SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-14-00502488-0000
DATE: 20150714

RE: Counterforce Corporation, Plaintiff

– AND –

Marco Volpe (also known as Mark Volpe), and 744062 Ontario Ltd. o/a Volpe Security Systems, Defendants

BEFORE: Justice E.M. Morgan

COUNSEL: Amer Pasalic, for the Plaintiff

Alysha Shore, for the Defendants

HEARD: July 14, 2015

ENDORSEMENT

[1] The Defendants (who are jointly and severally parties to the Agreement in issue herein, and so will be referred to collectively as the Defendant) are in the business of selling, installing and servicing alarm monitoring systems. The Plaintiff is in the business of providing monitoring services for alarm systems.

[2] The alarm systems that are monitored by the Plaintiff have been sold to and installed for customers by a network of independent Customer Dealers. Once installed, the Plaintiff then purchases the account from the Customer Dealer, and thereafter charges the customer a monthly monitoring fee. The Plaintiff pays the Customer Dealer a multiple of that monitoring fee plus ongoing standby service fees.

[3] For 17 years, the Defendant was one of the Plaintiff’s Customer Dealers. In that capacity, the Defendant had access to confidential business information with respect to the Plaintiff’s customer base and pricing information. That relationship terminated in October 2008.

[4] Shortly thereafter, the Plaintiff learned that the Defendant had begun soliciting its customers to a new monitoring service, Reliance Protection, with which it had entered an exclusive arrangement. On February 2, 2009, the Plaintiff commenced an action against the Defendant alleging wrongful solicitation of the Plaintiff’s customers. That lawsuit was ultimately settled on the basis of a comprehensive settlement agreement dated March 11, 2011 (the “Agreement”).

[5] In the Agreement, the Defendant covenanted that it will not solicit any of the 1,439 customers of the Plaintiff listed in Schedule A or any other customer of the Plaintiff within the greater Toronto area. The Defendant also covenanted that it will abide by the protocol described in Schedule B by which it is to refer to the Plaintiff’s own customer service department any customer that calls it to inquire about changing its alarm monitoring service. These covenants were to be in force for five years – commencing on the date of the Agreement on March 11, 2011, and expiring on March 10, 2016.

[6] In return, the Plaintiff covenanted that it will pay the Defendant $6.00 (plus HST) per month for each of the Plaintiff’s customers that the Defendant had originally serviced and that remained customers in good standing of the Plaintiff’s. These monthly payments totaled $214,458.18, and the payments were to be made on a monthly basis commencing on March 11, 2011 and ending on March 10, 2013.

[7] The Plaintiff paid the Defendant the total amount it was required to pay under the Agreement. The Defendant honored the non-solicitation and referral provisions of the Agreement up until the last payment was made to it in March 2013, and then immediately began soliciting the Plaintiff’s customers contrary to the terms of the Agreement. The Defendant has conceded that it solicited the Plaintiff’s customers listed in Schedule A and that it failed to refer back to the Plaintiff those customers who contacted it as required by Schedule B. Furthermore, the Defendant does not dispute that the Agreement is valid and in force, and concedes that it was represented by legal counsel and understood and signed the Agreement of its own free will.

[8] The Plaintiff has produced a spread sheet demonstrating that its typical cancellation rate prior to the dispute with the Defendant was 12% per year. In 2013, with the conclusion of the Plaintiff’s payments to the Defendant, the Plaintiff’s cancellation rate rose to 15.1%, and in 2015 it rose to 21.5%. The Defendant offers no evidence to counter these figures. Indeed, the Defendant concedes that it has solicited and signed to Reliance Protection a total of 147 of the Plaintiff’s customers listed in Schedule A; it also concedes that it has ignored the protocol in Schedule B and has signed to Reliance Protection another 33 of the Plaintiff’s customers who called it.

[9] In addition to the 180 customers that have left the Plaintiff’s services for the Defendant’s, another 202 have left the Plaintiff during the currency of the Agreement. Half of these – i.e. 101 customers – have been determined by the Plaintiff to have left of their own accord and for reasons unrelated to the Defendant. The other 101 customers have left the Plaintiff for unknown reasons. They apparently are not currently customers of the Defendant’s or Reliance Protection, but it is not known by either party if they were ever solicited by the Defendant or if they called the Defendant. The Defendant concedes that this is possible, but states that it does not keep records of every contact or phone call that does not conclude in it acquiring a signed newly customer.

[10] In cross-examinations, counsel for the Plaintiff asked the Defendant to check its database of customers and former customers to determine if any of the Plaintiff’s 1,483 customer names appear there. It is the Plaintiff’s theory that the Defendant recruited the Plaintiff’s customers, but that some of them may have left the Defendant in the meantime and so would not show up on the Defendant’s current customer list. It is also the Plaintiff’s contention that the Defendant may have attempted to solicit some of its customers who, while they did not sign with the Defendant and Reliance Protection, were prompted to leave the Plaintiff for another monitoring service. The Plaintiff’s request for this further information was “taken under advisement” by the Defendant, who ultimately failed to provide the information.

