Louis Vuitton Malletier S.A. v. Zekria Wakilzada, 2017 ONSC 2409
CITATION: Louis Vuitton Malletier S.A. v. Zekria Wakilzada, 2017 ONSC 2409
COURT FILE NO.: CV-16-554396
DATE: 20170419
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
LOUIS VUITTON MALLETIER S.A. and LOUIS VUITTON CANADA INC.
Plaintiffs/Appellants
– and –
ZEKRIA WAKILZADA, AHMAD SHEKEB HAIDARI, HIGHWAY 27 & ALBION FLEA MARKET CORP., HIGHWAY 27 & ALBION FLEA MARKET INC., 2179042 ONTARIO INC., NITA SINGH, JOHN DOE 1 OPERAING AS FASHION COUTURE FROM THE DIXIE/401 FLEA MARKET AT 5150 DIXIE ROAD, MISSISSAUGA, ONTARIO, JOHN DOE 2 OPERATING AS DUNYA HANDBAGS and/or 4 EVER FASHIONS FROM THE DR. FLEA’S FLEA MARKET AT 8 WESTMORE DRIVE, TORONTO, ONTARIO and JOHN DOE 3 AKA METRA KHALANDARZADA OPERATING AS MOONBERRY FROM THE WESTON ROAD FLEA MARKET AT 404 OLD WESTON ROAD, TORONTO, ONTARIO
Defendants/Respondents
Georgina S. Danzig, and Lorne M. Lipkus for the Plaintiffs/Applicants
Glenn E. Cohen, for the Defendants/Respondents, Highway 27 & Albion Flea Market Corp. and Highway 27 & Albion Flea Market Inc.
HEARD: March 14, 2017
Mr. Justice p. j. cavanagh
Introduction
[1] The Plaintiffs and Appellants, Louis Vuitton Malletier S.A. and Louis Vuitton Canada, Inc. (collectively, “Louis Vuitton”), appeal from the Order of a Master dated November 2, 2016 (the “Order”) striking out four paragraphs of Louis Vuitton’s Statement of Claim.
[2] The paragraphs were struck out on a motion brought by Highway 27 & Albion Flea Market Corp. and Highway 27 & Flea Market Inc. pursuant to Rule 25.11. The Master concluded that (i) the facts pleaded in these paragraphs are irrelevant and, therefore, scandalous and, (ii) an exploration of the facts pleaded in these paragraphs would unduly expand the scope of discovery and trial and would prejudice the fair trial of the action.
[3] The question to be decided on this appeal is whether the Master erred in law and exercised his discretion on wrong principles. The parties agree that the standard of review on this appeal is correctness.
[4] For the reasons that follow, I have decided that the Master erred in principle in striking out the paragraphs of the Statement of Claim and that the appeal should be allowed.
Background
[5] This action involves claims by Louis Vuitton in respect of the advertisement, offering for sale and/or sale of counterfeit Louis Vuitton merchandise at Dr. Flea’s Flea Market in Toronto (the “Flea Market”). The action involves two different types of defendants: those who are vendors who carry on business from various flea market locations; and those that own, operate, supervise and/or control the flea markets from which vendors offer goods for sale to the public. In its claim, Louis Vuitton alleges, among other things, that Highway 27 & Albion Flea Market Corp. and Highway 27 & Flea Market Inc. (the “Landlords”) are the owners and/or the parties responsible for operating, supervising and controlling the Flea Market, a location from which a variety of vendors, including several named defendants (the “Vendors”), offer for sale and sell counterfeit goods.
[6] Louis Vuitton alleges that the Landlords knowingly and/or with means of knowledge and/or intentionally and/or negligently, by their actions or by their omissions, permitted and/or facilitated the unabated advertisement, offering for sale and/or sale of counterfeit Louis Vuitton merchandise from the flea market by the Vendors, causing harm to Louis Vuitton.
