Court File and Parties

Court File No.: CV-20-2518 Date: 2021-02-17 Ontario Superior Court of Justice

Between: Viana Canada Inc., Plaintiff And: Sartotex Inc. and Claudio Baldo, Defendant

Counsel: G. Hemsworth, for the Plaintiff A. Colangelo, for the Defendant

Heard: January 26, 2021

Before: Casullo J.

Reasons for Decision

Overview

[1] The Plaintiff, Viana Canada Inc., has brought an action against the Defendants, Sartotex Inc. and Claudio Baldo, seeking a permanent injunction and damages arising from Mr. Baldo’s breach of, inter alia, his fiduciary duty, and his duty of good faith and fidelity.

[2] Against this backdrop, the Plaintiff brings the within motion for an interlocutory injunction and mandatory Order restraining the Defendants from:

• Contracting with or soliciting any customers of the Plaintiff;
• Directly competing with the Plaintiff’s business;
• Contracting with or soliciting any of the suppliers of the Plaintiff;
• Utilizing for their personal advancement any confidential information about the company’s business operations, business practice, customers, or suppliers;

[3] The Plaintiff also seeks an Order directing the Defendants to remove any promotional material, sample books, or advertising from any customer of the Plaintiff or from any published or social media platform.

[4] During submissions the Plaintiff clarified it was seeking the injunction for a period of 18 months commencing April 1, 2020 to October 1, 2021, April 1, 2020 being the first day Mr. Baldo no longer worked for the Plaintiff.

Facts

[5] The Plaintiff is an importer and distributor of premium textiles for men’s suits, jackets and related garments. The Plaintiff submits it was the exclusive distributor in Canada or the US, or both, for most of its suppliers, including Ermenegildo Zegna, Gattonero, and the Ariston Collection. The Ariston Collection represents a substantial percentage of the Plaintiff’s purchases and sales.

[6] The Plaintiff distributes by way of direct sales to businesses in the clothing industry, including tailors, makers and manufactures, and bespoke shops. The Plaintiff also provides customers with the various collections via web/digital displays and swatch books.

[7] The Defendant Baldo moved to Canada in 1988, with the assistance of Antonella Favaro, president of the Plaintiff. Mr. Baldo lived with Ms. Favaro and her family for his first ten years in Canada.

[8] Mr. Baldo began working for the Plaintiff in 1989 as a sales assistant, and by 2000 had worked his way up to sales manager, reporting only to Ms. Favaro. There is no written employment contract, and no non-compete agreement.

[9] By 2019 the Plaintiff was increasingly expanding into the US. The division of labour shifted slightly, with Mr. Baldo remaining sales manager primarily in Canada, and Ms. Favaro’s son taking on the mantle of sales manger for the US market.

[10] According to Mr. Baldo, Canadian sales volumes were dropping, and Ms. Favaro’s son was being groomed to assume greater and greater responsibility. He believed his prospects of a stable retirement were in jeopardy.

[11] In late June, 2019, Mr. Baldo told Ms. Favaro it was time for him to retire, so he could focus his energy on his own company – a small fabric import business that would not compete with the Plaintiff. He had incorporated the Defendant, Sartotex Inc., through which he would distribute a lower-end Italian fabric called Style Biella. Whether Mr. Baldo told Ms. Favaro about Sartotex and Style Biella at this time is disputed.

[12] That Style Biella was of a lesser quality was reflected in its price list: pricing for its suit fabrics ran from $65-$450, where Viana’s suit fabrics were priced between $58-$900.

[13] During the June 2019 meeting Ms. Favaro asked Mr. Baldo to postpone his retirement for one year to allow her time to replace him. In exchange, his workweek would be reduced to three days, allowing him to devote the remaining two days to developing his company. His salary was reduced by $2,000 per month to reflect this decrease in hours.

