Court File and Parties

COURT FILE NO.: CV-19-620301 DATE: 20240715 SUPERIOR COURT OF JUSTICE – ONTARIO COMMERCIAL LIST

RE: ASSESSNET INC., Plaintiff AND: TAYLOR LEIBOW INC., IN ITS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF LUCIO ANTHONY FERRO and JULIE SAVAGE, Defendants

BEFORE: Penny J.

COUNSEL: Andrew Stein for Peter Waldmann, moving party Gina Rhodes for the Plaintiff, responding party

HEARD: June 17, 2024

Endorsement

Overview and Issues

[1] Mr. Waldmann, the former solicitor of the plaintiff, AssessNet Inc., moves under s. 34 of the Solicitors Act, R.S.O. 1990, c. S.15 for a charging order over a $70,000 cost award made in favour of the plaintiff in these proceedings.

[2] In order to obtain a charging order under s. 34, the solicitor must demonstrate that:

(a) the fund or property is in existence when the order is granted; (b) the property was recovered or preserved through the instrumentality of the solicitor; and (c) the client cannot or will not pay the lawyer’s fees.

[3] In this case, the dispute is over the second factor, whether the solicitor was “instrumental” in recovering or preserving the property.

[4] The plaintiff also maintains that, under the terms of its retainer agreement with the solicitor, he has no right to be paid and thus no entitlement to a charging order.

Background

[5] AssessNet is a medical assessment services company which supplied medical reports to Ferro & Company, a law firm operated by Lucio Anthony Ferro. In 2014, Mr. Ferro made an assignment in bankruptcy and the defendant, Taylor Leibow Inc., was appointed Trustee. The defendant, Julie Savage is an employee of the Trustee and was the licensed insolvency trustee responsible for administering the bankruptcy.

[6] AssessNet was a creditor of Ferro and a claimant in the bankruptcy. Dr. Persi, a principal of AssessNet, was appointed as one of two inspectors of the Estate. The Bankrupt died shortly thereafter. The Bankrupt’s associate, Ms. Poproski, carried on the administration of the Bankrupt’s trust accounts. The Bankrupt’s spouse, Ellen Helden, administered the law office through her holding company, 1312788 Ontario Ltd. Ultimately, it came to the Inspectors’ attention that Helden may have improperly used funds of the Estate that were being held in 131 Ontario’s bank account.

[7] In 2016, AssessNet entered into a retainer agreement with Waldmann to provide an opinion on the potential causes of action AssessNet had against the Trustee and Savage and, later, to commence and prosecute that action. The retainer agreement took the form of a partial contingency agreement, whereby AssessNet would pay a non-refundable monthly fee. The total of the monthly fees, however, would be applied as a credit against any contingency fee entitlement owed to Waldmann at the end of the day.

[8] Waldmann was responsible for preparing and issuing four actions. They are styled in the material: (i) the s. 215 Bankruptcy Trustee Action; (ii) the Client Claims Action; (iii) the s. 38 Action; and (iv) the Copyright Action. The relevant action for purposes of this motion is the s. 215 Bankruptcy Trustee Action.

[9] On November 14, 2017, Waldmann filed the s. 215 Bankruptcy Trustee Action under to s. 215 of the BIA; however, it was withdrawn the same day for failure to give proper notice to the Trustee. Waldmann did not file the s. 215 Bankruptcy Trustee Action again until March 13, 2018.

[10] In February 2020, the Trustee brought a motion for summary judgment alleging that the s. 215 Bankruptcy Trustee Action was time-barred under the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. The defendants in the other three actions then brought similar actions. All four motions were argued over two days in April and June 2022 before Justice Kimmel.

[11] In August 2022, the motion judge determined that the s. 215 Bankruptcy Trustee Action was time barred as it needed to have been filed on or before February 14, 2018. She granted summary judgment and dismissed the s. 215 Bankruptcy Trustee Action.

[12] Waldmann initiated AssessNet’s appeal of the dismissal the s. 215 Bankruptcy Trustee Action. Before the appeal hearing, the relationship between AssessNet and Waldmann broke down. AssessNet stopped paying Waldmann’s monthly fee. Waldmann terminated the retainer agreement, claiming that any further services performed by him would be billed at his normal hourly rate of $650 per hour.

