ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 13-58620
DATE: 20140307
BETWEEN:
IRVING SHIPBUILDING INC.
Plaintiff
– and –
JOHN SCHMIDT
Defendant
Andrew McCreary, for the Plaintiff
Janice Payne, for the Defendant
Thomas Conway, for Chantier Davie Inc. (non-party)
HEARD: December 11 - 12, 2013 (Ottawa)
REASONS FOR DECISION
Beaudoin J.
I. Background
[1] On August 20, 2013 I received correspondence from counsel on behalf of Irving Shipbuilding Inc. (“ISI”) seeking an urgent motion to obtain an ex parte Anton Piller Order (“APO”). In that letter, I was advised that John Schmidt (“Schmidt”), ISI’s Director, Government Initiatives and Client Relations, had resigned on August 9, 2013 to accept employment as a senior executive with ISI’s competitor, Chantier Davie Canada Inc. (“Davie”).
[2] The letter further advised that ISI had learned that within the final weeks leading up to his resignation, Schmidt downloaded electronic copies of approximately 7000 pages of ISI documents to one or more personal storage devices. These documents were alleged to include highly sensitive and confidential commercial information. The letter added that Mr. Schmidt made false statements to ISI at the time of his resignation and that the documents were largely downloaded remotely and off hours.
[3] Finally, I was advised that ISI was formulating a bid for a large government contract with the due date of August 27, 2013. The letter described Davie as a competitive bidder on this contract. The letter also stated that the ISI information in the possession of Schmidt was highly relevant to the impending government bid and that ISI was greatly concerned about the misuse of this information and of the potential for severe prejudice to result generally and specifically with respect to this contract award.
[4] Given the urgent nature of the matter, the motion was scheduled for August 23, 2013. On August 22, ISI provided me with its Statement of Claim, the Motion Record, Factum, and Book of Authorities along with a timeline of key events. In a letter of the same date, counsel advised:
Based on the evidence outlined in the motion record, ISI is greatly concerned about the potential for deletion and destruction of its confidential information and documents for their movement into the hands of third parties should Mr. Schmidt or other members of the public be given notice of the claim for this motion. In light of the nature of this motion where therefore respectfully requesting that an interim Order be granted in the form as attached to seal the Court File pending the completion of the hearing of the motion tomorrow and any further Order issued by the Court.
For the same reason, I also respectfully request of the public be excluded the hearing of the motion pursuant to section 135(2) of the courts of justice act and Rules 37.07(2) and 40.02 the Rules of Civil Procedure without notice of the hearing posted in the courthouse.
[5] ISI filed four affidavits in support of the motion. Mr. Ross Langley (“Langley”) is the Vice‑Chairman of ISI and Executive Vice-President of J.D. Irving, Limited. In his affidavit, Langley described the competitive nature of the shipbuilding industry in Canada and identified ISI as one of the three major shipyards Canada along with Davie located in Montréal and Seaspan located on the West Coast. He added that several ISI employees had recently departed and accepted employment with the Davie. He stated that all of these employees were in possession of confidential information in relation to various ISI projects. ISI was concerned that this information could be disclosed in the course of their new employment with Davie. As a result, Langley wrote to Mr. Alan Bowen, (“Bowen”) the Chief Executive Officer of Davie putting Davie on notice that ISI would take steps to ensure that such information would not be disclosed by its former employees.
[6] Langley’s affidavit outlined the history of Schmidt’s employment with ISI which began on June 24, 2008. He described Schmidt’s role as Director of Government Initiatives and Client Relations and added that Schmidt’s responsibilities at ISI had been significant. He concluded at para. 18: “In short, the Defendant was the key ISI government contact and he was the first point of contact for issues on any contract or bid in which he was involved. It was expected that all communication between the government and ISI would flow through him.”
[7] Langley recounted the circumstances surrounding Schmidt’s resignation on July 29, 2013 when he told Scott Jamieson, Vice President, Programs at ISI (“Jamieson”) that he was not leaving ISI to go to another position. However, on August 16, 2013 Schmidt sent an e-mail to several employees at ISI advising that he accepted a new position as Vice‑President, Commercial Sales with Davie. Upon learning that Schmidt was going to work for Davie, Langley directed Randy Wilson, Director Corporate Security, to commence an investigation into whether and to what extent, Schmidt had downloaded, copied, or misappropriated any ISI property, data, or records in electronic format or otherwise.
[8] A search was done of all electronic documents downloaded by Schmidt prior to his departure. Langley reported that the misappropriated information consisted of approximately 6500 pages of printed material. Langley said that he reviewed the all of the documents that were downloaded by the defendant and considered them to fall into five main categories:
(a) Highly confidential commercially sensitive strategic and financial information;
(b) Confidential communications between ISI and the Government of Canada relating to various contractual issues;
(c) ISI work product;
(d) Correspondence between ISI and various other individuals;
(e) Other information that is personal information or other information that is widely available (in which ISI had no interest).
[9] In his affidavit, under the heading Harm to ISI, Langley swore the following:
At this stage, ISI is unable to confirm whether any paper or hard copies of any documents have been taken by the defendant. We have done a preliminary review of his files and cannot determine at this stage whether there are any missing documents.
Given that the defendant was not truthful about the reasons for his departure for his employment and that he copied, downloaded and took significant points of electronic information belonging to ISI, I believe that there is a significant risk that some or all of these documents will be destroyed or hidden should the Defendant be given notice of a claim by ISI.
