COURT FILE AND PARTIES

COURT FILE NO.: CV-14-516761CP
DATE: 20150928

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

CARLEEN KUTLU, PAIGE TOWLE and REBEKAH THOMAS

Plaintiffs

– and –

LABORATORIOS LEON FARMA, S.A., CHEMO IBERICA, S.A. and APOTEX INC.

Defendants

Won J. Kim, Megan B. McPhee and Alexander Zaitzeff for the Plaintiffs

Christopher C. Watkins for Watkins Law Professional Corporation

HEARD: September 25, 2015

PERELL, J.

REASONS FOR DECISION

A. INTRODUCTION

[1] This is an interlocutory motion and cross-motion in a proposed class action (the “Kutlu Action”) under the Class Proceedings Act, 1992, S.O. 1992, c. 6. The action is against Laboratorios Leon Farma, S.A., Chemo Iberica, S.A. and Apotex Inc. The moving parties are Carleen Kutlu, Paige Towle, and Rebekah Thomas, who are the Plaintiffs and proposed Representative Plaintiffs.

[2] The motion concerns which law firm represents Mesdames Kutlu, Towle, and Thomas and the putative Class Members. I say putative Class Members because the Kutlu Action has not yet been certified as a class action, with the certification motion presently scheduled for November 16-18, 2015.

[3] Because the motion and the cross-motion are akin to a motion to have a lawyer removed from the record and because the motions involve the confidential and privileged relations between lawyer and client, I am ordering the motion records sealed save for these Reasons for Decision.

[4] The Plaintiffs supported their motion with affidavits from: Ms. Kutlu sworn on August 28, 2015; from Glenn Brandys, also sworn on August 28, 2015; and from Christine McNeil, sworn September 23, 2015. Mr. Brandys is an associate with Kim Orr Barristers (“Kim Orr”). Ms. McNeil is a Class Member. Mr. Watkins supported his cross-motion with affidavits from Ms. Zara Keshk. The Keshk affidavits were sworn on September 14, 23, and September 24, 2015. Ms. Keshk is Mr. Watkins’ law clerk, and she is his very partisan spokesperson.

[5] The Plaintiffs bring a preliminary motion to strike the affidavits of Ms. Keshk as scandalous, vexatious, argumentative, irrelevant, hearsay. I agree that Ms. Keshk’s affidavits are scandalous, and they are very partisan and very argumentative. I also agree that much of the content of the affidavits is hearsay about the truth of some facts. However, I shall not strike her affidavits for four reasons. First, some of the testimony is relevant and admissible. Second, some of Ms. Keshk’s testimony is relevant not for the truth of the contents but for the fact that the statements were said. Third, for the purposes of this motion, I am going to take Ms. Keshk’s evidence as Mr. Watkins’ direct evidence. It is obvious that Ms. Keshk is mouthing the words, thoughts, and arguments of Mr. Watkins. Fourth, in their factum, the Plaintiffs rely on Ms. Keshk’s testimony as revealing the acts and motives of Mr. Watkins, and the Plaintiffs cannot at one and the same time have Ms. Keshk’s testimony both relied on and struck out. I, am however, as noted above, sealing the record because of the confidential, private, sensitive information it contains.

[6] The Plaintiffs’ motion was precipitated by their delivery of a Notice of Change of Lawyers changing their lawyers from Kim Orr and Watkins Law P.C. (“Mr. Watkins”) to Kim Orr and Zaitzeff Law Professional Corporation (“Mr. Zaitzeff”); i.e., the Plaintiffs’ choice of lawyers was to retain, in both senses of that word, Kim Orr, but to substitute Mr. Zaitzeff for Mr. Watkins, who is now known as Watkins Law Professional Corporation, which law firm is the moving party in the cross-motion.

[7] In the motion now before the court, the Plaintiffs seek a declaration that their Notice of Change of Lawyers is of full force and effect, which part of the motion Mr. Watkins does not oppose, because he wants it on the record that the putative Class Members should consider participating in a rival class action that is being litigated in Alberta, Kohler v. Apotex Inc. and Laboratorios Leon Farma S.A. (“the Kohler Action”) or at least to know that they have the option of individual actions against the Defendants. Here, it should be noted that the Kohler Action has recently been certified by Associate Chief Justice Rooke in Alberta with a settlement approval hearing to be scheduled in the near future.

