Law Society of Ontario v. Mazaheri, 2025 ONSC 1123

Court File No.: CV-24-00728060-00ES
Date: 2025-02-19
Ontario Superior Court of Justice

Between:
Law Society of Ontario, Applicant
-and-
Shahryar Mazaheri and Mazaheri Law Professional Corporation, Respondents

Before: Frederick L. Myers

Counsel:
Stefanie Anello, for the Law Society of Ontario
Shahryar Mazaheri, for the Respondents

Heard: 2025-02-18

Endorsement

[1] The Law Society asks the court to appoint it as trustee for the respondents’ law practice to preserve and distribute client property and wind up the business. It expressly disclaims any obligation to operate or manage the law practice.

[2] The Law Society moves to be appointed trustee on three statutory grounds under s. 49.45 of the Law Society Act, RSO 1990 c L.8:

(b) the licensee's licence is under suspension or the manner in which the licensee may practise law or provide legal services has been restricted;

(e) there are reasonable grounds for believing that the licensee has or may have dealt improperly with property that may be subject to an order under section 49.46 or 49.47 or with any other property; or

(f) there are reasonable grounds for believing that other circumstances exist in respect of the licensee or the licensee's professional business that make an order under section 49.46 or 49.47 necessary for the protection of the public.

[3] The Law Society accepts that this is an application for a final order. It is not a motion. Hearsay evidence on contentious matters is not admissible under Rule 39.01(5) of the Rules of Civil Procedure, RRO 1990, Reg 194.

[4] Virtually the entire case made by the Law Society is that the respondents’ law practice must be taken into trusteeship and wound up because the respondent Mr. Mazaheri has been suspended from the practice of law on an interlocutory basis pending a formal conduct hearing before the Law Society Tribunal some time in the future.

[5] In my view, simply pointing to the interlocutory decision of the Law Society Tribunal does not provide an acceptable evidentiary basis to impose the trusteeship sought in this case.

[6] The issue before the tribunal was whether it ought to suspend the lawyer’s licence under s. 45.27(2) of the statute, because there were “reasonable grounds for believing that there is a significant risk of harm to members of the public, or to the public interest in the administration of justice, if the [suspension] order is not made.”

[7] The issue before the tribunal was, essentially, whether Mr. Mazaheri acted without instructions by releasing clients’ trust funds to facilitate a fraud by notorious fraudster Arash Missaghi or whether Mr. Mazaheri was wilfully blind or being a dupe for Mr. Missaghi and his associates in a fraudulent scheme. The issue on the merits resolved to who attended and what was or was not said at a particular meeting.

[8] The tribunal found against Mr. Mazaheri based largely on hearsay evidence before it. In preferring the evidence of the client, the tribunal necessarily impugned the evidence and character of the respondent.

[9] The tribunal found:

[132] As a result of these findings, we conclude that there are reasonable grounds for believing that there is a significant risk of harm to members of the public, or to the public interest in the administration of justice, if interlocutory orders are not made in respect of Mr. Mazaheri’s and Mr. Yack’s licences to practise law. The statutory threshold for an interlocutory suspension or restriction has been met.

[133] The principal risk is to members of the public as we find reasonable grounds for believing that there is a significant risk that Mr. Mazaheri and Mr. Yack will not honour their professional obligations to avoid assisting in fraud and to ensure proper use of trust monies. With respect to Mr. Mazaheri as a litigator and as a real estate lawyer, we find reasonable grounds for believing that his integrity is impugned, which puts the administration of justice at risk.

[10] I am not called upon to reconsider the tribunal’s finding; nor would it be at all proper for me to consider doing so. The tribunal’s findings and rationales were clear. The tribunal was not called upon to decide the actual merits of the fraud claim. Rather, it looked at whether there were reasonable grounds for the concerns expressed to require or support a suspension of Mr. Mazaheri’s licence so as to protect the public pending the final hearing.

[11] But does the fact that Mr. Mazaheri was suspended on an interlocutory basis pending his final hearing mean that his practice must be wound down and his trust accounts closed and distributed right now before the charges against Mr. Mazaheri are determined on their merits?

