Trump Tower Offerings in Canada Ruled Deceptive

     TORONTO (CN) — Investors in the financially disastrous Trump International Hotel in Toronto scored a victory against the presidential candidate and two of his companies on Thursday, when a Canadian appeals court found they were duped into buying condos based on misleading marketing materials.
     Sarbjit Singh and Se Na Lee bought hotel units in the building in downtown Toronto’s financial district in the mid-2000s, expecting profits from the development’s “reservation program.” The program put purchasers’ units in a pool to be rented out at luxury rates, expecting expenses and profits to be generated by high occupancy rates at the hotel.
     “Both believed that buying into the Trump project would be an excellent investment,” the Court of Appeal for Ontario wrote in its Oct. 13 ruling. “And in time, both came to realize that they were wrong.”
     Singh and Lee filed similar lawsuits against Donald John Trump Sr., Trump Toronto Hotel Management Corp., Trump Marks Toronto LP, Talon International Inc., Talon International Development Inc., Val Levitan, Alex Shnaider and Toronto Standard Condominium Corporation No. 2267.
     The lawsuits did not survive motions for summary judgment, and they appealed.
     Defendant Alex Shnaider was Talon International’s chairman and Val Levitan the firm’s CEO. The appeals court found that “Levitan had no previous experience in construction, hotel management, or operations.”
     The 70-storey building contains two types of condominiums: residential and hotel condos. Buyers were given the option to participate in a “reservation program” allowing their rooms to be rented out and to “use the profits from the room rentals to offset the carrying costs of the condominiums and to generate income,” according to the three-judge panel’s summary.
     The Ontario Securities Commission granted Talon an exemption from dealer registration and prospectus requirements under the province’s Securities Act, so the units would be considered real estate rather than securities or investment contracts.
     The commission granted the exemption on the basis that Talon would not “market the Hotel Units by emphasizing that prospective purchasers could profit through the Reservation Program. The Reservation Program was ‘merely secondary’ to the primary marketing pitch that prospective purchasers could own a luxury Hotel Unit for their personal use,” the appeals court wrote, adding: “The ruling was clear.”
     In addition, “Talon was prohibited from providing prospective purchasers with ‘forecasts or guarantees or any other form of financial projection or commitment’ related to the Reservation Program,” the unanimous appeals court panel wrote.
     According to the 56-page ruling, Trump’s marketing materials at the sales center and online featured “a PowerPoint presentation that opened with a smiling Mr. Trump proclaiming: ‘It’s going to be the most elegant building there is. There won’t be a building to even compete with it. We’re going to do something very special in Toronto.'”
     The purchase price of the units in the Power Point presentation ranged from $784,000 to $843,000.
     Singh visited the sales center in December 2006, Lee in April 2007, where the Power Point presentation told them their estimated annual return on investment would be $18,144 to $63,627. A bottom line, in boldface type, estimated the annual “return on cash invested” as 6.46 percent to 21.57 percent, the ruling states.
     The Power Point showed their monthly expenses would be $1,827 to $2,081, and that rooms would be rented out at $550 to $600 a night.
     Though the estimates were labeled for “discussion purposes only,” company representatives said that an occupancy rate of 55 percent was a “worst-case scenario” and would still be profitable, the appeals court wrote.
     Both Singh and Lee bought hotel units, but were in for a rude awakening.
     “As it turned out, the Estimates bore no relation to financial reality,” the ruling states. “The
     motions judge found as a fact that the Estimates were ‘deceptive documents’ and ‘replete with misrepresentations of commission, of omission, and of half-truth.'”
     The appeals court added: “the motions judge found that the figures in the Estimates were merely hypotheticals dreamed up by Talon’s principal Mr. Levitan who, it will be recalled, had no previous experience in the hotel business.”
     Citing the motions judge’s ruling, the appeals court wrote: “The Estimates’ specifications of hotel rates and occupancy rates, which emanated from Mr. Levitan’s mind, were, at best, just opinions or forecasts. However, they were uninformed and ill-informed opinions, and his figures were essentially just pick-a-number speculation about what might be charged and what might happen in the marketplace.”
     Singh’s unit fees turned out to be more than $8,300 a month, 68 percent higher than the estimates he was given before he signed onto the deal. Lee’s monthly fees were more than $5,200, which was 51 percent higher than the original estimates and included tax and assorted fees that had not been disclosed.
     By December 2014, Singh had lost nearly $250,000, while Lee who had “stuck it out” lost more than $990,000.
     With occupancy rates far below the defendants’ “worst-case scenario,” Talon eventually acknowledged that the hotel would not be profitable for five years.
     “The combination of much lower than expected revenue and much higher than expected expenses wiped out any possibility of profit,” appeals court found.
     The lower court judge — the motions judge — concluded incorrectly that the plaintiffs’ reliance upon the estimates was “unreasonable,” the appeals panel found.
     It continued: “They [the plaintiffs] knew or ought to have known that the Estimates were not a guarantee that the investment would be profitable. They assumed the risk that room and occupancy rates would fluctuate and that they might earn less profit than they originally anticipated. It is unreasonable, however, to conclude that the plaintiffs assumed the risk that the Estimates upon which they decided to invest were simply made up in the first place and that known expenses were either not disclosed or were grossly understated.”
     Furthermore, though the purchase agreements contained a clause that no representations had been made about projected income from the hotel units, the appeals court found that purchasers could not have know that “the respondents were exempting themselves from any liability flowing from their misrepresentations that induced the Singhs and Lees to sign the contract in the first place.”
     “In the present case, the entire agreement clause functioned as a trap to these unsurprisingly unwary purchasers,” the ruling states.
     The panel agreed that Singh was entitled to rescission of the purchase agreement, and that Lee was entitled to damages against Talon for negligent misrepresentation. It also awarded $35,000 in costs to the appellants and left the damages to be calculated by the Ontario Superior Court.
     The opinion was written by Justice Paul Rouleau, with agreements from Justices Katherine van Rensburg and M.L. Benotto.

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