[8] Mr. Watkins opposes the balance of the Plaintiffs’ request for relief in which, among other things, the Plaintiffs seek an injunction to restrain Mr. Watkins from contacting any putative Class Members who have retained Kim Orr and Mr. Zaitzeff. The Plaintiffs also seek a mandatory injunction compelling Mr. Watkins to direct any Class Members who contact him to Kim Orr for information about the Kutlu Action and the Kohler Action.

[9] Mr. Watkins seeks an adjournment of the Plaintiffs’ motion, and he brings a cross-motion for interim relief. For the reasons that follow, I decline to adjourn the motion. In his cross-motion, Mr. Watkins seeks a declaratory order removing him as lawyer of record in the Kutlu Action, for the reasons I have already mentioned.

[10] In his cross-motion, Mr. Watkins also seeks an injunction restraining, with one exception, Kim Orr and Mr. Zaitzeff from communicating with the Class Members of the Kutlu Action that signed retainer agreements with Mr. Zaitzeff, which Class Members are claimed by Mr. Watkins as his clients. The exception to the restraining order is that communications pursuant to a court-approved script are to be permissible.

[11] In his cross-motion, Mr. Watkins also seeks to be relieved of the undertaking he gave not to speak to the Class Members pending the motion before the court, which undertaking he submits has been unfairly taken advantage of by Kim Orr. Mr. Watkins desires to be able to communicate with his alleged clients pursuant to a court-approved script.

[12] Further, in his cross-motion, Mr. Watkins requests an Order requiring Kim Orr and Mr. Zaitzeff to disclose their financial arrangements “for the purpose of determining if there are conflicts of interest or appearance of conflicts of interest.” Mr. Watkins also seeks disclosure from Kim Orr and Mr. Zaitzeff of all retainer agreements that have been executed by any Class Members. Further still, Mr. Watkins seeks a solicitor’s lien against Kim Orr. Finally, Mr. Watkins seeks a timetable for cross-examinations of Ms. Kutlu and of Jannice Cerra and Muriel Dagenais, who are the plaintiffs in another class action in which Kim Orr and Mr. Zaitzeff are involved. These cross-examinations are in aid of Mr. Watkins’ response to the Plaintiffs’ motion which he seeks to have adjourned.

B. FACTUAL AND PROCEDURAL BACKGROUND

[13] The background facts to both motions are that Mr. Christopher Watkins, who is a civil litigator with over 20 years’ experience, and Mr. Alexander (Sandy) Zaitzeff, who is an experienced civil litigator with 40 years’ of practice, shared space together in Thunder Bay, Ontario. Mr. Zaitzeff, who has a firm of his own, was counsel to Mr. Watkin’s law firm, and he would assume responsibility for Mr. Watkin’s class action files of which there have been several. Mr. Watkins says that he has supported Mr. Zaitzeff and his staff for years and is in the red for thousands of dollars in losses.

[14] In the fall of 2013, Mr. Watkins formulated the idea of a class action against Laboratorios Leon Farma, S.A., Chemo Iberica, S.A. and Apotex Inc. with respect to a negligently packaged contraceptive drug, Alysena 28. The negligence led to unexpected and unwanted pregnancies. His wife, Jasmine Catherine Watkins, was to be the Representative Plaintiff. Mr. Watkins announced the action in the media, and it attracted national attention.

[15] The class action file was assigned to Mr. Zaitzeff, who, in turn, came to an arrangement with Kim Orr, a Toronto class action firm. Mr. Zaitzeff had partnered with Kim Orr on several other class action matters. The arrangement for the Alysena 28 matter was that Kim Orr would be joint counsel in a proposed class action, and it would carry the much heavier load of lead counsel. Everybody agreed that someone other than Mrs. Watkins should be the Representative Plaintiff.

