COURT FILE NO. : CV 23 00704724 0000 DATE : 20240108 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1000264228 ONTARIO INCORPORATED, DAVID YURANYI, and DANIEL YURANYI Plaintiffs AND: ALVIN KATZBERG Defendant

BEFORE: Justice Chalmers

COUNSEL: J. Bal and D. Perlin, for the Plaintiffs M. Dhaliwal and C. Hunt, for the Defendant

HEARD: December 22, 2023

ENDORSEMENT

OVERVIEW

[1] Empire Leasing is engaged in the business of brokering leases for motor vehicles. The Defendant, Alvin Katzberg is the former owner of the shares of 1467129 Ontario Limited o/a Empire Leasing (Empire). Mr. Katzberg sold his shares in Empire to the Plaintiff, 1000264228 Ontario Incorporated (100 Corp), pursuant to a Share Purchase Agreement, dated July 25, 2022 (the SPA). The Plaintiffs, David Yuranyi and Daniel Yuranyi are directors of 100 Corp. The Yuranyis are not parties to the SPA.

[2] The Plaintiffs allege that Mr. Katzberg made fraudulent material misrepresentations that induced 100 Corp to enter into the SPA. The Plaintiffs also allege that Mr. Katzberg breached the SPA because he failed to hand off his customers to the Plaintiffs and is competing with the Plaintiffs contrary to the non-competition and non-solicitation clauses in the SPA. The Plaintiffs brings this motion for an injunction to restrain Mr. Katzberg from competing with Empire. The Plaintiffs also seek an injunction/mandatory order requiring Mr. Katzberg to turn over his phone and phone numbers to Empire.

[3] Mr. Katzberg denies all allegations made against him. He states that all financial documentation was provided to the Plaintiffs before the parties entered into the SPA. After it was alleged that he had made misrepresentations to the Plaintiffs, the installments owing to him pursuant to the SPA were discontinued. Mr. Katzberg argues that the Plaintiffs are in breach of the SPA and therefore cannot rely on the non-competition or non-solicitation provisions.

[4] For the reasons set out below, I dismiss Plaintiffs’ motion, in part. I find that the Plaintiffs are not entitled to an order restraining Mr. Katzberg from competing with Empire and are not entitled to an order compelling Mr. Katzberg to turn his phone and phone numbers over to the Plaintiffs. However, I grant the order that Mr. Katzberg not hold himself out as a representative of Empire. This relief is not opposed.

FACTUAL BACKGROUND

Sale of Shares in Empire Leasing

[5] Mr. Katzberg agreed to sell his shares in Empire to 100 Corp for $1.8 million. 100 Corp. paid a deposit of $300,000. The balance was to be paid in monthly installments of $20,000 or a calculation of the gross profit. Before closing, Mr. Katzberg removed all cash from Empire as he was entitled/obligated to, pursuant to section 3.07 of the SPA. The transaction closed on August 16, 2022.

[6] In advance of closing, Mr. Katzberg produced financial documentation with respect to the business of Empire. There is no dispute that Mr. Katzberg produced the documents that were required under s. 3.05 of the SPA. However, the Plaintiffs state that the financial statements and other information were fraudulent. In its letter dated August 3, 2023, the Plaintiffs state that the financials were either “fabricated entirely or, at the very least materially misrepresented the financial state of the affairs of the Company”.

[7] Mr. Katzberg denies the allegations of misrepresentation. He states that the financial statements were not altered or amended. On closing, he provided the list of the five major suppliers along with their contact information. Mr. Katzberg denies making any representation that the sales revenue from the major suppliers would continue on the same basis after closing. Mr. Katzberg also states that he has not refused to turn anything over to the company because he left all records with the company.

[8] 100 Corp was satisfied with the extent of the disclosure that was provided before closing and the transaction closed. The Plaintiffs did not provide any evidence from their accountant that the financials were not correct. There is no evidence from the suppliers or customers of Empire that could support the Plaintiffs’ allegations that the gross profits were fraudulently inflated.

