COURT FILE NO.: CV-15-538478

DATE: 20151207

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Home Instead, Inc, plaintiff

-and-

244674 Ontario Inc. et al., defendants

BEFORE: F.L. Myers J.

COUNSEL: G Shaw, D. Ronde, and C. Cohen for the plaintiff

M. Miller, and T. Kalnins, for the defendants

HEARD: December 4, 2015

ENDORSEMENT

[1] This endorsement applies as well to the motion brought in the application commenced by the defendants.

[2] There are cross-motions before me for interlocutory injunctions. The franchisor seeks a negative injunction prohibiting its (former) franchisees from violating their post-termination obligations. In lay terms, it seeks to shut them down. The franchisees seek a negative injunction prohibiting the franchisor from terminating their businesses.

[3] Both submit to\have proven a serious issue to be tried. Neither can deny the other’s claim to have met that standard. Moreover, as required for cases involving restrictive covenants, I am satisfied that the franchisor has established a strong prima facie case that the franchisees have misled it and operated in common ownership despite the franchisor’s express pre-contractual refusals to allow this; despite clear prohibitions in both franchise agreements; and despite the franchisor’s clear written policy against ownership of multiple franchises except in specified circumstances that do not exist here.

[4] The franchisor’s position depends in part on credibility findings. This is a motion not a trial. Having said that, it has increasingly become recognized that witnesses’ credibility turns more on objectively verifiable inconsistencies in their evidence and any inherent improbabilities in their stories then on their visible demeanour in the witness stand. On this motion, I do not need to, and I do not, make credibility findings. I look only for issues concerning the likely strength of the parties’ respective cases, the nature and quality of harm suffered or to be suffered, and the balance of convenience.

[5] In assessing the relative strength of the parties’ cases, it is fair to observe that the franchisees have serious credibility issues to surmount at trial. They clearly admit their business relationship in emails between them. They deny the relationship now. Mr. Weinert admitted the relationship to the franchisor when he feared a falling out with Ms. Reid. His girlfriend asserted information that could only have come from him. The franchisor recorded in writing its knowledge that Mr. Weinert’s girlfriend was going to offer to buy out Ms. Reid’s interest. Mr. Weinert denies knowing anything about the offer that was made. How could the franchisor have known about it before it happened if not from Mr. Weinert? Ms. Reid and Mr. Weinert held themselves out as partners or co-owners to third party suppliers. Ms. Reid wrote emails demanding to be shown in Mr. Weinert’s corporate documentation. Yet they have refused to produce their minute books in this litigation. They admit that neither Mr. Weinert nor his business has a bank account. Yet they have refused to produce their banking records in this litigation. It is enough for the purposes of this motion to note that by their own emails and actions they have built a large hill which they must climb and surmount to succeed at trial.

[6] I am also satisfied that both sides have proven that in the absence of an injunction they are likely to suffer irreparable harm - harm that cannot be fairly compensated in damages. The franchisees will lose their businesses and investments. While businesses can be valued at trial, that does not capture the personal value of building one’s own enterprise or the dignity loss on termination for breach.

[7] As to the franchisor, I agree with Perell J. in Quiznos v. 1450987 Ontario, 2009 20708 (ON SC), 2009 CarswellOnt 2280, that where it appears that the franchisees would not be able to satisfy a damages award against them and it appears that their breaches threaten the franchisor’s goodwill, reputation, and implicate its responsibility to maintain the integrity of the chain, an award of damages will not fairly or adequately address those harms.

[8] Mr. Weinert has no bank account, no credit card, and forwards his electronic paycheques to an undisclosed third party. Ms. Reid says her businesses survive from hand to mouth. The unsecured undertakings on damages that they offer have no value.

[9] The franchisor’s business involves providing personal care services to seniors. It assiduously protects its branding out of concern that in this age of social media and viral phenomena, one’s business can be crippled by an otherwise seemingly small matter. One need only think of the sudden demise of the Arthur Andersen firm for a concrete example. A business that provides very personal services to vulnerable people is in a different position than a manufacturer of widgets in terms of the importance of engendering and maintaining an unblemished record of trustworthiness.

[10] The franchisor operates on strict contractual rules on which its business lives or dies. I make no comment or finding on the wisdom of its rules. The franchisees have chosen to invest in and bind themselves to the franchisor’s system and franchise agreement.

[11] Among the terms of the franchise agreement there are clear prohibitions against franchisees being involved in multiple franchises without the franchisor’s consent. The franchisor has a written policy governing terms under which it may agree to allow a franchisee to have interests in multiple franchises. The policy requires franchisees to demonstrate success over a period of years before taking on another franchise.

[12] In this case, there is evidence that Ms. Reid and Mr. Weinert were having challenges running two franchises together. Mr. Weinert reported that Ms. Reid had trouble keeping straight the differing fee rates for their different territories. They accepted business from outside their territories. Whether by design or by accident, this reflects a management issue. They also operate a third business from Ms. Reid’s franchise office in breach of a few terms of their franchise agreements (full-time commitment; exclusive use of office e.g.).

[13] In Quiznos, Perell J. suggested that one-off breaches by a small number of franchisees does not amount to irreparable harm in a national system. In my view, while this may often be true, it is not a fixed rule or statute. The assessment of irreparable harm looks more at the nature of the harm than the quantity. If the franchisor is correct, then it is facing franchisees who have deliberately deceived it. Moreover they are operating multiple businesses when, under the franchisor’s policy (to which all are bound) they are not ready or qualified to do so. If the franchisor is correct, the franchisees do not consider themselves bound by their agreements and are in effect operating a rogue business. In light of the nature of this business, the importance of maintaining a reputation for trustworthiness in the market place, and the good faith obligation on the franchisor to enforce compliance with that system under the Arthur Wishart Act, in my view, the harm threatened by the franchisees is indeed irreparable both because their undertaking on damages has no value and because the risk of a rogue franchisee very much threatens the franchisor’s goodwill, reputation, and implicates its responsibility to maintain the integrity of the chain.

[14] So, whose irreparable harm tips the balance of convenience? Who will be hurt more if denied an injunction?

[15] First, the franchisees lack of a meaningful undertaking is significant. Second, as per paragraph 46 of Quiznos, the franchisor’s case is much stronger than the franchisees’. Third, the franchisees can recoup the value of their businesses if they have been wronged. But this will take litigation or arbitration and one can never compensate for the emotional injury or loss of dignity fully. Finally, courts are reluctant to force people to work together or to supervisor a relationship. If the franchisees actively colluded to deceive the franchisor, how can it be protected from further misconduct going forward? Its system is the franchisor’s and other franchisees’ chosen way to treat and protect vulnerable seniors. It may be a great system or a poor one. That is not the issue. The issue is that if the franchisor is proven correct, it will be faced with a rogue franchisee who cannot be expected to adhere to the franchisor’s system and thereby puts at risk of far greater enterprise.

[16] Looked at a different way, where a franchisor has a strong prima facie case that its franchisee has deliberately violated contractual prohibitions, the court should be more prepared to hold the franchisees to their bargain and less swayed by pleas to equity made by those who appear unwilling to do equity (or even make disclosure of documents).

[17] Order to go as sought in the franchisor’s notice of motion. The franchisor may deliver up to five pages of costs submissions by December 18, 2015. The franchisees may deliver up to five pages in response by January 8, 2016. Both shall include costs outline’s no matter what position they take. Both may also include any relevant offers to settle. Submissions shall be in searchable PDF attachments to an email to my Assistant. No PDF cases. References to cases, if any, shall be by hyperlink to www..org or another online service embedded in the submissions.

F.L. Myers J.

Date: December 7, 2015