Court File and Parties

COURT FILE NO.: CV-18-00595935-0000

MOTION HEARD: October 24, 2019

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Michael Rudan Plaintiff

AND:

David Earl Chapman & Bresver Grossman Chapman & Habas Defendants

BEFORE: Master J. Josefo

Date of Decision: October 28, 2019

Counsel: Graeme Oddy, Counsel for the Moving Party Plaintiff, goddy@c2globallaw.com Marc Kestenberg, Counsel for the Responding Party Defendants, marc@ksllaw.com

Reasons for Decision

Overview of the Motion:

[1] In this solicitors’ negligence action, the plaintiff, and moving party, Mr. Michael Rudan seeks to remove the law firm of Kestenberg, Siegal, Lipkus, and Mr. Michael Kestenberg, as lawyers for defendants Mr. Chapman and the Bresver firm. In support of its motion, plaintiff asserts that Michael Kestenberg obtained confidential information about him through Michael Kestenberg’s representation of a different plaintiff in another action, which other action is asserted to be related to this within action. Plaintiff also asserts that, as he intends to call Michael Kestenberg as a witness at trial, Michael Kestenberg can no longer represent the defendants.

[2] The defendants, responding parties on this motion, oppose the relief sought. It is submitted on their behalf that there is no basis on the facts or in law to remove the defendants’ choice of lawyer and law firm.

Identifying the Parties and Counsel to avoid Confusion:

[3] The plaintiff, and the lawyer for whom removal is sought, share the same given name, “Michael”. Counsel for defendants on this motion shares the same family name with the individual lawyer acting for defendants in the within action, for whom removal is sought.

[4] To avoid confusion, and to be efficient (yet hopefully not disrespectful), in these reasons I henceforth refer to the individual lawyer for defendants, Michael Kestenberg, as “Kestenberg”. Counsel on this motion for Plaintiff and counsel for Defendants are referenced as counsel for either plaintiff or defendant or, when appropriate, as, “both counsel”. I also name the parties as necessary. For example, I identify the plaintiff Michael Rudan mostly as “Mr. Rudan”, except I also at times use his given name because, as will be seen, there is more than one person involved herein with the surname of Rudan.

My Approach to these Reasons:

[5] Both counsel made thorough and detailed oral submissions. They each also filed very helpful factums and books of authorities. As each acknowledged, the law in this area is fairly well settled.

[6] Accordingly, in these reasons I will not reiterate to counsel what each well-stated in their written and oral submissions. I will also not review all the case-law each referenced. Rather, in coming to my conclusions, I will focus on what I find is important to this individual case. To do otherwise would unnecessarily elongate these reasons.

The Facts, as Interposed with Relevant Case-Law:

[7] On or about April 17, 2018, Mr. Rudan commenced the within action against his former lawyer Mr. Chapman, and the Bresver firm where Mr. Chapman was a partner, for, inter alia, allegedly negligent assistance provided by Mr. Chapman. As described beginning at paragraph nine of the statement of claim (“claim”), the negligence pertained to a letter from the Canada Revenue Agency (“CRA”) which Mr. Rudan received in September 2009. This letter asserted that Mr. Rudan “may be liable as director for the unremitted source deductions of a company called “Great Lakes Recreational Products Inc.” (“GLRP”)”. Paragraph nine noted that CRA was considering assessing Mr. Rudan for $389,907.48.

[8] At paragraph 10 and ongoing in the claim, it is described that, after receiving such correspondence from the CRA, Mr. Rudan retained the defendants. Mr. Chapman thus responded to the CRA on behalf of Mr. Rudan. The October 14, 2009 response by Mr. Chapman, it is pleaded, erroneously describes Mr. Rudan as a director of GLRP who “understood the severity and the depth of his potential liability as a director”.

[9] It is also alleged at paragraph 14 of the claim that defendants were obliged to advise Mr. Rudan of any potential tax or other liability which could result from becoming a “formal director” of GLRP. It is pled (paragraphs 15-17 of the claim) that the defendants did not conduct the proper searches or view the corporate minute book, but instead asserted in the response to the CRA the “due diligence” defence. At paragraph 18 of the claim, it is also asserted Mr. Rudan only saw the response to the CRA after it had been sent. The claim describes how the CRA ultimately rejected the due diligence defence and assessed Mr. Rudan for significant sums of monies. The amount of damages claimed by the plaintiff in this action is $1,500,000., plus interests and costs.

