ONTARIO SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-09-45123
DATE: 2012/01/03
BETWEEN:
Merovitz Potechin LLP Plaintiff – and – Kevin Cantor and Low, Murchison LLP Defendants
Stephen S. Appotive, for the Plaintiff
Eric R. Williams, for the Defendants
HEARD: August 30 and November 30, 2011
DECISION ON MOTIONS
McMAMARA J.
Overview
[ 1 ] This motion and cross-motion were argued over the course of two days, August 30, 2011 and November 30, 2011.
General Factual Background
[ 2 ] The plaintiff Merovitz Potechin LLP (“MP”) and the defendant Low Murchison LLP (“LM”) are law firms operating in the city of Ottawa. The defendant Kevin Cantor was called to the bar in 1989 and joined the plaintiff law firm in February of 1997.
[ 3 ] Between that date and September of 2008 Cantor worked first as an associate and then, commencing in September of 2005, as a non-equity partner at MP. His practice focused primarily in the area of plaintiffs’ personal injury work. He was the only lawyer at MP practicing in that area. Cantor withdrew from the partnership at MP on September 26, 2008 and joined LM to continue his practice. During the time Cantor was a non-equity partner there was a written partnership agreement in place.
[ 4 ] It is alleged by MP that over the eleven-year period that Cantor was with the firm the firm heavily invested in advertising, including taking out a full page in the yellow pages in Cantor’s name, and investing in television advertisements that featured Cantor in an effort to market MP’s personal injury practice.
[ 5 ] When Cantor withdrew from the partnership he had carriage of approximately 60 personal injury files most of which were transferred to LM. These files were at different stages of progress, and there is an allegation that some were close to settlement. MP had a significant amount of money tied up in work in progress and disbursements on these transferred files.
[ 6 ] The personal injury work at MP was undertaken on a contingency fee basis. The standard retainer agreement set out that there would be a fee of 30 percent of the client’s total recovery if MP was successful on the client’s behalf. There is no issue that the wording of the contingency fee retainer agreement was approved by MP.
[ 7 ] The retainer agreement contemplated what would happen if the client decided to leave MP. The following wording appears:
In the event we start processing a claim on your behalf and for some reason you decide to discontinue the claim or change lawyers, our fee to you will be based on my hourly rates.
[ 8 ] The statement of claim seeks a declaration that a constructive trust be imposed over a portion of the contingency fee recovered by the defendants on the personal injury files transferred from MP to LM, once settled. The basis for the imposition of that trust is that all the defendants have been unjustly enriched, and as against Cantor it is alleged there has been a breach of fiduciary duty. In the alternative to the imposition of a constructive trust the plaintiff seeks damages.
Issues on the Motions
[ 9 ] By the date these matters were argued, counsel had narrowed the issues between them.
[ 10 ] The defendants’ motion had originally also sought relief under rule 21 of the Rules of Civil Procedure. That was not pursued. The motion as argued is for summary judgment pursuant to rule 20 on the basis that there is no genuine issue requiring a trial.
[ 11 ] The cross-motion of the plaintiffs is for partial summary judgment for the work in progress on an hourly rate and disbursements incurred on the settled transferred files. The defendants conceded at the outset of the motion that the plaintiffs are entitled to that relief. In that regard there will be partial summary judgment for the amounts itemized in Schedule A to the factum of the plaintiff.
Analysis: The Defendants’ Motion for Summary Judgment
[ 12 ] The material parts of the amended rule 20 state:
DISPOSITION OF MOTION
General
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. O. Reg. 284/01, s. 6; O. Reg. 438/08, s. 13(2).
Powers
(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. O. Reg. 438/08, s. 13(3).
Oral Evidence (Mini-Trial)
(2.2) A judge may, for the purposes of exercising any of the powers set out in subrule (2.1), order that oral evidence be presented by one or more parties, with or without time limits on its presentation. O. Reg. 438/08, s. 13(3).
[ 13 ] The defendants argue that there is no genuine issue requiring a trial with respect to the equitable claims being advanced and as such they ought to be dismissed. The plaintiff strongly disagrees.