[13] AssessNet hired a new lawyer and put Waldmann on notice of possible negligence claims against him. LAWPRO counsel became involved on Waldmann’s behalf. The appeal hearing date was approaching. Correspondence was exchanged between counsel for LAWPRO and AssessNet about who would argue the appeal. AssessNet took the position that if Waldmann did it, it would be at his own cost and risk. LAWPRO counsel demurred. Put to its choice of what to do, AssessNet’s new counsel advised counsel for LAWPRO that: “AssessNet’s instructions are for Mr. Waldmann to proceed to argue the appeal. We look forward to receiving the decision.” There appears to have been no express agreement on whether and how Waldmann would be compensated for his time spent preparing for and arguing the appeal.

[14] Shortly before the appeal hearing date, the Court of Appeal contacted Waldmann and counsel for the Trustee, advising that counsel should be prepared to address the Court of Appeal’s decision in Ridel v Goldberg, 2019 ONCA 636 and the implications of s. 12 of the Limitations Act. Neither of these authorities had been addressed before the motion judge or in the appeal material filed with the Court of Appeal.

[15] The appeal was argued. Counsel for both sides addressed, among other things, s. 12 of the Limitations Act and the Ridel decision. In September 2023, the Court of Appeal released its decision, allowing the appeal, setting aside the dismissal of the s. 215 Bankruptcy Trustee Action, and directing the limitation period issue to proceed to trial. Costs of the appeal were agreed in the amount of $20,000. Subsequently, AssessNet was also awarded costs of $50,000 in respect of the motion for summary judgment.

[16] Waldmann rendered accounts for services rendered in relation to the appeal and other matters. AssessNet refused to pay those accounts. In the spring of 2024, Waldmann obtained an order for the assessment of unpaid accounts to AssessNet totalling over $145,000. That assessment is pending.

Analysis

[17] As noted earlier, it is not in dispute that the $70,000 cost award of the Court of Appeal constitutes an existing fund or property and that AssessNet cannot or will not pay Waldmann’s outstanding fees. There are only two issues before the court on this motion:

(a) whether Waldmann was “instrumental” in recovering or preserving the property; and (b) whether the retainer agreement precludes Waldmann from any entitlement to payment.

Instrumentality

[18] The applicable legal principles under s. 34 of the Solicitors Act are not in dispute. “Instrumentality” means that the solicitor’s efforts must have played a “substantial and integral” part in the recovery or preservation of the assets: Denney v. Chambers, 2021 ONSC 5948 at para. 22.

[19] The only question for resolution under s. 34 is the instrumentality of Waldmann’s efforts in obtaining a favourable result in the Appeal. AssessNet’s position is that Waldmann was not instrumental because:

(a) he failed to correctly file the s. 215 Bankruptcy Trustee Action in November 2017 and February 2018 when instructed, resulting in the motion for summary judgment in the first instance. In essence, AssessNet says that had Waldmann acted with reasonable diligence and filed the s. 215 Bankruptcy Trustee Action when instructed to do so, this would have prevented the defendants from having any ability to make a limitations argument and AssessNet would not have unnecessarily wasted time and resources fighting over that issue; (b) he failed to raise s. 12 of the Limitations Act and Ridel at the motion for summary judgment. Here, AssessNet submits that if these issues had been raised before the motion judge at the motion for summary judgment, she probably would not have granted the motion in the first place. The appeal would have been unnecessary; and (c) he failed to raise s. 12 of the Limitations Act and Ridel in the appeal on his own, but only did so after the Court of Appeal instructed him to do so. The Court of Appeal noted in its reasons that the parties “only addressed s. 12 on the appeal after they were invited to do so in advance of the hearing.” The Court of Appeal also noted that it was “not confident that [the motion judge’s] findings, in particular in relation to s. 5(1)(a)(iv) of the Limitations Act, would have been the same had she considered the issues within the correct legal framework.” This demonstrates that Waldmann was not instrumental in securing the Court of Appeal’s decision overturning the summary judgment award. It was only due to the diligence of the Court of Appeal that AssessNet’s rights were ultimately vindicated and Waldmann’s omissions were not found to be fatal to AssessNet’s claim.

[20] The law is clear that on an application for a charging order, it is not appropriate for the court to consider allegations of negligence against the solicitor: Hendy v. Hendy v. Wilson (1999) 30 C.P.C. (4th) 303 (Gen. Div.) aff’d 40 C.P.C. (4th) 61 (Ont. C.A.).

[21] AssessNet’s first two arguments are unambiguously founded on allegations that Waldmann was negligent in missing the limitation period in the first place and in failing to raise s. 12 of the Limitations Act and the Ridel case before the judge hearing the motion for summary judgment. This is not the time or place for those arguments to be raised. There is an outstanding assessment proceeding involving the unpaid accounts Waldmann rendered to AssessNet. Among the factors it is open to the assessment officer to consider in that assessment are: the degree of skill and competence demonstrated by the Waldmann; the results achieved; and the reasonable expectation of AssessNet as to the amount of the fee being charged. Accordingly, AssessNet can raise Waldman’s omissions and failures in that context. For today’s purposes, these allegations are not relevant to the central issue.

