Court File and Parties

COURT FILE NO.: CV-13-489853 MOTION HEARD: 20210412 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Robert Teti and ITET Corporation, Plaintiffs AND: Mueller Water Products Inc., Mueller Co., Mueller Canada Ltd., Mueller International, LLC and Mueller Systems, LLC, Defendants

BEFORE: Master Jolley COUNSEL: Abbas Kassam, Counsel for the Moving Party Defendants Lawrence Veregin, Counsel for the Responding Party Plaintiffs HEARD: 12 April 2021

REASONS FOR DECISION

[1] The defendants seek leave to add a counterclaim in this 2013 action for "a declaration dismissing the relief sought by the plaintiffs" (as noted in their factum). The reason behind the request is "to mitigate against the time, cost and effort of preparing for trial on all issues" and to "mitigate prejudice for the Plaintiffs' failure to appropriately narrow the issues in this proceeding".

Overview

[2] The plaintiffs seek a number of declarations against all the defendants relating to the alleged misuse of the plaintiffs' confidential information and intellectual property, including declarations that each defendant owed the specific duties to the plaintiffs and each defendant breached those duties.

[3] At paragraph 52 of their statement of defence, the defendants "request that the Plaintiffs' claim be dismissed with costs".

[4] Now they seek to add by way of counterclaim a declaration that the plaintiffs' declarations be dismissed and declarations that they do not owe the duties alleged and have not breached any duties. The proposed counterclaim is reproduced below:

53. The Defendants, by way of counterclaim, claim:

(1) A declaration that relief sought under paragraph 1 of the Claim be dismissed.

(2) A declaration that:

(a) None of Mueller Water Products Inc., Mueller Co., LLC, Mueller International, LLC or Mueller Systems, LLC owe any alleged duty to the Plaintiffs or either of them as pleaded in the Claim;

(b) None of the Defendants have:

(1) Breached any duty (or alleged duty) to the Plaintiffs, including but not limited to any alleged rights arising from any alleged relationship of confidence and trust, confidential information/intellectual property, good faith and/or specific performance;

(2) Concealed or misrepresented their activities from the Plaintiffs;

(3) Deceived or misled the Plaintiffs;

(4) Communicated or misused any alleged confidential information/intellectual property of the Plaintiffs;

(5) Enjoyed any "springboard" arising from the Plaintiffs' alleged confidential information/intellectual property or otherwise;

(6) Been enriched or unjustly enriched to the detriment of the Plaintiffs;

(7) Assigned any intellectual property to the Plaintiffs, or either of them, by way of contract or otherwise.

(2) [sic] Costs of and incidental to this counterclaim;

(3) Post-judgment interest on all monetary relief granted herein; and

(4) Such further and other relief as this Honourable Court deems just.

54. The Defendants repeat and rely upon all paragraphs noted above in the statement of defence.

55. The Defendants join issue with the allegations in the Claim.

[5] Given the nature of the relief sought, it is also worthwhile reproducing the grounds for the motion:

4. The action was commenced by statement of claim filed October 1, 2013, Amended November 9, 2015 ("Claim"), naming as defendants, Mueller Water Products Inc., Mueller Co., Mueller Canada Ltd., Mueller International, LLC. and Mueller Systems, LLC.

5. The Claim seeks inter alia a declaration:

(1) At ¶1(1)(b), that each of the Defendants had a duty to the Plaintiffs, in relation to all matters and activities relating to the Plaintiffs' intellectual property (including rights arising from the relationship of confidence and trust, or "confidential information"): (i) to act in good faith in relation to the Plaintiffs; (ii) to perform and complete their obligations to the Plaintiffs in a timely manner; (iii) to use the Plaintiffs' confidential information and intellectual property only for the purposes authorized by the Plaintiffs; (iv) not to conceal or misrepresent the Defendants' activities from the Plaintiffs; and (v) not to deceive or mislead the Plaintiffs;

(2) At ¶1(1)(c), that each of the Defendants had a duty to the Plaintiffs to use the Plaintiffs' confidential information and intellectual property only for the following limited authorized purposes: (i) completing the development and testing of the Plaintiffs' digital water control system (the "ITET Digital Water System") to ensure that such system met long term performance requirements; (ii) developing the methods, processes and tooling required to mass produce the ITET Digital Water System and meet market demand; and (iii) marketing the ITET Digital Water System to customers within North America;

(3) At ¶1(1)(d), that each of the Defendants had a duty to the Plaintiff to make a current, accurate, and complete good faith disclosure and accounting of: (i) all activities each of the Defendants conducted in relation to the Plaintiffs' alleged confidential information and alleged intellectual property; (ii) all uses made by each of the Defendant of the Plaintiffs' confidential information and intellectual property; and (iii) all progress made by each of the Defendants in furtherance of the purposes for which the Defendants had access to the Plaintiffs' alleged confidential information and alleged intellectual property;

