Court File and Parties

COURT FILE NO.: 626/13

DATE: 2013-02-21

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: RANGER HOUSE INC. et al, Plaintiffs

AND:

DASH DOMI et al, Defendants

BEFORE: FITZPATRICK J.

COUNSEL:
Marek Tufman, Counsel for the Plaintiffs

James M. Wortzman, Counsel for the Defendants

HEARD: February 15, 2013

ENDORSEMENT

[1] The plaintiffs, Ranger House Inc. et al (“Ranger”) brought an ex parte motion for an injunction prohibiting the defendants, Dash Domi (“Domi”) and Tim Gleason (“Gleason”) from soliciting or doing business with current or past Ranger customers. This motion was heard before Murray J. on January 31, 2013 who granted the injunction. Murray J. ordered the motion to continue the injunction returnable February 7th following service of the motion materials and order upon Domi and Gleason.

[2] The motion to continue the injunction was returnable on a regular motions list in this court on February 7th. I was the judge hearing the regular motions list that day. The motion was not confirmed to proceed, as required in this jurisdiction and could not be heard on February 7th given that I did not have an opportunity to review the materials.

[3] Before me on February 7th, both counsel agreed the Murray J. order required amendment to focus its terms and short argument was made by each counsel as to the appropriate amendment to be made. I amended the Murray J. order to restrict the existing open ended time frame to state that the defendants were prohibited from soliciting or doing business with customers of Ranger at or following September, 2012, being the date counsel agreed the defendants first became associated with Ranger. The motion to continue the injunction was adjourned to be argued before me February 15th.

[4] The defendants take the primary position that Ranger injunction cannot continue as it did not make full material disclosure on the ex parte before Murray J. on January 31st. In the alternative, the defendants argue that Ranger’s injunction cannot continue as it does not satisfy the operative test for interlocutory injections set forth by the Supreme Court of Canada in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 11. For the reasons set forth below, I am of the view that the Murray J. order must be dissolved on the basis of Ranger not making full material disclosure on the ex parte motion.

The Ex Parte Motion Record

[5] I did not on February 15th have the benefit of any transcript from the hearing before Murray J. on January 31st. As such, I was left to review the Motion Record of the Ranger before Murray J. for the ex parte motion.

[6] Ranger relied on the Affidavit of T. John Garvey (“Garvey”) sworn January 30, 2013 (the “Garvey Affidavit”) in support of its ex parte motion before Murray J. Garvey is identified as a 50% shareholder and C.E.O. of Ranger. David Waldock (“Waldock”) is identified in the Garvey Affidavit as the other 50% shareholder of Ranger. The Garvey Affidavit is brief having 20 substantive paragraphs plus attached exhibits.

[7] The Garvey Affidavit itself (ie. without reference at this point to any exhibits) offered the following allegations for Murray J.’s consideration:

a. The defendants had offered to purchase Garvey’s 50% shareholding in Ranger for $5.1 million at October, 2010 (see paragraphs 5. and 6. of the Garvey Affidavit).

b. The defendants breached the agreement to purchase Garvey’s 50% shareholding in Ranger (see paragraph 7. of the Garvey Affidavit). There are no details whatsoever of this alleged breach.

c. Following the breached agreement, the defendants “stayed on” with Ranger as “employees/consultants” (see paragraph 7. of the Garvey Affidavit). Ranger attaches a copy of the employment agreement entered into by Gleason without addressing the details/terms of that employment agreement whatsoever.

d. Ranger expended “substantial monies” to pay the debts of another entity named L.T.L. (see paragraph 9. of the Garvey Affidavit). There are no details whatsoever respecting L.T.L. or its relationship with Ranger.

e. Negotiations continued in 2012 with the defendants for the purchase of some or all of Ranger culminating in the offer at September, 2012 to purchase Waldock’s 50% shareholding for “only” $2.1 million (see paragraphs 10. and 11. of the Garvey Affidavit).

f. Garvey in 2012 discovered the existence of a business named “Ranger 2012”. Related to this discovery, in late fall 2012 Garvey learned from the president of a 3rd party company, Vasco Cartage that the “defendants were misappropriating the monies belonging to the plaintiffs” by directing payments to their business, Ranger 2012 in competition with Ranger. Garvey learned that Ranger 2012 was a sole proprietorship registered to Gleason when Ranger’s lawyers were conducting searches for the purpose of this litigation (see paragraphs 12, 13. and 14. of the Garvey Affidavit).

g. Negotiations continued in 2012 and into 2013 with the defendants for the purchase of some or all of Ranger culminating in the offer at January, 2013 to purchase 100% of the Ranger shareholdings for $2.1 million (see paragraphs 10. and 11. of the Garvey Affidavit).

