Court File and Parties

Court File No.: CV-14-500867 Date: 2016-06-27 Superior Court of Justice - Ontario

Re: MORSE SHANNON LLP, Applicant And: FANCY BARRISTERS P.C., HASSAN A. FANCY, NATHANIEL HUGHES, by his Litigation Guardian ADAM HUGHES, ADAM HUGHES, personally, DAWN HUGHES, PETERBOROUGH REGIONAL HEALTH CENTRE, DR. MICHAEL BOYER, DR. RICHARD WHITE and DR. IAIN JAMIESON, Respondents

Court File No.: CV-15-523813 Superior Court of Justice - Ontario

Re: MORSE SHANNON LLP, Applicant And: FANCY BARRISTERS P.C., HASSAN A. FANCY, IBRAHIM NASIR, by his Litigation Guardian TAHIR NASIR, and TAHIR NASIR, personally, and AGGIE KOCHMANSKI, Respondents

Before: Madam Justice Darla A. Wilson

Counsel: Robert Plate, for the Applicant Stephen Schwartz, for the Respondents

Heard: May 31, 2016

Endorsement

[1] These are applications brought by the law firm Morse Shannon LLP [“MS”] for a declaration that it is entitled to a charging order or a lien against any amounts recovered by the Plaintiffs in two actions commenced in the Superior Court of Justice: Hughes v. Peterborough Regional Health Centre et al, court file CV-10-00399-675-0000 [“the Hughes action”], a medical negligence claim; and Nasir v. Kochmanski et al, court file CV-08-0512-00 [“the Nasir action”], a motor vehicle claim in which an infant sustained catastrophic injuries.

[2] Hassan Fancy [“Fancy”] is a solicitor practising in the Toronto area, with his own firm, Fancy Barristers P.C. No information is provided in the materials concerning his year of call, the nature of his practice or any specialty he possesses. In these reasons, I will refer to these Respondents as Fancy or the Fancy Respondents since the firm is a sole proprietorship.

[3] Jerome Morse [“Morse”] is a lawyer called to the Bar in 1981, who is a certified specialist in civil litigation and possesses expertise in the area of complex personal injury and medical negligence cases. He is a partner of the Applicant, MS.

Background

[4] It is not disputed that Fancy was retained by the Plaintiffs in the Hughes and Nasir actions pursuant to contingency fee agreements [“CFA”] which entitle him to 25% of any settlement funds plus partial indemnity costs. Such an arrangement is, of course, subject to court approval pursuant to Rule 7 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[5] Pursuant to an agency agreement dated November 3, 2009, Fancy retained MS and more particularly, Morse, to assist in the management and prosecution of the Hughes claim. Similarly, Fancy retained Morse and his firm pursuant to an agency agreement dated July 17, 2012 in the Nasir matter. The Plaintiffs never retained MS; Morse’s involvement was through the agency agreement with Fancy.

[6] The agency agreements provided that MS and Fancy would split the fees in the two actions after the disbursements were paid. In the Nasir action, the agreement provided that Fancy would be paid for his work in progress [“WIP”] and disbursements incurred up to the time of the agreement, since discoveries were complete, and the fees would be divided thereafter. Disbursements to both MS and Fancy were to be paid to both firms before fees were taken.

[7] In the Hughes action, it was agreed that both Fancy and Morse would both be paid for their WIP up to the time of the agreement and that future disbursements and work in progress for each would be paid before fees were taken.

[8] The agency agreements provided that Fancy was not liable to MS for fees and disbursements, although the agreements contained an undertaking to “protect the entitlement of both firms to fees including premium and disbursements from the retainer funds by withholding settlement or judgment proceeds from the clients until both firms are paid or subject to order of the court.”

[9] The agency agreement in Hughes was signed two and a half years after the Plaintiffs signed the CFA with Fancy. The agency agreement in Nasir was signed about six years after the CFA was executed with the clients.

[10] In these applications, MS seeks a charging order in the Hughes action to cover work undertaken in the sum of $101,747.97 and disbursements incurred of $68,029.16. In the Nasir action, a charging order is sought for work done in the sum of $46,631.15 for the tort action, $3,447.63 for the accident benefits matter and disbursements of $18,230.26 and $82.21 respectively.