[9] The Plaintiffs allege that between May and June 2022, automobile manufacturers implemented new restrictions and prohibitions in their policies on lease buyouts, that prevented third-party leasing companies from buying out vehicles on leases. The restrictions prevented brokering companies such as Empire from realizing a component of their business of lease trade-ins. According to Adam Fiorucci, a sales manager at Empire, this information was well-known among industry insiders but was not generally known to members of the general public. He deposed that he believed Mr. Katzberg was aware of the prohibitions. Mr. Fiorucci deposed that David and Daniel Yuranyi were unaware of the restrictions. Mr. Fiorucci does not state the source of this information and belief. Mr. Katzberg deposed that the information about the new policy was “widely known”.

[10] The SPA sets out the restrictive covenants at section 6.07. The restrictive covenants include non-solicitation and non-competition clauses for a period of five years following the closing. Section 6.07(g) provides that Mr. Katzberg is not bound by the restrictive covenants during any period when the purchaser is in default of the SPA.

Consulting Agreement

[11] At the time of closing, the parties entered into a Consulting Agreement which defined the scope and degree of Mr. Katzberg’s involvement as a consultant of Empire following the closing. The Plaintiffs argue that there were no binding contracts with the major suppliers, and the success of the business depended on Mr. Katzberg’s personal relationships. The Consulting Agreement required Mr. Katzberg to provide the following services to the company:

When [Mr. Katzberg] is in Canada, and available to do so, [he] will provide the following services to the Company as a consultant:

[Mr. Katzberg] will assist in making the owners of the Company familiar with the day-to-day operations of the Business.

[12] The Consulting Agreement permitted Mr. Katzberg to determine the manner and means by which he performed services to the company. He was not required to provide a minimum or set numbers of hours of services each month.

[13] Mr. Katzberg states that at the closing, he provided a USB drive with all customer and supplier information. Mr. Katzberg states that he left all of Empire’s records at its premises. Mr. Katzberg also states that he attended at Empire’s premises from August 2022 to December 2022 and assisted the purchaser in becoming familiar with Empire’s day-to-day operations.

[14] The Plaintiffs admitted on the cross-examination of Daniel Yuranyi that Mr. Katzberg did not breach the Consulting Agreement.

Alleged Breaches of the Non-Competition Restrictive Covenant

[15] The Plaintiffs argue that Mr. Katzberg breached the non-competition clause in the SPA.

[16] The Plaintiffs state that Mr. Katzberg represented Holland Leasing after the sale of the business. Holland Leasing is a supplier to Empire Leasing. The Plaintiffs argue this is evidence that Mr. Katzberg is competing with Empire. I note that Mr. Katzberg had a Holland e-mail address for several years preceding the SPA. Mr. Katzberg denies working for or on behalf of Holland. There is no evidence from Holland Leasing on this motion.

[17] The Plaintiffs refer to the following transactions that they say is evidence of a breach of the non-compete clause.

1. On June 28, 2023, Mr. Katzberg facilitated a transaction whereby Holland Leasing purchased a vehicle from Richard Borchiver. Mr. Katzberg states that he facilitated the transaction because Mr. Borchiver was a long-time major customer and he had asked for a favour to assist in liquidating his car. Mr. Katzberg states that he received no commission from the transaction.
2. On August 29, 2023, Mr. Katzberg purchased a vehicle from the wife of Tzvi Rubinger, who was a long-time family friend of his neighbours. Because of the sudden death of Tzvi, Ms. Rubinger was “desperate” to sell the vehicle. Because of his personal relationship, Mr. Katzberg purchased the vehicle with his own funds. Mr. Katzberg states that he advised the Yuranyis of his intention to purchase the vehicle and he was not advised that the purchase was unacceptable.
3. In June 2023, Mr. Katzberg entered into discussions whereby Demilia Investments would sell a vehicle to Empire. This was done on behalf of Empire and in his role as a consultant. Before the deal closed, Empire had discontinued the installment payments to Mr. Katzberg. Mr. Katzberg advised Demilia that he was not in a position to close the transaction. Demilia decided to not continue with the transaction.
4. In October 2023, Mr. Katzberg had discussions with Gil Nayot. According to Mr. Katzberg, he was involved in this deal because Mr. Nayot did not want to deal with Empire. There is no evidence from Mr. Nayot on this motion.
5. The Plaintiffs also reference an e-mail exchange between David Yuranyi and Neville Isaacman dated October 12, 2023. Mr. Yuranyi learned that Mr. Isaacman had used someone else to find his vehicle. There is no reference in the e-mail as to who Mr. Isaacman had used to find the vehicle. There is no evidence that Mr. Katzberg was involved.

