Financial Services Commission of Ontario

Neutral Citation: 2015 ONFSCDRS 193

FSCO A14-003366 and A14-003367

BETWEEN:

JAE HO LEE and MYUNG IN LEE Applicants

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Insurer

REASONS FOR DECISION

Before: Arbitrator Jeffrey Shapiro Heard: In person at ADR Chambers on June 1, 2015 and by written submissions completed on June 22, 2015

Appearances: Mr. Jae Ho Lee and Mrs. Myung In Lee did not participate Mr. James Galan and Mr. George Malakassiotis for Mr. Jae Ho Lee and Mrs. Myung In Lee Ms. Mouna Hanna for State Farm Mutual Automobile Insurance Company

Issues:

The Applicants, Mr. Jae Ho Lee and Mrs. Myung In Lee, were injured in a motor vehicle accident on June 27, 2007 and sought accident benefits from State Farm Mutual Automobile Insurance Company ("State Farm"), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Mr. Jae Ho Lee and Mrs. Myung In Lee, through their representative, applied for arbitration at the Financial Services Commission of Ontario ("the Commission") under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The issues in this Motion are:

1. Should the Galan Law Firm ("Galan") be removed from the record as Mr. Jae Ho Lee and Mrs. Myung In Lee's legal representative?

2. Should Mr. Jae Ho Lee and Mrs. Myung In Lee's Application for Arbitration be dismissed?

3. Is State Farm entitled to its expenses in preparing for and attending the arbitration proceedings from Mr. Jae Ho Lee, Mrs. Myung In Lee, and/or the Galan Law Firm, and if so, in what amount?

Result:

1. The Galan Law Firm is removed from the record as Mr. Jae Ho Lee and Mrs. Myung In Lee's legal representative.

2. Mr. Jae Ho Lee and Mrs. Myung In Lee's Application for Arbitration is dismissed.

3. State Farm is entitled to its expenses from (a) Mr. Jae Ho Lee (FSCO A14-003366) in the amount of $500.00, and (b) Mrs. Myung In Lee (FSCO A14-003367) in the amount of $500.00, for a total amount of $1,000.00 (not jointly and severally), both payable forthwith.

EVIDENCE AND ANALYSIS:

POSITION OF THE INSURER

The Insurer submits that the Application should be dismissed, with costs, as the Applicants have not appeared or participated in this process, or provided productions, and their claims were time-barred when filed. The Insurer also submits that because the Applicants' counsel pursued this matter despite being time-barred and failed to provide any requested productions that the Galan Law Firm ("Galan") should be liable for costs.

POSITION OF THE GALAN LAW FIRM

Galan did not state a position on the Motion to dismiss, but it opposes an award of costs against it, and seeks to be removed as counsel due to a breakdown in the solicitor-client relationship. Galan contends they "diligently attempted to represent our clients," sought timely removal, and that "a lawyer should not be placed in a situation where his or her fear of an adverse order of costs may conflict with the fundamental duties of his calling." Galan disputes that the claims were wholly time-barred, and argues the Insurer engaged in settlement discussions during and after Mediation, and never previously claimed the claim was "frivolous, vexatious or is commenced in bad faith."

CHRONOLOGY

Following the June 27, 2007 accident, on August 6, 2007, the Applicants applied for accident benefits.² While the parties agree that various disputes arose between the Applicants and the Insurer, neither party submitted, or directly referenced, the relevant OCF-9 denials, or alleged what transpired over the ensuing 5 plus years, until 2013.

Galan alleges that on June 26, 2013, the Applicants came to Galan to drop off documents,³ at which time Galan also requested the accident benefits file (the "AB file") from the Insurer. It appears the AB file was never received. Galan asserts that from August 2013 to December 2013 (approximate dates), they and the Applicants began requesting and collecting supporting documents.

On October 9, 2013, the Applications for Mediation were filed, and on January 9, 2014, the Mediations took place and the Reports of Mediator issued. Settlement offers were exchanged. This appears to be the last time that the Applicants had any involvement in the matter.

On April 14, 2014, Galan filed the Applications for Arbitration ("the Applications"). Mr. Galan acknowledged that the signatures for each Applicant and Galan are that of an employee of Galan. Briefly thereafter, the Commission advised the Pre-Hearing was set for March 11, 2015.

