Court File and Parties
COURT FILE NO.: CV-07-083322-00 DATE: 20160809
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
THE ESTATE OF HENRY GOLDENTULER Plaintiff – and – ROBERT CROSBIE, OLGA LEYENSON, MARK KOSKIE, GAIL YATTAVONG and KLC LAW FIRM (CORPORATION) Defendants
Counsel: Karl Girdhari, for the Plaintiff John Adair, for the Defendants, no one appearing
HEARD: June 17, 2016
REASONS FOR DECISION
Overview
1This is an assessment for damages in relation to a Statement of Claim issued by the plaintiffs on March 15, 2007. The plaintiff’s claim against the defendants jointly and severally is for damages of $1,000,000 for intentional wrongful interference with commercial relations, $1,000,000 on account of breaches of trust or fiduciary duty, punitive damages in the amount of $1,000,000 and special damages with respect to certain revenue lost by the plaintiff.
2The history of this file is long and tortuous, as can be seen by the date of issue of the statement of claim. It has been on-going for over nine years.
3The hearing on June 17, 2016, related solely to an assessment of damages regarding the files removed from the plaintiff’s law office premises by the defendants, as well as consideration of two experts reports prepared to corroborate the amounts sought by the plaintiff.
Background
4The plaintiff in this action, Henry Goldentuler, passed away during the course of this litigation on October 5, 2008. In April 2010, his brother Edward obtained an order to continue the action in the name of the Estate of Henry Goldentuler.
5The plaintiff sues for recovery of damages suffered when the defendants Robert Crosbie (Crosbie) and Olga Leyenson (Leyenson) left Goldentuler and Associates (Goldentuler) on or about February 2007. When Crosbie and Leyenson left, they took various clients and physical files to a new firm, the defendant KLC Law Firm Professional Corporation (KLC).
6The defendants Mark Koskie (Koskie) and Gail Yattavong (Yattavong) were employed by Goldentuler: Koskie was a lawyer and Yattavong was a legal assistant. In late 2006, they ceased working for Goldentuler and began employment at KLC.
7On February 23, 2007, Crosbie and others are seen on surveillance video tape leaving the Goldentuler offices with a large number of boxes. It is presumed they contained client files and other materials. These files and materials ultimately found their way into the possession of the defendant KLC.
8In April 2007, the parties consented to an order requiring the defendants to return the physical files to the Goldentuler office. The defendants were represented by counsel Mark Elkin. Costs in relation to that motion were ordered against the defendants in the amount of $4,500. Although none of the defendants or their counsel appeared on the costs motion, the defendants sought leave to appeal the costs order. That appeal was never perfected.
9The plaintiff brought a motion for contempt in response to the defendants’ failure to comply with the consent order to return the files. DiTomaso J. gave the defendants an additional 30 days to comply. The contempt motion was brought before DiTomaso J. again on August 22, 2007. As the defendants’ counsel, Mr. Elkin, was not in attendance, the motion was adjourned, and DiTomaso J. ordered that Mr. Elkin and all his clients were to be in attendance on September 27. Mr. Elkin and his clients attended and argued the contempt motion on September 27. Although a contempt order was not made, the plaintiff was awarded costs in the amount of $8,500.
10By November 2007, the costs order had not been paid. The plaintiff wrote to Mr. Elkin and advised that he would bring a motion to strike the defendants’ statement of defence and counterclaim if the costs were not paid. At that point, there were outstanding costs of $4,500, as ordered by Boyko J., and $8,500, as ordered by DiTomaso J. The matter returned to court on November 27, 2007, and Mr. Elkin then represented to the court that his clients were refinancing and intended to pay the costs orders.
11On January 8, 2008, the plaintiff’s motion to strike the statement of defence and counterclaim for failure to pay the outstanding costs came before Ferguson J. Ferguson J. reviewed the history of the matter and struck out the defendants’ statement of defence. Mr. Elkin had not attended on the motion. Approximately an hour later, counsel from Mr. Elkin’s office arrived and asked Ferguson J. to hear the motion on its merits. Ferguson J. was not persuaded to change the order striking the defence and counterclaim.
