pfeiffer Inc. and Sydney H. Pfeiffer, be ordered to solidarily ("jointly and severally" in the terminology of the Common Law Provinces) make restitution to the CSA in the amount of $1,034,447.78, being the amount missing in the CSA on July 5, 2002;
    4. that the TRUSTEES, Pfeiffer & Pfeiffer Inc. and Sydney H. Pfeiffer, be ordered to solidarily make restitution to the Estate of 125851 Canada Inc. (El Paso Restaurant) in the amount of $30,000 withdrawn by the TRUSTEES, without the required permission;
    5. that the TRUSTEES, Pfeiffer & Pfeiffer Inc. and Sydney H. Pfeiffer, be ordered to solidarily make restitution to the Estate of 3004368 Canada Inc. (J & T International) in the amount of $30,000 withdrawn by the TRUSTEES, without the required permission;
    6. that the TRUSTEES, Pfeiffer & Pfeiffer Inc. and Sydney H. Pfeiffer, be ordered to solidarily make restitution to the Estate of CDV Packaging Inc. in the amount of $83,129 withdrawn by the TRUSTEES, without the required permission;
    7. that the TRUSTEES, Pfeiffer & Pfeiffer Inc. and Sydney H. Pfeiffer, be ordered to solidarily make restitution to the Estate of André Robitaille in the amount of $548 withdrawn by the TRUSTEES, without the required permission;
    8. that the TRUSTEES, Pfeiffer & Pfeiffer Inc. and Sydney H. Pfeiffer, be ordered to solidarily make restitution to the Calfund Realty Inc., Calpen Realty Inc. and Fundcal Realty Inc. in the amount of $10,000 withdrawn by the TRUSTEES, without the required permission;
    9. that the TRUSTEES, Pfeiffer & Pfeiffer Inc. and Sydney H. Pfeiffer, be ordered to solidarily make restitution to the Estate of 2753-8735 Québec Inc. (Etcetera Dépanneur Plus Enr.) in the amount of $6,567.45 withdrawn by the TRUSTEES, without the required permission.
  98. At the Hearing, without giving any reasons or explanation for same, the SENIOR ANALYST withdrew her request in reference to sub-paragraph (c) of paragraph 97 above20
  99. Insofar as the remaining recommended Sanctions, they are all provided for in Section 14.01 (1) of the ACT, which decrees:
    "Where, after making or causing to be made an investigation into the conduct of a trustee, it appears to the Superintendent that
    1. a trustee has not properly performed the duties of a trustee or has been guilty of any improper management of an estate,
    2. a trustee has not fully complied with this Act, the General Rules, directives of the Superintendent or any law with regard to the proper administration of any estate, or
    3. it is in the public interest to do so, the Superintendent may do one or more of the following:
    4. cancel or suspend the licence of the trustee;
    5. place such conditions or limitations on the licence as the Superintendent considers appropriate including a requirement that the trustee successfully take an exam or enrol in a proficiency course, and
    6. require the trustee to make restitution to the estate of such amount of money as the estate has been deprived of as a result of the trustee's conduct.
  100. In the context of that Section 14.01(1) of the ACT, as the DELEGATE of the SUPERINTENDENT, the undersigned stands in his shoes and acts in his stead.
  101. As for the licences of the TRUSTEE and the CORPORATE TRUSTEE, the SENIOR ANALYST is seeking their outright cancellation, which, in analogous terms of the criminal law, is tantamount to "capital punishment" in the context of Bankruptcy Trustee Disciplinary Proceedings.
  102. The outright cancellation of a Bankruptcy Trustee's licence effectively puts him (it) out of business. That has already happened here as a result of the conservatory measures that have been issued against the TRUSTEES, as described in paragraphs 64 to 67 and 69 above, all of which are still in effect.
  103. To pursue the analogy drawn from the criminal law in paragraph 100 above, where a range of penalty is designated by the legislator, the adjudicator should reserve the maximum penalty provided for the worst offenders in the worst cases.
  104. After due deliberation, and for all the reasons recited above in this DECISION, we have concluded that the TRUSTEES are to be considered as the worst offenders and this case as a worst case.
  105. In the public interest, in order to protect the public and to maintain the integrity of the administration of, and the image of, the Canadian Bankruptcy/Insolvency system, it is imperative that the licences of both the TRUSTEE and the CORPORATE TRUSTEE be cancelled.
  106. Consequently, the SANCTIONS recommended by the SENIOR ANALYST, as recited at sub-paragraphs (a) and (b), of paragraph 97 above will be granted.
  107. As for the restitution SANCTIONS recommended by the SENIOR ANALYST, as recited at sub-paragraphs (d) to (i), inclusive, of paragraph 97 above, we must be mindful of the fact that the creditors in each of those Estates have been deprived of their dividends that the funds misappropriated by the TRUSTEES would otherwise have yielded to them.
  108. Consequently, each of the SANCTIONS recommended by the SENIOR ANALYST, as recited in those sub-paragraphs (d) to (i), inclusive, of paragraph 97 above, will also be granted.
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    Conclusions