[16] After Mr. Watkins had made his announcement in the media, Ms. Kutlu, who was to become a proposed representative plaintiff, contacted Mr. Zaitzeff and met him in Toronto. To this day, she has never met Mr. Watkins. As a result of the meeting in Toronto, Ms. Kutlu retained Mr. Zaitzeff, after which she was contacted by an associate of Kim Orr who advised Ms. Kutlu that Kim Orr was co-counsel with Mr. Zaitzeff.

[17] Mesdames Kutlu, Towle, and Thomas and some 70 other women, signed retainer agreements with Kim Orr and with Mr. Zaitzeff. Mr. Zaitzeff signed the contracts as counsel for Mr. Watkins’ firm. Mr. Watkins takes the position that the clients were the clients of the firm of which Mr. Zaitzeff was counsel; i.e., Mr. Watkins regards the clients as his clients not Mr. Zaitzeff’s clients. It is unclear to me whether Mr. Watkins may have had his own retainer agreements with other putative Class Members.

[18] The proposed national Kutlu Action was commenced about a year later on November 24, 2014. The action is brought on behalf by women who were prescribed Alysena 28. The claim is against the manufacturers of the drug for negligence in manufacturing, assembling, inspecting, packaging, and distributing the drug. The alleged negligence concerns the packaging of the drug. It is alleged that the manufacturers assembled the wrong mix of active and placebo pills with the result that there were unwanted pregnancies some of which were aborted and some of which saw the birth of children with serious disabilities and some of which caused physical and mental harm to the birthmothers.

[19] Ms. Kutlu lives in Hamilton, Ontario. Her personal story is that she was prescribed the contraceptive Alysena 28 in January 2013, and she learned in April 2013 that she was pregnant. Her son, Tyson was born in December 2013 after an emergency caesarian section. He was born with a rare heart condition that requires constant monitoring.

[20] As pleaded in the Amended Statement of Claim, Ms. Towle lives in Oshawa, Ontario. Ms. Towle’s personal story is that she began using Alysena 28 in February 2012. In May 2012, she learned that she was pregnant. In June 2012, she thought she had suffered a miscarriage but was rather experiencing a potentially life-threatening ectopic pregnancy. She was treated with drugs to terminate the pregnancy, but the treatment failed and emergency surgery followed. Her reproductive system has been damaged. She requires additional surgery and her fertility has been compromised.

[21] Ms. Thomas lives in London, Ontario. In February 2013, she was a single mother with two children. Her physician prescribed Alysena 28 as a contraceptive. In May 2013, she learned that she was pregnant. She decided to terminate the pregnancy. There were adverse physical affects from the abortion, and her mental health deteriorated. She suffered from depression and in August 2014, Ms. Thomas was diagnosed with psychosis and began taking anti-psychotic drugs.

[22] Ms. McNeil lives in Oshawa, Ontario. In 2013, she was a mother with two children, one of whom was a special needs child. Ms. McNeil could not afford a third child and was using Alysena 28 as a contraceptive. In April 2013, she learned that she was pregnant. She developed diabetes during the pregnancy. The birth of the third child led to emergency surgery for both Ms. McNeil and her newborn.

[23] The claims of Mesdames Kutlu, Towle, Thomas and McNeil are representative of the claims of the group of 70 Class Members who signed retainer agreements with Kim Orr and Mr. Zaitzeff. This group of claimants have substantial claims. The Kim Orr firm says that the design of the class action is to focus on these claimants with substantial claims but to include all Canadian women who were consumers of Alysena 28 as Class Members.

[24] At the time that the Kutlu Action was commenced in Ontario, the rival national Kohler Action had already been commenced in Alberta by Merchant Law, and the Alberta action proceeded faster than the Ontario action. I understand that there may have been discussions between Kim Orr and Merchant Law to co-operate and co-ordinate the actions, but those discussions proved futile, and a certification hearing proceeded in Alberta ahead of the timetable in Ontario.

[25] Without bringing a stay motion, Kim Orr attended at the hearing in Alberta to oppose the certification of the Kohler Action. Kim Orr’s efforts to arrest the Kohler Action failed.

[26] Meanwhile, in the spring of 2015, the professional business arrangement between Mr. Watkins and Mr. Zaitzeff ended, and Mr. Zaitzeff vacated their shared premises. Mr. Watkins did not think that the parting of ways would affect his financial investment in the various class actions that had been assigned to Mr. Zaitzeff. At the outset, the parting of ways appeared to be amicable.

