COURT FILE NO.: CV-18-00597979 DATE: 20190228 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: EVERTZ TECHNOLOGIES LIMITED and EVERTZ MICROSYSTEMS LIMITED, Plaintiffs AND: LAWO AG, LAWO HOLDING AD, LAWO INC., LAWO GROUP USA INC., LAWO CORP, PROVIDUS CORP., TONY ZARE (a/k/a ANTONY ZAREZADEQAN), AYMAN AL KHATIB, JACKSON WIEGMAN and ALBERT FAUST, Defendants
BEFORE: Cavanagh J.
COUNSEL: James C. Orr, Kyle R. Taylor, and Daphne H. Hooper, for the Plaintiffs Martin Brandsma, for the Defendants, Providius Corp., Tony Zare, Ayman Al Khatib and Jackson Wiegman Laurent Massam, for the Defendants, Lawo AG, Lawo Holding AG, Lawo Inc., Lawo Group USA Inc., Lawo Corp. and Albert Faust
HEARD: February 13, 2019
ENDORSEMENT
Introduction
[1] The plaintiffs Evertz Technologies Limited and its subsidiary Evertz Microsystems Limited (“Evertz”) are technology companies that are in the business of providing video and audio infrastructure solutions for the television, telecommunications, and new-media industries. Evertz brings this action seeking remedies for alleged theft of confidential information.
[2] The individual defendants Tony Zare, Ayman Al Khatib, Jackson Wiegman and Albert Faust were formerly employed by Evertz.
[3] Evertz alleges that the individual defendants stole its confidential information to take to use at their competing business venture, Providius Corp. (“Providius”). Evertz alleges that the individual defendants and Providius lacked the wherewithal to develop a competing product on their own, and they colluded with the defendants Lawo AG, Lawo Holding AG, Lawo Inc., Lawo Group USA Inc., and Lawo Corp. (“Lawo”). Evertz alleges that Lawo has used the individual defendants and Providius to funnel confidential information out of Evertz and into its own products.
[4] The individual defendants (with the exception of Mr. Faust) and Providius are represented by the same counsel. I refer to these defendants as the “Providius Defendants”. Lawo and Mr. Faust are separately represented by the same counsel. I refer to these defendants as the “Lawo Defendants”.
[5] Each group of defendants has brought a motion to strike out the statement of claim in its entirety without leave to amend and to dismiss the action on the ground that Evertz, despite having been asked for particulars, has failed to identify what “confidential information” was misappropriated, how the alleged confidential information was misused, and what part of the Providius products were developed using this information. The defendants submit that, as a result, they do not know the case to be met. The defendants submit that Evertz’ pleaded allegations are bald and conclusory and, therefore, the claim pleaded in the statement of claim has no hope of success and is frivolous, vexatious and an abuse of process. The defendants also submit that the pleading deficiencies are such that the statement of claim fails to disclose a reasonable cause of action.
[6] For the following reasons, the defendants’ motions are granted and the statement of claim is struck out. Leave is granted to Evertz to serve an amended statement of claim.
Procedural Background
[7] The statement of claim was issued on May 16, 2018.
[8] In the statement of claim, Evertz asserts seven causes of action. These are all founded, at least to some extent, upon the alleged theft and misuse of Evertz’s confidential information.
[9] In the statement of claim, in paragraphs 40-45, Evertz pleads facts in relation to what it calls the “Evertz IP Solution”:
Evertz has developed the market-leading solution for converting traditional broadcast network communication standards to IP (the “Evertz IP Solution”).
Evertz initiated its IP strategy more than eight years ago, making annual investments in research and development. Over the past eight years, Evertz has invested more than $450 million in research and development, a significant portion of which to develop the Evertz IP Solution.
The Evertz IP Solution includes a series of products and technologies for converting traditional broadcast networks to IP.
Evertz award-winning MViP is an IP-based, multi-image display and monitoring transmission solution to optimize broadcast speed and quality over IP-based networks. MViP has become the gold standard among multiviewer monitoring and transport stream solutions in the broadcast industry, enabling simultaneous live broadcasting of audio and video over an IP-based transport stream.
The products and technologies that make up the Evertz IP Solution include, but are not limited to: (a) Multiviewer products, including MViP, MViP II, MVP, and VIP10G; (b) Transport stream monitor products, including 348TSM IP and 7880TSM IP; (c) IP gateway products, including 7880 IPG8-10GE2; and (d) Control, orchestration, and analytic products, including Magnum.
