Court File and Parties

COURT FILE NO.: CV-17-588831 DATE: 2021-11-30 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Elkay Management Inc., Plaintiff (Defendant by Counterclaim) AND: Law Studio Professional Corporation, also known as The Law Studio and Jonathan Baker, Defendant (Plaintiff by Counterclaim)

BEFORE: W.D. Black J.

COUNSEL: James Wortzman, for the Plaintiff (Defendant by Counterclaim) Lauren Rakowski, for the Defendant (Plaintiff by Counterclaim)

HEARD: October 15, 2021

ENDORSEMENT

Overview

[1] This is an appeal from Associate Justice Jolley’s decision of April 28, 2021, ordering that the plaintiff’s counsel, Teplitsky Colson LLP (“TC LLP” or “Teplitsky”), be removed as counsel of record owing to a conflict of interest.

[2] The plaintiff/appellant (the “Appellant” or “Elkay”) argues that Associate Justice Jolley erred in law by exercising her discretion based upon incorrect principles and, in addition, committed palpable and overriding errors by misapprehending the evidence before her.

Background Facts

[3] The backdrop against which the current appeal is brought relates to a claim by Elkay Management Inc. (“Elkay”) against two indemnifiers, Beaudoin and Teschner, under a commercial lease. That claim was issued on April 16, 2014.

[4] Beaudoin and Teschner each filed assignments in bankruptcy on May 22 and 29, 2014 respectively, and Elkay continued its pursuit of them by filing proofs of claim in the bankruptcy proceedings.

[5] TC LLP represented Elkay in the action relative to the commercial lease and initially represented Elkay in the bankruptcy proceedings.

[6] The defendant/respondent in the current appeal (“Baker”) took over from TC LLP as counsel in the bankruptcy proceedings, acting for Elkay beginning on July 17, 2015.

[7] By that point, the Trustee had allowed, in late 2014 or early 2015, Elkay’s claim in the bankruptcies in the amount of $395,157.79. The principal asset of each indemnifier was an interest in property. In the case of Beaudoin, his interest was in 333 Woodsworth Road in Toronto (the “Beaudoin Property”). In the case of Teschner, his interest was in 78 Taunton Road in Toronto (the “Teschner Property”).

[8] TC LLP suggests that Baker’s retainer arose out of the Trustee’s displeasure with the way in which TC LLP represented Elkay in the bankruptcy proceedings inasmuch as TC LLP was seen to be unduly aggressive. TC LLP acknowledges that it took aggressive positions and says that this was necessary to protect Elkay’s interests.

[9] Just before Baker’s retainer, the Trustee advised that the hearing for Beaudoin’s application for discharge from bankruptcy was scheduled for July 29, 2015. On July 10, 2015, the Trustee issued a supplementary report purporting to settle Beaudoin’s interest in the Beaudoin Property at $5,000.00.

[10] As noted above, in that context, Elkay retained Baker on July 17, 2015.

[11] TC LLP maintains that from July 17, 2015 until the termination of Baker’s retainer on December 19, 2016, Baker had exclusive carriage of the Teschner and Beaudoin bankruptcy proceedings and that Elkay relied exclusively on Baker’s advice during this timeframe. TC LLP says that it learned on July 24, 2015 that its retainer had been terminated and that Baker had taken over those proceedings. It acknowledges the overlap (from July 17 until July 24) but says that Elkay relied exclusively on Baker’s advice during that time as well.

Elkay’s Claim Against Baker

[12] In terms of what is alleged in the claim in which the current motion and appeal arise, Elkay claims that Baker failed to oppose the inadequate valuations of the interests of Teschner and Beaudoin in the properties (Taunton and Woodsworth, respectively), and failed to effectively oppose their respective discharges from bankruptcy. It also alleges that Baker failed to respond in a timely way to Elkay’s various requests for updates about the bankruptcies and that, as a result, Elkay lost its ability to appeal the discharges.

[13] As noted above, on December 19, 2016, allegedly as a result of Baker’s inaction in the bankruptcy proceedings, Elkay terminated Baker’s retainer and re-hired TC LLP.

[14] On October 4, 2017, Baker commenced an action in Small Claims Court against Elkay for unpaid legal fees totaling just over $3,000.00. On December 20, 2017, Elkay, represented by TC LLP, commenced this action alleging that Baker was negligent and in breach of contract.

