A Toronto law firm is facing a $25-million conflict of interest lawsuit in the latest twist in a protracted dispute over a building development.
In a new statement of claim filed with the Ontario Superior Court, brothers Vito and Joe Valela allege that Fogler Rubinoff LLP schemed with the Valelas’ former business partner, Philmor Goldplate Homes Inc., to force them out of a joint condo development in downtown Toronto. Dale Denis, a partner at Fogler Rubinoff, is also listed as a defendant.
The Valelas and their company, Valemont Group Ltd., started a separate action against Philmor and its principals back in 2003 after the collapse of their co-ownership of the Bloor Walk condo development.
Philmor retained Fogler Rubinoff to defend that action and launched a counterclaim, but the Valelas say it should have referred the case to another firm because it had already performed legal services on behalf of the co-ownership.
“The allegation is that before the complete breakdown in the relationship, the Philmor people were taking counsel from Fogler about how to extricate Valemont from the co-ownership,” says Stephen Edell, who is representing the Valemont Group in the new action.
“So it was not only that the lawyers found themselves in a conflict and breach of fiduciary duty, but the Valelas are alleging that during the course of the retainer, they were actively scheming with Philmor to further its agenda to squeeze Valemont out of the project.”
In an e-mailed statement, Martin Kaplan, the chairman of the litigation department at Fogler Rubinoff, dismissed the claim.
“The statement of claim issued by Valemont Group Ltd., Joe Valela, and Vito Valela against Fogler Rubinoff LLP and Dale Denis is entirely without merit and will be vigorously defended by the defendants to such claim,” he said. “We will make no further comments respecting this claim which is now before the court.”
The relationship between the Valemont Group and Philmor goes back to the 1990s, when they successfully completed a two-phase subdivision development in Mississauga.
The trouble began after they purchased land near Bloor and Jarvis streets in Toronto and started work on the Bloor Walk development.
According to the statement of claim, high construction costs caused tensions in the co-ownership to mount around 2001.
Joe Valela alleges Philip Macarz, one of Philmor’s principals, told him he “regarded [the Valemont Group] as the ‘weak link’ in the joint venture because it did not have significant capital to invest” and that he was “going to see the lawyers to figure out what to do about [the company] as the weak link.”
The Valelas say they agreed to use Fogler Rubinoff to provide legal services to the co-ownership around 1999 after Macarz suggested it because of his family’s long relationship with the firm.
But in hindsight, they allege Macarz “introduced Fogler as the solicitors to the co-ownership to secretly learn about the co-ownership and its principals.”
Since they launched their action against Philmor in 2003, the Valelas accuse Denis of making “exaggerated and outrageous claims” in open court.
“Dale Denis counselled Philip Macarz to allege fraud against Joe Valela personally,” the brothers allege, adding it was an “abusive breach of trust and confidentiality for him to champion offensive allegations that concern Fogler’s own clients’ internal business dealings pre-2003 when it was purporting to be acting for the co-ownership.”
During the course of the litigation between the two companies, Philmor was able to take control of the Valemont Group’s interest in the Bloor Walk development in exchange for a $5.5-million bond posted in court so that the first phase of the development could go ahead with a different partner.
But in the new statement of claim, the Valemont Group is seeking $25 million in damages against Fogler Rubinoff to cover its legal costs, lost project-management fees and profits, and $1 million in punitive damages. None of the allegations have been proven in court.
Simon Chester, a partner at Heenan Blaikie LLP with expertise in legal conflicts of interest, says the rules on joint retainers may apply to co-ownerships because there is a lack of law on co-owner representation.
The Law Society of Upper Canada allows lawyers to work for more than one client in a matter as long as they both understand they have retained them and that “no information received from one party on the matter will be kept confidential from the other,” Chester says.
But when a conflict arises, the clients must understand that the lawyer “may not be able to act for either or both of them and may have to withdraw completely,” he adds.
“On a co-ownership, one may say, ‘Let’s just use my law firm,’ and that’s absolutely fine as long as the other party realizes that it’s my law firm and they understand the ground rules as it proceeds.”
Chester notes the Canadian Bar Association strongly recommends that law firms have retainer letters and even goes as far as suggesting “I-am-not-your-lawyer” letters designed to clear up misconceptions when more than one person meets with a practitioner.
“The case may turn on whether Fogler actually had a retainer letter that said who the clients were and to whom the duties were owed,” Chester points out.
However, Chester notes that Denis and Fogler Rubinoff have represented Philmor at least since 2004, a fact that may work against the Valemont Group.
“One thing you have to do is to act on your knowledge in a timely fashion. You can’t sit on a conflict and then bring it up years later.”