Ontario Graphite Ltd. v. Janik, 2016 ONSC 716

Court File and Parties

CITATION: Ontario Graphite Ltd. v. Janik, 2016 ONSC 716 COURT FILE NO.: CV-15-532109 DATE: 20160219

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: ONTARIO GRAPHITE LTD., Plaintiff AND: JERRY JANIK, MICHAEL COSCIA and, GREAT LAKES GRAPHITE INC., Defendants

BEFORE: STEWART, J.

COUNSEL: Nafisah Chowdhury and Lisa S. Goodfellow, for the Plaintiff Michael Donsky and Andrea M. Marsland, for the Defendants

HEARD: September 23, 2015

ENDORSEMENT

Nature of the Motion

1Ontario Graphite Ltd. (“Ontario Graphite”) requests an order restraining Jerry Janik (“Janik”) and Michael Coscia (“Coscia”) from directly or indirectly working for Great Lakes Graphite Inc. (“Great Lakes Graphite”) or competing with Ontario Graphite anywhere in Canada for a period of one year and six months from the date of any order granted. Ontario Graphite also seeks an order restraining Janik from directly or indirectly soliciting away any employee or customer of Ontario Graphite for a period of one year from the date of any order granted.

2Ontario Graphite further requests an order restraining all of the Defendants from directly or indirectly disclosing or using Ontario Graphite’s confidential or proprietary information, soliciting any of Ontario Graphite’s investors, or taking any further steps to pursue operations at the Matheson facility.

3The Defendants resist all relief sought by Ontario Graphite.

Background Facts

4Ontario Graphite is in the business of mining, milling, refining and upgrading (micronizing and purifying) flake graphite for use in heightened technical products. Its head office is located in Kearney, Ontario, where it is working to recommission an idle graphite mine (the “Kearney Mine”).

5The core of Ontario Graphite’s business plan is to produce and sell “Run of Mine” graphite and to produce and sell flake graphite, micronized and purified graphite to high-end customers.

6With respect to Run of Mine graphite, Ontario Graphite has been vying for the “first to market” advantage. Since 2007, its investors have injected approximately $55 million into the company. This financing has been, among other things, to support the company’s efforts to recommission the Kearney mine. Ontario Graphite argues that the actions of the Defendants seriously undermine its chances success in this venture.

7As a privately-held company, raising investment funds is said to be difficult for Ontario Graphite. It submits that it does not have the same access to capital as publicly-traded companies such as Great Lakes Graphite.

8Janik commenced employment with Ontario Graphite in September 2011. In June 2014, Janik assumed the position of Vice-President of Operations and General Manager of Mining at Ontario Graphite.

9When he joined Ontario Graphite, Janik had over 25 years of professional experience in the mining industry.

10On June 6, 2014, and with the benefit of independent legal advice, Janik signed an employment agreement with Ontario Graphite. The terms of Janik’s employment agreement included:

(a) an obligation to faithfully and diligently discharge his duties;

(b) an obligation to avoid conflicts of interest;

(c) an obligation to refrain from using or disclosing any confidential or proprietary information of Ontario Graphite;

(d) an obligation to refrain from soliciting any employee of Ontario Graphite for one year following his termination;

(e) an obligation to refrain from directly or indirectly competing with Ontario Graphite in the graphite mining industry anywhere in Canada during the term of his employment, as well as upon termination of employment:

(i) if terminated on a without cause basis, during the period of time during which he received severance pay from Ontario Graphite;

(ii) if terminated for cause, for a period of one year following his termination of employment; and

(f) to provide his consent to Ontario Graphite to monitor and record any use that he made of the company’s electronic communications systems.

11Upon entering into this agreement, Janik received an equity position in Ontario Graphite.

12Throughout his employment, Janik functioned as a senior executive of Ontario Graphite with intimate knowledge of and access to Ontario Graphite’s confidential and proprietary information.

13Janik’s role while at Ontario Graphite involved significant responsibilities including overseeing all matters related to the Kearney Mine, management of all mining and lease data, including complex lease agreements, licensing and permitting applications, and decommissioning plans, developing Ontario Graphite’s purification and micronization processes, supporting Ontario Graphite’s efforts to raise capital from prospective investors, obtaining executed Memoranda of Understanding from First Nation bands, marketing activities aimed at prospective customers and reviewing Ontario Graphite’s potential operations at the Matheson Micronization Facility and providing strategic advice to Ontario Graphite on pursuing same.

14In June 2013, Janik was approached by Northfil to see if Ontario Graphite would be interested in leasing a micronization facility that it owned in Matheson, Ontario. Janik attended at the Matheson facilities, took pictures, and conducted due diligence on the facility, all with a view to formulating a recommendation to Ontario Graphite’s board as to whether to pursue a deal with Northfil for a lease of the space.

15In addition to conducting due diligence on the Matheson facility, Janik negotiated the terms of a potential lease. The cost under the prospective lease was “operating costs, plus 20 percent”. Janik recommended to the Ontario Graphite board that it pursue a lease of the Matheson facility.

16Ontario Graphite’s board declined to pursue the Northfil discussion any further because the costs of acquiring, refurbishing and operating the Matheson facility was too high for Ontario Graphite at the time. However, Ontario Graphite did make overtures to purchase Northfil’s micronization units, which Northfil rejected.

17In late 2014, Ontario Graphite permitted Janik to work from his home office in Bridgenorth, Ontario. During this time, Janik was given the flexibility to work from home as long as he continued to fulfil all of his responsibilities to Ontario Graphite. Janik continued to receive his full salary and benefits from Ontario Graphite.

18Janik assured Ontario Graphite that he was only providing services to geology companies. At no time did he disclose that he was engaged in discussions and providing services to Great Lakes Graphite. Ontario Graphite asserts that it would have immediately terminated Janik’s employment for cause had it been aware that Janik was surreptitiously working for the competition.

19By February 2015, a decision was made by Ontario Graphite to cut costs by terminating Janik’s employment. On February 14, 2015, Janik was provided with a termination letter wherein he was told that he could expect to receive his severance pay within 30 days (i.e. by March 13, 2015). It was expected that Janik would receive six months of salary, as contemplated by the 2014 Employment Agreement. Janik’s termination letter also contained an express reminder about his non-competition and non-disclosure obligations to the company. At the time of termination of Janik’s employment, Ontario Graphite believed it was without cause, required for financial reasons.

20In mid-February 2015, Janik turned in his company-issued computer at Ontario Graphite’s request. Ontario Graphite then discovered that Janik had wiped the computer’s hard drive of all data.

21Janik did not consult with any Ontario Graphite employee before unilaterally deciding to wipe his hard drive of all data, nor did ne seek any technical help from an external technical support service provider to see if the error messages he alleged had occurred could be addressed without the need to re-format the entire hard drive.

22Janik assured Ontario Graphite that, before re-formatting his hard drive, he had returned all Ontario Graphite data to the company. Upon further investigation, Ontario Graphite learned that, while Janik had returned some Ontario Graphite electronic files, he had done so in “dribs and drabs”. Further, he is alleged to have loaded documents to a hard drive that he knew did not work, and purported to return hard copies of documents in a binder along with a CD. To date, no one at Ontario Graphite has been able to locate that material.

23As a result of its discovery of this conduct, on March 18, 2015, Ontario Graphite terminated Janik’s employment for cause. He was advised that he would not be receiving any severance pay. Ontario Graphite started a forensic investigation into Janik’s activities, conducted by an external firm. I consider that Janik agreed to such action as part of the terms of his employment, and no breach of privacy has occurred.

24The forensic examination of Janik’s e-mail revealed that, starting in April 2014 and throughout the year, he and Coscia had been communicating with the principal of Great Lakes Graphite to discuss employment opportunities and joining the rival organization at a senior level.

25At the time of termination of his employment on February 14, 2015, Janik was being paid an annual salary of $200,000.00. He also participated in Ontario Graphite’s group benefits plan, its pension benefit plan and had been granted stock options in the company.

26The evidence on this motion supports a conclusion that, at the time of the termination of his employment and throughout his tenure, Janik was a fiduciary of Ontario Graphite. That conclusion does not appear to be seriously disputed.