(a) Unjust Enrichment
[ 14 ] It is common ground that remedial or constructive trusts have been imposed by the courts as a remedy where the necessary elements for a claim based on unjust enrichment, or for that matter breach of fiduciary duty, have been made out.
[ 15 ] It is common ground that in order for unjust enrichment to be found, three requirements must be satisfied:
(1) There must be an enrichment;
(2) a corresponding deprivation; and
(3) the absence of any juristic reason for the enrichment.
[ 16 ] The defendants argue that even if the transfer of the clients from MP to LM provided a benefit to the defendants, there is no evidence of a corresponding deprivation. In addition, and most significantly, they argue there is the presence (not absence as required) of a juristic reason. In fact, they argue there are three valid juristic reasons. Firstly there is the contingency fee agreement and the partnership agreement, both of which are valid contracts. Next there is a statutory reason under the Solicitors Act. Finally there is a question of public policy.
[ 17 ] Between the date that these Motions were argued and the rendering of this decision the Court of Appeal for Ontario released its decision in Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764. This decision had been anticipated for some time as it was expected the Court might provide clarification on what the amended rule 20 does and does not accomplish. The decision is instructive and provides considerable guidance.
[ 18 ] In terms of an overview, the Court had this to say at paras. 38 and 39:
38 . However, we emphasize that the purpose of the new rule is to eliminate unnecessary trials, not to eliminate all trials. The guiding consideration is whether the summary judgment process, in the circumstances of a given case, will provide an appropriate means for effecting a fair and just resolution of the dispute before the court.
39 . Although both the summary judgment motion and a full trial are processes by which actions may be adjudicated in the "interest of justice", the procedural fairness of each of these two processes depends on the nature of the issues posed and the evidence led by the parties. In some cases, it is safe to determine the matter on a motion for summary judgment because the motion record is sufficient to ensure that a just result can be achieved without the need for a full trial. In other cases, the record will not be adequate for this purpose, nor can it be made so regardless of the specific tools that are now available to the motion judge. In such cases, a just result can only be achieved through the trial process. This pivotal determination must be made on a case-by-case basis.
[ 19 ] The Court of Appeal goes on to indicate that, speaking generally, there are three types of cases that are amenable to summary judgment.
[ 20 ] The first type of case is where the parties agree that it is appropriate to determine an action by way of a motion for summary judgment, although the Court still has the discretion to refuse summary judgment. The second type of case encompasses those claims or defences that are shown to be without merit. The Court offered the view that these first two types of cases also existed under the former rule 20, although they make the point that the amended rule 20 has given a motions judge additional tools to assess whether a claim or defence has no chance of success at trial. Finally they opine that the amended rule 20 now permits a third type of case to be decided summarily. That is a situation where the trial process is not required in the “interest of justice”. This power arises from the phrase “genuine issue requiring a trial” combined with enhanced powers under rules 20.04(2.1) and (2.2). In that situation the motion judge is to assess whether he or she should exercise the powers to weigh evidence, evaluate credibility, and draw reasonable inferences from the evidence or whether these powers should be exercised only at a trial.
[ 21 ] In this case it is strongly argued that summary judgment ought to be granted because, on the evidence before the Court, the defendants submit it is clear the claims are without merit or have no chance of success. Where that is the argument advanced the Court provides guidance at para. 50:
In deciding if these powers should be used to weed out a claim as having no chance of success or be used to resolve all or part of an action, 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?
[ 22 ] Paragraphs 53 and 54 provide as follows:
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.
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.
[ 23 ] It is against that backdrop that I must determine whether I have a full appreciation of the evidence and issues of a sort that is required to make dispositive findings by way of summary judgment, or can this full appreciation only be achieved by way of a trial?