[27] In June 2015, Associate Chief Justice Rooke certified the Kohler Action. The opt-out deadline date was set for October 27, 2015.

[28] With the certification of the Kohler Action, Mr. Watkins began communicating with the putative Class Members. He was advising them that they had the option of not participating in the Kutlu Action by participating in the Kohler Action or they had the option of starting individual actions with him as the lawyer on the file.

[29] Around this time Mr. Watkins and Mr. Zaitzeff began to quarrel about the dissolution of their business arrangement, and on August 4, 2015, Mesdames Kutlu, Towle, and Thomas served a Notice of Change of Lawyers substituting Mr. Zaitzeff’s new firm for Mr. Watkins’ firm. What Mr. Watkins regarded as an amiable parting of the ways now quickly soured, and the relationship between the lawyers became unseemly, to put it mildly.

[30] On August 5, 2015, Mr. Watkins sent an email to Kim Orr confirming “with prejudice” his acceptance of the Notice of Change of Lawyers. Around this time, Mr. Watkins began contacting putative Class Members, some of whom had signed the Kim Orr retainer agreements, asking them whether they wished to remain clients of his firm since Mr. Zaitzeff had signed the retainer agreements as counsel on behalf of Mr. Watkins.

[31] On August 14, 2015, Mr. Watkins sent an e-mail to his clients with “positive news for those of you who have chosen to remain with your counsel of first choice at the beginning of this matter.” The positive news was that “Watkins Law has decided to join the Merchant Law Alysena Claim” which had been certified as a national class action. He advised that a settlement was imminent. He asked the clients to submit the paperwork to be entitled to participate in the Kohler action settlement..

[32] Kim Orr, which had remained more or less neutral about the dissolution of the arrangements between the Thunder Bay lawyers, now took the side of Mr. Zaitzeff. Kim Orr and Mr. Zaitzeff asked Mr. Watkins to cease and desist his communications with what they insisted were their clients, and when he refused, because he thought the clients’ interests were being sacrificed - as well as his own - for no good reason, Kim Orr sought injunctive relief at a telephone case conference arranged with me as the case management judge for the Kutlu Action.

[33] On August 24, 2015, at the telephone case conference, I told the parties that the matter was too contentious to be resolved at a telephone case conference and that they would have to bring a motion on a proper evidentiary record for directions. At the conference, Mr. Watkins voluntarily undertook not to communicate with Class Members, and I scheduled October 25, 2015 for the Plaintiffs’ motion.

[34] The parties filed their affidavit materials for the motion and the cross-motion. Mr. Watkins and Mr. Zaitzeff were now deep into fighting over the retention of files each purporting to take the high road of acting in the best interests of the clients while reviling their former associate. Speaking through the voice of Ms. Keshk, Mr. Watkins was particularly upset because he had voluntarily agreed to not communicate with Class Members and he felt that Kim Orr was taking advantage of that undertaking to freeze him out pending the motion that I had scheduled for September 25, 2015.

[35] Meanwhile a settlement agreement was signed in the Kohler Action. The settlement requires court approval and no hearing has yet been scheduled.

[36] I was provided with a copy of the settlement agreement. It contains the following compensatory provisions:

(Full settlement provisions text preserved exactly as in the source.)

[37] Mesdames Kutlu, Towle, and Thomas do not wish to participate in the Kohler Action. They wish to be represented by Mr. Zaitzeff and Kim Orr and not by Mr. Watkins. They plan to opt out of the Kohler Action. Apparently all of Kim Orr’s clients plan to opt out of the Kohler Action.

[38] If the clients of Kim Orr opt out of the Kohler Action, they would not have standing to oppose the settlement in the Kohler Action as unfair and unsatisfactory, which I understand is the view of the Kim Orr lawyers advising them.

C. DISCUSSION AND ANALYSIS

[39] For the reasons that follow, I refuse to adjourn the Plaintiffs’ motion. Instead, I dismiss the Plaintiffs’ motion, and I dismiss Mr. Watkins’ cross-motion on the following terms:

(1) The certification motion in the Kutlu Action is cancelled.

