Judge punishes lawyer for 'loan scheme' targeting residential school survivors

David Blott violated trust, breached settlement agreement

By Paul Barnsley and Kathleen Martens
APTN National News
VANCOUVER – A Vancouver judge has kicked a Calgary lawyer out of the Independent Assessment Process (IAP) based on the allegations made by investigators.

Justice Brenda Brown released her 59-page written decision late this afternoon: David Blott and Tom Denomme of Honour Walk are barred from any further participation in the IAP.

The IAP is a compensation process for serious physical and/or sexual abuse suffered by former residential school students as children.

The judge accepted the findings of investigators from Crawford Class Action Services as completely credible. The Crawford report on its four-month, $3-million investigation was 7,496 pages long, consisting of an executive summary and more than 7,400 pages of exhibits.

“I have concluded that an order must go prohibiting the further involvement of Blott & Company, David Blott, Honour Walk, Thomas Denomme and certain other parties in IAP proceedings. This order will be subject to conditions to alleviate the impact on the clients of Blott & Company as much as possible,” the judge wrote.

“The only interests to be served in letting Mr. Blott continue would be his own economic interests.”

Throughout the decision the judged used very strong language condemning the tactics employed by Blott, Denomme and others for participating in a “loan scheme” and other breaches of the Indian Residential Schools Settlement Agreement.

She said Blott treated vulnerable clients “not as individual people who had in many cases suffered traumatic personal experiences at a very early age, but rather as claims, requiring little lawyer interaction.”

Her punishment also applies to the lawyers who worked for Blott & Company, including Kelly Kristensen and Kim DesLandes. They can continue to represent IAP clients only if they work for another firm and are supervised.

The maximum compensation amount under the IAP is $500,000. The average claim is $120,000. Lawyers make a minimum of 15 per cent and a maximum of 30 per cent. Investigators say Blott & Company had 5,600 clients, adding up to millions of dollars in fees.

The judge said Blott appeared to be in it for the money.

“It is undeniable that Blott’s operations were designed to maximize economies of scale,” she wrote.

The court ruling stated that Form filler company Honour Walk also profited; investigators say the company has earned $6 million from its IAP work. Denomme and Blott were friends who opened businesses at the same time to work in concert on IAP claims. Honour Walk would recruit the clients for Blott and then Blott would send the applications in and collect the fees, paying Honour Walk $200,000 a month and other considerations.

Justice Brown ruled this relationship was not in the best interests of the clients. She said Honour Walk employees with little or no legal training were doing the bulk of the IAP claims. This breached attorney-client privilege, the judge found.

“Honour Walk’s misconduct in its role as a form filler has been made abundantly clear,” she wrote. “As I cannot be assured that the interests of class members would be preserved by barring only Honour Walk, I have determined that it is necessary that each of Honour Walk and Thom Denomme, together with any entity currently associated with either of them and any entity associated with either of them in the future, are hereby prohibited from future participation in the administration of the settlement agreement.”

Blott & Company represents IAP claimants across the country but primarily in Alberta, British Columbia, Saskatchewan and Manitoba. The firm had completed hearings for 1,500 clients. Another 2,900 are in process. And the investigators found an additional 1,222 completed but unsubmitted applications, including those of deceased claimants.

“There is no evidence that any of the claimants to whom these unfiled applications relate have been made aware that they are not yet in the IAP system,” the judge wrote.

The judge concluded that Blott & Company and certain groups affiliated with the law firm were arranging high interest loans for the clients. Assignments, also called “directions to pay” were specifically prohibited in the settlement agreement in order to protect vulnerable clients.

“Documents in the application record indicate that sometime in 2008 Blott began the practice of accepting ‘directions to pay’ in respect of loans advanced by third parties to its clients,” the judge wrote. “The Monitor’s investigation revealed that 77 claimants received over 380 loans from the various lenders.”

A number of those loans were arranged by a company called Funds Now, owned by Calgary businessman and friend of Denomme’s, David Hamm. Documents show, the judge said, Funds Now charged a finder’s fee of 20 per cent that was in addition to any interest charged by the lenders. One of those lenders was BridgePoint Financial of Toronto.

Settlement Lenders of Edmonton was also alleged to have been involved in high interest loans to claimants.

In making her ruling, Justice Brown rejected the submissions of David Blott’s counsel, Roy Millen.

