2024 QCCS 315, 2024 QCCS 315

Kloda c. Simon 2024 QCCS 315 SUPERIOR COURT CANADA PROVINCE OF QUEBEC DISTRICT OF MONTRÉAL No.: 500-17-058682-108 DATE: 1er Février 2024 _____________________________________________________________________ BY THE HONOURABLE eleni YIANNAKIS, J.S.C. _____________________________________________________________________ SAMUEL KLODA Plaintiff v. HENRI SIMON LE FONDS D’ASSURANCE ET RESPONSABILITÉ PROFESSIONNELLE DU BARREAU DU QUÉBEC CHARLES BENISTY 9083-3260 QUEBEC INC.

Defendants _____________________________________________________________________ JUDGMENT _____________________________________________________________________ 1. OVERVIEW [ 1 ] Plaintiff, Samuel Kloda (“Kloda”) [1] is seeking $ 6.5 M in damages resulting from alleged libellous statements made in a proceeding instituted by Charles Benisty (“Benisty”) and his company, 9083-3260 Quebec Inc. (“9083”), which were represented by Me Henri Simon (“Me Simon”) (the “Damages Action”).

Kloda also claims that the Damages Action is an abuse of process. [ 2 ] Kloda, a financial advisor at CIBC Wood Gundy (“CIBC”), contends that his reputation was tarnished, and his life irrevocably altered by allegations of fraud contained in the Damages Action, which Me Simon included, knowing they were baseless. Kloda alleges that Benisty’s complaint, at the basis of the Damages Action, led to his termination for cause by CIBC and his inability to find a job at a large firm [2] . [ 3 ] For the reasons that follow, the defamation action must be dismissed since there is no fault and no causal connection.

Not only has Kloda failed to prove his case, but the evidence adduced at trial demonstrates that his termination was a result of his own longstanding misconduct further to multiple complaints filed by various clients. His termination by CIBC is the root cause of any damages that he may

have sustained and not the fraud related allegations contained in the Damages Action, which in any event cannot be considered libellous. Finally, there is no abuse of process, this issue having already been decided in the judgement on the Damages Action. 2. CONTEXT 2.1 Kloda’s Disciplinary File [ 4 ] Kloda is a financial advisor since 1994. As of December 2001, he is employed by CIBC. He manages 487 accounts, which consist of an investment portfolio of approximately $ 90 M [3] .

Benisty and his company have been his clients for 12 years. [ 5 ] Kloda’s clientele is mainly composed of elderly individuals (70 years and 80 years +) [4] . His supervisor at the time, Pierre Bernier (“Bernier”) testified that Kloda was a difficult broker to manage. He advised him on several occasions that considering the vulnerability of his clientele, the transactions Kloda conducted on their behalf had to be in conformity with their objectives, as set out in their “KYC” forms (“Know Your Client”) which notably outline their personal circumstances and their risk tolerance.

Said KYC forms need to be updated every two years to ensure that the client’s objectives remain accurate and up to date. [ 6 ] Kloda had been advised on several occasions that the transactions conducted were too aggressive and that his files did not adequately document his clients’ authorization. [ 7 ] As of March 2006, further to a client’s complaint that Kloda was carrying out discretionary trades in his account and using his margin without permission [5] , Kloda is placed under “close supervision” with regard to new securities issues [6] .

In December 2006, further to an internal investigation regarding this complaint, a significant settlement is paid out to the client by CIBC, which is charged to Kloda [7] . [ 8 ] Kloda also receives a warning letter from the Investment Industry Regulatory Organization of Canada (“IIROC”) [8] .

IIROC is the national self-regulatory organization which oversees all investment dealers and their trading activity in Canada’s debt and equity markets. [ 9 ] On February 6, 2007, CIBC sends Kloda a “Letter of Education” citing the concerns raised by its Compliance department, including the lack of documentation to confirm or deny discretionary trading, updating the client’s KYC without consent and concerns regarding the suitability of trades executed in the account [9] .

Kloda is reminded of his obligations to ensure that all trades are fully disclosed and authorized prior to being processed, KYCs be updated and that trades be suitable to the client’s objectives. [ 10 ] Despite these warnings, Kloda’s practices continue to remain problematic and additional complaints are received, including one from Benisty. In November 2008, Kloda is placed under “close supervision” for all trades [10] . In December 2008, CIBC’s Compliance department conducts a book review of Kloda’s accounts [11] .

IIROC, who is kept apprised of Kloda’s situation, is concerned about his practices and in May 2009 asks that in addition to the “close supervision” determined by CIBC, that monthly reports be sent to IIROC concerning Kloda’s trades [12] . [ 11 ] On May 5, 2009, Kloda is advised that all of his transactions had to be approved by Bernier or someone else from CIBC management prior to being executed [13] . Kloda does not comply.

He instead purchases a security, after Bernier specifically told him not to since it was on the firm’s Restricted List, which consists of securities for which CIBC has inside information. [ 12 ] This is the straw that broke the camel’s back. [ 13 ] Kloda is terminated on May 26, 2009 [14] . A form detailing the reasons he was fired is sent to IIROC [15] . This document outlines Kloda’s past misconduct, the multiple complaints and the disciplinary action taken by CIBC and IIROC.

Bernier testified that he had lost all confidence in Kloda, that he considered him to be a “rogue trader”, “ une bombe à retardement ” and that he was not manageable. He posed a risk for CIBC and had to be fired. [ 14 ] After he was fired, Kloda could not find employment at a large firm. On July 22, 2009, he started working for a smaller firm, Mackie Research Capital Corporation (“Mackie”) [16] . [ 15 ] As of 2016, IIROC had brought five contraventions against Kloda which include unsuitable transactions for clients and discretionary trades not approved by clients [17] .

The four first counts are for clients that Kloda was servicing while at Mackie but are similar to the complaints filed while he was at CIBC. The last count concerns Benisty, which alleges that Kloda engaged in a personal financial dealing with Benisty, by signing a partnership agreement and borrowing money without CIBC’s knowledge. [ 16 ] On November 10, 2016, Kloda concludes a settlement agreement with IIROC, which contains several admissions of his misconduct (the “Settlement Agreement”) [18] . Kloda admits to having failed to ensure that (

i) securities were suitable for a client, (ii) to use due diligence to remain informed of the essential facts relative to a client and (iii) to have made an excessive number of transactions in a client’s accounts. [ 17 ] Regarding Benisty, he admits having engaged in personal financial dealings with him by signing a partnership agreement regarding a private placement, transferring shares to him, and borrowing money from him. [ 18 ] On December 8, 2016, the Settlement Agreement is approved by the Hearing Panel of IIROC [19] .

He is suspended for three years and fined $9,000 plus $1,000 for costs [20] (the “2016 IIROC Proceedings”) [21] . 2.2 Damages Action [ 19 ] It is against this background that the Damages Action must be analyzed.

[ 20 ] On October 3, 2008, Benisty sends a letter to CIBC indicating that he had not authorized a transaction which had been executed by Kloda [22] . On October 10, 2008, Me Simon sends a letter to Kloda on behalf of Benisty stating that certain transactions in his account had not been authorized and seeking an amicable resolution to the matter [23] . There is no mention of fraud in this letter. Unbeknownst to Me Simon, Kloda’s practices at the time had already been put under scrutiny by CIBC.

In fact, by 2008, Benisty’s complaint was but one of several complaints that had been made at the time. [ 21 ] On October 15, 2008, CIBC responds to Me Simon’s letter stating that a review of the concerns expressed is being conducted [24] . At CIBC’s request, on December 22, 2008, Me Simon sends a list of the unauthorized transactions alleged by Benisty [25] . [ 22 ] On June 11, 2009, the Damages Action is filed against Kloda and CIBC.

It contains allegations regarding unauthorized transactions and an agreement between the parties whereby Kloda would have agreed to reimburse Benisty up to $ 400 000 for losses sustained (the “Reimbursement Agreement”). The Damages Action also contains four allegations with the term “defraud” [26] . Me Simon testified that the proceeding was drafted based on Benisty’s input and on recordings of conversations between Benisty and Kloda, where according to Me Simon, Kloda notably admits the Reimbursement Agreement between the parties. [ 23 ] Right before the trial, CIBC agrees to settle the file.

An amount of $ 150 000 is paid to Benisty [27] . [ 24 ] The 10-day trial is held from November 14 to 28, 2014, before Justice Benoît Emery. [ 25 ] On July 15, 2015, the judgement is rendered (the “Judgement”) [28] . It dismisses the Damages Action, concluding that:

a) Benisty is not credible [29] ;

b) Because Benisty could follow all of the transactions conducted “live” and based on the expert testimony, the transactions were not unauthorized or had been ratified;

c) There is no evidence of fraud [30] ;

d) The recordings are not reliable and could not be admitted into evidence [31] ;

e) Based on the evidence adduced, there is no Reimbursement Agreement between the parties [32] . [ 26 ] However, the Court concludes that the Damages Action is not abusive, stating that it is not because the action is ill-founded that it is necessarily abusive. The Court underlines that there were also several inaccuracies in Kloda’s testimony and that the Damages Action is dismissed because Benisty had not met his burden of proof [33] . [ 27 ] Benisty appeals the Judgement rendered. In the Inscription on appeal and in the factum drafted by Me Simon, allegations of fraud are repeated [34] .

Because of a disagreement regarding Me Simon’s fees [35] , he ceases representing Benisty on May 5, 2016, and is replaced by another lawyer. New evidence is filed before the Court of Appeal, which consists of the 2016 IIROC Proceedings, including the Settlement Agreement signed by Kloda [36] . [ 28 ] The Court of Appeal maintains the Judgement.

However, it finds that although the new evidence is not directly related to the main issues decided by the Judgement—unauthorized transactions and the Reimbursement Agreement, it brings to light significant contradictions in Kloda’s testimony on other factual elements that were part of the trial. [ 29 ] Considering the new evidence, the Court of Appeal holds that Kloda’s credibility is greatly compromised: “ Les éléments de preuve fournis par la nouvelle preuve, (…) minent au plus haut point la crédibilité de l’intimé (…)” [37] . [ 30 ] In parallel to the Damages Action and to the present proceeding, as of 2012, Kloda and CIBC are involved in litigation regarding Kloda’s termination.

The trial on the merits takes place in 2021 but the parties reach a settlement agreement shortly after the start of the trial. In light of these proceedings, alleging litigation privilege, CIBC refuses to divulge the elements of proof relating to Kloda’s disciplinary record until the file is completed. As such, these elements were not put into evidence during the Damages Action trial held in 2014. 3.

PARTIES’ POSITIONS 3.1 Plaintiff’s Position [ 31 ] Although Kloda’s action is asking for Benisty, 9083 and Me Simon to be held jointly and severally liable for the damages sought, the main focus of the trial was on Me Simon’s liability. [ 32 ] Kloda alleges that as a direct and immediate result of the Damages Action and other “unexplained reasons by his employer”, he was terminated from his employment [38] .

He claims that by the sole reason of the fraud allegations in the Damages Action, Kloda could not find employment in a large firm, lost the opportunity to properly carry on the financial services required for his clients and the good will he had built up over the years [39] . [ 33 ] Prior to the commencement of the Damages Action, Kloda contends that he had a “strong, productive and honest work ethic with absolute loyalty to his employer” [40] and that there was never any reason to believe that he would act illicitly during the course of the performance of his services as a financial advisor [41] . [ 34 ] He claims that Me Simon committed a fault by instituting the Damages Action and by maintaining it thereafter, since it was obvious from the outset that there was no fraud and that there was no valid cause of action.

Moreover, Me Simon was in a conflict of

interest since he had a partnership with Benisty in a commercial venture where he had a personal debt which would be offset by fees that could be earned if the Damages Action was successful [42] . [ 35 ] More specifically, Kloda argues that because of the baseless allegations of fraud contained in the Damages Action and later repeated on appeal, he suffered significant damages in the amount of $ 6.5 M, namely, moral damages, loss of income, punitive damages and attorneys’ fees paid to defend the Damages Action. 3.2 Defendants’ Position [ 36 ] Me Simon argues that he acted in a prudent and diligent fashion in instituting and in pursuing the Damages Action.

Prior to instituting the action, he heard the recordings of Benisty’s and Kloda’s discussions, which according to him corroborated Benisty’s allegations, particularly regarding the Reimbursement Agreement. He states that the term “defraud” used in the Damages Action was to indicate that Benisty had lost his money. [ 37 ] Moreover, the new evidence filed before the Court of Appeal, which was not available in first instance, demonstrates that Benisty’s position was not baseless and had a reasonable chance of succeeding before the Courts.

Regardless, the Damages Action was not widely publicised and could not be the immediate and direct cause of Kloda’s tarnished reputation. In any event, the damages claimed have not been proven, are exaggerated, and unrelated to Me Simon’s actions. [ 38 ] As for Benisty and 9083, Benisty passed away in September 2021, and his Estate did not continue the proceedings. As such, the trial proceeded by default against the late Benisty. However, 9083 was present at the trial and represented by an attorney but did not call any witnesses nor produce any exhibits.

In addition to arguing the absence of a causal connection, the defense contends that there is no fault since at all times both 9083 and Benisty acted as reasonable persons and followed the advice and legal strategy suggested by Me Simon [43] . 4. ISSUES IN DISPUTE [ 39 ] The Court must decide the following issues:

a) Is Kloda’s defamation action well founded?

b) Is the Damages Action an abuse of process? 5. ANALYSIS 5.1 Is Kloda’s Defamation Action Well Founded? 5.1.1 Legal Principles [ 40 ] In civil matters, the burden of proof rests with the plaintiff which in accordance with

article 2803 of the Civil Code of Québec (“ CCQ ”), states that “a person wishing to assert a right shall prove the facts on which his claim is based”. The Court must decide on a balance of probabilities whether the plaintiff has met his burden [44] . [ 41 ]

Article 1457 CCQ is the basis of an action in defamation.

The plaintiff must establish, on a balance of probabilities, the existence of injury, of a wrongful act (a fault), and of a causal connection [45] . [ 42 ] When a lawyer is sued for defamation, he benefits from une immunité relative , since, in the interest of justice, a judicial debate must be conducted in a frank and open manner [46] . [ 43 ] In order to conclude that a proceeding contains libellous allegations, a heavy burden consisting of four criteria rests with the plaintiff who must prove that the allegations are false, irrelevant, not based on any reasonable grounds and made with a malicious intent or at least in a negligent manner: [65] Dans le contexte précis d’allégations contenues dans un acte de procédure, la Cour a encore récemment rappelé le lourd fardeau devant être rempli : [141] La diffamation dans les procédures judiciaires comporte ses propres particularités.

Les quatre critères cumulatifs permettant d’analyser la diffamation dans ce contexte sont énoncés par la Cour dans l’arrêt Borenstein : La diffamation dans un acte de procédure donne lieu à un recours en dommages-intérêts à la condition d'établir que les allégations diffamatoires sont non seulement fausses , mais encore qu'elles ne sont pas pertinentes au litige , qu'elles ont été faites malicieusement ou, du moins, avec une témérité telle qu'elles équivalent à malice parce qu'il n'y avait aucune cause raisonnable ni probable de les faire […]. [47] [ 44 ] Lastly, regarding the causal connection, the injury suffered must be a logical, direct, and immediate consequence of the fault [48] . 5.1.2 Absence of Causal Connection [ 45 ] Kloda has not met his burden of proof.