[14] A couple of months later, Mr. Baldo received a letter from Ms. Favaro, confirming his fiduciary obligations to the Plaintiff. Mr. Baldo reiterated that his intent was not to complete with the Plaintiff, but to distribute a lower-end fabric that would have no effect on the Plaintiff’s business or market share.

[15] This arrangement suited all parties until the advent of COVID-19, when the Plaintiff’s operations were shut down on March 27, 2020. What happened thereafter is also in dispute. According to the Plaintiff, Mr. Baldo retired as of March 27, 2020. Mr. Baldo takes the position that he was terminated as of March 27, 2020, a 30-year employee without reasonable notice or severance. He has counterclaimed against the Plaintiff for wrongful dismissal.

[16] On April 15, 2020, the Plaintiff advised its customers that Mr. Baldo was retiring, thanking him for his 30 years of dedicated service, and wishing him success in his future endeavors.

[17] When the Plaintiff’s operations were back up and running in August 2020, Ms. Favaro’s son began to notice sample books from Sartotex, for the Style Biella line, when visiting customers. In her affidavit Ms. Favaro states that these customers told her son Mr. Baldo solicited their business directly for the Ariston Collection, as well as other premium fabrics carried by the Plaintiff.

[18] It was around this time that the Plaintiff received a call from the manufacturer of the Ariston Collection. The owner, Mr. Imparato, advised that the Ariston Collection would now be distributed in Canada through Mr. Baldo and/or Sartotex.

[19] The Plaintiff alleges that Mr. Baldo solicited Imparato to gain the Ariston Collection for himself. Mr. Baldo denies this assertion, and has provided a letter from Mr. Imparato confirming it was he who had reached out to Mr. Baldo, a couple of months after he left the Plaintiff in June 2020, and offered him the distributorship.

Positions of the Parties

Plaintiff

[20] The Plaintiff submits that Mr. Baldo began surreptitiously competing with the Plaintiff’s business before leaving its employ, and continued to approach and solicit the Plaintiff’s suppliers and customers thereafter, with a view to supplanting the Plaintiff in the marketplace as the exclusive distributor of many of the fabrics it imports from Italy. These actions constitute a breach of his employment contract with the Plaintiff.

[21] Further, despite oral and written notice, the Defendants continue to compete and breach the fiduciary duty owed to the Plaintiff, causing the Plaintiff irreparable harm in loss of income, loss of market share, and loss of goodwill.

[22] Additionally, Mr. Baldo owed a duty of confidentiality to the Plaintiff with respect to its trade secrets, customer lists, special knowledge of customers’ requirements, and total operations.

Defendants

[23] Mr. Baldo denies any wrongdoing. In his view he is entitled to conduct his new business with customers of his choosing. He denies soliciting any of his previous customers with the Plaintiff.

Analysis

[24] An injunction is an extraordinary remedy that should only be issued to restrain a clear breach of legal obligations. The leading authority in respect of injunctions remains RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, which sets out the following test for an interlocutory injunction:

a) Is there a serious issue to be tried? b) Will the party seeking the injunction suffer irreparable harm if the injunction is not granted? c) Does the balance of convenience weigh in favour of granting an injunction or denying it?

Serious Issue or Strong Prima Facie Case

[25] The Supreme Court in RJR MacDonald indicated that, while rare, there are exceptions where the “serious issue to be tried” is elevated to the more stringent “strong prima facie case”: RJR MacDonald, at para. 339.

[26] This is so where a plaintiff seeks to enforce restrictive covenants restraining former employees from competing or soliciting customers. See for example Boehmer Box L.P. v. Ellis Packaging Ltd., where Brown J. (as he then was), elucidated when this higher standard would be applicable at para. 39:

…when the injunction sought is intended to place restrictions on a person’s ability to engage in their chose vocation and to earn and livelihood, the higher threshold of a strong prima facie case is the more appropriate test to be applied.

