Court File and Parties

COURT FILE NO.: CV-19-00627630 DATE: 20210114 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Firouzeh Zarabi-Majd, Applicant AND: Levitt LLP, Respondent

BEFORE: C. J. Brown J.

COUNSEL: Amanda McBride, Counsel, for the Applicant Tatha Swann, Counsel, for the Respondent

HEARD: September 15, 2020

Endorsement

Background

[1] The applicant, Firouzeh Zarabi-Majd (“the applicant”) brings this application for an order that the respondent, Levitt LLP (“the respondent” or “the respondents”, when referring to the law partners, Howard Levitt and Tatha Swann), breached the Solicitors Act, RSO 1990, c.S.15 (“Solicitors Act”), that the retainer agreement and contingency fee agreement between the parties are unenforceable, and that the respondent is not entitled to any legal fees as a result. Further, the applicant seeks an order for disgorgement of any funds paid or owing. The evidence indicates that, as at the date of hearing, no fees had been paid by the applicant to the respondent. Alternatively, the applicant seeks a determination as to whether the fees and disbursements being claimed by the respondent are “fair and reasonable”, given the unenforceability of the agreement.

[2] The applicant, originally in November 2019, also sought an order for assessment under the provisions of the Solicitors Act, but now takes the position that an assessment cannot be ordered in the circumstances.

[3] On February 13, 2020, the respondent advised the applicant that it consented to the following relief sought by the applicant: that the contingency fee agreement would not be enforced against the applicant and that the matter would be referred to assessment. The respondent further advised that as a result, the consent rendered moot determination of whether the respondent was entitled to fees listed in the invoices of August 19 and September 9, 2019, sent to the applicant, and a determination of whether the fees were fair and reasonable. Despite inquiries made by the respondent regarding the status of the matter following February 13, 2020, when the respondent consented to settlement on the above basis, through June of 2020, the applicant did not respond. After several inquiries by the respondent as to the applicant’s intentions, the applicant raised a new issue on June 20, 2020, taking the position that there was no retainer agreement at all. On July 3, 2020, the applicant advised that she intended to pursue the application. As a result, the respondent was required to prepare additional materials as regards this new issue.

[4] The applicant submits that this application raises the issues listed at paragraph 1.

[5] The respondent submits that based on its consent of February 13, 2020, the only issues are whether any retainer existed and whether the court should assess the fees or refer the matter to the assessment officer.

The Facts

[6] In November 2018, the applicant, a police officer with the Toronto Police Services (“TPS”) approached Howard Levitt, along with two colleagues, regarding alleged systemic harassment and abuse by the TPS and individual employees thereof, which she alleged had destroyed her career and rendered her unable to continue as a police officer.

[7] The applicant had previously retained another law firm to pursue the matter before the Human Rights Tribunal, which had not reached a hearing when she began to seek other alternatives and consulted the respondent. By April of 2018, she had incurred fees of $43,000 regarding the human rights claim.

[8] It is of note that a significant obstacle for the respondent and her colleagues was that they were union employees, such that any civil action they would commence related to matters covered under their collective agreement would be dismissed by the courts for lack of jurisdiction. Indeed, in July 2019, the Ontario Court of Appeal had dismissed a civil action very similar to the applicant’s complaints involving three Hamilton police officers, which confirmed that the court has no jurisdiction to hear the action, as the police officers were bound by their collective agreement as unionized employees: Rivers v Waterloo (Regional Municipality) Police Services Board, [2019] O.J. No. 3602, 2019 ONCA 267. And see Weber v Ontario Hydro, [1995] 2 SCR 929.

[9] According to the respondent, this hurdle was made clear to the applicant and her colleagues, and the challenges of the case were fully explained to the applicant and her two colleagues. The applicant states that nothing was really explained to her regarding the case or the retainer/contingency fee agreement. Based on all of the evidence and the communications in evidence, I accept the respondent’s position that the challenges and obstacles of the case were fully explained to the applicant.

