COURT FILE NO.: CV-17-573285
DATE: 20190128
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
CANTOL CORP.
Plaintiff/Responding Party
– and –
STATE CHEMICAL LTD./PRODUITS CHIMIQUES STATE LTEE, DAVID DANISKA and ARTHUR HANICK
Defendants/Moving Parties
L. Leslie Dizgun and Justin W. Anisman for the Plaintiff/Responding Party
Stephen F. Gleave and Allyson M. Fischer,
for the Defendants/Moving Parties
HEARD: December 14, 2018
Justice S. Nakatsuru
[1] David Daniska and Arthur Hanick used to work for the Plaintiff, Cantol Corp. (“Cantol”), a company that made and sold industrial and specialty chemicals, including cleaning products. They both quit and started working for State Chemical Ltd./Les Produits Chimiques State Ltee, (“State”).
[2] Mr. Hanick resigned from Cantol on January 5, 2017. He felt he had been treated poorly by Cantol and had been denied his commissions. He had been employed with Cantol for six years as a salesperson. On approximately February 21, 2017, Mr. Daniska also resigned. He too felt poorly treated and subject to threats made by the owner, Jay Brightman, that if he did not make his sales, he would be fired. Mr. Daniska had been a salesperson with Cantol for about 34 years. Neither of the men had any enforceable restrictive covenants in their Employment Agreements with Cantol. Cantol has sued the Defendants alleging breach of fiduciary duty and breach of confidence. Both Plaintiff and Defendants agree that this case can be resolved on a summary judgment motion. I am satisfied that it is appropriate to grant summary judgment.
[3] Given the position of the parties, I do not need to spell out the law I must apply on a summary judgment motion. It is well-known.
[4] Further, I will not outline the evidence at any great length. I have carefully reviewed the record including the affidavits and the discovery transcripts, which the parties have agreed to use on this motion. Given that this is an action proceeding by way of Rule 76 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, this was a fair and proportionate way to proceed.
A. ANALYSIS
[5] First of all, I will deal with Mr. Daniska. The decision in his case will effectively determine the others.
1. Mr. Daniska is not a fiduciary employee of Cantol
[6] Once found to be a fiduciary employee, the law is quite settled that the fiduciary employee cannot solicit the employer’s customers for a reasonable period of time after the end of their employment. If one is not a fiduciary employee, they are free to solicit like any other employee: Veolia Es Industrial Services Inc. v. Brulé, (2012) ONCA 173, 2012 ONCA 173, 289 O.A.C. 207 at paras. 32-35; Alberts v. Mountjoy, (1977), 1977 CanLII 1026 (ON SC), 16 O.R. (2d) 682 (Ont. H.C.J.).
[7] The Plaintiff submits Mr. Daniska was such an employee. Mr. Daniska submits he was not. The question of whether a fiduciary duty exists depends upon the individual facts of the case. The question is often cast this way: Is the degree of responsibility, dependency, and vulnerability strong enough to support the finding of a fiduciary status? (John A. Ford & Associates Inc. v. Keegan, 2014 ONSC 4989, 13 C.C.L.T. (4th) 188, at para. 74, citing Atlantic Business Interiors Ltd. v. Hipson, 2005 NSCA 16, 38 C.C.E.L. (3d) 1 at para. 90.)
[8] Cantol submits that Mr. Daniska was effectively a part of management and he was a key employee. By the time he resigned, he was titled VP of Marketing. It is argued that Mr. Daniska was the head person in sales and product knowledge in a small company with few employees and an informal structure. Mr. Daniska, along with Mr. Hanick, represented the majority of Cantol’s gross sales in Canada. Given his longevity in the company and knowledge, Mr. Daniska was a primary source of knowledge about Cantol products and was responsible for training sales staff. It is submitted that Cantol entrusted its relationship with its customers to Mr. Daniska who was the face of the company for them. Therefore, according to Cantol, it was vulnerable to solicitation of its customers by Mr. Daniska upon his departure. Taking these factors together, Cantol submits that Mr. Daniska was a fiduciary employee: See John Ford & Associates, supra, at paras. 190-192.
