COURT FILE NO.: CV-17-570437 DATE: 20170523 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Mi5 PRINT & DIGITAL COMMUNICATIONS INC. and 2214264 ONTARIO INC. Plaintiffs – and – CRAIG LARMER, LESLEY ANN SHARPE, LESLEY ANN SHARPE, carrying on business as LCS IMAGING, PYXALIS INC., RONALD MORGAN, BARRIE WILLIAMS and MARVIN FOY MARKETING INCORPORATED Defendants
Counsel: David Rubin, for the Plaintiffs, Mi5 Print & Digital Communications Inc. and 2214264 Ontario Inc. Alex Van Kralingen and Katherine Chau, for the Defendants, Craig Larmer, Lesley Ann Sharpe, and Lesley Ann Sharpe, carrying on business as LCS Imaging D. Jared Brown, for the Defendants, Pyxalis Inc., Ronald Morgan, Barrie Williams and Marvin Foy Marketing Incorporated
HEARD: May 1 and 2, 2017 LEDERMAN J.
Nature of Motion
[1] In broad terms, the plaintiffs (collectively “Mi5”) seek an interlocutory injunction restraining the defendants, inter alia, from soliciting or having any further contact with the clients of the plaintiffs listed in Schedule “A” to the Statement of Claim (“Schedule A”).
[2] The basis for the relief sought is that the defendant, Craig Larmer (“Larmer”), as a senior officer and/or key employee of Mi5, breached the fiduciary duties that he owed to Mi5 by sharing Mi5’s confidential information with the other defendants for his own and their benefit; misappropriating Mi5’s business opportunities for his own benefit and for the benefit of all the defendants; and soliciting the Mi5 clients listed in Schedule “A” and influencing them to send work to the defendants, LCS Imaging or to Pyxalis Inc. (“Pyxalis”) and Marvin Foy Marketing Incorporated (“MFM”) that would otherwise have been directed to Mi5.
Background Facts
[3] Mi5 is in the business of commercial print and digital communications.
[4] In 2009, Mi5 acquired the business of BPG Graphic Solutions (“BPG”) at which Larmer was a sales associate primarily assisting on the Labatt Brewing Company Limited (“Labatt”) business of BPG. Larmer worked under one of the principals of BPG, Paul Bourgon (“Bourgon”) on the Labatt account.
[5] At the time of the acquisition of BPG, an agreement was reached with Bourgon that he would continue on with Mi5 for a number of years in order to maintain the BPG client base, especially work from Labatt, and to assist in a gradual transition of the work managed and overseen by Bourgon to Larmer who would become his replacement.
[6] After Mi5 acquired BPG, Larmer’s employment was continued with Mi5 in its BPG division. Mi5 carried on the BPG name as a legacy in dealing with Labatt.
[7] Larmer had no written contract with either BPG or with his successor employer, Mi5.
[8] Larmer continued in his employment with Mi5 with primary responsibility for Labatt work and assisting Bourgon until Bourgon’s retirement in June 2013. Bourgon mentored Larmer to take over the function as the primary customer service representative serving very important customers of the business of Mi5, the most important of which was Labatt.
[9] Upon Bourgon’s retirement, Larmer assumed the title of Vice-President, Business Development, and became solely responsible for managing the BPG division of Mi5 which included the Labatt business as well as business from Cara Operations Limited (“Cara Foods”) which became a major client of Mi5 beginning in early 2014. Larmer was also instrumental in developing business for Mi5 from clients such as Red Bull and Proximo and a new business opportunity from SirCorp.
[10] Larmer was responsible for directing the work within the BPG division of Mi5. He had complete autonomy in quoting prices, supervising and fulfilling customer contracts and directed a number of Mi5 employees to carry out the assigned work.
[11] To many of Mi5’s clients, and in particular to Labatt and Cara Foods, Larmer was the “face” of Mi5 and was the only contact person within Mi5 that these clients contacted to “work for their projects”.
[12] Larmer generated approximately $3.8 million dollars of the gross sales of Mi5 in 2014 (16.4% of Mi5 sales), $4.2 million dollars of the gross sales of Mi5 in 2015 (16.8% of Mi5 sales) and $3.7 million dollars of the gross sales of Mi5 in 2016 (12.8% of Mi5 sales). The bulk of the sales were attributed to Labatt and Cara Foods.
[13] On December 22, 2016, Larmer abruptly resigned and immediately left the employ of Mi5 without any prior notice. He took with him a computer laptop which had been purchased for him by Mi5. On it, Larmer kept all of the Mi5 clients’ email addresses, contact phone numbers, quotations, project information, advertising layouts and specifications relating to the Schedule “A” clients.