[10] The respondent submits that they explained to the applicant that they would only be prepared to pursue a settlement of the matter. They submit that they also discussed a media campaign which was not pursued due to the settlement offered at the mediation.

[11] The respondents understood that they had been retained by the applicant and her colleagues which, they realized afterward, was a misunderstanding.

[12] Shortly after their meeting with the applicant, the respondent, Howard Levitt, mentioned publicly in his weekly radio show that they had been retained by the applicant, and her colleagues, believing that to be the case.

[13] The applicant and her colleagues had, in the interim, consulted another lawyer, but after discussing among themselves, decided that they preferred the approach of Mr. Levitt and Ms. Swann and ultimately returned to the respondents, as supported by the evidence before the court, including the affidavit of Jessica McInnis. I do not accept the applicant’s position that she felt forced to return to and retain the respondents.

[14] The applicant and her colleagues requested to retain the respondent on a contingency fee basis, as they could not otherwise afford the hourly fees of Howard Levitt ($1,060) or his partner, Tatha Swann ($415), as evidenced in the correspondence before the court.

[15] At the time that the applicant consulted the respondent, she was on sick leave with PTSD, as a result of the alleged harassment, and was being paid sick leave of $75,762.96.

[16] The applicant and her two colleagues retained the respondent pursuant to a limited scope contingency fee agreement which limited the scope of the retainer to obtaining a settlement. The agreement was a customized agreement which took into account the risks of taking on the case in light of the obstacles involved, including that the applicant was a unionized employee and could not bring a lawsuit against the employer, TPS, in the circumstances. In the absence of a mediated, reasonable offer to settle, the applicant would have no recourse to other legal action, and the respondent would receive no payment for its work undertaken, even if the settlement were reasonable and recommended by counsel. This was all explained to the applicant and her colleagues, and their questions in this regard were answered, as evidenced in the communications before the court.

[17] The respondent foresaw the retainer as risky, given the state of the law, and the fact that they could only attempt to foster a settlement. The limited scope retainer included the provision for payment of contingency fees if the applicant received a reasonable settlement offer that was considered by counsel to be reasonable and was recommended by the respondent, even if the applicant refused the offer. Otherwise, the respondents may have found themselves in a position of undertaking significant work and not being paid at all, if the applicant rejected a reasonable, recommended offer and walked away.

[18] As indicated, the contingency fee agreement contained a provision whereby the respondent would be entitled to its fees in the event that the applicant received a reasonable settlement offer recommended by the respondent firm, but rejected it. This was discussed with the applicant. While she denies this, I am satisfied, based on the affidavit and other evidence adduced at the application, that the retainer details were fully explained and discussed with the applicant and she posed questions via email which were answered. The respondent explained the risks of the retainer to the applicant and explained why they could not commence a lawsuit or go to trial. The terms of the retainer had been agreed upon by all parties.

[19] Each of the respondent and her two colleagues signed a contingency fee agreement, all of which were in the same terms. The settlement negotiations and the two-day mediation were held with all three present.

[20] The respondent recommended that the three colleagues pursuing the mediation appoint one of them to be the point person for purposes of communication. On the agreement of the applicant and her two colleagues, Jessica McInnis was appointed the point person for communication. I am satisfied, based on all of the evidence adduced and reviewed by me, that the applicant was fully apprised by her colleague, Ms. McInnis, throughout.

[21] The respondent began to prepare all necessary documentation for purposes of attempting to mediate a settlement. While they could not commence an action, or if an action were commenced, knew that it would not meet with success as explained above, they did prepare a statement of claim as the best means of setting forth all of the facts involved, to demonstrate to the TPS that they were serious in pursuing the matter. While at the hearing of the application, the applicant contested the statement of claim having been prepared in light of the respondent’s position that they could not commence an action. I accept the respondent’s reason for preparing the statement of claim for the reasons set forth above. While they recognized that it was a risky move, they did so to set forth the claim in full, and the statement of claim did serve that purpose.

