2017 ONSC 3499

Court File and Parties

COURT FILE NO.: CV-11-437362 MOTION HEARD: 2017-05-25 and 2017-05-29 REASONS RELEASED: 2017-06-06 SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN:

2287913 ONTARIO INC., TREBAR HOLDINGS INC., 2234406 ONTARIO INC. and ARCTIC SPAS OAKVILLE INC. Plaintiffs/Defendants by Counterclaim

- and-

ERSP INTERNATIONAL ENTERPRISES LTD., BREAK THROUGH ENTERPRISES LTD., KELLNER CONSULTING LTD., LIQUID LOGIC LTD., ECHO SOLUTIONS INCOPORATED, PARADISE BAY SPA & TUB WAREHOUSE INC., SPA LOGIC INC., BLUE FALLS MANUFACTURING LTD., ARCTIC SPAS INC., JOHN KEIRSTEAD, JAMES KEIRSTEAD, DARCY AMENDT, DENNIS KELLNER and BRENT MACKLIN Defendants/Plaintiffs by Counterclaim

BEFORE: MASTER M.P. McGRAW

COUNSEL: H.R. Bennett and J. Figliomeni Emails: hrbennett@rickettsharris.com and jfigliomeni@rickettsharris.com -for the Plaintiffs/Defendants by Counterclaim

A.M. Fischer and A.L. Sherrard Emails: allyson-fischer@hicksmorley.com and amy-sherrard@hicksmorley.com -for the Defendants/Plaintiffs by Counterclaim

REASONS RELEASED: June 6, 2017

Reasons For Endorsement

I. Background

The Motion

[1] This is a motion by the the plaintiffs/defendants by counterclaim (collectively, the “Plaintiffs”) pursuant to Rules 31.06 and 31.07(4) of the Rules of Civil Procedure to compel the defendants/plaintiffs by counterclaim (collectively, the “Defendants”) to answer undertakings, questions taken under advisement and refusals arising from the examinations for discovery of Dennis Kellner, Darcy Amendt, James Keirstead and Brent Macklin held on September 13-16 and December 19, 2016.

[2] The Plaintiffs also seek to compel the Defendants to serve a further and better affidavit of documents pursuant to Rule 30.03(5) and for certain Defendants to re-attend on examination for discovery pursuant to Rule 31.03(1). As set out below, the issues with respect to this relief was substantially resolved by agreement between the parties during submissions.

[3] This motion proceeds pursuant to the Order of the Honourable Mr. Justice Myers dated April 10, 2017 who is overseeing scheduling issues with respect to the Plaintiffs’ proposed summary judgment motion. Pursuant to my case management responsibility for this matter, case conference calls were held on April 20, April 25 and May 17, 2017.

[4] At the first case conference, the Plaintiffs’ motion related to approximately 55-60 undertakings, under advisements and refusals. The Defendants completed examinations for discovery of the Plaintiffs on April 21, 2017, and Defendants’ counsel advised during the first two case conferences that there were approximately 275 undertakings, under advisements and refusals which would likely result in the Defendants bringing their own motion.

[5] Therefore, I explored the possibility of scheduling both motions for the same time, on consecutive days or within a matter of days before the end of May or in early June. This may have furthered the interests of proportionality and efficiency by limiting the number of court attendances and providing certain efficiencies and clarity in materials and submissions given the inevitable overlap on certain issues.

[6] However, while the Plaintiffs’ examinations were completed in September 2016 and the Plaintiffs’ motion was ready to proceed, there had been insufficient time to even finalize the list of questions with respect to the Defendants’ examinations let alone provide the Plaintiffs with an opportunity to answer them and/or provide positions and prepare motion materials.

[7] Moreover, Justice Myers’ direction is clear that the Plaintiffs are entitled to proceed with their motion regardless of the timing of the Defendants’ examinations for discovery and any overlap between the parties’ motions. As further set out in Justice Myers’ direction, there is a deadline of June 30, 2017 to set this action down for trial and the Plaintiffs require leave to move for summary judgment after they set the action down for trial. Resolution of the issues on the motion before me is required for the Plaintiffs to consider their procedural options prior to June 30.

[8] Therefore, I concluded that the Plaintiffs’ motion should proceed as expeditiously as possible while putting some checkpoints in place to move the issues with respect to the Defendants along concurrently. With the assistance of counsel, I scheduled dates for the Plaintiffs’ motion and established a timetable for the exchange of materials while building in deadlines for counsel to exchange charts and positions on all outstanding questions related to both motions with a view to resolving and/or narrowing as many of the disputed issues as possible. It was also agreed that I would convene a case conference at the conclusion of the Plaintiffs’ motion to address next steps including the Defendants’ proposed motion.

[9] By the return of the Plaintiffs’ motion, the number of outstanding undertakings, under advisements and refusals was reduced to 27 and it proceeded with respect to these items. During the first day of submissions, counsel for the Defendants requested an adjournment of the items in Group 1 and Group 2 (set out below) on the basis that there is significant overlap between these items and the outstanding questions from the Defendants’ examinations of the Plaintiffs which may be the subject of the Defendants’ motion. Defendants’ counsel submitted that she would be arguing “in a vacuum” without first receiving certain information and documentation from the Plaintiffs. The Plaintiffs objected.

