SUPERIOR COURT OF JUSTICE - ONTARIO
COURT FILE NO.: CV-12-5353
DATE: 2012/11/01
RE:
698871 ONTARIO INC., carrying on business under the trade name
and style of THE ENGRAVING SHOPPE, 2128653 ONTARIO LIMITED
and DARRYL DAVID LANGLOIS
Plaintiffs
- and -
MENARD & ASSOCIATES INC., ROGER JOSEPH MENARD,
TRACY ANN MENARD, MITCH BRUNETTE also known as MICKEY BRUNETTE
carrying on business under the trade name and style of THE SIGN PEOPLE and
DE-CAL GRAPHICS INC., carrying on business under the trade name and style of
PRICE SIGNS & DECALS or PRICE SIGNS
Defendants
BEFORE: The Honourable Mr. Justice Paul U. Rivard
COUNSEL: Marc Huneault, for the Plaintiffs
Joseph D. Kennedy, for the Defendants Menard & Associates Inc., Roger Menard and Tracy Menard
E N D O R S E M E N T
[ 1 ] This is a case in which the plaintiffs allege the Menard defendants, as departing fiduciaries upon the sale of The Engraving Shoppe, directly and actively solicited its customers, having taken with them a hard drive containing the electronic files and confidential business information belonging to The Engraving Shoppe.
[ 2 ] The plaintiffs seek an injunction, restraining the Menard defendants from using the plaintiffs’ confidential information and from competing with them.
[ 3 ] The following is the factual background presented on the motion.
[ 4 ] The plaintiff, Darryl Langlois (“Darryl”) and the defendant Roger Menard (“Roger”) purchased The Engraving Shoppe (“TES”) in 2007. To facilitate this purchase, they incorporated 2128653 Ontario Inc. (“212”). Darryl and Roger each owned 50% of 212 and they became the officers and directors of 212. This new company, 212, then purchased all the shares of 698871 Ontario Inc. (“698”) which had owned and operated TES. 698 continued to operate TES. Darryl and Roger were employees of 698 and the directing minds of that company.
[ 5 ] The defendants Roger and Tracy Menard are married to each other. They own the defendant corporation Menard Associates Inc. (“RMA”). Roger owned RMA at the time he and Darryl purchased TES in 2007 when they agreed that Roger would continue to operate his company which was a work wear and promotional products business.
[ 6 ] TES supplies decals, labels and panels to industrial manufacturers who place these items on equipment they produce. These labels or panels provide the user of the equipment with instructions on its use and operation.
[ 7 ] From 2002, the previous owners of TES began developing computerized and paper files and drawings of its customers’ labels, panels and decals. This work continued over the ensuing years. The development of this library of “drill kits” for its customers required the investment of a great deal of time and money by TES – but it provided TES an important competition advantage over its competitors. This drill kit business accounted for more than half of TES’ net income.
[ 8 ] TES’ most important customers were Motion Canada, J. S. Redpath, Canelec, Varis Technology and Atlas Copco.
[ 9 ] Roger was the “face of TES” to its customers because he was responsible for TES’ sales, customer relations and accounting. He had intimate knowledge of TES’ customers internal processes and requirements including pricing and profit margins. This was not information available to TES’s competitors.
[ 10 ] When Darryl and Roger purchased TES, they were trained by the previous owners in the production of drill kits for a period of three months. It appears Roger didn’t have the aptitude to learn the difficult process of creating drill kits and left that task to Darryl.
[ 11 ] In July of 2011, Roger informed Darryl he was exercising the buy/sell provision of his shareholder agreement by offering to purchase Darryl’s interest in TES for $250,000. Darryl considered the offer to be too low and negotiations followed. Darryl then decided to reverse the “shotgun” provision in the buy-sell provision and offered to purchase Roger’s interest for $250,000. The transaction closed on August 30, 2011 when Roger received $250,000 from Darryl for his shares in TES.
[ 12 ] When Roger left TES, he admits taking with him a copy of the electronic files used to produce the drill kits for TES’ major customers. Within three days of selling his shares in TES, Roger began soliciting TES’ most important customers. In doing so, Darryl asserts Roger used the knowledge he had acquired, while employed by TES, of TES’ customers internal processes and requirements including pricing. Darryl further alleges Roger used TES’ electronic files used to produce drill kits to unfairly compete with TES for its major customers.
[ 13 ] It is Darryl’s position that it would have taken Roger many months to replicate these electronic files or to train someone to do this since Roger didn’t have the knowledge or aptitude to do so.
[ 14 ] Roger denies using the TES electronic files he took with him. He states he was able to produce drill kits for some of TES’ major customers by having an employee (Ms. Redmond Knox) who accomplished this task quickly and with little difficulty by working with a Trotec laser and Adobe Illustration.
