Court File and Parties
COURT FILE NO.: CV-18-603787-00CL
DATE: 20190315
SUPERIOR COURT OF JUSTICE – ONTARIO
APPLICATION UNDER section 248 of the Business Corporations Act, R.S.O. 1990, c. B.16 and Rule 14.05(3) of the Rules of Civil Procedure.
RE: Martin Galligan, Applicant
AND:
Angoss Software Corporation, Datawatch Corporation, 2617421 Ontario Inc. and Peterson Partners (BVI) VI, L.P., Respondents
BEFORE: L. A. Pattillo J.
COUNSEL: Chris Trivisonno and Shara N. Roy, for the Applicant Matthew Karabus, for the Respondents
HEARD: March 11, 2019
ENDORSEMENT
Introduction
[1] There are two motions before the court:
a) The respondents, Angoss Software Corporation (“Angoss”), Datawatch Corporation (“Datawatch”), 2617421 Ontario Inc. (“2617421”), and Peterson Partners (BVI) Vi, LP (“Peterson Partners”) move for an order striking out the Notice of Application and in the alternative staying the Application and remitting the matter to Grant Thornton LLP, the valuator appointed by the parties and dismissing the Application against Datawatch, 2617421 and Peterson Partners (the “Dismissal/Stay Motion”).
b) The applicant, Martin Galligan (“Galligan”) moves for an order that Angoss produce to him all documents related to the January 30, 2018 transaction in which Datawatch through 2617421, its wholly owned subsidiary, acquired all of the outstanding capital stock of Angoss from Peterson Partners (the “Production Motion”).
Background
[2] In March 2015, Galligan and Angoss entered into a settlement agreement (the “Agreement”) concerning Angoss’ termination of Galligan as its President and CEO on June 9, 2014. The Agreement provided in part that Angoss would purchase the shares and options Galligan and related parties had in Angoss (the “Galligan Shares”) and provided two alternative methods by which the price of the Galligan Shares would be determined:
i. If prior to January 1, 2016, Peterson Partners (the majority owner of Angoss) entered into a binding agreement to sell all of its shares in Angoss at a price in excess of $1.00 a share, then the price of the Galligan Shares would be determined in accordance with a formula set out in the Agreement; or
ii. If prior to January 1, 2016, Peterson Partners did not enter into a binding agreement to sell all of its shares in Angoss at a share price in excess of $1.00 per share, then Galligan had the right to either accept the price previously determined by Angoss or he could request that a valuation be conducted to determine the fair market value of the Galligan Shares at the agreed valuation date of June 30, 2014.
[3] On December 30, 2015 and in the absence of Peterson Partners entering into an agreement to sell its shares of Angoss, Galligan exercised his right to proceed with a valuation.
[4] Section 2 of the Agreement deals with the purchase of Galligan Shares. Specifically, Section 2(d) deals with the procedure if Galligan requests a valuation, including: agreeing on a mutually acceptable valuator; sharing the costs of the valuator equally; the valuator would be instructed by both parties, with copies to the opposite parties; the valuation date was June 30, 2014 (the “Valuation Date”) and the valuation would be final and binding on all parties and not subject to appeal or judicial review. In particular, Section 2(d)(iv) provided as follows:
iv. The valuator will be entitled to consider any information it considers relevant in accordance with accepted valuation principles including:
Angoss’ financial results up to June 30, 2014;
Angoss’ pre-going private transaction financial results;
Any pre-valuation date expressions of interest, LOI’s, proposals etc. from third parties to Angoss;
Any previous transactions involving Angoss, including the going private transaction;
The fairness opinion delivered by Evans and Evans for the going private transaction;
Any business plans/forecasts created by Angoss that existed as at June 30, 2014;
Any comparable transactions in the marketplace as at June 30, 2014; and
Any minority and liquidity discounts;
[5] On April 1, 2016, counsel for Galligan wrote to Dennis Leung at Grant Thornton LLP confirming that he would be the valuator (the “Valuator”). The letter essentially set out the terms of the valuation as agreed by the parties in Section 2 of the Agreement. In addition to the items set out in Section 2(d)(iv) above, counsel added a ninth item: “Any and all materials related to efforts by Angoss to market the company in 2015, including presentations, valuation materials, financial statements and forecasts.”
[6] On September 7, 2016, the parties entered into an Engagement Letter with Grant Thornton which provided for the terms of engagement for the valuation in addition to or in conjunction with the terms set out in the April 1, 2016 letter. The Engagement Letter attached Grant Thornton’s standard terms and conditions as Appendix “A”. The Engagement Letter provided, among other things, that the Valuator would provide a draft report; the parties would supply written comments within 15 days of delivery which would include confirmation that they had reviewed the draft in detail and that other than information provided by them in their written submissions, they had no knowledge of any facts that had not been disclosed in the draft which they believed could materially affect the valuation.
[7] The Letter further provided that prior to issuing the final report, the parties would confirm in writing that the information they provided to Grant Thornton was fair and accurate and “No information or knowledge of any facts or material public information not specifically noted in our draft report has been withheld from us which would reasonably be expected to affect the conclusions expressed herein.”
