Court File and Parties
CITATION: Lepan v. Lofranco, 2021 ONSC 1757
DIVISIONAL COURT FILE NO.: 09/19
DATE: 20210326
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Backhouse, Newton and Kristjanson JJ.
BETWEEN:
THE ESTATE of IVO LEPAN, by his Estate Trustee, MIRJANA LEPAN
Plaintiff/Appellant
– and –
LOFRANCO CHAGPAR BARRISTERS (A.K.A. LOFRANCO CHAGPAR CORRIERO PERSONAL INJURY LAWYERS), ROCCO CARMEN LOFRANCO, FRANCIS JOSEPH BURNS AND MICHAEL DEWAYNE PRYCE
Defendants/Respondent
COUNSEL:
Paul Morrisey, Counsel for the Plaintiff/Respondent
Alan L. Rachlin, Counsel for Defendants/Appellants
HEARD by Video Conference November 27, 2020
REASONS FOR JUDGMENT
NEWTON J.:
Overview
[1] The defendants appeal the decision of McArthur J. dismissing their motion to have Mr. Arvai removed as counsel for the plaintiff in this action: Lepan v. Lofranco et al., 2018 ONSC 5330. In dismissing the motion, the motion judge held at paragraph 51:
I agree with the plaintiff that the request at this stage is premature and would otherwise invite unwarranted speculation that cannot be properly weighed in relation to the plaintiff's right of counsel of choice.
[2] For the reasons that follow, we dismiss the appeal and agree with the motion judge that the motion was premature.
The Facts
[3] Mr. Lepan was injured in a car accident in 2008. He retained the defendant law firm to represent him for the claims he had arising from the accident, and his subsequent disability and losses. In addition to his tort claim for damages, he had claims for long-term disability benefits from his disability insurer, and claims for weekly indemnity benefits for loss of income, and medical and rehabilitation benefits from his accident benefit insurer.
[4] The claim against the long-term disability insurer was settled in November 2009 for $40,000 inclusive of damages, interest and costs. The claim against the accident benefit insurer was settled in April 2011.
[5] In April 2012, the defendants recommended that Mr. Lepan settle his tort claim for $250,000. Mr. Lepan did not accept that recommendation and retained new counsel, Mr. Arvai.
[6] In July 2013, with Mr. Arvai as his counsel, Mr. Lepan settled his tort claim for $485,000.
[7] In this claim, issued in December 2014, Mr. Lepan has sued the defendants for damages, alleging that his claim against the long-term disability insurer was settled without his knowledge, that he was pressured into accepting this settlement after the fact, and that the advice he received from the defendants with respect to the long-term disability and accident benefit claims was “improvident and failed to reflect a proper settlement value” of his claims. Further, Mr. Lepan alleged that these improvident settlements had a negative impact on the settlement of his tort claims.
[8] In their statement of defence, the defendants counter that:
a. if Mr. Lepan recovered less than his full losses in his tort claim, then that was the result of Mr. Lepan having accepted “an improvident settlement” of his tort claim, or,
b. if Mr. Lepan accepted the tort settlement against his counsel’s advice, then Mr. Lepan’s voluntary compromise of the tort claim constitutes an intervening act that breaks the chain of causation between the alleged breaches of the defendants and any losses suffered by Mr. Lepan.
[9] Mr. Lepan died in July 2017. His spouse is the estate trustee.
[10] This action is in its early stages. Pleadings have been exchanged but are still not complete. On the hearing of the appeal, counsel for the plaintiff advised that the claim would be amended to limit the claim to damages flowing from the settlement of the claim against the long-term disability insurer only. Counsel for the defendants did not object to this information.
[11] Discovery has not commenced. No expert opinions as to the appropriateness of the tort settlement have been exchanged.
The Nature of the Dispute
[12] To understand the positions of the parties, it is necessary to understand the legal background of the dispute.