TC llp’s Alleged Conflict

[15] Baker does not quarrel with the chronology outlined above. However, he pleads in his Statement of Defence in this action — and maintains in his argument — that Elkay received and relied on legal advice from TC LLP both before and after Baker’s involvement and relied on advice from TC LLP in connection with both bankruptcies.

[16] Moreover, Baker alleges that Karey Dhirani (“Dhirani”), a TC LLP lawyer, provided specific advice both to Elkay and to Baker in a discussion or discussions with them in connection with the Trustee’s valuation of the properties and in connection with the lesser significance of the Beaudoin Property. Baker says that Dhirani essentially confirmed that her opinion in those matters corresponded to the opinion of the Trustee (and ultimately to Baker’s opinion).

[17] Dhirani now denies that any such discussion(s) took place, or that she gave any opinion along the lines alleged.

Details of Associate Justice Jolley’s Findings

[18] This disagreement about what advice and opinion(s) Dhirani provided to Elkay and Baker features prominently in the decision of Associate Justice Jolley and in this appeal.

[19] Specifically, at paras. 3-5, Associate Justice Jolley recited the following facts:

The Trustee in Bankruptcy obtained an appraisal which valued the Beaudoin Property at $616,000 and determined that Beaudoin’s equity amounted to $5000. It is undisputed that Teplitsky did not obtain an independent valuation of the Beaudoin Property or challenge the proposed settlement.

The Trustee obtained an appraisal which valued the Teschner Property at $1,150,000. Dhirani opined that there was only about $200,000 in equity available from Teschner’s Property interest and that the Trustee’s offer of $200,000 appeared reasonable. The Trustee ultimately settled the amount at $160,000.

Teplitsky submitted a proof of claim on behalf of Elkay in the Teschner Bankruptcy of $1,461,514 but ultimately accepted an allowed claim amount of $395,157.79. Elkay admits that this reduction was agreed to on Teplitsky’s watch.

[20] In addition, relative to the timeframe of Baker’s retainer, Associate Justice Jolley noted, at para. 6, that: “Baker alleges that Dhirani advised him that the Beaudoin bankruptcy was not a primary concern and that the exigible equity in the Beaudoin Property was $5,000.00. She did not offer any grounds upon which to challenge the valuation and her opinion was consistent with that of the Trustee.”

[21] At para. 7, Her Honour also noted that Baker had obtained an independent valuation of the Teschner Property, but that it was lower than the Trustee’s appraisal figure.

[22] Her Honour described the various allegations that Elkay made in its claim against Baker (in which TC LLP is acting for Elkay) and referenced, in particular, the claims that Baker “failed to challenge the bankrupts’ and/or Trustee’s valuations of property in the estates, which significantly undervalued the assets available for distribution to creditors”: at para. 9.

[23] It was against that factual backdrop that Baker brought his motion before Associate Justice Jolley seeking a removal of TC LLP as counsel for Elkay.

[24] Baker argued that TC LLP, which acted for Elkay both before and after Baker did, “provided advice to Elkay on the same issues over which Elkay is now suing him” such that “Teplitsky may be a party in its own right”: at para. 11. As a result, Baker submitted that “there is a substantial risk that its representation of Elkay will be impacted by its own interests”: at para. 11. In any event, Baker argued that “Dhirani and other lawyers at the firm will be witnesses at the trial as they have relevant evidence about the claim”: at para. 11. Finally, Baker argued that by suing him, Elkay waived any solicitor-client privilege over matters in issue.

Her Honour’s Summary of Parties’ Positions and Relevant Law

[25] Her Honour noted the details of these various claims set out in Baker’s pleading and by way of summary said, “Based on his pleading, Baker argues that the advice that Teplitsky gave Elkay, the extent to which Elkay relied on that advice and the steps that Teplitsky took or failed to take on behalf of Elkay, are live issues in this action. He intends to call Dhirani and perhaps other lawyers at Teplitsky as witnesses at trial.”: at para. 14.

