It seems increasingly likely Bay Street law firm McCarthy Tétrault LLP may not be paid for much of its ground-breaking legal work on behalf of fraudster Robert Hryniak.
Work by McCarthys lawyer Sarit Batner and others contributed to a key Supreme Court of Canada ruling in January on cases decided by summary decisions by lower courts – a ruling that led to much comment in legal circles about its broad implications.
But that high-profile precedent may turn out to be financially unrewarding. A new court ruling this week has concluded that Mr. Hryniak's remaining $1-million in funds – held in trust by the court – will go to a group of his victims and other parties in the case, and cannot be used to pay his $825,000 legal bill to McCarthys.
The ruling by Chief Justice George Strathy of the Ontario Court of Appeal acknowledges McCarthys will be unpaid for much of its work, but said the firm knew the risks when it continued to work for Mr. Hryniak after his wife stopped paying his bills in June, 2011.
"To the extent there is unfairness, it falls on McCarthys which will be unpaid for much of its work," Chief Justice Strathy wrote. "However, McCarthys accepted that risk in continuing to work when it was no longer being paid, without any assurance that it would be paid. That it continued to work, presumably out of a sense of professional responsibility in an important case, is commendable."
Mr. Hryniak deposited $950,000 with the court in 2011 as a condition imposed by a judge after he asked for an extension on filing his appeal documents in two related lawsuits filed by groups of investors. The sum has since grown to over $1-million including interest.
Chief Justice Strathy said allowing Mr. Hryniak to use the money to pay his law firm would mean that there would be almost nothing left to pay a $1.2-million (U.S.) judgment won by a group of elderly U.S. investors – known as the Mauldin Group, after one of the investors, Fred Mauldin – who sued Mr. Hryniak over an investment deal and are awaiting repayment of their losses.
"If McCarthys is successful in obtaining a priority charge on the full amount of its claim, the Mauldin Group will get very little or nothing, even though it was successful on the summary judgment motion, on the appeal to this court, on the appeal to the Supreme Court and on a motion for rehearing before the Supreme Court," Chief Justice Strathy noted. "The equities weigh against such an unjust result."
Mr. Hryniak hired McCarthys in 2011 to represent him on his appeals after his original lawyers removed themselves from the case.
Two groups of investors – the Mauldin Group and a second group involving Chicago businessman Albert Bruno – won summary judgments against Mr. Hryniak in 2010 after an Ontario court agreed they had been defrauded. Summary judgments are issued by judges in civil cases without requiring a long trial, relying primarily on written affidavits.
The Ontario Court of Appeal upheld the summary decision in the Maudlin Group case against Mr. Hryniak, but overturned the decision in the Bruno case, saying the details of the case were more complex and deserved a full trial. The Supreme Court of Canada agreed with both Ontario rulings earlier this year, offering a detailed analysis that will guide courts in coming years about how and when summary judgments can be used.
Bay Street has had plenty of reasons to follow the twists and turns of the long-running Hryniak case, beyond the precedents it has set on summary judgments.
The Bruno victims were originally represented by lawyer Javad Heydary, who made headlines last year after he reportedly fled to Iran with $3-million he allegedly removed from trust accounts for clients in Mississauga. His family later reported he was dead, but questions have continued to swirl about whether his death can be confirmed.
The lawsuits filed by the Mauldin and Bruno groups also named his former law firm Cassels Brock & Blackwell LLP and former managing partner Gregory Peebles, alleging they helped Mr. Hryniak execute his fraudulent investment schemes. Cassels and Mr. Peebles denied the allegations. An Ontario court ruled those allegations should be heard in a full trial, refusing to include the law firm in the summary judgment findings against Mr. Hryniak.