COURT FILE NOS.: 00-CV-188172 and 05-CV-302414

DATE: 20130116

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: zesta engineering ltd. v. DAVID CLOUTIER et al.

AND RE: ZESTA ENGINEERING LTD. v. JOE DURANTE AND WENDY DURANTE

BEFORE: Justice Stinson

COUNSEL:
Timothy Pinos, for the plaintiff, Zesta Engineering Ltd.

Dalkeith Palmer, for the defendant David Cloutier

M. Norman Grosman for the defendants, Guiseppe (Joseph) Durante,
Keith Sanger and James White in action 00-CV-188172

Arnie Herschorn, for the defendants Joe Durante and Wendy Durante
in action 05-CV-302414

William R. Gilmour, for the defendants Kelvin Technologies Inc.,
and Derek Peatling

Morris Cooper, for the defendants Douglas Christie and 798068 Ontario Limited

DATE HEARD: By written submissions received November, 2012

ENDORSEMENT AS TO COSTS

[1] This endorsement contains my decision regarding the costs of these proceedings. It addresses the costs of the trial conducted before me in 2009 (the “Second Trial”) as well as the costs of the original trial before Blenus Wright J. in 2001 (the “First Trial”) which were reserved to the judge presiding at the retrial by the Court of Appeal in its decision released November 27, 2002. It follows the written costs submissions of the parties. Several timetables and deadlines were set for the delivery of those submissions, and not met. I am told that a hard copy of the submissions was delivered to the court in mid-August 2012, but it was never received by me. Ultimately, an electronic version of the submissions was provided and was received by me in November 2012.

Background

[2] The following summary (which is based in part on the headnote of the LexisNexis QuickLaw report of the Second Trial decision reported at 2010 ONSC 5810, [2010] O.J. No. 4485) succinctly summarizes the factual background and the principal issues in the case:

Zesta was a distributor and manufacturer of thermocouples and electrical heaters for industrial applications. It sued several departing employees for damages for breach of fiduciary duty and misappropriation of corporate assets. Several defendant employees counterclaimed for wrongful dismissal. Zesta claimed to have discovered a plan by the defendants to take away the core of Zesta's business and to compete unlawfully. The defendant Cloutier, Zesta's vice-president, claimed the events were part of a "sting" operation designed to find out whether one of Zesta's salesmen was disloyal. Cloutier was subsequently dismissed. The defendant Durante was fired after he and the defendant Sanger swore affidavits in support of Cloutier's version of events. Sanger subsequently resigned, as did the defendant White.

Following his dismissal, Durante decided to set up his own small distribution business in the same sphere, the defendant Kelvin. Zesta alleged the creation of Kelvin was a breach of fiduciary duty on the part of the ex-Zesta defendants. It alleged Kelvin misappropriated its confidential information relating to suppliers, equipment and manufacturing know-how. Zesta also alleged Kelvin's development of prototype thermocouples for a particular customer amounted to conversion of an emerging corporate opportunity that Zesta had developed and was pursuing prior to the defendants’ departures. Zesta obtained injunctive relief against some of the defendants. A contempt motion was referred to the trial judge.

The defendants were largely successful at the First Trial, in 2001, at which they were all represented as counsel by the defendant Christie, a lawyer. However, Zesta appealed successfully and a new trial was ordered, based on fresh evidence that suggested Cloutier had defrauded Zesta before his dismissal. Prior to the Second Trial, Cloutier pleaded guilty to theft over $5,000 relating to heater sales he carried out through an unrelated company, Codlin. Zesta also discovered that some of the sale proceeds of the Codlin transactions were funneled back to Cloutier’s benefit with the assistance of Christie and Christie’s management company, the defendant 798.

In the Second Trial, Zesta renewed its claims for injunctive relief, damages, an accounting of income and profits and a disgorgement order, and a declaration that the defendants' businesses were created as a consequence of the breach of fiduciary duty. Zesta sought punitive, exemplary and aggravated damages against all defendants, and contempt findings against Kelvin and Cloutier. It joined as co-defendants Peatling (a business associate and friend of Cloutier who, Zesta alleged, was involved with Cloutier's pre-dismissal plans to compete) as well as Christie and 798. Cloutier and Durante again counterclaimed for wrongful dismissal, and Kelvin and Cloutier counterclaimed for interference with contractual relations. In a fraudulent conveyance action tried as part of the Second Trial, Zesta alleged that Durante and his wife had made certain inappropriate inter-spousal transfers and mortgages of their matrimonial home subsequent to the termination of Durante's employment with Zesta.

