Lawyers breached fiduciary duties in 'planned and deliberate operation'
The Ontario Superior Court of Justice has granted an injunction against a group of lawyers for breaching their good faith and fiduciary duties in a “planned and deliberate operation” to take over the personal injury practice of their employer Sokoloff Lawyers.
In his decision, Ontario Superior Court Justice William Chalmers wrote, “without providing notice to her employer, Ms. Chorney closed the office at 1 p.m. on October 8, 2021, and asked the employees to leave the computers on and not password protected. She downloaded client files. She arranged for the locks in the office to be changed and the Sokoloff Lawyers sign to be removed. She had previously secured a domain name and prepared letterhead for her new firm. I find that she contacted clients about the transfer of files before she resigned from the firm.”
Sokoloff established serious issues to be tried and met the test for an injunction because it was unreasonable for the law firm to finance payments on the transferred files and for Chorney to control and retain the value of the documents through “self-help” without costs or risk, Justice Chalmers wrote. The judge found that Chorney’s conduct was unfair competition for Sokoloff.
Justice Chalmers ordered Chorney to pay the disbursements on all transferred files within five months and placed future settlement proceeds in trust pending firm fees confirmation.
“Instead of the defendants obtaining bank financing to pay for the upfront cost of disbursements, the defendants seek to have Sokoloff Lawyers take on the role of a bank to finance the new firm. There is no evidence that Ms. Chorney took steps to obtain financing for the disbursements, or would be unable to obtain financing,” Justice Chalmers wrote.
The plaintiff’s lawyer, Rahool Agarwal, say the decision reinforces that law firms and lawyers are protected from breach of duty of loyalty and good faith. The decision also provides a framework for the payment of disbursements when parties disagree with clear guidelines for handling communications and addressing fees distributions for retained clients, Agarwal says.
Chorney refrained from speaking on the decision and told Law Times, “as this matter is currently before the court, we have no comment at this time.”
The ruling will guide lawyers on both sides of a departure, mainly when it turns contentious, says Jonathan Lisus, another lawyer for the plaintiff. Justice Chalmers’s verdict is a cautionary tale for lawyers about separating from their law firm and colleagues, he says. “As counsel and colleagues, we owe duties to each other and to the profession, and the court rightfully expects that we will observe them.”
In Wendy Sokoloff Professional Corporation v. Chorney, Savannah Chorney was the lead lawyer at the Brampton location of Sokoloff Lawyers before taking over the premises. On Thanksgiving Monday, she informed her employer Wendy Sokoloff in an email that she was resigning to start her firm with lawyer Melissa Macleod and four clerks, Jhade-Anne Hue, Susan Murray, Malka Gill, and Suzette Lewis-Baxter. They also worked in the office and intended to operate out of the same site.
Chorney contacted clients to inform them of her departure and presented them with three options required by the Law Society of Ontario, including moving the file to Chorney Injury Lawyers, staying with Sokoloff Lawyers, or retaining a new firm. Sokoloff began receiving client file transfer authorizations the Tuesday after Thanksgiving, and over 200 clients transferred their files to the new firm.
Sokoloff sought injunctive relief for upfront payment on transferred files and compensation for legal work performed before the transfer. Relying on Grillo v. D’Angela, the plaintiff argued that each action was a serious issue to be tried, claiming that the defendants frustrated the solicitor’s lien rights and induced a breach of contract, unjust enrichment, good faith, and fiduciary duties.
Sokoloff argued that the balance of convenience favoured the injunction because the defendants created an unfair situation through self-help and benefited from the files freely. Therefore, requiring the defendants to pay the costs of the disbursements at the time of the files transfer prevents the firm from assuming the cost of disbursements for its files and its competitor, Chorney Injury Lawyers.
The defendants disputed that the injunction was inappropriate because Sokoloff’s losses were “quantifiable monetary damages.” Chorney argued that the court should maintain the status quo in assessing the balance of convenience because before Thanksgiving weekend, Sokoloff assigned the files to Chorney’s management and that when the files resolve, Sokoloff would be reimbursed for the disbursements and receive her share of the profits.
Chorney’s counsel argued that if the files were going to a different firm, the payment of disbursements might differ, but there is no reason for changing the arrangement because the files remain with Chorney.
They argued that the Grillo case concerned the removal of physical files while the documents in this specific case were electronic, and that Chorney complied with the LSO rules involving the transfer by providing clients with the option to move the file to the new firm, stay with Sokoloff Lawyers or retain new counsel. Chorney’s counsel argued that Sokoloff’s claim for disbursements payments should be against the individual clients and not the defendants.
Chorney did not follow the LSO rule that the firm and the departing lawyers send a joint notice to clients, and she stated it was unlikely Sokoloff Lawyers would agree to a joint letter.
In addition to reimbursing all disbursements, Justice Chalmers ordered that the defendants refrain from communicating or soliciting any current Sokoloff Lawyers’ clients and that the plaintiffs also abstain from soliciting clients who have delivered file transfer authorizations to Chorney Injury Lawyers. In their communications with clients, he also ordered that Chorney and Sokoloff not disparage the other explicitly or implicitly.
