Fercan Developments Inc. owned an $8MM former Molson’s Brewery plant. But the property was better known for being Canada’s largest and best concealed marijuana grow operation, raising “a large number of plants that were capable of generating $8,000,000 in sales per year.” [Para. 11]
Vince DeRosa owned Fercan. His brother Robert managed Fercan’s properties in Barrie Ontario. The Ontario Court of Justice found that “Robert had arranged the leases for the building and facilitated the grow operation. … although Vince DeRosa and Fercan were investigated extensively by the police, including reviews of their bank accounts, no charges were ever laid against them.” [Para. 11]
“[o]n September 19, 2013, the property was sold to a third party pursuant to power of sale proceedings brought by a mortgagee, First Ontario Credit Union. After payment of the First Ontario mortgage and other fees, $4,067,685.10 remains.” The Attorney General of Ontario brought this action to keep the $4MM as either “proceeds of unlawful activity” (Part II of the Civil Remedies Act, 2001) or an “instrument of unlawful activity” (Part III).
Justice Vallee said that he could not agree there were reasonable grounds to believe that the property was “proceeds of unlawful activity”. So, he could not allow the Crown to keep the money on that basis.
The Crown had not shown any evidence that rent was used to pay mortgage payments. “There must be both subjective and objective grounds for one to believe that an event occurred.”
“[32] … The AG has produced no evidence to show that Fercan received the rent money and how it was spent. As noted above, Mr. DeRosa has millions of dollars in assets. It is just as likely that the rent received from the three tenants was invested or used for other purposes as it is that the funds were used for the property’s mortgage payments. The court can only speculate as to how the rent might have been spent. Speculation does not provide a foundation for reasonable grounds to believe that something occurred.”
Vallee J. then looked at whether the property had been an instrument of crime — helping the corporation Northern Ethanol, a tenant on the property, to carry out a US stock fraud. (Note that a Court can order a seizure even if the owner wasn’t involved in crime, if the property was used for a crime. But the Court probably wouldn’t order seizure of an innocent person’s property just because someone else used if for crime. Here, though, evidence showed that Northern Ethanol was related to Fercan.)
The Court similarly dismissed this basis for letting the Crown continue to hold the money:
“[55] … As to whether the lease was an inducement for investors, I conclude that it was neutral at best. …
“[56] At the time of filing the prospectus, the most that could be said about Northern Ethanol was that it was a fledgling company that had a business plan for producing ethanol. … Accordingly, I conclude that Northern Ethanol’s reference to the lease in the prospectus did not constitute using the property as an instrument of unlawful activity.”
On the AG’s third ground for holding the money, the Court easily agreed that the property had been used to produce marijuana and “was used to facilitate the acquisition of other property, being the money from the sale of marijuana.” So, “[t]here are reasonable grounds to believe that the property was used as an instrument of unlawful activity in this regard.” [Para. 59]
As this was a “preservation” motion, to protect the property until the forfeiture hearing, the Court must grant the preservation order “Except where it would clearly not be in the interests of justice”. (CRA s. 4(2).) So, the order should be refused “only where the respondent has shown that forfeiture would be manifestly harsh or draconian. … the phrase is broad and includes maintaining confidence in the civil justice system. Orders should be made in accordance with the community’s sense of fairness. … [A]t the preservation stage, because the court is only being asked to protect the property pending a later forfeiture hearing, the exception should even more narrowly applied.” [Paras. 62-63]
Justice Vallee agreed that the Crown had grounds for preservation of the money until the forfeiture hearing because “[i]t is clear that the property was used to house the marijuana grow operation and was used to acquire other property. Therefore, it is an instrument of unlawful activity; [even though], Mr. DeRosa knew nothing about it.” [66]
The CRA does allow a Court to protect a “responsible owner’s” interest: CRA s. 8(3). But “[t]he issue of whether Mr. DeRosa was a responsible owner is not relevant at the preservation stage and is not before me.” [67]
“[68] Nevertheless, preserving this property would continue to deprive Mr. DeRosa of $4,067,685.10. The property has been restrained since 2010. To date, no credible evidence of wrong-doing on Mr. DeRosa’s part has been provided in a Canadian court. As noted earlier, Mr. Georgiou gave evidence in the 2010 U.S. trial that implicated Mr. DeRosa; however, the court found that his evidence was unreliable. After a seven week trial, Justice West was completely satisfied that Mr. DeRosa had no knowledge of the marijuana operation. Bearing in mind that the “not in the interests of justice” exception should be applied even more narrowly at the preservation stage, I conclude that Mr. DeRosa and Fercan have clearly shown that an order to preserve the property would be manifestly harsh and draconian in the circumstances. I find that an order to preserve the property would offend the community’s sense of fairness. Based on the record before me, I conclude that the interests of justice would not be served by preserving the funds from the sale of the property.”
And so, Fercan got its money.
See AG v. $4,067,685.10 (Canadian Currency), 2014 ONSC 2537 (Vallee); See also Ontario v. $10,000.00 in Canadian Currency (In Rem), (2014 ONSC Ellies) and see Director of Civil Forfeiture v. Lloydsmith, 2014 BCCA 72:
“[13] This case is one of several, perhaps more than several, now making their way through the Supreme Court of British Columbia. And it is not alone in being a claim of forfeiture against a person who has been neither charged nor convicted of a criminal offence. Accordingly it is a case in which challenges to police compliance with the Charter must be presented without the assistance of a Legal Aid funded lawyer. Yet the sophistication of the Charter issues makes it desirable that the individual is represented by counsel, which of course is very costly. Having to maintain a costly defence is a risk every person in the community is vulnerable to. There is, however, an extra element in the civil forfeiture cases, and that is the jeopardy faced by a civilian, at risk of losing a great deal and at risk of being labelled for criminal behaviour. This jeopardy arises from evidence gained by police using their special authority but without the case ever having fed into the criminal proceedings stream, with the defendant now caught in a proceeding that requires presentation for cross-examination at an examination for discovery. All of this is allowed by the legislation. Given these very high stakes for the individual and the power difference between the parties, it is not surprising that there has been an assortment of applications seeking to challenge the legitimacy of the evidence gathering actions of the police, seeking to postpone discovery until that legitimacy has been determined, and seeking avenues for just redress where such activities have been found to be in violation of a person’s Charter rights.”