COURT FILE NO.: CV-19-00618749-0000
DATE: 20201231
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MARCO BAILETTI
Plaintiff
– and –
GALE PARTNERS LP, GALE PARTNERS INC. and GALE PARTNERS LLC
Defendants
Christopher Perri and Kaley Duff, for the Plaintiff
Rohit Kumar and Emily Compton, for the Defendants
HEARD: September 30, 2020
ramsay j.
[1] The plaintiff, Marco Bailetti, brings this motion for summary judgment seeking damages for breach of an employment contract by the defendants Gale Partners LP (“Gale LP”), Gale Partners Inc. and Gale Partners LLC (collectively “the defendants”) or, alternatively, seeking partial summary judgment declaring the plaintiff entitled to a 1.5% equity stake in Gale LP and remitting the issue of quantum to a subsequent motion for summary judgment or trial in accordance with subrule 20.04 (3) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
Overview
[2] The plaintiff was hired by Gale LP, a limited partnership digital marketing agency, in November 2016 as a Senior Vice-President, Performance Analytics. He resigned on December 16, 2018 to pursue other opportunities.
[3] The plaintiff’s pre-employment negotiations were with Brad Simms (“Mr. Simms”), the CEO of Gale LP. Mr. Simms forwarded a signed Offer of Employment letter dated October 24, 2016 (“the offer letter”) to the plaintiff. Attached to the offer letter was a signed letter by Mr. Simms dealing with the plaintiff’s equity interest, as well as a separate document entitled Confidentiality and Non-Solicitation Agreement. Both sides agree that the plaintiff received all three documents. On November 2, 2016, the plaintiff signed the offer of employment (“the employment contract) and returned it to Mr. Simms.
[4] The plaintiff refers to the document addressing the plaintiff’s equity interest as “the Term Sheet” and the defendants refer to it as “the Equity Letter”. For consistency and to avoid confusion, it will be referred to as the Term Sheet.
[5] The plaintiff contends that he is entitled to judgment for $1,057,500, representing the fair market value of his 1.5% equity interest in Gale LP and $63,590.57 for lost profit distributions for 2018 and 2019, plus interest and costs. The plaintiff faces two threshold questions on this motion: “What was the entity that the parties agreed to provide an equity interest in?”, and “What is the value of the plaintiff’s equity interest?”
[6] The offer letter sets out the plaintiff’s “compensation” and provides that the plaintiff would receive a salary of $275,000 per annum and an annual $50,000 bonus. The offer letter itself makes no reference to the plaintiff’s equity interest to be acquired in any entity as part of his compensation package.
[7] As far as formal documentation is concerned, the plaintiff’s equity interest is only addressed in the Term Sheet. There is no dispute that aside from providing the Term Sheet, which was said to reflect the discussions between the plaintiff and Mr. Simms, no final and official document was ever provided to the plaintiff with respect to his equity interest. At paragraph thirteen of the statement of claim, the plaintiff pleads that:
“At no time did GALE ever forward Mr. Bailetti any further documentation regarding his grants of equity in the company. Although Mr. Bailetti did make a number of inquiries to Mr. Simms regarding such documentation, Mr. Simms represented to Mr. Bailetti on multiple occasions that he would eventually receive further documentation, but that such documentation was a mere formality and any delay in signing the documents would not impact his rights as set out in the employment agreement.”
[8] The parties dispute not only the nature of the agreement but also what documents the court should look to in order to determine what the agreement was between them. Counsel for the plaintiff submits that it is not the employment contract that governs the relationship between the parties but rather it is the series of pre-employment email exchanges between the plaintiff and Mr. Simms which he argues culminated in an agreement between the parties, before the employment contract was signed, which sets out the terms of the plaintiff’s equity stake in Gale LP. The defendants on the other hand submit that it is the employment contract and the accompanying Term Sheet which govern, and which show that the plaintiff agreed to have an equity stake in Gale 43. Aside to a reference to “Agency”, there is no reference to the entity in which the plaintiff would be obtaining an equity stake in ether the emails relied on by the plaintiff or the Term Sheet which invites the court to make findings of fact as to what was meant by the parties. Both parties have differing accounts as to what was said or represented pre-employment and what was intended to be part of the Term Sheet addressing the plaintiff’s equity interest. Given the competing versions of events, credibility findings would be necessary.
The Background Facts
[9] The plaintiff is requesting judgment for the fair market value of shares in Gale LP. There is no evidence before the court as to what that fair market value would be at any time.
[10] Both parties disagree on what the nature of the agreement was and, in particular, what business was contemplated by the parties that the plaintiff would receive an equity stake in.