27Janik is now the Chief Operating Officer of Great Lakes Graphite’s operating division and holds an equity position in Great Lakes Graphite.

28In September 2012, Coscia assumed the position of Senior Vice-President, Sales and Marketing, of Ontario Graphite. He joined the company with 30 years of professional experience in non-graphite mining related work.

29Upon joining Ontario Graphite, Coscia executed an employment agreement that included the following obligations:

(a) to faithfully and diligently discharge his duties;

(b) to avoid conflicts of interest;

(c) to refrain from using or disclosing any confidential or proprietary information of Ontario Graphite; and

(d) to refrain from directly or indirectly competing with Ontario Graphite during the term of his employment, as well as for a period of six months post-termination.

30Throughout his employment, Coscia was a senior executive of Ontario Graphite with intimate knowledge of and access to the company’s confidential and proprietary information.

31Coscia’s responsibilities at Ontario Graphite included establishing all sales and marketing plans and strategies for Ontario Graphite, developing Ontario Graphite’s capabilities for micronization and purification of graphite and other value-added technology steps and assisting Ontario Graphite with its efforts to raise investor funds.

32While employed with Ontario Graphite, Coscia was paid an annual salary of $200,000.00 and participated in Ontario Graphite’s group benefits plan, its pension benefit plan, and was granted stock options in the company.

33In November 2013, Coscia became involved in the aforementioned discussions between Ontario Graphite and Northfil with respect to the Matheson Plant. On November 13, 2013, Coscia executed a Confidentiality Agreement with Northfil on Ontario Graphite’s behalf.

34On April 6, 2015, Coscia resigned from his employment with Ontario Graphite. All payments due and owing to him by Ontario Graphite were paid.

35When asked by Ontario Graphite’s CEO in early June, 2015 where he planned to work, Coscia responded that he intended to sell zirconium and tantalum for his old friends in the industry. He made no mention of Great Lakes Graphite.

36On June 9, 2015, Great Lakes Graphite issued a press release announcing that Coscia had joined its team as a Senior Vice President of Sales and President of its GLK Innovations Division, making special note of the fact that the company is focused on bringing carbon products to the marketplace in a “vertically integrated supply chain”, advertising its Lochaber graphite deposit.

37Coscia is currently the Senior Vice-President of Sales of Great Lakes Graphite and President of Great Lakes Graphite’s operating division and holds an equity position in the company.

38Notwithstanding Coscia’s efforts to characterize himself as an independent contractor, the evidence tendered by Ontario Graphite demonstrates that Coscia is a senior and integral member of Great Lakes Graphite’s team and holds an important executive position as well as equity in the company.

39Ontario Graphite has also presented evidence to show that while Janik and Coscia were employed in senior and trusted positions with the company they were surreptitiously engaged in discussions with a Great Lakes Graphite to “jump ship” and to use information obtained as a result of their positions with Ontario Graphite to make themselves more attractive as possible executives at Great Lakes Graphite.

40In November 2014, while still collecting a paycheque from Ontario Graphite, Coscia was actively working to assist Great Lakes Graphite to raise investor funds. Coscia has acknowledged that Great Lakes Graphite was a competitor of Ontario Graphite at the time.

41On March 13, 2015, Janik sent Ontario Graphite an e-mail advising that his severance payment was due that day, and that he would not afford the company any leniency in its delivery. At that time, Ontario Graphite was in the process of investigating Janik’s conduct arising from the destruction of all data from his computer. As a result, the company did not provide him with severance pay within the expected 30 day period.

42Prior to being incorporated, Great Lakes Graphite had been carrying on business under the name Shield Gold. In March 2014, Shield Gold purchased a graphite deposit (the Lochaber graphite deposit) for approximately $1.7 million. Two months later, the company changed its name to Great Lakes Graphite.

43Although Great Lakes Graphite has attempted on this motion to distinguish the nature of its activities from that of Ontario Graphite, the evidence tendered and referred to by Ontario Graphite demonstrates that it is a graphite company engaged in the business of mining, milling, refining and upgrading (micronizing and purifying) graphite flake for the value-add marketplace. The evidence adduced by Ontario Graphite on the motion accordingly favours a conclusion that Great Lakes Graphite is in competition with it, and that both are seeking to obtain an entry into this potentially lucrative industry.