[22] William Kaplan, a well-respected mediator in Toronto, was chosen to conduct the mediation. He had been suggested by TPS counsel and was well known to the respondents, who had worked with him on numerous occasions. While the applicant and her colleagues had requested that a woman mediate, they ultimately agreed with the respondent’s suggested choice. I do not accept the applicant’s allegation that the respondents stated that there were no good women mediators in Toronto.

[23] In preparation for the two-day mediation, Mr. Kaplan had extensive interviews with the applicant and her colleagues and thereafter with the respondent.

[24] The respondents warned the applicant not to let her expectations regarding quantum of settlement become unreasonable.

[25] The applicant signed the mediation agreement on August 12, 2019. A two-day mediation was conducted. The agreement provided that the applicant was responsible for her portion of the mediator’s costs. She was also told that where settlement was achieved, the TPS may pay her portion of the mediation fees. At that mediation, the applicant received an offer from the TPS of $1,309,155.52 ($400,000 lump-sum, plus 12 years pay at $75,762.96 per year, which amount she was then being paid as sick leave for PTSD). The calculation was provided to the applicant along with the respondent invoices of August 19 and 23, 2019. The respondent advised her that it was a very good offer and recommended that she accept the offer. The applicant would also receive her 12 years of pension growth in her Defined Benefit Pension Plan. Based on the evidence adduced, this exceeded the settlement anticipated by the respondents and discussed with the applicant, and was viewed as an exceptionally good settlement.

[26] While the applicant’s two colleagues settled their claims on the basis of the offers they received, which were slightly less favourable than the applicant’s due to the fact that the applicant had served longer with the TPS, the applicant rejected the offer made to her on the ground that it would leave her in a worse financial position. The fees of the mediator incurred by the two colleagues who accepted their offers were paid by the TPS. However, the fees of the applicant, who rejected the offer, were not paid by the TPS.

[27] The applicant took the position that the offer would leave her less well off. However, she would have received what she was currently receiving as sick pay for 12 years, without the requirement to prove that she qualified for long term disability for PTSD. The amounts were non-taxable. She was guaranteed her sick leave pay for 12 years without having to prove entitlement to it by having a medical practitioner evidence her continued inability to work over the 12 year period, and would also receive a substantial lump-sum.

[28] I do not accept the applicant’s position and find that the offer was indeed fair and reasonable in all the circumstances.

[29] The applicant rejected the offer. Further, she refused to pay the respondent’s fee pursuant to the contingency fee agreement, which, based on the rejected offer, amounted to $488,184.09, plus disbursements of $11,613.83, including HST. Following the initial offer to the applicant, there were discussions about other offers being made. Ultimately, the respondent sent an invoice reduced from the full amount payable under the contingency fee agreement to $226,000, including HST, and again recommended settlement to the applicant, on the basis offered, which they considered reasonable and achievable.

[30] Thereafter, the applicant wanted to undertake a media campaign. I am satisfied, based on all of the affidavit and documentary evidence, that the applicant was told that the goal was settlement and that a media campaign was not contemplated if a reasonable settlement was achieved. I am further satisfied, based on the evidence, that the applicant was advised that no media campaign would be undertaken in the event that some of the colleagues settled and others did not settle.

Issues

[31] I am of the view that the following issues are to be determined:

1. Whether the respondent was retained by the applicant to pursue a settlement on her behalf.
2. Whether this court should refer this matter to an assessment or exercise its discretion to fix fees on a quantum meruit basis.

Retainer

[32] Whether a solicitor-client relationship exists is a question of fact. A formal, written retainer agreement is neither necessary nor determinative. The issue is “whether a reasonable person in the position of a party with knowledge of all the facts would reasonably form the belief that the lawyer was acting for a particular party: Trillium Motor World Ltd v General Motors of Canada Ltd, 2015 ONSC 3824 at para 413, citing Jeffers v Calico Compression Systems, 2002 ABQB 72 at para 8.