12The defendants served a Notice of Appeal on February 8, 2008. On March 4, 2008, the plaintiff brought a motion seeking security for costs on the appeal. That motion came before the Court of Appeal on March 13, 2008. The Court of Appeal ordered the defendants to pay $12,000 into court for security for costs within 30 days.
13In April 2008, the defendants’ appeal was administratively dismissed. The defendants sought to have the administrative dismissal set aside. On April 22, 2008, Moldaver J. set aside the registrar’s order and ordered the defendants to perfect the appeal within 15 days of transcripts being ready.
14In January 2009, the defendants’ appeal was again administratively dismissed. The order of Ferguson J. striking the defendants’ statement of defence and counterclaim was, therefore, final.
15In December 2011, the defendants, represented by counsel John Adair, brought a motion to set aside Ferguson J.’s order on the basis that their solicitor failed to properly represent them and may have made misleading statements to the court, and that they had suffered serious prejudice as a result of the order of Ferguson J. and the two administrative dismissals of their appeal.
16On February 7, 2012, Edwards, J. set aside the order of Ferguson J. and allowed the defendants to file a statement of defence and counterclaim. That order was appealed to the Divisional Court and heard on March 4, 2014. The Divisional Court allowed the appeal and set aside the order of Edwards J., restoring the order of Ferguson J. striking the defendants’ statement of defence and counterclaim. The defendants sought leave to appeal to the Court of Appeal. On April 27, 2015, the Court of Appeal refused leave and ordered costs against the defendants in the amount of $1,500. The plaintiff then brought a motion for judgment against the defendants on an undefended basis.
17As the matter headed towards a hearing for an assessment of damages, Mr. Elkin brought a motion for leave to be added as a party to the assessment hearing. That motion was heard on January 14, 2016 by Sutherland J. Leave was refused.
18This damages hearing was originally scheduled before Minden J. on November 18, 2015. However, Minden J. found the plaintiff was not in a position to proceed with the default hearing and that further documentation and information was required. That information is now before the court, and the hearing for the assessment of damages took place on June 17, 2016.
19Mr. Edward Goldentuler (Edward), the brother of the deceased Henry Goldentuler (Henry), gave evidence on behalf of the plaintiffs. Evidence was also heard from an expert witness, Mr. Jeremy Solomon.
The Evidence of Edward Goldentuler
20Edward was called to the bar in 1998. He had always worked for his late brother, Henry. Although he was not a partner in the firm, he described himself as his brother’s right-hand man. Edward has been involved in this litigation since its inception.
21Edward testified that in the spring of 2007, a paralegal by the name of Roland Spiegel called Henry and requested his help. He said that he knew another paralegal by the name of Robert Crosbie, who was subject to a cease and desist order by the Financial Services Commission of Ontario (FSCO) and was unable to work as a paralegal without supervision by a lawyer. Mr. Spiegel told Henry that Mr. Crosbie had a lot of good personal injury files and that it may be beneficial to both of them to have Mr. Crosbie work under Henry and Edward’s direct supervision.
22Edward testified that he and his brother met with Mr. Crosbie in their office, but that he was not in favour of any involvement with Mr. Crosbie. His evidence was that he did not like Mr. Crosbie’s look or attitude. However, ultimately, the Goldentulers were convinced to take on Mr. Crosbie because he was good friends with another personal injury lawyer known to them, namely, Mark Elkin. Mr. Elkin vouched for Mr. Crosbie and told them that the Financial Services Commission order was a technicality. The Goldentulers met with Mr. Elkin and relied on his recommendation. According to Edward, he told them that Mr. Crosbie regularly had access to million dollar files and that he was both honest and helpful. This recommendation was ultimately what persuaded the Goldentulers to give Mr. Crosbie a chance.
23Subsequently, Crosbie and the Goldentulers came to an arrangement. Crosbie would bring his files to the Goldentuler law office and his clients would sign an authorization for Henry to act on the files. Mr. Crosbie would receive a corner office as well as an office for an assistant and another for his common law spouse, Leyenson, who also worked as a paralegal. Henry agreed to cover the overhead and provide a receptionist. The agreement was that Crosbie and Leyenson would work the files and any settlement on an accident benefits file would be split 50/50 between Crosbie and the Goldentulers. If the file was a complicated tort claim, the Goldentulers would handle the litigation and Crosbie would get a 30 percent referral fee.