[26] As for Elkay, at para. 16, Her Honour wrote:

Elkay admits that Teplitsky was its long-time trusted advisor. It admits that Teplitsky acted on the underlying commercial lease litigation and subsequently, on the Beaudoin and Teschner bankruptcies. It admits that it spoke to Teplitsky about the discharge from bankruptcy and about the advice it received from Baker on or about 19 December 2016.

[27] Her Honour reviewed the relevant law with respect to removal of counsel, acknowledging, first, the fundamental principle that parties should not be deprived of their counsel of choice absent good cause. At para. 18, she then recited the principles set out in the decision of Master Glustein, as he was then, in Mazinani v. Bindoo, 2013 ONSC 4744, at para. 60, in which he set out the principles to consider on a motion to remove a lawyer of record who may be a witness at trial, including:

(i) The Court has inherent jurisdiction to remove a lawyer from the record who has a conflict of interest. The inherent jurisdiction “stems from the fact that lawyers are officers of the court and their conduct in legal proceedings which may affect the administration of justice is subject to this supervisory jurisdiction”;

(ii) The inherent jurisdiction extends to removing a lawyer who may be a witness in a case in which the lawyer acts as counsel;

(iv) The test to be applied on a motion to remove a lawyer from the record who may be a witness is whether a fair-minded reasonably informed member of the public would conclude that the proper administration of justice requires the removal of the lawyer. This determination is objective, fact-specific and based on an examination of all factors in the case;

(v) The court’s concern of a lawyer appearing as a witness is that (i) there may be a conflict of interest between the lawyer and client and (ii) the administration of justice can be impaired by a conflict between the lawyer’s obligations of objectivity and detachment which are owed to the court and the lawyer’s obligation to his or her client to present evidence in as favourable a light as possible;

(vi) the integrity of a lawyer’s role as an advocate is also undermined if the lawyer was a witness to a critical meeting;

(vii) Rule 4.02(2) of the Rules of Professional Conduct of the Law Society of Upper Canada provides that “Subject to any contrary provisions of the law or the discretion of the tribunal before which a lawyer is appearing, a lawyer who appears as advocate shall not testify before the tribunal unless permitted to do so by the rules of court or the rules of procedure of the tribunal, or unless the matter is purely formal or uncontroverted”. [Citations omitted].

[28] On the other side of the ledger, also quoting from Mazinani, at para. 60:

(x) Courts should be reluctant to make what may be premature orders preventing lawyers from continuing to act. If the evidence does not necessarily have to come from the lawyer and may be obtained through admissions or documentary productions, a removal order will be premature;

(xi) If there is some doubt or “merely a potential” that a lawyer will be called as a witness at trial, the courts should be more generous in allowing the lawyer to remain on the record and deferring the matter until after discoveries or leaving the matter to the trial judge;

(xiii) A court should be slow to interfere with the litigant’s right to choose his or her counsel. …When a litigant is deprived of the services of a lawyer whom she has chosen, there will be some hardship imposed on her. The imposition of such hardship can only be justified if it is done to prevent the imposition of a more serious injustice. It follows that the removal of counsel should be only to relieve the risk of real mischief and not a mere perception of mischief;

(xv) It is not sufficient for a moving party to suggest opposing counsel is a potential witness or allege only that he or she might provide material evidence. Rather, it must be established that there is a real basis to believe counsel can likely, or probably, provide material evidence. [Citations omitted].

Her Honour’s Analysis

[29] After reviewing additional authorities on the topic (largely to the same effect as the propositions she cited from Mazinani), Her Honour observed that this case, although commenced in 2017, was still at an early stage. She acknowledged that there was no satisfactory answer as to why Baker’s motion had not been brought earlier (albeit she confirmed that attempts to book a long motion date had been interrupted by the pandemic) and noted that such delay meant some compression of the timelines to set the matter down. However, she held that, at this stage of the proceedings, “the timelines remain tight” whether or not TC LLP continues to act as counsel for Elkay: at para. 23.

[30] In assessing the likelihood that Dhirani and perhaps other TC LLP lawyers would be called to testify, Her Honour confirmed TC LLP’s position that it does not intend to call any lawyer from its firm to testify and that it is unnecessary for Baker to do so, such that it is entirely tactical for Baker to purport to call TC LLP witnesses. On the other hand, she again underlined Baker’s stated intention to call Dhirani and at least one other TC LLP witness to support his defence that Elkay relied on advice from TC LLP before, during, and after his retainer.