[10] The statement of defence (“defence”) denies negligence on the part of either Mr. Chapman or by the Bresver firm. The defence reviews its version of relevant events; and ultimately pleads at paragraphs 14 and 15 that Mr. Rudan:

i. was a director of GLRP,

ii. consented to assuming this role,

iii. as well, had executed the various documents to that end.

The pleading further observes that any damages of Mr. Rudan arises out of the CRA assessments, and not because of any negligence or misconduct by defendants.

[11] In my view, the issue thus seems joined and is clear: the issue to be decided in the within action is whether the defendants were negligent.

[12] Where then, is the connection to Kestenberg? In fact, he is not mentioned within this litigation, by either party. It is also clear that he never acted, in this litigation or at any other time, for Mr. Rudan. Yet Kestenberg and/or his firm did, beginning with a claim issued on June 2, 2010, act for a company called Lindsay 70 Mount Hope Inc. (“Lindsay”) against GLRP, its principals, and also against the spouses of those principals.

[13] As Kestenberg swore in his affidavit dated August 10, 2019, Lindsay’s action was for payment under a promissory note and lease agreement. The evidence and submissions further inform me that Lindsay seemingly at least in part owned the premises where GLRP carried on its operations, with Lindsay owed monies by GLRP for, inter alia, the note, and for an equipment lease. As described in that 2010 claim (which is also part of this record), Lindsay took steps to collect on the several debts owed to it by GLRP and by those principles and spouses who guaranteed those debts.

[14] One of those alleged principles and his spouse against whom Kestenberg acted when representing Lindsay in this 2010 litigation was Mr. Rudan and his spouse. As of December 3, 2010, Minutes of Indemnity were entered into between Mr. Rudan and his spouse, as well as by Chris Rudan, the now deceased father of Mr. (Michael) Rudan, and Darko Vranich. Chris Rudan and Darko Vranich had interests in Lindsay. Kestenberg further deposed in his affidavit that, for the Lindsay action, he never took instructions from Chris Rudan, but rather from Mr. Vranich, whom he describes as “the principal of Lindsay”, and from Lindsay’s CFO, Tyler McDiarmid.

[15] Kestenberg also deposed that he had “no recollection of ever speaking to or meeting with Chris Rudan”, or about why Mr. (Michael) Rudan and his spouse were let out of the Lindsay action. Kestenberg, reasonably, in my view, surmises, however, that Chris Rudan and Darko Vranich agreed to this because of the close familial (father and son) connection between Chris and Mr. (Michael) Rudan. Kestenberg also deposes that he has no notes of any telephone conversations or meetings with Chris Rudan, including about any issues pertaining to Mr. (Michael) Rudan or his spouse. All he had was the Indemnity Agreement referenced above, and the transmission of that document to Lindsay’s CFO, Mr. McDiarmid.

[16] I accept as likely true and accurate the sworn and unchallenged testimony of Kestenberg in his affidavit, including at paragraph 12 of his affidavit that his firm “never represented Darko Vranich nor Chris Rudan personally”. Given the interposition of a corporate entity, it makes sense that Kestenberg was retained to represent Lindsay in its pursuit of monies it claimed it was owed and secured in various ways through various methods. The only plaintiff in the Lindsay action, after all, is Lindsay. The individuals Chris Rudan or Darko Vranich were not plaintiffs in that action.

[17] As I have pondered the reliability of the Kestenberg affidavit, I have considered the seminal Supreme Court of Canada decision of MacDonald Estate v. Martin 1990 CanLII 32 (SCC), [1990] 3 S.C.R. 1235 (“MacDonald”). That decision makes clear that “conclusory statements in affidavits without more are not acceptable” [emphasis added]. Yet, this SCC decision did not conclude, as Mr. Oddy suggested, that affidavit evidence, particularly such evidence which is not challenged on cross-examination, should be discounted. Given that many motions are often based upon and decided by affidavit evidence, such a finding, if it had been made, would have been, in my view, quite momentous.

[18] In this matter, moreover, as I consider the affidavits of all parties, I find in the Kestenberg affidavit there is the “more” which the Supreme Court found is required to be present in this type of situation. I have considered the Kestenberg affidavit in its entirety and in context of this matter, and I find the detailed and contextual explanation about Kestenberg’s prior representation of only Lindsay, with no opportunity for any information about Mr. Rudan to be transmitted to him, to be credible. The explanation provided by Kestenberg is far more than a “conclusory statement”. There has been, moreover, no actual evidence to the contrary to that which Kestenberg deposed.