From July 28, 2014 to February 19, 2015, Insurer's Counsel wrote to Galan seven letters seeking productions. No response was ever received, though Galan contends that from August 18, 2014 to February 12, 2015, it issued more 3rd party request letters and received various documents. I have nothing to indicate that those documents, or any productions, were provided to the Insurer. On December 10, 2014, State Farm requested a Preliminary Issue Hearing on the basis that the claim was time-barred, but was advised that such Hearings are scheduled at the Pre-Hearing.

Unfortunately, around December 19, 2014, Galan lost contact with the Applicants as their attempts to call the Applicants failed, and their February 16, 2015 letter to the Applicants was returned.

March 11, 2015 Pre-Hearing

On March 11, 2015, a Pre-Hearing was held, but the Applicants failed to appear. My call to them received a message that the number was disconnected. A Student-at-Law from Galan's office presented an affidavit as a Motion to be Removed as Counsel. I denied that Motion as, inter alia, not being properly served,⁴ but gave leave to file a Motion 30 days prior to a Pre-Hearing Resumption set for June 1, 2015. My Pre-Hearing letter advised that the Applicants' attendance at the Pre-Hearing Resumption "is peremptory (i.e. mandatory)," and if they failed to appear, their claims may be dismissed, with costs. The letter was served upon them by registered and regular mail.

Motion to Dismiss

On May 5, 2015, State Farm moved to dismiss both Applications, pursuant to, inter alia, Rule 68,⁵ returnable at the June 1, 2015 Pre-Hearing Resumption, alleging that (1) productions weren't provided, (2) the Applicants have not appeared, and (3) the claims are time-barred, but "Galan Law Firm's perpetuat[ed...] this action despite full knowledge that it was time barred,..." In the Motions' exhibits, numerous other deficiencies in the claims were apparent, such as in Mr. Lee's claim, the Medical benefit is listed as "unspecified", with referral to the Report of Mediator, yet the Report of Mediator doesn't reference any medical claim, while the underlying Application for Mediation stated "information to follow." State Farm includes letters beginning July 28, 2014, seeking particulars of Medical Benefits, "including a list of what treatment plans are in dispute..." Regarding both files, the Applications for Mediation are replete with missing information, such as, for the Income Replacement Benefits and Housekeeping Benefits, under the "Date denied" field, the provided response was "date denied."

2nd Motion to Withdraw as Representative

On May 13, 2015, by way of Notice of Motion to get off the record also returnable at the June 1, 2015 Pre-Hearing Resumption, Galan moved to withdraw as representative of record, and served the Applicants by registered and regular mail, and filed it on May 14, 2015. Supported by Affidavit, and setting forth the history of the matter, the Motion details numerous attempts Galan undertook to search for the Applicants on that date, from securing telephone numbers from the Applicants' former medical providers to numerous internet searches. Galan further submits that it made numerous unspecified attempts to call the Applicants, which though unspecified, I accept were made at relevant times leading up to the two Pre-Hearings, such as a March 17, 2015 letter to the Applicants by registered mail, advising that if they do not contact Galan, Galan would remove themselves as the Applicants' legal representative.

June 1, 2015 Pre-Hearing Resumption

On June 1, 2015, at 12:00 p.m., the resumption of the pre-hearing discussion was held in person at the offices of ADR Chambers. The Applicants again failed to appear. My attempts to call them at the last known telephone number were unsuccessful. Mr. Galan and Mr. Malakassiotis were present in support of their Motion. Counsel reiterated that they had lost contact with the Applicants, despite timely attempts to contact them.

The issue of costs directly against Galan was discussed, including whether the claim was time-barred when filed.⁶ Galan asserted that even if a claim might appear time-barred, it's not clear until investigation because a purported denial may be defective. Essentially, Galan argued that to protect limitation periods, when a client comes in late in the process, the representative must file the claim without being certain that there is a time-permitted claim, and then investigate it. In this case, Galan argued that within a year of filing, Galan both lost contact with the Applicants and moved to withdraw, so that this was not a frivolous claim that had no activity. Moreover, Galan asserted that regarding Mrs. Lee, the Application for Mediation shows at least two treatment plans (OCF-18) from Trinity Rehab in 2013 that clearly were not time-barred. Galan acknowledged, however, that the Application for Mediation for Mr. Lee does not provide a date of treatment or date of denial. Galan argued that a cost award creates a chilling effect upon Applicants' representatives.