[31] Critically, Associate Justice Jolley concluded on this issue by saying, at para. 27, “I find it likely that Baker will call Dhirani, Ventrella and perhaps other lawyers at Teplitsky as witnesses in support of his defence”.

[32] Her Honour went on to find that there was no conclusive evidence before her about Baker’s good faith or lack thereof in bringing this motion, such that this was a neutral factor.

[33] At para. 39, she also held that the evidence that Baker “proposes to elicit from Dhirani and perhaps others at Teplitsky will have significance in determining Baker’s liability and Elkay’s mitigation efforts and the quantification of its damages claim”.

[34] For these and other reasons discussed in her decision, Her Honour concluded, at paras. 46‑47:

Given the likelihood of Baker calling the Teplitsky lawyers as witnesses, given the significance of the issues about which they will testify and considering the other factors set out above, I find that Teplitsky cannot continue to act for Elkay in this action.

In my view, a fair-minded reasonably informed member of the public would conclude that the proper administration of justice requires that Wortzman and Teplitsky be removed as lawyers of record for Elkay.

Elkay’s Position on Standard of review

[35] In response to my statement that the relevant standard of review for this case is palpable and overriding error, Mr. Wortzman, who also argued the appeal before me, suggested that given Associate Justice Jolley’s misdirection on the relevant law, the standard of review is in fact correctness.

[36] However, while he is of course correct to note that if the Associate Justice erred in law the standard of review would be correctness, his argument largely consisted of a series of disagreements with Her Honour’s findings of fact and the significance of those findings. He then analyzes his own factual contentions against a backdrop of law that essentially confirms the application of the very principles Her Honour applied. While Mr. Worztman disagreed, in his submissions, with Associate Justice Jolley’s conclusions, his review of the relevant facts and the way in which the law applied mirrored the way in which Her Honour approached the issues, albeit in many cases urging the opposite conclusion. In my view, this approach, despite Mr. Wortzman’s insistence that correctness is the relevant standard, in effect confirmed that the Appellant must demonstrate palpable and overriding error.

Assessment of Elkay’s Arguments

[37] It is my conclusion that the Appellant has failed to do so.

[38] Associate Justice Jolley’s decision, described in summary above, is a careful, even-handed, and thorough review of the evidence before her, the relevant law, and the way in which the facts as she found them fit with the relevant law.

[39] In my view, she is also entirely right about the likelihood that TC LLP lawyers, Dhirani in particular, but potentially others as well, will be called to testify.

[40] Mr. Wortzman’s argument against this prospect is to say that a right-thinking trial judge hearing a voir dire on the ability of Baker to call TC LLP witnesses to testify will inevitably conclude that this should not be done. According to Mr. Wortzman, a trial judge will come to this conclusion because the evidence in question can come as easily from Elkay and its principal as from TC LLP lawyers and because of an overriding concern to protect privilege.

[41] He also argued that any witness from TC LLP would necessarily be giving expert evidence, and that it is appropriate and typical for expert testimony to come from independent experts, such that, again, any evidence from TC LLP would be unnecessary and inappropriate.

[42] Finally, Mr. Wortzman points to the spectre of disingenuous tactical claims of conflicts that will be encouraged if Associate Justice Jolley’s decision is allowed to stand. He suggests that such allegations will become standard ammunition for parties who do not wish to face the counsel acting for their opponent or who wish to create delay.

[43] I will take these arguments one by one.

[44] First, it is undisputed that Baker intends to call TC LLP lawyer(s) as witnesses. Associate Justice Jolley’s finding that this evidence could prove significant is clearly a reasonable conclusion, open to Her Honour on a fair assessment of the evidence.

[45] While this does not of course preclude the potential voir dire that Mr. Wortzman predicts, it does mean that it is by no means a foregone conclusion that the result of the voir dire will be to preclude Baker from putting a TC LLP lawyer or lawyers in the witness box. If the challenge to Baker’s plan to call such witness(es) is unsuccessful, then the untenable situation of TC LLP having to cross-examine a lawyer or lawyers from its own firm would arise. Moreover, even the prospect of TC LLP arguing, in that setting, against the proposal to put its lawyer or lawyers in the witness box is itself problematic. Mr. Wortzman’s response to this potential scenario was to insist that no right-thinking trial judge would allow Baker’s tactic of calling the TC LLP witness(es). Again, I do not accept that this result is inevitable and, in fact, believe that the scenario contemplated by Associate Justice Jolley, in which one or more TC LLP witnesses are obliged to testify, is a more likely outcome.