h. The defendants threatened Ranger that failing an agreement by January 31, 2013 for the purchase of 100% of the Ranger shareholdings for $2.1 million the defendants “would pull all of the business out of Ranger to their own company” (see paragraphs 15. of the Garvey Affidavit).

i. Ranger had “already suffered substantial harm owing to the defendants’ actions” (see paragraphs 19. of the Garvey Affidavit). There are no details whatsoever of this alleged harm and/or defendants’ actions.

j. Ranger will “continue to suffer irreparable harm unless the defendants are restrained from pirating its business” (see paragraphs 19. of the Garvey Affidavit). There are no details whatsoever of this alleged harm and/or the defendants’ pirating.

[8] As stated above, the Garvey Affidavit attached various exhibits. Three of these exhibits are relevant to the disposition of this motion as discussed below.

[9] The Garvey Application attached a draft Statement of Claim (the “Draft Claim”) as one exhibit. The Garvey Affidavit itself makes only one reference to this Draft Claim where the affiant states baldly that “all facts set out in the statement of claim are true, to the best of my knowledge” (see paragraphs 2. of the Garvey Affidavit).

[10] The Draft Claim itself is brief totalling 13. substantive paragraphs. The Draft Claim provides as follows:

a. Gleason and Waldock are high school friends and “closely connected”.

b. Garvey, Waldock, Gleason and Domi commenced their business association at September, 2010.

c. At September, 2010, Gleason and Domi were operating a business, L.T.L. Expedited Air Inc. (“LTL”) similar to Ranger;

d. At September, 2010, it was agreed that Ranger and LTL would be run together. There was no written agreement or compensation paid to LTC for this merger.

e. As the businesses were run together, Ranger paid debts of LTL of approximately $700,000.00.

f. Commencing October, 2010, Gleason and Domi were negotiating to purchase Ranger.

g. Gleason and Domi provided consulting services to Ranger.

h. Gleason entered into an employment agreement that “contained an extensive and all embracing restrictive covenants especially with respect to prohibition against the use or disclosure of any information belonging to the plaintiffs, including non-competition, non-solicitation and similar”.

i. Gleason and Domi conspired to take Ranger’s business. In support of this conspiracy the Draft Claim repeats the allegations in the Garvey Affidavit pertaining to the payments made to Ranger 2012 and the alleged threat at January, 2013 to take the business failing an agreement being reached to sell Ranger to Gleason and Domi at their price. The Draft Claim in support of the conspiracy claim also alleges that Gleason and Domi told a 3rd party customer of Ranger that “their plan was to take over the plaintiff’s business”.

[11] The Garvey Affidavit did not reference or direct Murray J. to any particulars of the Draft Claim.

[12] The Garvey Affidavit attached an Employment Agreement between Ranger and Gleason (the “Employment Agreement”) as another exhibit. The Garvey Affidavit itself makes only one reference to this Employment Agreement where the affiant states Gleason and Domi “stayed on as employees/consultants” and simply attaching as an exhibit “a true copy of the employee agreement executed by Gleason” (see paragraphs 7. of the Garvey Affidavit).

[13] The Employment Agreement provides as follows:

a. The term is fixed from January 1, 2011 automatically terminating on January 1, 2012 without the necessity of notice.

b. Gleason was prohibited from competing in business with Ranger for a period of 12 months from the date of termination of the employment.

c. Gleason was prohibited from soliciting any existing customer of Ranger and/or past customer of Ranger during the 12 months immediately preceding termination of the employment. The solicitation prohibition was for a period of 12 months from the date of termination of the employment.

[14] The Garvey Affidavit did not reference or direct Murray J. to any particulars of the Employment Contract.

[15] The Garvey Affidavit attached an unsworn statement dated November, 2012 from the president, Michael Faria (the “Faria Statement”) of a 3rd party company, Vasco Cartage in support of Ranger’s allegation that the “defendants were misappropriating the monies belonging to the plaintiffs” by directing payments in 2012 to another business established by Gleason and Domi, Ranger 2012 in competition with Ranger (see paragraphs 12, 13. and 14. of the Garvey Affidavit). In reference to the Faria Statement, the Garvey Affidavit simply states “the essence of what we were told by Mike is contained in the document he signed” (see paragraph 13. of the Garvey Affidavit).