[14] Before he resigned, Larmer had taken steps behind Mi5’s back to go into business for himself. In November, 2016 he had his wife reactivate her business, LCS Imaging. He contacted Mi5 clients and diverted their work to LCS Imaging, as a front and by having Pyxalis and its related company, MFM, carry out the production work on its behalf as third party contractors.
[15] Larmer admits that he began actively conducting business as a print broker through LCS Imaging while still employed by Mi5 and pursued a number of projects for his own benefit from various existing and prospective clients of Mi5 including Labatt, Red Bull, Proximo, Partners for Mental Health and SirCorp to be printed elsewhere.
[16] On the day of his resignation, and for a short time after he left Mi5’s employment, Larmer sent out emails to the Mi5 clients listed in Schedule “A” advising that he had left BPG/Mi5 and directed those Mi5 clients to delete his old BPG/Mi5 email address from their address books. Many of the emails confirmed that he had previously discussed this situation with these clients and that future invoices would be issued by LCS Imaging.
[17] Mi5 only discovered the nature of Larmer’s activities and his association with Pyxalis/MFM after he had resigned, and after noticing the absence of any new work coming in. On January 9, 2017, it gave notice to the defendants that they should cease to use any confidential information of Mi5, cease from competing unfairly with Mi5, and cease having any contact with Mi5 clients listed in Schedule “A”. Mi5 also required that Larmer immediately return the laptop that he still had in his possession without deleting any files or materials.
[18] The laptop was returned on January 12, 2017, and Mi5 sent the laptop to be examined forensically. Larmer had represented that nothing had been deleted or erased from the laptop other than his personal email. Notwithstanding that representation, the forensic examination revealed that Larmer had kept in his possession in the form of electronic records sensitive information which would be beneficial in competing for Mi5 clients and also his solicitation and diversion of clients listed in Schedule “A” before he left Mi5’s employment.
Test for an Interlocutory Injunction
[19] The three part test for granting an interlocutory injunction was set out by the Supreme Court of Canada in RJR MacDonald v. Canada (Attorney General), [1994] 1 S.C.R. 311 at para. 43:
(a) There is a serious question to be tried or in certain circumstances, a strong prima facie case;
(b) The plaintiffs will suffer irreparable harm if the injunction is not granted; and
(c) The balance of convenience favours granting the injunction.
Position of the Defendants
[20] The defendants submit that the injunctive relief sought by Mi5 is an extraordinary remedy involving a significant interference with the defendants’ ability to conduct business and specifically Larmer’s ability to earn a living and the facts do not warrant the imposition of such a remedy.
[21] They point out, among other things, that:
(a) Mi5 continues to receive ongoing business opportunities from many of the Schedule “A” clients;
(b) There have been changes by two major Schedule “A” clients (Labatt and Cara Foods) as to how they approach procurement in that it is now driven by price and shopping the market for print providers for their projects rather than relying on past loyalties. There is no guarantee of ongoing business from existing clients;
(c) Mi5 expressly admits that the profit it has earned from Schedule “A” clients has lessened but has not been totally lost;
(d) By its own admission, Mi5 is “bigger and better” than ever before in that it is more profitable now overall despite Larmer’s conduct;
(e) There is no written employment contract with Larmer and he does not owe any enforceable post-employment contractual or fiduciary duties to Mi5;
(f) Mi5’s alleged losses are entirely quantifiable and any damages suffered by Mi5 are compensable by way of money damages;
(g) There has been delay by Mi5 in bringing this motion;
[22] In addition, the defendants, Pyxalis, Ronald Morgan, Barrie Williams, and MFM (the “Pyxalis defendants”) allege that they believed Larmer was engaged with Mi5 as an independent sales agent receiving commissions and deny any knowledge of any fiduciary duties owed by Larmer to Mi5. They say that Larmer dealt with Pyxalis as an independent print broker whereby he sought quotes from Pyxalis for print jobs for customers on a non-exclusive basis. They assert, as well, that there is no evidence that they came into possession of any confidential information of Mi5.
Serious Issue to be Tried/A Strong Prima Facie Case
[23] Since Mi5 is seeking an interlocutory injunction that will interfere with Larmer and his ability to earn a living, the higher standard of a strong prima facie case is applicable with respect to him. As stated by Nordheimer, J. in Jet Print Inc. v. Kohen, [1999] O.J. No. 286 at para. 11:
In my view, when the injunction sought is intended to place restrictions on a person’s ability to engage in their chosen location and to earn a livelihood, the higher threshold of a strong prima facie case is the more appropriate test to be applied.