[27] The strong prima facie case threshold is an extremely high bar to meet. In Benayoune, Justice Matheson reasoned that the moving party bears the onus of showing that the case is almost certain to succeed: Benayoune & Associates FZE v. Kanata Chemical Technologies Inc., 2014 ONSC 5874, at para. 40.

[28] The “strong prima facie case” has been held to apply in cases where the moving party seeks an interlocutory injunction alleging breach of post-employment fiduciary obligations. For example, Lockwood Fire Protection Ltd. v. Jason Caddick et al., 2015 ONSC 6320, where Dunphy J. held, at para 36:

If the strong prima facie case test applies to express restrictive covenants, it ought in my view to apply as well to a restrictive covenant which the plaintiff effectively seeks to imply by alleging the existence of fiduciary duties and a breach of them.

[29] Practically speaking, the injunctive relief sought by the Plaintiff would render Mr. Baldo unable to earn a living until October 1, 2021. As such, the higher strong prima facie case standard applies.

[30] Is Mr. Baldo a fiduciary of the Plaintiff? The criteria to consider when determining whether such a relationship exists was set out by Whitten J. in Guzzo v. Randazzo, 2015 ONSC 6936 at para. 107:

The three hallmarks of a fiduciary relationship which emerged from these [Supreme Court of Canada] decisions were:

1. The fiduciary has scope for the exercise of some discretion or power;
2. The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interest; and
3. The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power (as set out in para. 49 of Imperial Sheet Metal Ltd., supra).

[31] Mr. Baldo submits he was not a fiduciary, as he was not the final decision maker at Viana. No one reported to him or worked under his direction. For example, a decision to accept a particular fabric from a supplier rested with Ms. Favaro, not Mr. Baldo. While he was the “face” of Viana to its customers, he held no true power in the company. Also, toward the end of his tenure, he was working reduced hours, and at a reduced salary.

[32] I find that Mr. Baldo was a fiduciary. However, this does not automatically mean he is estopped from carrying on business with prior customers of the Plaintiff. As Price J. held in John A. Ford & Associates Inc. (c.o.b. Training Services) v. Keegan, 2014 ONSC 4989 in outlining the scope of the duties owed by former fiduciary employees (para. 175):

Even former employees who are fiduciaries are not prohibited from competing with their former employer altogether, provided they do so “fairly”. Even a fiduciary employee, absent a valid agreement or statutory restriction, has the right to compete directly against his former employer. A fiduciary, under some circumstances, may even do business with a former employer’s customer when the customer has sought out the fiduciary. If a customer of the former employer comes to the fiduciary from the former employer because of the fiduciary’s reputation, or the customer’s personal relationship with the fiduciary, there is generally no breach of the employee’s fiduciary duty. The mere fact that a former customer of the employer becomes a customer of the employee very soon after the termination of the employee’s employment is not sufficient, in and of itself, to establish solicitation by the employee.

[33] Price J. further reasoned that “a former employee may take to his/her new position skills and general knowledge acquired in the course of his former employ, and use them to compete against the former employer”: John A. Ford, at para. 176.

[34] This is precisely what Mr. Baldo has done. There is no evidence that he solicited the Plaintiff’s customers. He did not send out letters advising that he was leaving the Plaintiff and starting his own company.

[35] In respect of the Ariston Collection, it was Mr. Baldo who was solicited by the owner of the company, not the other way around. And the connection came months after Mr. Baldo was no longer working for the Plaintiff. Mr. Baldo does not appear to have made this decision lightly – his affidavit sets out that he mulled over the decision for almost two weeks before he agreed to take on the Ariston Collection.

[36] Nor was there anything untoward about Sartotex’s sample books being in the offices of the Plaintiffs’ customers. This is how fabrics are introduced to customers. Ms. Favaro was fully aware that Mr. Baldo had another business – she had agreed to reduce his time and salary at Viana, allowing him to grow his line of business as he transitioned out of the company.