[10] For the same reasons as I originally concluded that the Plaintiffs’ motion should proceed set out above, I denied this adjournment request. I attempted to accommodate both motions and was unable to do so. Any issues with respect to the timing of these proceedings arising from the proposed summary judgment motion and the June 30, 2017 set-down date can be addressed with Justice Myers. This court’s role is to resolve or determine the issues before me with a view to moving these proceedings forward in an expeditious and efficient manner. As set out below, there are questions and items which the Defendants have already agreed to answer and information they have already agreed to provide which would assist the parties in doing so.

The Action

[11] Pursuant to a dealership agreement between the plaintiff Arctic Spas Oakville Inc. (“ASOI”) and the defendant Blue Falls Manufacturing Ltd. (“Blue Falls”), ASOI operated 7 retail locations throughout Southwestern Ontario between 2001-2011 where ASOI sold and marketed Arctic Spa hot tubs and related accessories manufactured by Blue Falls. Like many typical arrangements between manufacturers and dealers, Blue Falls manufactured Arctic Spa products, granted ASOI a license to use associated trade-marks and artistic works and provided warranty support and training while ASOI was responsible for retail sales and servicing.

[12] From 2001-2010, the defendants James Keirstead, John Keirstead, Darcy Amendt, Brent Macklin and Dennis Kellner were the beneficial owners of Blue Falls. In 2010, John Keirstead sold his 20% ownership interest to the four remaining partners. From 2006 onwards, the defendant ERSP International Enterprises Ltd. (“DRSP”) and Trevor Wasney, through his holding company, the plaintiff Trebar Holding Inc. (“Trebar”), each held 50% interests in ASOI. James Keirstead and John Keirstead were officers, directors and shareholders of both Blue Falls and ERSP.

[13] The dealership agreement expired on December 31, 2010. The parties were unable to agree on the terms of a written renewal dealer agreement. The Defendants allege that the inability to enter into a new dealer agreement was caused by the Plaintiffs’ refusal to agree to an exclusivity provision.

[14] In March 2011, ERSP expressed concerns that the Plaintiffs were selling products of Blue Falls’ competitors and offered to purchase Trebar’s interest in ASOI. This offer was rejected and in July 2011, Trebar purchased ERSP’s 50% interest in ASOI (the “Buy-Out”). On or about July 1, 2011, ERSP, the Keirsteads and certain other companies in which they held ownership interest entered into a Non-Competition, Non-Solicitation and Confidentiality Agreement (the “Non-Compete”), pursuant to which they agreed not to compete against ASOI or solicit ASOI’s customers for a period of 3 years.

[15] On September 27, 2011, without notice and without stating the reasons, Blue Falls terminated its dealership agreement and/or arrangement with ASOI. On October 5, 2011, Mr. Macklin incorporated the defendant Arctic Spas Inc. (“ASI”) as Blue Falls’ new Southwestern Ontario dealer. ASI opened its first retail location approximately 1 block from ASOI’s head office and warehouse in Burlington, Ontario. The Plaintiffs allege that in setting up ASI, the Defendants solicited employees, customers and technicians of ASOI.

[16] The Defendants’ state that Blue Falls terminated the dealership relationship with the Plaintiffs as a result of: the Plaintiffs’ alleged breach of the exclusivity provisions of the dealership agreement; a high volume of warranty claims from ASOI which raised suspicions of fraudulent or improper warranty claims; and acrimony created by ASOI amongst other Blue Falls dealers. The Defendants state that the termination was unrelated to the Buy-Out.

[17] The Defendants also take the position that Mr. Macklin, ASI, Blue Falls, Mr. Amendt and Mr. Kellner were not parties to the Buy-Out and the Non-Compete and therefore were not bound by its terms.

[18] In their Amended Statement of Claim dated April 12, 2012, the Plaintiffs claim general damages of $10,000,000 and punitive damages of $1,000,000 for, among other things, breach of contract, fraudulent misrepresentation, conspiracy, breach of fiduciary duty and breach of duty of good faith and fair dealing.

[19] In their Amended Statement of Defence and Counterclaim dated April 24, 2012 (the “Counterclaim”), the Defendants claim damages of $7,000,000 for breach of the dealer agreement and a related licensing agreement and trade-mark and copyright infringement and punitive damages of $500,000.

Documentary and Oral Discovery

[20] The volume of documents produced, requested and available for production in these proceedings is beyond voluminous. To date, over 2,000 documents have been produced on a piecemeal basis. The Defendants are currently in the process of delivering additional productions, and both parties seek additional documents which in some cases number in the tens of thousands. There are over 100,000 documents which may be relevant and/or available for production.

[21] The sheer volume of documents has been complicated by ongoing disputes with respect to their production and the production of additional information arising from examinations for discovery. This has resulted in numerous motions and court attendances. The parties have attended before Justice Myers 4 times and attended 11 times before Master Hawkins prior to his retirement for motions, directions and orders with respect to the Plaintiffs’ proposed summary judgment motion and documentary and oral discovery. This is in addition to at least 3 other court attendances before other Judges.

