ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: C-629-10
DATE: 2012-09-25
BETWEEN:
Lexfund Inc. Plaintiff (Moving Party) – and – Lucio Anthony Ferro (aka Lou Ferro) and Ferro & Company Defendants (Responding Parties)
Louis-Pierre Grégoire, for the Plaintiffs
William G. Scott, for the Respondents
HEARD: September 21, 2012
The Honourable Mr. Justice P. B. Hambly
REASONS FOR JUDGMENT
[ 1 ] Lucio Anthony Ferro (“Ferro”) was called to the bar in 1978. He has developed a substantial personal injury practice in Hamilton. He has 40 employees including several lawyers. Lexfund Inc. (“Lexfund”) lends money to personal injury lawyers to finance their disbursements on lawsuits they have commenced on behalf of injured clients. If the action is successful or settled the lawyer is required to repay the loan with interest limited to the amount of fees and disbursements that he collects on behalf of the client. If the lawsuit is lost the lawyer pays nothing. These loans are known as "nonrecourse loans". Emails from Lexfund contain the mantra “Owe nothing if the case is lost”. Commencing in 2005, Ferro entered into contracts with Lexfund in which he was granted a letter of credit to a stated limit for the purpose of financing disbursements for the prosecution of a lawsuit for a client. Ferro has repaid loans that he obtained from Lexfund in the total amount of $2,997,728.91, consisting of principal in the amount of $1,939,079.70 and interest in the amount of $1,058,649.21. Lexfund commenced this action on July 9, 2010 to require payment by Ferro of the amount owing on six loans. It has brought a motion for summary judgment.
[ 2 ] All the loan agreements contain the following terms:
“Maturity Date” means the Settlement Date following the resolution of the Proceedings (or any of the proceedings where there are interrelated proceedings) by way of a final judgment or order, or settlement. However, where the client replaces the Borrower, the Settlement Date shall be that following the transfer of the client’s file by the Borrower to the replacement lawyer and law firm.
“Settlement Date” means the 15th day of a calendar month or, if such day is not a Business Day, on the next following Business Day.
1.6 Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter and supersedes all prior negotiations, undertakings, representations and understandings, including without limitations, any term sheets.
2.6 Repayment of Loan; Limited Recourse. The Obligations shall be repaid in full on the Maturity Date. Any amounts that are not so repaid shall bear interest, including interest on capitalized interest as provided for in this agreement, until the Settlement Date following repayment in full of all amounts outstanding hereunder. Except where the client’s file has been transferred by the Borrower to a new lawyer or law firm, recourse of the Lender against the Borrower for payment of the Obligations shall be limited to the Recoverable Disbursements and Fees and the amounts payable thereunder. Provided that this limitation on the Lender’s rights to enforce the loan evidenced hereby shall in no way be construed (a) to limit or prevent the Lender from commencing proceedings against the Borrower to the extent necessary to fully enforce and execute against the Security; (b) to limit the exercise of the Lender’s rights under, or the enforcement of, this Agreement; or (c) to limit recourse in any way by the Lender against any other person in respect of the Obligations.
4.1 Events of Default. Each of the following events shall constitute an “Event of Default” hereunder:
(a) subject to section 2.6, the Borrower shall fail to repay the Obligations in full on the Maturity Date;
“Obligations” means, in respect of any date, the Principal Balance outstanding on such date with respect to the Proceedings after taking into account all amounts advanced or to be advanced or otherwise added to the Principal Balance or stated herein to be part of the Obligations on or before such date, plus all accrued interest on such amount (including accrued interest on interest that has been capitalized and included as part of the Obligations by virtue of the definition of Principal Balance) at the Loan Rate from and including the Settlement Date preceding such date to but excluding such date: (emphasis added throughout)
[ 3 ] According to the agreements, Ferro was required to repay the loan “following the transfer of the client’s file” by Ferro to another lawyer. Ferro is required to repay the loan on the settlement date following the maturity date. The maturity date is the settlement date following the resolution of the proceedings by way of judgment or settlement. The settlement date is the 15th of the month. Hence if the maturity date is before the 15th of the month the settlement date is the 15th of the month in which the case resolves. If the case resolves after the 15th of the month the settlement date is the 15th of the following month. If the proceeding never resolves by judgment or settlement, the loan to Ferro never becomes owed to Lexfund. If the proceedings do resolve by way of judgment or settlement the amount that Lexfund can recover is limited to the "recoverable disbursements and fees".