[9] Despite Mr. Dizgun’s able submissions on behalf of Cantol, I find that Mr. Daniska was not a fiduciary employee. I have come to this conclusion for the following reasons.
[10] Let me first address the factual context of Mr. Daniska’s employment. Clearly, Mr. Brightman was in charge. Mr. Brightman is the president of Cantol, the only officer, the sole director, and majority shareholder. He is the only person who has access to the financial and the business plans for Cantol, who hires and fires staff, and to whom all sales staff ultimately report. Mr. Brightman bought the company in January 2011, from the previous owner, Mr. Elmer Snethen. Mr. Brightman did not sell products or manage client relationships. He was in the backroom. However, salespeople would ask him for approval for volume discounts or free shipping for its customers. Cantol also has a U.S. subsidiary that serviced some 300 clients. Cantol had some active 700 clients in total.
[11] In 2017, the year Mr. Daniska resigned, the Canadian sales team consisted of Mr. Daniska, Mr. Hanick, a Ms. Gosselin and a Mr. Simard. There had been other sales staff over the years. Mr. Daniska did not have any office space but worked from his home. Mr. Brightman testified that in Canada, outside of Quebec, Mr. Daniska serviced about 60% of Cantol’s clients while Mr. Hanick serviced the remaining 40%. Quebec-based clients, which represented about 30% of all clients, were handled by Mr. Simard and Ms. Gosselin. Mr. Simard reported to Ms. Gosselin who in turn reported to Mr. Brightman.
[12] Mr. Brightman testified that his basis for arguing that Mr. Daniska was a fiduciary was that Mr. Daniska represented 60% of his business of sales in English Canada. He submitted that Mr. Daniska trained all the sales staff, fielded questions from his staff, and made all the recommendations for new products to look into. Mr. Brightman took Mr. Daniska along to see a new customer to explain and demonstrate Cantol’s products. In interviews with potential employees, Mr. Brightman would ask Mr. Daniska about his opinions on prospective hires.
[13] Having regard to this factual context, looking at the actual job Mr. Daniska performed, I find that he was a salesperson for Cantol. Of course, this finding is not determinative of the issue of whether he owed fiduciary obligations. But it is an important factor. Mr. Daniska started at Cantol as a telephone sales representative. He then started to go on the road from time to time. In and around 1990 he took on the role of the order desk where he took orders for the company, as well as inside sales. In 2004, he went on the road full-time. In his last year of employment, he spent his time interacting with clients personally and by e-mail, text, or phone. Mr. Daniska also attended weekly sales conference calls arranged and headed mainly by Mr. Brightman. Looking at the whole of the evidence, I do not agree with Cantol’s position that based upon Mr. Daniska’s actual job, Mr. Daniska was effectively management.
[14] Moving onto other factors, I acknowledge that there are some that support Cantol’s position. For example, Mr. Daniska was titled VP of Marketing. However, despite the title, Mr. Daniska did not exercise any executive functions and had little or no discretion in that regard. He was VP only in name. Thus, the existence of such a title has little impact on my decision.
[15] Other factors supporting Cantol include the fact that Mr. Daniska was with Cantol’s operations in Canada the longest, working there before Mr. Brightman bought the company, and the fact that the business had a relatively small sales staff. As he was the longest serving employee, Mr. Daniska was the person that others went to for information about the products sold by Cantol. I appreciate that others at Cantol also had longevity and in-depth knowledge of the products. They include Vince Spragina who was the Cantol employee in the United States and Elmer Snethen, the former owner of Cantol and who was with the U.S. office. Mr. Spragina participated in the weekly sales conference calls. Mr. Ehten did so rarely. They both also had considerable knowledge of the products. That said, I acknowledge that Mr. Daniska’s knowledge of the products made him a valuable employee.
[16] Further, Cantol raises the fact that Mr. Daniska had close relationships with Cantol’s customers that he built up over time, while Mr. Brightman did not. Mr. Daniska’s book of business was about $350,000 a year. He serviced around 200 clients.