State Farm did not submit a bill of costs at the Pre-Hearing Resumption or in its submissions, leaving the quantum of an award to my discretion. There is no dispute that it paid the $3,000 filing fee.

DECISION

Motion to Withdraw

Although Galan's first Motion to Withdraw was denied, and the current Motion was not filed in the timeframe I required, it is properly supported with numerous unsuccessful attempts to contact the clients. Having lost contact with the Applicants and as adverse interests have arisen on the issue of a cost award, I find that there was a break down in the solicitor-client relationship, and the Galan firm is permitted to be removed as counsel of record.

Motion to Dismiss

I have no evidence or indication of any type before me that the Applicants intend to pursue their claims since the filing of the Applications. In fact, considering the timeline provided by Galan and that the Applicants did not actually sign the Applications (for Arbitration or Mediation), I have no evidence that the Applicants actually participated starting before the Applications were filed.

Rule 68 of the DRPC permits an arbitrator to dismiss a proceeding without a hearing where the proceeding is "frivolous, vexatious or is commenced in bad faith" provided written notice has been given to the parties of the intention to dismiss the proceedings.

In a similar situation of a missing Applicant,⁷ Arbitrator Feldman found the Applicant's non-participation sufficient to justify dismissal under Rule 68, commenting as follows:

While I do not have sufficient evidence before me to conclude that this application was commenced in bad faith, at this point, it appears to me that the Applicant has manifested no interest in pursuing these claims. This problem is further exacerbated by her failure to communicate with her own legal representative, the Insurer or FSCO and her failure to participate in these proceedings. It would be unreasonable to force the Insurer to expend more time or effort on this matter. In these circumstances, the proceeding has now become frivolous or vexatious. I shall grant the Insurer's motion to dismiss this application pursuant to Rule 68 of the Code.

I am satisfied that by my March 11, 2015 Pre-Hearing letter, the Applicants were given notice of the proceedings as required by Rule 68(2) of the DRPC at their last known address contained in the records of the Commission, as required by Rule 5.7 of the DRPC, including being advised that failure to appear may result in dismissal of their claims. Applicants were further served by the Insurer with the written Motion to Dismiss on or about May 4, 2015.

I am satisfied that the Applicants were given opportunity to make submissions should they wish to object to the dismissal as required by Rule 68(3) of the DRPC. They did not respond to the written motions, nor appear at the Pre-Hearing Resumption/Motion return date.

Therefore, the Applications for Arbitration of Mr. Jae Ho Lee and Mrs. Myung In Lee are dismissed without a Hearing under Rule 68(1) of the DRPC on the basis that the application "has now become⁸ frivolous or vexatious" as they failed to participate in the proceedings.

EXPENSES:

As Against the Applicants

State Farm is awarded expenses in the amount to $500.00 for each file (i.e. $1,000 total) in having to prepare for and participate in the arbitration proceedings. The amount is payable forthwith. In making this award I have considered Rules 75.2 and 78(1) of the DRPC and found that Mr. Jae Ho Lee and Mrs. Myung In Lee had prolonged and hindered the arbitration process.

As Against Galan

A cost award against Galan, however, presents a more difficult analysis, as Galan has appeared. I recap a few relevant points:

• Galan's 1st Motion to Withdraw was denied; the 2nd Motion was not filed within the time-frame I set forth;
• Although to Galan's credit, Galan claims that it sought and secured at least some productions, there is no evidence that any of those productions were ever provided to State Farm, despite obligations to do so under the DRPC, and being requested many times;
• Galan has not explicitly denied that Mr. Lee's Application was time-barred when filed, but contends that the Insurer hasn't actually proven it's time-barred. (I will assume that Mrs. Lee's Application contains treatment plans that are not time-barred.)
• Regarding medical benefits sought by Mr. Lee, they were not identified in the Application for Mediation, are not listed as being mediated in the Report of Mediator, are unspecified in the Application for Arbitration, and remained so during the course of this matter.