Although he alleges that the immediate and direct cause of his tarnished reputation and consequences thereof, is solely the baseless fraud allegations contained in the Damages Action, the evidence adduced does not support

his position. Quite the contrary. [ 46 ] The evidence demonstrates that Kloda was fired for reasons well known to him that had nothing to do with the Damages Action, since it was instituted after his termination [49] . At the time, Benisty’s complaint was not an isolated incident and was not the reason he was fired. Rather, the evidence revealed multiple complaints from various clients, all outlining persistent issues with discretionary, unauthorized, and unsuitable trades.

Significant amounts were also paid out to Kloda’s clients as a direct consequence of his misconduct [50] . [ 47 ] Since 2006, his practices had been put into question by CIBC and he was placed under “close supervision” until his termination. The situation continued to escalate, IIROC got involved, and eventually Kloda’s behavior went too far, and he was fired. [ 48 ] Surprisingly, at trial, Kloda continued to maintain that he did not know the reasons leading to his termination for cause. During his testimony, Kloda did not even mention his past disciplinary record nor the 2016 IIROC Proceedings.

The Court can only conclude that Kloda is not credible and in denial. Based on Bernier’s testimony, which was reliable, sincere, and trustworthy, Kloda was well aware of the complaints against him and had received multiple warnings, while still refusing to comply. [ 49 ] In fact, Kloda continues to have a distorted view of the facts, alleging in his Amended Proceeding dated June 7, 2018, that there was never any reason to believe that he would act illicitly during the course of the performance of his services as a financial advisor [51] . This is simply false.

Since 2006, Kloda was aware of serious issues regarding the way he practiced, and despite several chances, did not change his practices, which culminated in the 2016 IIROC Proceedings, where Kloda admitted to his misconduct. [ 50 ] At trial, he attempted to minimize his misconduct and argued that he had been illegally terminated. The Court does not doubt that Kloda has suffered since his termination. However, it is apparent that he is looking for someone to blame while refusing to take any responsibility for what happened to him.

A striking example is that he claims to have “retired” in November 2016 [52] , when in fact he was suspended by IIROC. [ 51 ] The Court finds that the direct, immediate, and sole cause of Kloda’s demise is his termination by CIBC. The fact that he was fired is in and of itself sufficient basis to irrevocably harm a financial advisor’s reputation. [ 52 ] The two witnesses called by Kloda confirm this point. Jerry Yane, a friend of Kloda’s, testified that he had no knowledge of any fraud allegations in the Damages Action, but knew that Kloda had been fired, without knowing the specific reasons.

He testified that news of Kloda’s termination spread quickly within the financial community. It is because of Kloda’s termination from CIBC, that no one wanted to deal with him anymore. [ 53 ] Brian Newman, another long-time friend, and a client of Kloda’s testified that he too knew that Kloda had been fired but did not know the specifics.

He remained loyal to Kloda and was one of the few who transferred his accounts to Mackie but confirmed that Kloda’s termination from CIBC was the end of his carrier in a large firm. [ 54 ] The Court finds that there is not a shred of evidence save for Kloda’s own personal belief, that the sole reason he could not find employment in a large firm are the four “defraud” allegations in the Damages Action. Kloda has not even proven that they contributed in any way to the damages claimed.

Rather, it is more probable that the reason another large firm would not hire him is because he had been fired, a fact that was widely known within the financial community. There is no evidence to suggest that any of the large firms contacted by Kloda had any knowledge of the Damages Action and the related fraud allegations. [ 55 ] Finally, there is obviously no causal connection between the allegations of fraud contained in the appeal proceedings and the damages claimed.

The appeal occurred in 2016-2018, long after the damages claimed were supposedly sustained and after he was suspended by IIROC. 5.1.3 Absence of Fault [ 56 ] Regarding the alleged fault, it is unfounded to state that the four “defraud” allegations are libellous. [ 57 ] It is true that after the trial, Me Simon modified the Damages Action to remove three of the four references to “defraud” but does not remember why [53] .

