Łutsel K'e Dene allege law firm helped former CEO defraud companies

The Łutsel K'e Dene First Nation (LKDFN) says a law firm that was supposed to be working for its businesses helped a former chief executive officer defraud those businesses of millions of dollars.

It's the latest development in a lawsuit against former CEO Ron Barlas and his wife, Zeba. In court documents, the LKDFN allege that Barlas stole millions from them during his years as CEO of the Denesoline Corporation and used it to enrich himself and his family.

Last week, lawyers for the Łutsel K'e Dene asked the court for permission to file a related lawsuit against Reynolds Mirth Richards & Farmer (RMRF) LLP and four of the partners in the firm, which Barlas hired to work for Denesoline. The LKDFN need the court's permission to file the lawsuit because it would be on behalf of Denesoline, which is under the control of a receiver.

The purpose of the suit, Łutsel K'e's lawyers wrote, would be "to enable the LKDFN companies to recover millions in damage RMRF is alleged to have caused to the LKDFN companies through their conduct in assisting Barlas and failing to take reasonable steps to protect the interests of their clients, the LKDFN companies."

The Łutsel K'e Dene First Nation is seeking $20 million in damages against Reynolds Mirth, plus $2.5 million in punitive damages.

No one from Reynolds Mirth Richards & Farmer was available to talk about the case. In an email, managing partner Julie Gagnon said the firm "supports a full and fair investigation" of the allegations against Barlas and his family, but adds, "the potential allegation that RMRF in any way participated in fraud is entirely without merit, and will be vigorously defended."

Because the courts have yet to approve the lawsuit, the law firm has yet to file a statement of defence. Gagnon said they would not talk about the lawsuit because it involves matters of attorney-client privilege and is before the courts.

First Nation alleges firm helped CEO protect his position

The lawyers for Łutsel K'e say the First Nation first learned details of RMRF's involvement with Barlas after the Łutsel K'e companies were placed under the control of a receiver, shortly after the lawsuit against Barlas and his family was filed.

At that point the receiver got access to "extensive correspondence" between Barlas and the law firm, according to the court documents filed by the LKDFN. They allege that Barlas hired the firm in 2016. They say he knew and was friends with one of the partners in the firm, Fred Kozak, and chose it because he knew they would be loyal to him, not the LKDFN or the Denesoline Corporation.

One of Barlas's last acts before being relieved of control over Denesoline was to have the company pay the law firm a $500,000 retainer for legal services. The day after that, Barlas allegedly tried to wire transfer $500,000 out of the country. Reynolds Mirth Richards & Farmer stopped representing Denesoline three weeks after the lawsuit against Barlas was filed and returned the $500,000 retainer.

In its statement of claim against RMRF, the Łutsel K'e Dene First Nation alleges the firm: 

• Advised Barlas about agreements he used to defraud the LKDFN companies and failed to advise Barlas that, as CEO, he had a responsibility to act in the best interests of the companies and not use his authority to misappropriate money.

• Advised Barlas on legal strategies to protect his position and avoid scrutiny of his self-dealing.

• And sent threatening "cease and desist" letters to LKDFN members who questioned or challenged Barlas's management.

No court date has been set for hearing the application to file suit against RMRF. The next appearance in the case against Barlas and his wife is scheduled for Dec. 12. Four days of court time are scheduled.