[46] As to the argument that any evidence to be given by TC LLP lawyers in this context would be in the nature of expert evidence and that, therefore, there would be no need for such TC LLP evidence (which would properly come from independent experts), I disagree.

[47] While of course any testimony from TC LLP lawyers would be suffused with expertise, Baker’s purpose in calling them would in large part be as factual witnesses, to describe what they did, what advice they gave, and what discussions they had with Elkay and with Baker himself. It is conceivable, even likely, that if the advice TC LLP gave replicated or reinforced his own advice, Baker will point to that testimony as evidence supporting his own standard of care; however, that does not transform the evidence into an expert opinion under r. 53 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. At most, the nature of the evidence would embody features of what the Court of Appeal for Ontario labelled in Westerhof v. Gee Estate, 2015 ONCA 206, 124 O.R. (3d) 721, as a “participant expert”. That is, TC LLP has expertise and would be permitted to testify about what it did and why it did it, but much of that evidence would necessarily be in the nature of factual evidence (having regard to TC LLP’s participation in the factual matrix).

Recent Decision in 8657181 Canada Inc. v. Medhi Au LLP

[48] Both sides pointed to and made arguments in relation to Justice Ferguson’s recent decision in 8657181 Canada Inc. v. Medhi Au LLP, 2021 ONSC 1295. In that case, Her Honour dismissed an appeal from Master Robinson’s (as he was then) order to remove the plaintiff’s lawyer on the basis that he may be a witness with respect to the plaintiff’s efforts to mitigate damages.

[49] On the motion before Associate Justice Jolley, the decision of Master Robinson, 8657181 Canada Inc. v. Mehdi Au LLP, 2019 ONSC 6380, was relied on by Baker and sought to be distinguished by Elkay. It appears that Justice Ferguson’s decision upholding Master Robinson was not yet available.

[50] In her decision, on which Baker relies heavily in this matter, Justice Ferguson observed, at para. 6, relative to the motion seeking to remove the plaintiff’s lawyer, Paul Starkman, from the record:

(a) Starkman is likely to be a relevant witness regarding 865 Canada’s efforts to mitigate damages and in assessing the portion of 865 Canada’s damages claim relating to legal fees incurred in both costs submissions from the set aside motion and the subsequent appeal of the set aside decision;

(b) Starkman’s direct role in advising 865 Canada on appeal options and strategy and other means of mitigating its losses raises an issue that could directly affect the outcome of this action;

(c) Starkman’s evidence on strategy for the appeal will have significance in this action. In my view, that is only underscored by Starkman’s evasiveness and ultimate refusal to permit Ms. Pearce to answer questions about the decision not to pursue the first ground of appeal, which is a matter squarely at issue on this motion by virtue of paragraphs 48-53 of Mr. Au’s affidavit. The Au defendants were, in my view, completely stonewalled by Starkman from seeking clear confirmation on who was responsible for the strategic decisions on the appeal;

(d) Starkman’s position as an advocate cannot be reconciled with his position as a likely witness. In my view, a fair-minded reasonably informed member of the public would conclude that the proper administration of justice requires the removal of Starkman.

[51] At para. 16, Justice Ferguson concluded that, “[I]n cases such as this one, where a lawyer assumes carriage of a matter, completes the proceeding, and subsequently initiates a solicitor’s negligence action against a former lawyer, courts routinely disqualify the lawyer that assumed carriage from acting against the former lawyer. In my view this is just common sense.”

[52] As is evident from the quotations above, Justice Ferguson concluded, at para. 18, that the Master had “correctly found that Starkman would likely be a material witness at trial on the issues of mitigation and damages theory, creating a conflict with his duty to the court”.

[53] Baker argues that, similar to the circumstances in Medhi Au, the TC LLP lawyers are likely to be relevant witnesses, including on the issue of mitigation of damages. The role of the TC LLP lawyers, as Elkay’s long-time trusted advisor, advising on its appeal options and strategy, and other means of mitigating its losses, potentially play a significant role in the outcome of this litigation.

