ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NOS.: CV-12-9692-00 CL,
CV-12-9691-00 and CV-12-1572-00

DATE: 20120427

BETWEEN:

GURINDER SINGH BRAR, BRAR HEALTH SERVICES INC., GERARD LONGVAL, G. LONGVAL PHARMACY LTD., JAYANTKUMAR PATEL, JAY VEE DRUGS LTD., PRAGHJOT SINGH DHANOA, 946398 ONTARIO LTD., MUHAMMAD ASHRAF and ZAIN PHARMACEUTICAL PRODUCTS INC. MILAD BOSTA and 1571176 ONTARIO LTD. GEORGE IDEMUDIA and PHARMAGREEEN DRUGMART INC. HARVINDER TAKHAR and 1426072 ONTARIO LTD. Applicants – and – ZELLERS INC. Respondent

Gerhard A. Pyper, Counsel for the Applicants except Harvinder Takhar and 1426072 Ontario Limited
John L. O’Kane, Counsel for Harvinder Takhar and 1426072 Ontario Ltd.
Eliot N. Kolers, Alexander D. Rose and Mel Hogg, Counsel for the Respondent

AND BETWEEN: NINA HANIF and 1537749 ONTARIO LTD. Plaintiffs

– and – ZELLERS INC. and MICHAEL JORGENSON Defendants

AND BETWEEN: HARVINDER T AKHAR and 1426072 ONTARIO LIMITED Applicant – and – ZELLERS INC. Respondent

HEARD: April 26, 2012

ENDORSEMENT

L.A. Pattillo J.:

Introduction

[1] Zellers Inc. (“Zellers”) operates retail stores across Canada, the majority of which include pharmacies. Most of the pharmacies are operated by a Zellers’ affiliate, Zeller’s Drug Stores Limited (“Zeller’s Drug Stores”). The remainder are operated by pharmacist licensees pursuant to license agreements with Zellers.

[2] The individual plaintiffs who are licensed pharmacists in Ontario and their corporations operate pharmacies in various Zellers’ stores in Ontario each pursuant to a license agreement with Zellers.

[3] The plaintiffs move for an injunction restraining Zellers from using, selling, disposing of information pertaining to the pharmacies or patient’s of the pharmacies belonging to the plaintiffs.

[4] There are eight individual plaintiffs (Mr. Takhar commenced his proceeding by way of application but I will refer to him throughout as a plaintiff too). After proceedings were commenced, Mr. George Idemudia and his company Pharmagreen Drugmart Inc. joined Action CV 12-9692-00CL and filed an affidavit in support of the motion. At the request of the plaintiffs in that Action and on the consent of Zellers, I ordered the Mr. Idemudia and his company be added as plaintiffs to Action CV 12-9692-00CL and be allowed to participate in the motion.

Background

[5] The issues on these motions arise out of a January 2011 agreement by Zellers to sell the leases to a number of its stores to Target Corporation and its Canadian affiliate, Target Canada Co. (collectively “Target”). Target ultimately acquired 189 leases of which 144 had Zellers’ pharmacies in the stores. Zellers is now in the process of closing those pharmacies.

[6] As noted, the relationship between Zellers and the plaintiffs is governed by a license agreement. The wording of the license agreements is identical for each of the plaintiffs except Ms. Hanif, whose agreement does not vary in any material respect. Under the terms of the license agreements, the licensees can use the Zellers trademarks, and receive business development and marketing support and discounted rent while operating the pharmacy. After paying a licensee fee and other expenses, the licensee pharmacists keep the profits from the pharmacy. However, the parties acknowledge that Zellers retains all interest in the trademarks and the parties acknowledge that all records relating to their customers, including names, addresses, contact information, electronic and hard copies of filled and unfilled prescription orders and related information ("Pharmacy Records") belong to Zellers.

[7] On March 23, 2012, Zellers entered into an agreement with Loblaw Inc. (“Loblaw”) whereby Loblaw agreed to purchase certain pharmacy assets, including the Pharmacy Records for 95 Zellers locations.