[24] Larmer submits that he could not be characterized as a fiduciary. Even though he had the title of Vice-President, he submits that there were a number of other employees who held the position of Vice-President at Mi5 and the title was in name only and used for the purposes of sales promotion. He rarely attended management meetings and did not participate in the strategic direction of the company. He was not designated under s. 133 of the Business Corporations Act as an officer of the corporation by the Board of Directors. Larmer states that he was essentially a commissioned salesperson.
[25] Larmer, however, recognizes that he was the primary point of contact for Mi5 for various representatives within his client base. Mi5 was completely dependent on Larmer’s relationship with these clients and was vulnerable to the actions of Larmer.
[26] Regardless of title, Larmer served as a key employee in whom Mi5 placed a great deal of trust. He operated without direct supervision and with direct and intimate contact and control of the client base. He was given the ability to act unilaterally to bind Mi5’s interest by setting prices and concluding contracts.
[27] What is particularly egregious here is the fact that Larmer approached important customers of Mi5 before he resigned from his employment. He directly solicited work from valued customers of Mi5 while in its employ and diverted business, that would otherwise have gone to Mi5, to himself or to LCS Imaging. He was also appropriating new business opportunities that should have gone to Mi5.
[28] A similar fact situation arose in Metratrade Ltd. v. Lal, 2002 Carswell Ont. 2612 (Ont. SCJ) [Metratrade] where the defendant, while still employed, set up a competing business and diverted sales to that business over seven months before he resigned his employment. In that case, Molloy J. found that the employee fell into the category of “key employee” and that as such he was in a fiduciary relationship to the plaintiff and that he diverted business from customers of the plaintiff while he was still employed by the plaintiff. All of this was done, as in the instant case, in a clandestine fashion and his employer only discovered it after the employee’s departure. Molloy J. found that these activities were a clear breach of his fiduciary responsibilities to his employer in that while employed he took advantage of his position to syphon off business from the plaintiff for his own benefit and contrary to the interests of the plaintiff. The court found that the fiduciary duty not to compete by soliciting customers of the former employer arises at common law, independent of any contract between the parties and independent of whether a confidential list of customer contacts is used.
[29] Further, Larmer used his knowledge and Mi5’s confidential information of Mi5’s customers and their contacts, to target specific people within those organizations with whom he had done business in the past and with whom he had a special relationship. He was under a fiduciary duty to Mi5 not to take these corporate opportunities away from Mi5: See KJA Consultants Inc. v. Soberman, [2002] O.J. No. 489 (S.C.J.) [Soberman].
[30] The parallels with Metratrade and Soberman are evident and accordingly, Mi5 has established a strong prima facie case against Larmer, notwithstanding the lack of any written employment contract.
[31] Larmer suggested that his resignation from employment was really a form of constructive dismissal arising from the effect of changes to Larmer’s working conditions and to his commission plan and failure to pay him $3,000 in commissions that were owing to him. He submits that Mi5’s conduct absolves him from being characterized as a fiduciary. The fact that Larmer may not have received monies that he was entitled to, or that Mi5 was enduring cash flow problems, or that he had a grievance about the change in remuneration, does not relieve him of his fiduciary and/or contractual obligations: see Ontario Graphite Limited v. Janik, 2016 ONSC 716 at para. 58.
[32] With respect to the Pyxalis defendants, there is evidence indicating that they all had actual knowledge of the fiduciary duties owed by Larmer to Mi5 and knew that he was diverting business and business opportunities away from Mi5 while still employed with Mi5 to their individual benefit. They assisted Larmer in using Mi5’s information to carry out work for existing Mi5 clients and customers listed in Schedule “A”.
[33] In particular, the defendant, Ronald Morgan (“Morgan”) who had been a Vice-President himself with Mi5 from July 2013 to April 2014 was well aware of Larmer’s work at Mi5, familiar with his position at Mi5, his clientele and the duties he owed to Mi5. In an email exchange on December 12, 2016, Larmer shared Mi5’s confidential pricing with Morgan. He and the other defendants knew that Larmer was improperly establishing a competing business while still employed at Mi5. They knew why Larmer was sending work to LCS Imaging. They knew that Larmer was directing Labatt/Cara Foods work through Pyxalis/MFM and the work for other clients through LCS Imaging, all the while he was employed at Mi5. They were content to reap the benefit of Larmer’s breach of fiduciary duty.
[34] Thus, there is a strong prima facie case against LCS Imaging and the Pyxalis defendants for providing knowing assistance to Larmer in breaching his fiduciary duty.
[35] It has been held that when a plaintiff has established a strong prima facie case, the plaintiff is entitled to an injunction to restrain further breaches without the requirement of showing irreparable harm and balance of convenience: see Metratrade supra., Khan v. RDMI Inc., (2001), 5 CCEL (3d) 303 (Ont. S.C.J.). Other jurisprudence indicates that these factors should not be ignored but become less important in reaching a final determination: see Industrial Rush Supply & Service Ltd. v. Faria [2003] O.J. No. 475 (S.C.J.).
