Perhaps “rats” would be a more accurate description. They were three of the associates and a paralegal of the firm — Tullio D’Angela, Jamie Fox, R. Tally Vanounou, and Vince Porcelli — intent on starting up their own shop with the personal injury client files of their employer.

After Salvatore Grillo had left the office, the defendants deleted all of the e-mails from their computers and walked away with some 250 of Grillo’s files. The associates left a letter for their erstwhile employer, advising him they were starting their own firm and indicating that “a number of clients had directed that their files be transferred from Grillo & Associates to their new firm.”

They provided a list of files that had been “transferred” to the new firm and undertook to protect the fees and disbursements of their former employer when the matters were eventually resolved by settlement or judgment.

They made no effort to ensure that the files on which they had been working, but did not take with them, were properly papered with transfer memos. They also induced three assistants to leave the Grillo firm to join them in their new venture.

The unfortunate Mr. Grillo found out about the treachery of his employees on Dec. 29, so at least his Christmas wasn't ruined. An action was commenced by the Grillo firm and a motion was promptly brought for an injunction requiring the return of the files.

That’s not all . . .

The 250 files had accumulated about $300,000 in outstanding disbursements and about $1 million in outstanding fees on an hourly basis. The contingency fees of those files were estimated at about $2 million and represented about 50 per cent of the firm’s anticipated fees.

While still in the employ of Grillo, the employees began contacting clients to get instructions and directions from them to transfer the files to their new firm. The blitz of contacting clients continued on Christmas Eve, Christmas Day, Boxing Day, and the following days. Notably, when the 250 files were removed from the Grillo premises on Dec. 24, no written directions had been provided by any clients.

The judge hearing the injunction motion rightfully concluded that the defendants masterminded a covert operation to take the files in the expectation that they would have at least five days before Grillo discovered their actions and that they would use that time, as they clearly did, to contact the clients and attempt to persuade them to transfer their matters to the new firm.

Upon discovery of the plot, Grillo began contacting his clients with a view to discussing his firm’s intention to continue serving them and protecting their interests, as well as their financial obligations to the firm.

In perhaps what is one of the most brazen actions during the course of this whole affair, the lawyer for the defectors contacted Grillo to object to him contacting his own clients!

What the judge ordered

The Grillo firm brought a motion before Ontario Superior Court Justice George R. Strathy requiring the return of the client files on the grounds that the defendants interfered with Grillo’s solicitor’s lien on the client files, jeopardized his ability to discharge his professional responsibilities to his clients, as well as his ability to collect fees owing to him.

The court found that there was a clear prima facie case that the defendants breached their duties of loyalty and good faith to their employer as well as favouring their own interests over those of the clients.

On the issue of whether the Grillo firm had a possessory lien over the client files in the case where the files are subject to contingency fee arrangements, the court did not find it necessary to decide the issue. But in obiter dicta, Strathy indicated that as solicitor of record, the Grillo firm had a higher right to possession than did the defendants.

Despite that, the court also found the plaintiffs would not suffer irreparable harm if the files were to be retained by the defendants because the plaintiffs’ financial concerns could be dealt with by means of an order providing the plaintiffs access to the files in the possession of the defendants.

Those parts of the file, such as solicitors’ notes, that belong to the plaintiffs were ordered to be returned, but the parts of the file that were the property of the clients could remain with the defendants, if that accorded with the preference of the clients.

The court recognized that Grillo was unfamiliar with many of the files through no fault of his own, and the interests of the clients would be best served by avoiding the risk of more confusion should the files be ordered back into the possession of his firm.

The judge imposed a limit of three weeks during which the clients were to indicate their preference, following which all files for which signed directions had not been received were to be returned to the Grillo firm.

Nor did the judge find that the balance of convenience favoured the plaintiffs. In an amusing reference to the submission made by counsel for the defendants about unscrambling the eggs, Strathy had this to say:

“[Counsel for the defendants] submits that the court should not attempt to ‘unscramble the eggs.’ Coming from the defendants, who broke the eggs in the first place, the argument loses much of its attraction. Nonetheless, I am convinced that ordering the return of the files to Grillo & Associates, some two weeks after the eggs were scrambled, would do more harm than good. As I have said above, it could result in total confusion on the part of the clients and could potentially result in prejudice in the prosecution of the clients’ claims.”

Because the clients had dealt almost exclusively with the defectors from the firm, the judge concluded that they would likely want those lawyers to continue working on their files, tempted though he may have been to demonstrate the court’s disapproval of the defector’s conduct.

The end

The judge concludes his endorsement with sage advice aimed at warning other lawyers who could potentially face a similar situation in the future. This is perhaps the decision’s most important aspect, especially given the volatile and ever-changing nature of the practice of law as it exists today in Ontario and other parts of Canada.

Lawyers nowadays appear to exhibit far less loyalty to their firms that they did in the past. Knowing this to be the case, it is only prudent that law firm management anticipate the possibility of this kind of situation arising by including specific clauses in employment and partnership agreements to deal with the problems that arise when lawyers leave to set up shop on their own or with an established firm.

The courts have fairly consistently enforced non-solicitation clauses in employment agreements for some time.

It is essential that newly hired associates and paralegals have their relationship with the firm embodied in a written employment or independent contractor agreement.

Not only that, but currently employed lawyers and paralegals should have their extant agreements (be they oral or written) formally embodied in agreements that include transition provisions and/or non-solicitation agreements.

The employment contract need not be lengthy or contain excessive verbiage; it must however cover the basic clauses and provisions of the Employment Standards Act and must be settled prior to completion of the hiring process. As such, all hiring should be conditional on the employee signing the contract to confirm agreement to the terms offered.

In addition, as the employment evolves, the employment contract should be reviewed and, with regard for the requirement for consideration, changes to the terms should be made as required to reflect the changes in the employment arrangements and the amended employment contract should be dated and signed.

The additional consideration that may be required to legitimize any change to the employment agreement is well worth the expense, especially in light of the expensive consequences that can arise if no agreement is in place.

Ensure that you enjoy your next Christmas holiday by protecting your client files today . . . and to all a goodnight!

Ed Pundyk, This e-mail address is being protected from spambots. You need JavaScript enabled to view it , is counsel to Lang Michener LLP and chairman of the labour and employment group in the Ottawa office. Pradeep Chand, This e-mail address is being protected from spambots. You need JavaScript enabled to view it , has just joined Toronto’s Brauti Thorning Zibarras LLP as a partner.