TORONTO — Family estate disputes can get nasty, all the more so when rich people are involved.
Among some of the more high-profile court cases in recent memory, widow Lori Horton sued Tim Hortons’ co-founder Ron Joyce to get back the half of the doughnut shop company that she had sold to him more than a decade earlier, Canadian Tire heiress Martha Billes sued her brothers for control of the retail chain, and the McCain brothers’ disputed the succession plans at their frozen foods empire.
Even next to those, the Leon family feud looks particularly vicious.
The battle pits Terry Leon, chief executive of Leon’s Furniture Ltd., a storied Canadian business with 304 stores across the country and annual revenue of $2.2 billion, against Anita Leon, the widow of his deceased brother, Tom.
In a lawsuit scheduled to set its trial date this week, Anita Leon alleges Tom’s three brothers, Terry, Robert and Kevin, are trying to hold on to a Leon family investment that she says is rightfully hers. At stake are millions of dollars worth of Leon’s shares and what remains of some highly fractured family relationships.
The Leon family rift extends to one of the CEO’s sisters, Marjorie Leon, who has thrown her full endorsement behind Anita. The widow alleges in court documents that Tom’s brothers are misappropriating special shares within a complex estate trust that was put under their control for tax purposes.
“My father and I had many frank discussions about business and family,” Marjorie said in a sworn affidavit filed in support of Anita Leon. “I was lucky enough to spend some quality time with my father in the two years prior to his death. His message to me was always consistent. He loved his children equally and he wanted them to benefit from his wealth equally.”
Unfortunately, Anthony Leon also unwittingly sowed the seeds for the current feud by setting up a veritable Russian nesting doll of family trust and tax planning investments meant to maintain the family’s wealth.
Anthony, known in the family as Tom Sr., was one of 11 children of Ablan Leon, who opened the first Leon’s Furniture store in Welland, Ont., in 1909, a few years after he and wife Lena immigrated to Canada from Lebanon.
Now a publicly traded furniture giant, Leon’s is currently controlled by four branches of the Leon family, each branch represented by Ablan’s four sons, including Anthony.
Anthony spent his life at Leon’s, working for 63 years in the family business and helping to spearhead its expansion throughout the 1950s and 1960s. He was chairman, CEO and president of Leon’s until his retirement in 2005, when Terry took over.
Tom and Anita Leon’s court case unpacks family trust investments set up in 1998 by Anthony Leon for his seven children — Tom, Terry, Robert, Kevin, Marjorie, Cynthia and Debbie — “to defer capital gains taxes, and preserve the family’s control of Leon’s Furniture Ltd.,” according to a court filing from the brothers Terry, Robert and Kevin.
Five of the siblings who reside in Canada are trustees of their respective trusts that hold common shares in five corresponding sibling holding companies. These holding companies each hold shares within a larger family investment consisting principally of Leon’s voting shares. (Cynthia was going through a divorce when the trusts were set up in 1998 and, as such, was not put in charge of her own piece of the family investment, as per Anthony Leon’s directions).
But for Tom, an Arizona resident, the arrangement was different. Having lived and worked in the U.S. for many years prior to the formation of the holding companies, direct ownership of the company’s shares would have had significant cross-border tax implications.
As a result, Terry, Bob and Kevin were appointed trustees of a trust set up by their father whose capital and income beneficiaries were Tom and Anita. The shares attached to the holding company were given to Terry, Bob and Kevin rather than Tom, because of the tax implications of Tom’s U.S. residency.
Finally, the children of Terry, Bob, Kevin, Marjorie and Debbie were added as secondary trust beneficiaries, because Anita and Tom had no children.
The arrangement appeared to go smoothly for years, with Tom receiving regular dividend proceeds from the family trust.
But things changed after Tom was diagnosed with a degenerative spinal cord condition in 2012. Tom and Anita asked his brothers for additional funds from the trust to pay for medical bills and debts, including a $3-million mortgage on their house.
After Tom fell ill, the brothers said they learned in 2014 that he was having financial difficulties “as a result of having extended himself by way of loan and mortgage commitments,” they said in court filings. “These debts were surprising, even given the applicant’s extravagant lifestyle.”
The brothers put a plan in place to deal with the debt, they said in court filings, and Terry went over the plan with Tom.
“Tom did not seem to understand that Terry was dealing with these matters, possibly due to the effects of his medical condition at the time,” they said in court filings.
The fight escalated, and both sides retained lawyers.
Tom and Anita filed suit against his brothers in 2015, “after Tom felt that the trustees were breaching their duties as trustees … and that the trustees were becoming quite hostile to Tom in his time of need and expected access to the trust assets,” according to Tom and Anita’s court filings.
Tom, whose condition deteriorated as he had a series of ischemic strokes, died in 2016.
Anita now argues that assets in the trust and holding company — including more than $25 million worth of Leon’s shares — should be considered hers or part of her late husband’s estate.
Her court filings submit that the 1998 trust set up by Tom’s father considered Tom and Anita to be its “primary beneficiaries,” despite how it was structured for tax purposes. For the years up until his death in 2016, Tom received all the trust’s dividend proceeds, and regular dividends have since then been distributed to Anita.
The brothers argue that while the holding company’s shares of Leon’s at issue, which amount to two per cent of the company’s outstanding shares, “are owned legally and beneficially by Terry, Bob and Kevin, it had always been the respondents’ intention to use the proceeds for Tom, if necessary,” they said in court filings. “He could not, however, require that they do so.”
Tom understood that his brothers owned the shares attached to the trust, the brothers argue in their court filing, “without any legal obligation to ever make any transfer of those shares, and their proceeds to Tom.”
Their sister, Marjorie, disagrees.
In court affidavits filed in support of Anita’s application, Marjorie argues that “any claim by Terry, Bob or Kevin that they are indeed the ultimate beneficial owners (of the shares in question) … would be entirely inconsistent with the intention of my father to ensure that all of his children were treated equally with respect to the distribution of his assets to his children.”
She adds, “it was only well after Tom became ill that Terry, Bob and Kevin began to assert a controversial position about the ultimate entitlements to the benefits” of the shares.
The brothers counter that Marjorie, a chartered accountant who worked as a financial executive at an electronics company in Montreal prior to her retirement, is not an impartial witness in the case.
“While (Marjorie) claims she has no antipathy toward her brother Terry, her evidence is replete with negative and disparaging comments about him, which significantly detracts from the credibility of her evidence,” their filings said.
Marjorie, they add, was not involved in their father’s tax planning matters, but “purports to have knowledge of her father’s intentions and makes several generalized statements in that regard.”
Anita is asking for Justice Glenn Hainey (who is also presiding over the Sears Canada Inc. bankruptcy) to declare that the shares in question are “beneficially owned” by Tom’s estate, even though the legal ownership, as such, is in the names of his Canadian brothers.
She argues that Terry, Kevin and Robert are in breach of trust in their role as trustees for failing to diversify the trust’s assets and that they are in a conflict of interest as trustees because their children are secondary beneficiaries of the trust in question. She wants the Leon brothers to be removed as trustees and replaced by a slate of independent trustees.
Anita Leon “feels she has no choice but to sue her husband’s brothers to address a number of issues arising from the estate planning which we believe was primarily put in place for her benefit and that of her late husband,” Robert Cohen, legal counsel for Anita Leon, said in an emailed comment.
“Tom’s death and the family litigation just adds a very sad and troubling chapter to an otherwise amazing rags-to-riches story of the Leon family.”
Calls requesting comment from the Leon brothers’ counsel were not returned.
A trial date is to be set in Ontario Superior Court this week.