The proprietary elements of the Evertz IP Solution include, but are not limited to, software-defined networking, system architecture, and product solution, which together form the cornerstone of the research and development roadmap for future technological advances by Evertz.
[10] In the statement of claim, under the heading “The Defendants’ Theft of Confidential Information”, Evertz pleads at paragraphs 81 to 93:
Despite being a new company with few resources, Providius somehow released a product line with extremely similar attributes to the Evertz IP Solution - an accomplishment that had required many years and millions of dollars in research and development investment by Evertz.
In or about May 2016, Providius launched the BMG Solution, a product line substantially similar to the Evertz IP Solution.
On April 7-12, 2018, the National Association of Broadcasters held its NAB Show in Las Vegas. The NAB Show was the largest trade show for media, entertainment, and technology.
Evertz attended the NAB Show and visited what Evertz had expected to be the booth for Providius. When Evertz approached the booth, it noticed the booth was instead emblazoned with the logo for Lawo, and it was marketing the BMG Solution as Lawo’s product.
As Evertz knows now, the BMG Solution was in fact an illicit copy of the Evertz IP Solution, and it had been developed and marketed through collusion by Lawo, Providius, and the Individual Defendants.
The defendants have developed and marketed additional illicit copies of the Evertz IP Solution, including the Lawo-branded smartScope and Expandable IP Multiviewer.
Unbeknownst to Evertz, while the Individual Defendants were still employed by Evertz, they stole Evertz’s confidential information and used it for the benefit of themselves, Providius, and Lawo.
In particular, the Individual Defendants sought out proprietary confidential information from Evertz relating to the Evertz IP Solution and shared the information to recipients outside the Evertz organization, including Providius and Lawo.
The defendants executed the scheme in part by having the Individual Defendants send confidential aspects of the Evertz IP Solution, including information that was not relevant to their employment, to their private email.
The Individual Defendants stole confidential information from Evertz in violation of their Confidentiality Agreements, including their agreement to maintain the confidentiality over Evertz’s information, and to assign to Evertz the rights to any work they created, solely or jointly conceived, or caused to be conceived during their employment.
The information the defendants stole from Evertz included confidential information about the Evertz IP solution, including, among other things, software, architecture, product solution, roadmap, materials, workflow, and pricing information.
Lawo, Providius, and the Individual Defendants acted as a single, overarching conspiracy to build their own IP-based broadcast network product line using stolen information from Evertz.
As of April 2018, Evertz learned that Providius was acquired by, merged with, or licensed use of the BMG Solution to Lawo. Any compensation received from the arrangement between Lawo and Providius constituted ill-gotten gains resulting from the defendants’ wrongful conduct and theft of confidential information.
[11] On June 5, 2018, the Providius Defendants served a Demand for Particulars and Request to Inspect Documents. In their Demand for Particulars, the Providius Defendants requested the following particulars: a. alleged confidential information: what “confidential information” was allegedly stolen, taken or memorized by each of the Defendants, and for each such act, when did this occur, and which Defendant did the relevant act; particulars of the “software”, “architecture”, “product solution”, “roadmap”, “materials”, “workflow”, and “pricing information” that the Defendants allegedly “stole” from Evertz; b. products of the Defendants: the specific products of the Defendants alleged to contain Evertz’s confidential information; c. alleged collusion: particulars of the alleged collusion between Providius, LAWO, and the individual Defendants; what acts of alleged collusion were there; when did they occur; what was conspired; d. discoverability: particulars of the Defendants’ alleged concealing the existence of wrongful conduct and when Evertz became aware of the alleged breach; e. unjust enrichment: how the Defendants were enriched; the deprivation suffered by Evertz; and f. inducing breach of contract: particulars of how LAWO and Providius “induced” the individual Defendant; how did they induce the breach of these employment contracts; when did these acts occur.
[12] On June 19, 2018, the Lawo Defendants served a Demand for Particulars and Request to Inspect Documents. Their Demand for Particulars was similar to the Evertz Demand for Particulars.
[13] On July 20, 2018, Evertz served a response to the Providius Defendants’ Demand for Particulars and Request to Inspect Documents. On the same day, Evertz served a response to the Lawo Defendants’ Demand for Particulars and Request to Inspect Documents. Evertz responded by stating, among other things, that the “confidential information of Evertz is defined at paragraphs 42 to 45 of the Statement of Claim”, and that “the confidential information alleged to have been stolen, taken or memorized by the defendants is defined at paragraphs 42 to 45 of the Statement of Claim”. The responses did not provide additional particulars of the “confidential information” described in the statement of claim. Many of the responses repeated the statements in the statement of claim, and added that additional particulars requested are within the knowledge of the defendants or, in some cases, the individual defendants, or some of them. At the same time, Evertz responded to the Requests to Inspect Documents and provided documents including some offers of employment and employment agreements in relation to several of the individual defendants.