[33] In determining whether a solicitor-client relationship exists, the following indicia are considered, although not all indicia need be present:

(a) the existence of a contract or retainer; (b) a file opened by the lawyer; (c) meetings between the lawyer and the party; (d) correspondence between the lawyer and the party; (e) a bill rendered by the lawyer to the party; (f) a bill paid by the party; (g) instructions given by the party to the lawyer; (h) the lawyer acting on the instructions given; (i) statements made by the lawyer that the lawyer is acting for the party; (j) a reasonable expectation by the party about the lawyer’s role; (k) legal advice given; (l) any legal documents created for the party; (m) the party’s vested interest in the outcome of the proceeding; and (n) the belief of other parties to the litigation that the party was represented by the lawyer.

See Jeffers, supra at para 8; Trillium, supra at para 412; Rye & Partners v 1041977 Ontario Inc., [2002] OJ No. 4518 at paras. 13-14.

[34] In this case, the applicant admits to verbally retaining the respondent and signing a contingency fee agreement; a file was opened by the respondent and dockets, generated with respect to that file, were before the court on this application; the respondents met with the applicant on numerous occasions regarding the work to be performed, and conducted a two-day mediation on behalf of the applicant; statements of account were rendered by the respondent to the applicant, which are in issue on this application; the applicant instructed the respondent, verbally and in writing, and the respondent acted on those instructions; the applicant confirmed that the respondent was acting as counsel of record on her behalf; the applicant expected the respondent to attempt to negotiate a settlement; the respondents gave legal advice to the applicant on the merits of her allegations and her legal recourses regarding the case and prepared legal documentation for the applicant; the applicant had a vested interest in the outcome of the proceedings, namely settlement; and the TPS and mediator communicated with the respondent as legal counsel for the applicant throughout.

[35] I am satisfied, based on the jurisprudence and on all of the evidence before this court, that a solicitor-client relationship existed between the applicant and the respondent.

Payment of Fees

[36] The issue becomes payment of fees and how fees should be determined.

[37] The respondent has already acknowledged that the contingency fee agreement was not to be enforced and consented to a referral of the matter to the assessment officer for an assessment or the award of reasonable fees on a quantum meruit basis by the court.

[38] The primary remedy for an unenforceable contingency fee agreement is referral of the fees to be assessed in the ordinary manner by an assessment officer: Solicitor’s Act, RSO 1990, c. S.15 s. 24; Cozzi v Polsinelli et al, 2019 ONSC 417 at para. 26; Tsiboulskii v Monro, [2007] OJ No. 3041 at paras 22-25.

[39] While the applicant submits that the remedy for an unenforceable contingency fee agreement is a declaration that no legal fees be payable at all or disgorgement of fees already paid, relying on the case of Hodge v Neinstein, 2015 ONSC 7345, the issue of remedy for an unenforceable contingency fee agreement was not before the court in that case and the comments relied upon by the applicant in her submissions were made in obiter.

[40] In that case, it was determined that if a contingency fee agreement were unenforceable, there were at least two ways for a law firm still to be paid. Malloy J. stated as follows:

Undoubtedly, Neinstein & Associates did work for these clients that resulted in the clients receiving proceeds of settlements or litigation awards. If the contingency fee agreements are unenforceable, it does not necessarily follow that Neinstein & Associates would be disentitled to recover any fees. There are at least two possible ways of accomplishing this. One would be for Neinstein & Associates to be entitled to a fee based on a quantum meruit basis. This could be raised as a defence or counterclaim by Neinstein & Associates, and assessments could be directed. Such claims would need to be disposed of individually. However, that is not an impediment to certifying a common issue for the plaintiff’s claim. A second alternative would be to permit Neinstein & Associates to retain the fee portion based on the percentage of damages, but not anything attributable to costs. This has the advantage of simplicity, but involves a complicating factor when it was Neinstein & Associates itself who determined what portion of an all-in settlement was attributable to costs and what was for damages. Also, it may not be fair compensation for the lawyer in all cases, particularly where the percentage fee taken was low in relation to the amount of total costs taken. However, in either event, once the agreement is determined to be unenforceable, the onus would be on the solicitor to show some other basis for compensation: Hodge v Neinstein, supra at paras. 8, 81.