24This arrangement began in September 2005 and ended in February of 2007. Edward’s evidence was that the FSCO was trying to make the cease and desist order permanent as against Mr. Crosbie, but the Divisional Court declined to allow it. Shortly after the FSCO order expired and Mr. Crosbie was able to work on his own again, his files and equipment were surreptitiously removed from the Goldentuler office. Mr. Edward Goldentuler testified that he requested building surveillance showing Mr. Crosbie and his assistant removing boxes of files during the night. Those photographs were contained at tab 5 of Exhibit 1.
25Edward testified that approximately 120 files were removed from the premises. Within a few days of the files being removed, he received directions and authorizations signed by clients to forward any documents remaining in his office relating to those files to KLC. Edward learned that that company was owned by Mark Koskie. Mark Koskie was a lawyer who had worked in the Goldentuler firm for approximately three months before he had been fired for incompetence. Edward later learned that Crosbie, Leyenson and Yattavong were involved in KLC. Edward wrote to Crosbie demanding the return of the files. Mr. Crosbie wrote back on March 12, 2007, indicating that he did not take anything that belonged to Goldentuler and Associates, as the files were the clients’ property and had been returned to the clients. The letter is located at tab 9 of Exhibit 1. There is nothing in the letter indicating why Mr. Crosbie left or explaining how the relationship had broken down.
26Edward later found out that between September 2005 and February 2007, very few of Crosbie’s files were settled. However, his firm was obliged to do corrective work on many of them. Edward later surmised that Crosbie and his team were simply waiting for the files to ripen and then would wait to leave and settle them on their own or divert them to Mr. Elkin.
27It was also discovered during Ms. Leyenson’s cross-examination that, despite the cease and desist order, files were settled during this period under the name of Lightning Paralegal. A bank statement marked as Exhibit 2 is directed to Lightning Paralegal at 1000 Finch Avenue West, Fourth Floor, and shows a large deposit of $37,550 on February 13, 2007. This is the only bank statement Edward was able to obtain. He suggested that the $37,550 must have been a settlement. He was concerned about how many other settlements had been directed to Lightning Paralegal.
28Edward also testified that when Crosbie and his team took the original files and retainers, they tried to wipe out the computer system.
29Edward testified as to the lengthy litigation history of this matter, as described above. He appeared somewhat despondent about the decision to allow Crosbie to come and work at his office. He noted that when Mr. Elkin recommended Crosbie, he failed to mention that he was defending Crosbie on criminal charges related to fraudulent WSIB payments. He also later learned that Koskie was representing Mr. Crosbie’s wife in relation to the same fraud case. If this had been known, they would never have allowed Mr. Crosbie into their office. Edward also pointed the court to an excerpt from a transcript involving Crosbie trying to obtain his paralegal licence from the law society. In the course of that hearing, Mr. Elkin gave evidence that the removal of the files from the Goldentuler firm was based on his legal advice.
The Evidence of Jeremy Solomon
30Mr. Solomon is a lawyer who was called to the bar in 1990. He spent his first ten years doing insurance litigation. Since 2002, he has done mostly plaintiff’s personal injury litigation. He started his own firm in 2006, and obtained a Master’s of Law in civil litigation in 2001. He has been a certified specialist in civil litigation since 2004. He has extensive experience assessing damages with respect to personal injury files. I accepted Mr. Solomon as an expert on his undertaking that he would file the required expert’s undertaking with the court.
31Mr. Solomon described the method he used to calculate the possible fees that could be generated by the files removed by Crosbie. In doing so, he consulted with Edward’s bookkeeper to obtain statistical data to ensure the numbers were accurate. Mr. Solomon prepared two reports, one dated May 24, 2011, and a second dated November 26, 2015. Those reports are contained at tab 13 of Exhibit 1.
