Indexed as:

Molinaro v. U-Buy Discount Foods Ltd.

Between

Frank Molinaro, plaintiff, and

U-Buy Discount Foods Limited, Aliments Classique Food Ltd.,

Marshall Usher, Joel Usher, Corey Usher and Len Usher,

defendants

[2000] O.J. No. 4578

[2000] O.T.C. 869

101 A.C.W.S. (3d) 831

Court File No. 94-CQ-51305CM

Ontario Superior Court of Justice

Motions Court

Paisley J.

Heard: November 22, 2000.

Oral judgment: November 22, 2000.

(26 paras.)

Barristers and solicitors -- Relationship with client -- Conflict of interest -- Situations resulting in conflict.

Application by the defendant Usher for an order prohibiting Solmon and members of his firm from acting as agent for the solicitors for the plaintiff Molinaro. In August 1990, Usher contacted Solmon's office to act for him on his ongoing litigation. He eventually spoke with Solmon for 20 to 25 minutes and said that his company was in an oppression case with Molinaro. Solmon advised him that he did work for Rouben who was the solicitor of record for Molinaro. Solmon said that he told Usher that he could not act for him. He did not recall any of the alleged confidential matters that Usher said he told him.

HELD: Application allowed. Confidential information was disclosed to Solmon during the telephone conversation.

Counsel:

A. Rouben, for the plaintiff.

Ray Colautti, for the defendants.

1 PAISLEY J. (orally):-- The applicant moves for an order prohibiting Melvyn Solmon and members of his firm from acting as agents for the solicitors of the plaintiff.

2 The applicant, Marshall Usher, is a defendant in this action. On August 3, 1999, he was seeking to retain new counsel for this ongoing litigation which at the time was being conducted for him by the firm, Teplitsky Colson.

3 One of the lawyers that Mr. Usher contacted was Melvyn Solmon. In Mr. Usher's affidavit, he states:

On or about August 3, 1999, I called Solmon's office. Solmon was not available to speak to me, but I spoke with a woman whom I assumed was his secretary and told her my name, that I with U-Buy and that I was looking for a specialist in shareholders' oppression, and asked that Solmon return my call.

4 U-Buy Discount Foods Limited is one of the defendants in this action.

5 Mr. Usher's affidavit continues, at paragraph 6:

I recall that Solmon returned my call the same day, but I was not in or available and Solmon left a message for me. I returned the call but again was not able to speak with Solmon and left another message for him at his office.

On August 4, 1999, the telephone message log at U-Buy's office shows that "Mel Saulman" left a message at 10:08 a.m. leaving a call back telephone number of 222-9743, which I later learned was Solmon's home telephone number.

6 Mr. Usher's affidavit continues, at paragraph 8:

I returned the call at the number shown in Exhibit B, and spoke with Solmon. As I recall, the conversation lasted for 20 to 25 minutes.

I followed the script I prepared which I marked as Exhibit A. I first identified myself, that my company was U-Buy Discount Foods and that we were in the middle of a shareholder's oppression case with Mr. Molinaro and that I was suing because they were competing with me. I then outlined and reviewed what I saw were the major issues of the case, namely:

a) Issues concerning U-Buy's inventory;

b) Whether or not Mr. Molinaro was a shareholder;

c) Financial arrangements with David Sacks outside the scope of accounting; and

d) Management bonuses.

My review of what I saw as the major issues included a review of what I saw as the strengths and weaknesses of our case. I told Solmon that I was looking for a specialist in the field of shareholder oppression who "will be relentless and use the rules of law". I asked if he could help me.

Solmon then advised me that he had done some work for Allan Rouben in this case. Allan Rouben is the solicitor of record for Molinaro in the actions described above. Solmon then advised me that he knew the strengths and weaknesses of Molinaro's case as well, and because of his knowledge of both sides of the case, that he would make a good mediator.

I asked if this knowledge meant he had a conflict that would prevent him from representing U-Buy. In response, Solmon advised that he would have to ask Mr. Rouben. I then said to him that I "hoped he wouldn't discuss my case", but that I appreciated his honesty.

7 Mr. Solmon's affidavit, in response to this application, is that:

Prior to August, 1999 I had met with and discussed issues involving this proceeding and had been consulted by and provided advice to Mr. Rouben and Mr. Molinaro. The last time I was consulted prior to August 1999 was in May of 1999. I do not believe Mr. Usher knew that I was involved in assisting Mr. Molinaro before he called me.