[22] These attendances included a motion by the Plaintiffs which resulted in the Order of Master Hawkins dated June 27, 2016, granted on consent (the “Hawkins Order”), pursuant to which the Defendants were required to deliver an affidavit of documents with all productions and to produce copies of certain documents by July 31, 2016, some of which remain at issue on this motion. The Hawkins Order also set a deadline for examinations for discovery and awarded costs to the Plaintiffs of $3,000.

[23] Pursuant to the Order of Justice Myers dated November 14, 2016 (the “Myers Order”), the Defendants were required to provide answers to all undertakings except those from the examination of Mr. Macklin by December 6, 2016.

[24] The Plaintiffs also brought a motion seeking the production of documents arising from an electronic keyword search of ASOI’s e-mails and computers by Duff & Phelps agreed to by the parties. By Order of Master Hawkins dated March 7, 2017, granted on consent, except as to costs, dates were set for examinations of the Plaintiffs and the Plaintiffs were required to deliver a further Supplementary Affidavit of Documents including all relevant documents from the keyword search. Master Hawkins ordered the Plaintiffs to pay costs of $10,000.

II. The Law and Analysis

Generally

[25] Rule 31.06 of the Rules of Civil Procedure provides that:

(1) A person examined for discovery shall answer, to the best of his or her knowledge, information and belief, any proper question relevant to any matter in issue in the action….

[26] Rule 31.07(4) of the Rules of Civil Procedure states that nothing in the Rules relieves a party who undertakes to answer a question from the obligation to honour the undertaking.

[27] In considering the submissions of the parties and arriving at my conclusions, I have considered and relied on Rule 29.2.03 of the Rules of Civil Procedure which sets out the proportionality factors which apply to both oral and documentary discovery:

(1)In making a determination as to whether a party or other person must answer a question or produce a document, the court shall consider whether,

(a) the time required for the party or other person to answer the question or produce the document would be unreasonable;

(b) the expense associated with answering the question or producing the document would be unjustified;

(c) requiring the party or other person to answer the question or produce the document would cause him or her undue prejudice;

(d) requiring the party or other person to answer the question or produce the document would unduly interfere with the orderly progress of the action; and

(e) the information or the document is readily available to the party requesting it from another source.

(2) In addition to the considerations listed in subrule (1), in determining whether to order a party or other person to produce one or more documents, the court shall consider whether such an order would result in an excessive volume of documents required to be produced by the party or other person.

[28] Relevance, the scope of discovery and proportionality were explained and applied comprehensively by Perell J. in Ontario v. Rothmans Inc., 2011 ONSC 2504 and Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2013 ONSC 917. In particular, discovery questions must be relevant to the issues as defined by the pleadings such that they must have probative value and adequately contribute to the determination of the truth or falsity of a material fact. Overbroad and speculative discovery and “fishing expeditions” are not permitted.

[29] I am also necessarily guided by Rule 1.04(1) of the Rules of Civil Procedure which provides that the Rules of Civil Procedure shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits and Rule 1.04(1.1) which requires the court to make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.

[30] Given the volume of documents already produced, requested and available, the time and cost required to produce them along with other information, and the need to move these proceedings forward in short order, the proportionality factors and the principles set out in Rule 1.04 resonate loudly in the present case.

[31] The 27 undertakings, under advisements and refusals in dispute are divided into three (3) groups (the Item numbers correspond with the chart attached as Schedule “A” to the Plaintiffs’ Notice of Motion):

i.) Group 1 – 3 questions related to the Defendants’ allegations that the Plaintiffs filed fraudulent and/or improper warranty claims;

ii.) Group 2 – 4 undertakings related to damages claimed by the Defendants as a result of the Plaintiffs’ alleged copyright and trade-mark infringement;

iii.) Group 3 – 20 questions refused by the Defendants on the basis of relevance or other grounds.

Group One

[32] Group 1 is comprised of Items 54, 55 and 56 from the examination for discovery of Mr. Amendt. Items 54 and 56 are requests taken under advisement to produce all documents relating to all warranty claims that ASOI made between 2001 and 2011 and to identify which warranty claims are allegedly fraudulent, the basis for the alleged fraud and the amount which the plaintiffs are said to have profited from the alleged fraud.

[33] Item 55 is an undertaking which arises from Questions 752-754 of Mr. Amendt’s examination:

Q. And you’re saying now, if I heard you right, that they were fraudulent?

A. Yes, a number of them were.

Q. A number of them. What number; do you know?

A. No, I do not know. Would you like me to find that out?

Q. Absolutely. I mean, you’re making a very serious allegation, so we’d like to have all the particulars and details.

A. Okay.

[34] This allegation arose again later in Mr. Amendt’s examination at Questions 836-841 and 847 with respect to one particular product, the Onzen system:

Q. So you’re saying that Mr. Wasney, you believe, instructed his technicians to file false claims?

A. Yes.

Q. And it was supposedly done deliberately by Mr. Wasney?

A. Yes.

Q. And you say that the claim is false because there’s no actual damage that occurred to the Onzen system?

A. In some cases.

Q. And you have records of all of the claims that were submitted with respect to Onzen, I take it?

A. Yes.

Q. Will you undertake to produce them all?

A. I already agreed to.

Q. Good. And will you identify which specific claims you say are fraudulent and the basis of the alleged fraud? Can you do that for me, please?

