Court File and Parties

COURT FILE NO.: CV-17-57804 DATE: 2021/03/11 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: MILLER BERNSTEIN LLP et al., Plaintiffs AND: SHAPERO et al., Defendants

BEFORE: MASTER RONNA M. BROTT

COUNSEL: R. Slattery, for the Plaintiff Email: rslattery@mindengross.com

C. Amsterdam, for the Non-Party Deloitte LLP Email: Cynthia.amsterdam@advocacy4cpas.com

J. Larry/D. Glatt, for the defendant Shapero Emails: jeff.larry@paliareroland.com/ danielle.glatt@paliareroland.com

Endorsement

[1] The plaintiff Miller Bernstein LLP (“the plaintiff”) is an accounting firm. It brings this motion to compel the non-party Deloitte LLP (“Deloitte”), to produce copies of documents listed in Exhibits “J” and “L” to the Affidavit of Fred Birnbaum sworn October 20, 2020 which includes, inter alia, Deloitte’s working paper files for two specific clients with respect to their 2017 Audit Engagement, Deloitte’s audit fieldwork, and all Knowledge of Business Working Papers. The defendant, Richard Shapero, (“the defendant”) and the non-party Deloitte have refused to make disclosure of the files.

[2] The plaintiff alleges that when the defendant departed from the plaintiff partnership in May 2017, and after confirming to them that he had returned all computer devices and documentation and that he had taken no confidential information, he misused and misappropriated confidential proprietary data belonging to the plaintiff. The defendant is currently a partner at Deloitte LLP.

[3] In June 2018, as a result of an investigation into the departure of another partner, the plaintiff requested that the defendant return his hard drive and then learned that the defendant had downloaded onto an external hard drive, thousands of confidential and proprietary files of Miller Bernstein clients.

[4] On July 6, 2018 the plaintiff requested that the defendant return the hard drive and provide a list of documents contained on the hard drive. Later that month he provided a list of approximately 37 files.

[5] The examination for discovery of the defendant proceeded on November 22, 2018. He testified that the lists produced to plaintiff’s counsel in July 2018 comprised all of the Miller Bernstein documents that had been downloaded onto his hard drive.

[6] After his examination for discovery, the defendant’s hard drive was reviewed by a forensic intelligence firm which reported that there had been two major downloads of documents onto an external hard drive – on April 3, 2016 and May 2017. They also reported that from July 9-12, 2018 approximately 194,000 documents were deleted and sent to the external hard drive’s recycle bin. As well, on July 8, 2018, approximately 56,000 files were “accessed” – possibly copied onto another computer or external storage device.

[7] The plaintiff alleges that between July 9 and July 12, 2018, days after service of this motion, the defendant moved to the hard drive’s recycle bin, 194,000 files, and those files are now unidentifiable as they have been damaged beyond repair. As well, the plaintiff alleges that 58,000 files were copied to another electronic device. It was only when the plaintiff arranged for analysis by a computer expert that it learned of the deletions.

[8] Two client groups had been with the plaintiff for decades. These clients had reporting deadlines applicable to their annual audit of financial statements and tax filings for fiscal 2017. These clients are now Deloitte’s clients. The plaintiff submits that the only way for them to have accomplished their accounting filings in such a short time frame would have been to use the Miller Bernstein documents downloaded onto the Shapero hard drive. The plaintiff’s expert’s preliminary opinion is that in the absence of Deloitte’s review of the Miller Bernstein’s prior year client working paper files it would have been difficult for Deloitte to have completed the task, The expert seeks disclosure of the documentation in order to determine if Deloitte obtained proprietary information and further to determine the manner in which files were transferred.

The Law

[9] Rule 30.10 of the Rules of Civil Procedure provides that the Court may, on motion by a party, order production for inspection of a document that is in the possession, power or control of a non-party where the court is satisfied that:

a) The document is relevant to a material issue in the action; and

b) It would be unfair to require the moving party to proceed to trial without having discovery of the document.

[10] The moving party on the motion holds this burden. The threshold for granting an order for production of documents from a non-party is high.

[11] A document is defined in the Rules of Civil Procedure as including data and information in electronic form.

[12] The issue of relevance is determined by the pleadings. The defendant argues that the plaintiff has not demonstrated that “the wide sweeping request for production of non-party confidential and proprietary documentation in the possession of Deloitte, relating to the fiscal 2017 audit and assurance engagements of the two client groups” is relevant to any material issue in the action.

[13] The leading case in Ontario is Ontario (Attorney General) v Stavro in which Justice Ground held that “it is in the public interest to ensure that all relevant evidence is available to the court. This is essential if justice is to be done between the parties”.

[14] In paragraphs 16-28 of the Amended Amended Statement of Claim the plaintiff has pleaded that the defendant used the plaintiff’s documentation for his own benefit and to the detriment of the partnership, contrary to his contractual and fiduciary obligations to the partnership.