[12] There is evidence before me that Mr. Mazaheri has been suspended. So, the precondition to a trusteeship order under s. 49.45(b) is met. But the Law Society trusteeship proposed is not an interim protection for Mr. Mazaheri’s clients while the charges are reviewed. The trusteeship proposed is expressly not to carry on the business of the law firm. Rather, it is capital punishment to the law practice.

[13] The Law Society submits that the public interest requires it to take control of the trust accounts and pay out the proceeds to those beneficially entitled to them now.

[14] Why? The fact that Mr. Mazaheri is suspended pending a future hearing does not answer that question.

[15] There is over $1 million in Mr. Mazaheri’s trust account. Ms. Anello submits there is a trust shortfall. But her submission somehow omitted to mention that Mr. Mazaheri has already provided details to her and to her colleagues in the Compliance Dept. showing that the “missing” funds were in a different TD bank account and had been frozen there by the tribunal’s interim order in August, 2024. No funds are missing or unaccounted for.

[16] Moreover, in this case, the suspension is just a temporary one pending the outcome of the conduct hearing. What happens if Ms. Mazaheri wins that proceeding? The outcome is not a foregone conclusion. At the main hearing of the charges, rather than proving “reasonable grounds to believe,” the Law Society will have to prove its allegations on the merits. Moreover, the hearing will proceed on somewhat more exacting evidentiary requirements than those applicable at the interlocutory stage. Why must the law practice be closed down and liquidated while a contested hearing on the merits is not yet even scheduled?

[17] What happens if funds are in trust with Mr. Mazaheri or his firm due to requirements of an escrow agreement or are being held pursuant to litigation settlements? The Law Society will not run the practice. Rather, it proposes to pay the trust funds to the beneficial owner. Will it put the clients in breach of their agreements? Ms. Anello says that the process of determining what to do with trust funds is a complex, delicate, and exacting one. It calls for a stiletto not a butcher knife. But there is exactly zero evidence before me about why there needs to be a trustee to return trust funds and files now. Nor does the Law Society give any evidence as to how it proposes to take such carefully nuanced steps. It is clear that it will not be functioning as a receiver. It will neither operate nor manage the business. It proposes to be a liquidating trustee. Yet it offers no evidence at all as to why this law practice requires liquidation and cessation now, how it can be accomplished without managing the law practice to protect client positions, or what happens if Mr. Mazaheri is exonerated at the conduct hearing.

[18] The Law Society has had Mr. Mazaheri and his law practice under investigation for almost a year. Yet it adduces no evidence of any review of the trust funds to provide some understanding of the amounts being held in trust and why or how various accounts must be paid out now to protect the clients or the public interest. There is no evidence that there is any need to wind up the law practice now to prevent Mr. Mazaheri from wrongdoing that is not sufficiently covered by his suspension. He is apparently dealing with the Law Society regularly. The Law Society has not adduced any evidence of any default in his performance while under suspension or a risk to provide reasonable grounds for requiring the immediate winding up of his law practice.

[19] Ms. Anello complains that there has been no change to the respondents’ trust fund since October 29, 2024 apart from a bank adjusting entry. That could be a problem if Mr. Mazaheri was required to do something since then. Instead, he was precluded from doing anything. Ms. Anello relied on her technical accounting “shortfall” to say that he has failed to fix the trust account since October. But there is no affidavit from the Compliance department to say that he has taken any step contrary to his obligations under the tribunal’s orders or the Law Society’s by-laws.

[20] The fact that there has been no change to the trust accounts since Mr. Mazaheri was suspended actually cuts the other way. In the past six or so months, Mr. Mazaheri has done nothing to destabilize the clients’ trust funds.

[21] Ms. Anello submitted that Mr. Mazaheri is in breach of his obligations as a suspended lawyer. That could indeed present a very significant problem. But, once again, there is not a whit of evidence to support this claim. She points to a by-law that is not before the court. She has no particulars of any breach. She relies on his failure to transfer funds into trust that are sitting frozen in another account to the knowledge of all. Where is the affidavit of the Compliance officer to say that she has spent the past year investigating the respondents’ trust funds and here are the particulars of accounting irregularities, the missing funds, and especially, the wrongdoing committed by Mr. Mazaheri since his interlocutory suspension that provides reasonable grounds to find that his practice must wound up and his trust funds closed even though he has yet to be found guilty of even jaywalking?

