CITATION: R. v. Mallozzi, 2015 ONSC 1991
COURT FILE NO.: 878/15
DATE: 20150407
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
HER MAJESTY THE QUEEN
Respondent
- and -
ITOLO MALLOZZI and ANDREA GERNACK
Applicant
COUNSEL:
Paul Bailey, Agent for the Public Prosecution Service of Canada
Leora Shemesh, for the Applicant
HEARD: March 25, 2015
ENDORSEMENT
DURNO J.
[1] Itolo Mallozzi was charged with Controlled Drugs and Substances Act (CDSA) charges in April, 2010. They remain outstanding and are scheduled for trial on April 13, 2015. Mr. Mallozzi was released on a $100,000 no-deposit recognizance with his common law wife, Andrea Gernack, as surety. Their matrimonial home was in Ms. Gernack’s name alone and was the property on which her $100,000 pledge was based.
[2] In July, 2014, Mr. Mallozzi was charged with importing ketamine, detained in custody in the Ontario Court of Justice and on an initial detention review before MacDonnell J. On a further review before His Honour he was released from custody on a surety bail. In the course of the proceedings before MacDonnell J. His Honour made a s. 524 order cancelling the original release order. Ms. Gernack was not a surety on the new release order that related to both sets of charges.
[3] After Mr. Mallozzi was released from custody, Mr. Bailey, an agent for the Public Prosecution Service of Canada (PPSC), had the Owen Sound Crown Attorney put a lien on the matrimonial home in Orangeville to protect the PPSC’s claim for estreatment should Mr. Mallozzi be convicted of the Toronto charges. He would be in breach of one clause of the original release order if he was found to be in possession of a controlled substance.
[4] In Ms. Gernack’s affidavit on this application she states that as a result of mounting expenses, she and Mr. Mallozzi decided they would have to sell their matrimonial home. The house was listed in September, 2014 and an offer accepted with a January, 2015 closing date. I infer that when the title was searched shortly before the closing the lien was discovered.[^1] There does not appear to be any contest that Ms. Gernack was never advised of lien.
[5] In order to complete the sale, Ms. Gernack’s real estate lawyer signed the following undertaking dated January 27, 2015:
I, the undersigned solicitor acting for the seller Andrea Suzanne Gernack, hereby undertake to holdback the sum of $100,000 from the proceeds of the above-noted sale in my trust account and to release those funds by one of two means, either:
a) in accordance with the terms of a mutual agreement between The Public Prosecution Services of Canada and the said Andrea Suzanne Gernack, or if the parties are unable to mutually agree, then
b) to pay the funds to the Superior Court of Justice pursuant to a court order.
Proviso: I shall not be required to make application or take any other steps to have the said proceeds paid into court other than to issue and deliver my trust cheque to the accountant for the court.
[6] It is signed by the lawyer. It is also signed by Ms. Gernack as follows:
I, Andrea Suzanne Gernack, approve the above undertaking and authorize you to deliver same to the Office of the Crown Attorney.
[7] Ms. Shemesh represents Mr. Mallozzi in the two CDSA prosecutions. She applies on behalf of Mr. Mallozzi and Ms. Gernack for the return of the “seized” funds contenting there was no jurisdiction for the PPSC to put a lien on the matrimonial home after Ms. Gernack had ceased to be a surety. While Ms. Shemesh concedes that Ms. Gernack remains liable in estreatment proceedings after the s. 524 order, the point of contention is the timing of the lien. The applicants seek the funds to permit Mr. Mallozzi to pay Ms. Shemesh legal fees in relation to the Toronto charges and other family expenses. In her affidavit Ms. Gernack swore:
I am afraid that my husband and I are not able to afford lawyers anymore. Without the assistance of the $100,000 my husband faces the real possibility of being without a lawyer for his outstanding charges in Toronto …”
[8] In the evidence and submission on this application it was indicated that part of the $100,000 is to be a down payment on a new house.
[9] Mr. Bailey, for the PPSC raised a preliminary motion to remove Ms. Shemesh as counsel on this application. He contends that as counsel for Mr. Mallozzi and, on Ms. Gernack’s testimony on the application, the person to whom Ms. Shemesh owes the primary loyalty as she is his counsel, there is a conflict of interest if Ms. Shemesh acts for Ms. Gernack. As Ms. Gernack is entirely financially dependent on Mr. Mallozzi, Ms. Shemesh as his counsel cannot be seen to be protecting Ms. Gernack’s interests. Ms. Shemesh, he contends, cannot give undivided loyalty to both clients. Given her personal interest in getting her fees, Ms. Shemesh cannot be seen to champion Ms. Gernack’s cause without regard to counsel’s personal interest in the proceedings.
[10] Mr. Bailey puts it this way in his written submissions:
A trial judge considering the issue of conflict of interest and undivided loyalty must anticipate reasonably possible future conflicts. It may well be argued at some later time that Ms. Gernack’s right to protect her property was not fully considered by Mr. Mallozzi’s counsel because Mr. Mallozzi urgently required that money to pay his counsel; the very counsel that is required to give undivided loyalty.