[11] The plaintiff relies on his pre-employment negotiations with Mr. Simms and relies on a series of emails as forming the agreement. Counsel for the plaintiff submitted during oral submissions that the court must ignore the formal agreement entered into between the plaintiff and Gale LP and look to the agreement reached in the exchange of emails leading up to the execution of the formal agreement. However, the plaintiff factum relies on the formal employment agreement and maintains that Gale LP agreed to give him a 1.5% equity interest in its operations. It is also unclear as to what exactly the agreement reached in the email was as the evidence filed indicates there were questions posed and clarification provided in the exchanges. The plaintiff though submits that Mr. Simms represented to him that he would receive $25,000 as an annual profit share for each .5% of equity he owned and represented that in the context of an equity event, the business would be valued at five (5) to seven (7) times its annual revenue, or in the range of $150 million to $210 million and he would receive 1.5% of that valuation.
[12] The plaintiff submits that that the representations and assurances in Mr. Simms’ emails constitute a collateral contract or warranty which leads to the same measure of damages.
[13] The key email relied upon by the plaintiff as setting out the essential terms of the contract between the parties is dated September 25, 2016 and was sent by Mr. Simms summarizing discussions he had with the plaintiff regarding the terms of his employment. The email read, in part:
Marco,
Thanks for getting together this week. I wanted to lay out what
we discussed for a role @ GALE
- we would grant you .5% of equity each January beginning
2017 for three years, 2017, 2018, 2019 – which will total 1.5%
of the agency in total –
the equity will result in yearly profit distributions, which
happen the following year mid-year, and in the situation
in which there is an equity event you would receive the
earn out amount – we do not see there being an equity
event anytime in the near future, and certainly not
before you have accumulated all your equity
[14] There is little evidence to assist the court in determining whether the plaintiff became “entitled” to receive any equity for 2017 and 2018 as contemplated even by the September 2016 email, which the plaintiff relies upon.
[15] The email refers to “agency” which is not defined. The plaintiff deposed that:
“In that e-mail, Mr. Simms summarized the terms we had discussed up to that point. Included in those terms was a commitment that over my first three (3) years of employment, I would receive a total of 1.5% equity interest in “the agency,” which I understood to mean Gale Partners LP as that was the only agency or entity that I was aware of at the time.”
[16] The defendants, on the other hand, submit that this was explained to the plaintiff during in-person meetings and telephone conversations before execution of his employment contract that his equity was in Gale 43 and was subject to Gale 43’s shareholder agreement.
[17] The plaintiff and Mr. Simms both dispute what was said about the equity interest and whether the interest would be in Gale LP or Gale 43. The plaintiff relies on the oral representations made by Mr. Simms and the email communications as collateral warranty and disputes having any knowledge of Gale LP's complex organizational structure and affiliated companies during the pre-employment negotiations. He admitted to being aware of Gale LP’s significant investor, MDC Partners Inc.
[18] Both sides referred to the pre-employment discussions and surrounding circumstances which they maintained would assist the court in divining the intention of the parties. The plaintiff submits he was told that he would receive a 1.5% stake in the “Agency” that had annual revenues of approximately $30 million and annual profits of approximately $5 million. He claimed Mr. Simms made representations to the him that he would be getting an equity stake in a $30 million company that would have a 5 to 7 times revenue multiplier. The plaintiff signed back the employment offer without asking for those details to be reduced to writing. The court is left with two different version of events from the plaintiff and Mr. Simms which will involve credibility findings in order to determine what was actually agreed to by the parties.
[19] The defendants, on the other hand, are relying on the employment contract and submit that the plaintiff was to receive a 1.5% equity interest in a Gale 43, which had a 40% interest in Gale LP. The defendants also submit that the plaintiff was deemed to have been a party to Gale 43’s unanimous shareholder agreement and was subject to a penalty when he voluntarily resigned from Gale LP, which triggered a mandatory “buy/sell” term in Gale 43’s unanimous shareholder agreement whereby Gale 43 was to repurchase the plaintiff’s shares in accordance with a prescribed valuation formula. Counsel for the plaintiff submitted that even if the court were to find that the agreement was for shares in Gale 43 (which is a non-party to this lawsuit), the court may still value those shares even if the plaintiff was subject to the unanimous shareholders agreement. There is little assistance to the court in determining the valuation of the shares of Gale 43 either at the relevant time as no evidence has been filed by either party.