[11] The Hughes agreement was terminated by Fancy on March 17, 2014 and the Nasir agreement was terminated by Fancy on February 4, 2015. The Respondents allege the agreements were terminated as a result of a breakdown of confidence and trust with respect to Morse and MS.

[12] The Nasir action is set to proceed to a pre-trial on July 20, 2016. The Hughes action is on the trial list in Peterborough although counsel wrote to the trial coordinator in 2015 advising it was not ready to proceed to trial given the infant Plaintiff’s age.

Positions of the Parties

Applicant

[13] The Applicant asserts that MS and Morse were retained by Fancy to assist in prosecuting these two complex personal injury files involving minor plaintiffs because of Morse’s expertise in the area. The Hughes matter arises from care and treatment provided to an infant shortly after birth and the Nasir action involves an infant who suffered neurological injuries arising from a motor vehicle accident.

[14] Fancy was retained pursuant to CFAs, which is a standard practice for personal injury actions. Such agreements entitle the lawyer to a premium fee which is based on a percentage of the proceeds recovered from the lawsuit, over and above the docketed time (WIP), after payment of disbursements. Morse’s involvement came at the request of Fancy which was required because of the complex nature of the claims. It was agreed that MS and Fancy would split the fees equally after repayment of WIP and disbursements.

[15] In the Hughes medical negligence case, Morse prepared for and conducted the examinations for discovery of the defendant doctors and did most of the work retaining various experts to prepare reports, and MS paid for these expert reports. Following the discoveries, Morse and other members of MS spent time answering undertakings and pursuing various productions. As a result, MS has WIP of $101,747.97 and disbursements which have been paid of $68,029.16.

[16] In the Nasir matter, Morse prepared for and argued a motion on a defence medical, undertakings and refusals, reviewed medical reports in both the tort and accident benefits actions and consulted with experts. The WIP incurred totals $50,078.78 and the disbursements incurred are $18,312.47. The dockets and disbursements print-outs from the Applicant have been produced for both matters.

[17] The Applicant alleges that Fancy wrongfully terminated the agency agreements, following which MS delivered its accounts on the two files. These accounts have not been paid, nor has Fancy provided an undertaking to pay the accounts out of any settlement proceeds recovered. According to the affidavit evidence of Morse, Fancy has been experiencing financial difficulties and there is no certainty the accounts will be paid. Counsel for the Applicant submits that Fancy has failed to provide any evidence of his WIP or disbursements incurred and essentially, MS is funding the litigation for Fancy without any certainty of payment.

The Respondents

[18] Mr. Schwartz argues that the proper time for the adjudication of the accounts of MS is at the motion for approval of any settlement for the minor Plaintiffs pursuant to Rule 7. While the Respondents do not deny that MS is entitled to be paid something for the work done on the two files, they argue the charging order ought not to be issued. Counsel made reference to the reasons behind the termination of the agency agreements and this point is elaborated upon at great length in the Fancy affidavits.

[19] The Respondents submit that MS is not entitled to a charging order in the absence of a retainer between MS and the Plaintiffs in the two actions. Counsel argues that the Applicant has failed to meet the test set out in Thomas Gold Pettinghill LLP v. Ani-Wall Concrete Forming Inc., 2012 ONSC 2182. To begin with, counsel argues that neither Hughes nor Nasir were ever clients of Morse or his law firm. The agency agreement makes it clear that neither Fancy nor his law firm is liable for payment of fees charged by MS. Mr. Schwartz argues that the work done by Morse was not “instrumental” to either action. In fact, Morse was not involved in the Nasir action until six years after Fancy had been retained and by that point, the discoveries were completed. Similarly, he submits that Morse’s role in the Hughes action was limited. There is no evidence that MS will be unable to recover its fees and disbursements and if charging orders are granted, it is unfair to the Respondents because MS will “obtain preferred creditor status over the interested stakeholders.” There is no evidence that Fancy will not pay the proper account of MS.

Analysis

[20] I have been case managing these actions since I was appointed as the case management judge in December 2015. Very little has been accomplished on a consent basis; in fact, the Respondents refused to agree that the actions required case management and suggested a motion be brought for that determination. I have made three orders related to these applications and the timing of the steps leading up to the hearing.

