Contempt of Court and a Criminal Conviction: Lessons Learned from Francis Mella
Those of you who regularly follow our posts will recall the story of Dave’s Diesel Repair and its fraudulent bookkeeper, Francis Mella. On January 21,2022, another chapter of that story closed when Mella was sentenced to 10 years in prison for stealing more than $2 million from his former employer. In 2014, we began acting on behalf of Mella’s former employer to recover the stolen funds. In this blog, we’ll look at lessons learned from the Mella case and outline the options fraud victims have for recovering stolen funds through civil proceedings.
Following a criminal conviction in October 2021, Mella was sentenced to 10 years in prison (he’ll actually serve six years and 10 months, due in part to time served in pre-trial custody) in January 2022. He was also ordered to pay more than $2.5 million to his former employer, Dave’s Diesel Repair Ltd., a truck repair shop west of Edmonton.
MLT Aikins Filed Civil Action Against Mella in 2014
MLT Aikins acted for Dave’s Diesel Repair and launched a civil action in 2014 to recover the $2.2 million misappropriated by Mella.
We were successful in obtaining a $2.2 million civil judgment against Mella for fraud, breach of trust, breach of fiduciary duty and wrongful misappropriation of funds. However, Mella proved to be a difficult and evasive debtor. He went to great lengths to avoid paying his debt, which resulted in MLT Aikins obtaining the extraordinary remedy of civil contempt. Mella ended up in prison multiple times before his criminal trial even began.
Mella Imprisoned for Defying Court Orders
After many aggressive and creative court applications, MLT Aikins succeeded in having Mella held in contempt of court for failing to comply with various civil court orders related to the collection of his debt. This resulted in Mella’s imprisonment – one of the rare occasions in Canadian legal history where a debtor has been imprisoned.
The first prison sentence was three months. The second time, he received a 12-month sentence.
When Mella was released, MLT Aikins continued to enforce the judgment against him by garnishing his wages. Shortly afterward, Mella declared bankruptcy. When he was discharged from bankruptcy, MLT Aikins resumed enforcement efforts.
Meanwhile, in June 2017, the owner of Dave’s Diesel Repair reported Mella’s theft to the RCMP. Mella was charged with fraud and theft and a criminal trial was scheduled for April 2019.
In January 2019, MLT Aikins brought another successful application to find Mella in contempt of court. He was sentenced to a third prison sentence – 12 months, once again – but by now, his whereabouts were unknown and a Canada-wide warrant had been issued for his arrest.
It was subsequently learned that Mella had fled to Belize, a country that does not have an extradition treaty with Canada. For a time, it appeared he may have successfully escaped, but he was eventually arrested by local authorities and deported in 2020. He was arrested upon his return to Canada in May 2020 and began serving his one-year civil contempt sentence while awaiting his criminal trial.
Collecting Debt Through Civil Proceedings
The Mella case is of particular interest to victims of fraud who wish to employ civil proceedings to collect debt and illustrates 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 successfully prosecutes the crime, the punishment is usually imprisonment. These cases may take years to prosecute, if they are prosecuted at all.
Where an individual pursues a civil claim for fraud, the end goal is not necessarily imprisonment, but the recovery of the stolen funds. Accordingly, the process and tools at the disposal of lawyers pursuing a civil fraud action are different than those used for criminal fraud charges.
The Mella case illustrates this distinction. Shortly after Dave’s Diesel Repair discovered that Mella had fraudulently misappropriated funds, the company retained MLT Aikins. We then immediately filed a lawsuit and made an application for a Mareva Injunction and an Attachment Order.
In this case, Mella’s assets were frozen before he even became aware that the company knew of the fraud. We quickly obtained a civil judgment and 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 – with some important exceptions.
Bankruptcy does not discharge a person from their debt when it arises from fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity, as well as debts resulting from property or services obtained by false pretenses or fraudulent misrepresentation.
When pursuing a judgment for fraud, it is important to consider your future ability to collect against the fraudster by ensuring 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 the orders against Mella survived his bankruptcy.
Debtors Found in Contempt of Court May Face Imprisonment
In Alberta, debt collection is governed by the Civil Enforcement Act. Debtors must comply with the processes and remedies set out in the Act. As the Mella case illustrates, evading 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 Orders
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 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 the personal property of debtors in satisfaction of a judgment. Seizure may also occur before a judgment is rendered if court-ordered pre-judgment relief (such as an attachment order) has been obtained.
In this case, MLT Aikins seized 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 that 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 Mella’s bank accounts and wages in satisfaction of the judgment. He 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 and Questioning
A creditor may require a debtor to provide financial information and attend questioning to disclose information about his or her assets.
In this case, Mella’s questioning enabled MLT Aikins to obtain necessary information about his sources of income. It was also through questioning that MLT Aikins was able to establish that Mella had been taking steps to divert assets so they could not be seized by Dave’s Diesel Repair. This resulted in his imprisonment for contempt of court.
Key Takeaways for Fraud Victims
Although Mella will now spend even more time behind bars and has been ordered by Alberta’s Court of Queen’s Bench to repay his former employer, it is important for victims of fraud to note that they need not rely on lengthy criminal proceedings to attempt to recover stolen funds. Civil proceedings offer victims a variety of tools to recover their debt. MLT Aikins was pleased to act for Dave’s Diesel Repair in this case. If you have been victimized by fraud, contact us to learn how we can help.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice.