The Law Society, Misplaced Trust Funds and the Regulation of Lawyers

Two stories caught my attention recently and got me thinking about the effectiveness of the  Law Society of Upper Canada (LSUC), the body in charge of regulating lawyers.  As will be clear from other posts, I have a fairly low regard for the LSUC, but I think these two stories give a good illustration as to why.

The first story involved a friend of mine, who recently received a letter from the LSUC informing him that they would be auditing his continuing professional development (CPD) activities last year.

Some background is necessary here.  In Ontario, lawyers are required to devote 12 hours to CPD activities each year to maintain their professional standing.  Now, this is a singularly useless exercise both because many lawyers engage in far more than 12 hours of CPD time every year (and did before it was mandatory) and because the activities that count as CPD time often have little relationship with the actual practice of law (my favourite example being a session on the Torah and the law) or improving the quality of legal service to the public (I once attended an LSUC session where the speaker suggested that, to end a length call with a client or other lawyer, you go to a website that would blare a fake fire alarm and tell them you had to evacuate your building – how that passes for professionalism, I’m not sure).

In any event, since the time requirement is modest and the of list activities that count towards CPD time is extensive (courses, webinars, teaching, writing, practice group meetings, mentoring, etc. all count) in practice it is almost impossible for lawyers at large firms (like my friend and I) to not engage in at least 12 hours of qualifying CPD time in a given year (true, it can be harder for in-house lawyers and sole practitioners, not because it’s particularly onerous, but just because you have to remember to do it).  Frankly, I usually have my 12 hours by the end of January.

Coming back to the my point, the silliness of the LSUC’s CPD requirement makes the audit of my friend a particularly useless commitment of resources by the LSUC, since it is almost impossible for him not to have satisfied his CPD requirements (in fact, he did meet those requirements).  But more to the point, so what if he didn’t?  If he had, hypothetically, skipped the “Torah and the Law Session” and only booked 11 hours of qualifyind CPD time would he be a worse lawyer?  Is this the sort of venial sin that the LSUC should be worrying about?

Which brings me to the second story, from Friday’s Star and today’s Law Times, involving a  Toronto-area Lawyer, Meerai Cho, who is alleged to have violated the holiest-of-holies, by giving her client $15M in trust moneys belonging to other people.

Ms. Cho was acting for a developer who was selling condominium, commercial and hotel units to the public.  As is the practice in these sorts of transactions, buyers of units paid an deposit on entering into their purchase agreements, which deposit was supposed to be held by Ms. Cho in trust until the project was finished and they closed on their units.  Most people, and certainly most lawyers, know that you don’t release those trust funds to the developer until the project is finished.  This protects the buyer in case the developer goes bust and doesn’t complete the project – as appears to have happened in this case.

For some reason, Ms. Cho, faced with a client having financial difficulties decided to release those trust funds to her client.  According to the Law Times:

Cho said she had never represented a builder before the Centrium project and never held trust funds that didn’t belong to her clients. When the Centrium developer, Joseph Lee, started asking her to transfer the deposit fees to him in November 2010, she believed he had authority to instruct her to do so, her lawyer, Bill Trudell, wrote in a response filed in the law society case.

…. She said [her client]  first told her to transfer the deposit monies to him because the purchasers had defaulted on their payments but he later said he needed the funds to complete the project. A new developer took over the project in October 2013.

By then, Cho had transferred essentially all of the deposit funds to Lee even though the project wasn’t yet complete. Cho “attributes this failure to her lack of experience and her desire to see the project proceed to a successful completion, at which time she believed all the transactions would close and credit would be given for the deposits,”

Now, there are really two possibilities here.  One is that Ms. Cho was involved with scam perpetrated by her client to defraud buyers.  At this point, this looks more like a business deal gone bad, not a fraudulent scheme, so I’m inclined to discount this theory, absent further evidence to support it.

Mind you, the second possibility, that Ms. Cho really is as dumb as her account suggests isn’t all that flattering.  But, in support of her stupidity defense, she apparently paid $15M to her client, without ensuring that her client was paying her bills.  Note to young lawyers out there, if you’re holding trust funds for your client, and he or she owes you money, make sure you get paid (having regard to Section 9 of LSUC Bylaw 9) before you give those funds to your client.  You’re entitled to be paid for your work.

What does the sad story of Meerai Cho have to do with my buddy’s CPD audit? It’s an illustration of the incompetence of the LSUC in performing its primarly function of ensuring professional competence in the legal profession and protecting the public from incompetent or dishonest lawyers.

In Ms. Cho we have a lawyer with 12 years experience, operating her own practice (and therefore having complete control of her trust accounts and trust moneys), who apparently has no idea of her professional obligations with respect to trust funds – alongside privilege and confidentiality – one of the holiest-of-holies of a lawyer’s professional responsibilities (surprise, suprise, she’s an Ottawa grad.  Look, I know good lawyers from Ottawa, but lets not kid ourselves, there’s a reason why 20% of its grads can’t get articling jobs). In my friend, we have a lawyer with much more experience, who’s being hassled by the LSUC to prove that he took a CPD course on “the Torah and the Law” (or some such nonsense).  Does anyone else think that the LSUC’s priorities are somewhat skewed?

Perhaps, instead of hiring CPD auditors to harass lawyers over something that doesn’t matter one way or the other – namely CPD credits – wouldn’t it make more sense to hire more trust account auditors, to make sure that lawyers are properly managing their client’s money?  In terms of protecting the public, you’ll get a lot more bang for your buck by monitoring trust accounts, particularly since the only way to prevent misused trust funds from being dissipated is by identifying their misuse early on.  Isn’t that what the LSUC should be doing?

But this is so typical of the LSUC.  Rather than targeting its limited resources at areas where the potential for abuse is high and the consequences to victims are severe (many of the victims in the Cho case will be hard-pressed to recover much or any of their deposits), the LSUC squanders its resources on silly things like CPD audits, the (likely to be unsuccessful) litigation over Trinity Western University’s accreditation, or its bi-annual random changes to the lawyer licensing process (as an aside, given the influx of new, half-trained lawyers under the LPP program arising from the latest change, expect to see more of these sort of case).

And that’s what really bothers me about the LSUC.  It’s not that I resent being regulated by the LSUC – the LSUC performs an important role.  I resent being regulated POORLY by the LSUC.  The LSUC somehow achieves the anti-platonic ideal of a regulator – one that is both heavy handed and ineffective.  The Cho case is only a the latest in a long-line of cases where the LSUC has stepped in to protect misused trust funds long after they’re gone.  The auditing of my friend’s CPD credits, while another lawyer gives away trust funds over  a number of years, is just a small example of how the LSUC fails to properly regulate lawyers. When the day comes when the biggest threat to the integrity of the legal profession is whether or not lawyers have their 12 hours of CPD time, that will be the time for CPD audits.  For now, the LSUC should focus on bigger issues that the public actually cares about.

UPDATE:  Meerai Cho has since been charged with fraud, breech of trust and posession of stolen goods.  She has also filed for bankruptcy.  But I’m sure her CPD credits are in good standing.   

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