A charity and a businessman who sued a Montreal law firm caught in a tangled web of lawsuits after a former partner allegedly orchestrated a multi-million Ponzi scheme lost their case after Quebec Superior Court held that the lawsuits were groundless in a case that draws some light into a murky financial world.
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The law firm, Kaufman Laramée LLP, faces several lawsuits stemming from a multi-million dollar fraud allegedly committed by Dany Perras, a Montreal lawyer who abruptly resigned from the roll in October 2011 after the Quebec legal society launched an investigation into the misappropriation of funds. Perras, who briefly practiced at Kaufman Laramée for six months in 2011, was barred from practicing for 10 years by the Quebec Bar in 2014. He was also ordered by the Barreau du Québec’s Disciplinary Council to return more than $3 million to clients. Perras has never been criminally charged.
Montreal businessman Abraham Werzcberger and the charitable organization Gmach Beth Joel alleged that they were approached by Perras to participate in business opportunities that required them to make short-term loans to be held in trust into the accounts operated by the law firm and Perras before paying out a pre-determined rate of interest.
Werzcberger and Gmach alleged that the Montreal law firm was negligent because it failed to inform them that Perras was no longer a partner when they made the deposits. They alleged that they invested based on Kaufman’s reputation. They maintain that the law firm is liable for the monies that they lost. Werzcberger sued for $750,000 while Gmach sought $700,000.
Quebec Superior Court Justice Lucie Fournier granted the law firm’s motion, and tossed out the suits.
Werzcberger’s transactions
Werzcberger is a Montreal businessman who conducted his first transaction with Perras on May 2011 when he agreed to loan $100,000 to Skinstore.com. A bank draft was drawn up and held in trust by the law firm who in turn gave him a receipt. Werzcberger did more business with Perras shortly thereafter. He loaned a total of $750,000 in the course of three transactions but this time he was told by Perras they were held in his trust and that the Escrow Agreements would reflect the change.
Here’s where Werzcberger’s case began to fall apart.
On July 21, 2011 a $250,000 loan agreement between a numbered company and Werzcberger was reached. A document dated on the same day entitled Escrow Agreement between the numbered company, Werzcberger and Perras was signed. Two bank drafts, one for $185,000 and the other for $65,000, dated on the same date were drawn up in Perras’ name that were held in trust. A deposit agreement for $250,000 was signed by Perras on the law firm’s stationary.
Werzcberger was asked about the source of these monies because he had to establish that he himself had sustained “personal injury.” An action can be brought only by a person who is able to be a party to an action, reminded the Supreme Court of Canada in Bou Malhab v. Diffusion Métromédia CMR inc., [2011] 1 SCR 214.
Werzcberger could not. Werzcberger testified that the $185,000 bank draft came from his synagogue. “He clarified that it was not them who invested, but he must reimburse it,” noted the ruling in Werzcberger c. Kaufmann Laramée 2017 QCCS 1489. When asked to prove that the synagogue made the loan, Werzcberger could not. “These documents do not exist…He is not able to obtain them,” Werzcberger replied through his lawyers.
On September 7, 2011, Werzcberger claimed that he lent $200,000. An escrow agreement was signed on the same day between Perras and Werzcberger, and a bank draft of $200,000 was drawn up to Perras in trust. When examined about the source of the funds, this is what he had to say:
Q. It didn’t come from your bank account though, right?
A. I have to check, but I don’t know from where I was hunting around after money, I don’t remember if we take it from third one or…I have to check…
Q. Where did you…who did you hunt around after money with?
A. All of my friends.
Q. And who lent you money, or advanced you money, or gave you money, or…?
A. I have to research exactly where I received that.
Q. But you’ll agree with me you did not have two hundred thousand dollars available on your own, to put of your own money into this deal?
A. My own money, no.
Q. So I would ask you to provide me with the source of the funds for this investment.
Werzcberger could not.
The final transaction Werzcberger had with Perras turned out to be monies that were from his cousin.
“Mr. Werzcberger was unable to show any harm even though he alleges a contractual fault towards him,” said Justice Fournier.
Gmach’s transactions
Gmach Beth Joel, headed by Julius Behrend, is based in New York. It provides short-term loans to people in need, and sometimes provides commercial loans as well. The charitable organization did business with Perras eight times, the first dating back to December 2010 when Perras was practicing at Montreal law firm Spiegel Sohmer. The last two transactions that Gmach did with Perras are the source of the lawsuit. Gmach contends that it lent Perras $200,000 on July 2011 and $500,000 on September 2011. It maintains that it was not aware that Perras left the firm on June 30, 2011, “a fact all the more shocking considering that Plaintiff’s representatives met with Mr. Perras at Defendant Kaufman’s offices in order to conclude the business transaction,” asserted Gmach.
Gmach, like Werzcberger, alleged it had invested important sums based on the reputation of Perras and the law firm. Gmach maintains that Kaufman Laramée was negligent because it was led to believe that Perras was a reliable and loyal person that could be trusted. Gmach alleged that it lost its investments due to Kaufman Laramée’s conduct.
Gmach, like Werzcberger, too had to establish the source of his investment funds to prove that it suffered “personal injury.”
Gmach, like Werzcberger, had his lawsuit thrown out because a different portrait emerged from the evidence.
Behrend, it turns out, never met with Perras and does not remember speaking with him. Nor does he know any of Kaufman Laramée’s partners. A man by the name of Eliazer Klein solicited Gmach for the two latest transactions, a man that Behrend never met. Behrend also does not remember how many telephone conversations he had with Klein. According to Behrend, they were not loans that he provided to Perras but rather amounts that he placed in Perras’ trust accounts in exchange for “some participation fee for doing that.”
Behrend did not sign loan agreements nor escrow agreements. He did not give Eliazer Klein power of attorney or a mandate authorizing him to act for him. Klein did fax him receipts but Behrend did not hold on to the documents nor any of the correspondence. Here is what Behrend had to say about the source of the monies:
Q. Did Gmach Beth Joel advance any money to Kaufman Laramée?
A. We put it into an Escrow account.
Q. Did you write any cheques, any money come from Gmach Beth Joel to Kaufman Laramée?
A. I believe so. I don’t remember, but how it went, I don’t remember, if we went with a wire transfer or not, but…I don’t know
“Under the circumstances, it appears to be difficult, if not impossible for Gmach to establish that it had contracted with Perras because he thought it was with Kaufman,” said Justice Fournier in Joel c. Kaufman Laramée 2017 QCCS 1488.
“The Court is of the opinion that Gmach’s suit has no chance of succeeding, and that Behrend’s examination over the alleged facts and evidence produced, demonstrates that it is clearly groundless and reckless.”
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