[21] While it is clear that the relationship between Morse and Fancy has irretrievably broken down, there are certain undisputed facts concerning the involvement of Morse and MS on these two personal injury actions: Morse was retained not by the Plaintiffs but by Fancy because of his skill and expertise in handling such matters; he spent time and incurred fees and disbursements as a result of the agency agreement signed between the parties; the agreement has been terminated; Morse and MS have not been paid; and Fancy has not undertaken to pay the account as agreed upon or assessed out of any settlement or judgment.

[22] It is clear the agreements were terminated; whether it was a proper termination is not necessary for me to decide on these applications. Notwithstanding this, in his affidavits filed in response, Fancy expounds on the reasons that he “lost trust” in Morse due to his “disturbing conduct” and had to end the agreements. These are applications for charging orders; such comments are irrelevant to the issues I am tasked to determine.

A Charging Order

[23] A charging order emanates from s. 34 of the Solicitors Act, R.S.O. 1990, c. S.15, which states:

Where a solicitor has been employed to prosecute or defend a proceeding in the Superior Court of Justice, the court may, on motion, declare the solicitor to be entitled to a charge on the property recovered or preserved through the instrumentality of the solicitor for the solicitor’s fees, costs, charges and disbursements in the proceeding.

[24] Justice Perell commented on the right to a charging order in Thomas Gold Pettinghill. He noted, at paras. 84 & 88-89:

A charging order is a statutorily-based proprietary right of a lawyer to claim property owned by a client or former client when the lawyer’s acts were instrumental in recovering the property.

The charging order or charging lien is for the lawyer’s fees, costs and disbursements in the proceeding. To obtain a charging order or charging lien, a lawyer must demonstrate that: (a) the fund, or property, is in existence at the time the order is granted; (b) the property was recovered or preserved through the instrumentality of the lawyer; and (c) there must be some evidence that the client cannot or will not pay the lawyer’s fees.

[I]n addition to the statutory charging order under the Solicitors Act, common law courts and courts of equity have an inherent jurisdiction to charge assets recovered or preserved through the instrumentality of a lawyer for a client. [Citations omitted].

[25] Counsel for the Respondents submits that because neither Morse nor MS were retained by the Plaintiffs, there is no entitlement to a charging order. I do not accept this submission. In my view, Morse was “employed” to prosecute or, at least, to assist Fancy with the prosecution of these two personal injury claims. The evidence is clear that as a result of the agreement between Morse and Fancy, Morse spent time and incurred significant disbursements, mostly for expert reports and medical records in the Hughes action, in furtherance of his “employment.”

[26] Justice Pardu (as she then was) dealt with the issue of whether there must actually be a settlement offer for an order to be made for a charging order in Pino v. Van Roon. She stated, at paras. 11-13:

I see no reason why the charging order or lien should not extend to any recovery resulting from preservation of the chose in action. The client cannot be prejudiced by paying an amount properly due to the solicitor from a fund created as a result, in part, of the solicitor’s efforts…. If there is no recovery, the granting of the charging order will have caused no prejudice to anyone…. [T]he granting of such an order now will afford the solicitor no greater or lesser security than such an order granted upon settlement, but before payment or upon Judgement being pronounced in favour of the former client.

The solicitor played a substantial role in the preservation of the client’s rights. No policy reasons have been invoked which would persuade a court to refuse a charging order…. As indicated by Henry J. in Tots Y Teens Sault Ste. Marie Ltd., supra,

It is well established judicially that the solicitor has a prima facie right to his lien, as a particular charge upon the fruits of his endeavours, which I refer to as “the fund” and that he ought not to be deprived of this remedy by way of charging order in the absence of exceptional circumstances.

The wording of section 34(1) of the Solicitors Act permits this interpretation, and since this interpretation avoids multiplicity of proceedings, and facilitates payment of amounts properly due with no prejudice to any person…

[27] I agree with the approach set out by the court in Pino. The Respondents’ materials are silent on the issue of whether or not settlement offers have been received in the two actions or whether they are likely to be forthcoming. There is a pre-trial in the Nasir action in July 2016. Any monies that are paid to the Plaintiffs in the two actions either by settlement or judgment are a chose in action. I am satisfied the first element of the Thomas Gold Pettinghill test has been met.