(4) At ¶1(1)(e), that each of the Defendants had a duty to the Plaintiffs to make good faith disclosure to the Plaintiffs of all ideas, concepts, designs, developments, and works conceived or developed by any of the Defendants: (i) arising as a result of the Plaintiffs' alleged disclosure to the Defendants of the Plaintiffs' alleged confidential information and alleged intellectual property; or (ii) which are based upon, derived from, or otherwise enjoyed as a result of a springboard from the Plaintiffs' alleged confidential information and alleged intellectual property;

(5) At ¶1(1)(f), that each of the Defendants breached their duties to the Plaintiffs by: (i) using the Plaintiffs' confidential information and intellectual property for an unauthorized purpose; (ii) misleading the Plaintiffs regarding the activities of the Defendants' conduct in relation to the Plaintiffs' confidential information and intellectual property; (iii) failing to disclose to the Plaintiffs, works conceived or developed by any of the Defendants: (i) arising as a result of the Plaintiffs' disclosure to the Defendants of the Plaintiffs' confidential information and intellectual property; or (ii) which are based upon, derived from, or otherwise enjoyed as a result of a springboard from the Plaintiffs' confidential information and intellectual property; (iv) misleading the Plaintiffs regarding the prospects of the ITET Digital Water System being marketed and sold to the public; and (v) marketing and selling a digital water system based upon, derived from, or otherwise enjoyed as a result of a springboard from the Plaintiffs' confidential information and intellectual property, including the Defendants' product known as the "Mueller Systems 420 RDM", marketed and sold to the public in lieu of the ITET Digital Water System, for the sole benefit of the Defendants;

(6) At ¶1(1)(g), that each of the Defendants has communicated and misused the confidential information of the Plaintiffs to the benefit of the Defendants and to the detriment of the Plaintiffs;

(7) At ¶1(1)(h), that each of the Defendants has breached the confidence of the Plaintiffs;

(8) At ¶1(1)(i), that each of the Defendants has been unjustly enriched to the detriment of the Plaintiffs; and

(9) At ¶1(1)(j) imposing a constructive trust upon works conceived or developed by any of the Defendants: (i) arising as a result of the Plaintiffs' disclosure to the Defendants of the Plaintiffs' confidential information; or (ii) which are based upon, derived from, or otherwise enjoyed as a result of a springboard from the Plaintiffs' alleged confidential information, including the alleged confidential information embodied in the Defendants' product known as the "Mueller Systems 420 RDM", any improved, enhanced, or follow on system manufactured by or for the Defendants, which is based upon the Mueller Systems 420 RDM, or forming the subject matter of the Muller patent application (US Patent Application No. 13/149,720), and declaring that the Defendants holds same in trust for the Plaintiffs as the rightful owners of all such alleged confidential information;

6. There are numerous and various causes of action alleged against each and every defendant. After more than six (6) years of litigation there has been:

(1) Production of more than 4600 documents (consisting of nearly 23,000 pages) by the Defendants;

(2) Extensive cross examinations that have occurred on two affiants for the Plaintiffs and four for the Defendants (arising from a motion for partial summary judgment which has been adopted as part of the discovery of the parties);

(3) Two (2) rounds of examinations for discoveries by two different counsel for the Plaintiffs;

(4) Uncontested evidence that the defendants Mueller Water Products Inc. and Mueller Systems, LLC were not even in existence in 2002 when the Confidentiality Agreement was entered into by Mueller Canada;

(5) Uncontested evidence that Mueller Systems, LLC did not even exist in 2009 with the 2009 Agreement was entered into by Mueller Canada;

(6) Numerous admissions, both in the pleadings and on discoveries that inter alia:

(a)The ITET Digital Water System was (i) openly and continuously disclosed to the public from at least as early as 2003 through to the present; and (ii) represented by and disclosed in Canadian Patent Application No. 2,476,119 (the "119 Patent"), which was made publicly available on February 1, 2005;

(b)Mueller Systems LLC began development of the impugned 420 RDM approximately seven years after the Plaintiffs' initial disclosure of its ITET Digital Water Systems and almost five (5) years after the 119 Patent was disclosed to the public.

7. None of the alleged causes of action have been withdrawn or narrowed.

8. In light of the time and cost of preparing for trial on all grounds, the Defendants seek to add a counterclaim asking for a declaration that the relief sought under paragraph 1 of the Claim be dismissed with costs.

9. The proposed amendment does not seek to add any new parties nor any new causes of action. As such, no additional discovery is required by the amendment nor will allowing the amendment cause any delay in the action.

[6] The moving parties filed two affidavits from a law clerk with their law firm. The first affidavit attached the various pleadings. The second attached primarily corporate standing documents for the defendants and also exhibited an earlier affidavit sworn by Mr. Teti.

Purpose of the counterclaim

[7] The defendants are candid in their materials that this motion is about protecting their costs. As they have stated in their factum,

22. As noted above and even after the Plaintiffs have changed counsel, the Plaintiffs are maintaining their assertion of numerous and various causes of action alleged against each and every defendant despite the there being uncontested evidence that several of the causes of action asserted against various defendants have no reasonable prospect of success.

