Court File and Parties

COURT FILE NO.: CV-17-0102 DATE: 2017-06-27

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Pietro, Pasquale-Antonio Sgromo (Peter, Anthony Sgromo), Plaintiff (Responding Party) v. Imperial Toy, LLC, Peter Tiger, Art Hirsh, Defendants (Moving Party)

HEARD:

BEFORE: Platana J.

COUNSEL: Unrepresented, Plaintiff (Responding Party) D. Zulianello, for the Defendants (Moving Party)

E N D O R S E M E N T

[1] The defendants bring this motion requesting an order setting aside the Statement of Claim served, and staying or dismissing this action on the basis of want of jurisdiction, or, in the alternative, that Ontario is not a proper forum for the action. The defendants specifically noted that they do not attorn to the jurisdiction.

[2] The plaintiff’s claim is for damages for breach of confidence, misrepresentation, fraudulent misrepresentation, breach of contract, breach of fiduciary duty, breach of duty or loyalty, breach of confidence, oppression, conversion and unjust enrichment.

[3] The defendant, Imperial Toy LLC, is a toy manufacturing corporation which has its principal office and headquarters in Los Angeles County, California. The personal defendants are the Co-CEO’s for the corporation.

[4] The Plaintiff resides in Thunder Bay, Ontario.

[5] On December 17, 2009 the parties entered into a license agreement through the plaintiff’s British Columbia corporation, Wide Eyes Marketing Ltd. The agreements were made when the plaintiff and Wide Eyes were resident in, or had offices in California. The defendants claim that the plaintiff is clearly so “closely related” to Wide Eyes, the contracting partner, that he is personally bound by the agreement, including the jurisdiction clause. No issue was raised by the plaintiff to dispute this.

[6] The License Agreement specified that:

This Agreement shall be governed by and construed under the laws of the State of California and the United States without regard to conflicts of law provisions thereof and without regard to the United Nations Convention on Contracts for the International Sale of Goods.

An Addendum to the Agreement clarifying the signatories contained a paragraph that the Addendum shall be bound by the remaining existing provisions of the License Agreement.

[7] Imperial’s business is carried out from the head office. It does not manufacture its products or have any offices in Ontario. Most of its staff is located in California, with some in Mississippi, Mexico and Hong Kong. Employees do not travel to Ontario to conduct business. It distributes its proprietary and licensed products to over 75 countries worldwide from distribution locations in Hong Kong, San Diego, Mexico and Mississippi. It sells to various customers who have locations within the Province of Ontario. Sales are arranged outside of Ontario and title to the goods transfers to the customer at the time of shipment and before the goods reach Ontario. The company has no contracts within Ontario. It operates no retail stores, and keeps no inventory, in Ontario.

[8] The defendants’ position is that there is no real and substantial connection between this court and the subject matter of the action and that the contract governing the relationship between the parties clearly contains a clause specifying that the law of California shall be applied to disputes. The defendants’ affidavit evidence is that there have been two previous arbitration proceedings stemming from their collaboration with the plaintiff, both of which were adjudicated upon in California, in accordance with the dispute resolution clause in the License Agreement.

[9] The defendants rely on Rule 21.01(3)(a) and the decisions in Van Breda v. Village Resorts Ltd., 2012 SCC 17, [2012] 1 SCR 572 to dispute jurisdiction.

[10] The plaintiff acknowledges that the License Agreement and Non-disclosure Agreement was signed in California. The plaintiff’s position is that the defendants are carrying on business in Ontario because third party retailers in Ontario are selling products manufactured by Imperial. He submits that the defendants’ products are marketed in Ontario through a Canadian based marketing agency which exists in Ontario, and that creates an agency relationship such that the defendants should be found to be carrying on business in Ontario, a factor in Van Breda. He relies on the fact that employees of the defendants have visited Ontario periodically to meet with representatives of the marketing company.

[11] This is the fourth motion of a similar nature brought by defendants who are the subject of various actions brought by the plaintiff and who have been successful in challenging the jurisdiction of this court. In Sgromo v. Scott, 2017 ONSC 2524, Sgromo v. Polygroup International et al, 2017 ONSC 2525, and Sgromo v. Bail Hotline Bail Bonds Inc., 2017 ONSC 2522, Shaw J. dealt with claims against defendants, all of whom were outside of Ontario. While the nature of the claims were somewhat different in Polygroup, the issue was framed around a similar clause in a non-disclosure agreement which conferred jurisdiction in Massachusetts.

[12] I adopt the law as set out by Justice Shaw in paras. 17-20 in Bail Hotline,

[17] The determination of whether the court has a right to assume jurisdiction over the claims of the plaintiffs is governed by the principles set out by the Supreme Court of Canada in Van Breda v. Village Resorts Ltd., 2012 SCC 17. The analysis concerning the assumption of jurisdiction is grounded in the real and substantial connection test – objective factors which connect the subject matter of the litigation to the forum.

[18] Van Breda set out four presumptive connecting factors that, prima facie, entitle a court to assume jurisdiction over a dispute:

(a) the defendant is domiciled or resident in the province;

(b) the defendant carries on business in the province;

(c) the tort was committed in the province; and

(d) a contract connected with the dispute was made in the province.

[19] The burden is on the plaintiffs to establish a recognized presumptive factor. The burden of rebutting a presumptive factor lies with the party challenging the assumption of jurisdiction. At para. 100, the court stated:

If the court concludes that it lacks jurisdiction because none of the presumptive connecting factors exist or because the presumption of jurisdiction that flows from one of those factors has been rebutted, it must dismiss or stay the action….

[20] The plaintiff must establish on admissible evidence a good arguable case that one of the presumptive factors is present (See Shah v. LG Chem, Ltd., 2015 ONSC 2628, at para. 10).