Neither party cited Commission jurisprudence addressing claims for expenses against a representative. Such claims are governed by section 282(11.2) of the Insurance Act:

Liability of representative for costs

(11.2) An arbitrator may make an order requiring a person representing an insured person or an insurer for compensation in an arbitration proceeding to personally pay all or part of any expenses awarded against a party if the arbitrator is satisfied that,

(a) [omitted]; ⁹

(b) in respect of a representative of an insured person, the representative caused expenses to be incurred without reasonable cause by advancing a frivolous or vexatious claim on behalf of the insured person; or

(c) the representative caused expenses to be incurred without reasonable cause or to be wasted by unreasonable delay or other default.

The Applicant cites the Supreme Court's decision in Young v. Young,¹⁰ for the proposition that:

Courts, moreover, must be extremely cautious in awarding costs personally against a lawyer, given the duties upon a lawyer to guard confidentiality of instructions and to bring forward with courage even unpopular causes. A lawyer should not be placed in a situation where his or her fear of an adverse order of costs may conflict with these fundamental duties of his or her profession.

While Young deals with a distinguishable religious issue in the context of a family law matter, Commission jurisprudence has expressed similar concerns, such as in Hancock and RBC:¹¹

Punishing a lawyer or a paralegal with costs for his or her actions in litigation is unusual and fraught with public policy concerns, surrounding limitations on the ability of counsel to advocate forcefully on behalf of a client.

In Hancock, Arbitrator Wilson issued costs against a representative for filing a claim for a deceased person, without authority, regarding ongoing benefits. The insurer sought expenses against "the person it holds responsible [for] instigating the process leading to the incurring of those expenses," not just a "potentially impecunious estate." The Arbitrator held counsel's failure to disclose the death on a timely basis, combined with claims for ongoing benefits predicated on the decedent's survival (e.g. non-earner), "the Application could well be found to be frivolous or vexatious..." The Arbitrator noted that fraud is not a prerequisite to costs against a representative, rather "unreasonably causing expenses to be incurred by another party is however," and that if the representative had a question on law or procedure, he should "have obtained legal advice before boldly undertaking an Application for Arbitration on behalf of a deceased."

In Luskin and Personal,¹² Arbitrator Wilson dismissed an Application based in large part on the Applicant's failure to participate in the arbitration process, but also, after notice, awarded costs against the Applicant's solicitor. The Arbitrator found reason to inquire into the retainer, as the Application was signed by counsel, and inter alia, counsel was never able to produce the Applicant, the Application was filed while the Applicant was a minor, and once reasonably determined missing, counsel did not timely move to get off the record.

In Almaliah and Dominion of Canada,¹³ an Applicant's representative was alleged to have filed a 'frivolous' application by filing an Application despite having lost contact with the client. Arbitrator Rogers found the representative made reasonable attempts to contact the client, granted the request to withdraw, but declined to issue costs against the representative, stating:

For a finding to be made that the Application is "frivolous", as the term is used in section 282(11.2) of the Insurance Act, I must be satisfied that the Application, when filed, was groundless or had little prospect of success. That finding necessarily involves assessing the merit of the claims made. The merit of the claims was not addressed on this motion. section 282(11.3) of the Insurance Act specifically excludes lack of authority as grounds for making an award of expenses against a solicitor personally. For that reason, lack of authority cannot be included in an assessment of whether a solicitor filed a frivolous claim. I am therefore not prepared to consider whether Ms. Almaliah's solicitors should have known that their client would not pursue the Application, because that necessarily includes review of what she instructed them to do.

In application to the matter at hand, while the Insurer relates several underpinnings to seek costs against Galan, I find the most significant issue is the allegation that the Applications were wholly time-barred when filed.¹⁴ While part of Mrs. Lee's claims may be time-barred, there appears to be two treatment plans in dispute that are not time-barred as they are dated in 2013. Following Almaliah, therefore, I cannot conclude Mrs. Lee's Application was "groundless or had little prospect of success," without looking into the merits beyond the record I have before me.

Thus, the focus is on Mr. Lee's Application, which unlike Mrs. Lee's Application, does not have any such seemingly timely medical claims (indeed, Mr. Lee's medical claims have never been identified, nor mediated), and the specified benefits are suspect in terms of limitation periods – i.e. initial entitlement is being pursued for benefits applied for in August of 2007, but which were not mediated until August 2013. As the parties have not presented any jurisprudence addressing the point, it appears to me that depending on the circumstances, filing and continuing to pursue a wholly time-barred Application could qualify as "advancing a frivolous or vexatious claim on behalf of the insured person."