[19] Further, it must be observed that, even if, in the context of the Lindsay action, Kestenberg then obtained some information about the defendants in that action (including Mr. Rudan), there is no basis to conclude that such information, in the context of that case eight years earlier, would be in any way relevant to this entirely different solicitors’ negligence action, and the issues within this case, notwithstanding Mr. Rudan’s involvement in both cases. As I discuss the legal tests ahead, such a connection, again if it exists, would not be one which I find would cause a fair-minded and reasonably informed member of the public to believe that Kestenberg must be removed as counsel for defendants in this within action. Again, however, I accept the evidence that Kestenberg most likely had no such information.

[20] Indeed, Mr. Oddy conceded in his reply submissions that the plaintiff is only able to speculate as to what might Kestenberg know, and what evidence Kestenberg might have arising out of the prior Lindsay representation that possibly could be useful in this within solicitors’ negligence action. No actual, specific, evidence upon which I can rely is adduced in that regard.

[21] It is trite yet true that each case is decided on its own facts. The MacDonald decision, it is important to recall, involved an actual and clear conflict of interest. The lawyer “actively worked on the very case in respect of which her new firm is acting against her former client. She is therefore in possession of relevant confidential information”, as the Supreme Court found at paragraph 52 of the decision.

[22] Yet those facts are quite different from the facts of this within matter. In this case, Kestenberg did not represent Mr. Rudan when Lindsay was pursuing Rudan. Nor did Kestenberg work on the CRA case. He was not at all involved in that latter matter involving the within plaintiff. Rather, Mr. Rudan retained Mr. Chapman for assistance, as described above.

[23] The CRA case, I also find, is entirely unconnected to the Lindsay litigation wherein Mr. Rudan was a named defendant on his guarantee until the Minutes of Indemnity were signed, and he was then let out of that action. In that case, again, Kestenberg was not acting for Mr. Rudan. Rather, he was, for a short period, acting against him.

[24] These two cases (the Lindsay litigation and the CRA case) have in common Mr. Rudan’s ill-timed or ill-judged investment in GLRP. Following from his decision to invest in GLRP, as was pled by Mr. Rudan, because of the mala fides of some of the management team of GLRP, Mr. Rudan lost his significant investment (half a million dollars) in GLRP. He also was, for a short time, exposed on his guarantee. He also was subject to, initially, inquiries by CRA, which inquiries ultimately became a substantial debt which Mr. Rudan was found by CRA to owe. Whether that decision by CRA was or was not made appropriately, and if there was or was not any negligence on the part of Mr. Chapman, then counsel for Rudan, are issues which are, of course, not before me on this motion.

[25] In short, the common factor in these several scenarios is not Kestenberg, except at most, quite peripherally. Rather, it is GLRP and Mr. Rudan’s decision to invest in this entity. At paragraph 32 of his affidavit, Mr. Rudan speculates that Kestenberg, when settling the Lindsay matter, would have received information “about my involvement in the matter from Chris and Darko”. Yet again, as discussed above, even if so (and, again, Kestenberg denies this and I accept as credible his denial), it begs the question: so what? Again, in my view there would be nothing in that matter of a guarantee action, years earlier and long ago resolved, wherein Kestenberg acted for Lindsay against the interest of Mr. Rudan, that I can see as being at all relevant to or informative of the issues pertaining to the within solicitor’s negligence action involving the CRA demand and response.

[26] These are very different matters, and I struggle to find any factual nexus or connection. Indeed, I asked Mr. Oddy during the hearing to “connect the dots” for me. Despite able attempts, I find he was unable to do so because there truly is no way to reasonably do so, short of speculation piled upon speculation.

[27] Pursuant to the established case-law, including the MacDonald decision referenced above, I consider the obligation to maintain the high standards of the legal profession and the integrity of our system of justice. This is juxtaposed with the important yet not over-arching right of a litigant to his or her choice of counsel. To that point, even an appearance of conflict, if such exists, would be sufficient to remove Kestenberg from the file, despite the forceful evidence of Mr. Chapman that Kestenberg is his lawyer of choice.

[28] The case-law in this regard was thoroughly summarized by Master Glustein (as he then was) in Mazinani and Bindoo 2013 ONSC 4744. At paragraphs 60 and 61, Justice Glustein posed the following question: would a fair-minded reasonably informed member of the public conclude that the proper administration of justice requires the removal of the lawyer? He added that “such determination is objective, fact-specific and based on an examination of all factors in the case”.