[7] In the Statement of Claim, Louis Vuitton seeks, among other things, declarations that:
a. the Landlords knew and/or ought to have known and/or were wilfully blind to the fact that the Vendors have been and are dealing in counterfeit Louis Vuitton merchandise at the Flea Market;
b. the Landlords failed or refused to take reasonable action to stop the Vendors from dealing in counterfeit Louis Vuitton merchandise at the Flea Market;
c. the Landlords knew and/or ought to have known and/or were wilfully blind to the fact that their actions caused or contributed to the harm suffered by Louis Vuitton;
d. the Landlords knowingly and/or with means of knowledge and/or intentionally and/or negligently, by their actions or by their omissions, permitted and/or facilitated the unabated dealing in counterfeit Louis Vuitton merchandise from the Flea Market;
e. the Landlords conspired with the Vendors and/or others, or procured or induced the Vendors and/or others to deal in counterfeit Louis Vuitton merchandise from the Flea Market, and/or the Landlords, or one or more of them, joined in the common design being the infringement of Louis Vuitton’s intellectual property; and
f. the Landlords are directly liable, vicariously liable and/or contributorily liable for the Vendors’ dealing in counterfeit Louis Vuitton merchandise at the Flea Market.
[8] Louis Vuitton also seeks damages from the Landlords as a consequence of their direct liability for the infringement of Louis Vuitton’s intellectual property and/or as a consequence of the Landlords’:
a. Negligence;
b. Vicarious liability for the harmful conduct of the Vendors; and/or
c. Contributory trademark infringement and/or copyright infringement.
[9] In paragraphs 81 to 84 of the Statement of Claim (the “Paragraphs”), Louis Vuitton has pleaded the following:
The Landlord of the Dr. Flea’s Flea Market has been made aware that counterfeit merchandise has been and is being offered for sale and sold at the Dr. Flea’s Flea Market since at least November 2008, when criminal search warrants were executed at the Dr. Flea’s Flea Market resulting in the seizure of counterfeit merchandise.
In April 2012, the Toronto Police Service again executed a criminal search warrant at the Dr. Flea’s Flea Market leading to the seizure of a reported approximately, $1 million worth of counterfeit merchandise including clothing, toys, handbags, wallets and pirated DVDs. Included within that seizure was Counterfeit Louis Vuitton Merchandise. At least 16 booths at Dr. Flea’s Flea Market were alleged to have been selling counterfeit products.
Notwithstanding the engagement of law enforcement in 2008 and 2012, the sale of counterfeit merchandise, including Counterfeit Louis Vuitton Merchandise, continued unabated at the Dr. Flea’s Flea Market. Accordingly, in or about November 2015, the police once again executed criminal search warrants at the Dr. Flea’s Flea Market and seized a wide variety of counterfeit merchandise including Counterfeit Louis Vuitton Merchandise, from The Fashion Couture Group operating at the Dr. Flea’s Flea Market.
Despite the execution of criminal search warrants at the Dr. Flea’s Flea Market on no less than 3 occasions, respecting the sale of counterfeit merchandise, and despite the repeated services of cease and desist letters upon Dr. Flea’s Vendors (including but not limited to The Fashion Couture Group) this flea market continues to permit its vendors, to offer for sale, advertise for sale and to sell, counterfeit merchandise, including Counterfeit Louis Vuitton Merchandise, from its premises.
[10] The Landlords brought a motion before the Master seeking, among other things, an order striking out the Paragraphs pursuant to Rule 25.11 of the Rules of Civil Procedure.
[11] In his endorsement, the Master:
a. identified the claim against the Landlords as based on a duty of care to not infringe on the intellectual property rights of Louis Vuitton and to take positive steps to stop the Vendors from selling counterfeit Louis Vuitton merchandise, or liability for the infringement of the intellectual property rights of Louis Vuitton based on a variety of causes of action including negligence, vicarious liability for the Vendors’ infringement of Louis Vuitton trademarks or their own infringement of Louis Vuitton trademarks.
b. wrote that any material facts that can be proven to support these causes of action can be pleaded, but if not relevant to the cause of action pleaded, or if inserted for colour, can be struck under rule 25.11(b) as scandalous or under rule 25.11(a) if they would prejudice or delay the fair trial of the action.
c. concluded that, while knowledge is an important ingredient of the cause of action, what is relevant to Louis Vuitton’s cause of action against the Landlords is knowledge that the Vendors were selling and advertising counterfeit Louis Vuitton merchandise. The Master wrote that “[k]nowledge generally of the sale of counterfeit merchandise is not a fact to be proven for [Louis Vuitton’s] claims”.