[8] On March 30, 2012, Zellers entered into an agreement with Metro Ontario Pharmacies Limited (“Metro”) and Metro Ontario Inc. whereby Metro purchased the pharmacy assets including the Pharmacy Records for seven Zellers locations.

[9] The individual plaintiffs’ Zeller pharmacy locations are included in either the Loblaw or Metro transactions.

[10] Zellers has announced that all of the pharmacies involved in the Loblaw and Metro transactions will be closing and has given notice to each of the plaintiffs pursuant to their license agreement terminating the agreement on specific dates beginning April 30, 2012 and continuing to June 18, 2012.

Discussion

[11] In order to obtain an injunction, the plaintiffs must demonstrate that: (1) there is a serious issue to be tried; (2) they will suffer irreparable harm; and (3) the balance of convenience favours the granting of the injunction: RJR-MacDonald Inc. v. Canada (Attorney General), 1994 SCC 117, [1994] 1 S.C.R. 311 at para. 48.

(a) Serious Issue

[12] Zellers argues that in effect the plaintiffs are seeking a mandatory injunction ordering that the pharmacies in Zellers stores remain open and operating and accordingly the plaintiffs must meet the higher threshold of strong prima facie case under the first branch of the tripartite test: Boehringer Ingelheim (Canada) Inc. v. Bristol-Myers Squibb Canada Inc., 1998 14794 (ON SC) at paras. 49-51.

[13] I do not view the injunction requested by the plaintiffs to be a mandatory injunction. While one of the effects of the injunction requested may be to require the Zellers pharmacies to remain open, there are other results that may occur if the requested injunction issues which will not have that effect. Accordingly the proper test in this case is serious issue to be tried.

[14] The plaintiffs’ claims against Zellers include breach of contract and conversion. In particular, they allege that pursuant to the terms of the license agreements, they own the Pharmacy Records and Zellers is in breach of the agreements by selling them to Loblaws and Metro. In the alternative, they submit that the legislation governing the privacy of health information, the Personal Health Information Protection Act, 2004, SO 2004, c 3, Sched. A (“PHIPA”) as well as the Drug and Pharmacies Regulation Act, RSO 1990, c H4 (“DPRA”) and its regulations which govern the operations of pharmacies override the terms of the license agreements and prevent Zellers from transferring the Pharmacy Records to Loblaw and Metro.

[15] Section 19.04 of the license agreements (s. 20.04 of the Hanif license agreement) provides, in part, that “all lists of customers of the Licensed Business or Store, including without limitation, lists developed by Pharmacist, the Company, their employees or agents and any other information relating to such customers belong exclusively to Zellers.” It further provides that upon termination, all customer information will be turned over to Zellers.

[16] The plaintiffs submit that s. 27.01 (d) of the license agreement (s. 28.01 (c)(ii) of the Hanif license agreement) contemplates that the customer lists are the property of the pharmacies and that applying the principle of contra proferentem, the agreement should be interpreted to provide that Zellers has agreed that the customer lists are the property of the plaintiffs.

[17] Section 27.01(d) and s. 28.01 (c) (ii) provide that if Zellers elects to terminate the agreement, then (in its sole discretion) it is entitled to purchase (or cause to be purchased) the “goodwill, if any, of the Licensed Business including …. Any and all customer lists pertaining to the Licensed Business” for a nominal price as set forth in the agreement.

[18] The plaintiffs further submit that s. 19.04 (and 20.04 in the Hanif license agreement) qualify Zellers ownership of the Pharmacy Records by providing that the obligations of the plaintiffs in those sections are subject to all applicable laws and rules of conduct governing the practice of pharmacy. As a result, they submit that the provisions of both PHIPA and DPRA operate to override Zellers’ ownership of the Pharmacy Records in their favour.