[14] By letter dated September 27, 2018, Providius’ counsel advised Evertz’s counsel that Evertz’s responses to the request for particulars were insufficient.
[15] On October 25, 2018, Providius’ counsel served on Evertz a Notice of Motion to strike the statement of claim in its entirety. The motion was set to be heard on December 20, 2018.
[16] On November 23, 2018, Evertz’s counsel wrote to counsel for the Providius Defendants to provide further particulars with respect to Evertz’s claim. In this letter, Evertz’s counsel states that they are providing “the particulars Evertz currently has regarding the improper taking of confidential information”. Evertz’s counsel’s letter lists 22 emails sent by Mr. Zare, Mr. Wiegman, a person named Dustin Cowan, Mr. Faust, Mr. Al Khatib, and a person named Stanley Pan to their personal email addresses. The letter includes general descriptions of the information transmitted by these 22 emails. The letter also provides what is described as “the particulars currently within the knowledge of Evertz” with respect to the products of Lawo and Providius that incorporate confidential information belonging to Evertz. The letter from Evertz’s counsel concludes with the statement “[w]e anticipate that more information regarding both the taking of confidential information by the defendant and its incorporation into the defendants’ products will be obtained during discoveries”.
[17] The motions that were scheduled to be heard on December 20, 2018 were adjourned until February 13, 2019.
Analysis
[18] The issues to be determined on these motions are (i) whether the statement of claim (as supplemented by the first responses to the defendants’ demands for particulars and the additional responses in the November 23, 2018 letter from Evertz’s counsel) contains a minimum level of material fact disclosure to sufficiently plead the causes of action in the statement of claim that are based upon allegations of misappropriation and misuse of Evertz’s confidential information and, if not, (ii) whether leave should be granted to Evertz to amend the statement of claim.
General principles applicable to pleadings
[19] Rule 25.06 (1) of the Rules of Civil Procedure provides that “[e]very pleading shall contain a concise statement of the material facts on which the party relies for the claim or defence, but not the evidence by which those facts are to be proved”. This rule requires that a party must plead all of the facts that it must prove to establish a cause of action that is legally complete: Aristocrat Restaurants Ltd. v. Ontario, [2003] O.J. No. 5331, at para. 20.
[20] Rule 25.11 provides that the court may strike out all or part of a pleading, with or without leave to amend, on the ground that the pleading is scandalous, frivolous or vexatious, or is an abuse of the process of the court. Rule 21.01(3)(d) provides that a defendant may move before a judge to have an action stayed or dismissed on the ground that the action is frivolous or vexatious or is otherwise an abuse of the process of the court, and the judge may make an order or grant judgment accordingly. Rule 21.01(1)(b) provides that a party may move before a judge to strike out a pleading on the ground that it discloses no reasonable cause of action.
[21] The role of pleadings in litigation is to delineate the issues in dispute for the parties and the court in order that an efficient use of the court’s and the parties’ resources can be maintained. A defendant must not be left to speculate on or guess the particulars of the case alleged against him and the remedy sought from him: Iovate Health Sciences Inc. v. Nxcare Inc., 2007 CarswellOnt 7459, at para. 24.
[22] A pleading that shows a complete absence of material facts is considered frivolous and vexatious. Bare allegations should be struck as scandalous. This is particularly so where allegations of intentional or malicious conduct are made: Aristocrat Restaurants at para. 21; Dyce v. Ontario, 2007 CarswellOnt 3437 (S.C.J.) at para. 16.
[23] Pleadings that are devoid of material facts can be struck on the basis of: (1) being frivolous, vexatious, and abusive, when the claim provides no rational argument based on facts that are pleaded; and (2) disclosing no reasonable cause of action, including the failure to plead the necessary legal elements of an otherwise recognized cause of action. See Aristocrat Restaurants, at paras. 16-21.
Does the statement of claim (as supplemented by the particulars) contain sufficient material facts to meet the minimum level of material fact disclosure to plead the causes of action based upon alleged misappropriation and misuse of Evertz’s confidential information?
[24] The defendants rely upon several cases that address the sufficiency of material facts to be pleaded for a cause of action for breach of confidence.
