SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-12-468516
DATE: 20130816

RE: Plaza Consulting Inc. operating as QA Consultants, Plaintiff

– AND –

Brian Grieve, Thomas Jefferson Downey, LeRoy Singh, and Cloudpipe Inc., Defendants

BEFORE: E.M. Morgan J.

COUNSEL:
Allyson M. Fischer and Mitchell R. Smith, for the Plaintiff

Lou Brzezinski and Lea Nebel, for the Defendants

HEARD: July 24, 2013

ENDORSEMENT

[1] The Plaintiff is in the technology consulting business. It provides integrated software consulting to numerous clients. According to its sole officer and director, Alex Rodov, it is the largest consultancy of its kind in North America.

[2] This motion is for an interlocutory injunction. The Plaintiff alleges that the Defendants are competing unfairly by appropriating its confidential information and wrongfully soliciting its clients and employees, contrary to their employment agreements and in breach of their fiduciary duties. It seeks an order that the Defendants refrain from these solicitations and requiring the Defendants to return any of its confidential and proprietary information that is in their possession.

[3] The Defendants are former employees or consultants of the Plaintiff as well as the company that they incorporated for their new business. They each worked for the Plaintiff for a different number of months, but the time frame of their employment goes from approximately mid-2010 to mid-2012.

[4] The new company used by the Defendants, Cloudpipe Inc., is in the same technology consulting business as the Plaintiff and as such is a competitor of the Plaintiff. Rodov states in an affidavit that until the Defendants established Cloudpipe Inc., the Plaintiff was the only company in Canada to provide this type of technology and software consulting service, and that all of the other companies in this business operated offshore.

[5] While the Defendants concede that Cloudpipe Inc. provides software and other technology-oriented consulting services to business clients, they deny any wrongdoing. In particular, they deny having engaged in any misappropriation of confidential or proprietary information to the Plaintiff or in any wrongful solicitations.

[6] It is the Defendants’ position that the Plaintiff’s supposedly confidential information amounts to little more than generic marketing and business practices which are common in their industry. The Defendants also state that any customers of the Plaintiff’s that they have approached had already left the Plaintiff and were seeking new technology consultants, and that any of the Plaintiff’s employees with whom they have spoken had either left their job with the Plaintiff or independently responded to a job advertisement posted by the Defendants.

[7] Turning first to the allegation about unfair competition and misappropriation of confidential information, there is a debate between counsel as to what test applies to the Plaintiff’s injunction request.

[8] Counsel for the Plaintiff submits that the ordinary test set out by the Supreme Court in RJR-MacDonald Inc. v Canada (Attorney General), 1994 117 (SCC), [1994] 1 SCR 311 applies, and that in the first stage of analysis the Plaintiff must merely show that there is a serious issue to be tried. Counsel for the Defendants, on the other hand, submits that the Plaintiff is attempting to enforce a restrictive covenant and to claim breach of fiduciary duties arising in the employment context, and that these claims require a moving party to establish a strong prima facia case rather than just an arguable case for trial. Brown v First Contact Software Consultants Inc. (2009), 2009 48504 (ON SC), 77 CCEL (3d) 295, at para 44 (SCJ).

[9] The Defendants also argue that they were in any case lower level employees of the Plaintiff and should not be considered to be subject to any fiduciary obligations. They also argue that the employment agreements are not enforceable. Furthermore, they contend that they took no information belonging to the Plaintiff, and that all of the business methods that they have utilized since leaving the Plaintiff and starting their own business are of their own design or are standard methods in the technology consultant business.

[10] In Imperial Sheet Metal Ltd. v Landry, 2007 NBCA 51, at para 16, the New Brunswick Court of Appeal concluded that although the two tests are worded differently, there is in practice little difference between them. Key to both tests, however, is that that something must exist that requires protection. It matters little whether the Plaintiff has to strongly establish or merely arguably establish that the Defendants took its corporate information and\or practices in breach of their duties if it cannot establish that it had any such information to be taken.

[11] Under the circumstances, ascertaining the factual basis of the Plaintiff’s claim is more important than identifying the precise legal test. Whether dealing with employees who allegedly misappropriate their former employer’s business methods in breach of a restrictive covenant or in breach of fiduciary duties, the employer must at the very least establish that it “has a proprietary interest that is entitled to protection.” Aon Consulting Inc. v Watson Wyatt & Co., 2005 CarswellOnt 3706, at para 16 (SCJ).

