COURT FILE NO.: CV-12-454607
DATE: 20121107
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
122164 CANADA LIMITED c.o.b. NEW YORK FRIES
Patrick D. Flaherty and James Gotowiec, for the Plaintiff
Plaintiff
- and -
C.M. TAKACS HOLDINGS CORPORATION, C.M. TAKACS RESTAURANTS INC., CHARLES TAKACS and DEBOROAH TAKACS
No one appearing
Defendants
HEARD: October 31, 2012
Ellen Macdonald J.
REASONS FOR JUDGMENT
INTRODUCTION
[1] This is an action for defamation. The plaintiff moves for default judgment pursuant to rule 19.05 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
[2] By way of procedural background, the Statement of Claim in this action was issued on May 28, 2012 and served effective June 5, 2012 by the Order of Master Glustein. It appears a Notice of Intent to Defend was served on June 29, 2012 within the appropriate timeframe. However, no defence was filed and the defendants were noted in default on July 16, 2012. The Motion Record does not include any correspondence between the defendants and New York Fries since that date and I presume that is because there has not been any.
[3] It is trite that pursuant to Rule 19.02, the defendants are deemed to admit as true all of the allegations of fact found in the Statement of Claim. The plaintiff must show that the facts alleged in the claim entitle the plaintiff to judgment.
BACKGROUND
[4] The plaintiff 122164 Canada Limited c.o.b. New York Fries (“New York Fries”) is a franchisor operating in the quick service food industry. It has over 200 franchise locations across Canada and around the world. In recent years, New York Fries has been recognized as one of Canada’s leading franchisors.
[5] The corporate defendants are former franchisees of New York Fries. The individual defendants, Charles and Deborah Takacs, are spouses and were the officers, directors and shareholders of the corporate defendants. Between 1986 and 2000, the Takacs operated New York Fries franchises in up to seven different locations in Southern Ontario. Ms. Takacs appears to be the proponent of most of the statements at issue. Although unrepresented, it appears from the Record that she is a sophisticated litigant and a sophisticated business person.
[6] In June 2010, New York Fries terminated the defendants’ franchise agreements for cause, as the defendants had defaulted on the payment of their franchise fees, rent, taxes and other amounts.
[7] The defendants responded by bringing an action against New York Fries alleging that New York Fries had breached and wrongfully terminated the franchise agreements. As a preliminary matter in that proceeding, the defendants sought an interlocutory injunction to prevent New York Fries from terminating their franchise agreements. On July 6, 2010, Justice Leitch dismissed the defendants’ injunction application, finding, inter alia, that the defendants had not demonstrated that there was a serious issue to be tried with respect to the defendants’ claims. Specifically, Justice Leitch found:
…[T]he [Takacs’] assertion that the defendant has breached their contract and terminated the franchise is not factually correct. I do not find that the defendant has acted unfairly or in bad faith or commercially unreasonably in enforcing the terms of the Franchise Agreement. The explanations for the events of default do not cure the defaults. For example, seeking a meeting to discuss the franchise fee cannot be said to be a payment arrangement. The assertion that the financing, which led to the registration of the security interest replaced bank financing, does not reflect the prior consent of the franchisor to this financing arrangement.
It is clear from materials filed on this motion that the plaintiffs’ difficulties have resulted from their cash flow problems and I agree with the submission of the defendant’s counsel that the defendant had nothing to do with these cash flow problems…
The remaining issue is whether the court should grant relief from forfeiture. In my view, these circumstances do not justify the granting of this discretionary equitable remedy. The defendant is exercising its right under a commercial contract. I have found that its conduct has been commercially reasonable. They have complied with the duty of fair dealing and have acted in good faith...
It is not appropriate for the plaintiffs to seek relief from forfeiture when, as I have found, they have created the problem which they now find themselves in.
C.M. Takacs Holdings Corporation et al v. 122164 Canada Limited O/A New York Fries, 2010 ONSC 3817 at paras. 31-33, 35, 40-42
[8] Following the failed motion for an interlocutory injunction, the defendants have embarked on a persistent and extensive campaign aimed at causing damage to New York Fries’ reputation. They have made statements about New York Fries to its suppliers, landlords, competitors and other franchisees through email and other mediums. A sample of the alleged defamatory statements made by the defendants include:
• An August 24, 2011 email from Deborah Takacs to a supplier suggesting New York Fries had instructed the defendants to sell adulterated or expired food. Other allegations of this nature are also made in the February 15, 2012 letter described below.