[ 24 ] I start off by indicating that I am not persuaded that there is no evidence of an enrichment. The plaintiff must show that it gave something to the defendants which the defendants received and retained. There is evidence of that. It is uncontradicted, although the details are somewhat scarce in terms of the numbers, that the plaintiff expended considerable money in advertising Cantor and his abilities in the area. They also invested considerable monies in disbursements, work in progress, office facilities, etc. that resulted in Cantor having the 60-odd files that went with him to LM. That allows for the potential of a benefit to be earned, the contingency fee of 30 percent, when and if the case is settled. That will result, in most cases, in a fee being earned that can significantly exceed what the fee would be on a straight time and hourly rate basis. There would be a corresponding deprivation on the part of MP in not being able to share in that surplus amount in excess of time and hourly rate.
[ 25 ] The real issue, and the one where counsel spent the vast majority of their time, is whether or not there is a juristic reason for any alleged or potential enrichment.
[ 26 ] Mr. Williams on behalf of the defendants argues that there are three distinct juristic reasons that demonstrate the claim for unjust enrichment has no chance of success.
[ 27 ] He argues that unjust enrichment, being an equitable remedy remedial in nature, does not operate where rights are defined by things like contract or statute. He argues it “fills in” where common law or legislation do not apply. He submits that in this case there are two juristic reasons within the established categories, contract and statute, as well as a public policy reason.
[ 28 ] Firstly in terms of contract he points to the retainer agreement. He suggests it clearly denies recovery in the circumstances of this matter in that it provides that if the client changes lawyers, all the plaintiff is entitled to is fees on a time and hourly rate basis plus disbursements. Further he argues the partnership agreement is silent as relates to our issues and thus is of no assistance to the plaintiff.
[ 29 ] I disagree that the combination of the referenced contractual documents and the evidence on this motion demonstrate the claim has no chance of success.
[ 30 ] The retainer agreement is between the client and MP. It defines the rights between them and protects the client in various situations. It remains in place and no client is a party to this litigation. There is in my view, however, an issue as to what extent that contract determines the relationship between Cantor and his old firm on the one hand, and the new firm on the other. The evidence on the motion is clear that when this document was drafted Mr. Merovitz and Cantor never discussed or turned their minds to what was to occur as between them if Cantor left and all the files went with him. In addition there is some evidence that the defendants were also of the view that the retainer agreement did not fully define all aspects of the issues as between the plaintiff firm on one hand and Cantor and his new firm on the other. In a letter to plaintiff’s counsel dated January 16, 2009 Mr. Boyd on behalf of Low Murchison LLP writes as follows:
On any file that is settled or on which a judgment is received, we will maintain an amount in trust sufficient to satisfy the work in progress and disbursements of Merovitz Potechin LLP – except in those cases where the amount payable by the client under any existing contingency fee agreement is not sufficient to cover the fees, work in progress and disbursements of both firms. For those files, there is an obligation to negotiate an equitable division of the available funds. (Emphasis added)
[ 31 ] In terms of the partnership agreement it is silent in terms of dealing with a factual situation such as the one before the Court. The law of Ontario is the governing law of that contract and it is common ground that the rules of equity can be applicable in appropriate cases to a partnership.
[ 32 ] I am satisfied that extrinsic evidence is required to decide this issue unless, of course, I accept the argument that one of the other juristic reasons applies.
[ 33 ] The defendant argues there is a second juristic reason within the established categories, namely statutory. Mr. Williams argues that s. 21 of the Solicitors Act provides that a retainer agreement excludes any further claims of the solicitor beyond the terms of the retainer agreement, and further that the regulations made under the Solicitors Act related to contingency fee agreements provide that those agreements cannot contain a provision that prevents a client from terminating the agreement.
[ 34 ] There is no evidence before the Court on this motion that would suggest the plaintiff is making any claim against a client beyond the terms of the agreement. Rather the plaintiff is looking to the defendants for compensatory damages. Nor is there any evidence that the retainer agreement prevented any client from terminating the agreement or changing lawyers. The evidence would seem to be to the contrary. The clients that wanted to, left the plaintiff and the full agreement remains in place for their protection.
[ 35 ] It is not plain and obvious that the Solicitors Act and its regulations preclude a claim by the plaintiff against these defendants for unjust enrichment.