[13] In Scott, Justice Shaw considered the issue of jurisdiction simpliciter and the application of the real and substantial connection test to circumstances where the only evidence was that the defendants’ products were sold in Ontario. At para. 67, he stated:

[67] Mr. Sgromo submits that the Bestway companies are carrying on business in Ontario because their products are sold at retailers in Ontario. In Van Breda, at para. 87, the Supreme Court of Canada stated that caution must be exercised in considering whether an entity is carrying on business in the jurisdiction, to avoid what would amount to assuming universal jurisdiction in respect of tort claims arising out of certain categories of business or commercial activity. “The notion of carrying on business requires some form of actual, not only virtual, presence in the jurisdiction, such as maintaining an office or regularly visiting the territory of the particular jurisdiction.”

[14] At para. 68, Shaw J. stated, “There is no evidence that the Bestway companies had such an actual presence in Ontario, even if their products were sold in the province by third party retailers, as alleged by Mr. Sgromo.”

[15] In Polygroup, Mr. Sgromo again argued that the Polygroup companies were carrying on business in Ontario because a number of third party retailers were selling Polygroup’s products in Ontario. At para. 34, Justice Shaw stated:

[34] Although retailers in Ontario may carry Polygroup products, and although Polygroup therefore did business with Ontario retailers, this does not mean that Polygroup carried on business in Ontario. For Polygroup to carry on business in Ontario, it would require a finding that Polygroup had some form of actual presence in the Province. In Parque Industrial Avante Monterrey, S.A. de C.V. v 1147048 Ontario Ltd. and Advantage Engineering Inc., 2016 ONSC 6004, at para. 17, the fact that the defendant foreign corporation had intermittently visited Ontario and had done business with a Canadian based company was insufficient to establish that it had been carrying on business in Ontario. In Yemec and Rapp v. Atlantic Lottery Corporation, 2012 ONSC 4207, the court held that the fact that two of the foreign defendant’s auditors visited the plaintiff in Ontario for two weeks and conducted a compliance audit and reviewed the plaintiff’s entire business operation was insufficient to establish jurisdiction. In Yemec, Belobaba J., by way of example, said that the fact that an offshore oil supplier which simply sold oil to an Ontario refinery that was completely dependent on its product would not be sufficient to establish that the offshore oil supplier was carrying on business in Ontario.

[16] The facts before me are identical.

• the contract was made in California;
• the contract stipulates that California law is to apply;
• the previous arbitrations have been held in California;
• the defendants, corporate and personal, reside in California;
• there are no contracts in Ontario between the parties;
• any potential tort claims which may be available to the plaintiff arise out of the California contract; and
• the only connection to the defendants in Ontario is that its products are sold here, and elsewhere throughout the world.

[17] The plaintiff has also argued that because the products are marketed in Ontario through a Canadian based marketing company which carries on business in Ontario, that constitutes a real and substantial connection. I agree with the defendants’ position that any contract with the entered into with the marketing company is not related to the contract between the plaintiff and the defendants. The fact that the products may be marketed in Ontario through an agency does not mean that the defendants are therefore carrying on business in Ontario. If that were the case, then manufacturers who use various marketing companies throughout the world could be said to be carrying on business in those countries, which is contrary to the decision in Van Breda.

[18] Mr. Sgromo raised an argument that because the Defendants assisted him in obtaining a “TN Status of Management Consultant,” granted by the U.S. Department of Homeland Security, U.S. Customs and Border Patrol at Toronto Pearson International Airport, that establishes a real and substantial connection to Ontario, because it is a contract connected to the dispute.

[19] Similarly, he argues that a Non-Disclosure Agreement between the parties, signed in California, is sufficient to establish such a connection, arguing that it relates to the License Agreement, and that it was the last essential act of contract formation.

[20] I do not agree with the plaintiff’s submission that the TN Status and/or the Non-Disclosure Agreement constitute a real and substantial connection to the License Agreement. The License Agreement contains an integration clause that states, “this agreement constitutes the entire understanding of the parties, revokes and supersedes all prior agreements… and is intended as a final expression of their Agreement…”

[21] Mr. Sgromo has filed extensive materials – factum and case law – claiming relief under various heads (as noted in paragraph 2 herein). For the reasons set out herein, there is no jurisdiction in Ontario to adjudicate on any of the claims advanced. Any tort, misrepresentation of any kind, breach of duty, oppression, conversion, or unjust enrichment all arise out of the contractual agreement between the parties which is governed by California law.

[22] I adopt fully the reasons of Shaw J. as in Scott, Bail Hotline, and Polygroup.

[23] As I find there is no real and substantial connection, it is not necessary for me to deal with the issue that Ontario is not a convenient forum.

[24] This action is dismissed.

Costs

[25] If the parties are unable to agree upon costs, the defendants shall deliver written submissions and Bills of Costs within 20 days. The plaintiff shall deliver written submissions within 20 days after service of the defendants’ submissions and Bills of Costs. The written submissions shall not exceed five double spaced pages, exclusive of Bills of Costs. If the defendants fail to deliver their submissions and Bills of Costs within 20 days, the issue of costs shall be deemed to be settled.

The Hon. Mr. Justice T.A. Platana DATE: June 27, 2017

Corrigendum

CORRIGENDUM TO

E N D O R S E M E N T DATED JUNE 27, 2017

Corrected Decision: The text of the original endorsement was corrected on July 5, 2017 as below:

Paragraph 19 was corrected to read … “a Non-Disclosure Agreement between the parties, signed in California, is sufficient to establish such a connection, arguing that it relates to the License Agreement, and that it was the last essential act of contract formation.”

The Hon. Mr. Justice T.A. Platana July 5, 2017