Court File and Parties

CITATION: Zborowsky v. DiLillo, 2011 ONSC 751

DIVISIONAL COURT FILE NO.: 604/10

DATE: 2011/02/02

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Zim Zborowsky, Plaintiff

AND:

Christopher DiLillo, Serena DiLillo and Di-Mond Trailers Inc., Defendants

AND RE: Christopher DiLillo, Serena DiLillo and Di-Mond Trailers Inc., Plaintiffs by Counterclaim

AND:

Jim Zborowsky and Peel Truck & Trailer Equipment Inc. and Innovative Trailer Design Industries Inc., Defendants by Counterclaim

BEFORE: Herman J.

COUNSEL: Arnie Herschorn, for the Defendants/Appellants

Edwin G. Upenieks, for Peel Truck & Trailer Equipment Inc. and Innovative Trailer Design Industries Inc., Defendants to the Counterclaim/Respondents

HEARD: January 21, 2010

ENDORSEMENT

[1] The defendants/appellants, Christopher DiLillo, Serena DiLillo and Di-Mond Trailer Inc. (the “DiLillos”) seek leave to appeal the decision of the motion judge, dated December 6, 2010, in which she ordered that Fogler, Rubinoff LLP (“Fogler”) be removed as counsel of record for the DiLillos.

[2] The motion judge granted the order on the basis that there was a current client relationship between Fogler and Peel Truck, one of the defendants to the counterclaim brought by the DeLillos. Alternatively, she indicated that even if there were no current client relationship, the client relationship would have been terminated within a short period of time prior to the Fogler firm having assumed its new mandate to act for the DeLillos in the action.

[3] The appellants submit that leave to appeal should be granted on the basis that there are conflicting decisions and the motion judge did not apply the correct principles in reaching her conclusion. Furthermore, the appeal involves an important issue because lawyers need to know when their obligation to a client ends.

Background

[4] Peel Truck, 246266 Ontario Limited and 559981 Ontario Limited are owned by the Di Franco family. Mr. Perks did legal work for the three companies and for members of the Di Franco family.

[5] Mr. Perks’ law firm merged with Fogler in September 2008.

[6] Fogler sent a bill to Peel Truck, dated December 29, 2008, related to work performed between August 28, 2008 and September 4, 2008.

[7] Fogler sent a bill to 246266 Ontario Limited, dated March 2, 2009, for general corporate services.

[8] Fogler issued the counterclaim against Peel Truck on August 28, 2009.

[9] Prior to issuing the counterclaim, Fogler conducted an internal conflict search. The search disclosed that Mr. Perks had performed work for Peel Truck and the Di Franco family. In answer to an undertaking, Fogler advised that it had opened three files related to the Di Franco family: 24266 Ontario Limited, 55981 Ontario Limited and Peel Truck.

[10] Fogler sent a bill to 246266 Ontario Limited, dated November 27, 2009, for work performed in October 2009 related to winding up the company.

[11] Fogler sent a bill to 559981 Ontario Limited, dated March 25, 2010, for work related to annual resolutions.

[12] The affidavit of Benito Di Franco, dated January 14, 2010, was before the motion judge. Mr. Di Franco is the president of Peel Truck. In his affidavit, Mr. Di Franco indicated that: Mr. Perks was a trusted counsel to him, his family and Peel Truck and remained their lawyer; Mr. Perk was aware of Peel Truck’s operations, business and financial information; Mr. Perks also had financial information about how the family interacted on a business level and personal level including information as to their vulnerabilities, which could be taken advantage of in a lawsuit.

General Principles and Cases

[13] The motion judge concluded that Peel Truck was a current client. The appellants submit that the motion judge applied the wrong principles in reaching her decision. The respondent submits, on the other hand, that she applied the correct principles and reached a fact-specific conclusion.

[14] It is useful to review the cases to discern the principles that courts have applied.

[15] The motion judge cited the principle articulated by Binnie J. in R. v. Neil, 2002 SCC 70, [2002] 3 S.C.R.631 at para. 29:

Nevertheless it is the firm not just the individual lawyer, that owes a fiduciary duty to its clients, and a bright line is required. The bright line is provided by the general rule that a lawyer may not represent one client whose interests are directly adverse to the immediate interests of another current client – even if the two mandates are unrelated – unless both clients consent after receiving full disclosure (and preferably independent legal advice), and the lawyer reasonably believes that he or she is able to represent each client without adversely affecting the other.

[16] The issue, then, is whether Peel Truck is a current client of Fogler’s.

