SUPERIOR COURT OF JUSTICE - ONTARIO

Re: Xpera Risk Mitigation and Investigation LP v. Brian King, Jeremiah King and King International Advisory Group Inc.

Before: MASTER R. A. MUIR

Counsel: Carey O’Connor for the plaintiff Christopher Yung for the defendants

REASONS FOR DECISION

[1] There are two motion before the court. The plaintiff brings a motion seeking the production of various damages documents from the defendants. Three categories of documents remained in dispute at the time of the hearing of this motion.

[2] The defendants bring a motion seeking answers to outstanding undertakings, questions refused on discovery and for the delivery of a further and better affidavit of documents from the plaintiff.

BACKGROUND

[3] This is a wrongful competition claim. The plaintiff claims that the individual defendants incorporated the defendant King International Advisory Group Inc. (“King International”) while working for or consulting for the plaintiff. The plaintiff alleges that the defendants competed with the plaintiff and solicited customers and employees of the plaintiff in breach of their contractual and other duties. The plaintiff claims significant damages as a result. The defendants deny the plaintiff’s allegations.

LAW

[4] In determining the issues on these motions, I have applied the relevance test set out in Rules 30.03 and 31.06 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. I have also considered the proportionality requirements of Rule 29.2.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. I am also mindful of the principles applicable to relevance as summarized in my decision in Minotar Holdings Inc. v. Ontario (Municipal Affairs and Housing), 2018 ONSC 4552 at paragraph 7.

PLAINTIFF’S MOTION

[5] I will address the plaintiff’s motion first. In my view, some of the documents requested are relevant and should be produced.

[6] The first group of documents the plaintiff is requesting are communications leading up to and establishing the engagement of each King International client. In claims such as this, a plaintiff is entitled to make an election as to the compensation it is seeking. It may choose to ask for disgorgement of the defendants’ gain or it may elect to make a claim based on its own loss. See KJA Consultants Inc. v. Soberman, [2003] OJ No. 3175 (SCJ) at paragraphs 51 and 52; affirmed, [2004] OJ No. 4560 (CA). I agree with the plaintiff that these requested documents are relevant for all King International clients. The facts surrounding how and when each client became a client of King International is relevant to whether or not the profit from any particular client should or should not be included in the calculation of damages on the basis of disgorgement. These documents shall be produced.

[7] The second category of documents is described as “documents through which contribution margin could be calculated on a client by client basis for all of King International’s clients”. I agree with the defendants that it is unnecessary and inefficient to calculate profit on a client by client basis. The defendants have or will produce documents that demonstrate King International’s overall gross margins from which the plaintiff will be able calculate its alleged damages if it elects disgorgement. In addition, the defendants have not historically recorded margins on a client by client basis. To require the defendants to do so now would impose a significant burden in terms of time and expense. Such an order would not be proportional, given the availability of the alternative gross margin calculations. I note that a similar approach was followed by this court in Ravenda Homes Ltd. v. 1372708 Ontario Inc., 2011 ONSC 4277. These documents need not be produced.

[8] The third category of documents requested by the plaintiff are described as “documents used in the creation of client sales summaries”. King International has produced these summaries by generating a report, post litigation, from its QuickBooks accounting system. The sales summaries are not source documents. They are based on other input to the accounting system that has not been produced. In my view, this is not sufficient production. This situation is similar to the question before me in Etedali v. Disi-Peri Mgt. Inc., 2019 ONSC 618 (Master) where the moving party sought production of underlying financial documents. At paragraph 7 of Etedali I stated as follows:

. . . [I]n my view, the plaintiffs are entitled to test the accounting choices and assumptions made in arriving at the numbers in the financial statements. They should not have to accept them at face value. The only way for the plaintiffs to do this is to examine the defendant’s back-up and source financial documents.