[13] The plaintiff’s recovery against the tortfeasor was limited by certain provisions of the Insurance Act, R.S.O. 1990, c. I.8. In addition to the “threshold” limitation on the right to sue and stipulated deductibles, certain collateral benefits – benefits received from other sources – are deducted from the damage award to prevent “double recovery.” Specifically, section 267.8(1) states:
Income loss and loss of earning capacity
267.8 (1) In an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile, the damages to which a plaintiff is entitled for income loss and loss of earning capacity shall be reduced by the following amounts:
All payments in respect of the incident that the plaintiff has received or that were available before the trial of the action for statutory accident benefits in respect of the income loss and loss of earning capacity.
All payments in respect of the incident that the plaintiff has received or that were available before the trial of the action for income loss or loss of earning capacity under the laws of any jurisdiction or under an income continuation benefit plan.
All payments in respect of the incident that the plaintiff has received before the trial of the action under a sick leave plan arising by reason of the plaintiff’s occupation or employment. [Emphasis added.]
[14] The Act also creates a procedure by which amounts received after trial from these sources are held in trust by the plaintiff for the benefit of the tortfeasor.
[15] As the plaintiff has limited his claim to the issue of long-term disability benefits, only clause 2 of section 267.8(1) is applicable. In other words, the tortfeasor would be entitled to a credit for long-term benefits received by or available to the plaintiff. In this case, issues arise as to whether the defendant lawyers recommended that Mr. Lepan settle his claim for long-term disability benefits for less than what was “available” and whether the lump sum payment of $40,000 for all claims was deductible by the tortfeasor as a payment received for income loss or loss of earning capacity.[^1]
[16] However, the plaintiff’s claim against his former lawyers is not limited to negligence in the settling of the long-term disability claim. The plaintiff also alleges that the claim was settled without his knowledge and that he was subsequently pressured into agreeing to accept the settlement without being informed of his full legal rights: see paragraphs 12 to 17 of the Amended Statement of Claim.
Positions of the Parties
The Defendants
[17] As framed by the defendants, the issue is:
Does [Mr. Arvai’s] role in the impugned resolution of the plaintiff’s tort action disqualify him and his firm from continuing to act for the plaintiff?
[18] The defendants argue that if the plaintiff failed to recover his full claim for damages from the tortfeasor, it was an improvident settlement as a result of negligence on the part of Mr. Arvai or a voluntary concession by the plaintiff, thereby breaking the chain of causation caused by any negligence of the defendants. The defendants argue that, therefore, Mr. Arvai is in a conflict of interest, or, alternatively, a necessary witness.
The Plaintiff
[19] The plaintiff argues that Mr. Arvai has no conflict of interest and is not a necessary witness for trial. The plaintiff argues that the defendants’ suggestion that the tort settlement was improvident is properly characterized as a failure to mitigate with the onus of proof on the defendants.
[20] The plaintiff submits that the estate trustee, Mr. Lepan’s spouse, was a witness to the interactions between Mr. Lepan and the defendants, and that whether the long-term disability or tort settlement was improvident will be the subject of expert evidence.
[21] At this early pre-discovery stage, the plaintiff submits that the motion judge’s observation that the motion was “premature and would otherwise invite unwarranted speculation” was entirely appropriate and is entitled to deference.
The Law
Standard of Review
[22] An order seeking the removal of counsel is discretionary. A discretionary decision of a motion judge will be reversible where that judge misdirected themselves, came to a decision that is so clearly wrong that it amounts to an injustice, or gave no or insufficient weight to relevant considerations: see Ontario v. Chartis Insurance Co. of Canada, 2016 ONSC 43, 347 O.A.C. 43 (Div. Ct.), at para 11, aff’d 2017 ONCA 59.
Conflict of Interest
[23] The Court has the inherent jurisdiction to remove from the record solicitors who have a conflict of interest: see MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235, at 1245.
[24] At page 1243 of MacDonald, the Supreme Court set out the general principles to be considered on a motion to disqualify for conflict of interest. A court will seek to balance three competing public policy values:
a) the maintenance of high standards of the legal profession and the integrity of our system of justice;
b) the right of a litigant to its choice of counsel, which he or she should not be deprived of without good cause; and
c) the desirability to permit mobility in the legal profession.
