COURT OF APPEAL FOR ONTARIO

CITATION: DeMichino v. Musialkiewicz, 2012 ONCA 458

DATE: 20120628

DOCKET: C53250

Juriansz, LaForme and Epstein JJ.A.

BETWEEN

Michele DeMichino represented by his Guardian of Property, The Bank of Nova Scotia Trust Company

Respondent (Plaintiff)

and

Bogdon Musialkiewicz, 1315437 Ontario Inc., Bill Thompson Transport Inc., 2810026 Canada Limited c.o.b. as Frederick Transport Inc.

(Defendants)

and

Gary Neinstein and Neinstein and Associates LLP

Appellants

Paul J. Pape and David S. Steinberg, for the appellants

Archie Rabinowitz and Eric N. Hoffstein, for the respondent

Heard: April 17, 2012

On appeal from the order of Justice Lois B. Roberts of the Superior Court of Justice, dated January 7, 2011, with reasons reported at 2011 ONSC 142.

Epstein J.A.:

[1] The issue the parties initially brought before the court in this appeal was whether the motion judge committed a reviewable error in exercising her discretion to deny a law firm a premium on its account to its client. During argument, the parties reached an agreement with respect to the legal costs in issue and proposed a settlement on the basis of this agreement. As a result, the issue before the court became a matter of approving the settlement.

BACKGROUND

[2] In the underlying action, Mr. DeMichino sought damages for catastrophic injuries he sustained in a car accident that took place in April 2003. His injuries were so severe that he was declared incapable of managing property. The respondent, the Bank of Nova Scotia Trust Company, has acted as Mr. DeMichino’s guardian of property since its appointment in September 2008.

[3] In November 2006, the appellants, Neinstein and Associates, the law firm that formerly acted for Mr. DeMichino, and Mr. Neinstein, the lawyer at the firm who had principle carriage of the file, negotiated a settlement of his tort claim whereby Mr. DeMichino would receive $4,000,000. This amount was in addition to the approximately $2,000,000 in Statutory Accident Benefits that the appellants also secured on Mr. DeMichino’s behalf.

[4] Because Mr. DeMichino is a person under a disability, court approval of the tort settlement, including the appellants’ fees and disbursements, was required under Rule 7.08 of the Rules of Civil Procedure, R.R.O., Reg. 194. The appellants claimed fees on a partial indemnity basis. Pursuant to a court order, the Public Guardian and Trustee (PGT) reviewed the proposed settlement and concluded that the appellants had “achieved a good result for the client, providing for his future care, based on projected needs”, and recommended that the settlement be approved by the court, including the partial indemnity fees claimed by the appellants.

[5] The appellants also sought a premium above the partial indemnity fees totalling $561,320.75 plus GST, and a further $29,512.81 in disbursements. This brought the total fees sought to $913,000 plus disbursements of $79,512.81. The appellants claimed to be entitled to a premium on the basis of a number of factors including their assuming the risk associated with the outcome and their financing the tort action for three years. The PGT considered the claim for legal fees and disbursements and decided that the appellants were entitled to a premium but that more information was needed to determine the amount.

[6] Court approval of the initial amount the PGT recommended was obtained and was paid to the appellants. The court also ordered that $624,512.81, being the amount of the sought after fee premium plus the remainder of the disbursements the appellants incurred, be paid to Neinstein and Associates LLP, in trust, pending the PGT’s further review and court approval.

[7] Upon completion of its review, the PGT recommended approval of $432,000 in additional legal fees plus $25,920 for GST and $29,512.81 in disbursements yielding a total further payment to the appellants of $487,432.81, beyond the $368,000 already approved and paid.

[8] After receiving this recommendation, but prior to obtaining court approval, the appellants transferred $562,426.41 from their trust account to their general account. This amount included the $487,432.81 the PGT recommended plus an additional amount for fees and disbursements the appellants claimed for work performed for Mr. DeMichino in related proceedings. The appellants notified the PGT and Mr. DeMichino’s guardians of property of this transfer and then later, when the necessity of court approval before transferring the funds out of trust became apparent, the appellants returned the entire amount to trust.

[9] The appellants then sought court approval of the additional amount of $487,432.81 on a nunc pro tunc basis.

[10] Notwithstanding that all parties consented to the order sought, the motion judge denied the appellants’ claim for any additional fees and reimbursement of the remainder of the disbursements incurred on behalf of their client. This appeal is from that decision.