[22] The real issue in this case is AssessNet’s third argument: it was not through Waldmann’s instrumentality, but the instrumentality of the Court of Appeal, that the summary judgment was overturned and the cost award was made.

[23] I am unable to accept this argument.

[24] A careful reading of the Court of Appeal’s reasons makes it clear that were two grounds for reversing the decision of the motion judge. First, the Court of Appeal held that the motion judge misapplied the provisions of s. 5(2) of the Limitations Act by concluding, incorrectly, that the effect of s. 5(2) of the Limitations Act was that the plaintiff bears the onus of showing that it lacked the requisite knowledge and could not have known the requisite facts prior to the expiry of the limitation period. The Court of Appeal held that a plaintiff’s onus under s. 5(2) is merely to rebut the presumption that it had knowledge of the claim “on the day the act or omission on which the claim is based took place”. Accordingly, once it was established that AssessNet and its predecessor in right did not know about the claim between March 12 and December 22, 2015, then its burden under s. 5(2) was discharged. The onus then fell on the respondents to prove that AssessNet or its predecessor ought reasonably to have known of the matters set out in s. 5(1)(a) at least two years before the action was commenced. By reversing the burden of proof, the motion judge committed a reversible error of law.

[25] It was only the second ground of “error” found by the Court of Appeal that turned on the special rules applicable to a plaintiff who claims through the rights of another, as in a bankruptcy situation such as this; that is, s. 12 of the Limitations Act and the reasoning of the Court of Appeal in Ridel.

[26] The arguments advanced on the first ground were the product of Waldmann’s work, without urging or direction from the Court of Appeal. These arguments were successful and represent an independent basis for concluding that his contribution was instrumental in the result.

[27] Even if that were not the case, however, while the Court of Appeal pointed the way on s. 12 and Ridel, Waldmann still had to pick up the ball and run with it. He appreciated the implications of s. 12 and the Ridel case and was able to fashion what again turned out to be winning arguments based on these two sources. He did the work, showed up and made the arguments which were accepted by the Court of Appeal, all for the benefit of his former client.

[28] I find Waldmann’s actions were sufficiently “instrumental” in bringing about this result to meet the requisite threshold for a charging order under s. 34.

The Retainer Issue

[29] AssessNet makes a subsidiary argument about the retainer agreement -- whether it was properly terminated and what agreement regarding Waldmann’s fees, if any, applied to his work on the appeal (or any other matters for that matter) following the breakdown of the client/solicitor relationship.

[30] The written retainer agreement appears to have been terminated by Waldmann in January 2023. The retainer agreement is silent on how ongoing services would be billed once the retainer agreement had been terminated. Waldmann claimed at the time that any additional work would be billed at his normal hourly rate. With the appeal hearing fast approaching, AssessNet elected to have Waldmann argue the appeal. AssessNet took the position this should be at Waldmann’s risk and expense. Waldmann did not acquiesce in this however. It is fair to say that there appears to have been no express agreement on this point one way or another.

[31] Waldmann’s motion for a charging order does not ask this court to make any determination about the nature of his retainer following his termination of the written retainer agreement. Nor has AssessNet brought any motion for a determination of this issue. This, it seems to me, is a question for the assessment officer or, if this falls beyond the assessment officer’s jurisdiction, a different court. The nature of Waldmann’s retainer after January 2023 need not, and on this record in my view, cannot be resolve on this motion.

[32] My role on this motion is a very narrow one. I am not deciding whether Waldmann is entitled to or earned the fees he is charging or has justified the amount he is seeking. I am simply deciding whether he was “instrumental” in bringing about a $70,000 cost award in favour of AssessNet. On these facts, I find that he was.

Conclusion

[33] For the foregoing reasons, I find that the test for the application of s. 34 of the Solicitors Act has been met. A charging order shall issue in respect of the payment of $70,000 in costs by the Trustee to AssessNet. I find, however, that it is sufficient protection for that charge to order that counsel for AssessNet hold those funds, once paid, in its trust account pending final determination of Waldmann’s entitlement to be paid by his former client for services rendered.

Costs

[34] Counsel for Waldmann sought all-inclusive partial indemnity costs of about $17,000. Counsel for AssessNet sought all-inclusive partial indemnity costs of about $18,000. In the circumstances, I award all-inclusive partial indemnity costs of $17,000 to Waldmann.

Penny J. Date: July 15, 2024