Court File and Parties

CITATION: STEVENS v. VANDEPUTTE, 2016 ONSC 2366 COURT FILE NO.: CV-15-54444 DATE: 2016-04-08

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: DAVID STEVENS, Plaintiff AND: CASEY VANDEPUTTE, Defendant

BEFORE: The Honourable Mr. Justice D.A. Broad

COUNSEL: Matthew P. Maurer, for the Plaintiff Samuel Nash, for the Defendant

HEARD: April 5, 2016

ENDORSEMENT

Background

[1] This action relates to a dispute arising out of a legal practice transfer agreement entered into in September 2013 (the “practice transfer agreement”), by which the defendant, a newly-called lawyer, agreed to purchase substantially all of the legal practice of the plaintiff, a lawyer of over 30 years. The practice transfer agreement provided for the defendant to pay to the plaintiff a percentage, on a declining scale, of billings for legal work performed for the plaintiff’s former clients up to a specified maximum which the parties agreed would constitute the value of the practice. The practice transfer agreement contained certain representations and warranties on the part of the plaintiff including that all files of the plaintiff’s legal practice were complete and correct in all material respects. The plaintiff also covenanted to remain in good standing with the Law Society for the term of the agreement.

[2] In early September, 2014, the plaintiff’s former practice was subject to a spot audit initiated by the Law Society of Upper Canada (“the Law Society”) which resulted in a subsequent investigation by the Law Society into allegations of professional misconduct, which is presently ongoing. Shortly after the Law Society began its audit of the plaintiff, the defendant ceased making payments under the practice transfer agreement and on September 15, 2015, the plaintiff commenced this action seeking, among other things, payment of amounts claimed to be owing to him under the practice transfer agreement.

[3] The defendant has continued to perform work for the plaintiff’s former clients. However he has not disclosed the amount of revenue he has derived from the plaintiff’s former clients. The defendant has advanced a counterclaim seeking damages for breach of contract, and for negligent and/or fraudulent misrepresentation, for a declaration that the plaintiff has indemnified the defendant from any loss or expense which the defendant may incur as a result of the plaintiff’s default under the practice transfer agreement, and for aggravated and punitive damages.

[4] The Law Society brought a motion on December 15, 2014 seeking an interlocutory suspension of the plaintiff’s license to practice law. On March 12, 2015 the plaintiff’s license to practice law was suspended, on consent, by the Law Society.

[5] The defendant has brought a motion seeking a temporary stay of the plaintiff’s action pursuant to section 106 of the Courts of Justice Act, R.S.O. 1990, c. C-43 pending the outcome of the Law Society’s investigation of the plaintiff and its finding with respect to his good standing. Among the grounds set forth in the defendant’s Notice of Motion are (a) that the plaintiff is not in good standing with the Law Society, as required by the practice transfer agreement, and (b) the plaintiff misrepresented the value of his legal practice and its value cannot be determined until such time as the Law Society has completed its investigation of the plaintiff.

Guiding Principles

[6] Section 106 of the Courts of Justice Act provides as follows:

A court, on its own initiative or on motion by any person, whether or not a party, may stay any proceeding in the court on such terms as are considered just.

[7] It has been held that this section gives the court a broad discretion to stay proceedings, unfettered by any specific test (see Grand River Enterprises Six Nations Ltd. v. Canada (Attorney General) [2010] O.J. No. 2057 (S.C.J.) at para. 14. However, the Court of Appeal has directed, in the case of Aldo Group Inc. v. Moneris Solutions Corp. 2013 ONCA 725 (C.A.) at para. 30, that “in general, the discretion to stay proceedings should be exercised sparingly, in the clearest of cases.”

[8] In the case of Gowling Lafleur Henderson LLP v. Meredith 2011 ONSC 2686, [2011] O.J. No. 2298 (Master) Master Dash observed, at paras. 17, that the following general principles are to be applied on a motion for a stay:

(1) A court may grant a stay when just and convenient to do so in order to control its process or prevent an abuse of that process.