[20] It is not clear why the plaintiff takes the position this motion that the formal agreement is not applicable since the plaintiff himself admitted to signing the offer of employment which included the Confidentiality and Non-solicitation Agreement as well as the Term Sheet. The Term Sheet suggests it may not be complete as Mr. Simms concluded with: “I believe these are the main points, any questions please let me know”, but there is no evidence that the plaintiff disputed Mr. Simms understanding of their conversations as memorialized in the Term Sheet. The issue though is what was the parties’ intention as the Term Sheet does not expressly refer to either Gale LP or Gale 43, which is a not a party defendant to this lawsuit, but to the “Agency”.
[21] Despite the fact that counsel for the plaintiff argued that the formal employment contract is not the document the court must look to determine what the agreement was between the parties, paragraph eleven of the statement of claim refers to the Term Sheet as being attached to the employment contract which formed part of the contract. The Term Sheet reads:
Marco,
Finalizing an official document might take 3-4 weeks- so in the
interim I wanted to share this "term sheet" that outlines what we
will provide you with – which is reflective of our conversation (emphasis added):
You will be granted 1% of equity (29 shares) on Jan 1 2017, and
.5% equity (16 shares) on Jan 1, 2018.
- The equity will result in a profit pay out based on the profit
of the agency (emphasis added) – which should takes place April or so the
following year
-The equity will also, in the event of a sale of the agency – (emphasis added)
result in you receiving cash in proportion of the equity you
own in the agreed upon terms
A few additional notes:
-your equity could not be diluted without the issuance of
more equity, which would be a part of that decision and
need to vote on
-you will be subject to what is called drag along rights. So
in the event we decide to accept an offer to sell the agency,
acceptance would be subject to a vote-which you would be
a part of, but if 80% agree to move forward you would be
included in this process
-Your equity needs to be held by you or a trust/corporation
[22] Moreover, the plaintiff’s own evidence is that he signed the formal offer letter and accepted the terms set in the offer, the “Confidentiality and Non-solicitation Agreement” and the Term sheet, which he stated, “simply set out the details regarding the equity grants that I was previously promised.”
[23] Although the plaintiff signed the Employment Letter back on November 2, 2016, it is not disputed that the plaintiff never received formal documentation that reflects the term sheet, contrary to the position of the counsel for the plaintiff, the term sheet and the confidentiality agreement formed part of the employment contract. Therefore, beyond his annual salary and $50,000 bonus, there was agreement that the plaintiff would have an equity stake in some entity. Paragraph 3 (a) of the Confidentiality and Non-Solicitation Agreement reads:
This Agreement contains the entire agreement between GALE Partners LP and the
Employee with respect to the subject matter contained herein and supersedes all prior
agreements or understandings between the parties with respect thereto.”
[24] The defendants submit that the plaintiff forfeited his equity interest upon resigning from Gale LP. The defendants concede that no share certificates for Gale 43 was issued to the plaintiff but contend that the plaintiff was issued an equity interest in Gale 43 in accordance with the Term Letter. The defendants submit that the Gale 43 unanimous shareholders agreement governed the plaintiff's shareholder interest in Gale 43, which was explained to the plaintiff on many occasions.
[25] The plaintiff disputes both any issuance or transfer of Gale 43 shares to him and takes the position that Gale 43’s unanimous shareholders agreement does not apply to him, but this is not material in the circumstances since the lack of a final and formal document evidencing the parties intention addressed in the Term Sheet does not permit this court to determine what the agreement was, without making significant findings on credibility, especially, as is the case here, where the plaintiff is relying on the pre-employment exchanges of emails as forming the basis of the agreement.
[26] Regardless of the question of which entity the plaintiff was to receive an equity interest in, there is also a dispute between the parties as to damages, which will depend on whether the equity interest was in Gale LP or Gale 43.
[27] The plaintiff seeks compensation for the fair market value of his equity interest as of January 31, 2019, the date he asked that his shares be purchased for fair market value. On the other hand, the defendants acknowledge that pursuant to Gale 43’s shareholder agreement the plaintiff is owed the exit purchase price of $71,283.83 for his shares.
[28] For the expediency of the summary judgment motion, counsel for the plaintiff advanced alternative scenarios for the court to consider in calculating the plaintiff’s damages, all of which would involve some element of weighing the credibility of the plaintiff and Mr. Simms. Aside from the dispute as to whether the equity interest to be valued is that of Gale LP or Gale 43, or Gale 43, subject to the penalty and formula in the unanimous shareholders’ agreement, or Gale 43, without the penalty being imposed if the court were to accept there was no transfer of shares, neither side has offered any evidence of the value of the shares as of the key dates for either business entities. It is therefore impossible for the court to make a finding of what the shares are worth without resorting to speculation.
ANALYSIS
[29] Rule 20.04(2)(a) provides that the court shall grant summary judgment if the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence (Hryniak v. Mauldin, 2014 SCC 7 at para. 34).