[8] On November 6, 2017, the Valuator delivered his Draft Report.
[9] On January 5, 2018, the Valuator delivered his Final Report which concluded that an estimated midpoint fair market value of Angoss as of the Valuation Date was CAD$14,550,000 and an estimated midpoint fair market value of the Galligan Shares was CAD$860,000.
[10] On January 17, 2018, and in accordance with the Agreement, Angoss paid the amount determined by the Valuator for the Galligan Shares to Galligan, following which the full and final releases executed by Galligan and related parties on the one hand and Angoss and Peterson Partners on the other were released from escrow and provided to the opposite parties.
The Datawatch Transaction
[11] On January 30, 2018, Datawatch announced that 2617421 had acquired all of the issued and outstanding shares of Angoss for USD$24.5 million in an all cash transaction.
[12] Shortly thereafter, on February 2, 2018, Galligan’s counsel wrote to Angoss’ counsel by email and requested that Angoss and Peterson Partners produce all of the materials relating to the Datawatch transaction. It was Galligan’s position that the transaction “would and should result in a material adjustment to the share value (indeed, a multiple) on which the award to Mr. Galligan was just reached by Grant Thornton.” The email contained the following non-inclusive list of the information and materials requested:
Date of first approach by or on behalf of Datawatch to Angoss, or vice-versa;
Copies of all communications between the parties and/or their representatives;
Particulars of all due diligence conducted;
Access to the data room provided by Angoss to Datawatch (virtual or real) and confirmation that no contents have been removed, altered or amended in any way;
All projections, valuations, pro forma and other financial data provided;
All decks, PowerPoint presentations, Confidential Information Memoranda (CIMs) or other presentations provided directly or indirectly to Datawatch and/or made available to any other potential acquirers;
Identity of all professional advisors to Angoss with respect to the sale, including legal, valuation, accounting and financial, copies of all engagement letters and confirmation of dates on which each was retained;
All materials in the power, possession or control of Angoss with respect to the valuation on which the sale was based, including calculations as to share value;
All other materials necessary to properly inform us, and Mr. Leung’s team about this transaction and its impact.
[13] On the same day, Galligan’s counsel forwarded the email to the Valuator and advised that “it may very well be that we will need you to require Angoss and Peterson Partners to produce the relevant materials.”
[14] Angoss refused to produce the documents on the ground that because the Datawatch transaction took place some 3 ½ years after the Valuation Date, the information was not relevant.
[15] On August 22, 2018, Galligan commenced this Application seeking, among other things, declarations that Angoss had breached both the Agreement by failing to disclose the Datawatch transaction and its written confirmation to the Valuator that it had produced all relevant materials and information to the Valuator. In addition, Galligan seeks an order requiring the respondents to pay Galligan an amount necessary to place him in the position he would have been in but for the respondents’ breaches of contract and oppressive conduct. The Application also seeks an order requiring the respondents to produce all documents related to the Datawatch transaction.
Galligan’s Production Motion
[16] Galligan’s motion seeks an order requiring Angoss to produce to him all documents related to the Datawatch transaction. The grounds in support set out the list of materials set out in counsel’s February 2, 2018 email. Before me Galligan submits that Angoss has an obligation to produce the materials requested pursuant to the Engagement Letter and the subsequent confirmation it provided to the Valuator prior to release of the Final Report. Galligan further submits that he has a right to test whether the materials provided to Datawatch were inconsistent with those Angoss provided to the Valuator. While he is not opposed to the Valuator determining relevance, Galligan submits that the Valuator needs all of the materials requested in advance. Otherwise he would be making the decision of relevance “in a black box.”
[17] In response, Angoss submits that the materials are not relevant and should not be required to be produced. It submits and the evidence confirms, that the earliest date that the Datawatch transaction would have been known was May 2017 almost three years after the Valuation Date. The sale transaction which subsequently evolved closed on January 30, 2018, some 3½ years after the Valuation Date.
[18] Angoss submits that the issue of whether the materials requested are relevant to the valuation of Angoss’ shares as at Valuation Date, is an issue that the parties agreed the Valuator should decide. Further, they submit that the lengthy list of materials requested by Galligan do not have to be produced in advance. Rather the Valuator can make the decision of whether the Datawatch transaction is relevant to the question of the valuation of the Galligan Shares based on the information which has been produced concerning the timing of the Datawatch transaction.
[19] I agree that the issue of whether the production of the Datawatch documents as requested by Galligan should be produced centers on the determination of whether the Datawatch transaction is relevant to the valuation of Galligan’s Shares as at the Valuation Date having regard to accepted valuation principles.
[20] Given the parties’ Agreement and specifically Section 2(d)(iv), whereby the parties agreed that the Valuator was authorized to consider any information it considered relevant in determining the valuation of the Galligan Shares, in my view, the issue of the relevance of the Datawatch transaction to the valuation of the Angoss shares as at the Valuation Date is one that the parties agreed should be determined by the Valuator in accordance with accepted valuation principles.
