Banyan Tree Class Action Lawsuit Settles for 11m, subject to court approval

December 21, 2011 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: News, What's New from the Charities Directorate of CRA, Avoiding 'Charity' Scams

Scarfone Hawkins LLP has announced that a there is a settlement of the Banyan Tree class action lawsuit, subject to court approval.  On their website they state: “Settlement of Action This action has been settled.  The settlement is subject to court approval. A court approval hearing will take place on January 17, 2012, at 10:00 a.m. at 361 University Avenue, Toronto, Ontario.  The settlement agreement and distribution plan will be published here prior to the hearing date.”  This was the first class action lawsuit brought in the area of the “abusive charity gifting tax schemes”.  On the Scarfone Hawkins website there is a lot of interesting detail and background including an FAQ.

Here is the main page of the lawsuit:
http://www.classactionlaw.ca/content/claims/Rochester/Rochester.htm

Here is the press release from Scarfone Hawkins:

“Banyan Tree Foundation Gift Program
Media Statement – December 1, 2011
On February 27, 2008, a Statement of Claim was issued in the Ontario Superior Court of Justice in Toronto that claimed general and special damages for breach of contract and negligence pertaining to the Banyan Tree Foundation Gift Program.
Rochester Financial Limited, Promittere Capital Group Inc., Promittere Asset Management Inc., Banyan Tree Foundation and Fraser Milner Casgrain LLP were named as defendants in the case on the basis of their involvement.
In November 2011, the defendants in this case agreed, without any admission of liability or wrongful conduct, to contribute $11 million to a settlement fund pending the approval of the Ontario Superior Court of Justice on January 17, 2012.

The defendants agreed to this settlement in order to end the ongoing distraction and cost of a complex litigation process.

Scarfone Hawkins LLP of Hamilton, a law firm with significant experience in handling large complex class action cases, acts for the plaintiffs in this case. Lawyers David Thompson and Matthew G. Moloci say that they are pleased with the settlement and will be urging the court to approve it.

For more information, visit http://www.classactionlaw.ca.”


In the FAQ there are some interesting points raised on the how the class action proposed settlement could affect CRA tax issues:

“Canada Revenue Agency (“CRA”) Issues


  13. How will CRA treat the settlement payment I receive?

The settlement payment is a compromise of all monetary damages you may have suffered, including but not limited to: the cash donation paid, the security deposit paid, interest paid to CRA on re-assessment, payments made on promissory notes, and professional accounting or legal fees incurred. It is unknown how CRA will treat the settlement payment.

We are not tax advisors and are not in a position to provide an opinion on this issue. Class Members should obtain their own individual tax and/or accounting advice on this issue.


14. How will the settlement affect the fight with Canada Revenue Agency?

A declaration from the Ontario Superior Court of Justice that the promissory notes are void and unenforceable might impact the fight with Canada Revenue Agency. Canada Revenue Agency has always maintained that the loans were not bona fide loans, i.e. in other words, that the Class Members were not liable to repay the loans.

If the Ontario Superior Court of Justice, as part of settlement, makes a declaration that the promissory notes are void and unenforceable, that declaration will support the argument of Canada Revenue Agency that the Banyan Tree Foundation Gift Program is not valid, in particular because Class Members are not at risk to repay the loans.

Again, we are not in a position to provide an opinion on this issue. Individual tax and/or accounting advice should be obtained by Class Members. “

For further information see:  http://www.classactionlaw.ca/content/claims/Rochester/Rochester.htm

Do you require legal advice with respect to Canadian or Ontario non-profits or charities?

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Charity Lawyer Mark Blumberg

Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.

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