32In order to prepare the May 24, 2011 report, Mr. Solomon looked at income statements from 2003 to 2008, and the statistical average for fees between 2007 and 2008, which was the most relevant period. The documentation, as verified by the independent bookkeeper contracted by Goldentuler and Associates, revealed that in 2007, the average gross fee per file was $13,774; by 2008, the average gross fee had increased to $14,634.44 per file. Mr. Solomon averaged that to $14,204.22 and multiplied it by 128 to obtain an estimated value of fees of $1,818,140.16. Mr. Solomon agreed that he may have been incorrect in assessing that the number of missing files at 128. Edward testified that the number of missing files was more in the range of 120.
33Mr. Solomon testified that he averaged all of the files, recognizing that some files generated substantially more fees than others. He did not take out the extremely high or extremely low billing files.
34Mr. Solomon also prepared a further report in November 2015. He was asked to look at expenses associated with the work performed for clients in order to obtain a net number with respect to fees. Mr. Solomon assessed the expenses as the cost of a single lawyer at the rate of $60,000 a year and a legal assistant at the rate of $22,880 a year for a combined expense of $82,880. In his opinion, expenses for paper, ink and pens were too inconsequential to calculate. Mr. Solomon reported that the bookkeeper referenced a rental cost of $2,500 a month. He viewed this as a fixed expense that did not have any bearing on the expenses specific to a given file, but if it was taken into account it would increase the expenses to $132,800. In his view, as a lawyer operating his own office since 2006, additional variable expenses would be very minor in nature and impossible to assess on a file-by-file basis.
Special Damages
35The plaintiff claims special damages for outstanding disbursements on the subject files, for which he was not reimbursed. Sealed Exhibit 3 contains a list of disbursements by client. The Exhibit was sealed to protect the privacy of the individual clients. Edward testified that the total of these outstanding disbursements was $39,509.29.
Argument and Analysis
36The plaintiff seeks special damages of $39,509.29 for the disbursements relating to the files. He also seeks damages of $1,704,506.40 (being $14,204.22, the average fee per file in 2007 and 2008 multiplied by 120 files). Deducted from that would be the expenses testified to by Mr. Solomon. The plaintiff submits that this amount should be $82,880.
37The plaintiff acknowledges that the arrangement with Mr. Crosbie was a 50/50 split on settlements. However, the plaintiff also submits that because of the high-handed conduct of the defendants, the conduct of their counsel and the protracted litigation to which they have been subjected, they should receive the full amount of the average fee per file, which would encompass any claim for punitive damages in their statement of claim.
38The plaintiff relies on Coughlin, Welton Beauchamp Inc. v. McAlear, [1996] O.J. No. 523 (Gen. Div.). In that case, the defendant began working as the plaintiff’s sole consultant in 1986, pursuant to an oral agreement. His remuneration included a base salary and a bonus. When ownership of the plaintiff company changed, the defendant became concerned and solicited all of his clients. He removed the client files and records from the plaintiff’s offices without permission and refused to return them. The court found that the relationship between the plaintiff and the defendant was one of employer/employee, and that the clients serviced by the defendant were the plaintiff’s clients. The court found that the defendant breached his duties of loyalty, good faith and avoidance of conflict of duty and self-interest while employed by the plaintiff. In that case, the plaintiff was awarded $49,000 in compensatory damages, rather than the $519,000 claimed, and the claim for punitive damages was dismissed.
39The plaintiff also relied on De Rose & Associates Ltd. v. Brugnano, [2005] O.J. No. 3034 (S.C.), rev’d on other grounds, [2007] O.J. No. 4272 (Div. Ct.)](https://www.canlii.org/en/on/onscdc/doc/2007/2007canlii39900/2007canlii39900.html). In that case, the plaintiff was a paralegal firm that assisted accident victims in obtaining benefits. The defendant Cariati was responsible for recruiting, interviewing and servicing the plaintiff’s clients. As such, she acquired confidential information from them and had almost exclusive contact with them. There was no written contract between the plaintiff and the defendant Cariati. She left the plaintiff company and joined the other defendants’ law firm. The plaintiff claimed that the defendants solicited its clients and that 32 of its clients moved their files to the defendants’ law firm. The court allowed the action and awarded damages of $12,971 against the defendants. The court found that the defendant Cariati owed a fiduciary duty to De Rose. In that case, the court looked at the billings for the transferred files and deducted the estimated net recoveries from litigation on the files, and a further one-third for clients who would have left in any event. The plaintiff was not entitled to any punitive, exemplary or aggravated damages. The court found that the defendant Cariati’s conduct was not high-handed, malicious or highly reprehensible.
