Kaufman has been sued in five actions by investors who say they made deposits into the trust accounts of the firm or its former partner Dany Perras, but have not got their money back.
The insurer, Fonds d'assurance responsabilité du Barreau du Québec, refused to defend, claiming the lawsuits were outside the scope of its policy, since the trust fund deposits were unconnected to “professional services” rendered to the plaintiffs in the five cases. Kaufman challenged that decision in court, but last week, Quebec Superior Court Justice David Collier sided with the insurer.
“A review of the pleadings and exhibits does not reveal anything that allows one to conclude that Perras or Kaufman may have rendered professional services to the plaintiffs. Taking the pleadings at face value, it appears they provided investment services to the plaintiffs,” Collier wrote. “Since the pleadings and exhibits in the five actions do not show that Perras or Kaufman may have held the plaintiffs’ trust funds in connection with professional services rendered to the plaintiffs or to a third party, there is no coverage under the policy and the Fonds has no duty to defend.”
According to Collier’s decision, plaintiffs in three of the lawsuits claim Perras approached them to participate in “business opportunities,” involving short-term loans to be held in the trust account of the law firm before paying out a pre-determined rate of interest. By the time they made the deposits, Perras had already left Kaufman, but the plaintiffs allege the firm was negligent in failing to inform them of his departure. None of the allegations have been proven in court.
Kaufman’s counsel William Brock, a partner in the Montreal office of Davies Ward Phillips & Vineberg LLP, says they plan to appeal Collier’s ruling. And regardless of the final ruling on the insurer’s defence of the firm, he believes the professional liability fund will ultimately be obliged to indemnify Kaufman.
“Kaufman Laramée is one of the victims here,” Brock says. “No other partners or associates were in any way involved. This is about a rogue lawyer, acting alone, who victimized and betrayed the trust of his partners.”
According to Brock, Kaufman hired Perras through a well-known legal recruiter in January 2011. Within months, they decided he should leave because they were unimpressed with his work. During that time, Brock says Perras’ trust transactions appeared “completely regular.” After his departure in June 2011, Brock says the trust account transfers also appeared to be properly signed off by clients.
“There was no suspicion anything fraudulent going was on,” he says.
Brock says Kaufman notified the police and the Barreau as soon as it became suspicious, which was in October 2011, when a bank contacted them about trust account irregularities.
“Today in the office, business is continuing. These are hard working reputable lawyers. I think that it’s always unfortunate when lawyers are victimized,” says Brock.
Update Dec. 6: Comments added above from Kaufman’s counsel.
Plaintiffs in the other two actions claim Perras solicited them to participate in a transaction designed to help a U.S. company out of bankruptcy, which promised significant fees in return for a $2.4-million deposit while they considered whether they wanted to take part. The money went into Kaufman’s trust account, but was then transferred to Perras’ personal trust account when he left the firm, according to the claim.
Both plaintiffs got their money back from Perras after 90 days, but had their bank accounts seized during a Barreau investigation, while it established the ownership of the money Perras returned. Their lawsuits allege Kaufman and its partners transferred the deposits without authorization, and demand Kaufman return their money and compensate them for legal fees spent to contest the Barreau’s seizures, according to Collier’s decision. Again, none of the allegations have been proven in court.