• A complaint made by Deborah Takacs on December 28, 2011 to an undisclosed police force, in which she alleges that New York Fries had stolen $25,000 in cash and inventory from the defendants’ franchise locations.
• A February 15, 2012 letter from Deborah Takacs to Lorraine McLachlin of the Canadian Franchise Association (“CFA”) that alleges that New York Fries misrepresented leasing information, directed its franchisees to violate the Ontario’s Retail Sales Tax Act, R.S.O. 1990, c. R.31, and did not comply with Federal, Provincial and Municipal laws, regulations and bylaws. A copy of this letter was sent to a number of industry leaders, including Peter Snell, Chairman CFA Legal and Legislative Affairs Committee and Steve Kahansky, a member of the same Committee and Chief Privacy Officer and Associate General Counsel at Tim Hortons, TDL and Grimsby Food Court Limited.
• An article published in the Financial Post dated April 30, 2012 which was based on an interview with Deborah Takacs. New York Fries alleges that the article paints New York Fries as a “bad” and “totalitarian” franchisor.
• A May 17, 2012 email from Deborah Takacs to Jennifer Ouellette and Jill Nykoliation (suppliers of New York Fries) accusing New York Fries of engaging in a sexist marketing campaign. Ms. Takacs’ email was sent in response to an email from Warren Price, Executive Vice President of New York Fries, which uses crude language in reference to Ms. Takacs and I understand was not intended to be sent to her. Ms. Takacs’ email suggests that Mr. Price’s language choice was evidence of a broader sexist marketing campaign on the part of New York Fries.
[9] In sum, the defendants’ statements indicate or suggest that New York Fries:
a) breached its franchise agreements with the defendants and other franchisees;
b) unlawfully terminated the defendants’ franchises;
c) acted in bad faith;
d) engaged in fraud, theft or misrepresentation;
e) treats its franchisees unfairly;
f) condones and requires the sale of adulterated and tainted food products, contrary to Canadian law and standards;
g) has engaged in and requires tax evasion by franchisees;
h) disrespects or discriminates against women in its marketing campaigns; and
i) has breached federal and provincial laws and municipal by-laws.
[10] As set out above, allegations (a) through (c) were found to lack merit by Justice Leitch in the interlocutory proceeding. The other statements are not at issue in the other proceeding but are deemed to be false or misleading by operation of rule 19.02.
[11] In terms of remedy, New York Fries has asked the Court for a permanent injunction prohibiting the defendants from issuing any further false and defamatory comments about New York Fries, as well as general damages, punitive damages, postjudgment interest and costs.
LAW AND ANALYSIS
(I) Defamation
[12] Having considered all of the above and the submissions of Mr. Flaherty, I am satisfied that New York Fries is entitled to default judgment.
[13] The law of defamation is designed to protect reputation from injurious falsehoods. A publication will be considered to be defamatory if it has the tendency to lower the reputation of the plaintiff in the estimation of right-thinking members of society: Botiuk v. Toronto Free Press Publications Ltd., 1995 CanLII 60 (SCC), [1995] 3 S.C.R. 3 at para. 62.
[14] A statement may be defamatory because of its plain and ordinary meaning or by innuendo when considered in the context of extrinsic facts or circumstances: Campbell v. Cartmell (1999), 104 O.T.C. 349 (SCJ) at para. 33.
[15] It takes little to damage the corporate reputation, and much to restore it. Although defamatory statements of the kind alleged in this case can have devastating consequences in any business context, an attack on the reputation of a franchisor also attacks the goodwill, trust and confidence of each and every franchisee. The reputation of a franchisor and its franchisees is not only paramount, but its very lifeblood: Second Cup Ltd. v. Eftoda, [2006] O.T.C. 721 at para. 37.
[16] Based on the deemed admissions, I must take it as true that the statements attributed to the defendants are false and misleading. I find without hesitation that these statements could have the effect of lowering the reputation of New York Fries in the estimation of a reasonable person. The statements clearly have the effect of casting a negative light upon New York Fries’ reputation as both a franchisor and a restaurateur.