d. concluded that general pleas of counterfeit knowledge but not specifically of Louis Vuitton’s merchandise, being irrelevant to the cause of action, are scandalous.
e. concluded that an exploration of all knowledge, including search warrants, of all counterfeit merchandise unduly expands the scope of discovery and trial and would prejudice the fair trial of the action.
f. disagreed with the Landlords that the Paragraphs could not be remedied by leave to amend. The Master wrote that Louis Vuitton could set out material facts that go to the cause of action pleaded, if they restrict the plea to Louis Vuitton merchandise.
The Master made an order that paragraphs 81 to 84 of the Statement of Claim are struck with leave to amend.
Analysis
Standard of Review
[12] Louis Vuitton appeals the Order on the basis that the Master (i) exceeded his jurisdiction, (ii) failed to apply the correct test, and (iii) exercised his discretion on the wrong legal principles.
[13] The parties agree that the standard of review of the Order is correctness: Zeiton v. Economical Insurance Group, 2008 CanLII 20996 (ON SCDC), 2008 CarswellOnt 2576 (Div. Ct.) at paras. 40-41; 2009 ONCA 415, 96 O.R. (3d) 639 (C.A.).
Legal Principles in Relation to Rule 25.11 Motions
[14] Rule 25.11 states:
The court may strike out or expunge all or part of a pleading or other document, with or without leave to amend, on the ground that the pleading or other document,
(a) may prejudice or delay the fair trial of the action;
(b) is scandalous, frivolous or vexatious; or
(c) is an abuse of the process of the court.
[15] The parties have cited several cases that address well settled principles concerning the purpose of pleadings in an action. In Balanyk v. University of Toronto, 1999 CanLII 14918 (ONSC) the court, at paragraph 46, expressed that the purpose of pleadings is to (a) give precise notice to the opposite party of the case which is to be met, sufficient to enable the opposite party to plead; (b) assist the court in understanding the material facts alleged and the factual and legal issues in dispute between the parties; and (c) establish a benchmark against which the parties and the court may determine the relevance of evidence on discovery and at trial and the scope of the evidence which will be required to fairly and efficiently address the issues in dispute.
[16] In Cerqueira v. Ontario, 2010 ONSC 3954, Strathy J. (as he then was) stated some of the general principles governing pleadings, at para. 11. These principles include (a) that every pleading must contain a concise statement of the material facts on which the party relies but not the evidence by which those facts are to be proved; (b) a party may not plead irrelevant, immaterial or argumentative facts, or facts that are inserted only for colour; (c) any fact that can affect the determination of rights between the parties can be pleaded, but the court will not permit facts to be alleged that are immaterial or irrelevant to the issues in the action; and (d) the court may strike part of a pleading, with or without leave to amend, under rule 25.11.
[17] In Quizno’s Canada Restaurant v. Kileel Developments Ltd., (2008) ONCA 644 the Court of Appeal reviewed the application of rule 25.11 as it applies to a motion to strike out a pleading (as opposed to an affidavit or other document). The Court of Appeal addressed the approach to be taken on such a motion where the pleaded allegations are of marginal relevance, and wrote that where allegations are relevant and material, the court should exercise the power to strike pleadings with considerable caution. In relation to rule 25.11 the Court of Appeal wrote, at para. 16, that pleadings are not the appropriate stage in an action to engage at large in what is essentially a trial judge’s exercise for determining the admissibility of evidence at trial, that is, weighing the probative versus the prejudice of facts. In Quizno’s, the Court of Appeal decided that the motion judge had erred in striking out paragraphs of the pleading that, in her view, had marginal probative value, and that it was not for the court to “prune” the case at the pleadings stage.
Did the Master Err in Principle?
[18] Louis Vuitton submits that:
a. The facts pleaded in the Paragraphs are material facts that support what it submits is a novel extension of the theory of vicarious liability to a landlord arising from its tenant’s sale of counterfeit merchandise.
b. The Master lacked jurisdiction to decide whether the statements in the Paragraphs are necessary to support the novel application of vicarious liability.
c. The Master failed to apply the correct legal test and exercised his discretion on the wrong principles.
d. The facts pleaded in the Paragraphs (i) are relevant and, therefore, not scandalous; (ii) do not unduly expand the scope of discovery; and (iii) do not prejudice the fair trial of the action.