[11] There is no evidence to definitively prove the Plaintiff’s theories with respect to its lost 101 customers. However, it stands to reason that some of them were solicited by the Defendant. The Defendant concedes as much itself. It indiscriminately targeted the Plaintiff’s customers for solicitation. In cross-examination, the Defendant stated that it generally acted in complete disregard of the terms of the Agreement, and that it would “take a Counterforce customer in a second”.

[12] The Defendant succeeded in convincing 180 of the Plaintiff’s Schedule A listed customers to sign with Reliance Protection. It would be surprising if the Defendant managed to sign up each and every customer that it spoke to; and, as indicated, even an unsuccessful solicitation constitutes a breach of the Defendant’s covenant under the Agreement.

[13] Counsel for the Plaintiff asks that I draw an adverse inference from the fact that the Defendant would not provide the clearly relevant information that was requested in cross-examination. He cites the decision of Brown J. (as he then was) in Bank of Montreal v Faibish, 2013 ONSC 5876, at para 3, for the proposition that, if “scheduling a refusals motion would not represent a proportionate use of the court’s time and would not achieve a fair, timely and cost-effective determination of the proceeding on its merits, then the judge possess the power to …direct that if, at trial, an issue arises about a question refused, then the trial judge should consider the matter and, if the trial judge concludes that the refusal was improper, then an adverse inference would be drawn against the refusing party…”

[14] Counsel for the Defendant explains that the Defendant has fallen short of the money needed to adequately fund the litigation, and for that reason it did not undertake the work necessary to gather the information from its data base that the Plaintiff requested. It may well be true that the Defendant has encountered financial troubles – its counsel also explains that this is the reason she did not prepare a factum for the motion – but in my view, this not much of an excuse for failure to provide the relevant information. As counsel for the Plaintiff points out, the Defendant’s customer list is doubtless computerized, and it would take relatively little time and effort to run the Schedule A names through its data bank.

[15] I would infer that of the 101 lost customers that are in contention, the Defendant solicited them in the same percentage as those that it succeeded in recruiting from the Plaintiff. It recruited 180 of the 382 that the Plaintiff lost during the relevant time. That means that it solicited and successfully recruited 47% of those that the Plaintiff lost. If I use this as the average approach of the Defendant, I can conclude that the Defendant solicited 47 of the 101 lost customers whose fate is unknown. I draw an inference from the Defendant’s refusal to provide the relevant information from its data bank that it failed to disclose these additional 47 wrongfully solicited customers.

[16] In total, therefore, the Defendant was in breach of the Agreement in respect of 227 customers.

[17] Both parties agree that this is an appropriate case for summary judgment, and that the conditions for this expedited process set out by the Supreme Court of Canada in Hryniak v Mauldin, 2014 SCC 7, [2014] 1 SCR 87 are applicable. The only question in dispute is that of quantum of damages.

[18] The Agreement provides that in the event it is breached by the Defendant, the Plaintiff can either prove actual damages or claim liquidated damages in the amount of $1,000 per wrongfully solicited customer. Again, counsel for both parties have advised that they view this contractually agreed amount as the applicable and valid measure of damages under the circumstances.

[19] Accordingly, the Defendant is liable to the Plaintiff for $227,000 in liquidated damages.

[20] The Plaintiff also advances a claim for punitive damages. Counsel for the Plaintiff submits that the Defendant’s breaches of the Agreement were intentional to the point of being brazen, and were timed in a way that indicates that the Defendant never intended to honour the Agreement once it was entirely paid out by the Plaintiff. The Plaintiff specifically states that the Defendant’s conduct entirely undermined the consideration that the Plaintiff received in return for its payments to the Defendant. In the words of the Court of Appeal, the Defendant has “act[ed] in a way that would…defeat or eviscerate the very purpose of the Agreement”: Barclays Bank PLC v Metcalfe & Mansfield Alternative Investments VII Corp., 2013 ONCA 494, at para 135.

[21] Counsel for the Plaintiff further relies on the Supreme Court of Canada’s recent statement that, “The organizing principle of good faith exemplifies the notion that, in carrying out his or her own performance of the contract, a contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner”: Bhasin v Hrynew, 2014 SCC 71, at para 65. The Plaintiff contracted and paid the required funds to the Defendant in good faith, and it was for the Defendant to perform its part of the bargain in an equally bona fide way.

[22] Counsel for the Defendant responds that the liquidated damages amount of $1,000 is rather generous, and that it already factors in the cost of general deterrence that punitive damages is usually said to serve. She submits that the court should not add an extra amount on top of the price that the parties have already bargained. She also submits that the Defendant was honest in the evidence it gave to the court, and that in its affidavit and cross-examination evidence it was unhesitant in conceding that it had breached the Agreement at least 180 times.