Irreparable Harm
[36] From November 2016 to April 2017, Mi5’s business from the Schedule “A” clients has fallen off by $1.5 million and the evidence shows a direct connection between these losses and Larmer’s conduct.
[37] Cases of unfair competition have often been recognized as ones in which damages may not adequately compensate the plaintiffs for the losses suffered due to the defendants’ conduct. Apart from the difficulty in quantifying a loss of good will or market share suffered by the plaintiffs, the damage to relationships with customers is inherently difficult to assess.
[38] Mi5 had strong relationships with Labatt and Cara Foods which as a result of the defendants’ actions, have been weakened. It is true that these companies, along with others, are now engaged in a more competitive bidding process for their print contracts but until the improper interference with those relationships by Larmer while he was still employed by Mi5, there is no reason to believe that those strong relationships would not have continued for some time. There is no denying the power of Larmer’s personal relationships with Mi5’s clients. When Larmer left in December 2016, that work almost all evaporated. How one measures that loss to Mi5 is not easily quantifiable in terms of money damages.
[39] Because Mi5 has been deprived of the opportunity to save the relationships with longstanding clients and to take advantage of developing business opportunities with those customers listed on Schedule “A”, it should not lie easily in Larmer’s mouth to say that, notwithstanding a strong prima facie case against him, damages would be an adequate remedy.
[40] In the circumstances, to the extent that it is possible, an injunction should be granted for a reasonable period of time to level the playing field in the way in which it would have occurred had Larmer not breached his fiduciary duties prior to his resignation.
[41] Accordingly, if necessary to make the finding, I would conclude that if an injunction were not granted, Mi5 would suffer irreparable harm.
Balance of Convenience
[42] An interlocutory injunction would give Mi5 a reasonable period of time to try to re-establish the relationships that it had with the Schedule “A” clients.
[43] An injunction would not deprive Larmer of a living or the opportunity to compete with other non-Schedule “A” Mi5 clients. He has the right to earn a livelihood and he would be entitled to solicit business from anyone other than the clients listed in Schedule “A”.
[44] The other defendants can still carry on business with clients that they had before Larmer directed the Schedule “A” clients to them.
[45] The balance of convenience favours Mi5 in that an injunction would in some way address the unfairness arising from Larmer’s conduct with respect to the clients listed in Schedule “A”.
[46] There is a new reality in that Mi5 is no longer the preferred printer for the Schedule “A” clients but must bid competitively for jobs. But the loss of preference occurred because of the unfair competition by the defendants.
[47] The purpose of the injunction is to restore fairness to the situation to the extent possible and restore the status quo that should have been in existence when Larmer left Mi5 in December 2016.
[48] If the injunction is granted, a person with Larmer’s experience and credentials will be able to locate other customers that he can do business with. The balance of convenience therefore favours the granting of the injunction.
[49] The defendants submit that Mi5 has delayed in bringing this interlocutory injunction motion. Mi5 was aware of the facts underlying this motion on at least January 9, 2017 when the demand letter was sent and yet did not commence this motion until March 14, 2017. However, Mi5 was not in a position to seek this relief until Larmer returned the laptop on January 12, 2017 and until it received the results of the forensic examination on February 16 and 22, 2017. Delay of three months to accumulate the evidence cannot be said to be a factor affecting the questions of irreparable harm or balance of convenience.
[50] So as not to interfere unduly with existing projects, Larmer should be restrained from doing any work for a reasonable period of time for the Schedule “A” clients after current projects are concluded. In that way, Mi5 will be given the opportunity during that time to repair the relationship it once had with its Schedule “A” clients before Larmer’s unlawful interference with the relationships.
Conclusion
[51] There will be an interim, interlocutory injunction for a period of one year or until further order of the court enjoining the defendants (subject to existing contracts) from directly or indirectly engaging in any new activities set out in paragraph 2(a)(b) and (c) of the plaintiffs’ Notice of Motion. Further, the defendants are to keep a strict accounting of any outstanding and unfulfilled purchase orders directed to them from any of the clients listed in Schedule “A”. A copy of this order is to be served upon the clients listed in Schedule “A”.
[52] Other than Mi5’s client contact information, there is insufficient evidence of the use of Mi5’s confidential information by the defendants. Such information had been project-specific, and once the projects were completed, did not retain its confidential quality. It does not warrant an injunctive order.
[53] If the parties cannot otherwise agree as to costs of the motion, they may make written submissions: the plaintiffs within 15 days; the defendants’ response within 15 days thereafter; and reply, if any, by the plaintiffs within a further 7 days.
Lederman J. Released: May 23, 2017