[37] As Mr. Baldo told Ms. Favaro, and continues to maintain, he does not intend to compete directly with Viana. The Style Biella line is not in direct competition with the high-end fabrics distributed by the Plaintiff. While the material may be sold to the same customers, it is intended for a different market.

[38] The Plaintiff has not met the high hurdle of demonstrating a strong prima facie case. The necessary evidentiary foundation has not been established. Despite alleging that Mr. Baldo solicited its customers, there are no will-say statements, or affidavits, confirming this. Similarly, there is no evidence that Mr. Baldo approached the Plaintiff’s suppliers. In her cross-examination, Ms. Favaro confirmed she had no written evidence that Mr. Baldo solicited a supplier.

[39] As I have found that the Plaintiff has not established a strong prima facie case, it is not necessary for me to address irreparable harm or the balance of convenience, but I will do so briefly.

Irreparable Harm

[40] Irreparable harm is described in RJR MacDonald as follows (at para. 341):

“Irreparable” refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or cannot be cured, usually because one party cannot collect damages from the other.

[41] The moving party must produce clear evidence of irreparable harm. Interlocutory injunctions should not be granted where the evidence of harm is speculative. Irreparable harm has not been made out simply because damages might be difficult to quantify: Stress-Crete Limited v. Harriman, 2019 ONSC 2773, at paras. 58 and 59.

[42] The Plaintiff submits that the Defendants have supplanted it as the exclusive distributor in Canada for the Ariston Collection, a line that constitutes a major portion of its sales and profit. The difficulty with this argument is that there is no written agreement confirming the Plaintiff’s exclusive status as exclusive distributor. While Ms. Favaro submits the Plaintiff has a verbal agreement to this effect, the reality is that Imparato can choose to work with whatever distributor it wants to. It is noteworthy that of its many suppliers, the Plaintiff has a written agreement with only two of them.

[43] The loss of the Ariston Collection no doubt impacts the Plaintiff’s bottom line, but this cannot be laid at the feet of the Defendants.

[44] Similarly, Mr. Baldo is entitled to distribute the Style Biella line to his prior customers at Viana. The line is not in direct competition with the Plaintiff. The Plaintiff argues that Mr. Baldo appropriated for himself a corporate opportunity (distributorship of Style Biella) that properly belonged to Viana. If the trier ultimately finds favour with this submission, then damages will be an alternate remedy.

Balance of Convenience

[45] When considering where the balance of convenience lies, the court must determine which of the two parties will suffer the greater harm if the interlocutory injunction is granted or refused? Put another way, does the benefit the Plaintiff will gain if the injunction is granted, outweigh the inconvenience to the Defendants if the motion fails?

[46] For the following reasons, I find the balance of convenience strongly favours the Defendants, and is not offset by the irreparable harm the Plaintiff says it will suffer if the interlocutory inunction is not granted:

a) Mr. Baldo has been distributing Style Biella since June 2019. The injunction would accomplish nothing for the Plaintiff (it was never a distributor of this line), and would destroy the Defendants’ business; b) Mr. Baldo has not competed unfairly with the Plaintiff. He told the Plaintiff he wanted to retire and run his own business. Ms. Favaro persuaded him to delay his retirement, and allowed him to develop his company while still working for the Plaintiff. There was nothing unfair in this arrangement, facilitated as it was by the Plaintiff. c) The injunction would also have an impact on Imparato, which chose to distribute the Ariston Collection through the Defendants. While this does not elevate the balance of convenience consideration to the public interest level referenced in RJR MacDonald (see para. 343), the supplier should be entitled to conduct its business in the manner it deems most appropriate.

Conclusion

[47] The motion is dismissed.

[48] Counsel are encouraged to agree on costs. If they are unable to do so, they may arrange a short costs hearing, before me, through the Trial Coordinator. Concise briefs are to be filed at least two days prior to the hearing. If no arrangements are made within 30 days for an appointment to speak to costs, there will be no order for costs.

CASULLO J. Released: February 17, 2021