(2) The discretion to grant a stay is highly dependent on the facts of each particular case.

(3) The discretion must be exercised sparingly and only in special circumstances.

(4) The balance of convenience must weigh heavily in favour of a stay.

(5) The court will be reluctant to grant a stay if it will deny a party's access to the courts or substantially delay or impair his rights to have his case heard.

[9] At para. 18 Master Dash went on to state that, in appropriate cases, the court may also consider one or more of the following:

(6) The court will be more inclined to grant a stay if continuation of the action may work an injustice because it is oppressive, vexatious or an abuse of process.

(7) The court will be more inclined to grant a stay if it would not cause an injustice to the responding party.

(8) If there are two or more proceedings with common facts or issues, one action may be stayed if it would avoid a multiplicity of proceedings.

(9) A stay may be ordered where privileged documents obtained in one proceeding may be used in another proceeding if it would result in unfairness or prejudice to the party asserting the privilege.

[10] In a case where the Court is called upon to determine whether a proceeding should be stayed pending resolution of another proceeding, the principles to be considered have been stated to include the following:

(a) whether there is a substantial overlap of the issues in the two proceedings;

(b) whether the two cases share the same factual background;

(c) whether issuing a temporary stay will prevent unnecessary and costly duplication of judicial and legal resources; and

(d) whether the temporary stay will result in an injustice to the party resisting the stay.

(see Moneris Solutions Corp. v. Groupe Germain Inc. 2014 ONSC 6102 (S.C.J.) at para. 36)

Analysis

[11] The defendant advances four bases justifying a temporary stay of the plaintiff’s action as follows:

(a) in light of the plaintiff’s covenant to remain a member of the Law Society in good standing for the term of the agreement, the issue of his good standing is central to the determination of the allegations of breach of contract in the plaintiff’s action. The Law Society has exclusive jurisdiction to determine the plaintiff’s standing;

(b) a calculation of the goodwill of the plaintiff’s practice is inextricably tied to the plaintiff’s reputation. The determination by the Law Society regarding the plaintiff’s standing will directly affect the calculation of goodwill of the plaintiff’s practice which is material to the plaintiff’s action;

(c) the Law Society is in possession of certain records of the plaintiff and may make findings with respect to his billing practices which will be material to the issue of the valuation of the plaintiff’s practice and the representations made by him in that respect; and

(d) a finding by the Law Society with respect to the adequacy of the plaintiff’s record-keeping and compliance with laws and regulations will be material to the issue of whether the plaintiff breached representations made by him in the practice transfer agreement.

[12] With respect to the first basis advanced by the defendant, namely that the plaintiff’s standing with the Law Society is central to the determination of the allegations of breach of contract in the plaintiff’s action, it is clear that, by virtue of his interlocutory suspension, the plaintiff is in breach of the covenant in the practice transfer agreement to maintain his membership in the Law Society in good standing. The defendant, in his Statement of Defence, pleaded that the plaintiff breached the practice transfer agreement in a number of respects, one of which was his failure to maintain his license to practice law in good standing by virtue of the interlocutory suspension. The defendant pleaded “upon being advised that [the plaintiff] was not in good standing with the Law Society, [the defendant] ceased making payments to [the plaintiff] and ceased providing any reports to [the plaintiff].” It is evident that it is the defendant’s position that the plaintiff’s failure to maintain his membership in the Law Society in good standing relieved him of the obligation to make payments to the plaintiff or deliver reports pursuant to the practice transfer agreement. Whether or not the Law Society restores the plaintiff to good standing following its investigation is immaterial to the question of whether the defendant’s position on this issue should prevail.

