A Toronto-based law firm has been removed from representing a former executive in a wrongful dismissal lawsuit after the Ontario Superior Court found it had a conflict of interest stemming from its prior work for the defendant company.
In a recent decision, the court ordered Fogler Rubinoff LLP to cease acting for J.D., the former president of CleanDesign Power Systems, in his wrongful dismissal claim against Clean Power, CleanDesign Income Corp., and M.L.
Justice Rady ruled that Fogler Rubinoff should be disqualified due to the duty of loyalty it owed to its former client, Clean Power. The firm had previously acted for Clean Power in negotiating and finalizing a Share Purchase Agreement (SPA) and related documents, which are now central to the litigation.
“I find that the Defendants have established that Fogler Rubinoff should be disqualified from acting for the Plaintiff based on the duty of loyalty they owed to their former client, Clean Power,” Justice Rady stated in her decision.
Background of the case
J.D. founded Clean Power and served as its president from 2017 until his termination on November 10, 2023. Clean Power specializes in manufacturing energy storage and automation systems for diesel and natural gas-powered generators used by oil and gas companies.
On February 13, 2024, Fogler Rubinoff filed a wrongful dismissal claim on behalf of J.D. against the defendants. The claim seeks damages, oppression remedies, declarations regarding shareholder interests, and relief from restrictive covenants contained in several agreements:
- Employee Grant Agreement dated February 9, 2023;
- Share Purchase Agreement dated February 9, 2023;
- Employment Agreement dated February 9, 2023.
The restrictive covenants are a significant point of contention in the lawsuit. The defendants assert that these covenants are valid and enforceable, while J.D. seeks declarations that they are void or unenforceable.
Conflict of interest allegations
The defendants moved to have Fogler Rubinoff removed from the case, arguing that the firm had a conflict of interest due to its previous representation of Clean Power during the SPA negotiations. They claimed that the firm’s current role opposing Clean Power in matters related to the SPA breached its duty of loyalty.
On February 27, 2024, counsel for the defendants wrote to Fogler Rubinoff, requesting the firm to recuse itself. The firm declined, stating it had no conflict of interest or confidential information that would prejudice the defendants.
Court’s analysis and decision
The court examined whether Fogler Rubinoff’s continued representation of J.D. violated its duty of loyalty to Clean Power. The key considerations were:
Duty of Loyalty vs. Confidentiality: The court highlighted that the duty of loyalty to a former client is broader than the duty of confidentiality. “Lawyers have a duty not to act against a former client in a related matter whether or not confidential information is at risk,” Justice Rady wrote, citing appellate authority.
Related Matters: The court found that the current lawsuit is related to the prior retainer because it involves challenging the enforceability of the restrictive covenants in the SPA—an agreement Fogler Rubinoff helped negotiate on behalf of Clean Power.
Integrity of the Legal Profession: Allowing Fogler Rubinoff to act against its former client in a related matter could undermine public confidence in the legal profession. “Clients must be confident that their lawyers will not become their adversaries’ lawyers at some subsequent point in the course of the same dispute,” the court noted.
Professional Conduct Rules: The decision referenced the Law Society of Ontario’s Rules of Professional Conduct, which stipulate that lawyers should not act against a former client in the same or a related matter, even if no confidential information is at risk.
Rejection of plaintiff’s arguments
J.D. argued that since he was the source of the information provided to Fogler Rubinoff during the SPA negotiations, there was no risk of confidential information being misused. He also asserted that the firm did not act for Clean Power on issues related to the litigation and that his choice of counsel should be respected.
However, the court dismissed these arguments, emphasizing that the duty of loyalty is not solely about the misuse of confidential information. “I disagree. The appellate authority and relevant ethical principles are to the contrary. There is a broader duty of loyalty connected to the integrity of the administration of justice which does not depend on confidential information being put at risk,” Justice Rady stated.
Timeliness and tactical considerations
J.D. also contended that the defendants’ motion was tactical and not pursued promptly. The court disagreed, noting that the defendants raised the conflict issue shortly after the claim was filed and acted with reasonable diligence.
“I find that the Defendants acted reasonably diligently once the claim was issued to raise the issue of the conflict,” the court held.
Next steps
The court ordered Fogler Rubinoff to be removed as solicitors of record for J.D. “Within 30 days of the order, the plaintiff shall appoint a new lawyer by serving notice… or serve a notice of intention to act in person,” the decision stated.
The parties were encouraged to agree on the costs of the motion. If no agreement is reached, they may submit brief written submissions as to costs.
For more information, see Donen v. CleanDesign Income Corp., 2024 ONSC 3728 (CanLII).