[54] There is also evidence that, as in Medhi Au, TC LLP has “stonewalled” Baker from seeking clear confirmation as to what strategic decisions were made and the factors that were taken into consideration in reaching those decisions. That is, on cross-examination the representative of Elkay gave 67 refusals (and ultimately maintained 44 of those refusals). To the extent that many of these questions were aimed at determining the basis for strategic decisions, it is another example of the untenable role of TC LLP in refusing questions that would elucidate its role in the conduct of the proceedings.

[55] It is also interesting, and in my view problematic for TC LLP’s position on this appeal, that in its factum TC LLP asserts that neither Baker nor Elkay have brought any claim against TC LLP and that they are out of time to do so.

[56] That assertion is made in the context of TC LLP’s argument that there is no risk that its continuing representation of Elkay would be influenced by its own interests.

[57] Baker argues, in my view with some force, that the proposition is both legally incorrect and telling. That is, he submits that the fact that TC LLP finds it necessary to lay out the argument that Elkay is out of time to bring a claim against it underscores TC LLP’s conflict of interest and provides a palpable example of TC LLP’s advice to Elkay being coloured by its own interests.

[58] On the issue of privilege, Associate Justice Jolley considered the potential implications and constraints that privilege would have on the effort to put TC LLP lawyers in the witness box. She noted the decision in Kota v. Raphael, [2003] O.J. No. 3003 (S.C.), in which the court, at para. 16, said: “There is a deemed waiver of solicitor-client privilege when the plaintiffs put into issue the nature of the legal advice they received”.

[59] To similar effect, in Mehdi Au, at para. 25, Justice Ferguson said:

[T]he act of suing one’s former lawyer constitutes a waiver of the solicitor-client privilege between them. In particular, the client waives privilege over all matters going to the issue of what caused the loss suffered by the client and to what extent the loss is attributable to the lawyer.

[60] Again, Associate Justice Jolley turned her mind to the issue raised by Elkay and applied relevant authority to resolve the issue. I expect, as Justice Ferguson’s statement suggests, that the waiver of privilege, in the scenario in which one or more TC LLP lawyers are called to testify, will be limited to encompassing the precise matters at issue in the proceeding. In any event, that will be a matter for the trial judge, and Associate Justice Jolley’s conclusion on this topic seems appropriately supported by the relevant case law.

[61] Finally, on Elkay’s “floodgates” argument, namely that if Baker is permitted to call one or more TC LLP lawyers to testify, it will set a perverse precedent and lead to ongoing inappropriate attempts to “conflict out” opposing counsel, I do not accept that the danger is anywhere near as severe as Elkay portrays it to be.

[62] As set out above, Associate Justice Jolley’s decision clearly reveals that she referenced and carefully considered authorities (collected in the Mazinani decision and elsewhere), cautioning that a party’s right to counsel of its choice is paramount and not to be interfered with except in rare circumstances and with substantial reason. It does not and would not follow from her decision that the scope of circumstances in which counsel could be removed from the record would be enlarged. It also does not follow that removal of counsel could be secured with anything less than clear and compelling reasons. As such, I am not persuaded by the spectre postulated by Elkay of disingenuous resort to this remedy.

Conclusion on Merits

[63] For all of the reasons set out above, I conclude that Associate Justice Jolley’s decision, far from reflecting errors of law or palpable and overriding errors of fact or mixed fact and law, provides a carefully considered and well-reasoned exercise of discretion, appropriately founded in the evidence before her.

[64] I therefore dismiss Elkay’s appeal.

Costs

[65] Baker is entitled to his costs of this hearing. Both parties have provided costs outlines estimating their costs associated with the appeal on a partial indemnity basis and listing the relevant factors from r. 57.01(1).

[66] As one would hope and expect, the respective costs amounts are not far apart and there is considerable overlap in terms of the factors to which the parties say I should turn my mind.

[67] Based on the parties’ respective submissions on costs, I order costs payable from Elkay to Baker in the amount of $10,500.00, payable within 30 days of the date of this decision

W.D Black J.

Date: November 30, 2021