[12] Plaintiff’s counsel submits that at least one of the Defendants, Brian Grieve, had access to the Plaintiff’s business plan containing its expansion plans, its patent applications for its business methodologies, its marketing strategies, recruiting methods, training materials, and its pricing strategy. Plaintiff’s counsel further submits that Grieve had access to the Plaintiff’s proprietary Discovery Portfolio Assessment (DPA) process by which it diagnosis clients’ technology issues and needs.

[13] Despite the Plaintiff’s strenuous assertions about the Defendants’ breach their duty of confidentiality, the record before me contains no reliable evidence that any confidential information was actually taken by the Defendants.

[14] Rodov’s affidavit and cross-examination evidence demonstrates that there is little to argue about here. The Plaintiff’s marketing strategies, business approaches, training methods, and its much-vaunted DPA, are described by Rodov in terms that can only be seen as highly generic. Its “training curriculum” appears to be copied from a publicly available book, while its recruiting methods are to seek out the “brightest” and “smartest” students from university programs and to give them a test which it borrowed from a freely available internet site.

[15] The Plaintiff’s primary business strategy was to establish a “Test Factory” and a “North American Test Centre of Excellence” that competes with offshore technology centres. The Plaintiff claims that these are the very methodologies pioneered by it and now used by the Defendants. These methodologies, however, are explained by Rodov as consisting of a group of skilled technology people working together in one dedicated work space. Other than a dedicated business premises and what Rodov describes as “top level” facilities, it is hard to pin down in Rodov’s description any unique features of the “Test Factory”.

[16] It is equally difficult to discern in Rodov’s descriptions any unique or confidential aspects of the DPA that are in need of special protection. As indicated, the Plaintiff considers the DPA the centerpiece of its proprietary business method. In describing it, Rodov has characterized the DPA as essentially a series of meetings with the client over a two to four week period that are designed to assess the client’s specific technology needs. In other words, the Plaintiff appears to have put an attractive label on business methods that all good consultant firms would pursue.

[17] Trade secrets and confidential business methodologies and other information “must not be of a general nature but rather must be specific.” GasTOPS Ltd. v Forsyth, 2009 66153 (ON SC), 2009 CarswellOnt 5773, at para 776 (SCJ). It is important to examine, at least in a preliminary way, “[t]he extent to which the information is known outside the specific business and to the trade generally”. Techform Products Ltd. v Wolda, 2000 CarswellOnt 1402, at para 73 (SCJ). Indeed, it almost goes without say that, “information that is extensively known to the other members of the interested community (i.e., the trade) is not protectable.” Ibid.

[18] In the Plaintiff’s case, there is little in the record that could establish that there was anything unique about the Plaintiff’s business operations. Indeed, Rodov’s evidence is that his business is essentially the same as numerous technology consultants, except that for the convenience of Canadian clients it is located in Canada while its competitors (except for the Defendants) are located offshore.

[19] For the most part, Rodov’s evidence confirms that the most innovative parts of the Plaintiff’s business are the labels put onto what are otherwise widely shared approaches in the technology consultant industry. The Plaintiff is not the only business to have thought of hiring the best and the brightest, providing them with a dedicated and well equipped work space, and ensuring that they meet with each client to carefully evaluate the client’s needs.

[20] This is to take nothing away from the Plaintiff’s business, which by all accounts has been successful and profitable. It is simply to say that there was little in the way of proprietary or confidential business methodologies for the Defendants to have appropriated, even if they wanted to.

[21] Moreover, a party who receives allegedly confidential information and who is accused of misusing it must have done so to the detriment of the party that provided the information in the first place. International Corona Resources Ltd. v Lac Minerals Ltd. (1989), 1989 34 (SCC), 26 CPR (3d) 97, at 103 (SCC). In the circumstances alleged by the Plaintiff, it would appear that much of what has been called confidential information was supplied to the Defendants by parties who were doing so for their own benefit rather than to their detriment.

[22] Two of the more specific pieces of supposedly confidential information that the Plaintiff alleges the Defendants misappropriated appear to have been created not by the Plaintiff at all, but by their former clients. This includes a “GLAM QA Framework for assessing the technology needs of Goldcorp and a Test Plan for use with BIMM. Both Goldcorp and BIMM are companies whose business the Plaintiff alleges was wrongfully solicited by the Defendants; indeed, the Plaintiff contends that the use of its specially designed documents formed part of the unfair solicitation process.