[41] It is the position of the applicant that payment of fees would only apply where a settlement was achieved, which did not occur here.

[42] However, I am satisfied, based on all of the affidavit and documentary evidence before the court, that the parties all discussed and expected that the respondent would be paid for work done, even if the applicant refused an offer considered to be reasonable by the respondents. I am further satisfied that the respondents discussed with the applicant their concern that her expectations for quantum of settlement were too high. Indeed, the applicant requested a contingency fee agreement, as she could not afford the respondents’ normal hourly fees. The evidence indicates that the applicant specifically asked whether she would have to pay the lawyers’ fees if no settlement were achieved or accepted. The applicant was advised that if she received what her counsel considered a reasonable settlement, but refused to accept it, despite her counsel’s recommendation, she would still have to pay their fees. In this case, I am satisfied that Levitt LLP took on considerable risk in representing the applicant, performed significant work pursuant to the instructions of the applicant and for her benefit, obtained a fair and reasonable settlement offer, and is entitled to compensation, despite the fact that the applicant refused to settle on the basis offered, despite the recommendation of the respondents that it was a reasonable settlement.

[43] The respondent should be entitled to reasonable compensation for its work undertaken on the applicant’s behalf.

Basis for Compensation

[44] As regards a referral for assessment, in my view, this alternative will result in more expenses being incurred unnecessarily.

[45] The more reasonable resolution, in all of the circumstances, is to have the court fix fees on a quantum meruit basis, based on the statements of account and evidence.

[46] In assessing reasonable solicitors’ fees, the following factors may be considered: the degree of risk assumed by the solicitors, the amount of time spent and their hourly rates, the risk of non-payment by a client where there is a real risk of an adverse finding on liability, the results achieved and monetary value of the claim, the importance of the matter to the client, the solicitor’s demonstrated skill and competence, and the client’s ability to pay and expectations as to the amount of the fee.: Raphael Partners v Lam, [2002] O.J. No. 3605 at para 50; Cogan, Re, [2007] O. J. No. 4539; Laushway Law Office v Simpson, 2019 ONSC 4155 at paras 129-130, 135-137.

[47] The matter was clearly of importance to the applicant. Due to the jurisdictional barrier regarding commencing a civil claim, the respondent took a significant risk in representing her. As a result, the only means of resolution was via settlement, and it was for that reason that the respondent was retained. The respondents were well-skilled, had a significant reputation and were recognized in the area of employment and labour law. Considerable time and cost were expended in pursuing and obtaining the settlement offer. The result achieved was a reasonable, even significant, settlement offer. The applicant had the ability to pay. I am satisfied that she expected that she would have to pay for the work completed on her behalf, based on the affidavit and documentary evidence.

[48] The respondent ultimately offered to settle this matter on a quantum meruit basis of $52,960.25 plus HST for fees and $10,277.73 plus HST for disbursements, for a total of $72,458.85 plus PJI. I find payment on a quantum meruit basis to be a reasonable resolution. I have carefully reviewed the fees and disbursements as set forth in the accounts before the court and find them to be fair and reasonable. As for the fees, there is no appreciable duplication of fees by various counsel. I have carefully reviewed the fees charged for the statement of claim and note that the itemized dockets referred to amendments made pursuant to the instructions of the applicant or based on comments made by her after review of the draft statement of claim.

[49] I order that the applicant pay forthwith to the respondent fees in the amount of $52,960.25 plus HST on a quantum meruit basis and disbursements in the amount of $11,613.83 inclusive of HST.

Costs

[50] I strongly urge the parties to reach an agreement as regards payment of costs in this matter. In the event that settlement of costs as between counsel is not possible, I would ask that each party provide me with submissions as regards costs, limited to three pages, within 60 days of this decision.

Carole J. Brown, J. Date: January 14, 2021