MS. FISCHER: Under advisement.

Q. So what I’d like when you’re going through your records is to show me for each particular part where you say the amount of money is that Mr. Wasney and his company profits from, can you undertake to do that?

MS. FISCHER: Under advisement.

[35] In addition, the Hawkins Order, which the Defendants consented to over two months prior to Mr. Amendt’s examination for discovery, provides as follows:

“2. The Defendants shall serve copies of the following relevant documents by July 31,

2016:

(e) All warranty claims of the Plaintiff Arctic Spas Oakville Inc. (“ASOI”):

(i) That have been denied by Blue Falls;

(ii) About which Blue Falls “had serious concerns”; and

(iii) That Blue Falls has determined are improper.

(f) Summary data in respect of the number of ASOI’s warranty claims and the number of worldwide warranty claims.”

[36] On December 6, 2016, in response to the undertaking given by Mr. Amendt at Item 55, the Defendants advised as follows:

“Blue Falls is not taking the position that the warranty claims were fraudulent. However, at the present time, Blue Falls has located 18 warranty claims made by ASOI which it believes were inaccurate and/or false. Any further evidence will be provided in accordance with the defendants ongoing obligations”

[37] With respect to the under advisement at Item 54, the Defendants advise that all warranty claims from 2001-2005 were paper based and were discarded prior to the commencement of this action. They state that ASOI made 17,727 warranty claims from 2005-2011 the documentation from which would require almost 600 hours to retrieve and generate over 100,000 documents. The Defendants refuse to produce all warranty claims documents on the basis that it would be disproportionate given the time and effort it would take to do so and the large number of documents which would be generated.

[38] On May 15, 2017, the Defendants then advised that they could not answer their undertaking at Item 55 until they received certain warranty information from the Plaintiffs:

“Blue Falls has made best efforts to answer this undertaking based on the warranty information in its possession. However, after reviewing that information, Blue Falls determined that in order to provide further particulars of false warranty claims, the Defendants require warranty information which is in the possession of the Plaintiff.”

[39] With respect to Items 55-56, the Defendants now submit that in order to respond to these requests, they first require the Plaintiffs’ service logs from the Plaintiffs’ information management system, Evosus, including daily task reports of all technicians from 2009-2011 and audit logs including all accompanying notes and documentation so that they can compare the instructions given to the service technicians with the corresponding warranty claims submitted. Defendants’ counsel submits that this request overlaps with their discovery of Mr. Wasney and related motion.

[40] In an effort to narrow the parties’ various requests and responses, I asked the parties to clarify what documents had already been produced with respect to Items 54-56. After considerable discussion, effort and submissions, some of which spilled over into the second day of the motion, counsel were finally able to confirm that the following documents have already been produced by the Defendants in their Affidavits of Documents and otherwise which are responsive and/or partially responsive to these 3 Items and paragraphs 2(e)-(f) of the Hawkins Order:

i.) a 600-plus page listing of all ASOI warranty claims for the dealership period;

ii.) a 2-page summary of ASOI’s warranty claims history with data comparing ASOI’s warranty history with the global warranty history;

iii.) A USB key with a spreadsheet containing warranty claims which may or may not overlap with the 600-page listing;

iv.) a sample of a warranty report document attached to Mr. Amendt’s affidavit.

[41] The Plaintiffs submit that that Defendants have not fully complied with the Hawkins Order and have not provided the information they undertook to provide in Item 55. However, to address any concerns regarding proportionality and overlap, the Plaintiffs propose that, in satisfaction of Items 54-56: the Defendants should first identify the 18 warranty claims which the Defendants stated on December 6, 2016 they had located which they believe are inaccurate and/or false; the Plaintiffs will in turn produce the relevant service records for these 18 warranty claims; and the Defendants will then use the service records to produce the relevant documentation regarding the 18 warranty claims in the Defendants’ possession or control.

[42] The Defendants refuse to agree to this proposal and continue to take the position that given the overlapping issues, they require all of the service log information set out above, which they requested on Mr. Wasney’s examination for discovery (and which they cited in support of their adjournment request). The Plaintiffs state that the Defendants’ proposal would require the Plaintiffs to review over 30,000 service calls for the period 2009-2011 and produce over 100,000 documents from Evosus.

[43] In my view, the Plaintiffs’ proposal is a reasonable and practical resolution to the requests at Items 54, 55 and 56. Identifying the 18 warranty claims which are relevant to the allegations made by the Defendants in the Counterclaim and then exchanging the documents related to these 18 claims is a proportionate, efficient and relatively inexpensive way to advance the issues in dispute.

