Court File and Parties
COURT FILE NO.: CV-23-00693289-00CL DATE: 2023-09-21 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: NOBUL TECHNOLOGIES INC., Applicant
AND: SCOTT REED, ADAM JACOBS, MARTHA SIMMONS aka MARTHA COHEN, SUSAN MCGEE, MICHAEL CAPPUCCITTI, MITCHELL STEVEN COHEN, K2 & ASSOCIATES INVESTMENT MANAGEMENT INC., K2 PRINCIPAL FUND L.P., K2 PRINCIPAL TRUST, and SHAWN KIMEL, Respondents
BEFORE: THE HONOURABLE JUSTICE JANA STEELE
COUNSEL: Shaan Tolani and Nathan Shaheen for the Applicant Eric Morgan for the Respondent Michael Cappuccitti Tyler Morrison for the Respondents K2 & Associates Investment Management Inc., K2 Principal Fund L.P., and K2 Principal Trust
HEARD: April 17, 2023
Endorsement of Justice Steele
[1] This is a motion by the plaintiff, Nobul Technologies Inc. (“Nobul”), for a prospective order restraining one of the defendants, Michael Cappuccitti, from contravening the non-disparagement provision to which Mr. Cappuccitti agreed to be bound as a former Nobul director. I note that Nobul’s notice of motion initially sought different relief, specifically an order restraining Mr. Cappuccitti from using Nobul shareholder contact information obtained directly or indirectly from Nobul to communicate directly or indirectly with Nobul shareholders.
[2] This motion is about emails sent on one day, over a month a half ago, by Mr. Cappuccitti to shareholders (and others) informing them about his statement of claim against Nobul.
[3] Mr. Cappuccitti was formerly a member of Nobul’s board of directors. He is also a beneficial holder of Nobul shares. Nobul’s position is that this motion is to prevent Mr. Cappuccitti from contravening the non-disparagement clause to which he agreed to be bound as a former Nobul director. Mr. Cappuccitti submits that Nobul is attempting to prevent shareholder communication and discourse.
[4] At the outset, Nobul specified that it was proceeding today without prejudice to any position that Nobul may take with regard to a future disqualification motion regarding K2’s counsel.
Background
[5] Nobul is a widely held private company incorporated under the Business Corporations Act (Ontario) (the “OBCA”).
[6] Mr. Cappuccitti was appointed as a director of Nobul in November 2021 and continued to serve as a director until October 2022. Mr. Cappuccitti resigned as a director in October 2022 along with certain other defendants.
[7] Since 2020, Mr. Cappuccitti has also been a beneficial holder of Nobul shares through his holding companies, including Rockap Holdings Inc. and Permian Properties Canada Inc. (the “Cappuccitti Holding Companies”). Mr. Cappuccitti exercises complete control over the Cappuccitti Holding Companies for the purpose of investing.
[8] The within proceeding was commenced by Nobul on January 20, 2023 (the “Nobul Action”). In this proceeding, Nobul alleges breaches of fiduciary duties by Mr. Cappuccitti and other recently former directors of Nobul, along with other causes of action. Nobul further alleges that Mr. Cappuccitti and the other former directors (a) purposely undermined Nobul’s capital-raising efforts, (b) misused confidential and proprietary company information, and (c) colluded with a hedge fund to take control of Nobul, all in preference to their own interests over Nobul’s and its other stakeholders.
[9] The next day, Regan McGee, Nobul’s chairman and CEO sent an email to shareholders (the “McGee Email”), entitled “shareholder update,” which stated:
Dear Shareholders,
In accordance with my duties as Chairman and CEO, I write to you with an important update on the Company’s affairs.
Nobul has sued certain recently departed directors (Mitchell Cohen, Scott Reed, Adam Jacobs, Michael Cappuccitti, Martha Simmons and Susan McGee), as well as Shawn Kimel and K2 & Associates Investment Management Inc. and its related entities, as reflected in the attached Statement of Claim. The Statement of Claim was filed with the Ontario Superior Court of Justice yesterday.
Nobul intends to vigorously pursue its claim, and, as always, we will continue to act in your best interests as the Company’s stakeholders in doing so.
In light of the available evidence, we hope and expect to resolve this matter expeditiously.