[ 15 ] It is Roger’s position that the shareholders’ agreement he had with Darryl did not impose upon him any fiduciary obligations, that upon selling his shares pursuant to this agreement, he was “released” from its provisions.
[ 16 ] Roger further submits he is not bound by a non-competition agreement.
[ 17 ] He states Darryl requested a non-competition provision in the sale agreement but such a non-competition clause was refused. Roger states he should not now be prevented from competing with Darryl and TES having regard to the absence of a non-competition agreement.
[ 18 ] The difficulty with Roger’s position is that it ignores his obligations to TES and to Darryl as a departing fiduciary. As director, officer, shareholder and employee of TES, a business operated by closely held corporations, Roger had obligations to Darryl and to TES grounded in “loyalty, good faith and avoidance of a conflict of duty and self interest” (Canadian Aero Service Limited v. O’Malley 1973 23 (SCC) , [1974] S.C.R. 592 at p. 606).
[ 19 ] At paragraph 42 of Boehmer Box LP v. Ellis Packaging Ltd., 2007 Carswell Ont 2726 , 2007 C.L.L.C. 201 -025 , Justice D. Brown summarizes the principles governing a departing employee’s legal obligations, and these include:
(a) Prohibition from direct solicitation of the former employer’s clients, notwithstanding the absence of a non-competition agreement:
The evidence on this motion persuades me there exists, here, a strong prima facie case that Roger has competed unfairly using his intimate knowledge of TES’ costing and pricing practices; that he has solicited and acquired the business of former TES customers on the basis of the special relationship he had established with them as employee of TES.
[ 20 ] There is also a strong prima facie case to support the plaintiff’s assertion that Roger, by his solicitation of TES’ customers, provided to those customers a “virtually seamless transition” to RMA and its products.
[ 21 ] The position put forward by the plaintiffs that Roger’s solicitation of TES’ customers prevented Darryl and TES from securing the relationship with clients or otherwise effectively dealing with Roger’s departure is also a strong one.
[ 22 ] Where there exists a strong prima facie case, the emphasis on the irreparable harm and balance of convenience tests where injunctive relief is sought is not as great.
[ 23 ] It has been held that unfair competition often leads to irreparable harm ( Precision Fine Papers Inc. v. Durkin [2008] O.S. No. 703 (S.C.J.) para. 24-25). This is because damages may not adequately compensate a plaintiff who has been the victim of unfair competition.
[ 24 ] In this case, it may not only be difficult for the plaintiff to quantify its loss of market share and goodwill as a result of the defendant’s conduct; the damage to its relationship with customers may be impossible to calculate.
[ 25 ] The balance of convenience favours granting the relief sought because, to deny that relief will effectively deprive the plaintiffs of the business and market share they paid for. The injunctive relief will impact upon the defendants’ ability to continue to compete with TES’ customers, but Roger has been compensated for his interest in TES and should not continue to solicit TES’ customers having regard to his duties of loyalty, good faith and avoidance of conflict of self interest.
[ 26 ] The injunctive relief will allow Darryl and TES to solidify the relationship with customers in an effort to restore the business for which Roger received compensation. This injunctive relief should be limited in time because Roger’s inability to compete with his former employer should only be long enough to allow the plaintiffs to solidify their relationship with customers. The injunctive relief sought will be for 10 months.
[ 27 ] I am not satisfied the injunction should apply to Tracy Menard as she was not a fiduciary to the plaintiff. RMA is the corporate vehicle used by Roger to compete with TES. There is insufficient evidence on this motion as to the extent of Tracy Menard’s involvement in the competition to warrant extending the injunctive relief to her personally.
[ 28 ] It is therefore ordered that the defendants Menard & Associates Inc. and Roger Joseph Menard, their agents, representatives, associates and employees be restrained, until August 31, 2013, or until trial, whichever comes first, from:
(a) directly or indirectly disclosing or making accessible to any person, firm or corporation or other entity or making use of any confidential or proprietary information of 698871 Ontario Inc. c.o.b. The Engraving Shoppe, (“TES”), and obtained while the defendant, Roger Joseph Menard was a director, officer and employee or agent of TES, including, without limitation:
i) any and all materials, drawings, blue prints, laser files, designs, design processes, graphics, prints, documents, records, and/or computer-stored information relating to the business of the plaintiff TES, and being the confidential and proprietary information, intellectual property and trade secrets of the plaintiffs; and
ii) information with respect to the procedure, finances, organizations, personnel, plans, objectives or strategy of TES;
(b) from directly or indirectly soliciting, enticing, encouraging, approaching or contacting any employee, agent, independent contractor, supplier, customer, consultant or any other person or company to terminate or alter a relationship with TES, or for the purpose of soliciting business or submitting a quotation for business or to solicit, entice or encourage the plaintiffs’ customers to discontinue dealing with the plaintiffs;
(c) from directly or indirectly manufacturing and/or designing “kits” and “lasers” using a process which makes use of the confidential or proprietary information of TES.