[17] However, in my view, when considered in the context of the totality of the circumstances, these factors did not make Mr. Daniska a key employee or the face of the company as Cantol contends. Fundamentally, Mr. Daniska still was an ordinary salesperson, albeit a long-term one. At his resignation, Mr. Daniska made $60,000 per year plus car expenses. He also received 10% commission on sales beyond $40,000 per month. Mr. Daniska estimated he would make that target about three times a year.
[18] Other factors militate against the finding of a fiduciary relationship. Mr. Daniska had no involvement in the management of the company and had access to little information regarding its financial operation. Even within the area of sales, aside from servicing his book of customers, he had little power or discretion. Some examples can illustrate this. Mr. Daniska would sometimes recommend products to Mr. Brightman, but it was the latter who made the decision whether to add the product to Cantol’s catalogue. There were about three products added in total during Mr. Brightman’s ownership. Cantol had a product brochure, but Mr. Daniska did not produce or update it. Further, it was Mr. Brightman who hired the salespeople. On occasion, Mr. Daniska may have given input into the potential applicants, but Mr. Brightman handled the hiring of the 12 to 15 salespersons they had employed over the years. It is true that Mr. Daniska would train new employees on product knowledge. But he would not train them on sales techniques as they already had such experience. Furthermore, Mr. Daniska had no supervisory role over other salespersons. Mr. Daniska did not even know how many customers Mr. Hanick serviced. The two salespeople had separate accounts for different regions of Canada.
[19] In my opinion, Mr. Daniska’s superior knowledge of the products did not leave Cantol dependent on him or vulnerable. Neither Cantol nor Mr. Brightman was at Mr. Daniska’s mercy if he departed. Many salespeople become quite familiar with the products they sell given their experience with them. This is not a form of secret or unique knowledge that Mr. Daniska had. Further, his was not a type of encyclopedic or exclusive knowledge relevant to the successful operation of Cantol, thus rendering Mr. Daniska’s functions essential. His knowledge could be acquired with a reasonable expenditure of effort. It also could be transferred, as shown by Mr. Daniska’s training of other sales staff. In other words, the evidence does not show that his knowledge of Cantol’s products was something that made Mr. Daniska a key employee. The fact that Mr. Brightman chose to utilize that knowledge over the years, rather than acquiring it himself or relying more on others, such as Mr. Spragina or Mr. Snethen, does not make Cantol dependent on Mr. Daniska when it comes to the creation of fiduciary obligations. To accept that it does in these circumstances would be a significant extension of the concept of a fiduciary employee.
[20] I also appreciate that Cantol was a small shop and not a large corporate organization. It is thus true that Mr. Daniska was the primary contact for the customers that he served. However, I find on the totality of the circumstances that he was far from being the face of the company. There is no evidence, aside from customer interactions, that he ever represented Cantol as a spokesperson or company representative. Of course, to the customers Mr. Daniska served, he had influence, but this fact too has to be assessed contextually. There is little evidence to suggest that being the “face” of the company in this type of limited interaction is outside of the industry norm. It is not unusual for ordinary salespeople, as the primary point of contact, to develop these types of relationships. This fact alone cannot transform such a salesperson, no matter how successful, productive, or valued, into a fiduciary employee. This must be so even taking into account the relatively small nature of Cantol’s business. Otherwise, in such a small business setting, every salesperson would come to have fiduciary obligations. On the facts of this case, an undue reliance on this factor would make Mr. Hanick, Ms. Gosselin, Mr. Simard, Mr. Spragina, and Mr. Ethen all fiduciaries.
[21] In addition, I acknowledge that the fact Mr. Daniska serviced a significant portion of Cantol’s customers in certain regions of this country is a factor in support of the existence of a fiduciary relationship. Indeed, Mr. Brightman testified that this was a major factor in why he was contending a fiduciary relationship was created. But this has to be tempered by the fact the other Cantol salespeople also serviced a significant number of clients in other regions. In other words, Cantol’s reliance upon Mr. Daniska was not significantly out-of-proportion with its reliance on its other salespersons who also had a significant number of customers. This is not a case where a single salesperson has control over all or nearly all of a company’s business.