[9] I am satisfied that the same principles apply to the plaintiff’s request for the back-up documents supporting the client sales summaries. These sales summaries simply amount to a report generated by QuickBooks. The plaintiff is entitled to examine the underlying input. It should not have to accept the summaries at face value. These documents shall be produced.

DEFENDANTS’ MOTION

[10] There are three parts to the defendants’ motion. The defendants seek a further and better affidavit of documents. They also request answers to outstanding undertakings and answers to questions allegedly improperly refused at the plaintiff’s examination for discovery.

[11] The issue in connection with the request for a further and better affidavit of documents concerns the production of electronic documents as agreed to by the parties as part of their discovery plan. It appears that most of the plaintiff’s documents have been produced in electronic format. The documents that have not been produced in the agreed format are fewer in number and appear to be a result of technical limitations on the plaintiff’s part. The production of the remaining documents in electronic format would apparently involve a significant cost. Under these circumstances, I am satisfied that the plaintiff has made best efforts to make the agreed upon production having regard to the principle of proportionality. Nothing further is required at this time.

[12] The plaintiff has agreed to provide clarification in respect of the outstanding undertakings. In fact, the undertakings in issue may have been answered by the production of client summaries. In any event, the plaintiff will provide further confirmation with respect to the undertakings at questions 598, 609-610, 612 and 615.

[13] A number of refusals from the plaintiff’s examination for discovery remain in issue. They are fully set out, along with the parties’ positions, in the chart attached to these reasons for decision as Schedule A.

[14] In my view, questions 81 and 227 are relevant and shall be answered. At paragraph 6 of the statement of claim, the plaintiff alleges that it suffered damages due to the loss of employees. Paragraphs 51, 52 and 55 provide further particulars and allegations about the resignation of “talented and experienced employees”. The defendants are entitled to a full understanding of the departure of employees generally and to understand whether the loss of such employees after June 2015 varied from previous experience. This request is also reasonably limited by the defendants to only investigators and administrative staff supporting investigators.

[15] In my view, questions 272 and 431 are relevant and shall be answered. The plaintiff is making a significant claim for lost profit. The defendants are entitled to particulars of those alleged losses including the identity of lost clients and the profits allegedly lost by the plaintiff as a result. Simply stating that the information will be produced at some point in the future as part of a yet to be delivered expert report is not a sufficient answer to a relevant question.

[16] Question 503 is also relevant and shall be answered, in part. The plaintiff has specifically pleaded that Manny Acacio was induced to join King International by providing him with employee benefits to which he would not be entitled under the terms of his employment agreement with the plaintiff. This question shall be answered by the plaintiff providing particulars of Mr. Acacio’s benefits while working for the plaintiff.

[17] Questions 582 and 593 shall also be answered. There is no evidence from the plaintiff to support a claim for privilege. In any event, it is difficult to see what claim for privilege could be made in connection with documents sent to Brian King while he was still with the plaintiff. Any concerns about confidentiality can be addressed by a protective order if necessary, which is specifically contemplated as part of the defendants’ request. I note that the defendants have now specified the documents in question in the chart attached to these reasons for decision.

[18] In my view, the top customer reports must also be produced. The central issue in this action is the allegation that the defendants breached their duties to the plaintiff by wrongfully competing and soliciting customers. These reports are relevant to that allegation. Concerns about confidentiality can be addressed by a protective order as referenced above. Question 585 shall be answered.

[19] The employee retention reports are relevant and shall be produced. As stated in connection with my ruling on questions 81 and 227, the defendants are entitled to a full understanding of the departure of employees generally and to understand whether the loss of such employees after June 2015 varied from previous experience. Questions 586-589 shall be answered.

[20] Question 628 shall now be answered given that the defendants have provided a list of their clients from 2015 to 2018.

[21] In my view, the plaintiff’s profit and loss statements are relevant for 2014 to 2017 and shall be produced in answer to questions 629-632. The plaintiff has alleged at paragraph 70 of the statement of claim that the defendants’ wrongful actions resulted in a loss of revenue and resulting profit. Profit and loss is clearly a matter in issue.