[ 36 ] Finally Mr. Williams argues there is a third reason, public policy. He suggests that allowing this action to proceed would impede a client’s right to the solicitor of his choice because a subsequent solicitor may not wish to potentially become embroiled in some sort of action between the client’s old and new law firms. Simply put, there is insufficient evidence to establish that such a conclusion is plain and obvious. This again is a dispute between two law firms, and on the evidence before me there is nothing to establish that the clients are involved in any way, nor is there evidence from any source that allowing this remedy to be pursued by the plaintiff would impede a client’s right to choose.
[ 37 ] In sum I am not persuaded that a full appreciation of the evidence and issues that is required to make a dispositive finding can be achieved by way of summary judgment, but rather this full appreciation will require a trial. The defendants have not demonstrated the claim for unjust enrichment to be without merit.
(b) Fiduciary Duty
[ 38 ] I move now to fiduciary duty.
[ 39 ] The plaintiff argues that Cantor was in breach of his fiduciary duty in two respects: firstly that he sent out an unauthorized letter to clients on the plaintiff’s letterhead without proper authorization; and secondly by failing to provide requested information regarding transferred files, specifically settlement figures on completed files.
[ 40 ] Dealing with the first allegation, Mr. Merovitz, one of the plaintiff’s founding partners, confirmed that he did receive a draft of a letter written by Cantor dated August 26, 2008. It advised clients of Cantor’s departure, the firm he was joining as of September 29, 2008, a direction relating to the transfer of the clients’ file, and confirming that if the client wished to stay with MP they need not complete the direction. On his cross-examination Merovitz confirmed a discussion with Cantor, where he objected to one phrase used in the letter, and he also recalled advising Cantor he wanted to think more about the letter.
[ 41 ] There is indeed a second draft of the letter dated September 10, 2008 with at least one change from the first draft. Merovitz cannot dispute that the second letter was forwarded to him prior to its being sent out, nor that during the period of time between August 26 and September 10, 2008 he did not discuss the matter of the letter any further with Cantor. Despite that it is suggested that the letter going out without his authority amounted to a breach of fiduciary duty.
[ 42 ] I disagree. It is common ground that both Cantor and the MP were bound by the Law Society rules of professional conduct which require notice to be sent to a client giving a clear indication of their options to either remain with the firm or go elsewhere. Merovitz knew Cantor was leaving in late September and at best sat on the issue of the content of the letter for two weeks. The partnership agreement in s. 8 allows non-equity partners to do the necessary as relates to the ordinary practice of law. There is nothing improper in the text of the letter. Merovitz asked for a wording change and it was made. In the circumstances that existed there are no facts that support that there was a breach of fiduciary duty that would make that equitable remedy available to the plaintiff.
[ 43 ] The second breach alleged is for failing to provide settlement details on files where settlement occurred after Cantor was at LM. It is clear that the information requested raises issues of the solicitor-client relationship, and in particular client confidentiality. There is a presumption the information is privileged but that presumption is rebuttable. During argument Mr. Appotive, in answer to a question from myself, confirmed that if I were to find on this motion that there was no basis for a claim for unjust enrichment, this information would not be producible or relevant. In those circumstances, then, and with it requiring a legal interpretation before the information would be relevant, it surely could not be a breach of fiduciary duty on the part of Cantor to refuse to comply with a request that would involve disclosing the confidential information of a non-party.
[ 44 ] There is in my view no chance that the claim for a breach of fiduciary duty could succeed on either alleged breach and it is dismissed.
Costs
[ 45 ] There were no submissions made as to costs and counsel may make brief submissions if necessary. It does occur to me, however, that success on the motion was divided, and that in fairness perhaps the issue of costs ought to be left to the trial judge determining the merits.
The Honourable Justice J. McNamara
Released: January 3, 2012
COURT FILE NO.: CV-09-45123
DATE: 2012/01/03
ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: Merovitz Potechin LLP Plaintiff – and – Kevin Cantor and Low, Murchison LLP Defendants decision on motions McNamara J.
Released: January 3, 2012