SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-13-486548
DATE: 20130819

RE: Pet Valu Canada Inc., Plaintiff

AND:

1381114 Ontario Limited, 2347687 Ontario Limited, c.o.b. Pet Stuff & Supplies, Robin Martin and Mark Fingarson, Defendants

BEFORE: Backhouse J.

COUNSEL: Derek Ronde and Eric Mayzel, for the Plaintiff

Mark Fingarson, representing himself

HEARD: August 15, 2013

reasons for decision of backhouse j. released august 19, 2013

[1] The plaintiff seeks an interim injunction against the defendants from operating a pet supply store called Pet Stuff & Supplies which it alleges breaches a non-competition covenant in a franchise agreement.

[2] 1381114 Ontario Limited (“Eglinton Co.”) entered into a franchise agreement with the plaintiff which restricted Eglinton Co. and Robin Martin, the sole officer and director of Eglinton Co., from operating or participating in a competing company. The evidence is clear that a franchise agreement was entered into and renewed by Ms. Martin and that she was given and she received certain benefits by way of royalty and rent reductions with respect to a Pet Valu store located at 3227 Eglinton Avenue East, Scarborough, Ontario. Ms. Martin personally operated the Pet Valu store until the termination of the franchise agreement on July 3, 2013. The franchise agreement contains a provision restricting Eglinton Co. and Ms. Martin from operating or participating in a competing business for 2 years after the end of the franchise agreement within a 20 km. radius of a Pet Value Store and for 1 year after the end of the franchise agreement from hiring or seeking to hire an employee of a Pet Value franchise. The franchise agreement also contains various provisions concerning Eglinton Co. and Ms. Martin’s confidentiality obligations, return of the telephone number and all customer lists, and an obligation to cease using all fixtures, signs and equipment that display distinct features associated with Pet Value.

[3] Mark Fingarson is the spouse of Robin Martin. He is the long time owner and operator of a security services company called Alpha Security Systems. He incorporated 2347687 Ontario Limited in October 2012. In June 2013, he directed this company to register the business names “Pet Stuff & Supplies” and “Alpha Systems.”

[4] Under the franchise agreement, Pet Valu has the option to purchase assets from Eglinton Co., upon the termination of the franchise agreement and Eglinton Co. is not permitted to sell its assets without Pet Value’s approval. On June 20, 2013, a paralegal purporting to represent Ms. Martin advised the plaintiff that Eglinton Co. had transferred its assets (without the plaintiff’s consent) to a numbered corporation notwithstanding Ms. Martin’s prior agreement to sell the assets to the plaintiff. Eglinton Co. refused to return to the plaintiff the telephone number associated with that store and customer rewards cards (the latter were subsequently returned.)

[5] For the purposes of this motion I am satisfied that the evidence establishes the following:

(a) 2347687 Ontario Limited is operating a pet supply store at 4218 Lawrence Avenue East, Unit 13, Scarborough, Ontario under the name of Pet Stuff & Supplies, 450 meters from a Pet Valu store;

(b) Ms. Martin’s former manager is employed there;

(c) Shelving, racking and inventory with distinctive labels, price tags and product codes from Eglinton Co.’s Pet Valu franchise were in use at Pet Stuff ;

(d) Ms. Martin, Mr. Fingarson and Ms. Martin’s former manager set up the store;

(e) Mr. Fingarson advised the plaintiff’s business consultant, Mr. Neufeld, on his random attendance at Pet Stuff that he had set up Pet Stuff in his own name and Ms. Martin would only be working there once or twice per week;

(f) In an attendance before Justice Morawetz on August 9, 2013, to schedule a date for this motion, Mr. Fingarson denied that Ms. Martin was involved in Pet Stuff.

[6] Despite being advised to cease and desist, a private investigation firm hired by the plaintiff conducted surveillance of the store on Saturday, August 10, 2013 and observed Ms. Martin attending there on 2 occasions throughout the day including dropping off several rolls of change at the business.

[7] Mr. Fingarson makes the following submissions:

(a) The Pet Valu franchise had declining sales;

(b) He was not bound by the franchise agreement;

(c) Pet Valu did not make a reasonable offer to buy the assets of Eglinton Co.;

(d) Mr. Fingarson determined that it was necessary to shift the store or Ms. Martin would lose money;

(e) There are no documents to indicate that Ms. Martin is the controlling mind of Pet Stuff;

(f) There was no meeting of the minds with respect to the new franchise agreement;

(g) Pet Stuff is quite different from the Pet Value store-in addition to pet supplies, it contains spy equipment and skateboards;

(h) Pet Stuff has been sold and the change of ownership has been filed;

(i) Ms. Martin was in the store because she is friends with Ms. Ingrams with whom she worked in the Eglinton Co.;

(j) Ms. Martin did not ask Ms. Ingrams to come to work at Pet Stuff;

(k) Mr. Fingarson informed Rogers that Pet Value can take the telephone number over;

(l) The customer cards which were removed by mistake were returned;

(m) To grant an injunction will provide serious damage to 3rd parties.

Analysis

[8] The record establishes that Ms. Martin did bind herself to the terms of the new franchise agreement. While Mr. Fingarson was not a signatory to the franchise agreement, the evidence establishes that he incorporated 2347687 Ontario Limited for the purpose of assisting Ms. Martin to compete with the plaintiff when she had undertaken not to do so. It is plain that 2347687 Ontario Limited was incorporated by Mr. Fingarson to hide Ms. Martin’s involvement. There is clear evidence that Ms. Martin is involved in the operation of Pet Stuff.

[9] I am satisfied for the purposes of this motion that there is a transparent effort by all of the defendants to avoid the restrictive covenants. Mr. Fingarson’s allegation that Pet Stuff has been sold is unsupported by any documentation, all of which would have been within his power to produce and lacks credibility. It is no more than a feeble attempt to avoid the consequences of the restrictive covenant. Pet Stuff is a competing business within the meaning of the restrictive covenant notwithstanding its sidelines of spy equipment and skateboards.

[10] A fundamental aspect of any franchise system is the protection of its method of operation, goodwill, products and services. Where there is a clear breach of a non-competition provision which is a negative covenant, the elements of irreparable harm and balance of convenience are not required. The defendants are prima facie in breach of a non-competition clause, non-solicitation clause and other post-termination obligations, which are serious issues to be tried. Although I have found that irreparable harm and the balance of convenience need not be established, there is an abundance of evidence to satisfy these elements.

[11] In the result, the relief requested in paragraph 83 of the plaintiff’s factum is granted (with the exception that para. 83(b) (i) shall exclude any assets of New Co. unrelated to the former franchise).

[12] The plaintiff shall have 14 days from the date of release of these reasons within which to make brief written submissions on costs. The defendants shall have 14 days thereafter to respond.

Backhouse J.

Date: August 19, 2013