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Judge dismisses legal team hired by Crocus investors

Cites conflict of interest because lawyer previously represented company executive

Canadian Press

WINNIPEG -- A former executive of the Crocus Investment Fund has had the entire legal team hired by angry shareholders turfed because one of their lawyers used to be his own lawyer.

In a 16-page ruling released on Friday, Madam Justice Shawn Greenberg of Manitoba Court of Queen's Bench said lawyer Paul Walsh was in a conflict of interest because he had been the lawyer for James Umlah, Crocus's former chief investment officer.

That professional relationship ended just months before Mr. Walsh launched a $200-million lawsuit against Mr. Umlah on behalf of Crocus investors.

Judge Greenberg said she had to disqualify not only Mr. Walsh's law firm from acting on the lawsuit, but also lawyers with a Toronto law firm acting on the matter with Mr. Walsh.

"There is a presumption that all members of a firm are imputed with the confidential information acquired by other members of the firm, even when they have not worked together on a file," the judge wrote.

"To put it simply, a lawyer cannot call a former client to discuss a potential lawsuit and then turn around and sue him without creating an appearance of impropriety."

Last year, the fund, which had about 34,000 Manitoba investors, was placed in receivership after a $46-million writedown and a scathing report from Manitoba's auditor general.

Since then, several former directors face allegations from the Manitoba Securities Commission and the RCMP are investigating.

After investors filed a lawsuit against the fund and its directors, Mr. Umlah filed a court action to disqualify Mr. Walsh from acting for the investors.

Not only did Mr. Walsh act for Mr. Umlah in a divorce case in the 1990s, but he continued to represent Mr. Umlah and members of his family until just months before the lawyer was hired by the Crocus shareholders.

Mr. Umlah claimed Mr. Walsh would know all sorts of information about him, including his financial circumstances.

Mr. Walsh denied he was in a conflict of interest because he didn't have any confidential information about Mr. Umlah.

In an interview, Mr. Walsh said he was disappointed with the decision and that he hasn't met with his shareholder clients to see if they want to appeal the ruling.

Bernie Bellan, Crocus Investors Association secretary, said if the investors have to, they will hire another lawyer.

© 2007 The Globe and Mail. All rights reserved.

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