SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-14-517953
DATE: 20151028

RE: Inventory on Credit Inc., Plaintiff

AND:

1901243 Ontario Inc. and Patrick Timony, Defendants

BEFORE: Carole J. Brown, J.

COUNSEL:
David Levangie, for the Plaintiff

William Leslie, for the Defendants

HEARD: September 15, 2015

AMENDED ENDORSEMENT

[1] The defendants bring this motion for an order removing plaintiff’s counsel, Justin Jakubiak, and his law firm, Fogler Rubinoff ("plaintiff's counsel"), as solicitors of record for the plaintiff, Inventory on Credit, on the ground that they acted for the company, 1552558 Ontario Inc. and its sole shareholder and director, Micheline Cooper, at a time when Mr. Timony held a power of attorney for Ms. Cooper and, therefore, are in a conflict of interest with the defendants.

[2] The evidence indicates that the defendant, Patrick Timony is an officer and director of the corporate defendant, 1901243 Ontario Inc., and that commencing in December 2013, he lent substantial amounts of money to 1552558 Ontario Inc. ("155") and to Craig Terry Investments, both of which were controlled by Micheline Cooper, who was the principal of the two car dealerships. The plaintiff, also a creditor of Micheline Cooper, lent money to her under a floor plan financing agreement, upon which she defaulted in February of 2014. In February of 2014, Mr. Timony agreed to guarantee a portion of her debt by personal guarantee.

[3] In July of 2014, the dealerships and Ms. Cooper were served with immediate suspension orders issued by the Ontario Motor Vehicle Industry Council ("OMVIC"), which licenses and regulates dealerships in Ontario. The effect of the orders was to prevent the dealerships or Ms. Cooper from selling any vehicles.

[4] Mr. Timony, one of whose corporations was a creditor of the dealerships, learned about the orders as he was on site at the dealerships on a regular basis to monitor his investments. Rick Wilson, employee of the plaintiff, Inventory on Credit, another creditor of the dealerships, also learned about the orders and gave Mr. Timony's lawyer, Barry Poulsen, Justin Jakubiak's coordinates and suggested that Mr. Jakubiak may be able to assist with the suspensions given his expertise in the area.

[5] The evidence indicates that a significant portion of Mr. Jakubiak's practice focuses on automotive and dealership law. He regularly assists dealerships and sales persons with various matters relating to the operation of car dealerships and the sale of motor vehicles in Ontario. In particular, he assists clients in their interactions with OMVIC and represents clients in response to proposals received from the Registrar, Motor Vehicle Dealers Act, to revoke or refuse registration as either a salesperson or a motor vehicle dealer.

[6] Based on the affidavit evidence of Mr. Timony, he did not believe that he needed Mr. Jakubiak, as his corporation was simply a creditor of the dealerships, but rather passed the information on to Ms. Cooper and the dealerships. Mr. Timony called Mr. Jakubiak on July 30, 2014 on behalf of Ms. Cooper and the dealerships regarding the OMVIC suspension and to determine if Mr. Jakubiak would assist Ms. Cooper.

[7] On August 1, 2014, Mr. Jakubiak met with Ms. Cooper and her husband, and was retained to appeal the OMVIC orders.

[8] On September 23, 2014, the power of attorney for property issued by Micheline Cooper in favour of Mr. Timony on March 24, 2014 was revoked. It was the evidence of Mr. Timony on his supplementary affidavit that he never used the powers conferred under the power of attorney from the time it was issued to the time it was revoked.

The Positions of the Parties

The Moving Party Defendants' Position

[9] The defendants take the position that the plaintiff had lent money to 1552558 Ontario Inc. pursuant to an automotive floor plan loan upon which 155 subsequently defaulted. It is the defendant's position that Mr. Timony, who had previously lent substantial amounts of money to the defendants from December of 2013, subsequently guaranteed a portion of the plaintiff's loan as consideration for a forbearance agreement so that the plaintiff would not exercise its remedies against 155 to which he had lent money.

[10] In 2014, the Ontario Motor Vehicle Industry Council ("OMVIC"), which licenses and regulates dealerships in Ontario, served a temporary suspension order on Ms. Cooper's dealership licenses. Ms. Cooper retained Justin Jakubiak, who had expertise in the area of OMVIC issues. In that context, Mr. Timony, who was on site at 155 on a regular basis, due to his substantial lending of money to that business, spoke with Mr. Jakubiak on a number of occasions.