[13] I do not agree that a stay is warranted with respect to the second basis advanced by the defendant, namely that the determination by the Law Society regarding the plaintiff’s standing will directly affect the calculation of goodwill of the plaintiff’s practice. The fact that the Law Society’s investigation is ongoing does not prevent the defendant from marshalling and introducing evidence in this proceeding with respect to the valuation of the plaintiff’s practice. The defendant was unable on cross examination to articulate how the outcome of the Law Society’s investigation would impact the determination of the value of the goodwill of the plaintiff’s practice. He characterized this as “speculation”. Given that a stay should only be granted in the clearest of cases, a speculative connection between the outcome of the Law Society’s investigation and an issue in the plaintiff’s action would not support the granting of a stay.

[14] Similarly, I do not agree that the third basis advanced by the defendant supports the granting of a stay. With respect to the availability of the files and records relating to the plaintiff’s practice, the Law Society has advised that the parties to this action may have access to the files and records in its possession. There is nothing in the evidence to suggest that the Law Society’s investigation includes a review of the plaintiff’s billing practices generally. The suggestion that the Law Society “may” make findings with respect to the plaintiff’s billing practices is speculative, and moreover, there is no basis to suggest that any findings that it may make in that respect would be admissible in this proceeding. The defendant is in a position to carry out his own investigation of the propriety of the plaintiff’s billing practices, unencumbered by the Law Society’s ongoing investigation.

[15] Similar observations may be made with respect to the fourth basis advanced by the defendant for a stay, namely that a finding by the Law Society regarding the adequacy of the plaintiff’s record-keeping and compliance with laws and regulations will be material to the issue of whether the plaintiff breached representations made by him in the practice transfer agreement. The Law Society does not have exclusive jurisdiction to make a determination as to whether the plaintiff maintained proper records or ran his practice in accordance with applicable laws and regulations. The defendant is in a position to lead evidence on this question and, insofar as it is material, the court may make determinations in that respect. The court will not be bound by any determinations of the Law Society in that respect. For instance, a finding by the Law Society exonerating the plaintiff would not prevent the defendant from leading evidence in this proceeding regarding inadequacies in the plaintiff’s record-keeping and non-compliance by him with laws and regulations. Moreover, it is difficult to see how the Law Society’s findings on this issue would be admissible in this proceeding in any event. The only determination over which the Law Society has exclusive jurisdiction is whether the plaintiff should be found guilty of professional misconduct, and if so, what penalty should be imposed.

[16] I am not satisfied that there is a substantial overlap of the issues in this proceeding and the investigation of the plaintiff’s practice being carried out by the Law Society, nor that the two proceedings share the same factual background in all respects. Moreover, I am not satisfied that a temporary stay will prevent unnecessary and costly duplication of judicial and legal resources, given that the findings of the Law Society will be unlikely to be found admissible in evidence in this proceeding. It will be necessary for the defendant to lead independent evidence in support of his allegation that the plaintiff breached the practice transfer agreement by the manner in which he carried on his practice and that the value of the practice was less than what he represented, thereby relieving the defendant of any obligation to make payment to the plaintiff and supporting his claim for damages in his counterclaim.

[17] Conversely, I am of the view that the granting of a temporary stay will result in an injustice to the plaintiff in that it will deny his access to the court or will substantially delay or impair his rights to have his case heard.

[18] Even if I am wrong with respect to the foregoing, and there are factors which may arguably favour the granting of a temporary stay, this is not one of the “clearest of cases” in which a stay should be granted, given the direction of the Court of Appeal that the discretion to order a stay should be used sparingly. The balance of convenience does not, in my view, weigh heavily in favour of a stay.

Disposition

[19] The defendant’s motion for a temporary stay of the plaintiff’s action is therefore dismissed.

[20] If the parties cannot agree on costs, the plaintiff may make written submissions as to costs within 10 business days of the release of this endorsement. The defendant shall have 7 business days after receipt of the plaintiff’s submissions to respond. The submissions shall not exceed 3 double-spaced typed pages, exclusive of Bills of Costs or Costs Outlines. All such written submissions are to be forwarded to me at my chambers at 85 Frederick Street, Kitchener, Ontario N2H 0A7. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves.

D.A. Broad J.

Date: April 8, 2016