[22] Where is the analysis of the $1 million and how much is being claimed back by clients and how much is to be held for other purposes?

[23] There is no evidence that any client has asked for funds or files to be returned. In fact, Ms. Anello refused to allow her witness to answer questions on cross-examination about claims against Mr. Mazaheri. I agree that the cross-examination was not to be any form of rehearing of the tribunal proceeding. But if a hundred people are banging on the Law Society’s wrought iron gates demanding their trust funds wouldn’t the public interest in liquidation be different than if no one has raised any concerns with their trust funds despite months passing since the suspension of Mr. Mazaheri? Mr. Mazaheri could have asked a more pointed question on cross-examination. But ultimately, the burden is on the Law Society to establish grounds for a trusteeship. It offers no evidence of anyone asking for money or files or any reasons why the funds cannot remain frozen to await the earliest resolution of the conduct charges on their merits.

[24] In my view, a trusteeship does not automatically flow from an interlocutory suspension order made by the tribunal. If a law practice is to be wound up just based on an interlocutory suspension, the statute would say so. There would be no need for a court to rubber stamp a tribunal suspension order. That would change the entire interlocutory process at the tribunal into a far more consequential, final one.

[25] But the tribunal does not have the authority to appoint a trustee to wind up the lawyer’s trust accounts on making an interlocutory suspension order. A court proceeding is required, on admissible evidence, to establish different grounds to justify the appointment of a trustee.

[26] There may well be cases where a liquidating trusteeship may be appropriate after an interlocutory suspension especially if the lawyer abandons his practice or continues to act in breach of his or her obligations despite the suspension. See, for example, the decision of today’s date in LSO v Gauthier (unreported, Court File No.: CV-25-00734677-00ES).

[27] It would be easier to understand the reasonableness of an interlocutory trusteeship akin to a receivership or an Estate Trustee During Litigation. The law is familiar with appointing neutral parties as stakeholders to preserve, protect, and manage assets while issues ensnaring the owners or managers are resolved in legal proceedings. But that requires a trustee who is willing and capable of operating the practice for the benefit of all interested parties. The Law Society’s Trustee Service Dept. does not propose that it operate the business or to preserve and protect the assets pending the outcome of the discipline proceedings.

[28] A trustee may be ordered under s. 49.45(e) of the statute where the Law Society proves “reasonable grounds for believing that the licensee has or may have dealt improperly with property.” But here, even accepting that the tribunal found this to be the case, it still does not support the relief sought. The conduct issue is whether Mr. Mazaheri dishonestly gave identified funds to a fraudster. The fraudster is no longer alive. Mr. Mazaheri is not practising. The remaining funds are frozen and there is no issue of Mr. Mazaheri trying to access them or deal with them improperly or at all since his initial suspension last August.

[29] There is no admissible evidence before this court on the merits. But, even if there were, there is no link between saying that Mr. Mazaheri might have participated in a fraud and that his practice needs to be closed and trust funds liquidated before the conduct issue is determined.

[30] There is similarly no evidence to establish reasonable grounds for believing that other circumstances exist in respect of the licensee or the licensee's professional business that make a trusteeship order necessary for the protection of the public. The public has been protected from the risks identified by the tribunal by the interlocutory suspension it ordered. Apart from that, there is no evidence or basis offered to justify an order to wind up and distribute Mr. Mazaheri’s trust funds and law practice.

[31] The application is dismissed.

[32] Costs normally follow the event. Mr. Mazaheri is self-represented. Accordingly, for him to seek costs, he needs to establish that he gave up remunerative work opportunities to perform the work usually performed by a lawyer. Some cases will apply a modest hourly rate even without an express finding of lost revenue. In my view, the parties should be able to arrive at a modest result by themselves. However, if they cannot settle, each may deliver no more than two pages of submissions and a mandatory Costs Outline. Mr. Mazaheri’s submissions and Costs Outline will be due on or before February 28, 2025. The Law Society’s submissions and Costs Outline will be due on or before March 7, 2025.

Frederick L. Myers
Date: 2025-02-19