Former law firm partner sued for $9 million

- Nguyen's counterclaim continues

A Toronto litigation and corporate law boutique has sued a former partner in the firm for $9 million after a dispute over a contingency fee client.

Brauti Thorning Zibarras LLP makes the request for damages against its former non-equity partner Trung Nguyen in a statement of claim filed last August with the Ontario Superior Court of Justice.

BTZ alleges Nguyen breached his contract and fiduciary duty to the firm when he “improperly solicited” some of its clients to come with him when he resigned in early 2015, including Indcondo Building Corporation, a property development company with a $20-million claim against its one-time business partner.

But in a statement of defence and counterclaim also filed with the court, Nguyen denies the claims and demands $1.1 million from BTZ, alleging the firm still owes him for work he did on the Indcondo file, as well as a 25-per-cent cut of any fees the firm collects on the matter.

None of the allegations in either document have been proven in court.

Nguyen tells Law Times that “my lawyer has advised me not to comment while the litigation is pending;” a sentiment echoed by BTZ’s co-managing partner Peter Brauti.

“As this matter is currently before the courts, it is our practice not to comment on the litigation,” he said in a statement.  

Indcondo retained Nguyen on a contingency fee basis in 2007 while he was still a Toronto-based sole practitioner to help it collect on an $8-million judgment it had achieved following a shareholder dispute with former business partner David Robin Sloan. Although the judgment was delivered back in 2001, Indcondo had run into trouble enforcing it thanks to Sloan’s bankruptcy and subsequent discharge. But with interest accumulating at a rate of 15 per cent per year, by 2015, the value of the judgment had ballooned to more than $20 million.

When Nguyen joined BTZ in early 2008 as a non-equity partner, Indcondo signed a new agreement providing for a 30-per-cent fee to the law firm. A separate fee-splitting agreement between Nguyen and BTZ promised the lawyer in turn a 25-per-cent share of the firm’s recovery.

The move was a reunion of sorts for Nguyen and BTZ co-founder James Zibarras, who had worked together several years earlier at Borden Ladner Gervais LLP, where Zibarras was previously a partner and Nguyen worked under him as an associate.

However, the relationship quickly soured, according to BTZ’s claim, which alleges Nguyen immediately struggled to hit his $400,000 annual collection target, and never came close to doing so in any of his seven years at the firm. Since it had agreed to pay him 50 per cent of any collections, the firm says in its claim that after accounting for rent, insurance and other administrative costs, “Nguyen was causing BTZ an annual loss.” Over the seven years of his employment, it alleges he cost them around $400,000.  

But in his defence, Nguyen says his annual collections target was actually $300,000, a figure he surpassed at least twice during his time at the firm. For the years he missed the target, Nguyen blames his unpaid work on the Indcondo file, claiming he put in “well over 2,000 hours” of work into the matter during his seven years at BTZ.

Nguyen specifically denies he could have caused the firm a loss because of an arrangement reached between the parties that saw BTZ take the first $12,500 of his collections each month to cover costs.

The Indcondo matter also proved problematic soon after Nguyen’s arrival at BTZ when a motions judge dismissed its fraudulent conveyance claim against Sloan as statute barred. Nguyen and BTZ blame each other in court documents for the missed deadline, but the action was subsequently restored following a successful appeal. A second dismissal and successful appeal followed before the trial finally went ahead in 2014.

The six-day trial provided mixed results for Indcondo, after Ontario Superior Court Justice Michael Penny ruled two properties transferred from Sloan to his wife in the 1980s, and worth about $4 million, had been fraudulently conveyed. But two more transfers, involving properties worth an estimated $20 million, were cleared by the judge’s decision, resulting in appeals from both sides.

BTZ’s claim says the firm agreed to work on the appeal on an hourly basis, but as the appeal date neared, it alleges Nguyen “conspired with Indcondo” to divert carriage of the file to him and deprive BTZ of its share of the proceeds. The claim says Nguyen even asked a junior lawyer at the firm to research what would happen in the event a client terminates a contingency fee agreement.   

Nguyen’s defence admits commissioning the memo, but he says it was done at the request of Zibarras, who was worried about Indcondo terminating the agreement after the trial but before the delivery of the judge’s decision, according to the statement of defence.

Nguyen left BTZ in March 2015, but he says in his defence that he had agreed to continue with BTZ as co-counsel for Indcondo on the appeal.

“Nguyen’s resignation had nothing to do with any conspiracy to divert clients away from BTZ. Rather, Nguyen was looking for greater flexibility to work from home,” Nguyen’s defence reads, noting that he had moved to Dundas, Ont. to be nearer to his and his new wife’s families.

In May 2015, on the eve of the deadline for perfecting the appeal, BTZ claims Indcondo instructed the firm to stop work on the appeal. Nguyen says in his defence that he had been trying to mediate a disagreement between BTZ and Indcondo over the fee arrangement for the appeal and ended up arguing it himself when one could not be reached.

BTZ claims it begged Nguyen to use its materials for the appeal or to let it argue at the appeal court, while Nguyen’s defence claims he had prepared their materials while he was still at the firm and that BTZ refused to turn them over once he departed. Either way, a panel of appeal court judges ultimately unanimously rejected Indcondo’s case.    

BTZ’s statement of claim alleges that it was “at all material times reasonable to foresee that Nguyen would not be able to successfully argue and win the appeal, given his inexperience and his ill-advised decision to focus on Justice Penny’s factual findings, which trigger a palpable and overriding error standard of review.”

Nguyen should be held liable for the $6-million contingency fee BTZ would have earned, the firm alleges,  claiming the appeal “had a very strong chance of success if properly argued.”

In 2016, another wrinkle was added to the case when BTZ sued Indcondo, seeking payment for its success at the original 2014 trial. Nguyen won intervenor status in that case and asked the superior court to order any funds received by BTZ from Indcondo to be paid into court for his benefit.

However, Ontario Superior Court Justice Peter Cavanagh denied the request in his Dec. 8 decision in Brauti Thorning Zibarras LLP v John Di Paola, concluding that Nguyen’s claim did not meet the strict requirements for such a “specific fund,” pointing out that his claim was “in essence, for damages for breach of contract.”

Bill Northcote, a partner in the Toronto office at Shibley Righton LLP, says it’s not unusual for law firms to negotiate split-fee agreements that account for lawyers moving on, after having worked on contingency fee matters. Northcote is not involved in the matter.

“Some firms have got very elaborate compensation systems that reflect the division of an award,” he says. “Usually, they’re worked out internally without much public scrutiny.”

Northcote says he believes Cavanagh got the call right in denying Nguyen’s request for the creation of a specific fund.  

“What [Nguyen] was attempting to do was effectively get a pre-judgment garnishment,” he says. “As the judge says, the claim between him and the former firm is really just contractual, so there was no reason to sequester the funds.”