[30] Rule 20.04(2.1) and (2.2) provide the motions judge with additional powers that may be used to determine whether there is a genuine issue that requires a trial. Rule 20.04(2.1) provides as follows:
In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:
Weighing the evidence.
Evaluating the credibility of a deponent.
Drawing any reasonable inference from the evidence.
[31] Summary judgment must be granted if there is no genuine issue requiring a trial (Hryniak v. Mauldin at para. 68).
[32] In Hryniak v. Mauldin, the court noted that there would be no genuine issue requiring a trial where a judge is able to reach a “fair and just determination on the merits” of the case, and the motions judge is able to make the necessary findings of fact on the basis of the evidence adduced and apply the law to the facts.
[33] The Supreme Court established in Hryniak (at para. 66) the following roadmap or approach to be taken by a motion for summary judgment judge:
The judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the judge’s fact-finding powers.
There will be no genuine issue requiring a trial if the summary judgment process allows the judge to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a).
If there appears to be a genuine issue requiring a trial, the judge should then determine if a trial can be avoided by using the powers under Rules 20.04(2.1) and (2.2) and, may, in his or her discretion, use those powers, provided that their use is not against the interest of justice. The court stated that: “Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole”.
[34] On a motion for summary judgment, the motions judge is entitled to assume that the record contains all evidence that the parties will present if there is a trial. It is not sufficient for the responding party to say that more and better evidence will be available at trial (See:1061590 Ontario Limited v. Ontario Jockey Club (1995), 1995 CanLII 1686 (ON CA), 21 O.R. (3d) 547 (C.A.); and Da Silva v. Gomes, 2018 ONCA 610.)
[35] The plaintiff relies on his preemployment negotiations including a series of email exchanges with Mr. Simms. Both have different accounts as to what was said and different positions on what the parties’ intention were with respect to the plaintiff’s equity interest in Gale LP or some other entity. The plaintiff relies on the emails. The defendants rely on the offer of employment signed by the plaintiff.
[36] The plaintiff contends that the agreement with his employer contemplated that he would receive a 1.5% interest in Gale LP, which had an annual revenue of $30 million and annual profits of $5 million. No evidence was filed regarding the annual profits, but the plaintiff is seeking damages in the amount of $1,057,500 which is said to represent the fair market value of his 1.5% equity interest and $63,590.57 for lost profit and distributions.
[37] The plaintiff has offered various scenarios for calculating the plaintiff’s damages (the value of the equity interest and profit distribution) without any expert or other evidence regarding the valuation of the equity interest or shares for Gale LP or Gale 43. The plaintiff impliedly concedes that the evidence falls short to enable the court to assess, at a minimum, damages. The plaintiff contends that with financial disclosure, he “would be able to retain an expert and provide a full assessment of the value of his damages based on the actual performance of Gale LP. Instead, the only financial records produced by the Defendant are one (1) page screenshots from Gale LP's accounting software for each of 2017, 2018, and 2019. Those records are grossly inadequate and do not provide any information with respect to Gale LP's annual revenues, nor do they shed any light on what an appropriate valuation multiplier would be.” The plaintiff acknowledges that financial records would assist him in calculating the equity interest and profit distributions but maintains records are in the possession of Gale LP and have not been produced in this litigation. Alternatively, the plaintiff urges the court to rely on the representation and assurances provided by Mr. Simms for the purpose of calculating damages.
[38] The defendants maintain that damages ought to be measured on the basis of the Gale 43 unanimous shareholders agreement and the exit purchase price formula set out therein. The plaintiff has offered damages assessments, under this scenario, yielding different results depending on the interpretation of a variable in the formula. Until the intention of the parties it is determined, an assessment of damages is premature. The determination of the intention of the parties as to what the agreement is will require a judge to make findings of credibility and assess the reliability of the evidence.
[39] While the moving party has the onus of establishing that there is no issue requiring a trial, the responding party must “lead trump or risk losing”: 1061590 Ontario Limited v. Ontario Jockey Club (1995), 1995 CanLII 1686 (ON CA), 21 O.R. (3d) 547 (C.A.); and Da Silva v. Gomes, 2018 ONCA 610. Counsel for the plaintiff submitted that a binding contract was formed based on the emails and urged the court not to look at the formal agreement because the agreement was reached before that, it is not clear how the court can ignore the formal employment contract signed by the plaintiff and the accompanying Term Sheet, the latter fraught with ambiguities and a lack of clarity as to what was meant by the parties. Moreover, there is no evidence as to the value of the “agency”, which entity that may be, and further o evidence by the plaintiff of the fair market value of the shares the plaintiff claims he was promised.