[ 4 ] In each of these cases the file moved from Ferro’s office to the office of another lawyer. Ferro states that in circumstances where he retains a lawyer on file it was understood between the parties that the loan would not be payable until the case resolved by judgment or settlement. He states that when he retains counsel who goes on the record and the client’s file is sent to the new lawyer's office. The parties understood that this would not trigger a requirement of repayment. Counsel could only take effective action on the case if he is counsel of record and if he has the file in his possession.
[ 5 ] Lexfund takes the position that it never understood that files would be moved to another lawyer's office when Ferro retained counsel. Its position is that what is meant by transferring the file to another lawyer, in the loan agreement, is the file leaving Ferro’s office. Once a file leaves Ferro’s office and goes to the office of another lawyer Ferro is required to repay the loan.
[ 6 ] Lexfund commenced an action against Ferro on July 9, 2010 in which it claims the amount owing on six loans. It has brought a motion for summary judgment.
[ 7 ] The Rule of Civil Procedure which sets out the test for summary judgment is as follows:
20.04(2) The court shall grant summary judgment if,
(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; or
(b) the parties agree to have all or part of the claim determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment.
(2.1) In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:
- Weighing the evidence.
- Evaluating the credibility of a deponent.
- Drawing any reasonable inference from the evidence.
[ 8 ] In Combined Air Mechanical Services v. Flesch (2012), 2011 ONCA 764 , 108 O.R. (3d) 1 the Court of Appeal stated the following:
48 The trial dynamic … affords the parties the opportunity to present their case in the manner of their choice. …
49 In contrast, a summary judgment motion is decided primarily on a written record. The deponents swear to affidavits typically drafted by counsel and do not speak in their own words. Although they are cross-examined and transcripts of these examinations are before the court, the motion judge is not present to observe the witnesses during their testimony. Rather, the motion judge is working from transcripts. The record does not take the form of a trial narrative. The parties do not review the entire record with the motion judge. Any fulsome review of the record by the motion judge takes place in chambers.
50 … the motion judge must ask the following question: can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?
51 We think this "full appreciation test" provides a useful benchmark for deciding whether or not a trial is required in the interest of justice. In cases that call for multiple findings of fact on the basis of conflicting evidence emanating from a number of witnesses and found in a voluminous record, a summary judgment motion cannot serve as an adequate substitute for the trial process. Generally speaking, in those cases, the motion judge simply cannot achieve the full appreciation of the evidence and issues that is required to make dispositive findings. Accordingly, the full appreciation test is not met and the "interest of justice" requires a trial.
52 In contrast, in document-driven cases with limited testimonial evidence, a motion judge would be able to achieve the full appreciation of the evidence and issues that is required to make dispositive findings. Similarly, the full appreciation test may be met in cases with limited contentious factual issues. The full appreciation test may also be met in cases where the record can be supplemented to the requisite degree at the motion judge's direction by hearing oral evidence on discrete issues.
53 We wish to emphasize the very important distinction between "full appreciation" in the sense we intend here, and achieving familiarity with the total body of evidence in the motion record. Simply being knowledgeable about the entire content of the motion record is not the same as fully appreciating the evidence and issues in a way that permits a fair and just adjudication of the dispute. The full appreciation test requires motion judges to do more than simply assess if they are capable of reading and interpreting all of the evidence that has been put before them.