[17] In Richmond Taxi Co. Holdings Ltd. v. Robbins, 2007 BCSC 1680, a decision of the British Columbia Supreme Court, the plaintiffs claimed that they were continuing clients of the defendant law firm. The judge disagreed. The law firm did not have instructions to take any further steps on behalf of the plaintiffs nor was there a broad retainer. The fact that there was a relationship between the plaintiffs and the law firm such that the plaintiffs could contact the defendant law firm to obtain further services did not mean that the retainer continued for the purpose of determining whether there was a conflict of interest.

[18] There is no evidence that Fogler was doing work directly for Peel Truck at the time or after it instituted the counterclaim against it. However, it did do work for other companies owned or controlled by the Di Franco family.

[19] In McKenna v. Gammon Gold Inc. (2009), 2009 79 (ON SC), 94 O.R. (3d) 735 (Sup. Ct.), Lax J. considered whether a law firm should be disqualified when it prosecutes an action against a subsidiary of its client for whom it has acted in unrelated matters. In that case, the issue was whether BMO Nesbitt Burns Inc. and TD Securities Inc. could be said to be clients or “near clients” of a particular law firm because that law firm represented the parent companies, the Bank of Montreal and Toronto Dominion Bank. The judge considered whether the subsidiaries were the “alter ego” of the parent companies and stated: “Where a subsidiary observes its own corporate formalities, has its own directors, its own business and capital, it is not the alter ego of its parent” (at para. 5).

[20] Lax J. reviewed the circumstances of the case before and concluded that: “While there may be situations where the duty of loyalty will require that a lawyer not act against an affiliate to protect the relationship with the client, this is not one” (at para. 11).

[21] Master Muir in Terracap Investments Inc. v. 2811 Development Corp., 2010 ONSC 1183 was of the opinion that the case before him was, indeed, one of those situations where the lawyer should be required not to act against an affiliate. In that case, the plaintiff was part of a group of private closely-held and family-owned companies. The Master concluded that the relationships amongst the companies and the family were such that the plaintiff could effectively be said to be a current client of the law firm.

[22] In the case of Savanna Energy Services Corp. v. CanElson Drilling Inc., 2010 ABQB 645, 2010 ABQB645, Martin J. of the Alberta Court of Queen’s Bench reviewed the decisions in McKenna and Terracap. She stated that, while the two cases had different results, there was no inconsistency between them in terms of the underlying principle or approach (at para. 85).

[23] Martin J. proposed that the question of “who is a client” be informed by a purposive and contextual approach (at para. 80). Thus, the values that support the duties of loyalty and confidentiality should be foremost. She set out factors that a court could consider when deciding whether to require that a lawyer not act against an affiliate of a client company: what the parties agreed to; how the corporations operate; what the corporation claiming to be a client believed; and what the lawyer knew about the interconnectedness of the corporations (at para. 87).

Application to this case

[24] The motion judge concluded that there was enough evidence, through the accounts that were billed by Fogler, to suggest that there was a current client relationship. She noted as well that it was understandable that the principles of Peel Truck would be upset that they were paying services to Fogler for legal services on the one hand while Fogler was representing a client whose interest was adverse to theirs.

[25] Earlier in her reasons, the motion judge referred to Mr. Di Franco’s evidence concerning the relationship between the Di Franco family and Mr. Perks and the nature of the work performed by Mr. Perks. She noted that Fogler disagreed with Mr. Di Franco’s characterization of the work. While the motion judge did not specifically make a finding on this point, there was, in my opinion, sufficient evidence before her concerning the relationships amongst the Di Franco family, the various companies and the lawyer to enable to her conclude that Peel Truck was a current client.

[26] The lawyer had done work directly for Peel Truck. He continued to do work for companies owned by the Di Franco family after the initiation of the counterclaim. Mr. Di Franco regarded Mr. Perks as his lawyer and the lawyer for the Di Franco family. He indicated that Mr. Perks had information regarding the family and their financial and business dealings that could be taken advantage of in a lawsuit.

[27] The facts in this case are far removed from the situation in McKenna in which each of the subsidiaries carried on a substantial business with its own employees, under the direction of its own Board of Directors.

Conclusion

[28] This case is not, in my opinion, a situation in which there are conflicting cases nor is it a situation in which the motion judge misapplied or neglected to apply the correct legal principles. To the extent that the motion judge reached a result that was different from that in other cases, it was as a result of different facts, not different principles.

[29] Furthermore, given that the conclusion the motion judge reached in this case is so fact-specific, an appeal would not involve an issue of such importance that would warrant granting leave.

[30] The motion for leave to appeal is therefore dismissed.

[31] Counsel made brief submissions on costs at the conclusion of the hearing. Peel Truck seeks costs of $5,000. That amount is, in my opinion, fair and reasonable in the circumstances. Costs are therefore ordered to be paid to Peel Truck in the amount of $5,000, inclusive of disbursements and HST, payable within 30 days.

Herman J.

Date: February 2, 2011