[44] The Defendants have already identified the 18 warranty claims they believe were improper. It is not clear to me why they are not willing to provide this information consensually particularly given the requirements of the Hawkins Order, their undertakings and the Myers Order. When pressed, counsel for the Defendants acknowledges that the Defendants identified the 18 warranty claims from reviewing warranty claim information on their information management system, Inside Arctic, which the Defendants say appeared to have been cut and pasted or copied, raising their suspicions. Counsel submits that the Defendants need the service call information from Evosus to cross-reference information from Inside Arctic. However, this begs the question why the information which the Defendants have already located or identified, including the allegedly suspicious cut and paste records, have not already been produced in satisfaction of their ongoing discovery obligations or as provided for in the Hawkins Order, their undertakings or the Myers Order.

[45] The Plaintiffs’ proposal requires the Defendants to identify the 18 warranty claims, something they have already done. Once the Defendants receive the service call documentation from the Plaintiffs for these 18 claims, then they can review and produce relevant documentation with respect to only the 18 warranty claims. By contrast, the Defendants’ own proposal is a disproportionate request which would shift an unreasonable burden to the Plaintiffs while avoiding the Defendants’ existing obligations and agreements. In my view, rather than resisting the Plaintiffs’ proposal, the Defendants should be embracing it, particularly since it is arguable that they previously agreed to broader production in the Hawkins Order and in their undertakings.

[46] Regardless of what the Defendants agreed to do or intended by their consent to the Hawkins Order and the undertakings given on Mr. Amendt’s discovery, or whether or not the Defendants have complied with the Hawkins Order or provided responsive information and documents to these undertakings, the court’s role here is to find the most proportionate, efficient and least expensive way forward. The Plaintiffs’ proposal presents such a way.

[47] Therefore, based on my conclusions above, the Defendants shall provide the Plaintiffs with the identity of the 18 warranty claims which the Defendants allege and/or believe are inaccurate and/or false within 5 days. The Plaintiffs shall then produce to the Defendants all service call documentation from Evosus and otherwise which is relevant to these 18 warranty claims within 5 days of receipt of the identity of the 18 claims. The Defendants shall then produce to the Defendants all relevant documentation including from Inside Arctic with respect to the 18 warranty claims within 7 days of receipt of the service call information from the Plaintiffs. Any further questions and/or requests for additional documents can be addressed between counsel or asked on re-attendance at examination for discovery.

Group Two

[48] Group 2 is comprised of Items 60-63, all of which are undertakings from Mr. Amendt’s examination for discovery related to alleged profits earned by the Plaintiffs and damages incurred by the Defendants as a result of the alleged trade-mark and copyright infringement by the Plaintiffs.

[49] Items 60 and 61 arise from Questions 1334-1336 of Mr. Amendt’s examination:

Q. My question was, is that the extent of what you say the profit is that was earned by my client as a result of its alleged wrongdoing?

A. I need to think of that – think about whether that’s the only thing. But obviously buying stuff, selling it to people, saying it’s from us when it’s not, it was definitely one way, for sure.

Q. You’ll let me know what evidence you have of that profit?

A. Yes.

Q. All the particulars, every specific item that you say my clients earned a profit from?

MS. FISCHER: Yes, and part of that will be based on his productions, counsel, as well.

MR. BENNETT: It will be what, based?

MS. FISCHER: On his productions as well.

MR. BENNETT: Can you point to me by undertaking what exactly in the productions that entails.

MS. FISCHER: We’ll do.

[50] The Defendants now submit that they cannot respond to the undertakings in Items 60-61 until the Plaintiffs first produce copies of their financial statements from 2010 to the date of trial and any customer invoices from ASOI which bear the names “Arctic Spas” or “Arctic” from the termination date to trial. The Defendants have requested that these documents be produced on Mr. Wasney’s examination for discovery and this may be an issue on the Defendants’ motion.

[51] Counsel for the Defendants handed up a copy of one invoice which they obtained from a customer which they allege demonstrates copyright and trademark infringement by the Plaintiffs. The Defendants submit that there may be more such invoices, perhaps hundreds, all of which are in the possession or control of the Plaintiffs. The Defendants submit that they cannot identify all evidence upon which they rely with respect to their damage claim until they receive any such documents from the Plaintiffs.

[52] What the Defendants’ position ignores is that they have already agreed to identify what productions they rely on for their damage claim related to trade-mark and copyright infringement but have not done so. Defendants’ counsel advises that the Defendants have already produced a wealth of documents, including photographs of signage, that the Defendants submit demonstrate that the Plaintiffs misled the public by, among other things, leading the public to believe that they continued to be an authorized Arctic Spa dealer. This being the case, the Defendants should fulfil their undertakings in Items 60-61 to identify any productions which they rely upon by identifying all current productions which have already been made, by both the Defendants and the Plaintiffs, upon which they rely. They have already been provided with financial statements from 2012-2015 which may be helpful in their efforts. While it is not ideal, it is consistent with the piecemeal production of information to date and will, at the very least, keep the process moving forward.

[53] Items 62 and 63 arise from Questions 1342-1349 of Mr. Amendt’s examination:

Q. You allege that Blue Falls, and the way you’ve pleaded, every single of the Defendants have suffered a loss of reputation, goodwill, market share and revenues. Do you see that?