[3] The Second Trial consumed approximately 50 days, spread over the months of April to October of 2009, followed by extensive written submissions. The specific claims advanced by Zesta were as follows:

(1) as against Cloutier, Durante, Sanger, White, Kelvin and Peatling:

(a) injunctive relief;

(b) damages for breach of fiduciary duty, interference with economic relations, conversion, breach of contract and conspiracy in the amount of ten million dollars;

(c) an accounting of all income and profits made by the defendants as a consequence of their breach of fiduciary;

(d) a declaration that the businesses of the defendants which were created as a consequence of the breach of fiduciary duty and their use of the plaintiff's confidential information were the equitable property of the plaintiff.

(2) as against Cloutier alone:

(a) an accounting of all secret commissions received from Zesta's customers;

(b) damages for fraud in relation to the sale of heaters through Codlin.

(3) as against Christie, 798 and Peatling, damages in relation to their participation in the Codlin transactions.

(4) as against Durante and Wendy Durante, a declaration that the transfers of their matrimonial home were void as against the plaintiff pursuant to s. 2 of the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29;

(5) as against all defendants, punitive, exemplary and aggravated damages; and

(6) findings of contempt as against Kelvin and Cloutier, arising from alleged breaches of several interlocutory injunction orders.

[4] Several of the defendants advanced counterclaims against Zesta, as follows:

(1) Cloutier claimed damages for wrongful dismissal and a declaration that he was the legal and beneficial owner of twenty-four percent of the common shares of Zesta or in lieu thereof damages of $800,000.

(2) Cloutier and Kelvin sought damages for interference with contractual relations, negligent misrepresentation, commercial slander, compromise of competitive position and deceit.

(3) Durante claimed damages for wrongful dismissal.

[5] In my reasons for judgment released October 21, 2010, I disposed of the parties’ claims as follows:

a) I awarded Zesta damages for conspiracy against Cloutier and Peatling, jointly and severally, of $158,000;

b) I dismissed Zesta’s claim for injunctive relief;

c) I dismissed Zesta’s claims for an accounting of all income and profits made by the defendants and for a declaration that the businesses of the defendants were the equitable property of the plaintiff;

d) Zesta had already (in the un-appealed portion of the judgment arising from the First Trial) been awarded judgment against Cloutier for the secret commissions received by him from Zesta's customers ($100,042) and thus I granted no relief under this head;

e) in relation to Cloutier's further breaches of fiduciary duty and the resulting losses to Zesta and benefits to Kelvin, I awarded Zesta damages against Cloutier and Kelvin, jointly and severally, of $100,000;

f) in relation to Kelvin's misuse of Zesta’s costing information, I awarded Zesta damages against Kelvin of $45,000;

g) in relation to the sale of heaters by Cloutier through Codlin, I awarded Zesta damages against Cloutier of US$132,209.88 (converted to Canadian dollars as of November 1999, the equivalent of approximately CDN$195,000) less any amount he had paid to Zesta by way of restitution pursuant to his criminal sentence;

h) in relation to the participation of Christie and 798 in the Codlin transactions, I awarded Zesta damages against them, payable jointly and severally, of $44,619;

i) I dismissed Zesta’s claim against Peatling in relation to the Codlin transactions;

j) I awarded Zesta punitive damages against Cloutier of $75,000;

k) I awarded Zesta punitive damages against Peatling of $10,000;

l) I dismissed Zesta’s motion for a finding of contempt as against Cloutier and Kelvin;

m) I dismissed Cloutier’s counterclaim against Zesta;

n) in relation to Durante’s counterclaim for wrongful dismissal I awarded him compensatory damages against Zesta of $212,520 and moral damages of $75,000;

o) in relation to Kelvin’s counterclaim against Zesta, I awarded Kelvin damages of $56,000;

p) I dismissed all other claims and counterclaims by the parties; and

q) I dismissed the Fraudulent Conveyances Act proceeding as against Joe and Wendy Durante (action 05-CV-302414).

[6] The outcome of the Second Trial was substantially different than the outcome of the First Trial, in which most of Zesta’s claims were dismissed, save its claim against Cloutier for secret commissions, for which it was awarded $100,042. In relation to the defendants’ counterclaims, at the First Trial Zesta was ordered to pay Cloutier $503,100 for wrongful dismissal, Durante $198,452 for wrongful dismissal, and Kelvin general damages of $70,000, or a total of more than $770,000. Sanger (who had counterclaimed for damages for wrongful dismissal) was found to have resigned from his employment and his counterclaim was dismissed. Neither the secret commission award nor the dismissal of Sanger’s counterclaim was varied on appeal.

[7] Thus, in terms of total monetary recovery, as a result of the two trials Zesta was awarded approximately $683,000; it was ordered to pay approximately $343,000.

(…continues exactly as in the original decision…)

Stinson J.

DATE: January 16, 2013