In a ruling that highlights the perils of an unspoken agreement, a securities lawyer and in-house counsel recently lost his case against a Toronto law firm over allegations of unpaid work.
Gary Sugar first went to the Kim Orr law firm in 2009 to hire it to act for Precious Metal Capital Corp., where Sugar works as in-house counsel. But things soon took a different turn when Kim Orr representatives looked at possibly hiring Sugar, Superior Court Justice Edward Morgan noted in his Nov. 23 ruling in Sugar v. Kim Orr Barristers Professional Corp.
After a March 24 meeting that year, the firm, which specializes in class action lawsuits, gave Sugar a couple of claim drafts to work on as a way of demonstrating his skills.
But in November 2009, Kim Orr partners were surprised when Sugar invoiced the firm for more than $31,000 in fees and presented a claim for a 50-per-cent premium should it win the class action cases he worked on. Sugar, Morgan noted, also billed for a third claim he thought up himself and presented to the firm that it ultimately didn’t pursue.
The firm’s partners weren’t concerned with the amount of money Sugar billed, which wasn’t farfetched for a lawyer with his experience, the court heard. But they were under the impression he was volunteering his time with hopes of landing a position.
“We do not have any intention of paying the invoice you have rendered. We did not hire you to work on the file,” the firm replied to Sugar in an e-mail message.
At the core of Morgan’s ruling was a contingency agreement, an arrangement that’s usually inherent to class action cases. “The agreement between the parties was known to both sides, but neither seems to acknowledge it,” wrote Morgan in Sugar.
The firm couldn’t have expected Sugar to work for free, he added, but “at the same time, the plaintiff agreed to work for a firm that operates on a contingency fee basis, and it’s not reasonable for him to have expected to be paid until the defendant as a class counsel in these cases is paid.”
Kim Orr founding principal James ACOrr admits the parties didn’t fully work out the terms of Sugar’s payment before he began the work.
“There was never any discussion of a payment,” he says. “But after he raised this issue, we said, ‘Look, I mean we never hired you but we’ll put forward your time in the event [that the firm is paid].’ He would not accept that.”
“He sued and he lost,” Orr adds. “He got what we had offered him well before we went to trial. But he wanted cash as if we had hired him as our lawyer.”
Sugar told the court he claimed billable hours for the drafts he worked on based on a “verbal retainer” entered into by the parties during the March meeting. But his cross-examination revealed that what the parties would normally discuss in a retainer agreement was missing.
“We didn’t discuss payment,” Sugar told the court.
“It was understood. They took my work and asked me to do more work.”
When questioned by the firm’s counsel if he knew that class action lawyers don’t receive compensation until the claim is successful, he replied, “Yes, but I understood that they have agents and others to pay.”
Morgan found that comparison entirely flawed.
“Needless to say, the plaintiff was not an agent like the defendant’s process server and was not in the same position as a contractor such as the defendant’s office cleaner,” wrote Morgan.
The firm also denied that a job for Sugar was imminent or a realistic possibility.
Won Kim, also a founding principal at the firm, “stated emphatically at discovery that during the course of their dealings, there was ‘no reasonable expectation by either party that there would be any kind of association,’” Morgan noted.
Sugar, however, argued the firm couldn’t claim he was working for free in order to secure a job while also saying he had no prospect of actually getting a position.
Sugar’s former spouse also testified that the firm was “wooing” Sugar into taking a position with it, Morgan noted.
Morgan concluded the firm didn’t deceive Sugar. “Rather, it appears to me that both parties knew the terms on which the plaintiffs’ class counsel typically work and had a mutual understanding despite never having articulated it.”
Nonetheless, the ruling is “exactly what we asked for,” says Orr.
“We never hired him. . . . He wanted to get a job with us and he wanted to demonstrate that he could add something. So we gave him two draft claims to look at, he provided some comments, some of them we incorporated, and that was it.”
Asked whether Sugar could work with the firm in the future, Orr gives a terse response.
“No,” he says. “Never.”
For his part, Sugar expressed disappointment with the ruling when reached by Law Times last week.