[23] On cross-examination, however, Rodov was unsure whether the Plaintiff had even created the GLAM QA Framework for Goldcorp, conceding that it may have been a joint effort between the Plaintiff and Goldcorp itself. As for the BIMM Test Plan, the Defendants’ evidence appears uncontradicted that this document was created by BIMM rather than by the Plaintiff.

[24] It appears in both of these cases that the documents in question are little more than a list of technology questions and issues, and responses to those issues, encountered by Goldcorp and BIMM, respectively. They are the type of operational outlines that would be created by virtually any consultant servicing those clients, and were created specifically by the clients themselves so that their technology consultants would provide focused service. The clients provided the same information to the Defendants as they had provided to the Plaintiff, and they raise no complaint about the Defendants using it.

[25] In all, the evidentiary record regarding the alleged misuse of confidential information is so scanty that it is difficult to take seriously. The Plaintiff has spent its energy attempting to establish the misuse or wrongful appropriation side of the equation, but has failed to address in a credible way the key first question – i.e. whether the information used by the Defendants was confidential or proprietary at all.

[26] To state what I believe should be obvious, it is not enough to assert that the Defendants have appropriated the Plaintiff’s methods, and to contend that there is a serious issue to be tried with respect to that appropriation, when the methods themselves are described by the Plaintiff’s sole officer and director as generic business practices: good service, competitive prices, and a dedicated work space. As Sachs J. said in Techform, supra, at para 73, “[a] trade secret cannot be within the realm of general skills or knowledge.”

[27] Turning to the allegation that the Defendants in their new business have misappropriated the Plaintiff’s clients, the Plaintiff contends that at least four of its clients are now clients of the Defendants’ new business contrary to the specific prohibition on that activity in their respective employment agreements. These clients include Goldcorp and BIMM, as mentioned above, as well as the CIBC and a company called Praxair. The Plaintiff claims that the Defendants’ new company now services those clients, and that the Defendants were able to approach these clients because they had been part of the team servicing the very same clients when they worked for the Plaintiff.

[28] The Plaintiff further points out that each of the three individual Defendants had employment agreements with the Plaintiff that specifically prohibited their working for or communicating with any of the Plaintiff’s clients for periods ranging from 6 to 12 months. The Plaintiff contends that in soliciting and, through their new company, servicing the four named clients, the Defendants have breached their specific obligations in their employment agreements.

[29] Further, the Plaintiff submits that the Defendants were, during the time of their employment, fiduciaries of the Plaintiff, and so the solicitation of the Plaintiff’s clients also amounts to a breach of fiduciary duties as well as a breach of contract.

[30] The Defendants make a number of points in respond to these claims. They submit, as indicated above, that they were not fiduciaries of the Plaintiff but rather were non-managerial employees and/or consultants who fulfilled discreet tasks for the Plaintiff. In addition, Grieve, the one Defendant who is alleged to have been the most involved with the subject clients, alleges that he was terminated without cause. Citing Zesta Engineering Ltd. v Cloutier, 2001 28294, at para 316 (SCJ), Defendants’ counsel argues that Grieve’s termination was a repudiation of the employment agreement, and that Grieve was thereby relieved from any further obligations thereunder (including the non-solicitation clause).

[31] Most importantly, the Defendants state that none of the four companies identified by the Plaintiff were actually the Plaintiff’s clients. Evidence suggests that two of them, Goldcorp and Praxair, were former clients of the Plaintiff’s who had already left the Plaintiff and came to the Defendants because they were actively seeking a new technology consulting firm. The third company, CIBC, appears to have once been a prospective client of the Plaintiff’s, but never was solicited by the Defendants as an actual client of the Plaintiff’s. And the fourth, BIMM, was a client of the Plaintiff’s for a small, discreet task that lasted only a couple of days.

[32] In addition to the evidentiary weaknesses in the Plaintiff’s claim of wrongful solicitation, all of the alleged solicitations occurred over a year ago. There is no evidence whatsoever of ongoing contact with any of the Plaintiff’s clients, and therefore there is no irreparable harm taking place that cannot be compensated later in damages.

[33] To this, the Plaintiff replies that “where a moving party proves a clear breach by a defendant of a negative covenant, the Court will enforce the covenant on an interlocutory basis and proof of irreparable harm will not be required.” Canpages Inc. v. Quebecor Media Inc., 2008 CarswellOnt 3193, at para 8 (SCJ). While I concede that this court in Canpages found that the irreparable harm test is generally not applied to a breach of a negative covenant, the essential word in the Canpages ruling is “clear”. Indeed, in Canpages itself, the court qualified the quoted statement in the very next sentence, and admonished that, “this proposition is applicable only in cases where the plaintiff's case is strong and where there is little doubt on the merits.”