“The submissions made by counsel for Blott & Company, and the positions taken by Mr. Blott in his affidavits, in opposition to the monitor’s recommendations may be summarized as follows: Where the loans and the accompanying 380 breaches of the court’s orders are concerned, it was contended that the conduct is in the past; Mr. Blott was not the only lawyer engaged in this type of conduct; he never profited from the loans; he acted only on client instructions.”

The judge also addressed this part of Blott’s defence:

“Counsel for Blott also cautioned the court against adopting a paternalistic approach to IAP claimants in the guise of supervision. That submission may be summarily rejected. The courts supervisory role exists to ensure that the implementation of the settlement is appropriate and in accordance with its objectives. Where a particular vulnerability to unscrupulous or indifferent conduct within the settlement process has been identified, there is nothing paternalistic about ensuring that conduct is eliminated. Protection of the vulnerable from exploitation in a court process designed to remedy past wrongs is very different from paternalism. I categorically reject the suggestion by counsel for Blott that action undertaken to protect the vulnerable would perpetuate paternalistic attitudes towards Canada’s Aboriginal peoples.”

The judge did not look kindly on attempts by Blott & Company to dump clients on other lawyers while the investigation was taking place. She said between 1,200 and 1,500 letters telling clients they were no longer Blott & Company clients were sent to a possible 2,220 claimants.

On a number of occasions in her reasons for judgment, Justice Brown questioned David Blott’s honesty.

“His affidavit evidence notwithstanding, no other conclusion can be drawn from this email than that Mr. Blott had knowledge of the prohibition against assignments of proceeds from the settlement and was either actively engaged or knowingly acquiescing in a scheme to circumvent the prohibition. BridgePoint subsequently made loans to clients of Mr. Blott totaling more than $1.4 million with Mr. Blott facilitating the execution of and honouring directions to pay from clients for every loan,” she wrote.

The Law Society of Alberta’s position was that while Blott met the standard for suspension, it was “the lesser of two evils” to allow his firm to keep working and providing representation to their clients, even though Blott was prohibited from having contact with clients. The Law Society said that way their claims wouldn’t be interrupted and they would still be compensated in a timely fashion.

But the judge disagreed.

“It would be far better to have this client transfer process conducted under the supervision of the court and it is necessary for the integrity of the process and the protection of the clients that it be a complete transfer. Therefore, I will accept and implement the monitor’s recommendation in respect of the removal of David Blott, David Blott Professional Corporation, Blott & Company, and any associated entity from the current or future representation of claimants in the IAP or any other process embodied in the settlement,” she wrote. “In accepting this recommendation, I am not ignoring Mr. Blott’s arguments to the effect that terminating his participation in the IAP would effectively terminate his law practice. I simply do not find the argument compelling.”

The judge assigned retired British Columbia Supreme Court Judge Ian Pitfield to oversee the transfer of files from Blott & Company to other law firms because he has “extensive experience in complex class action settlements.”

He will oversee the transfer of Blott & Company files to other “qualified law firms.”

“In light of my conclusions above, it is clear that, in order to avoid the disorderly collapse of Blott’s IAP practice, there must be a structured distribution of Blott and Company’s IAP clients to new counsel. Rather than endorse the monitor’s request for a Claimant Representative, however, I favour the orderly wind-down of Blott’s IAP practice.”

Blott and Company and Honour Walk both had clients sign a contract that committed them to pay $8,000 if they left the firm for another lawyer, a move the investigators said was likely to intimidate clients into not leaving Blott and Company even if they were dissatisfied.

“Honour Walk and Blott each have “break fees” in their contracts with claimants, which provide for a fee to be paid if the client transfers their file to another law firm. My order will preclude Honour Walk and Blott from participation in the IAP process and will transfer the files to other law firms. In my view, in law, no “break fee” would be payable as a result of this transfer. In any event, to ensure that there is no confusion, I will order that no break fee will be paid to Honour Walk or Blott as a result of the transfer of files pursuant to my order,” the judge wrote.

Justice Brown only dealt with two of the court monitor’s five recommendations in this judgment, saying she will address the other three in a separate ruling that has yet to be handed down. Among the remaining recommendations was that the judge decide whether the court monitor’s report should be turned over to “other authorities” and that Blott & Company pay for the investigation.

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