[28] While Fancy attempts to minimize Morse’s contribution to these files, I do not accept this submission and in any event, that argument is more properly made on the issue of quantum of fees as opposed to entitlement. The dockets and disbursement printouts of MS for both files have been produced; those of Fancy have not, for reasons which are not explained. Charts were included in the material filed by Fancy setting out the work that he did on the files prior to the involvement of Morse, but without supporting documentation or any time dockets.

[29] The affidavits filed by Fancy contain contradictory statements and give rise to more questions than they provide answers for. For example, Fancy confirms that he retained Morse as an agent but does not state the reason for the retainer. While he concedes Morse’s expertise in medical malpractice litigation, presumably the reason for the retainer, he goes on in his affidavits to broadly describe the work that he did. For example, in the chart he prepared and attached to his further affidavit sworn February 19, 2016, he notes that he did the discovery of the hospital representative and “obtained admissions critical to the case. Attended and substantively assisted in the remaining discoveries.” He does not address the fact that it was Morse who did four days of discovery of different physicians, or which experts Morse retained on what issues, or the fact that it was MS who paid for the majority of the expert reports on the file.

[30] In the Hughes action, I find on the evidence that it was Morse and not Fancy who undertook the serious, important work on the file. The Hughes action is a compromised baby claim against the physicians and hospital arising from the care and treatment provided to the infant when he was three weeks old. According to the mediation memo contained in the Fancy affidavit, both liability and damages are being contested by the Defendants.

[31] Conducting the discoveries of the Defendant physicians was a critical step in the lawsuit, and the dockets produced by Morse confirm the work undertaken and the time spent. Similarly, it was Morse who contacted potential experts to provide opinions. Without sound expert reports on the issues of standard of care and causation, the Plaintiffs cannot possibly succeed in the action, so this, too, was an exceedingly important step in the litigation. With his expertise in the area of medical negligence litigation, Morse was able to retain and secure reports from experts who were prepared to offer opinions critical of the Defendants.

[32] Although Fancy deposes that Morse had no contact with the Plaintiffs, this is inaccurate. The dockets included in the Morse affidavit demonstrate meetings and conversations with the Plaintiffs. There was ongoing, continuous communication post-discovery between Morse, his clerk Ms. Powell and Fancy. It was Morse’s office who drafted the motion to move the trial to Peterborough and who drafted the mediation memorandum in early 2014.

[33] On the Nasir matter, I accept that Morse was involved at a later stage of the proceedings than he was on the Hughes claim. The time dockets have been produced and they demonstrate MS was involved on various motions, reviewing and obtaining medical records and dealing with accident benefits issues.

[34] There can be no doubt based on the evidence before me that the work of Morse and MS was all done in furtherance of preparing the cases for trial with the proper and necessary evidence, including expert reports. The materials from the Respondents do not indicate whether or not settlement offers have been received from the Defendants although both actions have been set down for trial. If settlement offers have been received from the tort Defendants or if they are received in the future, the work done by Morse and others at the MS firm will have been “instrumental” in securing those offers. Thus, the second element of the test set out in Thomas Gold Pettinghill has been satisfied.

[35] I turn now to the last element of the test as articulated by Perell J., namely that there must be some evidence that the account will not be paid. Both accounts remain outstanding. The Hughes account totals $169,777.13 while the Nasir account is at $68,391.25. The affidavit of Morse sworn March 25, 2014 deposes that Fancy has encountered financial difficulties and requested a loan from Morse, which was declined. Morse deposes that Fancy borrowed money from a lawyer who was practicing at the same firm and failed to repay it within the prescribed time. While the Respondents’ materials deny this allegation and assert that it is irrelevant, I do not accept this submission. It is clearly relevant as it is one of the criteria set out by the court in Thomas Gold Pettinghill as being necessary for a charging order to be made. Furthermore, the Fancy affidavits fail to address this issue; instead, Fancy acknowledges that the borrowed funds were not repaid in a timely fashion. He states that the interest rate was increased on the outstanding amount to account for the extension of time for payment. There was no denial that Fancy borrowed the money and had not paid it back, nor was any evidence included in the Fancy affidavit to address the issue of the financial stability of his firm or his ability to pay the amounts alleged owing to the Applicant.