44On March 16, 2015, Great Lakes Graphite issued a press release announcing that it had named Janik as COO of its “Great Lakes Innovation” operating division. The press release noted that Janik’s primary responsibility would be the “refurbishment, recommissioning and operation of the Matheson Micronization Facility” – the project that he had investigated on behalf of and for the benefit of Ontario Graphite.

45Janik has admitted in these proceedings that the lease of the Matheson Plant that he negotiated with Northfil for the benefit of Great Lakes Graphite was on the following terms: (a) $1.00 for the first year of the lease; (b) $30,000.00 for the second year of the lease; and $500,000.00 for the next three years of the lease, with an option to negotiate a royalty payment in lieu of a lease payment. At no time did Janik ever negotiate or present any such lease opportunity for the Matheson Plant to Ontario Graphite.

46On April 21, 2015, Business News Network published an article entitled “Opportunity (Still) Awaits for Canada’s Graphite Sector.” A senior executive of Great Lakes Graphite was quoted in that article as stating that the Matheson Plant would help Great Lakes Graphite build a track record of execution, including identifying and implementing a fast path to cash flow and revenue to assist the company when the time comes to seek financing for taking the Lochaber project to production.

47Janik and Coscia continue to be employed by Great Lakes Graphite, carrying on senior responsibilities as previously described.

48The fact that Great Lakes Graphite has sought to employ Janik and Coscia, evidently regarding their knowledge and experience at Ontario Graphite as being valuable and pertinent to its own operations, underscores the competitive character of its business with Ontario Graphite. Its acquisition of the capabilities of the Matheson facility likewise reveals the competitive nature of the Great Lakes Graphite operations with that of Ontario Graphite.

Law and Discussion

49The test for the granting of injunctive relief is well-established and is set out in RJR MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311 (S.C.C.), as follows:

(a) Is there a serious issue to be tried or, in some cases, has the moving party shown it has a strong prima facie case?

(b) Will the moving party suffer irreparable harm if the injunction is not granted?

(c) Which party will suffer the greater harm from granting or refusing the remedy pending a decision on the merits?

50Although there are conflicting authorities as to whether the “serious issue” or “strong prima facie” test should apply in cases of restrictive covenants in the employment context, I consider that the authorities favour a conclusion that the “strong prima facie” test should govern in this case (see: Wilson Learning Corp. v. Hurley, 1990 Carswell Ont. 710; Van Wagner Communications v. Penex Metropolis Ltd., 2008 Carswell Ont. 218).

51Ontario Graphite seeks an interlocutory injunction on the basis that Janik and Coscia breached their fiduciary duties, duties of confidentiality and their duties of loyalty to Ontario Graphite. They allege also that Janik and Coscia breached the terms of their respective non-competition and/or non-solicitation obligations.

52Given the senior roles formerly held by both Janik and Coscia at Ontario Graphite, their fiduciary status is uncontroverted and acknowledged by written contract. This status imposes upon them duties of confidence and fidelity that extend beyond their contractual promises.

53Ontario Graphite submits that there is an abundance of evidence that satisfies the strong prima facie case standard to show that Janik and Coscia are in breach of their obligations to it.

54I am also satisfied that the various undertakings carried out by Great Lakes Graphite are in competition with Ontario Graphite’s business objectives. The evidence demonstrates that Ontario Graphite has been and is in competition with Great Lakes Graphite in seeking to pursue the business of micronizing and purifying graphite.

55In addition, the Matheson facility was a business opportunity that Janik and Coscia learned of in the course of their duties as employees and fiduciaries of Ontario Graphite. Janik spent time and effort as an Ontario Graphite employee studying the costs and benefits of pursuing the Matheson facility and negotiated a potential deal with its owner, which he presented to Ontario Graphite’s board. At the time, his proposal was not accepted.

56A year later, Janik negotiated a less expensive deal for the Matheson facility on behalf of Great Lakes Graphite. Ontario Graphite was not given the opportunity to consider this new deal.