54 The point we are making is that a motion judge is required to assess whether the attributes of the trial process are necessary to enable him or her to fully appreciate the evidence and the issues posed by the case. In making this determination, the motion judge is to consider, for example, whether he or she can accurately weigh and draw inferences from the evidence without the benefit of the trial narrative, without the ability to hear the witnesses speak in their own words, and without the assistance of counsel as the judge examines the record in chambers.
55 Thus, in deciding whether to use the powers in rule 20.04(2.1), the motion judge must consider if this is a case where meeting the full appreciation test requires an opportunity to hear and observe witnesses, to have the evidence presented by way of a trial narrative, and to experience the fact-finding process first-hand. Unless full appreciation of the evidence and issues that is required to make dispositive findings is attainable on the motion record - as may be supplemented by the presentation of oral evidence under rule 20.04(2.2) - the judge cannot be "satisfied" that the issues are appropriately resolved on a motion for summary judgment.
[ 9 ] In Dumbrell v. Regional Group of Companies Inc. , 2007 ONCA 59 , [2007] O.J. No. 298 the Court of Appeal in the judgment of Justice Doherty stated the following:
54 A consideration of the context in which the written agreement was made is an integral part of the interpretative process and is not something that is resorted to only where the words viewed in isolation suggest some ambiguity. To find ambiguity, one must come to certain conclusions as to the meaning of the words used. A conclusion as to the meaning of words used in a written contract can only be properly reached if the contract is considered in the context in which it was made: see McCamus, The Law of Contracts (Toronto: Irwin Law, 2005) at 710-11.
[ 10 ] In my view, the meaning of "transfer of the client's file" in the loan agreement is a triable issue. The meaning which the parties intended this wording to have can only be determined after oral evidence of the context in which the agreement was signed. In my view, this is the only way in which a judge can have a “full appreciation” of this issue which is central to the lawsuit. I will apply these principles to the three loans to determine if Lexfund is entitled to summary judgment against Ferro in relation to the amounts owing to it in relation to these loans.
Michael Fraser Loan
[ 11 ] Ferro signed a loan agreement dated November 15, 2006 in relation to a tort action and an accident benefits action that he commenced on behalf of Michael Fraser. Howie, Sacks and Henry have assumed carriage of these actions. Ferro has given them his file in order that they can properly represent Mr. Fraser. Ferro has an agreement with them to protect his fees and disbursements on settlement or following judgment. Both actions are unresolved. The loan agreement gave Ferro a line of credit from Lexfund in the amount of $20,000. Lexfund advanced to Ferro $21,000 under the loan agreement, which included an underwriting fee of $1,000. If the loan is repaid on or before October 15, 2012, the amount owing on the loan is $65,956.71. There is a triable issue on whether Howie, Sacks and Henry, acquiring Ferro’s file upon their assuming carriage of the action, triggers a requirement by Ferro to repay the loan.
Ginette Petit
[ 12 ] Ferro signed a loan agreement dated November 15, 2006 in relation to actions on behalf of Ginette Petit. He commenced four actions on her behalf. The loan agreement gave Ferro a line of credit in the amount of $20,000. Lexfund advanced to Ferro $21,000 under the loan agreement, which included an underwriting fee of $1,000. The client changed lawyers. The actions were settled. The client’s new lawyer paid Ferro his fees and disbursements. Ferro paid Lexfund’s loan on April 4, 2011 in the amount of $49,345.65, which was the amount outstanding at that time. The loan was outstanding at the time that the action was commenced. There is a triable issue as to whether Lexfund is entitled to costs in relation to its claim for payment of this loan.
John Bilotta
[ 13 ] Ferro signed a loan agreement dated March 14, 2010 in relation to an action which he commenced on behalf of John Bilotta. The loan agreement gave Ferro a line of credit in the amount of $20,000. Lexfund advanced to Ferro $21,000 which included an underwriting fee of $1,000. The client changed lawyers to Aylesworth LL.P. Upon the new law firm agreeing to protect his account, Ferro sent them his file. Upon instructions from the client, the new law firm withdrew its undertaking and the client commenced an action against Ferro. The amount owing on the loan if it is paid on or before October 15, 2012 is $61,838.18. There is a triable issue on whether Aylesworth LL.P acquiring Ferro’s file, upon their assuming carriage of the action, triggers a requirement by Ferro to repay the loan.