[25] The third value is not a factor in this case.
[26] The maintenance of high standards of the legal system and the integrity of our system of justice requires that counsel not appear as advocate in cases in which they will be witnesses or be in a conflict of interest with their clients.
Disqualification as Witness
[27] In Essa (Township) v. Guergis (1993), 15 O.R. (3d) 573 (Div. Ct.), this Court outlined a non-exhaustive set of factors that a Court may utilize in considering whether counsel should be disqualified for being a witness. Those factors have been consistently applied in Ontario and include the following:
(a) the stage of the proceedings;
(b) the likelihood that the witness will be called;
(c) the good faith (or otherwise) of the party making the application;
(d) the significance of the evidence to be led;
(e) the impact of removing counsel on the parties' right to be represented by counsel of choice;
(f) whether the trial is by judge or jury;
(g) the likelihood of a real conflict arising or that the evidence will be tainted; and
(h) who will call the witness if, for example, there is a probability that counsel will be in a position to cross-examine a favourable witness, a trial judge may rule to prevent that unfair advantage arising;
(i) the connection or relationship between counsel, the prospective witness and the parties involved in the litigation.
[28] However, O’Brien J. noted, at page 582 of Essa, that the “courts should be reluctant to make what may be premature orders preventing solicitors from continuing to act” and that, at page 583, “all applications to remove solicitors from the record are not brought with the purest of motives.”
[29] In Kota v. Raphael, [2003] O.J. No. 3003, the plaintiff sued former counsel for negligence in the handling of an accident benefit claim. The subsequent counsel who sued the first lawyer had ultimately settled the same accident benefit claim. As second counsel was a necessary witness as to why the first lawyer’s negligence led to a compromise of the accident benefit claim, the second lawyer could not continue as counsel.
[30] Similarly, 1298781 Ontario Inc. et al. v. Levione et al., 2013 ONSC 2894, involved a subsequent lawyer who had completed a matter in which it was alleged the former lawyer was negligent. The subsequent lawyer was a likely witness and removed as counsel of record for the plaintiffs.
[31] Other cases, such as Kitchen v. McMaster, 2018 ONSC 3717 and Battarbee Estate v. Mantha (10 August 2004), Toronto, 03-CV-244964 (S.C.) (unreported judgment of Master Kelly), support the proposition that where there is a significant likelihood that counsel has relevant evidence to give, then counsel should be removed.
[32] As cited in Kitchen, the decision of Master Glustein (as he then was) in Mazinani v. Bindoo, 2013 ONSC 4744, based on a thorough review of the authorities, cautions that the decision to deprive a litigant of counsel of choice should not be made prematurely and that consideration should be given to these factors, among others:
(x) Courts should be reluctant to make what may be premature orders preventing lawyers from continuing to act. If the evidence does not necessarily have to come from the lawyer and may be obtained through admissions or documentary productions, a removal order will be premature;
(xi) If there is some doubt or “merely a potential” that a lawyer will be called as a witness at trial, the courts should be more generous in allowing the lawyer to remain on the record and deferring the matter until after discoveries or leaving the matter to the trial judge;
(xii) “In view of the expense of litigation and the enormous waste of time and money and the substantial delay which can result from an order removing solicitors, courts should only do so in clear cases”;
(xiii) “[A] court should be slow to interfere with the litigant’s right to choose his or her counsel. … When a litigant is deprived of the services of a lawyer whom she has chosen, there will be some hardship imposed on her. The imposition of such hardship can only be justified if it is done to prevent the imposition of a more serious injustice. It follows that the removal of counsel should be only to relieve the risk of real mischief and not a mere perception of mischief”;
(xiv) Certainty that a lawyer will be called as a witness is not required. Rather, the court must consider the likelihood of the lawyer being called as a witness;
(xv)“It is not sufficient for a moving party to suggest opposing counsel is a potential witness or allege only that he or she might provide material evidence. Rather, it must be established that there is a real basis to believe counsel can likely, or probably, provide material evidence”;
(xvi) “While courts have acknowledged that the freedom to choose counsel is an important interest to protect, it is not an absolute right. The right to be represented by counsel of choice can be outweighed when the administration of justice would be detrimentally affected”; and
(xvii) The court should approach a motion to remove a lawyer of record who may be a witness at trial by following a flexible approach and consider each case on its own merits . [Emphasis added; citations omitted.]