A. Okay.

Q. Okay. Market share, are you saying customers went to Jacuzzi from ASOI, is that what you’re alleging?

A. Yes, that customers were directed from Arctic brand to Jacuzzi brand.

Q. Okay, and you’ll give me all of the details on each and every customer you say that happened to by undertaking, please?

MS. FISCHER: If we’re able to, yes.

Q. And are you saying that but for, but for that customer going to Jacuzzi, that customer would necessarily have stayed with or acquired a Blue Falls’ product?

A. No, what I’m say (sic) is that our brand was used to drive traffic to websites and stores and then they were sold other product. And the reason that they went to these store’s websites is because of our brand.

Q. So it’s that other product that was sold that makes up of lost revenue?

A. Yes.

Q. And you’re saying – are you alleging that had those customers not been driven to Jacuzzi those customers would have done what, gone to Blue Falls?

A. Well, if they are looking for Arctic brand, because the marketing indicates that Arctic brand is available in a certain location, and they don’t buy Arctic brand, yes, I would think that one of our dealers would have sold them something, generated that revenue and we in turn would have generated revenue.

Q. Okay. You’ll give me all the evidence you have to support your notion that those people would have bought Arctic Spa? Yes?

A. I will do what I can.

[54] Similar to Items 60-61, the Defendants submit that they cannot answer the undertakings at Items 62-63 until the Plaintiffs produce details of their post-termination advertising and marketing efforts and communications and distribution lists for any advertising and written customer communications. I note that Defendants’ counsel and Mr. Amendt qualified these undertakings by agreeing to do what they can.

[55] Counsel for the Plaintiffs urges me to draw broader, substantive conclusions based on the record in support of the Plaintiffs’ position that they should not be required to produce any of the post-termination documents sought by the Defendants. Based on the doctrine of first use set out in Coca-Cola Ltd. v. Pardhan, 1999 FCA 303, the Plaintiffs submit that there can be no “use” of the Defendants’ trademarks with respect to the sale of used Arctic Spa equipment acquired by ASOI on trade-ins. The Plaintiffs further submit that the sale of certain after-market Arctic Spa products purchased by ASOI from HST Synthetics, an after-market manufacturer, does not infringe any trade-marks and ASOI has never resold replacement spa covers as “Arctic Spa” covers unless they were purchased from ASOI prior to termination.

[56] In my view, it is unnecessary and inappropriate to draw these conclusions on this motion. The Plaintiffs are essentially asking this court to make a finding with respect to the merits of the Defendants’ claim without a full evidentiary record. Counsel states that the Plaintiffs are only asking me to do so for the purposes of this motion. However, more importantly, invoices and other documents in the possession of the Plaintiffs of the kind sought by the Defendants may be relevant and properly producible. If these issues are not otherwise resolved, they may be issues for the Defendants’ motion. They are not relevant to this one.

[57] It is consistent with what the Defendants have already agreed to do, and in furtherance of proportionality and efficiency that the Defendants identify what productions they can now which support their damage claims, based on productions made to date. As the parties produce more documents, the Defendants can continue this process, including any documents which may be produced by the Plaintiffs as a result of the Defendants’ motion.

[58] Based on my conclusions above, the Defendants shall identify what productions, both their own productions and the Plaintiffs’ productions, they rely upon with respect to their allegations of profits earned by the Plaintiffs and damages incurred by the Defendants with respect to the Plaintiffs’ alleged trade-mark and copyright infringement within 5 days. Further questions can be asked on re-attendance on discovery and further productions made and identified on an ongoing basis.

Group Three

[59] Group 3 consists of 20 questions refused by the Defendants largely on the basis of relevance. As set out below, some of these questions have been resolved, at least for the time being, through the agreement of counsel based on in-court discussions. In all cases where there have been agreements, I am satisfied that what the Defendants have agreed to do is reasonable, proportionate and responsive at this time to advance the outstanding Items in question.

[60] Item 4 – This is a refusal by the Defendants to produce the Minute Book of ERSP arising from the examination for discovery of James Keirstead on the basis that it is not relevant. The Plaintiffs submit that ERSP executed the Non-Compete which binds its affiliates and that ERSP’s minute book may reveal the identity of ERSP’s affiliates. After considerable discussion, the Defendants agreed to provide the Plaintiffs with a list of ERSP’s affiliates. The Defendants shall produce this list within 5 days.

[61] Items 5 and 7 – These are 2 under advisements from the examination for discovery of Mr. Macklin related to the production of Mr. Macklin’s phone records for his extension at Blue Falls and his cellular phone in order to identify when he received calls from or made calls to certain individuals. The Defendants have made inquiries of Blue Falls’ IT department which has confirmed that they are unable to identify when specific calls were made to or from specific extensions. Mr. Macklin has received his cellular phone records and is in the process of making best efforts to identify dates and times he received or made calls to/from the list of individuals provided by the Plaintiffs. I conclude that best efforts are being made and no order is required.