[10] On February 24, 2023, the Cappuccitti Holding Companies commenced a separate action against Nobul, Regan McGee, Vice-Chair Rebecca Levy, and CFO Lisa Coulman (the “Rockap Action”). The Rockap Action alleges fraudulent and negligent misrepresentation, among other things, regarding the purchase of shares in Nobul.
[11] Mr. Cappuccitti requested that Nobul circulate a copy of the statement of claim in the Rockap Action as a material development in respect of what the company had already disclosed to shareholders when it circulated the Nobul Action statement of claim. Mr. Cappuccitti’s evidence was that his counsel wrote to Nobul’s counsel requiring Nobul to circulate the statement of claim in the Rockap Action “to ensure transparency to shareholders, so that they would be made aware of the allegations made against the company and others, particularly in light of Nobul’s previous circulation of the statement of claim in this proceeding.” The February 27, 2023 letter from Mr. Cappuccitti’s counsel to Nobul’s counsel (the “February Letter”) stated: “Our clients require that the statement of claim be circulated to all Nobul shareholders, along with the message below, to ensure that the shareholders are aware of the allegations made against the company and others, and in light of your client’s previous circulation of the statement of claim in the proceeding bearing Court File No. CV-23- 00693289-00CL.”
[12] In the February Letter, Nobul was also informed that Mr. Cappuccitti intended to circulate the statement of claim himself if Nobul did not so.
[13] Nobul refused to circulate the Rockap Action statement of claim.
[14] On March 1, 2023, Mr. Cappuccitti sent four emails to Nobul shareholders, attaching the statement of claim in the Rockap Action (the “Cappuccitti Email”). The four emails were not all to the same people (they were sent in groupings because of the number of recipients). There was one email where he erroneously attached an unissued statement of claim, which was not materially different from the statement of claim that was issued. He then had to resend to that grouping with the correct statement of claim. His cover email stated:
My name is Michael Cappuccitti. Like you, I am a shareholder of Nobul. Unlike most of you, I was asked to join the Board in late 2021 and did so happily as a means of trying to be a steward for the company. I personally invested $500,000.00 in Nobul, in very good faith, and spent the year from November 2021 until October 2022 attempting to implement governance of the highest order.
As you know, Nobul served a statement of claim back in January against me, five other former board members, and one of Nobul’s largest shareholders. I intend to vigorously defend myself in that claim. That claim, however, is separate from the claim that is the subject of this notice.
Per the attached statement of claim, my personal holding companies (through which I invested in Nobul) are suing Nobul, its founder and Chairman Regan McGee, Vice Chair Toby Rebecca Levy, and CFO Lisa Coulman. This is not a counterclaim to January’s pleadings by Nobul.
Rather, it is a new claim against Nobul and the persons named above. The allegations in the claim are not proven and will not be proven until a court hears the trial of the action.
There are many questions I had, and still have, about management and operations despite my serving on the Nobul Board. As you can see, in the attached statement of claim it is pled that:
[summary of what is pled]
In closing, thank you for taking the time to read this. Please read my claim and feel free to reach out to me if you have any questions.
[15] Mr. Cappuccitti’s email was sent to all persons who were on an email from Mr. McGee in May 2021 (the “2021 Distribution List”), which was sent in connection with a Nobul shareholder meeting. The email had not bcc’d the recipients. Accordingly, Mr. Cappuccitti had the email addresses of the persons he understood to be the shareholders at that time. However, Nobul’s evidence is that the 2021 Distribution List was broader than just shareholders at the time.
[16] Nobul has refused to produce a list of shareholders, despite request being made by counsel for the other co-defendants in this proceeding (Shawn Kimel and the K2 entities, who are also Nobul shareholders).
Analysis
Can this Court hear this motion?
[17] The K2 Defendants argue that Nobul ought to have brought its motion in the Rockap Action on the Civil List, not in the Nobul Action.
[18] In the Nobul Action, the relief sought by Nobul includes an interim and interlocutory injunction restraining Mr. Cappuccitti and others from disparaging Nobul and members of the company, among other things.
[19] I am satisfied that the Court can hear this motion.
What is the legal test for granting the requested injunctive relief?
[20] Section 101 of the Courts of Justice Act (the “CJA”) provides the Court with authority to grant an interlocutory injunction where it is just or convenient to do so.