TIMETABLE AND COSTS

[22] The parties shall confer and attempt to agree on a timetable for the remaining steps in this proceeding, including the time required to produce documents and answer any questions ordered by these reasons.

[23] If the parties are unable to agree on a timetable, or the costs of these motions, they shall provide the court with brief written submissions by July 15, 2019. Any submissions may be sent directly to me by email.

[24] Finally, I wish to thank counsel for the cooperative and professional manner in which these motions were argued.

Released: June 13, 2019 Master R. A. Muir

SCHEDULE A

Q. No. Specific Question/ Doc Reference Answer Provided Reason why deficient

81 To identify which employees (investigators) departed Xpera prior to Mr. King’s departure and which employees (investigators) departed after Mr. King’s departure and to advise the reasons for the departure. Answer on September 28, 2018 Refuse on the basis of relevance. Answer on January 31, 2019 The identity of all employees who departed before and after Mr. King's departure is broad and irrelevant to the present action. As such, this refusal is maintained. The question is relevant. It is not overbroad and is limited to investigators who departed Xpera prior to Mr. King’s departure and after Mr. King’s departure. In the Statement of Claim at paragraph 6, the Plaintiff pleads “as a result of [the Defendants’] blatant breaches, Xpera has suffered significant damages including the resignation of a number of its most talented and experienced employees as well as clients.”

227 To identify which investigators and administrative staff in support of investigators left in the six months before and after June 30, 2015. To advise the reasons that each gave for their departure, including to the extent that Xpera is aware, formally or informally, that any of them left specifically because they were unhappy with Xpera for any reason, including relations with Suzanne Fournier. Answer on August 8, 2018 Refuse on the basis of relevance. Answer on January 31, 2019 Xpera's refusal to answer this Under Advisement is appropriate. The identity of investigators and administrative staff who left in the six months before and after June 3, 2015 and the reason for their departure is irrelevant to the present action. As such, this refusal is maintained. The question is relevant. The question relates to the plaintiff’s claim for damages. In the Statement of Claim at paragraph 55, the Plaintiff pleads “in setting up King Advisory, Brian and Jeremy used Xpera's Confidential information and targeted and solicited its most talented and experienced employees as well as Xpera's clients.” Further, at paragraph 6, it pleads “Xpera has suffered significant damages including the resignation of a number of its most talented and experienced employees as well as clients.”

272 To advise all of the clients that Xpera is claiming a reduction in revenue as a result of King Advisory starting its business, including which clients Xpera claims were unlawfully solicited. Answer on August 8, 2018 Expert reports will be provided in due course. This response will be contingent on the Defendants’ response to the Plaintiff’s request to additional productions. The question is relevant to the plaintiff’s claim for damages. In the Statement of Claim at paragraphs 1(d), 69 and 70, the Plaintiff pleads that it has suffered a loss of revenue as a result of the Defendants’ wrongful activity.

431 To produce records relating to the revenue for all of Xpera's investigation clients from August 1, 2014 to the date of the Statement of Claim. Answer on August 8, 2018: Refuse on the basis of relevance and on the fact that the question is overbroad. Answer on January 31, 2019 Expert reports will be produced in due course in accordance with an agreed upon timetable, as the parties have discussed on several occasions. The question is relevant to the plaintiff’s claim for substantial damages. It is not overbroad as it only covers the period from August 1, 2014- August 10, 2015.

503 To provide particulars or internal records about Manny Acacio's relationship with Xpera, including the terms of his contract, compensation, and whether he had any written non-compete, non-solicit obligations. Answer on August 8, 2018: Refuse on the basis of relevance. Answer on January 31, 2019 Information and documents related to Manny Acacio's relationship with Xpera are not relevant to the present action. As such, this refusal is maintained. This question is relevant. In the Statement of Claim at paragraph 51, the Plaintiff pleads that the defendants induced Manny Acacio to resign his employment with Xpera by agreeing to his request to work from Florida and providing him with employee benefits that he would not be eligible for at Xpera.