[36] In his affidavit sworn February 18, 2016 in the Nasir matter, Fancy deposes, at para. 12, “There is no retainer agreement between MS and the Nasirs.” Somewhat curiously, he goes on to state that MS has never delivered an account to the Nasirs and argues that there is no evidence that the Plaintiffs will not pay such an account. This submission makes no sense. There is no dispute that it was Fancy and not the Plaintiffs who retained Morse and MS. Why, in these circumstances, would the Applicant deliver an account to the Plaintiffs, who were not his clients? Both of these Plaintiffs retained Fancy pursuant to a CFA; if they had sufficient funds to pay for legal services rendered on an on-going basis, there would be no need for the CFA. There was no evidence in the Respondents’ materials that addressed the issue of the means of the Plaintiffs to pay the accounts of the Applicant, although counsel for the Respondents makes the submission that the Applicant has failed to demonstrate that the Plaintiffs cannot pay the fees. Clearly, the Applicant cannot offer any evidence about the financial circumstances of the Plaintiffs as they were never his clients. The amounts outstanding are not insignificant; it follows logically that the Hughes family does not have the means to pay the MS account of $169,777.13 and similarly, the Nasir family cannot pay the MS account of $68,391.25 at the present time. When all of the evidence on the ability to pay the accounts is considered, I am persuaded that the third element of the test as articulated by Perell J. has been met.

[37] While Fancy argues that the change in firm names which occurred around August 1, 2013, somehow made a difference to the agency agreement, this point was not elaborated upon in argument and, in my view, is of no moment. The evidence in the reply affidavit of Morse makes it clear that following the withdrawal of several partners from the Adair Morse LLP firm, the remaining partners continued on under the name MS.

[38] On the basis of the undisputed facts, at the outset of the hearing of the applications, I questioned counsel for the Respondents as to whether it was truly necessary to have the applications proceed for adjudication. I suggested that there might be some compromise that could be worked out that would address the concerns of the Applicant regarding the outstanding accounts.

[39] Regrettably, my inquiries did not result in a consent order. This was perplexing to me, because it is well known that the vast majority of personal injury actions involve the retainer of counsel for the injured parties pursuant to a CFA, as is the case with the retainer of Fancy. Because CFAs arise in risky types of litigation, including medical negligence claims and difficult liability cases, they provide an essential avenue for injured parties to access our justice system. In the absence of CFAs, parties who have meritorious claims would not be able to afford lawyers and bring their cases forward to trial. Lawyers who take these cases on pursuant to CFAs assume the risk of nonpayment of fees and disbursements if the action is not successful and no funds are recovered, because the injured parties do not have the financial means to pay the high costs of litigation, especially taking cases through to trial. As a result, lawyers who are retained through CFAs earn a premium fee which is based on a percentage of the recovery in excess of the WIP on the file.

[40] When a client terminates a solicitor who is retained through a CFA, the lawyer risks nonpayment of the fees and disbursements incurred in prosecuting the action. If the Plaintiff chooses to represent himself or herself, the lawyer may be required to exercise a lien for fees and disbursements over the file and retain the file. If the client retains a new solicitor, there is usually an agreement that the former solicitor’s account will be paid in a sum to be agreed upon or assessed out of the settlement proceeds or judgment. If this undertaking is not forthcoming, the former lawyer may seek a charging order to protect the account as the client does not have the ability to pay the fees.

[41] On the evidence before me, Fancy fails to set forth a principled reason for the position of the Respondents on these applications. He does not dispute that he retained Morse because of his experience and acumen in the personal injury field. He does not dispute that Morse spent time on the files and incurred disbursements. Perhaps Fancy believes the fees and/or the disbursements sought are excessive. That position is not articulated but even if that was his belief, it relates to quantum of entitlement as opposed to entitlement to payment of fees or to a charging order. Even if Fancy viewed the MS account as exorbitant, that is no reason to refuse to come to an agreement to pay proper and reasonable fees, as agreed upon or assessed. If a client or a solicitor is unhappy with an account that has been rendered, there is an absolute right to an assessment. It is unclear to me why Fancy refused to provide the usual undertaking to pay the MS accounts, subject to assessment, out of any settlement funds or judgment. His counsel was unable to answer my inquiry on this point.

