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Judge paves way for resolution of law firm breakup

|Written By Michael McKiernan

A Superior Court judge has paved the way for assessments of more than 200 transferred contingency-fee files following a bitter split at a Toronto personal injury firm nearly three years ago.

'All I want is to get on with my life and all I want is my money, but they don’t want to give me my money,’ says Frank Loreto.

Late last year, Frank Loreto sued four of his former associates in a $3-million lawsuit alleging they were unjustly enriched when they brought 225 clients with them to their newly established firm, Little Morello Vettese Segreto LLP, in the summer of 2008.

The move followed the dismissal of an earlier claim by Loreto that the new firm’s principals, Ian Little, Dianna Morello, John Vettese, and Piera Segreto, had breached their fiduciary duty to him when they approached clients to switch to Little Morello Vettese Segreto.

The lawyers had previously worked at Loreto Little Morello and ran the personal injury practice that generated 95 per cent of its total billings.

Many of the files have resulted in large settlements with a 30-per-cent contingency fee due to the lawyers. The four lawyers say Loreto can only be paid for work done on the cases before the transfers, but he wants to see the whole file, including the details of any settlement, before deciding what to charge for his portion.

Assessments had already begun in 26 cases after the new firm objected to accounts delivered by Loreto. In addition, the split has spawned 14 Small Claims Court actions between Loreto and individual former clients as he sought payment.

In the meantime, the new firm brought a motion to have the latest unjust enrichment claim dismissed, but all legal proceedings related to the case have now been stayed after lawyers for both sides agreed to let Ontario Superior Court Justice Ted Matlow set a road map for the resolution of the fee dispute.

In coming to the agreement, Matlow said the parties “uncharacteristically decided to exercise common sense and good judgment” in what has otherwise been a “long, hostile, costly, and so far unproductive saga” characterized by “bad feelings and hostility.”

In his April 18 ruling, Matlow ordered the new firm to turn over the names and contact information for all affected clients, as well as the status of the claim, billing details since its origin, and the amount of any settlement by May 13.

Loreto must then notify the affected clients whose accounts are ordered to be assessed. They may participate in the hearings if they wish, although they may not have representation by anyone with a connection to the new firm or Loreto.

Despite his order, Matlow held out hope for a less complicated way to proceed. “It would be far better for many reasons if the principal parties could still find a way to avoid the cost and effort and the consequences of engaging the affected clients in a dispute which is really not theirs but that of the various lawyers involved,” he wrote in the decision.

“If no resolution can be reached, it is the lawyers who will ultimately have to explain this unseemly dispute and bear the inevitable consequences.”

But in an interview with Law Times, Loreto suggests the spirit of co-operation that led to Matlow’s decision won’t last very long. “They’re basically in denial,” he says of his adversaries.

“All I want is to get on with my life and all I want is my money, but they don’t want to give me my money,” he adds.

The bad feelings stem in part from a peace bond application by the four lawyers against Loreto for threatening behaviour when he attempted to personally serve documents on them. A justice of the peace is currently hearing evidence on that application, which is back in court in late May.

Loreto sees Matlow’s decision as a victory because he had previously argued for a consolidation of the assessments. Matlow also declined to disqualify an assessment officer that the new firm didn’t want to see participate.

But in a statement, Morello said she and her co-defendants were pleased to see Loreto’s various actions stayed. “We are looking forward to moving forward without the threat of any further unnecessary litigation,” she wrote. “It has been our goal to finalize matters between ourselves and Loreto at least expense to all concerned without bringing clients into the dispute.”

The split has its origins in a late-night meeting at the old firm in June 2008 when the four lawyers approached Loreto with a proposal for a profit-sharing partnership. Loreto says he felt ambushed by the offer and things quickly boiled over.

Dismissing Loreto’s claim for breach of fiduciary duty in February 2010, Superior Court Justice Edward Belobaba found Loreto had fired two of the lawyers and constructively dismissed the other two during the explosive meeting.

Within weeks, the new firm had set up shop and began approaching former clients after seeking advice from the Law Society of Upper Canada on how to go about soliciting them. But Loreto claims the new firm cherry-picked files and says the split and its aftermath have almost bankrupted him.

Only a recent personal injury settlement allowed his firm to survive. “I’d run out of people to borrow money from. I truly believe these people are shocked I’m still standing but I’m a survivor.”

For more on this story, see "Hamlet-like battle at Toronto firm."

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