THE MOTION JUDGE’S REASONS

[11] The motion judge assessed the appellants’ claim on a quantum meruit basis. Given her view that such an assessment engages equitable principles and her finding that the appellants breached their fiduciary duty to Mr. DeMichino by transferring the amounts in issue into their general account prior to receiving court approval, the motion judge concluded that the appellants did not come to court with clean hands. As a result, the motion judge held that they were not entitled to any additional fees or repayment of the rest of their disbursements.

[12] The motion judge went further. She also concluded that even without the breach of fiduciary duty, the appellants were not entitled to any further compensation for the work they did for Mr. DeMichino because excessive time was spent on the file, much work could have been done at lower rates, the action was not complicated and there was little risk that the appellants would not be compensated for their services.

THE APPEAL

[13] Only the appellants and the respondent, guardian of Mr. DeMichino’s property, participated in the appeal. Mr. Pape advanced a compelling argument that included the submission that the appellants’ conduct, if warranting sanction at all, did not warrant forfeiture of the total amount claimed. At the conclusion of his submissions Mr. Pape proposed that the appeal be allowed and the additional legal costs be resolved on a “solomonesque” basis giving his client a further $216,000 in fees, and disbursements in the amount of $29,512.

[14] At the outset of his argument, Mr. Rabinowitz, counsel for the respondent, candidly advised the court that he was in a “difficult position”. Before the motion judge, his client had consented to the amounts claimed by the appellants and recommended by the PGT for additional fees and disbursements. At this juncture, Mr. Rabinowitz conceded that the appellants were entitled to repayment of their disbursements. In relation to the fee premium, he advised the court as follows: “I’m sticking to the exact same position that we took to the motions judge”. Counsel went on to explain that he was still consenting, but for the purposes of the appeal his client’s position was that the order of the motion judge was reasonable and there was no palpable and overriding error.

[15] It was in the context of these comments that the possibility of a settlement was raised. After a brief recess, counsel for both parties advised the court that their clients had reached a settlement in accordance with Mr. Pape’s closing submissions as to the appropriate disposition of the appeal.

[16] After some discussion with the court, it was agreed that court approval of the proposed settlement was necessary. It was agreed that this court was in the position to determine whether it ought to be granted.

THE REQUEST FOR COURT APPROVAL

[17] It is important to bear in mind that the aspect of the settlement for which approval is being sought is limited to a premium in legal fees above what has already been approved as appropriate on a partial indemnity basis. No issue is taken, nor is one available, as to the appellants’ clear entitlement to be reimbursed for the disbursements they incurred on behalf of their client.

[18] With respect to a claim for a fee premium, this court laid down the following principles in Christian Brothers of Ireland in Canada (Re) (2003), 68 O.R. (3d) 1 (C.A.):

Many factors may bear on whether lawyers are entitled to a premium over their hourly rates. These factors include the difficulty and complexity of the case, the responsibility assumed by the lawyer, the amount in issue, the importance of the case to the client, the skill shown by the lawyer, the result achieved, the client's ability to pay and the lawyer's corresponding financial risk… The judge or officer assessing or approving a lawyer's account must, in exercising discretion, take into account and weigh these factors in deciding whether to award a premium” (at para. 17).

See also: Ontario (Ministry of Transportation) v. Tripp (1999), 123 O.A.C. 278.

[19] As reconfirmed by the Court of Appeal in Wu Estate v. Zurich Insurance Co., (2006), 268 D.L.R. (4th) 670 (Ont. C.A.), leave to appeal to the Supreme Court of Canada dismissed, [2006] S.C.C.A. No. 289, the duty of the court in considering whether or not to approve a settlement reached on behalf of a party under a disability is to protect the party and to ensure that the settlement is in his or her best interests (at para. 10).

[20] It goes without saying that any premium paid to counsel who helped a plaintiff in a tort action achieve a resolution of his or her claim will reduce the funds available to meet the plaintiff’s needs and otherwise compensate him or her for damages sustained. However, as important as those interests are, they must be balanced against the need to provide fair compensation for lawyers who assist in achieving the result.

[21] Ensuring, to the extent possible, that the lawyers’ contribution to the result is appropriately recognized is important for several reasons. First, lawyers are entitled to fair compensation for services rendered and to reimbursement of their cost outlays. Second, lawyers who are willing to assume carriage of files in circumstances where the result is not certain and where unpaid fees and paid disbursements may have to be financed over a long period of time contribute to access to justice: Christian Brothers, at para. 21.

