COURT FILE NO.: CV-12-468079
DATE: 20140221
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Peter DeRosa
Plaintiff
– and –
Pace Savings & Credit Union Limited
Defendant
B. Day, for the Plaintiff
R. Franklin, for the Defendant
HEARD: January 10, 2014
c. j. brown j.
REASONS FOR DECISION
[1] The defendant/appellant, Pace Savings & Credit Union Limited ("Pace"), appeals the Order of Master McAfee dated August 13, 2013, in which the Master dismissed the defendant's motion for an Order removing Robert G. Tanner as solicitor of record for the plaintiff in this action on the grounds of conflict of interest.
The Facts
[2] Counsel for the plaintiff, Robert G. Tanner ("Mr. Tanner"), had acted for the defendant, Pace, on a number of occasions between 1993 and 2008, mainly regarding small collection files in which he reported to the defendant's collection clerk.
[3] Between 2009 and 2012, Mr. Tanner acted for McMaster Savings & Credit Union Limited ("McMaster ") with respect to various matters. Among those matters, Mr. Tanner acted on behalf of McMaster regarding the negotiation with the defendant, Pace, of an Asset Purchase Agreement dated March 23, 2012, whereby Pace acquired the assets and assumed the liabilities of McMaster. As regards those negotiations and the actual asset purchase, Pace had its own independent counsel representing it.
[4] Mr. DeRosa was employed by McMaster as its CEO pursuant to an Employment Agreement dated January 1, 2011.
[5] In May of 2011, Mr. Tanner advised McMaster and the plaintiff jointly, with both of their consents, with respect to the draft Employment Agreement, dated January 1, 2011, which had not originally been prepared by Mr. Tanner. Specifically, he addressed the terms of termination of Mr. DeRosa upon unilateral termination by the employer, and the compensation payable thereon.
[6] Mr. Tanner also acted for the plaintiff, Peter DeRosa ("Mr. DeRosa") in negotiating Mr. DeRosa's Employment Agreement dated April 18, 2012 with the defendant, Pace. Pace was represented in the negotiations by its own independent counsel.
[7] The Asset Purchase Agreement closed on April 30, 2012 and the defendant, Pace, acquired all of the assets and assumed all of the liabilities of McMaster. McMaster ceased carrying on business.
[8] On May 1, 2012, the plaintiff became an employee of the defendant pursuant to the terms of the Employment Agreement negotiated on April 18, 2012 between Mr. Tanner on behalf of Mr. DeRosa and counsel for the defendant, Pace. The Employment Agreement, in certain regards, incorporated the terms of the McMaster Employment Agreement, except as regards Mr. DeRosa's title which was no longer CEO and was, at Pace, Regional General Manager, Hamilton Division. He was to report to the CEO or the COO of Pace. His weeks of paid vacation were reduced by one week in the new Pace Employment Agreement and he was eligible to participate in an executive bonus scheme, with terms to be agreed upon between Mr. DeRosa and Pace.
[9] The Asset Purchase Agreement concluded between Pace and McMaster included an option to amalgamate as follows:
Vendor shall not after Closing conduct an active business as a credit union, and shall proceed to dissolution. The Purchaser shall pay all expenses associated with dissolving the Vendor. Notwithstanding the above, the Vendor grants the Purchaser the option, exercisable in the sole and absolute discretion of the Purchaser on sixty (60) days' notice given by the Purchaser to the Vendor at any time on or after October 1, 2012, to enter into an amalgamation agreement with the Vendor so that the Vendor is not dissolved, but is instead amalgamated with the Purchaser.
[10] Thus, McMaster was able, at least 60 days on or after October 1, 2012 (i.e. on or after November 29, 2012), to exercise its option to amalgamate with Pace if it so chose.
[11] Sometime after November 30, 2012, McMaster exercised its option to amalgamate with Pace pursuant to the agreement.
[12] On October 30, 2012, Mr. DeRosa's employment was terminated.
The Order Appealed From
[13] The Master held as follows:
[5] I am not satisfied on the basis of the evidence before me that there existed a previous relationship which is sufficiently related to the retainer with respect to this action. On the basis of the evidence before me, I am not satisfied that Mr. Tanner acted other than solely for the plaintiff in negotiating the Pace Employment Agreement with the defendant. The defendant had separate counsel (see affidavit of Mr. Tanner sworn July 22, 2013 at paragraph 6.) I am not satisfied that any previous relationship with the defendant regarding collection files or otherwise or with McMaster are sufficiently related to the retainer at issue.
[6] If I am wrong and there was a previous relationship sufficiently related to the retainer at issue, I am satisfied that no confidential information was imparted that could be relevant (see affidavit of Mr. Tanner sworn July 22, 2013 at paragraph 11).