Analysis
[33] The motion judge concluded that the motion to remove counsel was “premature and would otherwise invite unwarranted speculation that cannot be properly weighed in relation to the plaintiff's right of counsel of choice.”
[34] An analysis of some of the Essa factors supports that conclusion.
The stage of the proceedings
[35] Discoveries have not been conducted. In many of the decisions cited above, the motions were brought after discovery, when the facts and necessary witnesses had been determined.
The likelihood that the witness will be called
[36] The estate trustee will be able to give evidence as to the interactions between Mr. Lepan and the defendants. Evidence may also take the form of documentary productions such as correspondence, settlement documentation, and mediation or pre-trial briefs, as filed on this motion. I note that the impugned tort settlement occurred after pre-trial and the pre-trial briefs filed by those parties may be of assistance. I agree with the submission of the plaintiff that the issue of improvident settlement may be addressed by expert evidence as to the state of the law and proper personal injury practice at the relevant times. Unlike Kota and 129878l, Mr. Arvai was not counsel in the settlement of the impugned underlying claim. Therefore, there is “some doubt” or “merely a potential” that Mr. Arvai will be called as a witness.
The impact of removing counsel on the parties' right to be represented by counsel of choice
[37] As noted in Essa, “in view of the expense of litigation and the enormous waste of time and money and the substantial delay which can result from an order removing solicitors, courts should only do so in clear cases.” This is not, for the reasons noted, a clear case.
The likelihood of a real conflict arising or that the evidence will be tainted
[38] The defendants allege that Mr. Arvai is in conflict by arguing that it was his recommendation that led to the improvident settlement, raising the theory that the plaintiff would be entitled to full indemnification in his tort claim regardless of the disposition of the long-term disability claim. At this stage, in the absence of detailed findings of fact and submissions with respect to these settlements, this allegation invites “unwarranted speculation”, as noted by the motion judge. On the face of it, it appears somewhat incongruous for the defendants to allege the settlement of the tort claim for $485,000 was improvident when the defendants strongly recommended that Mr. Lepan accept $250,000. The likelihood of a real conflict has not been established.
Conclusion
[39] The motion judge considered the relevant legal principles and did not misapprehend the evidence in concluding that the motion to remove counsel was premature. His decision is entitled to deference. The appeal is dismissed.
Costs
[40] Costs of this appeal, agreed at $13,500, and costs of the motion for leave to appeal agreed at $3500, are payable by the defendants to the plaintiff.
Newton J.
I agree _______________________________
Backhouse J.
I agree _______________________________
Kristjanson J.
Released: March 26, 2021
[^1]: See, for example, Cromwell v. Liberty Mutual Insurance Company (2008), 89 O.R. (3d) 352 (Sup. Ct.), in which Lofchick J. held that a lump sum payable by the long-term disability insurer was, in that case, not deductible as payments for loss of income under a similar provision under accident benefits, and Anand v. Belanger, 2010 ONSC 5356, 90 C.C.L.I. (4th) 138, in which Stinson J. held that a similar lump-sum payment by a long-term disability insurer fell outside the scope of s. 267.8(1), cl. 2. Potentially relevant also is the fact that the law with respect to whether gross amounts received, or amounts received net of legal fees were to be deducted was unsettled until after Mr. Lepan’s tort settlement. See, for example, Cadieux v. Cloutier, 2018 ONCA 903, 143 O.R. (3d) 545.