[62] Items 10 and 11 – These are 2 refusals arising from Mr. Macklin’s examination for discovery in which the Plaintiffs request how much ASI paid to send out letters to ASOI’s former customers and who paid for these letters. The Plaintiffs submit that this is relevant to their conspiracy claim. The Defendants state that the questions are not relevant, do not advance any issues in the litigation and are not proportionate particularly given other information and evidence already provided regarding these letters, including Mr. Macklin’s confirmation that ASI sent the letters and Items 13-15 below. In my view, these requests, which appear to relate to the costs of stationary and mailing, do not advance any issues (including the conspiracy claim), are not probative and are disproportionate given that the time, effort and cost it would take to obtain information likely far exceeds the costs in question. These costs are also likely dwarfed by the Plaintiffs’ significant claim for damages and larger, more relevant requests already agreed to (including Items 13-15 below). The Defendants are not required to provide this information.

[63] Items 13, 14 and 15 – These are 3 questions taken under advisement with respect to the same customer letters discussed above. The Plaintiffs have requested, and the Defendants have agreed, to cross-reference the list of former ASOI customers who were sent letters by ASI with ASI’s sales records and advise how many former ASOI customers purchased products from ASI, how much they spent and related information. This is a labour intensive task which the Defendants estimate will take 14 full days to complete. The Defendants have agreed to provide this information within 30 days of a full-time or temporary staff member (if hired) commencing this work. The Plaintiffs seek a concrete deadline. In the circumstances, I am satisfied that the Defendants are currently making best efforts to provide this information but that they shall provide an estimated commencement date for this work within 5 days.

[64] Items 16, 17 and 18 - These are 3 questions refused by the Defendants with respect to the any sales made by and commissions paid on behalf of ASI to Frank McCarthy and Mike Tompkin, employees of Blue Falls. The Plaintiffs submit that this is relevant to their allegations of a conspiracy as these individuals are employees of an alleged co-conspirator. The Defendants submit that information regarding sales by Mr. McCarthy and Mr. Tompkin is not relevant or proportional given that the overall sales information and numbers has been or will be provided. In my view, although the larger sales information has been or may be provided, information and evidence regarding specific Blue Falls employees who may have participated in the conspiracy is relevant and may be probative to the conspiracy allegations. I also do not believe that sales information related to only 2 employees is unduly onerous to obtain. The Defendants shall provide this information within 30 days.

[65] Items 23, 26, 27, 28 and 29 – These 5 items relate to questions refused by the Defendants with respect to Jim Becker, a former ASOI employee and a current Blue Falls dealer in Kitchener-Waterloo, and Dave Benjafield, a current Blue Falls dealer in Barrie. The Plaintiffs have requested that the Defendants contact Mr. Becker and ask him when Mr. Macklin conducted training for him at ASI’s offices in Burlington (Item 23). The Defendants have already advised that the training took place after ASI’s office opened and that the specific date is not relevant. I agree. Item 23 is answered. In Items 26-29, the Plaintiffs request that the Defendants contact Mr. Becker and Mr. Benjafield and advise how many of their current customers are former ASOI customers and the amount of sales generated, and additionally, to ask Mr. Becker if he was given any customer information from Blue Falls in order to be able to send out customer mailings (Item 26). The Defendants submit that they should not be required to make these inquiries given that as dealers, Mr. Becker and Mr. Benjafield are independent contractors, are not parties to this litigation, the requests may involve personal, private or otherwise confidential information and the Plaintiffs can bring a motion under Rule 30.10 of the Rules of Civil Procedure to seek any records from these non-parties. In my view, all of this information sought by the Plaintiffs with respect to Mr. Becker and Mr. Benjafield is relevant and, although they are non-parties, there are not entirely divorced from the Defendants given that they are active dealers and Mr. Becker is a former Blue Falls employee. In any event, it is appropriate and proportionate for the Defendants to make best efforts to request the information sought in items 26-29 and depending on what, if anything is produced, the Plaintiffs can bring a 30.10 motion if necessary. Any personal, private or otherwise confidential information can be dealt with by way of redaction or confidentiality agreement for the purposes of discovery. Therefore, the Defendants shall make best efforts to obtain this information from Mr. Becker and Mr. Benjafield within 30 days.

[66] Items 39, 40 and 41 – These 3 Items are refusals by the Defendants to provide documentation and information with respect to Hollandia Pools and Spas (“Hollandia”), a Blue Falls dealer located in London, Ontario, including sales information, when it became a dealer and a copy of its dealership agreement. The Defendants have already advised as to the date when Hollandia became a dealer and advise that they do not have a copy of Hollandia’s dealership agreement (they have produced all others in their possession or control). Further, the Defendants state that any further information regarding Hollandia is not relevant given that Hollandia was outside of ASOI’s former territory. The Plaintiffs submit that it was. It would seem to me that there should be a document(s) which provides whether or not Hollandia is in ASOI’s former territory. Counsel should be able to resolve the territorial issue by further exchange of documents. In my view, there is nothing further for the Defendants to answer and no order is required. Further questions regarding Hollandia and additional documents which may be relevant can be asked and requested upon re-examination to the extent to which counsel do not deal with this separately.