[21] The standard test for an injunction to be granted under section 101 of the CJA was set out in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 SCR 311. The moving party is required to demonstrate: (1) there is a serious issue to be tried; (2) the moving party will suffer irreparable harm if the relief is not granted; and (3) the balance of convenience favours the moving party. The Supreme Court in RJR affirmed the methodology that was set out in American Cyanamid Co. v. Ethicon Ltd., [1975] A.C. 396 (H.L.).
[22] The plaintiff submits that the modified test for an injunction to enforce a negative covenant is applicable. The plaintiff cites several cases in support of this submission, including Parkland Corporation v. SRAA Inc., 2021 ONSC 2874 and 2152222 Ontario Limited v. 2173435 Ontario Inc., 2016 ONSC 1978. Where injunctive relief is sought to enforce a negative covenant, “the law is less demanding of proof of irreparable harm:” Parkland, at para. 88.
[23] Mr. Cappuccitti’s position is that the injunction Nobul seeks attracts a higher standard because it would restrict Mr. Cappuccitti’s right to freely communicate with other shareholders – a right that is recognized under the OBCA and case law.
[24] Mr. Cappuccitti argues that a more stringent test is applicable. He argues that the “clearest of cases” test set out in Canada (Human Rights Commission) v. Canadian Liberty Net, [1998] 1 S.C.R. 626 ought to apply. At para. 49, in Liberty Net, the Supreme Court of Canada quoted the following from Injunctions and Specific Performance (2nd ed. 1992 (loose-leaf)):
There is a significant public interest in the free and uncensored circulation of information and the important principle of freedom of the press to be safeguarded. ...
The well-established rule is that an interlocutory injunction will not be granted where the defendant indicates an intention to justify [i.e. prove the truth of] the statements complained of, unless the plaintiff is able to satisfy the court at the interlocutory stage that the words are both clearly defamatory and impossible to justify.
...it seems clear that the rule is unaffected by the American Cyanamid case and that the balance of convenience is not a factor.
The Supreme Court continued, quoting from Rapp v. McClelland & Stewart Ltd. (1981), 34 O.R. (2d) 452:
The guiding principle then is, that the injunction should only issue where the words complained of are so manifestly defamatory that any jury verdict to the contrary would be considered perverse by the Court of Appeal. To put it another way where it is impossible to say that a reasonable jury must inevitably find the words defamatory the injunction should not issue.
... American Cyanamid ... has not affected the well-established principle in cases of libel that an injunction should not be granted unless the jury would inevitably come to the conclusion that the words were defamatory.
[25] Mr. Cappuccitti points to Romana v. The Canadian Broadcasting Corporation et al., 2017 MBQB 163 as support for the proposition that the Liberty Net test applies where communication and expression are restrained, irrespective of the cause of action.
[26] The Liberty Net test is intended for non-commercial speech: Cardinal v. Cleveland Indians Baseball Company Limited Partnership, 2016 ONSC 6929, at para. 32. The plaintiff argues that the speech in question is commercial in this case. The defendants argue that “commercial” speech is that which a party profits from – broadcasting in the Cardinal case. In Liberty Net, the Supreme Court stated, at para. 47:
In my view, the Cyanamid test, even with these slight modifications is inappropriate in the circumstances presented here. The main reason for this is that Cyanamid, as well as the two other cases mentioned above, involved the commercial context in which the criteria of “balance of convenience” and “irreparable harm” had some measurable meaning and which varied from case to case. Moreover, where expression is unmixed with some other commercial purpose or activity, it is virtually impossible to use the second and third criteria without grievously undermining the right to freedom of expression contained in s. 2(b) of the Charter.
The reason for this is that the speaker usually has no tangible or measurable interest other than the expression itself, whereas the party seeking the injunction will almost always have such an interest. This test developed in the commercial context stacks the cards against the non-commercial speaker where there is no tangible, immediate utility arising from the expression other than the freedom of expression itself.
[27] The Liberty Net test is a higher one at the first step of the RJR enquiry. However, it is unnecessary for me to decide the applicable test. As discussed below, regardless of which test is applicable, I am of the view that there is not a serious issue to be tried (which is a lower threshold than Liberty Net).
Breach of Non-Disparagement Clause?