[19] Louis Vuitton submits that the references in the Paragraphs to the execution of warrants resulting in the seizure of counterfeit merchandise other than Louis Vuitton merchandise at the Flea Market are relevant and essential to Louis Vuitton’s claim, and that these references particularize events that satisfy the necessary elements and address the policy considerations required to establish a novel application of vicarious liability.
[20] Louis Vuitton cited Chanel v. Lam Chan Kee Co., 2016 FC 987 as an example of a case in which the court considered instances of infringement of trademarks other than the plaintiff’s trademark as relevant to a landlord's knowledge of wrongdoing. Chanel was a case involving claims in relation to the sale of counterfeit merchandise. The Federal Court found that the former owners and landlords of a business dealing in counterfeit merchandise was liable. In reaching its conclusion, the Federal Court took note of evidence that the landlords were aware of other infringements of trademarks other than the plaintiff’s trademark and considered this to be relevant to the knowledge by the landlords of their legal obligations: Chanel, at paras. 48-49.[^1]
[21] The Landlords submit that the Master was correct in striking the Paragraphs although they submit that his reasons for making this order are too narrow. The Landlords submit that the Paragraphs (i) are a pleading substantially of evidence that has no factual connection or causal connection to the loss or damages claimed; (ii) have no probative value, are irrelevant, and tend to colour or inflame; (iii) are not connected to Louis Vuitton’s claims for damages, and that their inclusion will unduly expand the discovery process. The Landlords submit that the cases cited by Louis Vuitton, including Chanel, are distinguishable, and that there is no secondary trade mark infringement law recognized in Canada.
[22] In my view, the Master erred in principle when he decided that the Paragraphs should be struck out as scandalous under rule 25.11.
[23] I agree with Louis Vuitton’s submission that the necessary elements for a cause of action founded upon vicarious liability are unsettled, and may change depending upon the application of this doctrine and the underlying policy considerations to new situations: Bazley v. Curry, 1999 CanLII 692 (SCC), [1999] 2 S.C.R. 534 at paras. 26-36. There was no case cited that established that a landlord’s knowledge generally of tenants’ activities dealing with counterfeit merchandise is a relevant fact. However, there was also no authority cited that established that such knowledge is not relevant.
[24] The Master acknowledged in his reasons that “knowledge is an important ingredient of the cause of action”. He then expressed his agreement with the Landlord that “what is relevant to the Plaintiffs’ cause of action against Dr. Flea’s is knowledge that the vendors were selling and advertising counterfeit LV merchandise”. In my view, the Master fell into error when he then wrote that “[k]nowledge generally of the sale of counterfeit merchandise is not a fact to be proven for the Plaintiffs’ claims” and by concluding based upon this statement that general pleas of counterfeit knowledge but not specifically of the Plaintiffs’ merchandise are irrelevant to the cause of action and, therefore, scandalous.
[25] In my view, the Master erred in principle by first asking whether it was necessary for Louis Vuitton to plead facts to show general knowledge by the Landlord of the sale of counterfeit merchandise by the Vendors (by writing that knowledge generally of the sale of counterfeit merchandise is “not a fact to be proven” for Louis Vuitton’s claims). The proper question was not whether it was necessary for Louis Vuitton to so plead, but whether it was permissible for Louis Vuitton to so plead. By focusing initially and, in my view, incorrectly, on what was necessary for Louis Vuitton to plead, the Master then erred by concluding that other facts showing general knowledge by the Landlord of sales of counterfeit merchandise by the Vendors were not necessary and were, therefore, irrelevant and scandalous.
[26] The Master’s error was of the same kind as was identified by the Court of Appeal in Quizno’s, at para. 30, where Court of Appeal wrote that the motion judge incorrectly applied a test that called upon the court to decide whether material and relevant allegations may nonetheless be struck out because it is “not necessary” to plead them. The Court of Appeal in Quizno’s regarded this error as one in principle.