40I agree with the plaintiffs that the case law supports the proposition that, notwithstanding there was no written agreement between the plaintiff and the defendants, the defendants breached their duties of loyalty, good faith and avoidance of conflict of interests and self-interest while working in the plaintiff’s employ. The plaintiff is, therefore, entitled to damages; the issue becomes whether or not the large quantum sought by the plaintiff is reasonable in the circumstances.
41There is no doubt that the defendants’ actions were high-handed and that as a result of their conduct, this litigation has been protracted far beyond anything that would be acceptable within the parameters of the administration of justice.
42While I accept Mr. Solomon’s evidence with respect to analyzing the average fee per file, I do not accept that recovery would have been made on every file. A contingency factor must be included with respect to files that may not have settled, may have gone to other law firms in any event, or where the plaintiff in the case simply relocated, lost interest in the litigation or was unable to be found. I assess such a contingency as in De Rose at 1/3. This contingency would therefore reduce the total number of files to 80.
43Turning to overhead expenses, I do not accept Mr. Solomon’s evidence in this regard. In my view, the case law supports that something more than simply some fixed costs should be deducted from the gross damage award sought. Failure to consider such expenses would put the plaintiffs in a better position than if they had handled the files themselves.
44In Edgar T. Alberts Ltd. v. Mountjoy, 16 O.R. (2d) 682, Estey C.J.H.C., as he then was, discussed how overhead expenses are to be treated when assessing damages for breach of fiduciary duty. In that case, the plaintiff was an insurance company and defendant was a senior employee who left and opened his own firm and solicited the plaintiff’s clients with whom they had been working at the plaintiffs firm. He stated:
Ordinarily to earn such gross revenue the plaintiff necessarily incurs expenses. The evidence here is, however, that the plaintiff replaced neither defendant as the residual volume of business retained by the plaintiff did not require it. The plaintiff, upon whom rests the onus of proof of loss, has not demonstrated by any evidence that any expense was incurred on a standby or other basis with reference to the lost business. Therefore, to award the entire loss by simple arithmetic to the plaintiff would be to put the plaintiff in a better position than it would have been had it earned those commissions in the ordinary course of business. Therefore, in the absence of any evidence it seems fair to assume those expenses would represent 50% of gross income and accordingly the net loss in commissions amounts to $12,500 (p. 694).
45Evidently, such calculation of overhead expense need not be mathematically precise, but rather involves some speculation.
46In W.J. Christie & Co. v. Greer (1981), 121 D.L.R. (3d) 472 (MBCA) at p. 479, the Manitoba Court of Appeal reduced the amount of damages awarded to reflect the cost of doing business. Counsel for the defence argued that the overhead expenses amounted to 65 percent of gross revenues, and therefore, the award should be reduced by that amount. Counsel for the plaintiffs argued that the loss of the business to the defendants represented profits “off the top”, with little reduction of overhead expenses. The court stated, “The figure should not be reduced by 65 percent as urged by the defendants, but by the same token, the overhead costs should not be ignored as urged by the plaintiffs”, and varied the award downward from $23,862 to $15,000 to take into account a proportionate share of overhead expenses.
47The decision in Christie resulted in a reduction of damages of approximately 37 percent to account for overhead expenses.
48In the circumstances I find that a reduction of 44 percent for overhead expenses would adequately reflect the considerations made in both the Christie and Alberts cases.