[11] While Ms. Gernack has obtained independent legal advice, filed an affidavit swearing that she wants Ms. Shemesh to act for her on the application and testified to the same effect when cross-examined on her affidavit, the PPSC seeks to remove Ms. Shemesh.
[12] Both counsel felt that an agreement could be reached that I infer would result in some of the funds being held either in the real estate lawyer’s trust account or paid into court and the balance, no longer being “frozen” in the lawyer’s trust account, given to Ms. Gernack. The Crown’s concern was attempting to reach an agreement with Ms. Shemesh when she is in a conflict of interest. Ms. Gernack could at a later date argue that her interest in the funds was not protected because her counsel’s interest was in getting her legal fees and not protecting Ms. Gernack’s interests.
[13] The PPSC initially argued that Mr. Mallozzi had no standing on the application as the property was in Mr. Gernack’s name and the money, if it were returned would go to Ms. Gernack. He had no interest. In her affidavit Ms. Gernack swears that the money belonged “to both my husband and me equally.” Based on legal advice, she understands that she does not have a monopoly over the $100,000 but that if she wanted to use the $100,000 for any purpose she wished that she could do so.
[14] As a result of Ms. Gernack’s affidavit and her evidence on this application, while the parties now agree that Mr. Mallozzi has an interest in the funds, it is apparent that as the funds came from the sale of the matrimonial home, Mr. Mallozzi has at least a potential interest in the funds depending on the status of his relationship with Ms. Gernack.
[15] In these circumstances, I am not persuaded Ms. Shemesh is in a conflict of interest on this application or in discussions with the PPSC regarding a settlement of the issue for the following reasons. First, it is agreed that both Mr. Mallozzi and Ms. Gernack have an interest in the money. The extent of that interest need not be determined.
[16] Second, if this application proceeds it will determine whether the PPSC had the authority to file the lien against the property when Ms. Gernack was no longer the surety. The issue is the timing of the registration of the lien. The application will not determine what happens to the money. No order will be made that Ms. Shemesh gets X, Ms. Gernack gets Y and Mr. Mallozzi gets Z.
[17] Third, the money is held in trust by Mr. D’Iorio, Ms. Gernack’s real estate lawyer. If some or all of the funds are removed from the original undertaking, he will be required to disperse the funds in accordance with his client’s instructions. His client is Ms. Gernack in relation to the sale, not Ms. Shemesh and not Mr. Mallozzi. As the home was the matrimonial home Mr. Mallozzi has a potential interest in the funds which I infer is what Mr. D’Iorio was referencing in his comments to Ms. Gernack. Mr. D’Iorio is responsible for taking that fact into consideration in the steps he takes.
[18] Fourth, once the funds are dispersed by Mr. D’Iorio they go to whomever Ms. Gernack determines. Ms. Gernack has testified that she and Mr. Mallozzi are regarded as one and the funds in fact are owned by both. In those circumstances, it will be for either Ms. Gernack alone or in consultation with Mr. Mallozzi to determine what happens to the money, not Ms. Shemesh, Mr. Mallozzi alone or the court.
[19] Fifth, even if Mr. Mallozzi has no interest in the proceeds of the house sale, on these facts I would reach the same conclusion. Ms. Gernack has received independent legal advice. She is aware of the potential conflict of interest. She is adamant that the funds are in fact jointly owned property. She understands that Ms. Shemesh’s loyalty to her is secondary to that of her other client in this application. Ms. Gernack is also adamant that some unspecified portion of the funds is to go to Ms. Shemesh for legal fees. There is nothing sinister about defence counsel seeking to be paid. Given that Ms. Gernack has received independent legal advice and maintained her position that the funds are jointly owned, to require her to retain another counsel for the purposes of discussions with Mr. Bailey regarding a resolution in relation to the funds being held by Mr. D’Iorio, would be an unwarranted additional expense. One that I have no hesitation in concluding would result in the same instructions. There is a public court record of her position.
[20] Should an agreement be reached, some of the $100,000 would be disbursed by Mr. D’Iorio to his client Ms. Gernack to do with as she wishes. Ms. Shemesh is counsel on the application and in the negotiations, not in the disbursement of whatever funds Ms. Gernack receives. That is determined on Ms. Gernack’s instructions to Mr. D’Iorio. In those circumstances, I am unable to find that Ms. Shemesh is in a disqualifying conflict of interest.
[21] The application to remove Ms. Shemesh as counsel is dismissed.
Durno J.
Released: April 7, 2015
CITATION: R. v. Mallozzi, 2015 ONSC 1991
COURT FILE NO.: 878/15
DATE: 20150407
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
HER MAJSTY THE QUEEN
Respondent
- and –
ITOLO MALLOZZI
Applicant
ENDORSEMENT
Durno J.
Released: April 7, 2015
[^1]: The document on title is titled a Writ of Execution and references a $100,000 judgment. The documents state that it includes all liens. Mr. Bailey advices that what was registered pursuant to s.1 and 2 of the Bail Act, R.S.O. 1990, Ch. B.1, was a lien. For the purpose of this preliminary ruling, nothing further is required on the documents registered on title.