[16] The Faria Statement provided as follows:

a. Vasco started providing services for a Ranger client named Mississauga Seating System (“MSS”) at August, 2011.

b. Vasco billed Ranger and Ranger paid Vasco for the services Vasco provided to MSS from August 29, 2011 to December 31, 2011.

c. At December, 2011 Gleason and Domi asked Vasco to bill MSS direct as Ranger did not want the administration/expense for the MSS booking, billing and paying the entire sum collected to Vasco. This arrangement was known to and confirmed by Waldock. Vasco billed MSS directly going forward.

d. At April, 2012 Gleason and Domi requested and Vasco agreed to pay commissions on the MSS contract to Ranger 2012.

e. At May, 2012 Faria observed Garvey viewing the registration of Ranger 2012 and heard Garvey express his shock that the registration was in the name of Gleason and Domi. This point directly contradicts paragraph 12. of the Garvey Affidavit where Garvey swore that he first became aware of the Ranger 2012 registration to Gleason when Ranger’s lawyers were conducting searches for the purpose of this litigation. Given this litigation was not commenced until late January, 2013, I infer that Ranger’s .. were conducting ... and other ... property for this litigation at or about the end of 2012 and into 2013.

f. At October, 2012, Faria confirmed to Waldock that MSS commissions had been paid to Ranger 2012 and Waldock then advised Garvey.

g. At October, 2012, Waldock advised Faria that Gleason and Domi were employees without office of Ranger and that Ranger had not authorized the registration of Ranger 2012. Faria prior to this believed Gleason and Domi to be executives/officers of Ranger based on their representations in that regard.

h. Vasco continued to pay MSS commissions to Ranger 2012 following October, 2012 and was not asked to cease those payments by Garvey or Waldock.

[17] The Garvey Affidavit did not reference or direct Murray J. to any particulars of the Faria Statement.

The Law

[18] The starting point for the disclosure requirements on an ex parte motion is rule 39 of the Rules of Civil Procedure. More specifically, rule 39.01(6) provides as follows:

39.01(6) Where a motion or application is made without notice, the moving party or the Applicant shall make full, fair disclosure of all material facts, and failure to do so is in itself sufficient ground for setting aside any order obtained on a motion or application.

[19] The Ontario Court of Appeal in Chitel et al. v. Rothbart 1982 1956 (ON CA), [1982] O.J. No. 3540 set forth the test for the basic obligation of full and frank disclosure on a motion without notice as follows:

There is no necessity for citation of any authority to state the obvious that the plaintiff must, in securing ex parte interim injunction, make full and frank disclosure of the relevant facts, including facts which may explain the defendant's position if known to the plaintiff. If there is less than this full and accurate disclosure in a material way or if there is a misleading of the court on material facts in the original application, the court will not exercise its discretion in favour of the plaintiff and continue the injunction.

[20] Brown J. in Levy v. Fitzgerald, [2012] O.J. No. 1490 referenced the summary of Master Egan of the principles regarding the practical application of the requirement to make full and frank disclosure in Euro United Corp. (Interim Receiver of) v. Rehani, which summary included the following:

a. In making full and frank disclosure of the relevant facts, the plaintiff must include facts which may explain the defendant's position, if known to the plaintiff...

b. The onus on the plaintiff to make full and complete disclosure is not discharged by disclosing only what is the most limited basis of information that may be relevant. Full disclosure may and often will require a plaintiff to advise the court of matters of both fact and of law which form the position of the other side…

c. It is insufficient for a plaintiff to simply append a document as an exhibit without highlighting in the body of the affidavit itself any important clauses or portions of the exhibits...

[21] The test as to what is material was reviewed by Brown J. in Levy v. Fitzgerald. Brown J. referenced United States of America, supra, [1996] O.J. No. 4399 , at para. 36 where that court quoted from the English text, Gee, Mareva Injunctions and Anton Piller Relief (3d Edition 1995 at p. 97) as follows:

... The duty extends to placing before the court all matters which are relevant to the court's assessment of the application, and it is no answer to a complaint of non-disclosure that if the relevant matters had been placed before the court, the decision would have been the same. The test as to materiality is an objective one, and it is not for the applicant or his advisers to decide the question; hence it is no excuse for the applicant subsequently to say that he was genuinely unaware, or did not believe, that the facts were relevant or important. All matters which are relevant to the 'weighing operation' that the court has to make in deciding whether or not to grant the order must be disclosed.

[22] Brown J. in Levy v. Fitzgerald, [2012] O.J. No. 1490 again referencing the summary of Master Egan in Euro United Corp. (Interim Receiver of) v. Rehani provided as follows:

Material facts are those of which the court must be made aware in arriving at a decision, non-disclosure of which may affect the outcome of the motion...