The Issues
[14] The issue for determination by this Court is as follows:
- Did the Master err in fact or law in finding that there was no disqualifying conflict of interest as regards Mr. Tanner's representation of Mr. DeRosa in this action.
The Positions of the Parties
The Appellant
[15] It is the position of the appellant, Pace, that Mr. Tanner is in conflict of interest in this retainer, acting for Mr. DeRosa, given that he had previously acted for both Mr. DeRosa and McMaster as regards the conclusion of the McMaster Employment Agreement, the relevant portions of which are in dispute in this wrongful termination action, that he acted for McMaster regarding the Asset Acquisition Agreement in the acquisition by Pace of McMaster, and McMaster ultimately exercised its option to amalgamate with Pace in late November or December of 2012, some six or seven months after the asset purchase. As a result, it is their position that Mr. Tanner's former client, McMaster, is now one and the same as his other previous client, Pace, and that he is therefore in conflict of interest and cannot act in this action.
The Respondent
[16] It is the position of the respondent, Mr. DeRosa, that the appellant has not met the test set forth in MacDonald Estate v Martin, 1990 32 (SCC), [1990] 3 S.C.R. 1235 ("MacDonald Estate") and that there is no previous relationship between Mr. Tanner and Pace sufficiently related to the present retainer such as to disqualify Mr. Tanner from acting on behalf of Mr. DeRosa. Further, it is the position of the respondent that there can be no imparting of confidential information inferred in the circumstances of this case.
[17] The respondent maintains that the appellant's argument that as a result of a pro forma amalgamation of McMaster's corporate shell into the defendant sometime at the end of the year of 2012, Mr. Tanner must be considered to be counsel for the defendant as regards the earlier matters of the McMaster and Pace Employment Agreements and is now in a conflict of interest situation in representing the plaintiff as against Pace cannot be sustained.
[18] The respondent takes the position that this is an argument of technicality and form over substance and equity. As regards the amalgamation argument, the respondent relies on the decision of this Court in Rannala v 2067652 Ontario Ltd., 2008 CarswellOnt 4036.
The Law and Analysis
Standard of Review
[19] The standard of review applicable to an appeal from the decision of a master of this Court it is follows:
[T]he decision of a master will be interfered with only if the master made an error of law or exercised his or her discretion on the wrong principles or misapprehended the evidence such that there is a palpable or overriding error.
Zeitoun v The Economical Insurance Group, (2008) 2008 20996 (ON SCDC), 91 O.R. (3d) 131.
Conflict of Interest
[20] Where it is sought to disqualify counsel of record on the ground of conflict of interest, the court is concerned with three competing values:
that the high standards of the legal profession and the integrity of the justice system should be maintained;
that the litigant should not be deprived of the choice of counsel without good cause; and,
that reasonable mobility among the legal profession is desirable.
MacDonald Estate, supra, as cited in Moffat v Wetstein [1996] O. J. 1996, leave to appeal refused [1997] O.J. 772.
[21] The former client must show that there existed a previous relationship which is sufficiently related to the retainer from which it is sought to remove the solicitor that the court should infer that confidential information was imparted: MacDonald Estate, supra.
[22] As regards the onus on a conflict of interest motion, the Supreme Court of Canada in MacDonald Estate, supra, stated at p.1260:
[O]nce it is shown by the client that there existed a previous relationship which is sufficiently related to the retainer, from which it is sought to remove the solicitor, the court should infer that confidential information was imparted unless the solicitor satisfies the court that no information was imparted which could be relevant. This will be a difficult burden to discharge. Not only must the court's degree of satisfaction be such that it would withstand the scrutiny of the reasonably informed member of the public that no such information passed, but the burden must be discharged without revealing the specifics of the privileged communication.
[23] A lawyer who has relevant confidential information cannot act against his client or former client. In such a case, the disqualification is automatic.
[24] As regards the imparting of confidential information, the Ontario Court of Appeal has stated as follows:
I hesitate to support a rule drawn so broadly as to always require disqualification based on the assumption that there is always a risk of the disclosure of confidential information. In some cases where a lawyer purports to act against a former client in the same matter, there is virtually no risk of any disclosure of confidential information. Indeed, this may be one of those cases. I see little value in anchoring a rule disqualifying the lawyer on what in some cases would be a pure legal fiction.
Consulate Ventures Inc. v Amoco Constructing & Engineering (1992) et al., 2010 ONCA 788
[25] Counsel for the defendant also seeks to rely on the Rules of Professional Conduct, Rules 2.04 (4), (6) and (9). He notes, however, that these Rules are more rigid than the common law conflict of interest rules. He acknowledges that such Rules are not binding on the courts, although he asserts that they are important statements of public policy.
[26] The Rules relied upon state as follows:
(1) Rule 2.04 (4): A lawyer who has acted in a matter shall not thereafter act against the client or against persons who were involved in or associated with the client in the matter,
a) in the same matter,
b) in any related matter, or
c) save as provided by subrule (5), in any new matter, if the lawyer has obtained from the other retainer relevant confidential information unless the client and those involved in or associated with the client consent.