Moreover, on appeal he continued to allege “ un contexte de fraude ” and that Benisty was a “ victime de fraude ” [54] , despite Justice Emery’s conclusion that there was no evidence of fraud [55] . These references were eventually removed when Benisty’s new lawyer took over the appeal [56] . However, this conduct does not amount to a fault. [ 58 ] The terms “defraud” must be interpreted in their context. These terms are embedded in a context of unauthorized transactions and monies lost.

Bernier testified that from his perspective, unauthorized transactions are the equivalent of taking the client’s money, since there is no consent. In his submissions, Kloda conceded that a logical link could be made between unauthorized transactions and fraud. [ 59 ] A reading of the proceeding reveals that the use of these terms was not to describe a fraudulent conduct as per the Criminal Code , but rather a “civil fraud”, as per the CCQ [57] .

The Courts have established a distinction between these two concepts of fraud: [145] Les allégations de la demande, selon lesquelles les défendeurs auraient agi frauduleusement, doivent être interprétées dans le contexte où elles sont utilisées , soit celui où la demanderesse allègue que les gestes posés par les défendeurs permettent le soulèvement du voile corporatif.

Il n'est pas question ici de fraude criminelle mais plutôt de fraude civile, soit d'un acte accompli de mauvaise foi avec l'intention de porter atteinte aux droits d'autrui . (…) [58] . [Emphasis added] [ 60 ] Applying the appropriate standard [59] , the Court concludes that the allegations were not irrelevant, were not made with any malicious intent nor in a negligent manner and were not baseless. Even if the Judgement ultimately concluded that they were unfounded,

this does not imply that they were libellous [60] . [ 61 ] The Court finds that the Damages Action was not baseless and that Me Simon, acting as a prudent and reasonable lawyer had sufficient evidence to support his client’s position (the recordings and ultimately the 2016 IIROC Proceedings), even if he was in the end unsuccessful.

In fact, had the evidence adduced before this Court regarding Kloda’s disciplinary file been presented before Justice Emery, the outcome may have been different. [ 62 ] In any event, the Court holds that Me Simon did not commit a fault in the course of his mandate and that he continues to benefit from une immunité relative . [ 63 ] Since the Court finds that the terms are not libellous, it follows that none of the other Defendants could have committed a fault either. [ 64 ] Given the Court’s conclusion that there is no fault nor any causal connection, there is no need to analyse the damages claimed, which in event, have not been proven. 5.2 Is the Damages Action an Abuse of process? 5.2.1 Legal Principles [ 65 ] Regarding a claim of abuse of process brought by a third party, the standard to hold a lawyer liable in such instances is high, the lawyer’s conduct must be reprehensible and reckless: [3] (…) En effet, pour que le comportement de l'avocat constitue une faute civile à l'égard des tiers, il doit dépasser un certain seuil, que les auteurs et la jurisprudence ont qualifié de "grossier", "téméraire" "outrageant" et "répréhensible", perdant ainsi le bénéfice de son immunité relative dans l'exercice de son mandat. [61] 5.2.2 Absence of Abuse of Process [ 66 ] Justice Emery already found that the Damages Action was not an abuse of process [62] .

The Damages Action involved the same parties, save for Me Simon. Having heard the case for 10 days, he was in the best position to ascertain whether there was an abuse of process. [ 67 ] There is no need to retry this issue, and in any event, under the circumstances, Me Simon’s conduct cannot in any way be viewed as reprehensible or reckless. FOR THESE REASONS, THE COURT: [ 68 ] DISMISSES the Amended Motion Concerning the Respect of Reputation and Claim for Damages arising out of Abuse of Process ; [ 69 ] THE WHOLE , with judicial costs. __________________________________ ELENI YIANNAKIS, j.S.C. Mtre Martin J.

Sklar Martin J. Sklar Attorney for Plaintiff Mtre Patricia Timmons Timmons Séguin Tremblay Attorney for Defendant Me Henri Simon and le Fonds d’Assurance Responsabilité Professionnelle du Barreau du Québec Mtre Caroline Essiminy Hitachy Energy Attorney for Defendant 9083-3260 Quebec Inc. Hearing dates: January 8, 9 and 11, 2024