[11] Mr. Timony takes the position that he had a number of telephone conversations, exchanged e-mail correspondence and believes that he was in a solicitor/client-like relationship with Mr. Jakubiak and that he received legal advice regarding his obligations under the personal guarantee from Mr. Jakubiak. He further believes that Ms. Cooper, in the context of the OMVIC suspension, would have given Mr. Jakubiak financial information about the defendants, such that he was in possession of confidential information about the defendants.

[12] The defendants take the position that the OMVIC retainer is inextricably bound to the issues in the current litigation because plaintiff’s counsel, Mr. Jakubiak: (i) sought and received confidential information from Mr. Timony; (ii) gave Mr. Timony advice about preference of creditors and about not paying the plaintiff on behalf of Micheline Cooper and 155 on the loan in favour of the plaintiff in the current litigation, which the defendants argue is the very issue in the current litigation; and (iii) Mr. Timony believed plaintiff's counsel was giving him legal advice when he told him to stop payment on two cheques he had written to the plaintiff on behalf of Micheline Cooper and 155, clients of Mr. Jakubiak.

[13] Mr. Timony was cross-examined on his affidavit in support of this motion on August 25, 2015. In his cross-examinations, Mr. Timony made the following admissions, as set forth in the defendants' factum at paragraph 27:

1. he is a successful businessman with a degree of sophistication;

2. he has used lawyers in the past on real estate transactions, for business meetings and for the sale of the business;

3. he felt comfortable advancing $150,000 without legal representation;

4. he has retained a lawyer, Barry Paulson, who attended any meetings Mr. Timony had with Rick Wilson, the plaintiff's representative.

5. Mr. Paulson was retained to assist in obtaining further security for advancements made to Ms. Cooper or the dealerships, and he prepared the necessary documentation to transfer land from Ms. Cooper/the dealership to Mr. Timony;

6. he was advised by Mr. Paulson that he was acting for Mr. Timony, gave Mr. Paulson instructions, was invoiced by Mr. Paulson for his services, and expects it to be billed periodically as the retainer is ongoing;

7. he understood that Ms. Cooper signed a retainer agreement with Mr. Jakubiak, understood that she had provided him with a financial retainer,

8. he understood that steps were required to retain Mr. Jakubiak, had never signed a retainer agreement with Mr. Jakubiak never provided a financial retainer, never received an invoice from Mr. Jakubiak;

9. he did not retain Mr. Jakubiak to act for him and understood that Mr. Jakubiak was not acting for him when he sent the September 12, 2014 e-mail, referenced at paragraph 29 below;

[14] Mr. Paulson was retained to assist in obtaining further security for advances made to Ms. Cooper or the dealerships and he prepared the necessary documentation to transfer land from Ms. Cooper/the dealership to Mr. Timony.

The Position of the Responding Party Plaintiff

[15] It is the position of the responding party that neither of the defendants have ever: (i.) been clients of Mr. Jakubiak or Fogler Rubinoff; (ii) provided Mr. Jakubiak or Fogler Rubinoff with any confidential information; or (iii) received any legal advice from Mr. Jakubiak or Fogler Rubinoff.

[16] It was the evidence of Mr. Jakubiak that he never met Mr. Timony, although he spoke to him on the telephone and exchanged a few e-mails. He states, in his affidavit, that he "had no substantial contact with Mr. Timony" that he recalls. It was his evidence that in those communications, he did not learn or receive any financial information about the defendants, that he was never provided by Mr. Timony with any information or documentation about Mr. Timony or the defendant company, about the defendant company's assets, liabilities, business ventures, contracts, receivables, bank information or any other information which could provide an advantage in representing the plaintiff. It is Mr. Jakubiak's position that he had no knowledge of Mr. Timony's personal or business affairs, although he believed him to be "a successful businessman" because he understood from Ms. Cooper that Mr. Timony had assisted her and her car dealership by providing business advice and financial support. He was not provided with the details thereof and was not involved in the organization of the business relationship between Ms. Cooper and Mr. Timony . He was unaware of the personal guarantee. He only spoke with Mr. Timony, who he understood was speaking to him on behalf of and for the benefit of Ms. Cooper.

[17] Mr. Jakubiak understood from Mr. Timony that he believed Ms. Cooper was indebted to him, and requested details of all amounts which he believed were owing to him by Ms. Cooper. The evidence indicates that Mr. Timony never provided this information to Mr. Timony.

[18] Mr. Jakubiak set forth, in detail, the four telephone conversations and five e-mail exchanges he had with Mr. Timony at paragraphs 10 through 28 of his affidavit dated July 23, 2015, and, attached the relevant docket entries concerning the said communications. He stated that "at all times during my communications with Mr. Timony, both in writing and orally, it was clear that I was communicating with Mr. Timony on behalf of Mrs. Cooper. I did not provide Mr. Timony with legal advice and I did not learn any information from Mr. Timony that would provide me with an unfair advantage in connection with this matter."