[25] In Iovate, the plaintiff claimed that certain former employees had wrongfully passed confidential information to other defendants. The plaintiffs advanced claims for breach of confidence and conspiracy. The defendants moved to strike out certain paragraphs of the plaintiff’s pleading, without leave to amend, under rule 25.11 of the Rules of Civil Procedure. The moving parties submitted that the paragraphs in question make “broad sweeping claims” that each of the 18 former employees “took unspecified confidential information and misused it in unspecified ways” in cooperation with the defendant which, the plaintiff alleged, received the information. Allen J. held at para. 24-27 that the impugned paragraphs do not contain sufficient material facts to support the allegations against the former employees. Allen J. wrote at para. 26:
I agree with the Defendants that the allegations against the Former Employees in the impugned Paragraphs are broad and sweeping and contain no particular factual allegations against any of them individually. While Paragraph 36 contains a list of the types of confidential information allegedly misappropriated, it is not clear from the pleadings which particular employee is alleged to have misappropriated which confidential information and the use to which any particular employee might have put the confidential information. Neither could any of the Former Employees ascertain from the pleadings which remedy is sought against them in particular.
Allen J. struck out the impugned paragraphs, and granted leave to the plaintiff to amend its pleading.
[26] In Napier Environmental Technologies Inc. v. Vitomir, 2001 BCSC 1704, [2001] B.C.J. No. 2552, Loo J., on a motion for particulars, addressed the requirements for a proper pleading of a cause of action for breach of confidence. Loo J. held at para. 22 that the defendants are entitled to know at the pleadings stage what the plaintiff maintains is the confidential information that was taken by the defendants, and that it is no answer for the plaintiff to say that it will know only after it has examined the defendants for discovery, or that this information is in the knowledge of the defendants. Loo J. held at para. 24 that a plaintiff is not entitled to speculate on the confidential information that may have been misappropriated, and then use the proceeding in the hope that it will find information upon which to base its claim. See also Nail Cartel Inc. v. Duclos, 2017 BCSC 2313 at para. 24.
[27] Evertz relies upon the decision of Epstein J. (as she then was) in Obonsawin (c.o.b. Native Leasing Services) v. Canada, , [2001] O.J. No. 369 in which the defendants’ motion for particulars in an action for conspiracy was dismissed (other than with one exception that does not apply to this case). Epstein J. concluded at para. 41 that the claim contains the basic elements of the tort of conspiracy and, while the details of those arrangements might not be set out with “clarity and precision”, the pleading was not so general and bald as to lead her to conclude, without a supporting affidavit, that particulars are necessary. Epstein J. also held at para. 43 that “[i]t would be unfair to impose an obligation on the plaintiff that would be difficult, if not impossible, to meet when the defendants have so much power over the information sought relative to that of the plaintiffs”. Evertz submits that, similarly, it would be unfair to impose an obligation on it to plead material facts with more particularity than it has, in circumstances where the defendants have so much power over the information sought, relative to Evertz. Evertz submits that it has disclosed in the statement of claim and in the additional particulars that it provided the facts within its knowledge.
[28] Evertz submits that the defendants’ motions for particulars must fail because they have not provided affidavit evidence in support of their motions and, as a result, there is no evidentiary basis for me to conclude that the information requested is not within the defendants’ knowledge, or the information is necessary to enable the defendants to plead. Evert submits that the allegations pleaded and particulars provided are such that the requirements for pleading a cause of action for breach of confidence are satisfied, and the statement of claim and additional particulars cannot be said to be so “general” or “bald” as to require further particulars, without a supporting affidavit.
[29] Evertz also submits that it has sufficiently pleaded the material facts upon which its claim is based, and that to require it to disclose in a publicly filed statement of claim the details of the confidential information that it alleges was taken and misused would be improper.
[30] In Copland v. Commodore Business Machines Ltd., 1985 CarswellOnt 10, Master Sandler explained at para. 15 the circumstances in which particulars may be required:
Rule 25.06(1) mandates a minimum level of material fact disclosure and if this level is not reached, the remedy is not a motion for “particulars”, but rather, a motion to strike out the pleading as irregular. It is only where the minimum level of material fact disclosure has been reached that the pleading becomes regular. Thereafter, the discretionary remedy of particulars under rule 25.10 becomes available, if the party seeking particulars can qualify for the relief under the provisions of that rule.
