Gentech Insurance Ltd. v. Martina, 2012 ONCA 605
COURT OF APPEAL FOR ONTARIO
CITATION: Gentech Insurance Ltd. v. Martina, 2012 ONCA 605
DATE: 20120914
DOCKET: C54524
Feldman, Sharpe and Ducharme JJ.A.
BETWEEN
Gentech Insurance Ltd.
Plaintiff
(Respondent)
and
Alan Martina and Peter Diamantouros
Defendants
(Appellants)
Patrick J. Cotter, for the appellants
Allyson Fischer and Stephen F. Gleave, for the respondent
Heard: August 20, 2012
On appeal from the judgment of Justice David G. Stinson of the Superior Court of Justice, dated October 6, 2011.
ENDORSEMENT
[1] The appellants are insurance salesmen. The respondent is an insurance broker that retains salespeople, referred to as “producers”, who operate as non-employee agents using the broker’s licence and facilities. The appellant Martina came to the respondent as a producer in 2005. He was shown the respondent’s standard form written agreement. He never signed the written agreement, but he commenced and continued as a producer based on an oral agreement on the commission split and a 50/50 shared equity interest with Gentech in his “book of business”, that is, his insurance clients.
[2] The appellant Diamantouros joined Gentech as a producer four months after Martina. Diamantouros brought his own book of business. He also did not sign the standard form agreement but commenced and continued to work as a producer sharing commissions on a 50/50 basis.
[3] Both men decided to leave Gentech on the same day in January 2009, without notice and taking their books of business. Although Gentech tried to retain at least a portion of Martina’s accounts, most of them chose to transfer their accounts to Martina.
[4] Gentech sued both men on numerous grounds, including breach of contract and the tort of civil conspiracy. The key issue in the case was whether there was an agreement between each of the appellants and the respondent as to what would happen if the appellants left, and if there was an agreement, when was it formed and what were its terms.
[5] The original claim alleged an agreement between Gentech and Martina based on the terms of the unsigned contract, and in particular paragraph 18, which dealt with termination and provided:
- If this Agreement is terminated and the Special Conditions are satisfied as of the effective date of termination, the Contractor shall have the option but not the obligation to acquire the Book of Business from Gentech for 50% of the Fair Market Value thereof as determined by mutual agreement or binding in accordance with the process and procedures set out in Schedule “A” if they cannot agree. The Contractor must exercise this option by notice in writing to Gentech within four weeks before or within two weeks after the effective date of termination. The purchase price shall be paid in full on closing. Closing shall take place within three weeks after the later of (A) final determination of the purchase price, or (B) the effective date of termination. On Closing Gentech will provide a list of customers included in the Book of Business, copies of such documents as the Contractor may reasonably require to service that Book of Business, and a restrictive covenant agreement whereby Gentech agrees not to do [sic] sell general insurance products or renew general insurance products with the Book of Business without the prior written consent of the Contractor which consent may be unreasonably refused prior to the earlier of (C) two years after closing, or (D) the death of the Contractor. Both parties agree they will execute such further and other assurances as may be reasonably required to give effect to this paragraph and the transaction herein contemplated.
[6] Prior to the commencement of the trial, but more than two years after the appellants left Gentech, the respondent sought to amend its claim to add a claim for, among other things, unjust enrichment. Further, the Amended Statement of Claim added paragraph 9, which reads:
When the defendants joined Gentech, both verbally agreed that if they left Gentech and took Gentech’s customers, they would pay Gentech 50% of fair market value for any customers they had sold insurance products or renewals to during the twelve months prior to leaving.
[7] The appellants opposed the amendments on the basis that the Respondent was asserting new causes of action that were statute-barred. The trial judge allowed the amendments, ruling in respect of paragraph 9 that it was a restatement of the claim of an oral agreement. It was essentially in accordance with the deal reflected in paragraph 18 of the unsigned contract and did not constitute a different cause of action. As a result, it was not statute-barred.
[8] There were two meetings between the appellant Martina and the main principal of Gentech, Mr. Muir. The first was before Martina started, where Muir presented a spreadsheet that showed examples of the commission calculation as well as how the fair market value of the book of business would be calculated at termination, based on a factor of two. Martina subsequently held Gentech to the commission calculation, which provided for a higher commission in the first years, based on the first meeting and the spreadsheet. At the second meeting, shortly after Martina started working at Gentech, Muir presented Martina with standard form documents outlining the agreement, including a services contract and a non-competition/non-solicitation agreement. Those documents were never signed.
[9] The trial judge found that Gentech and Martina had agreed to be bound by the terms reflected in the spreadsheet examples from the first meeting, including the commission structure and the 50/50 equity split with a termination buyout at two times commission representing fair market value.
[10] The appellant submits that the effect of this finding was to turn an option to purchase the book of business on termination, contained in Gentech’s written contract at paragraph 18, into a mandatory obligation on the producers to buy their books of business on termination. His position was that if he left Gentech with his book of business, his option was to purchase Gentech’s 50% interest or not purchase it, and face a lawsuit for breaching a non-solicitation covenant, which lawsuit he believed would not be successful.
[11] We do not agree. The trial judge found that Martina and Muir made an oral agreement based on the spreadsheet and not on the terms of the Gentech form of agreement that was not signed. The oral agreement included the commission split as well as the 50/50 equity interest in Marina’s book of business. If Martina chose to leave Gentech with his book of business, he was required to purchase Gentech’s 50% interest at fair market value which the spread sheet showed as two times annual commission. On the other hand, if Martina wished to leave without his book of business, for example, if he wished to retire, then Gentech would purchase his 50% interest at the same formula price.
[12] It is implicit in this arrangement that whoever sold the book of business would not solicit those customers for two years, reflecting the two times annual commission price formula.
[13] We note that even had the terms of paragraph 18 of the written agreement applied, Marina would not have had an option to leave Gentech with his book of business without paying for it. The option was to not take the book of business.
[14] Muir testified that this was how he always operated with his producers and was not cross-examined on this evidence. He further testified that when a producer would retire, Gentech would buy out that producer’s 50% equity interest.
[15] We see no error in the trial judge’s conclusion that Martina breached the oral agreement.
[16] Diamantouros was found liable only for the tort of unlawful conduct conspiracy. In our view, that finding cannot be sustained.
[17] The trial judge was not referred to this court’s decision in Agribrands Purina Canada Inc. v. Kasamekas, 2011 ONCA 460, 106 O.R. (3d) 427, which was released shortly before his decision in this case. In Agribrands, this court clarified the requirements for the cause of action for unlawful conduct conspiracy, including that each conspirator must be engaged either in unlawful conduct or conduct intended to harm the complaining party. For an action in unlawful conduct conspiracy, “the conduct must be actionable. It must be wrong in the law.” (para. 33). In this case, Diamantouros owned his book of business and was entitled to leave without notice. The trial judge made no finding of unlawful conduct by Diamantouros or that his purpose in leaving was to harm Gentech. The appeal must therefore be allowed in respect of the claim for unlawful conduct conspiracy against the appellant Diamantouros.
[18] In the result, the appeal is dismissed in respect of the appellant Martina and allowed in respect of the appellant Diamantouros. Costs of the appeal to the respondent in the amount of $20,000 inclusive of disbursements and HST, which counsel agreed includes a reduction of $5000 to reflect the partial success in respect of the appellant Diamantouros.
“K. Feldman J.A.”
“Robert J. Sharpe J.A.”
“E. Ducharme J.A.”