23. Preparing for trial for each and every cause of action against each and every Defendant will require significant time, effort and cost.

24. Granting leave to add the Counterclaim mitigates the risk the Defendants face should the Plaintiffs choose to narrow the issues before trial but after the Defendants have expended significant time, effort and cost in preparation for all issues as currently plead.

[8] As noted by Master McLeod, as he then was, in Rooftek Canada Inc. v. 614730 Ontario Inc. 2007 ONSC 48646, paragraph 7:

7. Rule 26.01 creates a presumption that an amendment should generally be granted on appropriate terms at any stage of an action up to and including the trial. This falls short of an absolute right to amend. Leave will be withheld if the pleading is improper or if prejudice is created that cannot be remedied by either costs or an adjournment or both. Leave will also be withheld if the motion to amend is an abuse of process.

8. ... As always the court must also be alert to tactical attempts to add a counterclaim in circumstances that constitute abuse of process.

[9] Having carefully reviewed the counterclaim, I find it to be duplicative of the defence. By its own admission, it does not add any issue not already covered in the pleadings as they stand. What is does do is present an impediment to any potential resolution of this action.

[10] The defendants have clearly stated that if the plaintiffs seek leave to withdraw any portion of their claim and the defendants believe that insufficient costs are ordered payable by the plaintiffs on such a withdrawal motion, they will maintain their counterclaim. The result will be that an issue the plaintiffs no longer wish to pursue remains on the table to be adjudicated by the court. By way of example, assume the plaintiffs obtain leave to withdraw the allegation that the defendants hold certain property as constructive trustees for the plaintiffs. The result of the counterclaim will be that the defendants will lead evidence and argue that they do not hold the work as constructive trustee, a point the plaintiffs are no longer pursuing. And this issue will take court and parties' time and resources solely to deal with any costs that were incurred to defend the constructive trust argument beyond those awarded to the defendants on the withdrawal motion.

[11] While the rationale of the motion is to deal with the "time and costs of preparing for trial on all grounds", the addition of this counterclaim would as much as guarantee that the parties would continue those costs through to trial of the counterclaim.

[12] To speak of requiring a counterclaim to ensure the plaintiffs do not narrow the issues for trial seems purely tactical and an improper rationale for a pleading.

Dependence of the counterclaim on the main claim

[13] Second, a counterclaim must be an independent claim, not one wholly dependent on the main action (Rooftek Canada Inc, v. 614730 Ontario Inc., supra). The plaintiffs relied on the reference to Buchan Oil Ltd. v. Petro-Canada (1986) 12 C.P.C. (2d) 181 (Ont. H.C.), in Coderre v. Lambert (1993) 1993 ONCA 8666, 14 O.R. (3d) 453. In Buchan Oil, the defendant agreed to sell and the plaintiff agreed to buy part of the defendant's business. The agreement contained a non-competition clause restricting the activities of the defendant seller. The defendant denied that the intention of the agreement was as claimed by the plaintiff and it raised rectification in its defence. It further commenced a counterclaim seeking both rectification and a declaration that it did not breach the agreement. The court struck the counterclaim, finding that the claim for rectification was raised in the defence and could be granted without the requirement of a counterclaim.

[14] A declaration such the one sought by these defendants to dismiss the relief sought in paragraph 1 of the statement of claim is by its language dependent on the claim and is already covered in paragraph 52 and elsewhere of the statement of defence.

Timing of the Request

[15] Lastly, there is the further matter of the timing of this motion. The action was commenced in October 2013 and the last filed pleading, the defendants' sur-reply is dated 1 April 2016. The matter was set down for trial on 26 November 2019. Eight years into the action and five years after the last pleading, the defendants have determined they require a counterclaim. As stated in 588444 Ontario Ltd. v. State Farm Fire and Casualty Company, 2017 ONCA 42, delay in bringing a motion such as this is relevant. "At some point the delay in seeking an amendment will be so lengthy and the justification so inadequate, that prejudice to the responding party will be presumed."

[16] There is nothing in the defendants' materials addressing why this motion was brought so late in the day and nothing rebutting or even addressing the presumption of prejudice.

Conclusion

[17] Considering the purpose of the counterclaim, its dependence on the claim, its overlap with the defence and the timing of the request, I do not find that it would be just in all the circumstances to grant the amendment to assert a new counterclaim.

[18] The plaintiffs do not oppose the addition of the heading amendments sought by the defendants and that portion of the motion is granted. The balance of the motion is denied.

[19] If the parties are unable to agree on costs by 11 June 2021, they may each file a costs outline and costs submissions no more than three pages in length by email to my assistant trial coordinator, Ms. Meditskos at Christine.Meditskos@ontario.ca.

Master Jolley

Date: 12 May 2021