I did not provide advice to Mr. Rouben or Mr. Molinaro from August 9, 1999 until January, 2000. In January 2000 I was consulted again with regard to various matters.

In August of 1999, our office received a message from a Mr. Marshall Usher, but there was no connection to "U-Buy". I likely would not have remembered that name, in any event, as I had last met with Mr. Rouben in May of 1999 and knew the case involved a Mr. Molinaro bringing an oppression claim and seeking other relief.

When I received the call from Mr. Usher I was at home. I have reviewed my file and I have no notes of the conversation at all. This is consistent with my recollection that I advised Mr. Usher within the first few minutes of the communication that I recognized the name Molinaro and I believed I had been retained by Mr. Rouben with respect to this litigation. Mr. Usher then confirmed that Mr. Rouben was on the other side of the case. I specifically told Mr. Usher that as a result I could not act for him.

Not only did I make no notes, but I have no recollection of discussing any of the alleged confidential matters which Mr. Usher says he told me. Furthermore, I do not believe it was a 25 minute telephone call, but rather much shorter. I do recall that he did mention alternative methods of attempting to resolve the matter and mediation was one of the alternatives discussed.

I never said to Mr. Usher that "I knew the strengths and weaknesses of Molinaro's case as well". I do not speak of cases and certainly did not know the strengths and weaknesses of either side based on the limited exposure I had to the case and a brief phone call with Mr. Usher.

He asked if I could mediate the matter and I advised that if Mr. Wortzman felt that would be helpful, and if Mr. Rouben consented than I could mediate the dispute. But I was very clear that I needed Mr. Rouben's consent before I could do anything to assist with mediation.

I made it clear that I was consulted in the past and would be consulted in the future with regard to the various issues in the litigation.

I spoke to Mr. Rouben sometime thereafter and told him that Mr. Usher had called me, but I have no note of that nor do I recall when that occurred. I know I did not give any confidential information to Mr. Rouben as none had been provided to me.

I heard nothing further from Mr. Usher after that one telephone call.

Mr. Usher knew that I would continue to be consulted and provide advice to Mr. Rouben and Mr. Molinaro. Mr. Usher never complained during this whole time period. That was approximately one and a quarter years ago.

No "confidential information" was ever used by me nor will any "confidential information" be used by me in the future as I do not have any confidential information.

Advance notice was given that I would conduct the cross-examinations. I prepared and participated without complaint until after Mr. Usher heard the first cross-examination.

8 Counsel for the applicant relies on the decision of the Supreme Court of Canada MacDonald Estate v. Martin (1990), 77 D.L.R. (4th) 249. Sopinka J., at p. 267, states as follows:

The Appropriate Test

What then should be the correct approach? Is the "probability of mischief" standard sufficiently high to satisfy the public requirement that there be an appearance of justice? In my opinion, it is not. This is borne out by the judicial statements to which I have referred and to the desire of the legal profession for strict rules of professional conduct as its adoption of the Canadian Code of Professional Conduct demonstrates. The probability of mischief test is very much the same as the standard of proof in a civil case. We act on probabilities. This is the basis of Rakusen. I am, however, driven to the conclusion that the public, and indeed lawyers and judges, have found that standard wanting. In dealing with the question of the use of confidential information we are dealing with a matter that is usually not susceptible of proof. As pointed out by Fletcher Moulton L.J. in Rakusen, "that is a thing which you cannot prove". I would add "or disprove". If it were otherwise, then no doubt the public would be satisfied upon proof that no prejudice would be occasioned. Since, however, it is not susceptible of proof, the test must be such that the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur. That, in my opinion, is the overriding policy that applies and must inform the court in answering the question: Is there a disqualifying conflict of interest? In this regard, it must be stressed that this conclusion is predicated on the fact that the client does not consent to but is objecting to the retainer which gives rise to the alleged conflict.

Typically, these cases require two questions to be answered: 1) Did the lawyer receive confidential information attributable to a solicitor-and-client relationship relevant to the matter at hand? 2) Is there a risk that it will be used to the prejudice of the client?

...