[22] Against the background of these observations, I have concluded that approval of the proposed settlement is justified.

[23] First, the proposed settlement totals just over half of what was recommended by an experienced representative in the PGT after obtaining additional information and carefully reviewing the premium claimed. Of equal, if not greater, significance is the respondent’s support of the appellants’ position. While the court must not simply rubber-stamp such endorsements, it should, in the absence of evidence that would suggest impropriety or lack of skill, demonstrate confidence in such representatives and give the recommendations considerable weight. See: Royal Bank of Canada v. Soundair Corp. (1991), 4 O.R. (3d) 1 (C.A.), Christian Brothers, at para. 25.

[24] Finally, in the light of the strength of Mr. Pape’s argument on behalf of the appellants, the outcome of the appeal was far from certain.

[25] Focusing on Mr. DeMichino’s best interests and taking into account the role the appellants’ played in protecting those interests as well as the other factors I have noted, I am of the view that the proposed settlement should be approved particularly given the acknowledgment of counsel for the respondent that Mr. MeMichino’s needs will be met notwithstanding the additional payment to the appellants of the amount contemplated by the proposed settlement.

COMMENT AND DISPOSITION

[26] I close these reasons with a brief comment about the services Mr. Neinstein provided to his client. The motion judge commented that Mr. Neinstein brought his expertise to bear in securing the result that he did for his client and she endorsed the view expressed by the PGT that the result achieved was good. While Mr. Neinstein erred in his handling of a portion of the money that went into his trust account, there is no evidence that he tried to conceal the transfer; in fact, he issued invoices to Mr. DeMichino’s guardians of property showing the money paid out from trust. Finally, I note that there is no evidence that Mr. Neinstein’s client was adversely affected by the error: when the error was recognized the funds improperly transferred were immediately returned to trust.

[27] I would allow the appeal and set aside para. 2 of the motion judge’s order. I would approve the proposed settlement that provides that the appellants are entitled to further legal fees in the amount of $216,000 plus $29,512 (inclusive of tax) for disbursements.

[28] Subject to the costs of this appeal set out below, I would order that the solicitors for the respondent pay to the appellants, from the funds it is holding in escrow:

(a) the sum of $216,000 plus GST of $15,120 for fees, plus $29,512 for disbursements, inclusive of tax;

(b) interest in the amount of $12,686.37; and

(c) interest earned on the sum of $273,318.37 from May 20, 2011 to the date the aggregate amount is paid to the appellants.

[29] I would also order that the balance of the funds held in the escrow account together with all interest earned be paid to the respondent as guardian of Mr. DeMichino.

[30] On consent, the respondent is entitled to its costs of this appeal fixed in the amount of $20,000 including disbursements and applicable taxes. This amount will be deducted from the amount payable to the appellants.

“Gloria Epstein J.A.”

Juriansz J.A.: (Concurring in the result)

[31] I have read the reasons of Epstein J. A. and while l agree that the proposed settlement should be approved, l am unable to concur with the reasons that she proposes.

[32] I do not agree with my colleague’s description of the appellant’s arguments on appeal as “compelling”. Nor do I regard the Guardian’s position on appeal as “difficult” given that below it had consented to the appellant’s motion. The Guardian’s duty is at all times to defend the fund and its opposition to the appeal was in fulfillment of that duty.

[33] I would approve the settlement simply on the basis that the Guardian of the respondent’s property, recognizing the uncertainty of any litigation, entered into an agreement to settle the appeal. In doing so, the Guardian exercised its judgment to protect the fund against the prospect that the appeal might be allowed. The Guardian indicates that the respondent’s needs will be met notwithstanding the additional payment to the appellants pursuant to the proposed settlement. l see no reason to regard the Guardian’s settlement of the appeal as unreasonable or reflecting any lack of skill in attending to the best interests of the respondent.

[34] While as a technical matter, the appeal must be allowed in order to implement the settlement, both parties explicitly acknowledged the appeal was to be allowed on consent and not on the merits. I would allow the parties to take out an order of this court to implement the settlement with costs to the respondent in the amount of $20,000 all inclusive as agreed by counsel.

Released:

“GE” “Russell Juriansz J.A.”

“JUN 27 2012” “I agree H.S. LaForme J.A.”```