[23] Gray J. in Fox v. Fox, 2012 ONSC 3842, [2012] O.J. No. 2959 at p. 32 cited J & P Goldfluss Ltd. v. 306569 Ontario Ltd. (1977), 4 C.P.C. 296 (Ont. H.C.J.) respecting materiality on ex parte motions as follows:

I think the correct approach is to ascertain whether the judge hearing the ex parte motion was entitled to be made aware of the withheld information so that he or she would have a complete picture before making a decision. I think information is “material” if it is relevant to the position the other party would put forward if present. It is not necessary that it would have dictated a different result.

Analysis

[24] Counsel for the respective parties do not diverge significantly on the meaning of Rule 39.01(6) or the pronouncements set forth in the caselaw.

[25] The fundamental issue on this motion is whether Ranger before Murray J. made full material disclosure. Ranger says it did and Gleason/Domi say it did not.

[26] The Garvey Affidavit failed to make material disclosure on a critical issue. There was no disclosure of the fact known to Ranger that the parties had merged their respective businesses (ie. LTL into Ranger) and together operated that merged enterprise for approximately 2 years preceding the ex parte motion.

[27] Ranger does not deny that the parties’ businesses were merged without any written agreement or compensation, and the parties were working together for the preceding 2 years. However, Ranger argues this is not material given their allegation that LTL was “virtually insolvent” (see Garvey and Waldock Affidavit sworn February 6, 2013 at p. 8) and the value of any equipment/software acquired by Ranger from LTL was minimal, namely “symbolic” (see Garvey and Waldock Affidavit sworn February 6, 2013 at p. 8). This, of course, misses the point of the necessity to disclose in the first instance.

[28] Not surprisingly but worthy of note, Ranger’s position as to the value brought into Ranger with the LTL merger is very much contested by the responding materials filed by Gleason and Domi (see Gleason Affidavit sworn February 6, 2013 at p. 9, 24 and 28, Gleason Affidavit sworn February 7, 2013 p. 3-5 with attached LTL Financial Statements and Gleason Affidavit sworn February 13, 2013 p. 1-3 with attached signed statement from former LTL employee John Hatchette). LTL alleges the gross value of the annual revenue brought by LTL to Ranger to be approximately $6 million.

[29] I find that it was material information and Murray J.’s analysis may have been impacted had he known that the very business that Ranger was seeking to exclude Gleason and Domi from was a merged enterprise where LTL was absorbed into Ranger with all parties operating this merged business for 2 years. The possible inference available to Murray J. with this material disclosure was that Ranger was asking the court exclude Gleason and Domi from a business that was in part comprised of their former business, LTL. The impact of the injunction, at least, would be to exclude Gleason and Domi from whatever remained of the LTL business that had been merged into Ranger, without compensation (ie. to exclude them from their own business).

[30] It was not for Ranger to decide this was irrelevant information and to not specifically advise Murray J. of the fact of the merger and the parties working together for 2 years. Ranger was obligated to put this material information directly before Murray J. for his analysis and determination. In my view, Ranger did not. The one reference in the Garvey Affidavit that Ranger expended “substantial monies” to pay the debts of LTL without further details respecting LTL or its relationship with Ranger was not sufficient. This material non-disclosure alone would warrant the dissolving of the Murray J. order.

[31] With respect to the exhibits attached to the Garvey Affidavit, including the draft Statement of Claim, I agree with Brown J. and Master Egan that it “is insufficient for a plaintiff to simply append a document as an exhibit without highlighting in the body of the affidavit itself any important clauses or portions of the exhibits.”

[32] It is not satisfactory for Ranger to argue, as it did before me, that the information in the draft Statement of Claim was properly before Murray J. on the basis of the Garvey Affidavit simply stating that “all facts set out in the statement of claim are true, to the best of my knowledge”. Ranger was obligated, in my view, to have all material portions of the Draft Claim or other exhibit embodied in the Garvey Affidavit and thereby directly before Murray J. to meet its disclosure obligations in an ex parte motion.

[33] Ranger failed to meet is disclosure obligations with respect to the Employment Agreement with Gleason. Again, the Employment Agreement was attached as an exhibit. The body of the Garvey Affidavit makes only one reference to this Employment Agreement where the affiant states Gleason and Domi “stayed on as employees/consultants” and simply attaching as an exhibit “a true copy of the employee agreement executed by Gleason”. In my view, this was not sufficient disclosure.

[34] The ex parte motion was for an injunction prohibiting Domi and Gleason from soliciting or doing business with current or past Ranger customers.