Cumulatively, the misappropriated information will provide for competitors significant insight and information into ISI’s operations strategy and cause ISI significant harm if released. In particular, the following types of documents (all part of the Misappropriated Information) provide a blueprint for our bidding process, where our weaknesses may be and our future strategic objectives:
• rate information
• strategy for rate negotiation
• risk management plans
• prime contractor strategy
Together all of this information will significantly assist any competitor in underbidding ISI in any future RFP process and cause ISI significant harm and put ISI at a competitive disadvantage.
Currently, ISI and Davie are in the process of bidding on a request for proposal from the Government of Canada with respect to the CCGS Terry Fox which is due August 27, 2013 and is valued at approximately $1,000,000. As indicated, based on the above it appears that the defendant is in possession of confidential ISI information which would permit him to structure the Davie bid in such a way to make it more competitive and place ISI at a competitive disadvantage.
If the defendant uses any of the misappropriated information in the upcoming Terry Fox RFP or any other project for which ISI’s competing, ISI will be detrimentally and irreparably harmed and will be a significant competitive disadvantage. This information will place Davie in an unfair competitive position vis-a-vis ISI in any upcoming requests for proposals both the government and private sector.
[10] Scott Jamieson (“Jamieson”), Vice‑President, Programs at ISI, also provided an affidavit on the ex parte motion. Jamieson explained that Schmidt had reported to him since November 29, 2012. He advised that on July 24, 2013, he talked to Schmidt about changing some of his roles and responsibilities with ISI but that he had no further discussions with Schmidt until July 29, 2013 when they discussed Schmidt’s expense claims. Jamieson stated that shortly after he had improved Schmidt’s expense claim, he received an e-mail from Schmidt advising him that he was resigning from ISI. As this notice of resignation was provided at the commencement of Schmidt’s scheduled vacation time, Jamieson claimed that Schmidt effectively provided no notice of his resignation. Jamieson stated that he then tried to contact Schmidt without success. Jamieson later learned that Schmidt’s office in Ottawa had been cleaned out and his personal effects had been removed. He inquired as to the status of Schmidt’s secondary office in Halifax and learned that that office had also been cleaned out and all of his personal items had been removed. Jamieson concluded that Schmidt had known that he would be resigning when he left the office in Halifax on July 24, 2013. At no time did Schmidt advise him that he had obtained another position, particularly with Davie.
[11] Randy Wilson (“Wilson”), Director Corporate Security for JD Irving Limited, provided an affidavit stating that he directed the investigation requested by Langley and he tasked Mr. Philip McPhee (“McPhee”) to conduct the investigation. As a result of this investigation, it was learned that Schmidt had made phone calls from his ISI office telephone to former employees of ISI now working with Davie. Wilson also stated that he was provided with a written report that disclosed that Schmidt had accessed the company’s server quite late in the night and early hours of the morning shortly before his departure from ISI and that this access had occurred from a remote location at the Hampton Inn in Dartmouth, NS.
[12] McPhee is the Senior Systems Analyst with the information technology division of JD Irving. In his affidavit, he described how the IT division of JD Irving monitors the use of all removable storage devices such as hard drives or flash drives. This monitoring is made possible by the use of the McAfee data loss prevention system (“DLP”). The DLP system is able to indicate all instances where a user has copied or otherwise transferred electronic data from the company network or a company computer to a removable storage device.
[13] At para. 16 of his affidavit, McPhee noted in reference to any data that was transferred to a removable storage device that, “because the “original” of this data would remain on the company network, and because the location of this data on the company work is provided by the data loss protection system, it is easy to access a copy of the actual electronic file question.”
[14] On August 23, 2013 I granted the APO and endorsed that I was satisfied that the test laid out at para. 35 in Celanese Canada Inc. v. Murray Demolition Corp., 2006 SCC 36, [2006] 2 S.C.R. 189 had been met; namely:
(i) the plaintiff must demonstrate a strong prima facie case;
(ii) the damage to the plaintiff of the defendant's alleged misconduct, potential or actual, must be very serious;
(iii) there must be convincing evidence that the defendant has in its possession incriminating documents or things; and
(iv) it must be shown that there is a real possibility that the defendant may destroy such material before the discovery process can do its work.
[15] In addition to the APO, I further granted an order sealing all documents filed in support of the motion and all other documents generated in connection with the motion until further order of the court.
[16] The operative part of the APO authorized the search of the defendant’s premises to obtain and remove all “relevant” evidence. This was defined as:
(a) any ISI documents and information;
(b) any documents and information in relation to the defendant’s contract of employment with Chantier Davie Canada Inc. and/or its subsidiaries and affiliates;
(c) any documents and information in relation to communications between the defendant and employees and former employees of ISI including Jared Newcombe, Tanya Radkey and Laurie LeRue;
(d) any computers, tablet, flash drives, hard drives, memory cards, libraries and other smart phones, cell phones, personal digital assistants (PDAs), CDs, DVDs or other electronic storage devices (collectively” Media Storage Devices”) that any of the Independent Authorized Persons and Supervising Solicitor believe on reasonable grounds to contain ISI documents and information.
[17] The motion was returnable on September 3, 2013. Schmidt quickly served notice that he would be moving to set aside the APO and to seek damages. The motion was adjourned for argument to October 22, 2013 and later to December 11 and 12, 2013.
[18] Prior to the hearing date, Davie brought a motion under Rule 13 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 to be added the party to the proceeding. I concluded that recourse to Rule 13 was not necessary and that Rule 37.07 applied since Davie was a party that had been affected by the order since its own documents had been seized (Davie’s employment contract with Schmidt). As such, I found that Davie would have standing to make submissions on the motion. On October 18, 2013, I directed that damages would be determined after the hearing to confirm or set aside the original order.
... (The judgment continues with sections II through VII exactly as in the source, including the full analysis and concluding paragraphs.)
Mr. Justice Robert N. Beaudoin
Released: March 7, 2014