Conflict of Interest/Breach of Fiduciary Duty or Loyalty

The Law

[19] Where it is sought to disqualify counsel of record on the ground of conflict of interest, the court is concerned with three competing values:

1. that the high standards of the legal profession and the integrity of the justice system should be maintained;

2. that the litigant should not be deprived of the choice of counsel without good cause; and

3. that reasonable mobility among the legal profession is desirable.

[20] 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 inferred that confidential information was imparted: MacDonald Estate v Martin, 1990 32 (SCC), [1990] 3 SCR 1235 ("MacDonald Estate").

[21] 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 is shown by the client that there existed a previous relationship which is sufficiently related to the retainer, which 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.

[22] A lawyer who has relevant confidential information cannot act against his client or former client. In such a case the disqualification is automatic.

[23] 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.

[24] Counsel for the defendant also seeks to rely on the Rules of Professional Conduct, Rule 3.4-10. I note that these rules are more rigid than the common law conflict of interest rules. Such rules are not binding on the courts, although they are important statements of public policy.

[25] Rule 3.4-10 provides as follows:

Acting Against Former Clients

3.4-10 Unless the former client consents, a lawyer shall not act against a former client in

a) the same matter,

b) any related matter, or

c) save as provided by rule 3.4-11, any other matter, if the lawyer has relevant confidential information arising from the representation of the former client that may prejudice that client.

Commentary

[1] Unlike rules 3.4-1 through 3.4-9, which deal with current client conflicts, rules 3.4-10 and 3.4-11 address conflicts with the lawyer acts against a former client. Rule 3.4-10 guard against misuse of confidential information from a previous retainer and insurers that a lawyer does not attack the legal work done during the previous retainer, or undermine the client's position on the matter that was central to a previous retainer. It is not improper for a lawyer to act against a former client in a fresh and independent matter wholly unrelated to any work the lawyer his previously done for the client if previously obtained confidential information is irrelevant to that matter.

[26] The caselaw clearly indicates that where a lawyer switches allegiances in litigation and represents a client adverse in interest to their former client, in matters sufficiently related or on the same matter, the lawyer is in breach of an ongoing duty of loyalty to the client: see R. v Neil, 2002 SCC 70, [2002] 3 S.C.R. 631; Brockville Carriers Flatbed GP Inc. v Blackjack Transport Limited, 2008 NSCA 22, [2008] N.S.J. No. 94 (C.A.) per Cromwell J.A. (as he then was); Consulate Ventures Inc. v Amico Contracting & Engineering (1992) Inc., 2010 ONCA 788, [2010] O. J. No. 4996 (C. A.); Close v Linder, 2010 ONSC 7215, [2010] O. J. No. 5844.

[27] However, there is no "blanket prohibition" preventing a lawyer from acting against a former client: Johnson v Rudolph, 2013 NSSC 210, [2013] N.S.J. No. 395, paras. 47, 54. The extent of any continuing fiduciary duty of loyalty to a client depends on the facts of each case. One of the factors considered by the courts is the use of confidential information received from the former client. Where confidential information is not at risk, the question as to whether a lawyer can act against a former client is linked to whether the new retainer involves the lawyer taking an adversarial position against the former client with respect to the legal work which the lawyer performed for the former client or a matter central to the earlier retainer: Greater Vancouver (Regional District) v Melville, 2007 BCCA 410, [2007] B.C.J. No. 1750 (C. A.). Johnson v Rudolph, supra at para. 55; MacDonald Estate v Martin, 1990 32 (SCC), [1990] 3 S.C.R. 1235, para. 45.

Analysis

[28] Based on all of the evidence, as well as the admissions set forth above in paragraph 13, I am of the view that there was no solicitor-client relationship between Mr. Timony and Mr. Jakubiak. Nor had Mr. Jakubiak ever acted for or been retained to act for the defendants. There was no evidence adduced to indicate that Mr. Timony was a former client of Mr. Jakubiak.

[29] Mr. Jakubiak was retained to represent Ms. Cooper's company 155. The client was the Corporation. He was not retained to represent either defendant. The evidence before this Court indicates that Mr. Jakubiak was given information with respect to the finances of 155, that Mr. Timony wrote two cheques to the plaintiff on behalf of 155 and Ms. Cooper. Subsequently, he was advised in an e-mail from Mr. Jakubiak not to pay any more creditors on behalf of 155 or Ms. Cooper.