[42] I see no prejudice that would result to the Plaintiffs as a result of a charging order, nor did Mr. Schwartz make a submission on this point. The Respondents’ suggestion that Morse can deal with any entitlement to fees and disbursements on a Rule 7 motion demonstrates a misunderstanding of the function of the judge hearing the Rule 7 motion for approval of a settlement of a minor. Rule 7.08 requires the approval of a judge for any person under a disability and specifies the materials that must be submitted for the judge’s approval. It does not contemplate that as part of a Rule 7 motion, the judge would or should determine the propriety of other solicitor’s accounts. The court is concerned about the propriety of the fee sought to be charged by the solicitor acting on behalf of the minor Plaintiffs on a motion for approval as it impacts the quantum of money to be recovered by the injured minor. If the solicitor with carriage of the action has an arrangement to split the overall fee with another counsel who has worked on the file, that is not something that the court is generally made aware of, as it does not affect the ultimate settlement amount that is recovered by the minor; rather, it is a matter between counsel because the overall fee charged to the minor Plaintiff remains the same. The submission that the judge reviewing the Rule 7 motion materials would be tasked with resolving the dispute between the Applicant and the Respondents concerning the entitlement and quantum of fees of MS arising from the agency agreement is without merit.

[43] On the whole, the evidence filed by Fancy in response to the relief sought on these applications fails to address the merits of whether or not a charging order ought to be granted. Instead, the affidavits of Fancy were replete with his personal opinions about Morse. He makes reference at great length to allegedly improper conduct of Morse and another lawyer at his firm on a class action matter which is not before me. In his affidavit, Fancy states that Morse and his colleague “attempted to mislead the Ontario Court of Appeal”. Fancy takes issue with the disbursements claimed by Morse, alleging impropriety in charging HST and photocopying accounts. He goes even further and describes Morse as “ethically impaired.” Fancy’s personal opinion of Morse is irrelevant to the issue of whether or not the Applicant is entitled to a charging order. Furthermore, the submission that Morse, an officer of the court, misled the Court of Appeal on a completely different matter is a very serious allegation and one which has no place in the Applications before me. While I accept that the relationship between Fancy and Morse has been irretrievably broken, that is no excuse for the sorts of comments that are contained in the materials filed by Fancy. The outstanding accounts of the Applicant ought to have been addressed, in my opinion, instead of using the court process as a forum for mud-slinging.

[44] The Applicant is entitled to charging order on both files.

Costs

[45] At the hearing of the applications, I asked counsel for bills of costs. The Applicant seeks costs on a partial indemnity scale of fees of $31,406.99 and disbursements of $7,303.55 for a total of $38,710.54. The Respondents seek costs of $25,973.77.

[46] In my opinion, for the reasons I have expressed, these applications ought to have proceeded by way of a consent order. The Applicant is entitled to its reasonable costs and there is no basis for awarding costs to the Respondents. In my view, the time spent by solicitor Trafford at MS is somewhat excessive. The cost of research in the amount of $2,452.79 is high, given the brief of authorities of the Applicant contained only four cases.

[47] I have reviewed the Costs Outline submitted by counsel. I have considered the factors enumerated under Rule 57, including the time spent, the results achieved, and the complexity of the matter, as well as the application of the principle of proportionality articulated in Rule 1.04(1.1).

[48] Furthermore, I have taken into account the principles set forth by the Court of Appeal in Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.), specifically that the overall objective of fixing costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular circumstances, rather than an amount fixed by actual costs incurred by the successful litigant. I am of the view that the Respondents shall pay to the Applicant costs of these applications on a partial indemnity scale, fixed at $35,000, an amount that I consider to be fair and reasonable in all of the circumstances.

Conclusion

[49] I make the following orders:

[50] Morse Shannon LLP is entitled to a charging order on any settlement funds paid by the Defendants in Superior Court file CV-10-00399-675-0000 and in action CV-08-0512-00. Any amounts paid by the Defendants in these actions are to be paid into court until the respective entitlements of Fancy Barristers and MS are determined, subject to any order of the court approving the proposed settlement pursuant to Rule 7 or to a Judgment of the Court.

[51] The Respondents shall forthwith pay to the Applicant costs of these Applications fixed at $35,000 all inclusive.

D.A. Wilson J.

Date: June 27, 2016