[28] When he was a director, Mr. Cappuccitti confirmed that he agreed to comply with Nobul’s policies and codes. Nobul’s confidentiality policy contains the following non-disparagement provision:
The Director acknowledges and agrees that the Director will not, at any time, either during or in perpetuity following the expiration or termination of this Agreement (whether such expiration or termination is voluntary or involuntary, lawful or unlawful, and with or without cause), make, directly or indirectly, any statements, comments or communications which are intended, or would be expected to constitute disparagement, or that may be considered derogatory or detrimental to the good name or reputation of Nobul Corporation, its products or services, and any of its present or former owners, partners, associates, employees or customers. The parties agree and acknowledge that the non-disparagement provision contained above is a material term of the Agreement, without which Nobul Corporation would not have agreed to enter into this Agreement.
[29] The British Columbia Court of Appeal described the concept of “disparagement” in R v. Dhillon, 2019 BCCA 373, at para. 37, as follows:
The term “disparaging” as used in the orders is not ambiguous. A reasonable person would know what it means in plain language with sufficient certainty. To disparage is to speak or treat slightingly; to bring reproach upon; to discredit (see The Oxford English Dictionary, 2d ed., sub verbo “disparaging”). The statements in the appellant’s blog posts alleging dishonesty, corruption, incompetence, and unethical conduct on the part of persons and entities connected to the bankruptcy would fall within the ambit of disparaging.
[30] The plaintiffs take the position that the Cappuccitti Email, which was broadcast to the 2021 Distribution List, clearly contravenes the non-disparagement provision. There were shareholders who received the Cappuccitti Email who sent angry emails to Nobul. However, the anger was primarily directed at how Mr. Cappuccitti would have access to the list of email addresses. As indicated above, the email addresses were obtained by Mr. Cappuccitti before he was a director, as a result of an email sent by Mr. McGee where the recipients’ email addresses were included. There were also emails to Nobul with questions regarding the claims made in the Rockap Action.
[31] On a plain reading of the Cappuccitti Email, and given the context in which it was sent, the Cappuccitti Email is not derogatory or disparaging. I agree with Mr. Cappuccitti’s submission that the Cappuccitti Email is a cover note to circulate the statement of claim to persons who were otherwise unaware of the Rockap Action. Mr. Cappuccitti introduced himself in the email, including the fact that he is a shareholder and a former director. He indicated that he intended to vigorously defend himself in the Nobul Action. Consistent with paragraphs 31 and 32 of the statement of claim in the Rockap Action, the email indicated that he has questions about Nobul. He summarized the nature of the claim that is made, which summary contains language that is almost verbatim what is in the claim:
CAPPUCCITTI EMAIL
Regan projects the image of Nobul as being a technology company that has developed an online platform where multiple real estate agents compete for and are connected with home buyers and sellers using sophisticated algorithms and artificial intelligence technology, analogous to the virtual marketplace created by companies like Uber, AirBnB, etc.
ROCAP ACTION STATEMENT OF CLAIM
- McGee projects the image of Nobul as being a technology company that has developed an online platform where multiple real estate agents compete for and are connected with home buyers and sellers using sophisticated algorithms and artificial intelligence technology, analogous to the virtual marketplaces created by Amazon.com, Uber, Lyft and Airbnb. ...
CAPPUCCITTI EMAIL
In reality, the only technology that Nobul has is a website. Instead of being a virtual marketplace that connects real estate buyers and sellers using algorithms and artificial intelligence, Nobul is at its core nothing more than a conventional real estate brokerage engaging agents in real estate transactions through traditional means.
ROCAP ACTION STATEMENT OF CLAIM
- In reality, the only technology that Nobul has is a website. Instead of being a virtual marketplace that connects real estate buyers and sellers using algorithms and artificial intelligence, Nobul is at its core nothing more than a conventional real estate brokerage engaging agents in real estate transactions through traditional means and deriving almost all its revenue from this brokerage.
CAPPUCCITTI EMAIL
During my time on the Board, I repeatedly requested access to basic financial information about the company, such as revenue and expense journals, and details about financial controls, but Regan, Rebecca and Lisa failed to provide these items. Regan and Lisa only presented consolidated, amalgamated financial statements which did not break out lines of business.
ROCAP ACTION STATEMENT OF CLAIM
- During his time on the Board, in particular towards the end of his term, Cappuccitti repeatedly requested access to basic financial information about the company, such as revenue and expense journals, and details about financial controls, the number of agents on the platform, and the amounts of money raised during capital raises, but McGee, Levy and Coulman failed to provide this information. McGee and Coulman only presented consolidated, amalgamated financial statements which did not break out lines of business and never provided sufficient information to the questions asked.