57I agree with Ontario Graphite’s argument that, even if it had considered the new deal and rejected it, Janik and Coscia would still be prohibited by its obligations to Ontario Graphite from pursuing the opportunity for themselves or Great Lakes Graphite since it is directly competitive with Ontario Graphite’s business.

58The fact that Janik did not receive the severance pay he thought he should get or the fact that Ontario Graphite may have been suffering financial difficulties do not operate to relieve Janik or Coscia of their fiduciary and/or contractual obligations. Janik has been dismissed for cause and the terms of his employment agreement specifically address that scenario, quite apart from the impact of his ongoing fiduciary duties.

59In my view, the evidence on this motion supports a conclusion that Ontario Graphite’s claims against the Defendants that they are in breach of their non-competition and non-solicitation obligations amount to a strong prima facie case against the Defendants.

60As a result, Ontario Graphite has met the first branch of the test for the relief it seeks.

Irreparable Harm

61The second part of the three part test requires Ontario Graphite to establish that it will suffer irreparable harm if the injunction is not granted. Harm is irreparable if it cannot be quantified and compensated in monetary terms, or if it cannot be cured (see: RJR MacDonald Inc., supra).

62In cases involving the misuse of confidential information or restrictive covenants, irreparable harm may be presumed without further proof. The court, in exercising its discretion with respect to the remedy sought, is to have regard to the presumption raised by the parties’ contract and whether the responding parties have discharged the presumptive burden arising therefrom (see: Messa Computing v. Phipps, [1997] O.J. No. 4255 (Gen. Div.)).

63The loss of actual or potential customers, a permanent loss of market share, or damage to business reputation have all been characterized as irreparable harm. Irreparable harm has been found where there is unfair competition. In Precision Fine Papers Inc. v. Durkin [2008] O.J. No. 703 (S.C.J.), the court stated:

Cases of unfair competition have often been recognized as ones in which damages may not adequately compensate the plaintiff for the loss suffered due to the defendant’s conduct. Not only is it difficult to quantify the loss of goodwill or market share suffered by the plaintiff due to the defendant’s actions, but the damage to relationships with customers is inherently difficult to assess. In a competitive industry, where there can be considerable fluidity of customer allegiances, it may be difficult for the moving party to establish an accurate measure of damages.

64The evidence presented thus far suggests that this graphite mining and processing industry is at a critical stage and is extremely competitive. Janik and Coscia are in a position to cause serious and irreparable harm to Ontario Graphite, in light of their intimate knowledge of the company’s undertaking, prospective customers, employees and business objectives.

65Ontario Graphite is a private company. Great Lakes Graphite is a publicly traded company with better access to the capital markets. Great Lakes Graphite intends to use cash flow earned through the Matheson Plant to attract investors for its mine development. Ontario Graphite is disadvantaged by the involvement of Janik and Coscia in Great Lakes Graphite’s efforts in this regard.

66In order to get to market, it is critically important that Ontario Graphite continue to attract investor funds, and that it be able to continue to grow its pre-market customer base. The pool of potential investors for graphite industry businesses like Ontario Graphite is relatively small. Companies with inside knowledge of their competitors’ contacts, operations and marketing pitches to investors are poised to inflict maximum damage.

67Ontario Graphite makes use of a confidential market granularity presentation which is largely derived from information compiled by Janik and Coscia, working in concert as employees of Ontario Graphite. Janik and Coscia are intimately knowledgeable about Ontario Graphite’s market granularity presentation and its investor presentation.

68Ontario Graphite is particularly concerned about Great Lakes Graphite’s ability to use Janik and Coscia’s confidential insider information to catapult Great Lakes Graphite into the “first to market” position Ontario Graphite is seeking to achieve. For three years, Janik and Coscia worked closely with other Ontario Graphite employees to develop purification and micronization processes and have now taken over Great Lakes Graphite’s purification and micronization operations. Further, Great Lakes Graphite has taken over operation of the Matheson Plant and has named Janik as the person in charge of that facility. Janik and Coscia are in a position to use information developed at Ontario Graphite’s expense for the benefit of Great Lakes Graphite, the deleterious effects of which Ontario Graphite alleges will be significant.