[19] The plaintiffs submit that, as operating pharmacists, they are “health information custodians” pursuant to s. 3(1) of PHIPA and Zellers is not. Section 4(1) defines personal health information as recorded information relating to the health or health care of an individual. The Pharmacy Records are personal health information. Section 29 of PHIPA prohibits health information custodians from, among other things, disclosing personal health information without consent, except as specifically permitted or required by PHIPA.

[20] The plaintiffs also rely on the provisions of the DPRA and specifically s. 49, 50 and 51 of the Regulation, and submit those provisions and others require them as pharmacists to record extensive details regarding their clients and not disclose identifying information about those clients to third parties which would include Zellers.

[21] The threshold for determining whether the plaintiffs have established a serious issue to be tried is a low one. The plaintiffs merely have to show that the case is not frivolous or vexatious: RJR MacDonald, para 49 and 54.

[22] In my view, the plaintiffs claim that they own the Pharmacy Records pursuant to the provisions of the license agreements has no validity. It is contrary to the clear wording of section 19.04 (s. 20.04 of the Hanif agreement) when read in the context of the entire agreement. I agree with Zellers that s. 27.01(d) (s. 28.01(c) (ii) of the Hanif agreement) is not ambiguous and there is no need to resort to contra proferentem. It is consistent with s. 19.04 and in no way overrides the clear wording of s. 19.04 (s. 20.04 in the Hanif agreement).

[23] The issue of whether their obligations under both PHPIA and DPRA override the terms of the license agreements concerning ownership of the Pharmacy Records is more complex. I have great doubts about the success of the plaintiffs’ claims in this regard. In my view, the record indicates that the license agreements and Zellers’ actions pursuant thereto as well as the transactions with Loblaw and Metro comply with both the provisions of PHIPA and the pharmacists’ professional obligations. However, given the low threshold, I am prepared to conclude there is a serious issue to be tried in respect of the plaintiffs’ claims in that regard.

(b) Irreparable Harm

[24] Irreparable harm refers to the nature of the harm suffered rather than its magnitude. It is harm that either cannot be quantified in monetary terms or cannot be cured: RJR MacDonald, para. 64.

[25] The plaintiffs submit they will be irreparably harmed if Zellers sells the Pharmacy Records from their pharmacies because they will suffer a loss of business and lose their livelihoods. Further they will suffer harm to their business reputation. They also submit that the patients whose Pharmacy Records are transferred will be irreparably harmed by breach of their privacy rights.

[26] Zellers is closing the plaintiffs’ pharmacies in accordance with the terms of the license agreements. The record establishes that, in the event it is determined that Zellers is in breach of its obligations under the license agreements, the plaintiffs can be compensated in damages. The plaintiffs do not suggest that any loss of business will be incalculable. In fact, almost all of them have already estimated the value of their businesses, either by making an offer to purchase the business from Zellers, or by estimating anticipated losses in their affidavits filed in support of their motion. The evidence suggests that the value of a pharmacy is a function of the number of prescription records held by the pharmacy.

[27] Further, the license agreements themselves provide for compensation on termination. Any harm suffered by the plaintiffs can be easily calculated in monetary terms.

[28] Nor does the evidence support that the plaintiffs will lose their livelihood upon termination. The license agreements contain non-compete clauses which have a geographic restriction but have no restriction on the individual plaintiffs working as an employee in a pharmacy. It also appears that many of the plaintiffs have another pharmacy business in addition to their Zellers pharmacy. Further, a number of the plaintiffs have received directions from the clients directing that they want their Pharmacy Records to remain with one of the plaintiffs. Zellers, as well as Loblaw and Metro have indicated that they will honour any client directions concerning client records.

[29] Nor is there any evidence that the plaintiffs will suffer any damage to their reputations. The plaintiffs have raised the specter of professional discipline proceedings for violations of their obligations as pharmacists but there is no evidence they have or will be in violation of any of their obligations concerning Pharmacy Records.