[27] If I have misunderstood the Master’s meaning when he wrote that knowledge generally of the sale of counterfeit merchandise is not a “fact to be proven”, and he intended to conclude that this fact is not just unnecessary, but could have no possible probative value at trial to support the claims of Louis Vuitton, then I respectfully disagree. The Master did not analyze the causes of action pleaded by Louis Vuitton to identify the necessary elements, and he did not explain why knowledge generally by the Landlords of the sale of counterfeit merchandise at the Flea Market could not be relevant. The Master did not cite authority to support a conclusion that general knowledge by the Landlord of the sale of counterfeit merchandise is irrelevant to the cause of action pleaded by Louis Vuitton.
[28] The law is not settled on whether knowledge generally by a landlord of dealings in counterfeit merchandise by tenants is relevant to a given trade mark owner’s claim against the landlord based upon principles of vicarious liability. For this reason, it was an error for the Master to decide this question at the pleadings stage on a rule 25.11 motion. The admissibility of evidence at trial and the proper scope of discovery in relation to such knowledge should be decided when these questions arise based upon a more complete record than was before the Master: Quizno’s at para. 16.
[29] The Master also concluded that, if the Paragraphs were not struck out, the scope of discovery and trial would be unduly expanded and this expansion would prejudice the fair trial of the action. I respectfully disagree. A court may strike out portions of a pleading, even where the allegations are relevant, if the moving party can establish that they are of marginal probative value and their probative value is outweighed by their prejudicial effect. However, where the pleaded allegations are relevant and material, the court should exercise this power with considerable caution: Quizno’s at para. 15.
[30] If, as I have concluded, the Master erred in principle in deciding at the pleadings stage that the facts pleaded in the Paragraphs are irrelevant to the causes of action advanced by Louis Vuitton then it would be a palpable and overriding error to strike out the Paragraphs at the pleadings stage on the ground that their probative value is so marginal and limited that it is outweighed by their prejudicial effect. It is not for the court at this stage to prune the case and limit the facts that can be pleaded: Quizno’s at paras. 23, 29 and 30.
Disposition
[31] For the foregoing reasons, I would allow the appeal and set aside the Master’s order striking out the Paragraphs.
[32] If the parties are unable to agree on costs, Louis Vuitton may make brief written submissions not longer than four pages (excluding the costs outline) within 30 days. The Landlords may make responding submissions not longer than four pages within 15 days thereafter. If so advised, Louis Vuitton may make reply submissions not longer than two pages within 10 days thereafter.
Mr. Justice P.J. Cavanagh
Released: April 19, 2017
CITATION: Louis Vuitton Malletier S.A. v. Zekria Wakilzada, 2017 ONSC 2409
COURT FILE NO.: CV-16-554396
DATE: 20170419
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
LOUIS VUITTON MALLETIER S.A. and LOUIS VUITTON CANADA INC.
Plaintiffs/Appellants
– and –
ZEKRIA WAKILZADA, AHMAD SHEKEB HAIDARI, HIGHWAY 27 & ALBION FLEA MARKET CORP., HIGHWAY 27 & ALBION FLEA MARKET INC., 2179042 ONTARIO INC., NITA SINGH, JOHN DOE 1 OPERAING AS FASHION COUTURE FROM THE DIXIE/401 FLEA MARKET AT 5150 DIXIE ROAD, MISSISSAUGA, ONTARIO, JOHN DOE 2 OPERATING AS DUNYA HANDBAGS and/or 4 EVER FASHIONS FROM THE DR. FLEA’S FLEA MARKET AT 8 WESTMORE DRIVE, TORONTO, ONTARIO and JOHN DOE 3 AKA METRA KHALANDARZADA OPERATING AS MOONBERRY FROM THE WESTON ROAD FLEA MARKET AT 404 OLD WESTON ROAD, TORONTO, ONTARIO
Defendants/Respondents
REASONS FOR decision
Mr. Justice P.J. Cavanagh
Released: April 19, 2017
[^1]: I do not cite this case as one that establishes liability for secondary trademark infringement and I note that the Landlords submit that the facts in Chanel are materially different from the facts pleaded by Louis Vuitton because the individual who sold counterfeit goods was the directing mind of the corporate defendant that owned the premises from which the goods were sold.