69Given Janik’s extensive knowledge on taking a pre-operational mine to operation, Ontario Graphite is in danger of losing its lead in the graphite extraction market. Should Ontario Graphite lose it lead in the “first to market” race, it would suffer injuries that could not be adequately measured or compensated by an award of monetary damages.

70I am of the view that Ontario Graphite has shown that it will suffer irreparable harm if injunctive relief is not granted, harm that cannot be compensated for adequately in damages.

Balance of Convenience

71Ontario Graphite has provided an undertaking to pay damages to the Defendants should it be found that its claims fail.

72The Defendants argue that if an injunction is granted they will be put to great inconvenience. They allege that since March 12, 2015 80 per cent of the work required to get the Matheson facility up and running has been completed, at considerable cost to Great Lakes Graphite.

73However, it has been admitted on behalf of Great Lakes Graphite that as of March 12, 2015, it had knowledge that Janik was bound by a non-competition agreement. Ontario Graphite argues that any potential inconvenience to the Defendants arising from the granting of injunctive relief flows directly from their own actions.

74It is obvious that Janik and Coscia would be prevented from working for Great Lakes Graphite if an injunction is granted. However, the terms sought by Ontario Graphite would not prevent Janik or Coscia from earning a living by working for any entity that is not in competition with their Ontario Graphite. The length and extent of such prohibition is not, in my view, unreasonable. In terms of their obligations would still permit them to work elsewhere in the mining industry.

75Further, Ontario Graphite sought agreement from Janik and Coscia as to these apparently reasonable terms of employment due to the intensely competitive nature of its business and the sensitivity as to timing of entry into the marketplace for its products. Janik and Coscia freely agreed to those terms and benefitted from the arrangement.

76Ontario Graphite has been required to pursue its objectives in face of the competitive advantage obtained by Great Lakes Graphite by virtue of their poaching of senior employees who were under restrictions as to their activities and their use of confidential information.

77As a result, I consider that the balance of convenience generally favours Ontario Graphite.

Conclusion

78In view of the apparent and ongoing breaches by Janik and Coscia of their contractual obligations since October, 2014, and the observation that Ontario Graphite has received no value for what it provided to them in return during their employment with it, I consider it only fair and just that Ontario Graphite be entitled to the tolling of the relevant aspects of the injunctive relief it seeks.

79Accordingly, and for these reasons, injunctive relief is granted as follows:

(a) Janik shall be and is hereby restricted from working for Great Lakes Graphite or competing with Ontario Graphite anywhere in Canada for a period of one year from the date of this order, subject to any further order of the Court;

(b) Janik shall be and is hereby restricted from directly or indirectly soliciting any employee or customer of Ontario Graphite for a period of one year from the date of this order, subject to any further order of the Court;

(c) Coscia shall be and is hereby restricted from directly or indirectly working for Great Lakes Graphite or competing with Ontario Graphite anywhere in Canada for a period of six months from the date of this order, subject to any further order of the Court;

(d) The Defendants shall be and are hereby restricted from directly or indirectly disclosing or using Ontario Graphite’s confidential or proprietary information, including all attempts to solicit any of Ontario Graphite’s investors.

80I decline to make the order sought as against Great Lakes Graphite to prohibit its activities at the Matheson facility. There are other parties whose interests would be affected by such an order who are not before the Court. However, Great Lakes Graphite is hereby ordered to provide all such financial and other information relevant to Ontario Graphite’s claims to it forthwith, and to maintain complete and meticulous records of all relevant investment activities, financial expenditures and profits – past, current and future – for production in this action in accordance with Ontario Graphite’s claims, including its claims of breach of confidence (see: Lac Minerals Ltd. V. International Corona Ltd., 1989 CanLII 34 (SCC), 1989 Carswell Ont. 126 (S.C.C.)).

81The parties are to attend forthwith in Civil Practice Court to set a timetable and a date for trial, all of which should proceed on an expedited basis, if possible, and subject to any order of the judge presiding in Civil Practice Court.

Costs

82If costs cannot be agreed upon, written submissions on that subject may be delivered by Ontario Graphite within 20 days of today’s date and by the Defendants within 15 days thereafter.