There may be cases in which it is established beyond any reasonable doubt that no confidential information relevant to the current matter was disclosed. One example is where the applicant client admits on cross-examination that this is the case. This would not avail in the face of an irrebuttable presumption. In my opinion, once it is shown by the client that there existed a previous relationship which is sufficiently related to the retainer from which it is sought to remove the solicitor, the court should infer that confidential information was imparted unless the solicitor satisfies the court that no information was imparted which could be relevant. This will be a difficult burden to discharge. Not only must the court's degree of satisfaction be such that it would withstand the scrutiny of the reasonably informed member of the public that no such information passed, but the burden must be discharged without revealing the specifics of the privileged communication. None the less, I am of the opinion that the door should not be shut completely on a solicitor who wishes to discharge this heavy burden.

The second question is whether the confidential information will be misused. A lawyer who has relevant confidential information cannot act against his client or former client. In such a case the disqualification is automatic. (emphasis added) No assurances or undertakings not to use the information will avail. The lawyer cannot compartmentalize his or her mind so as to screen out what has been gleaned from the client and what was acquired elsewhere. Furthermore, there would be a danger that the lawyer would avoid use of information acquired legitimately because it might be perceived to have come from the client. This would prevent the lawyer from adequately representing the new client. Moreover, the former client would feel at a disadvantage. Questions put in cross-examination about personal matters, for example, would create the uneasy feeling that they had their genesis in the previous relationship.

9 In this case, it would have been relatively easy to avoid the appearance of or the creation of a conflict. Given the MacDonald Estate v. Martin decision, to which I just referred, decided in 1990, it must be obvious to members of the legal profession that a system to screen potential clients with a view to avoiding the risk of conflict is part of professional responsibility and part of the duty of a lawyer.

10 In an era in which computer records are so easy to generate, it is a simple and straightforward matter to have a list of clients for whom one has acted or been consulted by readily available for review in order to avoid communicating with a person who may be in conflict with the lawyers' existing or previous clientele.

11 In this case, Mr. Usher had phoned Mr. Solmon's office and left a message. A simple review of the files that Mr. Solmon had already acted on would quickly have gleamed the name Marshall Usher and it would have been straightforward matter for a clerical employee to inquire whether the Marshall Usher who had called was related to the Marshall Usher in the case at bar and, if so, to simply advise the caller that there could be no communication because of a pre-existing professional relationship with an adversary.

12 Screening potential clients to ensure that there is no appearance of conflict or actual conflict must be particularly important in a relatively small and specialized field of law. The risk of eliminating the leading members in a specialized field is such that it must be obvious to the bar that particular care is necessary to avoid impairing their potential to act within their field and also to avoid the risk that existing clients may have to endure additional expense if a conflict, or appearance of conflict is created in the event that privilege communications are imparted even accidentally by a prospective client.

13 I am mindful that there is a risk that individuals could abuse their position as potential clients by communicating with a number of solicitors in the hope of reducing the field to a potential adversary, but this is a risk which must be apparent to members of the legal profession. Solicitors can avoid that risk by following a screening procedure.

14 I am also mindful that a litigant might abuse the potential of conflict in the course of existing litigation. As Cameron J. states in State Mortgage Corp. v. Trecapelli, [1997] O.J. No. 4177, at p. 8:

The court must be chary in assessing the credibility of an allegation of disclosure and conflict only after some delay during which the Trecapellis have been resisting States' aggressive steps to enforce an unsatisfied judgment. It might be only a tactic to delay and inconvenience the judgment creditor which itself could bring the administration of justice into disrepute.

15 I consider that issue in this case as there is clearly long delay between the time that Mr. Usher communicated with Mr. Solmon and his raising this issue shortly before a complex motion is to be argued. On the evidence, the communication between Mr. Usher and Mr. Solmon occurred on August 3, 1999. The first complaint made about Mr. Solmon's continuing to act in this matter was raised during cross-examination for this motion.

16 On the record before me, it is obvious Mr. Usher was on notice that Mr. Solmon might well continue to act on behalf of the plaintiff. This is apparent from paragraph 12 of Mr. Usher's affidavit, previously quoted, wherein he states:

17 Mr. Usher's evidence is, at paragraph 17:

On November 6, 2000, I was present when Scott Price was being cross-examined. At the first break, I advised Mr. Ellyn that I had heard him refer to the lawyer conducting the cross-examination as "Mel", and that I had not caught his name at the outset when introductions had been made. I asked him whether the lawyer was Mel Solmon, and was advised that it was. I then advised Mr. Ellyn that I had consulted Solmon about confidential matters relating to the litigation prior to retaining Ellyn Barristers.