[30] As regards the legal advice which Mr. Timony believes he received from Mr. Jakubiak, the e-mail in question states as follows:

"In the meantime, and further to our conversation yesterday, can you kindly provide me with the balances of each bank account, together with details of money which may have come in over the past several months, and details of any creditors you may have paid. As mentioned, I have serious concerns about any creditors being paid until we understand the totality of the monies owed, versus the receivables. I don't want there to be any accusations that some creditors have been preferred over others".

[31] Mr. Timony, in his affidavit in support of the motion, states that he believed, when he was being told to stop making payments on behalf of Ms. Cooper to the plaintiff or any creditors, that he was being given legal advice regarding his obligations under the personal guarantee. However, there is no mention in that e-mail of a personal guarantee and no indication of any legal advice being given to him personally.

[32] Also in his supplementary affidavit, Mr. Timony appends, as Exhibit B, correspondence from Mr. Jakubiak. As regards that letter, he states in his affidavit that: "Mr. Jakubiak's letter of September 25, 2014 is similar to the exhibits attached to my previous affidavit wherein I believe that Mr. Jakubiak was giving me legal advice which he gave to me between March 24, 2014 and September 23, 2014. That letter from Mr. Jakubiak states as follows:

1. Firstly, I understand that you have been delivered a revocation of the Powers of Attorney that were previously in place. Kindly confirm receipt.

2. I further understand that you have mail, including cheques from Carfinco, belonging to both Drivetime and Craig Terry in your possession. It is imperative that same be provided to Micheline forthwith. Please have everything available for pick-up tomorrow at 10 AM. Micheline has authorized Bridget Turner to retrieve everything for her tomorrow morning.

3. I trust there will be no issue with this; however, if I am wrong, please advise me immediately.

[33] I am of the view that there is nothing in the preceeding correspondence which could be said to constitute legal advice. Indeed, I have reviewed all of the correspondence in evidence before this Court from Mr. Jakubiak to Mr. Timony. In my view, there is nothing which could be said to constitute legal advice from Mr. Jakubiak to Mr. Timony.

[34] It appears from the context of the e-mails that the financial information being requested of Mr. Timony was pursuant to any powers he may have exercised under the power of attorney. In his supplementary affidavit dated July 13, 2015, as regards the exercise of the powers of attorney, Mr. Timony states "I took no steps nor was involved in any events when where [sic] I exercised my authority as Micheline Cooper's attorney.

[35] There is no evidence to indicate that any financial information regarding either of the defendants was ever disclosed to Mr. Jakubiak, nor that any other confidential information as regards the defendants was never communicated to Mr. Jakubiak. While Mr. Timony states that he believes that information would have been communicated by Ms. Cooper there is no evidence to support this "belief" on his part.

[36] While it appears that financial information regarding 155 was provided to Mr. Jakubiak in the context of the OMVIC suspension of Ms. Cooper's dealership licenses, this information has nothing to do with the defendants. There is no evidence before this Court to indicate any transfer of confidential information to Mr. Jakubiak regarding the defendants.

[37] I do not find there to be a close relationship between the current litigation between Inventory on Credit and the defendants and the prior litigation, namely the suspension of OMVIC dealership licenses as regards Ms. Cooper's companies. Indeed, the issues in the current litigation involve monies alleged to be owing to the plaintiff under a personal guarantee executed by Mr. Timony in favour of the plaintiff. The issue to be determined is the amount, if any, owing under the personal guarantee.

Conclusion

[38] There is no previous relationship between Mr. Jakubiak, Fogler Rubinoff and the defendants, and no relationship which is sufficiently related to the retainer. There is no evidence to indicate that Mr. Jakubiak was ever retained by, ever represented or ever gave legal advice to either of the defendants. There is no evidence to establish that any confidential information was in the possession of Mr. Jakubiak or his firm, and no evidence to justify inferring such. As such, there is no basis on the facts or at law to infer that any confidential information as regards the defendants was imported to Mr. Jakubiak.

[39] Mr. Jakubiak has not switched allegiances in this litigation as he never acted for the defendants in previous litigation.

[40] I find no reason on the evidence before me or at law to remove Mr. Jakubiak and Fogler Rubinoff in the circumstances of this case. No conflict of interest has been established.

[41] This motion is dismissed.

Costs

[42] The parties have provided their bills of costs. The plaintiff was successful in this motion and, therefore, entitled to its costs. I award costs to the plaintiff in the amount of $13,120.96, comprised of fees of $11,467.50 plus HST and disbursements.

Carole J. Brown, J.

Date: October 28, 2015