[34] In the present case, the alleged breach by the Defendants is anything but clear. The employment agreements do not define the word “client”, and it is certainly not clear to me that this word would include either former or prospective clients.

[35] Defendants’ counsel has submitted that the restrictive covenant may therefore be so vague as to be unenforceable. I am not inclined to opine on whether that is the case and will leave that question to the trial judge. I do find, however, that the restrictive covenants are sufficiently vague that the allegations made against the Defendants are not “clear” breaches of those covenants. I certainly cannot conclude that there is “little doubt on the merits”, as it was put in Canpages. Under the circumstances, irreparable harm would have to be demonstrated before injunctive relief was warranted, and no such irreparable harm has been demonstrated by the Plaintiff.

[36] The same analysis applies to the Plaintiff’s allegation that the Defendants have solicited the Plaintiff’s employees. The Plaintiff’s claim applies to two employees in particular – Amor Abanes and Felipe De Oliveira. In respect of both of these employees, the Defendants have presented evidence suggesting that they were already looking for a new job before contacting the Defendants and that no solicitation was done.

[37] In any case, there is again no evidence of irreparable harm. The Plaintiff puts forward nothing to suggest that the Defendants are seeking new employees or actively soliciting the Plaintiff’s employees. The evidence is controversial at best with respect to whether any solicitation of employees occurred in the past, and non-existent as to whether there is any ongoing solicitation.

[38] Under these circumstances, there is no irreparable harm and no grounds for an injunction. If indeed there has been any breach of an enforceable covenant not to solicit the Plaintiff’s employees, this can be addressed later through an award of damages.

[39] Overall, the claim for an injunction prohibiting the further solicitation of clients and employees has the ring of a loaded question. That is, without any proof or even hint of ongoing solicitation it seeks to enjoin the Defendants from continuing to do that which they arguably have never done. On the record before me, it is quite clear that the test for an interlocutory injunction has not been met.

[40] Finally, the Plaintiff seeks an order with respect to certain computer materials held by the Defendants. Apparently, the Defendants had to use some of their own equipment when they were working for the Plaintiff, including a computer hard drive, some memory sticks, and a laptop belonging to one of the Defendants.

[41] The Defendants have advised the Plaintiff that any materials that were still lingering on these devices that were from their time working for the Plaintiff have been deleted, but the Plaintiff is not satisfied with this response. Rather, the Plaintiff wants this equipment to be handed over to it so that its own computer experts can conduct a forensic review to ensure that no confidential information belonging to the Plaintiff remains on it.

[42] The Plaintiff points to no specific information that it suspects is on the particular equipment in issue. It also makes no specific allegation that information on these devices is actually being used on an ongoing basis. Of course, the Defendants concede that they did use their own equipment when doing work for the Plaintiff, but they point out that this was a routine and expected part of their work and was done with the knowledge and encouragement of Rodov.

[43] As an interim measure, the Defendants have handed the equipment in question to their own legal counsel. Defendants’ counsel has, in turn, advised the court that they have reviewed the equipment and have not found any material belonging to the Plaintiff. This assurance should be sufficient for the Plaintiffs at this point. Having required the Defendants to use some of their own computer equipment, the Plaintiff cannot now demand access to the Defendants’ equipment without providing some evidence that this equipment actually still contains the Plaintiff’s materials. A compelled forensic analysis of another party’s computer equipment is an invasive order that would require stronger evidence of misuse or failure to disclose than is contained in the present motion record.

[44] In the event that there is some doubt about any remaining information or documentation in the possession of the Defendants, those issues can be addressed in the discovery process. Indeed, if any forensic review is necessary in respect of any computer equipment, that can be raised during discovery. There is no reason for an order of any kind at this stage in the proceedings.

[45] The Plaintiff’s motion is therefore dismissed in its entirety.

[46] Counsel indicated to me at the end of the hearing that they wish to make submissions as to costs once my ruling has been issued. These submissions may be made in writing, and are to be sent directly to my attention at the courthouse in Toronto rather than filed through the motions office. I would ask counsel to forward these submissions to me within two weeks of the date of this endorsement.

Morgan J.

Date: August 16, 2013