NOTE: A warrant has been issued for the arrest of Francis Mella. The police are actively searching for Francis Mella as he is presently awaiting a criminal trial on charges of fraud. If you have any information about his whereabouts, please contact the police.
Our previous blog posts have summarized the facts: Francis Mella fraudulently misappropriated more than $2.2 million while working as a bookkeeper at a diesel repair shop.
MLT Aikins commenced a civil action for fraud, breach of trust, breach of fiduciary duty and wrongful misappropriation of funds. Judgment of $2.2 million was obtained against Francis Mella for fraudulent misappropriation. MLT Aikins then commenced enforcement efforts to recover the stolen funds.
Throughout the course of litigation and enforcement, Francis Mella flagrantly disregarded court orders and made a number of attempts to delay, obstruct and defeat attempts to collect on the judgment.
As a result, MLT Aikins brought Applications to hold Francis Mella in contempt of court. We were successful, and he was imprisoned on two separate occasions for a total period of 15 months.
Further details about those Applications can be found in our previous blog posts:
When Francis Mella was released from prison, MLT Aikins continued to enforce the judgment by garnishing Francis Mella’s wages. Shortly afterward, he declared bankruptcy. When he was discharged from bankruptcy, MLT Aikins resumed enforcement efforts. In response, Francis Mella continued to take steps to hide his location and his income.
As a result of his conduct, MLT Aikins brought another application on January 25, 2019 to hold Francis Mella in contempt. We were again successful, and he was sentenced to an additional 12 months in prison.
A warrant has been issued for his arrest, and the police are actively searching for him. In addition, he has been criminally charged with theft and fraud. If convicted, he faces up to 24 years in prison.
This case identifies the broad range of options available to creditors when enforcing judgments for fraud.
Civil vs. Criminal Remedies for Fraud
Fraud and theft are criminal acts. Once a fraud is reported to the police, it will be investigated and the police will determine whether they have enough evidence for the Crown to prosecute. If the Crown prosecutes the crime, it is on behalf of the general public, and the punishment is usually imprisonment. These cases may take many years to prosecute, if they are prosecuted at all.
Where an individual pursues a civil claim for fraud, the end goal is not imprisonment, but the recovery of the stolen funds. Accordingly, the process and tools at the disposal of lawyers pursuing an action for civil fraud are different than for criminal charges of fraud.
The Mella case illustrates this distinction; shortly after the company discovered that Francis Mella had fraudulently misappropriated funds, it retained MLT Aikins, whose lawyers immediately filed a lawsuit and made an application for a Mareva Injunction and an Attachment Order.
In this case, Francis Mella’s assets were frozen before he even became aware that the company knew of the fraud. We quickly obtained a civil judgment, collection proceedings began immediately.
Civil Judgments for Fraud and Fines for Contempt of Court Are Not Discharged by Bankruptcy
Where a civil judgment is awarded against a person who does not pay, the bankruptcy process usually allows an individual to escape a large portion of his or her debts.
Important exceptions are when the debt arises out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity, and debts resulting from property or services obtained by false pretenses or fraudulent misrepresentation.
When pursuing a judgment for fraud, it is important to give consideration to the future ability to collect against the fraudster by ensuring that your claim and any judgment obtained fall within one of these exceptions. In this case, MLT Aikins was careful to craft the pleadings and the judgment in such a way that ensured that the judgment against Francis Mella survived his bankruptcy.
Debtors Must Comply with Enforcement Efforts or Face Imprisonment
In Alberta, collection of debts is governed by the Civil Enforcement Act, and debtors must comply with the processes and remedies set out in the Act. As the case of Francis Mella illustrates, evading your enforcement creditors and taking steps to undermine the enforcement process could result in prison time.
Creditors who have obtained judgments for fraud have a number of tools at their disposal for preserving and recovering funds that have been misappropriated by fraudulent means.
1. Attachment Order
An Attachment Order allows the court to freeze all of a fraudster’s assets before a judgment has been granted. This prevents the defendant from dealing with, disposing of or removing the assets from the jurisdiction.
In this case, MLT Aikins obtained an Attachment Order against Francis Mella before he became aware that his fraud had been discovered, enabling maximum recovery of the misappropriated funds.
2. Seizure and sale of property
Creditors are also permitted to seize personal property of debtors in satisfaction of a judgment. Seizure may also occur before a judgment is obtained if court ordered pre-judgment relief (such as an attachment order) has been obtained.
In this case, MLT Aikins seized Francis Mella’s personal property and sold it. The funds from the sale were applied in satisfaction of the judgment.
3. Garnishment of Bank Accounts and Wages
A garnishee summons may be issued to any party who owes a financial obligation to a debtor, such as a bank, an investment dealer, a borrower or an employer.
MLT Aikins took steps to garnish Francis Mella’s bank accounts and wages in satisfaction of the judgment. Francis Mella attempted to thwart the garnishee summons, which led to him being held in contempt of court and sentenced to a further 12-month prison term.
4. Financial Statement of Debtor and Questioning in Aid of Enforcement
A creditor may require a debtor to provide financial information and to attend Questioning and disclose information about his or her assets.
In this case, Francis Mella’s Questioning enabled MLT Aikins to obtain necessary information about his sources of income. It was also through Questioning in Aid of Enforcement that MLT Aikins was able to establish that Francis Mella had been taking steps to divert assets so they could not be seized by the company. This led to his initial imprisonment for contempt of court.