[67] Item 57 - This Item is a refusal by the Defendants to acknowledge on James’ Keirstead’s examination for discovery that Mr. Wasney is entitled to protection under the Non-Compete on the basis that this would require Mr. Keirstead to make a legal conclusion. After numerous legal submissions, counsel for the Defendants conceded that the Defendants may be prepared to answer a re-worded question. As set out in Rothmans, questions regarding a party’s legal position are proper. Therefore, the revised question that the Defendants shall answer within 15 days is whether it is the Defendants’ position that Mr. Wasney is entitled to protection under the Non-Compete.

Further and Better Affidavits of Documents

[68] The Plaintiffs submit that not all of the Affidavits of Documents served by the Defendants include a signed Lawyer’s Certificate. The Defendants have agreed to provide executed Lawyer’s Certificates for any Affidavits of Documents which have not already been provided. This should not be an issue given that it is required under Rule 30.03(4) of the Rules of Civil Procedure and Mr. Amendt states in his affidavit that all of the Defendants are aware of their production obligations under the Rules. The Defendants shall provide any outstanding Lawyer’s Certificates within 5 days and all future Affidavits of Documents shall include signed Lawyer’s certificates.

Re-Attendance on Examination for Discovery

[69] The Plaintiffs seek to compel certain of the Defendants to re-attend on examinations for discovery. The Defendants have agreed to do so and the parties only need to agree on which Defendants will re-attend and when. The parties have agreed that the re-attendance(s) will take place after the Defendants have produced the forthcoming additional documents. To address concerns regarding travel costs, the parties have agreed to consider re-attendance by video conferencing or Skype.

III. Disposition

[70] Order to go as follows:

i.) the Defendants shall provide the Plaintiffs with the identity of the 18 warranty claims which the Defendants allege and/or believe are inaccurate and/or false within 5 days. The Plaintiffs shall then produce to the Defendants all service call documentation which is relevant to these 18 warranty claims within 5 days of receipt of the identity of the 18 claims. The Defendants shall then produce to the Defendants all relevant documentation with respect to these 18 warranty claims within 7 days of receipt of the service call information from the Plaintiffs;

ii.) the Defendants shall advise the Plaintiffs what productions, both their own productions and the Plaintiffs’ productions, they rely upon with respect to their allegations of profits earned by the Plaintiffs and damages incurred by the Defendants with respect to the Plaintiffs’ alleged trade-mark and copyright infringement within 5 days;

iii.) the Defendants shall provide the Plaintiffs with a list of ERSP’s affiliates within 5 days;

iv.) the Defendants shall provide the Plaintiffs with an estimated commencement date for the work related to the cross-referencing of ASI customer letters with ASI sales records (Items 13,14 and 15) within 5 days;

v.) the Defendants shall advise the Plaintiffs of the number of sales made and commissions paid on behalf of ASI to Frank McCarthy and Mike Tompkin within 30 days;

vi.) the Defendants shall make inquiries of Jim Becker and Dave Benjafield regarding how many current customers of their dealerships are former ASOI customers and the amount of sales generated from such customers and shall ask Mr. Becker if he was given any customer information from Blue Falls in order to be able to send out customer mailings and respond within 30 days on a best efforts basis;

vii.) the Defendants shall advise whether it is the Defendants’ position that Mr. Wasney is entitled to protection under the Non-Compete within 15 days;

viii.) the Defendants shall provide any unsigned Lawyer’s Certificates for Affidavits of Documents already served within 5 days and shall serve all future Affidavits of Documents with signed Lawyer’s Certificates;

ix.) the Defendants shall re-attend on examinations for discovery on terms to be agreed to by counsel or as otherwise ordered by the court;

x.) the balance of the relief sought by the Plaintiffs on this motion (Items 5,7, 10, 11, 23, 39, 40 and 41) is dismissed.

[71] A process for dealing with the costs of this motion can be addressed at the upcoming case conference call referenced below.

IV. Case Conference

[72] At the conclusion of the motion, I convened a brief case conference to address next steps, specifically, the status and potential scheduling of the Defendants’ motion and a timetable for the exchange of materials. Counsel advised that it would be more productive to schedule another case conference call within days of the release of these Reasons For Endorsement. This will provide the parties with additional time to exchange further answers and/or positions on the undertakings, under advisements and refusals which may be the subject of the Defendants’ motion and to consider the effect, if any, of these Reasons For Endorsement on the Defendants’ motion or the timing of future steps in these proceedings.

[73] I am available for a case conference call on the following dates and times: Thursday, June 8 (2 p.m.-4 p.m.); Friday, June 9 (2 p.m.-5 p.m.); Monday, June 12 (9:30 a.m.-3:00 p.m.); Tuesday, June 13 (2 p.m. – 5 p.m.) and Wednesday, June 14 (9:30 a.m.-4:00 p.m.). Counsel for the Plaintiffs shall schedule the case conference call through Jacqui Soutar at the Masters Administration Office and make the appropriate arrangements.

Released: June 6, 2017

Master M.P. McGraw