(2) The Kutlu Action shall be discontinued as a class action, the discontinuance to take effect 90 days after the putative Class Members receive a court-approved notice of the discontinuance in accordance with a court approved notice plan;

(3) The discontinuance of the Kutlu Action as a class action shall be without prejudice to the right of Mesdames Kutlu, Towle, Thomas to have their action revived as a class action in the event that the settlement in the Kohler Action is not approved by the Alberta Court and the Kohler Action continues as a contested proceeding. In the meantime, the Kutlu Action shall, however, continue as a case managed normal action;

(4) The current retainer agreements and contingency fee agreements with respect to any Ontario action against Laboratorios Leon Farma, S.A., Chemo Iberica, S.A. and Apotex Inc. are rescinded.

(5) Subject to the clients’ signing of new retainer agreements after receiving independent legal advice, Kim Orr may continue to act for the Plaintiffs in the Kutlu Action, which shall be discontinued as a proposed class action, but which may continue as a joinder of claims of the Plaintiffs and any others who sign new retainer agreements with Kim Orr.

(6) Kim Orr shall immediately prepare a notice, to be approved by the Court, to be sent to the putative Class Members of the Kutlu Action of the discontinuance of the class action, the rescission of the retainer and contingency fee agreements and of the opportunity to participate as parties in the Kutlu Action or the Kohler Action; such notice to recommend that the Class Members obtain independent legal advice or independent legal representation.

(7) Mr. Zaitzeff and Mr. Watkins are both disqualified from acting for any putative Class Member in any action - including the Kutlu Action, the Kohler Action, and any individual actions - against Laboratorios Leon Farma, S.A., Chemo Iberica, S.A. and Apotex Inc.

(8) If Mr. Zaitzeff or Mr. Watkins are contacted by any putative Class Member, they are to refer the Class Member to the court-approved notice.

(9) Without court approval, Mr. Zaitzeff and Mr. Watkins are not entitled to claim any fee, contingent or otherwise, for any services performed or disbursements incurred to date for the Plaintiffs or any Class Member with respect to the Kutlu Action against Laboratorios Leon Farma, S.A., Chemo Iberica, S.A. and Apotex Inc.

(10) These orders are made without prejudice to any claims that Mr. Watkins or Mr. Zaitzeff may have against one another.

(11) These orders are also made without prejudice to the rights of the Plaintiffs or any Class Member to retain new counsel as they may be advised.

(12) Kim Orr shall send a copy of these Reasons for Decision to Associate Chief Justice Rooke who is case managing the Kohler Action.

[40] To begin the discussion about the reasons for these twelve terms of the dismissal of the motion and the cross-motion, in my opinion, I have the jurisdiction to make these orders.

[41] The court has an inherent jurisdiction to control the conduct of its officers including the lawyers that appear before it, and s. 12 of the Class Proceedings Act, 1992 empowers the Court to make orders to ensure the fair conduct of a class proceeding. Section 12 states:

12. The court, on the motion of a party or a class member, may make any order it considers appropriate respecting the conduct of class proceedings to ensure its fair and expeditious determination, and for the purpose, may impose such terms on the parties as it considers appropriate.

[42] The court also has jurisdiction under the Solicitors Act, R.S.O. 1990, c. S.15, as amended, and the Class Proceedings Act, 1992 to regulate contingency fee agreements and the lawyer’s fees and charges with respect to actions and class actions.

[43] During the argument of the motion, a contrite and apologetic Mr. Watkins and a contrite and apologetic Mr. Zaitzeff agreed that they should be disqualified from acting for any putative Class Members. They asked permission to withdraw and both undertook not to take on any new retainers for the putative Class Members.

[44] I have spared the details, but the record establishes that the circumstances of the breakup of their business relationship and personal tragedies in their private lives led to an unseemly dispute over clients between former friends. Class Members, however, need not and should not be embroiled in the disputes between Mr. Watkins and Mr. Zaitzeff. I commend the lawyers for doing the right thing by withdrawing, but so that there is no doubt about it, I am making a formal order, as set out above (terms 7, 8, 9, and 10).