[22] Finally, and perhaps most importantly, Mr. Daniska had little scope for the exercise of any form of discretion or power. The discretion and the power of running Cantol resided with Mr. Brightman, which he duly exercised. Mr. Daniska, like all the other salespeople, remained under his direction. It could not remotely be suggested that Mr. Daniska ran Cantol along with Mr. Brightman. I note that in this action, Cantol treats both Mr. Daniska and Mr. Hanick as equally having fiduciary obligations.
[23] In sum, I find that Mr. Daniska had little discretion or power that he could exercise that could affect Cantol’s legal or practical interests. Metaphorically speaking, Cantol was truly Mr. Brightman’s ship. He charted its course, selected the cargo, and steered its path. Albeit a long-standing and experienced shipman who knew the contents of the vessel well, I find that Mr. Daniska was a mere sailor on the voyage.
[24] An illustration of this state of affairs was an event that occurred once Mr. Daniska left Cantol. Mr. Daniska provided Cantol with six three-ringed binders with hand-written notes and account cards, which had the contact names and information of Cantol’s clients. These were difficult to read. Mr. Brightman now complains that Mr. Daniska returned no other electronic documents, typed client lists, or other documents that would help him reach out to Cantol clients. Mr. Daniska’s explanation (an explanation I accept) is that Mr. Brightman never supplied him with the sort of electronic tools to better document customer activity. Mr. Brightman did not want to spend the money on it. Mr. Daniska averred that he could only rely on a basic account card and even then, had made numerous requests of Mr. Brightman to buy more blank account cards to update account activity. Mr. Brightman never did. In my view, this shows how little actual power or discretion Mr. Daniska had in the exercise of his employment duties. It also shows how, if his departure affected Cantol’s interests, it was not his exercise of any discretion or power that caused Mr. Brightman difficulties. It was Cantol’s own decision not to better provide Mr. Daniska with materials and systems to better document clients and client activity, which could have eased the transition period once Mr. Daniska left its employ. This is what made Cantol vulnerable to Mr. Daniska’s departure, rather than any relationship of trust that was placed in Mr. Daniska.
[25] In conclusion, looking at all the circumstances, I find Mr. Daniska was not a fiduciary employee. He was free to solicit. In coming to this decision, I have ignored the evidence of the comments attributed to Mr. Brightman that were allegedly left via text and voicemail for Mr. Daniska after his resignation. These messages led to a charge of criminal harassment against Mr. Brightman. The comments on their face are appalling. If the allegations are true, Mr. Brightman should be condemned for making them. However, they were made post-termination and have no bearing on the exercise of my equitable jurisdiction in this case.
2. Mr. Daniska did not commit breach of confidence
[26] Cantol also sues Mr. Daniska for breach of confidence. Such a claim is made out when the information in question has the necessary quality of confidence about it, the information was imparted in circumstances importing an obligation of confidence, and there was an unauthorized use of that information to the detriment of the party communicating it: Lac Minerals Ltd. v. International Corona Resources Ltd., 1989 CanLII 34 (SCC), [1989] 2 S.C.R. 574 at para. 152.
[27] In this case, Cantol admits that it has no documentary evidence of any breach of confidence. There is no evidence Mr. Daniska misappropriated or took any customer lists or physical files with him. I accept that Mr. Daniska returned everything to Mr. Brightman when he left and did not make any copies. Mr. Daniska testified that he found contact information of former Cantol customers through the internet or LinkedIn. He also made personal visits to customers he knew. Indeed, Mr. Brightman in his examination testified that he did not have any information indicating that Mr. Daniska used for State’s benefit any information that he obtained during his employment with Cantol, such as the information from a sales order or his monthly commission sheet.