[23] I do appreciate that the Defendant has been forthright in its testimony. Refreshing as it is to hear a party concede its own faults, truthful testimony is really what one expects of a party providing evidence under oath. What the Defendant so forthrightly and honestly conceded was that it knowingly and intentionally breached the Agreement that it had signed. Conceding this truth hardly makes up for having done it.

[24] The view of liquidated damages put forward by counsel for the Defendant is interesting from an economic point of view, but I am not convinced that liquidated damages should be conceived as being set at a price that contemplates a flagrant disregard of the contract. The liquidated damages amount was indeed bargained by the parties, but it was bargained in the context of an Agreement which both sides were obligated to honour in good faith. Since the Defendant wilfully breached that Agreement, the assumption of good faith was undermined. The amount of $1,000 per wrongfully solicited customer was arrived at as an agreed upon value for compensatory damages; it was not established as “a license fee” for breaching the Agreement: Whiten v Pilot Insurance, 2002 SCC 18, [2002] 1 SCR 595, at para 72.

[25] Counsel for the Plaintiff requests $50,000 in punitive damages for this flagrant breach of contract. While I agree that the Defendant’s violation of the Plaintiff’s rights under the Agreement was “high handed and calculated to injure the plaintiff and make a profit for the defendant”, AR Thomson Ltd v Stock, [1994] BCJ No 1566, at para 26, the amount sought by the Plaintiff here would be at the very top end of the awards one finds in the Canadian case law.

[26] I would reduce the Plaintiff’s request by one-half. In my view, $25,000 reflects the appropriate response by the court to conduct by the Defendant that is unacceptable. This was not just a breach of contract; it was conduct that was calculated by the Defendant to debase as much as possible the consideration that the Plaintiff was to receive under the Agreement.

[27] In the result, the Defendant shall pay the Plaintiff $227,000 in liquidated damages and $25,000 in punitive damages, for a total award of $252,000.

[28] Turning to the question of costs, counsel for the Plaintiff seeks $41,376.37 in partial indemnity costs, or $62,064.57 in substantial indemnity costs, plus $1,541.13 in disbursements.

[29] Counsel for the Plaintiff has called my attention to an offer to settle that the Plaintiff served on the Defendant and which was more generous to the Defendant than the result of the present judgment. This offer was served only yesterday, and so is outside of the terms of Rule 49 of the Rules of Civil Procedure and does not give rise to an automatic award of costs on a substantial indemnity scale. Counsel for the Plaintiff asks that I nevertheless take this offer into account in considering the amount of costs that I award.

[30] The fixing of costs is a discretionary decision under section 131 of the Courts of Justice Act. That discretion is generally to be exercised in accordance with the factors listed in Rule 57.01 of the Rules. These include the principle of indemnity for the successful party (57.01(1)(0.a)), the expectations of the unsuccessful party (57.01(1)(0.b)), the amount claimed and recovered (57.01(1)(a)), and the complexity of the issues (57.01(1)(c)). Overall, the court is required to consider what is “fair and reasonable” in fixing costs, and is to do so with a view to balancing compensation of the successful party with the goal of fostering access to justice: Boucher v Public Accountants Council (Ontario) (2004), 71 OR (3d) 291 (Ont CA), at paras 26, 37.

[31] As indicated above, I was not impressed by the Defendant’s conduct in respect of its breaches of the Agreement in issue; however, its conduct in respect of the litigation has been entirely appropriate. The Defendant did not fight aspects of the case that were pointless to fight, and it approached the litigation in a straightforward way. In arguing costs, I have been advised that the Defendant itself made an offer to settle this matter, and although the Plaintiff was within its rights in not accepting it, it did not reflect an unreasonable position on the Defendant’s part.

[32] Furthermore, counsel for the Defendant did a very admirable job for a party that was obviously underfunded, and she managed to advocate the Defendant’s case in a way which put forward his rights in an efficient manner. This is not a case in which I would award costs on a substantial indemnity scale.

[33] The Plaintiff’s Bill of Costs is generally a reasonable one. There may be some superfluous hours, including a substantial amount of time spent drafting the factum by a third lawyer at Plaintiff’s counsel’s firm who took no other part in the motion and who must have repeated some of the 70 hours it already took the main counsel for the Plaintiff to come up to speed on the file. The Bill also includes a small amount of time docketed to amending the title of proceedings to correct a mistake in the Plaintiff’s corporate name, which is time that the Defendant should not have to bear. Overall, however, I would not want to quibble with Plaintiff’s counsel’s success in the case.

[34] In the circumstances, the Defendant shall pay the Plaintiff costs in the total amount of $40,000, inclusive of disbursements and HST.

Morgan J.

Date: July 14, 2015