[ 29 ] It is further ordered that the defendants Menard and Associates Inc. and Roger Joseph Menard forthwith deliver up to the plaintiffs any and all confidential and proprietary information, intellectual property and trade secrets of TES in their possession, custody or control including, without limitation, any and all technical information, methods, processes, formulae, compositions, systems, techniques, inventions, machines, computer programs, computers, hard drives, research projects, drawings, blueprints, laser files, graphics, reports, manuals, correspondence, customer lists, business cards, or contacts for customers and prospective customers, pricing information, hand held hardware, external computer drives, computer-stored information, in particular computer stored “kits” and “lasers”, client information, suppliers’ lists, pricing data, financial records, marketing, production or merchandising systems or plans, business processes, business requirements and specifications, design processes, user manuals, training guides, training kits and manuals, and all other materials and all copies thereof relating in any way to TES’ business or in any way obtained by the defendants, directly or indirectly, including while the defendant, Roger Joseph Menard was a director and officer and a senior and key employee of TES.
[ 30 ] It is further ordered that the defendants Menard and Associates Inc. and Roger Joseph Menard forthwith deliver up to TES all electronic media, external hard drive, and all devices that were in any way connected to or received data from any TES computer or hand-held devices in the care or custody of the Defendant, Roger Menard from July 15, 2011 to the date of this order.
[ 31 ] It is further ordered that the defendants Menard and Associates Inc. and Roger Joseph Menard, their agents, representatives, associates or employees be restrained, until August 31, 2013, or until trial, whichever comes first from directly or indirectly using TES’ confidential and proprietary information, intellectual property and trade secrets, including but not limited to the following:
(i) Any and all materials, drawings, blue prints, laser files, designs, design processes, graphics, prints, description of the integration of systems and flow of information concerning the use of the “kits” and “lasers”, including without limitation any business requirements as that term was used in meetings with representatives of Motion Canada, Canelec, Redpath, Atlas and Varis, or any of them in which the defendant, Roger Joseph Menard, participated as an office and director, employee and/or agent of TES and the specifications that TES developed to satisfy those business requirements;
(ii) Current and prospective customer information, including but not limited to customer information, requirements, lists, or the terms of any TES contracts or TES customer contracts;
(iii) TES’ relationship with its vendors and suppliers;
(iv) TES’ marketing and sales information, including proposals, responses to requests for proposals, templates for sales and marketing materials and proposals, business requirements, presentation of “kits” and “lasers” for sales to customers, including but not limited to Motion Industries (Canada) Inc., carrying on business under the trade name and style of Motion Canada, Canelec Manufacturing & Development Inc., J.S. Redpath Limited/J.S. Redpath Limitee, Varis Mine Technology Ltd., and Atlas Copco Canada Inc., carrying on business under the trade name and style of Atlas Copco Exploration Products, or any of them;
(v) Pricing information concerning TES’ “kits” and “lasers”, peripherals, integrated systems, the combination of hardware, software and support services required for transactions with TES’ customers, including but not limited to Motion Industries (Canada) Inc., carrying on business under the trade name and style of Motion Canada, Canelec Manufacturing & Development Inc., J.S. Redpath Limited/J.S. Redpath Limitee, Varis Mine Technology Ltd., and Atlas Copco Canada Inc., carrying on business under the trade name and style of Atlas Copco Exploration Products, or any individual components thereof; and
(vi) Training materials concerning the use and operation of TES’ designs, design processes, “kits” and “lasers”.
[ 32 ] Counsel may make written submissions as to costs (not exceeding 5 pages) within 30 days.
The Honourable Mr. Justice Paul U. Rivard
DATE: November 1, 2012
COURT FILE NO.: CV-12-5353
DATE: 2012/10/30
SUPERIOR COURT OF JUSTICE - ONTARIO RE: 698871 ONTARIO INC., carrying on business under the trade name and style of THE ENGRAVING SHOPPE, 2128653 ONTARIO LIMITED and DARRYL DAVID LANGLOIS Plaintiffs - and - MENARD & ASSOCIATES INC., ROGER JOSEPH MENARD, TRACY ANN MENARD, MITCH BRUNETTE also known as MICKEY BRUNETTE carrying on business under the trade name and style of THE SIGN PEOPLE and DE-CAL GRAPHICS INC., carrying on business under the trade name and style of PRICE SIGNS & DECALS or PRICE SIGNS Defendants BEFORE: The Honourable Mr. Justice Paul U. Rivard COUNSEL: Marc Huneault, for the Plaintiffs Joseph D. Kennedy, for the Defendants ENDORSEMENT The Honourable Mr. Justice Paul U. Rivard
DATE: November 1, 2012