[28] However, Cantol submits that Mr. Daniska admitted to a breach of confidence in his examination for discovery. It argues the purchasing habits of Cantol’s customers including the types of products, quantities, and prices paid, is confidential information. Cantol points to the following answers given by Mr. Daniska as an admission that he used this confidential information to the detriment of Cantol:
Q. … was there a situation where you noticed that the State product was more expensive?
A. In some cases State’s products were more expensive, in some cases some of their products were…it depended on the product.
Q. Would you adjust prices so that they would be more competitive?
A. I could adjust prices, yes.
Q. And did you, for some customers, because Cantol products were cheaper?
A. Cantol products were cheaper… well, it depends on the… I mean, I can’t recall. Yes, I adjusted certain prices for people but it depends. Some products weren’t even related to Cantol products. You know, for example, one was a water treatment project, which Cantol doesn’t even have, so that is… And I adjusted that price. So, I … you know, it depends on the customer.
[29] Looking at this passage, I find this is not the admission Cantol says it is. First of all, on its face, Mr. Daniska does not admit that he used Cantol’s pricing information to price State’s products more competitively. What Mr. Daniska testifies to is that he “could” adjust prices, not that he did do so. This ability to engage in competitive pricing depended on the product Mr. Daniska was dealing with, since some products Cantol did not even sell. He gives as an example a water treatment project that Cantol did not sell and how he adjusted that price. Essentially, Mr. Daniska admits he “could” have adjusted prices to make them more competitive but he really could not recall any time he did. In my opinion, these answers are far too equivocal to base a factual finding that Mr. Daniska did in fact use confidential Cantol pricing information to advance State’s interests. To put it bluntly, contrary to Cantol’s assertion, it did not secure an admission against interest during this part of its examination of Mr. Daniska. Secondly, when this passage is placed in the context of the entirety of Mr. Daniska’s examination for discovery and his affidavit where he adamantly denies ever using Cantol’s confidential information, I find no support for Cantol’s argument that Mr. Daniska has admitted to a breach of confidence. Indeed, immediately before the cited passage, Mr. Daniska denied ever telling State about the volume of product Cantol’s customers used to purchase.
3. The other Defendants are not liable for participating in Mr. Daniska’s breaches
[30] It is Cantol’s position that Mr. Hanick and State participated in Mr. Daniska’s breach of fiduciary duty and breach of confidence. It is argued that Mr. Hanick shared Mr. Daniska’s customers. It is further argued that State instructed both individuals to solicit business from Cantol. Thus, Cantol submits, to the extent that Mr. Daniska is liable, so are State and Mr. Hanick for Mr. Daniska’s breach of fiduciary duty and breach of confidence.
[31] Given that I have found that Mr. Daniska did not breach any fiduciary duty or breach any confidence, summary judgment will be granted in favour of Mr. Hanick and State as well.
[32] I also note that regarding the evidence against Mr. Hanick in his own capacity, there is even less reason to find him a fiduciary employee than Mr. Daniska. Further, Cantol has no evidence that Mr. Hanick took or misused any confidential information. At its core, Cantol’s position is that he, like Mr. Daniska in many respects, solicited its clients, whose identity he came to know through working for Cantol. In my view, this is not sufficient to ground a finding of breach of confidence.
[33] Accordingly, summary judgment is granted in favour of the Defendants. The action is dismissed.
[34] If the issues of costs cannot be resolved between the parties, I will entertain written submissions, each one limited to two pages excluding any attachments (any Bill of Costs, Costs Outline, and authorities). The Defendants shall file this material within 20 days of the release of these reasons. The Plaintiff shall file its material within 10 days thereafter. There will be no reply submissions without leave of the court.
Justice S. Nakatsuru
Released: January 28, 2019
COURT FILE NO.: CV-17-573285
DATE: 20190128
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
CANTOL CORP.
Plaintiff/Responding Party
– and –
STATE CHEMICAL LTD./PRODUITS CHIMIQUES STATE LTEE, DAVID DANISKA and ARTHUR HANICK
Defendants/Moving Parties
REASONS FOR JUDGMENT
NAKATSURU J.
Released: January 28, 2019