Thus, the question becomes whether Mr. Lee's Application was in fact time-barred, and if so, when did Galan know, or should have known, and how did they proceed. As for the threshold part of that inquiry, on the one hand, State Farm's Motion clearly identified it was seeking expenses against Galan as representative, and identified, inter alia, that the entire claim was time-barred: "Galan Law Firm's perpetuat[ed...] this action despite full knowledge that it was time barred,..." To that allegation, Galan did not file a written response denying that allegation; as the Pre-Hearing Resumption could not show evidence that Mr. Lee's claim was not time-barred; and Galan's June 19, 2015 submission did not address the limitation issue (although it provided support to Galan's argument that it took steps to pursue the Application). The most Galan asserted was that they didn't know the claim was time-barred, as OCF-9 denials are often defective. While there is some merit to that argument, I found it very troubling that a law firm pursued a claim with obvious limitation concerns surrounding it, and a year and a half after filing for Mediation, did not advance any arguments as to why the OCF-9s were defective.

On the other hand, following Almaliah, I must be satisfied that the claim was time-barred, which involves looking into the merits. In that regard, neither party has submitted the relevant OCF-9s by which I could affirmatively determine that the claim was in fact time-barred and that the representative knew that. In that sense, I suspect it was time-barred, but don't know that.

While there remains a cloud of suspicion over the claim, and I appreciate the Insurer's frustration with this claim, absent a review of the denials and proof of a limitation bar, I decline a cost award against the representative based on the record before me.

September 20, 2015

Jeffrey Shapiro Arbitrator

ARBITRATION ORDER

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. The Galan Law Firm is removed from the record as Mr. Jae Ho Lee and Mrs. Myung In Lee's legal representative.

2. Mr. Jae Ho Lee and Mrs. Myung In Lee's Applications for Arbitration are dismissed.

3. State Farm is entitled to its expenses from (a) Mr. Jae Ho Lee (FSCO A14-003366) in the amount of $500.00, and (b) Mrs. Myung In Lee (FSCO A14-003367) in the amount of $500.00, for a total amount of $1,000.00 (not jointly and severally), both payable forthwith.

September 20, 2015

Jeffrey Shapiro Arbitrator

Footnotes

1. 1The Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2This Chronology is produced from a combination of the Insurer's Motion materials, and Galan's June 19, 2015 submission. The latter was filed without leave, but I have relied on it. Generally, the parties don't dispute each other's chronology; the dispute concerns whether the facts give rise to liability directly against Galan. Also, I note that the parties' materials refer to some of the dates as "on or about."
3. 3It's unclear from Galan's submission if this is the first contact with the Applicants, but if not, based on the submission it appears it was no earlier than April 2013.
4. 4Respondent's Motion Record states this was served "3 days before the hearing." I understand that to be March 6th.
5. 5The Dispute Resolution Practice Code, 4th Edition ("the DRPC").
6. 6I specifically stated to Galan a few times words to the effect, "The insurer isn't just saying productions weren't provided or that it's a weak claim, the concern is that claim was time-barred when filed."
7. 7Sanchez de Diaz and TD, (FSCO A13-010052, March 18, 2015).
8. 8As set forth below, Mr. Lee's Application may have been frivolous at the time filed.
9. 9Section 282(11.3) provides that this subsection - i.e. 11.2(a) - does not apply to a Barrister or Solicitor.
10. 10[1993] 4 SCR 3, 1993 CanLII 34 (SCC). This is the only case cited by the parties; I have cited three others.
11. 11Hancock and RBC (FSCO A11-000896, February 10, 2012) at page 14, affirmed in Wentzel [For The Late C. Hancock] and RBC General Insurance Company, (FSCO P12-00028, March 15, 2013) (Delegate Evans).
12. 12FSCO A06-001216, October 1, 2007.
13. 13FSCO A06-000741, October 18, 2006.
14. 14Certainly the representative's signing the Applications, the non-production of documents, and missing information in the Applications are not best practices, but generally following Almaliah, given the missing Applicants, the representative's moving to be removed at the first pre-hearing (albeit denied), considered against the record I have before me, I decline to issue costs on those grounds.