[17] I also find that the defendants’ defamatory comments were made with malice. It is clear that the defendants selected the audiences for their defamatory statements with a view to causing maximum damage to New York Fries’ reputation and business. Some of the individuals who received the defendants’ communications were industry leaders and competitors of New York Fries, including Peter Snell, Chairman CFA Legal and Legislative Affairs Committee and Steve Kahansky of Tim Hortons. I also find that the comments attributed to the defendants in the Financial Post article, read as a whole, had the intended effect of lowering the estimation of New York Fries in the eyes of the public and prospective franchisees.
[18] In sum, the defendants have defamed New York Fries. I now must assess damages against the defendants.
(II) General Damages
[19] General damages in defamation cases are presumed from the very publication of the false statement and are awarded at large: Hill v. Church of Scientology, 1995 CanLII 59 (SCC), [1995] 2 S.C.R. 1130 at para. 164.
[20] The factors that should be taken into account in the determination of the appropriate quantum of damages are summarized by Blair J.A. in Barrick Gold Corporation v. Lopehandia (2004), 2004 CanLII 12938 (ON CA), 71 O.R. (3d) 416 (CA) at para. 29. They include the plaintiff’s position and standing, the nature and seriousness of the defamatory statements, the mode and extent of publication, the absence or refusal of any retraction or apology, the whole conduct and motive of the defendant from publication through judgment and any evidence of aggravating or mitigating circumstances.
[21] As a whole, I find that the defendants’ conduct and defamatory statements are serious in nature, particularly the statements made in the February 15, 2012 letter to Lorraine McLachlin. I also consider it significant that the defendants’ defamatory statements were made to a broad and varied audience that was carefully selected to maximize the harm to New York Fries’ reputation. Furthermore, the defendants sought to cloak their defamatory statements with credibility by referencing their lawsuits against New York Fries in their defamatory communications. This was misleading in light of Justice Leitch’s finding in favour of New York Fries and the defendants’ failure to advance their lawsuit beyond the preliminary stages: see C.M. Takacs Holdings Corporation et. al. v. 122164 Canada Limited O/A New York Fries, 2010 ONSC 3817
[22] The clear refusal to retract or apologize for the defamatory statements is an aggravating factor that supports a large damage award. This helps to ensure that the reputation of the corporation can be vindicated in some way. In the present case, I find it significant that in the face of various cease and desist letters from counsel to New York Fries, the defendants not only refused to retract their comments, but threatened to heighten their campaign against New York Fries if their demands were not met.
[23] I am also mindful that New York Fries has had to invest considerable time and expense into mitigating the damage caused by the defendants’ statements, notably through writing correction letters to newspapers and its franchisees and hiring a public relations firm and additional legal counsel. Even with these efforts, the damage done by the defendants’ widespread campaign to tarnish New York Fries’ reputation will not be easily undone.
[24] Counsel for the plaintiff argues that the conduct and defamatory statements in this case are as serious, if not more serious, than the conduct of the defendant in the Second Cup case referred to above. Although at first glance the two cases have some factual similarities – both are default judgments which involve defamatory comments aimed at a successful franchisor – in my opinion they are not similar enough in nature to provide for easy comparison. The individual defendant in the Second Cup case had the broader agenda of enticing other franchisees to commence litigation against Second Cup. As a consequence, he had a long history of initiating then flaunting court process prior to the commencement of the defamation proceeding. In any event, I must be mindful of the Supreme Court of Canada’s direction that, generally speaking, each defamation case is unique and there is little to be gained from a detailed comparison of defamation awards: Hill v. Church of Scientology of Toronto, supra, at para. 187.
[25] Consequently, based on an application of the above-listed factors, I am satisfied that a substantial award of general damages is necessary in this case to vindicate the reputation of New York Fries. I set the amount of general damages at $425,000. While this amount may appear to be on the high side, Mr. Flaherty argued that in all likeliness New York Fries will not be able to collect on this judgment. The primary purpose of this award is to vindicate New York Fries and affirm its good name.
(III) Punitive Damages
[26] New York Fries submits that this is also a case for punitive damages. It argues that the conduct of the defendants is malicious and high-handed and that a substantial punitive award is necessary to signal the court’s strong disapproval of the defendants’ conduct.
[27] In assessing punitive damages, I am mindful of the “rationality test” outlined by the Supreme Court of Canada in Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595 and the need to ensure that any award made is proportionate to (a) the blameworthiness of the defendant’s conduct; (b) the plaintiff’s degree of vulnerability; (c) the harm or potential harm directed at the plaintiff; (d) the need for deterrence; (e) the other penalties awarded; and (f) the advantage wrongfully gained by the defendants.