[15] Accordingly, in my view, the plaintiff has satisfactorily demonstrated that the Deloitte records are relevant to the issues of both liability and damages in this action. As well, the plaintiff’s expert has indicated that a review of the documents is necessary in order to complete his report on the likely use of the documents by the defendant and to confirm the extent to which proprietary information on the hard drive was used.

[16] In regards to the second requirement of Rule 30.10, to decide whether it would be unfair to require the plaintiff to proceed without a review of the requested documents, the Court of Appeal in Stavro set out the following factors to consider on a Rule 30.10 motion:

(i) The importance of the documents in the litigation;

(ii) Whether production at the discovery stage of the process as opposed to production at trial is necessary to avoid unfairness to the applicant;

(iii) Whether the discovery of the defendants with respect to the issues to which the documents are relevant is adequate and if not, whether responsibility for that inadequacy rests with the defendants;

(iv) The position of the non-parties with respect to production;

(v) The availability of the documents or their informational equivalent from some other source which is accessible to the moving parties.

(vi) The relationship of the non-parties from whom production is sought, to the litigation and the parties to the litigation. Non-parties who have an interest in the subject-matter of the litigation and whose interests are allied with the party opposing production should be more susceptible to a production order than a true “stranger” to the litigation.

Importance

[17] There is evidence that the documents are necessary in order for the expert to finalize his/her opinion.

Production at the discovery stage rather than trial

[18] The documents are necessary in order that the expert may finalize the opinion prior to trial.

Whether discovery of the defendants on the issues is adequate

[19] The defendant’s position is that he has no power over the requested documents. The defendant’s evidence when he was examined for discovery was that his list contained all of the documents which had been downloaded. There is now evidence that the defendant’s testimony was inaccurate. Further, once the defendant learned that the plaintiff knew of the downloaded documents and was requesting delivery of the hard drive, the defendant then deleted an additional 194,000 documents. He asserts that what may or may not have been deleted from the hard drive is not relevant as it consists of his own correspondence and personal information. He submits that it should be left to the trial judge to determine what if anything was deleted from the hard drive. Due to the inaccuracy and changing story by the defendant, I find his discovery evidence to be inadequate. While I understand that the defendant does not wish to delay the action and the trial, it is unquestionably in the public interest that all relevant documentation be available to ensure fairness to all parties.

The position of the non-parties

[20] Deloitte is opposed to producing the documents. First they assert that they are irrelevant as the plaintiff has failed to provide a link between what is on the hard drive and what was possibly used by Deloitte to conduct the audit. As well, they submit that it would be an egregious intrusion on the confidentiality and proprietary interests of Deloitte and its underlying clients. It is their further submission that the documents are client documents belonging to the clients and not to Miller Bernstein.

[21] As noted above, I find that the documentation is relevant. The concerns with respect to clients’ information can be protected by way of sealing order and non-disclosure agreement between the parties.

The availability of the documents

[22] Deloitte takes the position that because the plaintiff has access to the defendant’s hard drive and laptop, it is incumbent upon them to identify which documents were accessed during the Deloitte audit and which, if any, were deleted. The evidence is clear that many of the files have been destroyed and are completely inaccessible. The plaintiff therefore cannot compare the two.

The relationship of the non-parties from whom production is sought, to the litigation and the parties to the litigation

[23] Deloitte is not a stranger to this litigation. The defendant departed from the plaintiff’s partnership and joined the non-party’s partnership. The plaintiff’s expert is of the view that the documents being sought are ‘similar to’ those the defendant downloaded and presumably deleted for the same clients. The defendant denied accessing the hard drive while employed at Deloitte yet the plaintiff’s expert found 194,000 deletions after the defendant’s examination for discovery and while employed at Deloitte. The plaintiff must be entitled to test the allegation that the defendant misused the confidential information.

[24] The plaintiff alleges a breach of fiduciary duty. There is clearly evidence that the defendant downloaded documents before his departure from the plaintiff’s partnership. Further, shortly after learning that the plaintiff became aware of his downloading actions, it is clear that he deleted numerous documents from the hard drive. Although the defendant did provide a list of what he alleges was on the hard drive, including what was subsequently deleted, that list is far shorter than the 194,000 documents that the expert found. The fact that the deletions were initially denied by the defendant raises suspicion. It is clear that the defendant was not entitled to take the information but he did so in any event. The evidence and the pleadings demonstrate that the Stavro factors support production of the requested records.

Order and Costs

[25] The motion is granted and production of the documents listed in Exhibits “J” and “L” to the Affidavit of Fred Birnbaum dated October 20, 2020 shall be produced for inspection within 45 days. The production shall be subject to a non-disclosure agreement to be agreed upon by counsel to address all issues of client confidentiality. The names of any clients shall be sealed.

[26] Counsel agreed following the hearing to attempt to resolve the issue of costs within thirty (30) days following release of the Endorsement. If unable to come to an agreement on costs, the moving party shall serve and file a Costs Outline together with brief submissions (1-2 pages) within 15 days, and within 15 days thereafter, the responding parties shall serve and file their Costs Outlines and submissions. There shall be no reply submissions on the issue of costs without leave of the court.

MASTER RONNA M. BROTT Date: March 11, 2021