Law Times

Law Times • OctOber 27, 2014 Page 5 www.lawtimesnews.com due to profits and high billings from December 2013," her state- ment of claim alleges. Rhodes had caught wind of ru- mours that compared the firm to the Titanic, according to the claim. But Bacal and Kip Daechsel, the firm's national co-manag- ing partner at the time, assured Rhodes Heenan Blaikie was do- ing fine, says Westlake. "Rhodes states that the afore- mentioned representations were untrue, inaccurate and/or mis- leading and were made negli- gently, without regard to their truth, or alternatively, were in- tentionally false," according to the statement of claim. Rhodes relied on these as- surances to her detriment, the claim continues, noting she suf- fered health issues just before the firm's collapse that left her with- out her group medical benefits. In another lawsuit, a former patent agent at Heenan Blai- kie alleges the firm owes him $800,000 in damages for wrong- ful dismissal for letting him go without notice. "The defendants' misconduct is malicious, oppressive, and highhanded to a degree that of- fends the court's sense of decen- cy warranting an award of puni- tive damages," Marcelo Sarkis' claim alleges. Sarkis' claim also alleges that as the firm had terminated more than 200 employees during the four weeks ending Feb. 28, it had an obligation to provide 12 weeks' notice pursuant to the Employment Standards Act's mass termination provisions. "Mr. Sarkis has diligently sought alternative employment. However, to date, he has been unable to secure replacement employment," according to the statement of claim. It noted Sar- kis "has and continues to incur expenses with respect to his ef- forts to reemploy and earn alter- native income." When reached by Law Times, Sarkis declined to comment. There was no response from Heenan Blaikie filed in the two matters. Westlake says her only communication with the defen- dants came from Robb Beeman, a former Heenan Blaikie lawyer and a member of the insolvency committee. She says Beeman had asked her not to take default steps against Heenan Blaikie while the respondents decided whether they'd retain counsel to defend the matter. If Heenan Blaikie doesn't file a defence by today, Westlake says she has told Beeman she'll pursue default steps that include the option of obtaining a default judgment against the firm. Beeman didn't respond to a request for comment. The firm did file a defence to a former non-equity partner's claim over an unpaid settlement. Rhonda Levy says that when she left the firm in May 2013, it agreed to pay her $270,000 in bi- monthly instalments. The payments stopped in January of this year, according to Levy's statement of claim. "In accordance with the terms of the settlement agreement, the defen- dant continues to owe Ms. Levy $118,000, which remains unpaid." In response, Heenan Blaikie argues the court should dismiss Levy's action with costs. "Implicit in the agreement was a term that the plaintiff would not be placed in a better position through the agreement than if she had re- mained with the defendant as a partner," according to the firm's statement of defence. "Had the plaintiff remained a partner in the firm, she would not have received any income after January 2014. The firm stopped compensating all partners, both equity and non-equity, after Janu- ary 2014. The plaintiff would not have been excluded from this." Through her action, the firm suggests in its statement of de- fence that Levy is "seeking to put herself in a better position than other partners of the firm, none of whom has received any com- pensation from the firm since January 2014." But Rhodes, the legal assis- tant, says the firm didn't treat everyone the same. Part of her allegations against the firm re- lates to "fraudulent preference." She alleges partners of the firm, including Bacal and Daechsel, "were paid out their capital in preference to her minimum en- titlements pursuant to the ESA." Rhodes' claim says that at the time of the payment of capi- tal, Heenan Blaikie was legally bankrupt. According to her claim, that makes the payments to the partners an illegal prefer- ence under s. 95 of the Bank- ruptcy and Insolvency Act. Meanwhile, a recent claim filed by Heenan Blaikie shows the firm itself is suing the African Canadi- an Legal Clinic for unpaid invoic- es. The action is seeking an order for the payment of $120,000. "The plaintiff provided legal services to the defendant in To- ronto," according to the claim, which notes invoices went out in June and December 2012. 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Continued from page 1 Traditionally, buyers and sell- ers assumed clients would stay with the new lawyer or firm af- ter a short transition period; the new firm could imbue the clients with its pricing model; and his- toric rate increases would repeat themselves. "All three of those assump- tions must be examined far more critically today," according to Cotterman. "Clients may not 'go along' with the handoff and it's likely they will be much less willing to accept an upsell in pricing. And the rate increase patterns pre- recession are unlikely to return in the current environment." Indeed, in some ways things are going in the opposite direction. As Cotterman noted, a trend is de- veloping whereby practitioners are leaving large firms to practise in smaller environments where they can keep pricing down. The upshot, Cotterman noted, is that due diligence in the course of purchasing a practice "must be more thorough and conducted with greater skepticism." John Olmstead, president of St. Louis-based legal management consultancy Olmstead & Associ- ates, sees the primary problem as one of too much supply. "So many lawyers are hitting succession at the same time and they're all competing for buyers to pick up their practices," he says. "On the other hand, there is a growing recognition that goodwill can have considerable value, particularly in small and solo firms." When it comes to the Ca- nadian context, the looming prospect of alternative business structures, which would allow investment in law firms by non- lawyers, is a further complicat- ing factor. "Potential buyers and sellers should take note of the liberal- ization of standards in the U.K. and elsewhere that, for the first time, have allowed outside in- vestment in law firms by non- lawyers," wrote Cotterman. "A similar change in the U.S. would be a potential game changer for firm valuation." Both the Law Society of Upper Canada and the Cana- dian Bar Association earlier this year released reports emphasiz- ing that the status quo isn't a vi- able option for the legal profes- sion. Core recommendations in the reports included proposals that would permit alternative business structures such as mul- tidisciplinary partnerships. To be sure, both the CBA and the LSUC processes are at early stages. In neither case have the recommendations become organizational policy. The law society is currently consulting about the relative viability of the four models for alternatives business structures proposed by a working group. Still, if non-lawyer invest- ment becomes a reality, the change would certainly affect the profession in different ways depending on the type and size of the firm involved. Outside investment in law firms would potentially create a more com- petitive market, particularly on the retail side. As well, small firms may be less able to handle the competition than their larger counterparts, thereby detrimen- tally affecting their value. As for the large firms, alterna- tive business structures could af- fect their valuations as well, but they might be in a better position to deal with the changes. And if the large law firms ever go pub- lic, their value could increase ex- ponentially. "If law firms go public, they will have their value measured like advertising agencies or public consulting firms," says Cole. LT Clients less likely to remain after law firms sold Lawsuit alleges fraudulent preference in partner payments Continued from page 1

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