582, 593 To produce all of the redacted documents that were sent to Brian King in an unredacted form, subject to discussions and agreement between counsel with respect to any protective order. Doc Reference: XPE00000338 [1] Answer on August 8, 2018 Maintain refusal on the grounds of relevance. Answer on January 31, 2019 The question was overbroad and no specific documents were referenced. Documents were redacted on the basis of privilege. If there are specific documents the Defendants would like Xpera to consider, please provide a list and Xpera will reconsider its refusal. Documents that were sent to Brian King while he was at Xpera are relevant. No privilege could attach to any of those documents. In the Statement of Claim, the Plaintiff pleads at paragraph 29 that “in the course of Brian's employment and consulting relationship with Xpera and its predecessor, a wealth of Confidential lnformation was disclosed to him including but not limited to the information referred to in paragraphs 22 above. This information was imparted to him in confidence. As such, he had an obligation to keep all such information confidential and not to disclose it to any third party or to use it for his personal benefit, both during his employment and consulting relationship and after so long as the information was not publicly available.” The following is a list of documents/emails that were sent to Brian King but have been redacted: XPE00000141, XPE00000142, XPE00000143, XPE00000144, XPE00000168, XPE00000111, XPE00000112, XPE00000113, XPE00000349, XPE00000367, XPE00000369, XPE00000375, XPE00000420, XPE00000423, XPE00000439, XPE00000459, XPE00001341, XPE00001617 and XPE00001621.

585 To produce the Monthly Top Customer Reports from August 2014 to the date of the Statement of Claim. Doc Reference: XPE00000338 [2] Answer on August 8, 2018 Maintain refusal on the grounds of relevance. Answer on January 31, 2019 The content covered by the redactions on these documents is confidential and irrelevant. As such, this refusal is maintained. The question relates to the plaintiff’s claim for damages. In the Statement of Claim at paragraph 55, the Plaintiff pleads “in setting up King Advisory, Brian and Jeremy used Xpera's Confidential information and targeted and solicited its most talented and experienced employees as well as Xpera's clients.” Further, at paragraph 6, it pleads “Xpera has suffered significant damages including the resignation of a number of its most talented and experienced employees as well as clients.”

586-589 To produce the Employee Retention Reports generated by HR from August 2014 to the date of the Statement of Claim Answer on August 8, 2018: Maintain refusal on grounds of relevance. This response will be contingent on the Defendants’ response to the Plaintiff’s request to additional production. Answer on January 31, 2019 Employee Retention Reports generated by HR from August 2014 to the date of the Statement of Claim are not relevant to the present action. As such, the refusal is maintained. The question is relevant to the plaintiff’s claim for damages. All retention reports are relevant to show Xpera's ability to retain employees generally.

628 To advise whether any individuals listed in XPE00001071 are no longer clients of Xpera. Answer on August 8, 2018: Maintain refusal on the grounds of relevance. Answer on January 31, 2019 Until the Defendants disclose their clients, the universe of potentially relevant Xpera clients is unknown. The relevance of any client predicated XPE00001071 on who the Defendants clients are. The question is relevant to the plaintiff’s claim for damages. The Defendants have provided a list of their clients from 2015-2018.

629-632 To produce Xpera's financial statements, showing net profit, for fiscal 2014 to fiscal 2017. August 8, 2019 Maintain refusal on the grounds of relevance Answer on January 31, 2019 Copies of Xpera's financial statements for the fiscal years of 2014 to 2017 are not relevant. The question relates to the plaintiff’s claim for substantial damages.

[1] Document XPE00000338, Exhibit “UU” of the Vasilko Affidavit, Defendants’ Motion Record, Vol III, p.1091. [2] Document XPE00000338, Exhibit “UU” of the Vasilko Affidavit, Defendants’ Motion Record, Vol. III, p. 1091.