Class actions can target firms as defendants

The lawsuit also names law firm Cassels, Brock & Blackwell LLP as a defendant. The suit alleges conflict of interest, claiming the law firm advised the federal government on the auto bailout package at the same time it was also advising the Canadian Automobile Dealers Association.

National Post
November 10, 2010

Class actions can target firms as defendants
Daryl-Lynn Carlson

David_Sterns_Sotos_LLP.jpg

David Sterns of Sotos LLP Brett Gundlock/National Post

As class actions gather momentum, several major law firms have been targeted as defendants in the past year.

It's a trend that is indicative of larger law firms' propensity to expand their areas of expertise to become a one-stop resource for all types of legal advice.

David Sterns, of Sotos LLP in Toronto, has been retained, along with WeirFoulds LLP, as plaintiff counsel in a class action against General Motors by 215 of its auto dealers. The lawsuit also names law firm Cassels, Brock & Blackwell LLP as a defendant. The suit alleges conflict of interest, claiming the law firm advised the federal government on the auto bailout package at the same time it was also advising the Canadian Automobile Dealers Association. The allegations have yet to be proved in court. The case is still in the early stages of litigation and a judge has yet to rule on the merits of the case. Cassels Brock lawyers declined to comment on the case.

While Mr. Sterns wouldn't discuss the case specifically, he suggested that conflict of interest problems tend to increase as firms increase in size.

"The mega-firm model is fraught with the potential for client conflicts," Mr. Sterns said.

He suggested that large law firms will have to factor in the risk of class actions in their conflicts and risk-management programs.

"Conflict of interest is a hot topic right now in terms of law firm organization. The larger the firms become, the more vigilant they need to be in preventing conflicts of interest," he said.

In another case, Fraser Milner Casgrain LLP has been named as a defendant in a $50-million class action against Rochester Financial Ltd. involving a charitable gift program. The Canada Revenue Agency disallowed the charitable donation tax credits in the program.

The suit, styled as Robinson v. Rochester Financial Limited, alleges that FMC issued a favourable tax opinion that was used to promote the gift program. The case was certified by the Ontario Superior Court of Justice as a class action earlier this year, but a judge has yet to rule on the merits of the case. (An appeal to the Divisional Court was refused). An FMC spokesman declined to comment on the case.

David Thompson, a partner at Scarfone Hawkins LLP in Hamilton, is representing the plaintiffs.

He noted that when the plaintiffs received advice regarding their tax obligations, they had confidence based on the law firm's prominence.

"Their name lent credibility to the program," Mr. Thompson said. "I think the court recognized that legal professionals are in a position to perhaps influence what programs are able to be sold and marketed, and our allegation is that if not for the tax opinion, the case never would have been launched."

Mr. Thompson acknowledged that class actions are stripping law firms' traditional trepidation of naming other law firms as defendants in law suits. "My partners and I don't relish suing other lawyers but in this case, we looked at it very carefully and thought there is an extension of liability that goes to the law firm."

As well as participating as plaintiff counsel in the General Motors class action, WeirFoulds has been named as a defendant in a separate action, Allen v. Aspen Group Resources Corporation, along with one of its lawyers, Wayne Egan, who served on Aspen Group's board of directors when it undertook a takeover bid. The defendants are being sued for alleged misrepresentations in a take-over circular. The case has been certified as a class action, but the Ontario Superior Court Of Justice has yet to rule on the merits of the claim. A WeirFoulds spokesperson declined to comment on the case.

That major law firms are being named as defendants in class actions is noteworthy for legal academics.

Lorne Sossin, dean of Osgoode Law School at York University, has been watching each case closely.

He said the trend may prompt law firms to revamp the way they conduct business.

"I think there will be a reaction in terms of risk assessment for law firms when they're getting involved in certain kinds of transactions," Mr. Sossin said.

"The range of scenarios where a law firm can be involved as a defendant or as a co-defendant is very broad, so larger law firms will probably have to revisit their policies about conflict of interest and liability."

Mr. Sossin added that all law firms will be watching the courts to ascertain what each case will mean for their firm.

"At the end of the day it will take a few judicial decisions to clarify the scope of a lawyer or law firm's exposure," he said.

"It will be very interesting to see the outcome and what this will mean for law firms and their policies in the future."

http://www.financialpost.com/news/legal/class-actions/Class+actions+target+firms+defendants/3804203/story.html


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