[31] These motions are not motions for particulars (except as alternative relief). The defendants’ motions did not need to be supported by affidavits. The defendants’ motions are to strike out the statement of claim, without leave to amend, on the ground that the statement of claim contains bald and conclusory allegations that do not rise to the minimum level of material fact disclosure that is required and, as such, it is frivolous or vexatious and an abuse of the process of the court. The defendants also submit that the statement of claim fails to plead material facts that are sufficient to disclose a cause of action for breach of confidence, or for the other causes of action pleaded that are based upon allegations of misappropriation and misuse of confidential information.
[32] The authorities cited by the defendants establish that a plaintiff who pleads a cause of action for breach of confidence must plead the material facts upon which the claim is based, and the facts cannot consist of bald, conclusory, allegations that a group of defendants took or misused “confidential information”. Each defendant is entitled to know with particularity what confidential information the defendant is alleged to have taken, and the acts allegedly taken by the defendant to misuse the confidential information. It is not an answer for a plaintiff to say that these facts are within the knowledge of the defendants, or that the information will be provided after examinations for discovery have been conducted.
[33] In paragraph 91 of the statement of claim, Evertz pleads that “[t]he information the defendants stole from Evertz included confidential information about the Evertz IP solution, including, among other things, software, architecture, product solution, roadmap, materials, workflow, and pricing information”. These descriptions of categories of confidential information are too vague and general to satisfy the minimum requirement for pleading material facts to support a claim for breach of confidence.
[34] In paragraph 92 of the statement of claim, Evertz pleads that “Lawo, Providius, and the Individual Defendants acted as a single, overarching conspiracy to build their own IP-based broadcast network product line using stolen information from Evertz”. This pleading also does not allege material facts that are sufficient meet the minimum level of material fact disclosure because the pleading does not inform each defendant of the acts that Evertz alleges the defendant took to misuse Evertz’s confidential information.
[35] Evertz submits that the particulars provided in the November 23, 2018 letter from its counsel must be read with the allegations of fact in the statement of claim and in its first responses to the defendants’ demands for particulars: Areva NP GmbH v. Atomic Energy of Canada Ltd., [2009] O.J. No. 4372 at para. 22. I have reviewed the statements in the November 23, 2018 letter and I do not agree that this information, at least in the way it is presented in the letter, provides sufficient material facts that would allow the defendants to know the confidential information that each defendant is alleged to have misappropriated, or the acts taken by each defendant to misuse the confidential information.
[36] The information in the 22 items in the letter does, however, indicate that certain of the individual defendants, while he was employed by Evertz, sent emails to his personal email address that contain information from his employer, Evertz, and, based upon the descriptions in many of the items, that the information forms part of what Evertz describes broadly as the “Evertz IP Solution”.
[37] I conclude that the statement of claim, even as supplemented by the responses to the demands for particulars, does not reach the minimum level of material fact disclosure that is required for a statement of claim that pleads causes of action based upon alleged misappropriation and misuse of confidential information. The proper order is to strike out the statement of claim pursuant to rules 25.11, 21.01(3)(d), and 21.01(1)(b).
Should Evertz be granted leave to amend the statement of claim?
[38] The defendants ask that the statement of claim be struck out, without leave to amend, and that the action be dismissed.
[39] Evertz asks, in the event that I decide to strike out its statement of claim, that it be granted leave to deliver an amended statement of claim.
[40] Leave to amend a pleading can properly be given where it is possible to cure deficiencies in a pleading. Leave to amend should only be refused in the clearest of cases: Aristocrat Restaurants at paras. 84-85.
[41] Although I have concluded that the facts pleaded in the statement of claim as supplemented by the first responses to the defendants’ demands for particulars and the particulars provided in the November 23, 2018 letter are not sufficient to satisfy the minimum level of fact disclosure that is required for causes of action based upon alleged misappropriation and misuse of confidential information, I am not satisfied that the statement of claim is necessarily fatally defective or that it would not be possible for Evertz to cure the defects in its pleading through proper amendments.
[42] This is not a case where Evertz should be denied leave to amend its statement of claim. I grant leave to Evertz to deliver an amended statement of claim.
Disposition
[43] For these reasons, Evertz’s statement of claim is struck out, and leave is granted to Evertz to serve an amended statement of claim within 30 days.
[44] If the parties are unable to resolve costs of these motions, the Providius Defendants and the Lawo Defendants may make written submissions within 15 days. Evertz may make written responding submissions within 15 days thereafter. The Providius Defendants and the Lawo Defendants may make brief written reply submissions, if so advised, within 5 days thereafter.
Cavanagh J.