Law in Quebec

The plaintiffs, members of the Montreal Jewish community, claim they were approached by Perras to participate in business opportunities that required them to make short term loans to be held into the trust accounts operated by the firm and Perras before paying out a pre-determined rate of interest. One set of investors suing Kaufman Laramée for a total of $1.65 million allege that the firm was negligent because it failed to inform them that Perras was no longer a partner when they made the deposits, says the plaintiff’s counsel Sylvain Deslauriers, head of Montreal law firm Deslauriers & Co. While the law firm and Perras ended their partnership in June 2011, Perras was allegedly allowed to maintain an office until September during which time Perras held himself out as a Kaufman partner and allegedly continued to receive deposits from the plaintiffs.

In light of the actions against it, Kaufman Laramée turned towards the Professional Liability Insurance Fund of the Barreau du Québec. But the Quebec professional liability insurer denied coverage and refused to defend Kaufman and its partners because it felt Kaufman and its partners did not provide professional legal services – a position that the Quebec Court of Appeal endorsed in a succinct nine-page ruling.

After examining the allegations made by Deslaurier’s clients, the appeal court held that perhaps Kaufman Laramée committed a civil fault by failing to inform the investors that Perras was no longer a partner but in no way could it be qualified as a professional fault.

“This fault is not at all linked to a professional service, that is a service rendered in the exercise of the profession of lawyer, a sine qua non condition to the applicability of the obligatory professional responsibility insurance coverage by the Barreau du Québec,” said the panel of three judges in one of the few decisions in Canadian case law that examined the interplay between insurance coverage and professional legal services. “There is an absence of any allegation regarding a fault committed by the lawyers of the firm acting in a professional capacity while Perras was no longer a member of the firm Kaufman Laramée LLP.”

Neither did the law firm provide professional legal services in two other lawsuits launched by investors, added the appeal court. In these two actions, the Sofer Foundation and Chaim Mermelstein allege that they were solicited by Perras to participate in a transaction with a Swiss corporation that was raising funds to assist a U.S. company withdraw from bankruptcy. After agreeing to participate in Perras’ proposal, the plaintiffs deposited sums into Kaufman’s trust account and signed deposit agreements, naming Kaufman as escrow agent. But unbeknownst to the plaintiffs, when Perras left the Kaufman partnership, the law firm transferred their deposits from the firm’s trust accounts into Perras’ personal trust account. The plaintiffs contend that Kaufman and its partners transferred the deposits without authorization, in breach of the parties’ deposit and escrow agreements.

“The deposit of monies was not done by way of professional services, but rather following an investment proposition,” noted the appeal court in Kaufman Laramée c. Fonds d’assurance responsibilité professionelle du Barreau du Québec 2014 QCCA 804. “Providing investment dealer services is certainly not a service rendered in the exercise of the profession of a lawyer.”

The ruling has left more than one lawyer puzzled. Deslauriers notes that the ruling hinges on what is deemed to be professional legal services. “If, as was the case with my clients, a law firm vaunts its reputation, touts the reputation of its partners, and is aware or should have been aware that one of its partners was conducting transactions within the firm that gave the appearance it was business linked to the law firm, I am not certain that this is not something that is linked to a professional legal service,” said Deslauriers. “In this case, my clients state that the firm’s letterhead was used, that (business) was conducted in their office, and that the monies were held in trust by the law firm or Perras’ own trust account.”

Montreal lawyer Alain Chevrier, who represents the Sofer Foundation and Mermelstein, too is baffled by the ruling. “The ruling has wide and important implications because it effectively states that in cases where monies are diverted by a partner, there is no insurance coverage by the Barreau’s professional liability insurer,” said Chevrier, who admits that the appeal court’s ruling is not a favourable one for his clients as the opportunity to hold the Barreau’s professional liability insurer at least partly responsible to indemnify them has gone by the wayside.

Chevrier also points out that his clients claim that Perras represented himself as a lawyer acting for a Swiss corporation so “I have a difficult time understanding how the Quebec Court of Appeal could conclude that the services he rendered were not legal professional services.”

But Neil Stein, another Montreal lawyer who is representing several clients seeking monies arising from the alleged misappropriation, believes the appeal court ruling is sound and a clear warning to both lawyers and their clients to be wary when engaging in business ventures. “The ruling stands for the proposition that if a lawyer’s trust account is used for business purposes as opposed to professional purposes that you don’t have insurance coverage with the bar insurance,” says Stein of Stein & Stein Inc. “It is a clear message to both lawyers and clients that if you are engaging in business venture with your lawyer that the business venture is not covered by professional liability insurance. It is a business venture, and not a professional service that is being rendered.”

In a rather sad and unusual twist, the case is also pitting alleged victims of the defalcation against each other. When Perras returned the deposits to the Sofer Foundation and Mermelstein, the Barreau — who by that time was investigating the former lawyer regarding a number of alleged defalcations — seized the their bank accounts until the ownership of the monies returned by Perras could be determined. The Sofer Foundation and Mermelstein are demanding the return of their monies while the clients represented by Stein are claiming that the monies in the bank accounts belonging to the Sofer Foundation and Mermelstein actually belongs to them.

“My clients were certainly happy that the Bar on its own initiative took proceedings to try and safeguard the monies by way of an injunction that froze monies in the accounts of Sofer and Mermelstein,” said Stein. “Of recent date, the Bar has now sort of tried to take the position that it no longer has an interest because all of the people who have a claim to the money have intervened into the proceedings and they can fight their own battles so to speak.”

In the meantime, the trustee of Perras’ bankruptcy also is claiming a stake. He is claiming that all of the monies belongs to the trustee in bankruptcy because all of the transactions were not real business transactions and as a result the money should be on a pro-rata basis distributed to all of the creditors. “It’s an unfortunate and sad affair for everybody involved,” said Stein.

Both Kaufman Laramée and the Barreau did not return calls.