I located and provided notes attached as Exhibit A to Mr. Ellyn. Mr. Ellyn then wrote to Mr. Solmon on November 9, 2000 asking him to resign immediately, or we would bring a motion to restrain him from any involvement in this litigation.

18 I am of the view that Mr. Usher was sufficiently experienced in litigation at the time that he considered changing counsel to be alert to the problem of potential conflict, having said to Mr. Solmon, in his own words that he "hoped he wouldn't discuss my case" that it must have been obvious to Mr. Usher when he did retain new counsel that he should have mentioned to his new counsel that there might be a potential problem if Mr. Solmon continued to act in any capacity for the plaintiff.

19 This is relevant to the disposition of this motion. In State Mortgage Corp. v. Trecapelli, supra, Cameron J. dealt with a motion to remove the law firm, Solmon Rothbart Goodman, the same law firm as responding to this motion for removal, in this motion.

20 Cameron J., stated, at page 9:

The Trecapellis knew of the Firm's acting for State in late 1993 when State began to enforce the debentures against Million Dollar Saloon. However no complaint was made until June 26, 1995, following a judgment against Million Dollar Saloon. No explanation of the delay has been offered. This delay suggests that the Trecapellis motive maybe a tactic to delay and discomfit State. I recognize this possibility but the only evidence to support it is the Firms denial of the Trecapelli's allegations. I am not satisfied that the Firm did not receive disclosures in confidence which might be used in cross-examination of the Trecapellis. The possibility of disclosure and the real mischief of its use against the Trecapellis would have a greater adverse effect on the administration of justice than the possibility, even a probability, of undue delay and additional cost of litigation. The risk of real mischief is more than mere perception. Delay alone cannot erase the existence of the conflict of interest and the need for remedial action.

(b) Costs of Replacing the firm.

The disruption and delay caused to State by the conflict can be compensated by payment to State of its costs to retain replacement counsel and to enable replacement counsel to become familiar with the facts, the issues, the client's objectives and modus operandi. Such costs should be determined on a solicitor-client scale.

21 In this case, I am satisfied that confidential information was disclosed to Mr. Solmon in the course of the telephone conversation that is referred to in the evidence. The fact that Mr. Solmon does not specifically recall the confidential information is irrelevant. Mr. Solmon wrote to counsel for the applicant on November 13, 2000 and states:

Not only did I make no notes, but I have no recollection of discussing any of the alleged confidential matters which your letter suggests Mr. Usher discussed with me.

22 The specific and detailed outline of what was discussed in the affidavit of Mr. Usher and the notes which are Exhibit A, to which I have referred, do indicate some confidential communication was passed to Mr. Solmon. I direct that the confidential information contained in Exhibit A be sealed, subject to further court order.

23 I am satisfied that there was no risk of breaching privilege in having reviewed Exhibit A as counsel for the applicant put it before the court for review in the discretion of the court and as the client's position is that it was disclosed to Mr. Solmon. I note that counsel for the respondent did not wish to review the information contained in Exhibit A and had the option of doing so if he wished to.

24 I cannot say whether there will be delay occasioned by removing Mr. Solmon and his firm as counsel on this motion. I am told that Mr. Solmon was expected to play a significant role in the motion which is to be argued tomorrow. I do not comment on whether there will be any delay or additional expense occasioned by the removal of Mr. Solmon. That is a matter that the judge who hears the substantive motion will undoubtedly be in a position to determine. In the event that there are costs attributable to the removal of Mr. Solmon, given that the delay in bringing this motion on is, in part, attributable to Mr. Usher's failure to disclose any concern to his new counsel when he had the opportunity to do so, such costs should be borne by Mr. Usher. The plaintiff in this case is to be compensated by payment of its cost, if any, to retain replacement counsel and to enable replacement counsel to become familiar with the facts and issues in preparation for the motion, to be determined on a solicitor-and-client scale.

25 I have endorsed the Motion Form as follows:

Order to go as asked in paragraphs 1, 2 and 5 of the motion. The client has undertaken to abide by any order concerning damages. The usual order to issue in that regard.

26 Costs of this motion in the discretion of the judge who hears the substantive motion.

PAISLEY J.

cp/d/qlrme