[21] Nor in my view do the requested materials have to be produced in advance as Galligan submits to enable the Valuator to make a decision. The decision for the Valuator is whether consideration of the Datawatch transaction is relevant to the valuation of the Galligan Shares. The authority of the Valuator is such that if he considers that, apart from the information of the timing of the Datawatch transaction, additional information is required for the determination of relevance, Section 2(d)(iv) of the Agreement gives the Valuator the authority to “consider any information it considers relevant in accordance with accepted valuation principles.” It is the Valuator’s decision as to what information he should consider, not Galligan’s or, for that matter, the court’s.
[22] Further, and notwithstanding that the Valuator has delivered the Final Report of valuation, based on the terms of the Engagement Letter, I am satisfied that the Valuator has the authority to address the Datawatch issue to determine whether information concerning it would have impacted on the valuation.
[23] Accordingly, Galligan’s motion is dismissed. The issue of the relevance of the Datawatch transaction to the determination of the value of the Galligan Shares as at the Valuation Date shall be determined by the Valuator in accordance with accepted valuation principles. The Valuator has complete discretion as to which documents, if any, he requires be produced to enable him to make that decision. As per the Agreement, the parties are entitled to make submissions to the Valuator on the issue, with copies to the opposite party and the costs of the Valuator shall be split 50/50.
The Respondents’ Dismissal/Stay Motion
[24] In seeking to strike the Notice of Application, the respondents rely on rule 21.01 of the Rules of Procedure. They submit that the Application is frivolous or vexatious or otherwise an abuse of process on the basis that the sale of Angoss shares three years after the Valuation Date is clearly irrelevant to the valuation. Further they submit that the court has no jurisdiction to determine the issues in the Application given the grant of exclusive jurisdiction to the Valuator. Finally they submit that the Notice of Application should be struck against Datawatch and Peterson Partners as disclosing no reasonable cause of action or as an abuse of process.
[25] Pursuant to rule 14.09, the court has jurisdiction to strike out an application pursuant to rule 21.01. See: Martin v. Ontario, [2004] O.J. No. 2247 (SCJ) at paras. 6 – 10.
[26] Galligan has consented to a dismissal of the Application against 2617421. There is no contractual relationship between Galligan and Datawatch and/or Peterson Partners. The claim asserted in the Notice of Application against those entities is for production of the documents Galligan seeks in the Production Motion.
[27] In Langleys Ltd. v. Martin (1924), 25 O.W.N. 596 (C.A.), Middleton J.A. noted at p. 597: “Ever since Wilson v. Church (1878), 9 Ch. D. 552, it has been uniformly held that it is improper to join a defendant for the purpose of obtaining discovery.” In MacRae v. Lecompte, 1983 CanLII 3052 (Ont. HC) at para. 21, Reid J., in dealing with a motion for joinder and after reviewing a number of cases, including Langleys, concluded that they established that a person should not be joined for the sole purpose of discovery when the same discovery may be had from existing parties.
[28] As noted by Farley J. in National Trust v. Furbacher, [1994] O.J. No. 2385 (Gen. Div. [Commercial List]) at para. 7, vexatious actions include those brought for an improper purpose. In my view, Galligan’s claim against Datawatch and Peterson Partners for discovery is clearly brought for an improper purpose, particularly when it is clear from the Notice of Application that Galligan seeks the same discovery of documents from Angoss with whom he had a contractual relationship. Galligan has advanced no evidence to indicate why production of the documents from Angoss will not be sufficient (assuming they are relevant).
[29] The Notice of Application is therefore struck against both Datawatch and Peterson Partners.
[30] The essence of the claim asserted in the Notice of Application is the claim against Angoss for breach of contract. The Valuator does not have jurisdiction to determine that claim. Further, given that the issue of the relevance of the Datawatch transaction has not been decided, it is premature to determine whether the claim against Angoss is frivolous or vexatious or otherwise an abuse of process. The Valuator must first determine the relevance issue. The respondents’ motion to strike is therefore dismissed in respect of the claim against Angoss.
[31] In light of the fact that the Application continues against Angoss together with my ruling that the issue of relevance of the Datawatch transaction must be determined by the Valuator, I am not inclined to stay the Application. The requirements for a stay are not present. See: Moneris Solutions Corp. v. Groupe Germain Inc., 2014 ONSC 6102 (SCJ) at para. 36. As noted, the Valuator cannot resolve the breach of contract claim. Further, nothing will happen in the Application until the Valuator decides the question of relevance.
[32] The Application is therefore adjourned to await the decision of the Valuator. I will remained seized. Once the Valuator has decided the Datawatch issue, the parties should arrange to appear before me at a 9:30 scheduling appointment to determine the next steps.
[33] In my view, given the result, the only costs that should be awarded at this time are in respect to the dismissal of the Application against Datawatch and Peterson Partners. Given the issues raised, the motion concerning them was neither complex nor time consuming. Accordingly, Datawatch and Peterson Partners are each awarded partial indemnity costs of $2,000 in total, payable by Galligan forthwith. The balance of the costs of the motion are reserved to me to be dealt with on the Application.
L. A. Pattillo J.
Released: March 15, 2019