[28] I have already found that the defendants acted with malice and with a view to cause maximum damage to New York Fries’ reputation. I also consider it significant that the defendants chose to embark on their campaign of defamation instead of pursuing their claims through the litigation that they had already commenced against New York Fries for breach of the franchisee agreement. The defendants choose to take matters into their own hands and completely ignored Justice Leitch’s Order. Consequently, I agree with the plaintiff that punitive damages are required in this case to deter and denounce the defendants’ conduct.
[29] Considering the factors set out above, I fix the award for punitive damages at $75,000 jointly and severally against all the defendants.
(IV) Permanent Injunction
[30] New York Fries argues that while the general and punitive damage awards will vindicate New York Fries and affirm its good name, a permanent injunction is necessary in order to protect New York Fries from further false or misleading defamatory statements.
[31] Generally, it is not easy to obtain an injunction in response to a defamation claim. In a democratic society, freedom of speech is not so lightly cast aside:
The granting of injunctions to restrain publication of alleged libels is an exceptional remedy granted only in the rarest and clearest of cases. That reluctance to restrict in advance publication of words spoken or written is founded, of course, on the necessity under our democratic system to protect free speech and unimpeded expression of opinion. The exceptions to this rule are extremely rare.
Canada Metal Co. v. Canadian Broadcasting Corp. (1975), 1975 CanLII 661 (ON SC), 7 O.R. (2d) 261, 55 D.L.R. (3d) 42 at p. 261.
[32] The remedy however is not impossible to obtain. Permanent injunctions have been ordered after findings of defamation where either: (1) there is a likelihood that the defendant will continue to publish defamatory statements despite the finding that he is liable to the plaintiff for defamation; or (2) there is a real possibility that the plaintiff will not receive any compensation, given that enforcement against the defendant of any damage award may not be possible: see Astley v. Verdun, 2011 ONSC 3651 at para. 21; Hunter Dickinson Inc. v. Butler, 2010 BCSC 939 at paras. 75-79; Griffin v. Sullivan, 2008 BCSC 827 at paras. 119-127; Newman v. Halstead, 2006 BCSC 65 at paras. 297-301.
[33] In the Second Cup case, referred to above, the late Echlin J. declined to order a permanent injunction largely because the plaintiff conceded that the defamatory statements of the defendants had ceased by the time of the default hearing. There was no evidence before him that the defamatory conduct was likely to continue in the future.
[34] In the present case, New York Fries has convinced me that the defamatory campaign appears to be part of the defendants’ strategy for creating leverage in the other proceeding. The Financial Post article was published on April 30, 2012, almost immediately prior to the commencement of this action. Further, in their communications with Mr. Flaherty, the defendants have threatened to broaden their defamatory campaign against New York Fries.
[35] There is also a real possibility that the plaintiff will not receive any compensation from the defendant in satisfaction of the damage awards. I have been informed by Mr. Flaherty that there are a number of outstanding judgments against the defendants.
[36] Since a breach of an injunction may have the consequences of a fine and imprisonment, the language of an injunction should clearly set forth what is prohibited: Campbell v. Cartmell (1999), 104 O.T.C. 349 (SCJ) at para. 60. In this case, the wording also must be specific enough to avoid preventing the defendants from pursuing their claims in the other proceeding. While it appears that the Takacs have been inactive in that matter since June 2010, that proceeding is still before the Court.
[37] Consequently, the defendants shall be permanently restrained from publishing or broadcasting, or causing to be published, broadcast or otherwise disseminated, any statements or other communications concerning New York Fries or any of its directors, officers or employees, except if made in court documents or open court as required to litigate Court File No. 1543/10 against New York Fries. Judgment to issue in accordance with these reasons.
COSTS
[38] Mr. Flaherty submitted a Bill of Costs for the action and for this motion. I fix costs at $25,000.00 inclusive of disbursements.
Ellen Macdonald J.
Released: November 7, 2012
COURT FILE NO.: CV-12-454607
DATE: 20121107
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
122164 CANADA LIMITED c.o.b. NEW YORK FRIES
Plaintiff
- and –
C.M. TAKACS HOLDINGS CORPORATION, C.M. TAKACS RESTAURANTS INC., CHARLES TAKACS and DEBOROAH TAKACS
Defendants
REASONS FOR JUDGMENT
Ellen Macdonald J.