  109. FOR ALL THE ABOVE REASONS, we hereby:
    1. CANCEL the corporate licence of Pfeiffer & Pfeiffer Inc.;
    2. CANCEL the licence of Sydney H. Pfeiffer;
    3. ORDER the TRUSTEES, Pfeiffer & Pfeiffer Inc. and Sydney H. Pfeiffer solidarily, to make restitution to the Estate of 125851 Canada Inc. (El Paso Restaurant) in the amount of $30,000, withdrawn by the TRUSTEES without the required permission;
    4. ORDER the TRUSTEES, Pfeiffer & Pfeiffer Inc. and Sydney H. Pfeiffer solidarily, to make restitution to the Estate of 3004368 Canada Inc. (J & T International) in the amount of $30,000, withdrawn by the TRUSTEES without the required permission;
    5. ORDER the TRUSTEES, Pfeiffer & Pfeiffer Inc. and Sydney H. Pfeiffer solidarily, to make restitution to the Estate of CDV Packaging Inc. in the amount of $83,129, being the total improperly withdrawn by the TRUSTEES, $75,000 as fees without the required permission and $8,129 as an overpayment of expenses;
    6. ORDER the TRUSTEES, Pfeiffer & Pfeiffer Inc. and Sydney H. Pfeiffer solidarily, to make restitution to the Estate of André Robitaille in the amount of $548, withdrawn by the TRUSTEES in excess of the amounts permitted by the ACT;
    7. ORDER the TRUSTEES, Pfeiffer & Pfeiffer Inc. and Sydney H. Pfeiffer solidarily, to make restitution to the Calfund Realty Inc., Calpen Realty Inc. and Fundcal Realty Inc. in the amount of $10,000, being the amount received by the TRUSTEES from a third Party, never recorded in the Estate ledgers for those Estates and never accounted for;
    8. ORDER the TRUSTEES, Pfeiffer & Pfeiffer Inc. and Sydney H. Pfeiffer solidarily to make restitution to the Estate of 2753-8735 Québec Inc. (Etcetera Dépanneur Plus Enr.) in the amount of $6,567.45, withdrawn by the TRUSTEES without the required permission.
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    Closing Provision

  110. Each duplicate original of this DECISION ON THE MERITS AND ON THE SANCTIONS signed by the DELEGATE is equally valid and authentic and may serve as such for all legal purposes.

The Honourable Benjamin J. Greenberg, Q.C.
DELEGATE OF THE SUPERINTENDENT

Mtre Allan Matte
Counsel for the SENIOR ANALYST;

Mtre Aaron G. Rodgers
Counsel for the TRUSTEES.

1 14.01(2) Delegation. The Superintendent may delegate by written instrument, on such terms and conditions as are therein specified, any or all of the Superintendent's powers, duties and functions under subsection (1), subsection 13.2(5), (6) or (7) or section 14.02 or 14.03. (Return to Reference 1)

2 However, at the Oral Hearing held herein on October 7, 2004, Me Rodgers withdrew his argument on the linkage of these proceedings and those before the Quebec Superior Court, seeking to tie the requested Stay to only the proceedings before the Federal Court of Canada. (Return to Reference 2)

3 (1982) 142 D.L.R. (3d) 548; [1983] 2 F.C. 71. (Return to Reference 3)

4 Respectively in Levy, Sherriff, St-Georges and Roy. (Return to Reference 4)

5 See Attachment 7 to the REPORT. (Return to Reference 5)

6 See Attachment 10 to the REPORT. (Return to Reference 6)

7 See Attachment 11 to the REPORT. (Return to Reference 7)

8 See Attachment 19, 20 and 22 to the REPORT. (Return to Reference 8)

9 See Attachment 24 to the REPORT. (Return to Reference 9)

10 See Attachment 25 to the REPORT. (Return to Reference 10)

11 See Attachment 26 to the REPORT. (Return to Reference 11)

12 Submitting "doctored" NATIONAL portfolio statements is the antithesis of co-operating with the OSB. (Return to Reference 12)

13 See also at Attachments 3, pp 22–26 and 35, 36, 37 and 38 to the REPORT. (Return to Reference 13)

14 See Attachments 5 and 12 to the REPORT. (Return to Reference 14)

15 See Attachment 13 to the REPORT. (Return to Reference 15)

16 See Attachment 6 to the REPORT. (Return to Reference 16)

17 See Attachment 14 to the REPORT. (Return to Reference 17)

18 See at pages 191 to 193 of the said Attachment 14. (Return to Reference 18)

19 See Attachment 17 to the REPORT for both the ORDER of July 17, 2002 and the REASONS FOR ORDER of July 19, 2002. (Return to Reference 19)

20 See at pages 14 to 16 of the Transcript of the Hearing on April 11, 2005 (Return to Reference 20)

This document has been reproduced as submitted by the delegate of the Superintendent of Bankruptcy.

Date Modified: 2010-07-26

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