49Therefore, based on the contingency reduction to 80 files, the gross damages would be $1,136,337.60 (80 x $14,204.22). The gross damages would then be reduced by a further 44 percent for overhead expense resulting in a net figure of $636,349.10. I include in the overhead expense amount all of the fixed expenses testified to by Mr. Solomon. As the plaintiff conceded that the arrangement with the defendant was a 50/50 split, this amount would be reduced by a further 50% for a total of $318,174.55 in damages.
50The plaintiff argues that the 50/50 split arrangement should be disregarded because of the high-handed conduct of the defendants. That is, they should receive the full amount for each file effectively in exchange for their claim for punitive damages.
51I decline to order punitive damages in this case. I do not find that a delay in litigation, even one of such an egregious length as here, should form the basis for punitive damages. Compensation to the plaintiff for delay is more appropriately dealt with by an order for costs.
52In Geographic Resources Integrated Data Solutions Ltd. v. Peterson, 2015 ONSC 4658, the plaintiffs sought to amend their statement of claim to include a claim for punitive damages for the litigation conduct of the defendants. They alleged that the conduct constituted a breach of the defendant’s fiduciary duty (which they were already alleging), and constituted grounds for a claim of punitive damages (para. 21). The existing allegations of breach of fiduciary duty were restricted to pre-litigation events. The amendments proposed to expand the allegations to include litigation conduct. Beaudoin J. concluded that such a claim was not tenable at law. He stated:
Ours is an adversarial system. The conduct of the parties during litigation is governed by the Rules of Civil Procedure. In addition, counsel are bound by their respective Rules of Professional Conduct and their duties as officers of the court. The plaintiffs do not plead any breach of these Rules although the defendants argue in reply that the conduct complained of is more properly dealt with under Rule 57.07 and may be an appropriate consideration in the costs phase of the litigation (para. 30).
53Beaudoin J. went on to consider whether, absent a fiduciary duty, litigation conduct can, on its own, form the basis for a claim of punitive damages. He cited the Supreme Court’s decision in Honda Canada Inc. v. Keays, 2008 SCC 39, [2008] 2 S.C.R. 362, for the principle that a claim for punitive damages can only succeed where the plaintiff can prove that the defendant’s conduct constituted an “independent actionable wrong” (para. 39-40). He concluded that none of the acts complained of by the plaintiff, including asserting privilege over documents in discovery, increasing costs and delay and seeking amendments that were not granted, were independent actionable wrongs.
54He went on to consider cases where punitive damages were awarded for conduct during litigation. These included: Envoy Relocation Services Inc. v. Canada (Attorney General), 2013 ONSC 2034, where punitive damages were awarded for concealing documents at trial; and Hilltop Group v. Katana, where the trial judge found that the defendants had, throughout the proceedings, obfuscated, delayed and were less than forthright in their evidence. The judge also found that the defendants had lied and made false affidavits. None of these awards arose from delay alone, regardless of the length thereof. Beaudoin J. concluded, at para. 53, “The allegations of litigation misconduct contained in the proposed amendments are relevant to a costs analysis, rather than an assessment of liability for punitive damages.”
55I agree with and adopt the reasoning of Beaudoin, J. in Geographical Resources. Delay alone cannot support an award of punitive damages because it is not an actionable wrong. Rather, it relates to process and the administration of justice. Such matters are compensable by way of costs as per the Rules of Civil Procedure.
Final Orders
56Based on all of the above, I make the following orders:
a. The plaintiff is entitled to total damages of $318,174.55.
b. All other claims for damages are dismissed except that the plaintiff shall receive special damages of $26,339.32 representing two-thirds of the disbursements claimed. The disbursement amount reflects the same adjustment for contingency made for the number of files that are the subject of this proceeding.
c. The plaintiff shall provide a costs outline including a detailed Bill of Costs and any offers to settle within 30 days of the release of this judgment.
d. I make no order with respect to any previous outstanding costs orders as the evidence on the hearing was that they had been paid by Law Pro.
e. If not already paid, costs owed by the plaintiff to the defendants as per the endorsement of Sutherland, J. released May 19, 2016 (a separate motion in this matter related to a Mareva injunction) shall be deducted from any costs ordered to be paid by the defendants.
Madam Justice C.A. Gilmore Released: August 09, 2016