[29] Applying this test, in this case, given the lack of a genuine connection between the two matters where Kestenberg has been, at quite different times, on quite different matters, retained, I do not find that a fair-minded and reasonably informed member of the public would conclude that the proper administration of justice dictates the removal of Kestenberg as the lawyer of choice for the defendants. There is in my view not even an appearance of conflict, let alone the likely existence of an actual conflict.

[30] Kestenberg, after all, never was in a solicitor-client relationship with Mr. Rudan. To allow someone opposite in interest to a lawyer in an old, short-lived prior case, factually different from and, on the key issues, unconnected to the current case, to obtain removal, would allow parties who felt threatened by prior competent counsel to avoid such repeat encounters for no good reason in law. This would upend the principal that individuals primarily may choose their lawyer. It would make it far too easy to remove a lawyer of record when, again referring to the Mazinani decision (paragraph 60 (X)), this is clearly a rare remedy and courts should be “reluctant” to use it other than in clear cases.

[31] This, in my view, is not hardly such a clear case. There is no impropriety should Kestenberg remain on record for the defendants.

[32] The plaintiff insists (in its factum) that Kestenberg will be called as a witness. Obviously, the trial judge will control her or his own process in that regard. Even if Kestenberg ultimately testifies, and if the plaintiff, once discoveries are completed, still believes this to be necessary, such arguably limited testimony on a limited issue may well not preclude Kestenberg from acting for defendants for the bulk of the matter. Yet, again, that will be up to the trial judge—if the issue even arises.

[33] As Master Pope observed in Essex Condo Corp. v. Glengarda [2007] O.J. No. 869, referring to a decision of the Divisional Court in Corporation of the Township of Essa et al. v. Guergis et al (1993), 1993 CanLII 8756 (ON SCDC), 15 O.R. (3d) 573, the trial judge will be able to discern if, first, Kestenberg should or may testify and, if so, if it means he must relinquish his duties as counsel. Master Pope observed that Justice O’Brien in the Divisional Court decision did not believe removal was required for all such cases; nor is it appropriate to make such a decision prematurely. Yet to make such decision on this motion in my view would be quite premature.

[34] As Kestenberg deposed in his affidavit, after all, he is bound by solicitor-client privilege to Lindsay. Given that, and given what he did state in his affidavit, there seems to be precious little of actual evidentiary value which he could add, and which would be likely relevant to the issue of solicitor’s negligence, rather than to the muddy waters of the problems with GLRP, to which the Mr. Oddy repeatedly returned in his submissions.

[35] Overall, I do not see a real likelihood of any conflict in this matter by allowing Kestenberg to remain on record. As I have discussed, the evidentiary connection between Kestenberg and these past matters, such as this connection is (or, more accurately, is not), is quite tenuous, if it exists at all. Depriving the defendants of their choice of counsel in this case of speculative supposition would be, in my view, the wrong result. It is not justified on the material before me.

[36] The case-law discusses the timing of such motions. In essence, such should be brought early on in any litigation, as soon as the party claiming a conflict believes that one exists. This is to avoid such motions being brought for tactical or mischievous purposes. In this matter, the plaintiff argued that the motion was brought prior to discoveries, while the defendants assert that discoveries were already scheduled and had to be postponed so this motion could be heard, submitting that the motion should have been brought earlier, and that there was thus an element of mischief to it being brought at all.

[37] While this action is still at a relatively early stage, I find that is no answer to the fact that Mr. Rudan knew for quite some long time of Kestenberg’s representation of defendants. Yet Mr. Rudan took no steps to seek to remove Kestenberg earlier. Even if he had sought this relief earlier, however, I do not believe that the relief requested would have earlier been appropriate, any more than it is now.

[38] Considering the evidence and submissions in context, I do not believe the bringing of this motion by plaintiff was entirely “tactical”, although there may have been some element of this. Rather, I find the motion was mainly brought based on a misapprehension of facts by Mr. Rudan, which led him to pursue this matter.

[39] For all these reasons, the motion is dismissed.

Costs:

[40] Costs typically follow the event. If the parties have not yet exchanged their Bills of Costs, they should do so. As a rough guide, the amount which would have been sought by the unsuccessful party (in this case, the moving plaintiff), so long as it is reasonable, is a good estimate of what Mr. Rudan should be prepared to pay defendants, who successfully resisted his motion.

[41] If the parties are, however, unable to agree on costs, they may contact my ATC Mr. David Backes to book an appointment for a telephone or in-person hearing.

Master J. Josefo

Date: October 28, 2019