[35] Again, I find that it was material information and Murray J.’s analysis may have been impacted had he known that Ranger had negotiated an Employment Agreement with Gleason that specifically addressed restrictions on Gleason’s ability to compete with Ranger and solicit Ranger customers and that all such restrictions on Gleason by agreement terminated January 1, 2013. This is the very relief that Ranger sought on the ex parte motion.

[36] The body of the Garvey Affidavit provided no information about the Employment Agreement terms. Ranger was obligated, in my view, to have the material portions of the Employment Agreement embodied in the Garvey Affidavit and thereby directly before Murray J. to meet its disclosure obligations in an ex parte motion. Merely attaching the Employment Agreement as an exhibit was not sufficient and constituted material non-disclosure.

[37] Ranger failed to meet is disclosure obligations with respect to the contents of the Faria Statement. Again, the Faria Statement was attached as an exhibit. The body of the Garvey Affidavit provides only that the “defendants were misappropriating the monies belonging to the plaintiffs” by directing payments to another business established by Gleason and Domi, Ranger 2012 in competition with Ranger. Further, the Garvey Affidavit simply states “the essence of what we were told by Mike is contained in the document he signed”. In my view, this was not sufficient disclosure.

[38] The Faria Statement offers the following material information:

a. That Waldock (ie. the 50% shareholder/partner in Ranger) was aware of the arrangement with Faria (ie. his company Vasco) commencing December, 2011 to service Ranger’s customer, MSS and that Vasco was billing MSS direct as Ranger did not want the administration/expense for the MSS booking, billing and paying the entire sum collected to Vasco.

b. That Garvey at May, 2012 (ie. 8 months prior to the urgent ex parte motion) learned that Ranger 2012 was a business registered in the name of Gleason and Domi. This point was made particularly important given the Faria Statement directly contradicts paragraph 12. of the Garvey Affidavit where Garvey swore that he first became aware of the Ranger 2012 registration to Gleason when Ranger’s lawyers were conducting searches for the purpose of this litigation (ie. the end of 2012 into 2013).

c. That Waldock learned at October, 2012 that Faria/Vasco paid commissions on the MSS business to Ranger 2012, that Waldock then advised Garvey and that no request was made for the payments to cease.

[39] Again, I find that it was material information and Murray J.’s analysis may have been impacted had he known the extent and timing of Garvey’s and Waldock’s knowledge of the dealings with Faria/Vasco and Ranger 2012 given the allegations by Ranger in the Garvey Affidavit that Gleason and Domi were effectively stealing these commissions from Ranger.

[40] The body of the Garvey Affidavit provided none of the above noted material details from the Faria Statement. Ranger was obligated, in my view, to have these material portions of the Faria Statement embodied in the Garvey Affidavit, especially the contradiction noted at p. 38 (b) above and thereby directly before Murray J. to meet its disclosure obligations in an ex parte motion. Merely attaching the Faria Statement as an exhibit with the minimal statements in the body of the Garvey Affidavit noted was not sufficient and constituted material non-disclosure.

Conclusion

[41] In conclusion, I am satisfied that the order of Murray J. made January 31, 2013 must be dissolved given the material non-disclosure by Ranger on the ex parte motion and I so order.

[42] I am concerned that the merits of this case be determined on an expedited basis so that the interests of all parties are protected and the Ranger business preserved. In that regard, I will remain seized of this case to set a schedule leading to a trial of this case. For clarity, any pre-trial motions and the trial are not required to be in front of me. Counsel are to discuss a schedule that will provide for an expedited trial and submit an agreed schedule to me within 7 days. I will make a further endorsement setting out the agreed upon schedule that shall form part of this order. If counsel cannot agree on a schedule or some part of it then they are to contact the trial coordinators office to schedule a telephone conference for me to address any such scheduling issue.

[43] Regardless of and in addition to the schedule I have ordered above, I also order Gleason and Domi to provide Ranger with a “full reconciliation of all revenues generated for Ranger 2012 and how the profits will be distributed”, which shall include all documentation supporting the reconciliation and profit distribution. This should be considered to be an order on consent given that Gleason at p. 20 of his Affidavit sworn February 13, 2013 agreed to do this. This reconciliation and statement as to profit division, including all supporting documentation will be provided to Ranger within 20 days.

[44] If counsel are unable to come to an agreement with respect to the costs for this motion, then I will entertain written submission of not greater than three pages, exclusive of a bill of costs and any offers. Defendants’ counsel shall provide his cost submissions within 5 days of this order. Plaintiffs’ counsel shall provide his cost submissions within 10 days of this order. Defendants’ counsel shall provide any reply to the cost submissions of Plaintiffs’ counsel within 15 days of the date of this order.

FITZPATRICK J.

Date: February 21, 2013