[30] Finally, I do not agree that there is any breach of patient privacy rights arising from either the Loblaw or Metro transactions. Either through its nominee Zeller’s Drug Stores or as a result of the termination of the license agreements, Zellers is a health information custodian as defined in PHIPA and pursuant to s. 42(2) of that Act is permitted to transfer records of personal health information including the Pharmacy Records to a successor.

[31] In my view, therefore, the plaintiffs will not suffer irreparable harm if the injunction is not issued.

(c) Balance of Convenience

[32] The determination of the balance of convenience requires a consideration of which of the two parties will suffer a greater harm from the granting or refusing of the interlocutory injunction: RJR MacDonald, para 67.

[33] The plaintiffs submit that the injunction will maintain the status quo and prevent them from going out of business. Zellers submits that the granting of the injunction will imperil the continuity of health care for the patients whose records are at issue. Zellers has taken steps to ensure the seamless transfer of patient Pharmacy Records to nearby pharmacies operated by Loblaw and Metro.

[34] In my view, on the record before me, the balance of convenience strongly favours not granting the injunction. As noted, Zellers is closing its pharmacies and has taken a number of steps to ensure the transfer of Pharmacy Records to ensure continuity of heath care for all the patients of the pharmacies. Among other things, it has notified the College of Pharmacy, erected signs in the stores and is in the process of sending letters to each of the patients advising them of the transfer.

[35] With the pharmacies closing, the prevention of the transfer of the Pharmacy Records could possibly endanger the health care of the patients. While some of the plaintiffs have made plans to carry on apart from Zellers, there is no evidence that they have taken the necessary steps to ensure continuity of care in respect of the Pharmacy Records.

[36] Further, the patients’ right to choose where to access pharmacy services is in no way imperiled by the proposed transfer. As noted, Zellers will honour patient file transfer requests. Loblaw and Metro have made the same commitment.

(d) Undertaking As To Damages

[37] Rule 40.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, requires that a moving party seeking an injunction give an undertaking as to damages. All of the plaintiffs except Mr. Takhar, have failed to give such an undertaking.

[38] Although Rule 40.03 permits the court to exempt the moving party from the undertaking requirement, such relief was not requested here and if it was, I would not grant it based on the circumstances and the lack of real financial information in the record about the plaintiffs.

Disposition

[39] On consent, Mr. Idemudia and Pharmagreen Drugmart Inc. are added as plaintiffs in Action CV 12-9692-00CL and the style of cause in that action shall be amended accordingly.

[40] For the reasons given, the plaintiffs’ motions and application for an injunction against Zellers are dismissed.

[41] The parties may make written submissions as to costs within 15 days to a maximum of three pages each plus a costs outline.

L.A. Pattillo J.

Released: April 27, 2012

COURT FILE NOS.: CV-12-9692-00 CL,
CV-12-969100 and CV-12-1572-00

DATE: 20120427

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

GURINDER SINGH BRAR, BRAR HEALTH SERVICES INC., GERARD LONGVAL, G. LONGVAL PHARMACY LTD., JAYANTKUMAR PATEL, JAY VEE DRUGS LTD., PRAGHJOT SINGH DHANOA, 946398 ONTARIO LTD., MUHAMMAD ASHRAF and ZAIN PHARMACEUTICAL PRODUCTS INC. MILAD BOSTA and 1571176 ONTARIO LTD. GEORGE IDEMUDIA and PHARMAGREEEN DRUGMART INC. HARVINDER TAKHAR and 1426072 ONTARIO LTD. Applicants – and – ZELLERS INC. Respondent AND BETWEEN: NINA HANIF and 1537749 ONTARIO LTD. Plaintiffs – and – ZELLERS INC. and MICHAEL JORGENSON Defendants AND BETWEEN: HARVINDER T AKHAR and 1426072 ONTARIO LIMITED Applicant – and – ZELLERS INC. Respondent

ENDORSEMENT

Pattillo J.

Released: April 27, 2012