[45] To be clear, I am not disqualifying either of Mr. Watkins or Mr. Zaitzeff from later making a claim for legal fees for the legal work that they may have done for the Kutlu Action, but any such claim is premature at this juncture and is subject to court approval at some later date.

[46] There is no basis or need to disqualify Kim Orr, which stayed above the fray as long as possible while attempting to move the Kutlu Action forward or to work things out with Merchant Law, but in the circumstances of the disqualification of Mr. Zaitzeff and Mr. Watkins and in light of what is happening in Alberta, it is necessary to have a restart of the lawyer and client relationships.

[47] Accordingly, I am rescinding all the current retainer and contingency fee agreements, which ultimately would have required court approval, and ordering that subject to the clients’ signing of new retainer agreements after receiving independent legal advice, Kim Orr may continue to act for the Plaintiffs in the Kutlu Action (terms 4, 5, and 11).

[48] During the argument of the motion, Mr. Kim, on behalf of his firm, indicated that he had no objection to proceeding in this manner, and indeed the firm had foreseen the need to proceed in this fashion. I was told that even before the motion and cross-motion, Kim Orr was advising clients of the need for independent legal advice about new retainer agreements.

[49] Kim Orr also did not object to the requirement that a notice plan and a notice be prepared (term 6) to advise the putative Class Members of the current circumstances, which are acute because of the certification of the Kohler Action and the settlement approval process which is pending. Kim Orr also did not object to the requirement that it send a copy of these Reasons for Decision to Associate Chief Justice Rooke (term 12).

[50] Kim Orr did object to the cancellation of the certification motion and to the discontinuance of the Kutlu Action as a class proceeding subject to a possible revival depending on the outcome of the settlement approval process in Alberta (terms 1, 2, and 3). Kim Orr asked that the certification motion, which was more or less ready to proceed, go forward.

[51] Despite Kim Orr’s objection, I am not changing my order which in my opinion is in the best interests of the 70 clients who have retainers with Kim Orr and also in the best interests of the putative Class Members of the proposed national class action in Ontario.

[52] There is now a certified national class action in Alberta with a settlement hearing pending to provide all those who do not opt out of the Kohler Action a route to access to justice, which is the primary purpose of class proceedings legislation. At this time, in my opinion, what is in the best interests of the members of a certified national class is not a rival uncertified class action in Ontario but the choice of opting into a joinder of claims in an existing action that has been designed to focus on claimants with substantial claims.

[53] There are constitutional obstacles to a rational system for national class actions, but if a rational system could be designed, then access to justice, the main goal of class action, and behaviour modification and judicial economy would be best achieved by one class action with a right to opt out for those with significant claims.

[54] The current circumstances justify discontinuing the rival class action in Ontario and continuing it as a joinder of actions for those from around the country with significant claims. That would yield the most judicial economy and also be fairer to the defendants who should not be confronted with two class actions; one certified and settling and the other uncertified.

[55] Class actions are not and need not be the only procedure for claims involving a group of claimants. The putative Class Members of the Kutlu Action, simply need to know – and to know quickly – what options are available to them.

[56] I appreciate that Class Counsel in Ontario might want the extra mass of large class size, but wants are different from needs, and there is no reason to think that the assembly of significant joined claims in Ontario would be insufficient to make the action economically viable in Ontario, and there is no reason to think that the Kohler Action cannot provide access to justice under the case management of Associate Chief Justice Rooke who will conduct a fairness hearing. If, however, he disapproves the settlement, then the circumstances will have changed again, and counsel for the group can reactivate its request that the action be certified as a class proceeding.

[57] Order accordingly. This is obviously not a case for costs.

Perell, J.

Released: September 28, 2015

COURT FILE NO.: CV-14-516761CP
DATE: 20150928

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

CARLEEN KUTLU, PAIGE TOWLE and REBEKAH THOMAS

Plaintiffs

– and –

LABORATORIOS LEON FARMA, S.A., CHEMO IBERICA, S.A. and APOTEX INC.

Defendants

REASONS FOR DECISION

PERELL J.

Released: September 28, 2015