CAPPUCCITTI EMAIL
The financial statements did not allow verification of the sources of revenue or expenses. In particular, the financial presentation omitted information about the revenue attributable to the purported digital online platform as distinguished from the revenue attributable to the conventional brokerage.
ROCAP ACTION STATEMENT OF CLAIM
- Nobul’s financial statements did not allow verification of the sources of revenue or expenses. In particular, the financial information omitted information about the revenue attributable to the digital online platform as distinguished from the revenue attributable to the conventional brokerage. ...
[32] The Cappuccitti Email also contains a clear caveat that the allegations in the statement of claim are not proven.
[33] The statement of claim is subject to absolute privilege in any event: Cook v. Milborne, 2018 ONSC 419, at paras. 17-19.
[34] With regard to the intention, Mr. Cappuccitti stated that he “intended to send the issued statement of claim once to each shareholder to inform them about the claim against Nobul.” Mr. Cappuccitti’s evidence was that he wished to circulate the statement of claim in the Rockap Action to ensure transparency to shareholders, especially in light of the fact that Nobul had previously circulated the statement of claim in the Nobul Action. The fact that Nobul first circulated its claim to all shareholders then refused to circulate Mr. Cappuccitti’s statement of claim after being asked to do so informs this issue. Had Nobul agreed to inform shareholders of the Rockap Action, Mr. Cappuccitti would not have needed to do so. Nobul opened the door to Mr. Cappuccitti circulating the statement of claim when Nobul circulated its claim but refused to circulate Mr. Cappuccitti’s claim.
[35] I further note that the Cappuccitti Email distributing the statement of claim in the Rockap Action (which as noted above consisted of 4 emails on the same day), sent on March 1, 2023, is the only email that has been sent by Mr. Cappuccitti to the 2021 Distribution List.
Serious issue to be tried
[36] Irrespective of the applicable legal test, there is no serious issue to be tried. As discussed above, the Cappuccitti Email, sent when Mr. Cappuccitti was a former director to a list of persons that he obtained when he was not a director, is not disparaging. It is cover email attaching the statement of claim in the Rockap Action. Mr. Cappuccitti’s intention was to inform shareholders of the Rockap Action when Nobul refused to do so. Accordingly, at this time there is no need for an injunction restraining Mr. Cappuccitti.
[37] Further, shareholders are entitled and encouraged to communicate with each other. Embedded in the OBCA are provisions, such as section 145 and 146, which permit shareholders to examine corporate records and to obtain shareholder lists. The Court of Appeal, in Cooper v. The Premier Trust Company has noted that the purpose of these provisions is to enable shareholders to communicate with each other:
[T]he object of the Act of Parliament was plainly this, that every shareholder should be able to see not merely the register so far as it related to himself, but to see it with reference to those who also stand upon the register with him – and the object, I take it, was that he might, if he thought fit, have communications with them. Unquestionably, as a matter of fact, directors of a company are not disposed to allow stockholders too much inspection, when it comes to a question that is going to be decided at one of the general meetings. The directors have the advantage of being able themselves, or by their officers, to refer to the register and send out circulars to canvas all the stockholders, and I think this section was intended to put the stockholder in a similar position, that each stockholder might see who were entitled to the stocks of which he had a part, and what interest they had.
[...][I]t is obvious that a shareholder or debenture stockholder may desire to consult the whole of the debenture stockholders on some matter which concerns them all, and it is reasonable to suppose that the right to inspect the debenture stock register is conferred to enable him to do this as well as for other purposes.
[38] It is unclear to me how Nobul takes the position that, although not required to, it is appropriate to circulate the Nobul Action statement of claim to all shareholders, and send at least 2 follow up related emails, but not circulate a subsequent statement of claim filed against Nobul, and then take issue when that claim is circulated by a beneficial shareholder, who happens to also be a former director. This directly brings into question the “clean hands” of the plaintiff: See Pichler v. Meadows, 2010 ONSC 1863, at para. 49.
[39] The plaintiff’s motion is dismissed.
[40] The parties are encouraged to settle the issue of costs. If they are unable to so by May 12, 2023, they shall notify my judicial assistant. In such case, any party seeking costs may file written submissions (not exceeding 3 pages) plus their costs outline and any relevant settlement offers by May 26, 2023. Responding written submissions (not exceeding 3 pages) plus costs outline may be filed by June 9, 2023.
J. Steele Date: April 17, 2023