Ilie Badini
[ 14 ] On November 15, 2007 Ferro signed a loan agreement with Lexfund in relation to an action on behalf of Ilie Badini. The loan agreement gave Ferro a line of credit in the amount of $10,000. Lexfund advanced $10,500 which included an underwriting fee of $500. Ferro also signed a guarantee which removed the “non-recourse” feature of the loan agreement which limited the amount that Lexfund could recover to Ferro’s “recoverable disbursements and fees”. Ferro agreed to repay the full amount of the funds owing under the agreement on demand. The action was dismissed. Ferro has made partial payments on the loan. The amount outstanding is $4,987.78 as at October 15, 2012. There is no triable issue in relation to this loan. Lexfund is entitled to judgment against Ferro in this amount.
Tracey Ryckman
[ 15 ] Ferro signed a loan agreement with Lexfund dated September 14, 2007 in relation to two actions that he commenced on behalf of Tracey Ryckman. The loan agreement gave Ferro a line of credit in the amount of $10,000. Lexfund advanced $10,500, which included an underwriting fee of $500. The client changed lawyers. Ferro sent the file to the new lawyer pursuant to a direction from the client. The new lawyer agreed to protect Ferro’s account. The action resolved. The new lawyer sent to Ferro his fees and disbursements as he had agreed to do in the amount of $9,624.18, which Ferro sent to Lexfund. The amount outstanding on the loan giving Ferro credit for the amount paid as at October 15, 2012 is $17,102.68. There is a triable issue on whether the new lawyer acquiring Ferro’s file, upon his assuming carriage of the action, triggers a requirement by Ferro to repay the loan.
Tottie Bell
[ 16 ] On November 15, 2007 Ferro signed a loan agreement with Lexfund in relation to an action on behalf of Tottie Bell. The loan agreement gave Ferro a line of credit in the amount of $10,000. Lexfund advanced $10,500, which included an underwriting fee of $500. Ferro also signed a guarantee which removed the “non-recourse” feature of the loan agreement which limited the amount that Lexfund could recover to Ferro’s “recoverable disbursements and fees”. Ferro agreed to repay the full amount of the funds owing under the agreement on demand. Ferro referred the action to another lawyer and gave the new lawyer the file. The new lawyer settled the action. He sent Ferro his fees and disbursements in the amount of $9,964.47, which Ferro sent to Lexfund. There remains owing $10,264.04 under the contract. There is no triable issue in relation to this loan. Lexfund is entitled to judgment against Ferro in this amount.
Conclusion
[ 17 ] Lexfund’s summary judgment motion against Ferro for amounts owing on the Michael Fraser, Ginette Petit, John Bilotta and Tracey Tyckman loans are dismissed. Lexfund’s claims against Ferro in relation to these loans will proceed to trial. Lexfund’s summary judgment motion against Ferro in relation to the amounts owing on the Illie Badini loan in the amount of $4,987.78 and the Tottie Bell loan in the amount of $10,264.08 for a total of $15,251.82 is allowed. Lexfund shall have judgment against Ferro in this amount, payable on or before October 15, 2012. Lexfund may make submissions on costs and prejudgment interest within 10 days and Ferro may have 10 days to reply.
P.B. HAMBLY J.
Released: September 25, 2012
COURT FILE NO.: C-629-10
DATE: 2012-09-25
ONTARIO SUPERIOR COURT OF JUSTICE
Lexfund Inc. Plaintiff (Moving Party) – and – Lucio Anthony Ferro (aka Lou Ferro) and Ferro & Company Defendants (Responding Parties)
REASONS FOR JUDGMENT
P.B. Hambly J.
Released: September 25, 2012
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