(2) Rule 2.04 (6): Except as provided in subrule (8.2), where a lawyer accepts employment from more than one client in a matter or transaction, the lawyer shall advise the clients that
a) the lawyer has been asked to act for both or all of them,
b) no information received in connection with the matter from one can be treated as confidential so far as any of the others are concerned, and
c) if a conflict develops that cannot be resolved, the lawyer cannot continue to act for both or all of them and may have to withdraw completely.
(3) Rule 2.04 (9): Save as provided by subrule (10), where clients have consented to a joint retainer and an issue contentions between them or some of them arises, the lawyer shall
a) not advise them on the contentious issue, and
b) refer the client to other layers, unless
c) no legal advice is required, and
d) the clients are sophisticated,
in which case, the clients may settle the contentious issue by direct negotiation in which the lawyer does not participate.
[27] It is not improper for the lawyer to act against the client in a fresh and independent matter wholly unrelated to any work the lawyer has previously done for that person and where previously obtained confidential information is irrelevant to the matter.
[28] It is the position of the defendant that Mr. Tanner represented McMaster with respect to the McMaster Employment Agreement which governs the relationship between Mr. DeRosa and McMaster and, as a result of the amalgamation, the amalgamated company is deemed to possess the property, rights, privileges and franchises of the amalgamating corporation: Credit Unions and Caisses Populaires Act, S.O. 1994, c. 11, s. 309(9). The appellant's fundamental thesis is that, as a result of the amalgamation, McMaster and Pace are one and the same and, Mr. Tanner, having acted on behalf of McMaster as regards the Employment Agreement between McMaster and Mr. DeRosa, is now precluded from acting against Pace.
[29] In the alternative, the appellant argues that, if the retainer issue is found to relate solely to the Pace Employment Agreement, Mr. Tanner's relationship with McMaster with respect to the Asset Purchase Agreement, including the incorporation of the Pace Employment Agreement, is sufficiently related to that retainer.
[30] I am not persuaded by the appellant's argument that by virtue of the amalgamation, Mr. Tanner must now be considered to be in a conflict of interest position, as he had previously acted for McMaster which is now amalgamated with Pace.
[31] I am of the view that this does not establish a sufficient nexus or relationship sufficiently related to the subject retainer from which it is sought to remove Mr. Tanner that this Court should infer that confidential information was imparted.
[32] In this case, the Employment Agreement concluded between Mr. DeRosa and McMaster, in which Mr. Tanner acted on the behalves of both parties, on the consent of both parties, was not the same agreement which governs the relationship between Mr. DeRosa and Pace, although many of the terms were the same. That latter agreement was concluded between Mr. Tanner, acting on behalf of Mr. DeRosa, and Pace's independent counsel, and changed some of the terms of the McMaster Agreement. Further, the Asset Purchase Agreement was negotiated by Mr. Tanner on behalf of McMaster and on behalf of Pace, by Pace's independent counsel. I am of the view that the amalgamation in late November or early December, after Mr. DeRose's termination, does not automatically result in a conflict of interest in the circumstances of this case. In this regard, I have considered the case of Rannala v 2067652 Ontario Ltd., 2008 CarswellOnt. 4036.
[33] While the evidence indicates that Mr. Tanner acted for Pace between 1993 and 2008 in matters mainly involved in collections, and therefore that Pace was a former client, there is no evidence that such retainers were sufficiently related to the present retainer so as to disqualify Mr. Tanner from acting in this matter. Indeed, I do not find there to be any relationship with the present retainer, based on the evidence before me.
[34] The subject retainer deals with the Pace Employment Agreement and not the previous McMaster Employment Agreement. I do not find that there is any previous relationship which is sufficiently related to the present retainer from which it is sought to remove Mr. Tanner. There is no evidence to indicate that confidential information was imparted which would be relevant to this action, and given my finding above, such cannot be inferred.
[35] I do not find there to be any error in fact or law on the part of the Master with respect to her findings as regards the existence of a previous relationship sufficiently related to the present retainer nor with respect to her finding that confidential information was imparted. Nor was there an exercise of discretion on the wrong principles, nor a misapprehension of the evidence such that there is a palpable or overriding error. There is no basis on which to interfere with the Master’s decision in this regard.
[36] In conclusion, I uphold the decision of the Master and dismiss the appeal.
Costs
[37] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, within thirty days of the release of this Endorsement.
Carole J. Brown J.
Released: February 21, 2014
COURT FILE NO.: CV-12-468079
DATE: 20140221
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Peter DeRosa
Plaintiff
– and –
Pace Savings & Credit Union Limited
Defendant
REASONS FOR DECISION
Carole J. Brown J.
Released: February 21, 2014