The Law: Motion for Partial Summary Judgment
[40] On a motion for partial summary judgment, the court must determine whether, in the circumstances, partial summary judgment would achieve the objectives of proportionate, timely, and affordable justice or, instead, cause delay and increase expense: Malik v. Attia, 2020 ONCA 787, at para.61; Butera v. Chown, Cairns LLP, 2017 ONCA 783, 2017ONCA 783, 137 O.R. (3d) 561, at paras. 29-34; Service Mold + Aerospace Inc.v. Khalaf, 2019 ONCA 369, 146 O.R. (3d) 135, at para. 14.
[41] The Ontario Court of Appeal recently stated that in determining whether to grant partial summary judgment, the risk of inconsistent findings is but one factor to be considered: Malik v. Attia, supra.
[42] In Malik v. Attia the Court of Appeal articulated the following factors which a judge must consider when presented with a motion for summary:
“(i) Demonstrate that dividing the determination of this case into several parts will prove cheaper for the parties;
(ii) Show how partial summary judgment will get the parties’ case in and out of the court system more quickly;
(iii) Establish how partial summary judgment will not result in inconsistent findings by the multiple judges who will touch the divided case.”
[43] In the present case, the plaintiff requests that the court find that the plaintiff is entitled to damages for breach of the employment contract and that the issue of damages be determined on another summary judgment motion or at trial. The question of what exactly the employment contract is, considering both parties position on the basis for the agreement, is inextricably linked to the issue of the quantification of damages, if any. The risk of inconsistent findings of fact on the issue liability and the issue of the valuation of damages is therefore high.
[44] Despite the expanded powers under subrules 20.04(2.1) and (2.2), the motion judge must proceed cautiously in make findings of credibility especially on the record available on these types of motions. Lauwers J.A, speaking for the Court of Appeal explained in Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450, at para. 44, explained that:
“Evidence by affidavit, prepared by a party’s legal counsel, which may include voluminous exhibits, can obscure the affiant’s authentic voice. This makes the motion judge’s task of assessing credibility and reliability especially difficult in a summary judgment and mini-trial context.”
[45] As stated by Pepall J.A, in Butera v. Chown, Cairns LLP, supra at para. 33, a motion for partial summary judgment should be rare and reserved for those cases where the issues that may be readily bifurcated from those in the main action and that may be dealt with expeditiously and in a cost-effective manner. And, as she went on to explain: “Such an approach is consistent with the objectives described by the Supreme Court in Hryniak and with the direction that the Rules be liberally construed to secure the just, most expeditious, and least expensive determination of every civil proceeding on its merits.”
[46] The court agrees with the defendants’ position that given the conflicting evidence on the i material issues in dispute, there are genuine issues requiring a trial to determine what was the agreement between the plaintiff and the defendants, and the value, if any, of the plaintiff’s equity interest with either Gale LP, if the court were to accepts the plaintiff’s position, or Gale 43, if the defendants’ position were accepted. The nature of the agreement will require findings of credibility and the valuation will require the parties to place some evidence before the court to substantiate their respective positions. The number of possible scenarios urged upon the court to assess damages based on differing assumptions militates against the granting summary judgment.
[47] Without resorting to the court’s fact-finding powers, it is evident that on the record there is a genuine issue of credibility requiring a trial. In the circumstances, the court cannot fairly and justly adjudicate the dispute between the parties. It is impossible, based on the record, to determine what the agreement was between the parties with respect to the plaintiff’s equity interest. The offer of employment is silent on the equity interest. The letter or terms of reference setting out the terms of the plaintiff’s equity interest does not make specific reference to Gale LP (a partnership) or to Gale 43 (a corporation) but does makes reference to the plaintiff being subject to “drag along rights”. A summary judgment motion, or a partial summary judgment, would not result in in an affordable and proportionate procedure under Rule 20.04(2)(a) and would not lead to fair and just result.
DISPOSITION
[48] The motion for summary judgment, and the alternative relief for partial summary judgment, is dismissed.
COSTS
[49] If the parties cannot agree on costs, they may make submissions in writing limited to no more than three pages. The plaintiff shall deliver his submissions within twenty-five days (due to the intervening holidays) of the release of these Reasons for Decision followed by the defendants’ submissions within a further twenty days.
Ramsay J.
Released: December 31, 2020
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MARCO BAILETTI
Plaintiff
– and –
GALE PARTNERS LP, GALE PARTNERS INC. and GALE PARTNERS LLC
Defendants
REASONS FOR JUDGMENT
Ramsay J.
Released: December 31, 2020