[18] Mr. Katzberg argues that there is no evidence he competed with Empire’s interests. He states that the uncontested evidence is that Empire has hundreds of clients and the small number of incidents referred to above do not represent anything significant. He also argues that the transactions referred to by the Plaintiffs took place after the Plaintiffs discontinued the installments owing to him under the SPA. Pursuant to s. 6.07(g), Mr. Katzberg is not bound by the restrictive covenants during a period when the purchaser is in default of the SPA.

The Plaintiffs Discontinue the Installments Payments

[19] Mr. Katzberg went to Florida in December 2022, and returned to Canada in March 2023. The Plaintiffs argue that after Mr. Katzberg returned, they noticed a drop in sales. They stopped getting calls from customers. The Plaintiffs were concerned both that there had been a misrepresentation at the time the SPA was entered into, and that Mr. Katzberg was in breach of the non-solicitation and non-competition covenants in the SPA.

[20] The Plaintiffs paid Mr. Katzberg the installment owing pursuant to the SPA on June 12, 2023. The Plaintiffs sent a letter to Mr. Katzberg dated June 30, 2023, that states that there is “good reason to believe that certain disclosures or representations made by you during the course of negotiations but made prior to closing of the Transaction were either materially inaccurate or otherwise misrepresented the position or value of the Company”. The Plaintiffs state that they decided to open an internal investigation in order to determine the veracity of the “troubling revelations”. The Plaintiffs stated that they “temporarily suspended” the scheduled monthly payments towards the purchase price pending the conclusion of the Company’s investigation. The Plaintiffs wrote a second letter dated August 3, 2023, which set out further allegations of misrepresentation.

[21] Mr. Katzberg denies the allegations of misrepresentations. He takes the position that the Plaintiffs breached the SPA when they discontinued the installments. Mr. Katzberg states that 100 Corp is in arrears of at least $120,000 and owes $1,279,317.80 under the SPA.

[22] Section 6.04 of the SPA provides that if the purchaser is in default, the vendor shall not exercise its rights under the limited security agreement for a period of 30 days. On August 25, 2023, after the completion of the cure period, Mr. Katzberg’s lawyer wrote to the Plaintiffs’ lawyer advising that they intend to enforce security because of the breach of the payment obligations set out in the SPA.

The Pleadings

[23] On August 21, 2023, this action was commenced. The Plaintiffs seek to unwind the transaction by declaring the SPA void and claiming damages based on material misrepresentation. It is also alleged that Mr. Katzberg used his relationship with Empire’s customers and suppliers to derive a “personal benefit to the detriment of Empire and the Plaintiffs, by directly or indirectly engaging in a competitive business and soliciting customers and potential clients of customers from Empire Leasing.” The pleadings are not closed.

[24] Mr. Katzberg brought two Applications on the Commercial List for the appointment of a receiver and an order granting charges over secured property. The Applications are scheduled to be heard on January 10, 2024.

[25] After the Applications were scheduled, the Plaintiffs brought this motion for injunctive relief to restrain Mr. Katzberg from competing with Empire. The matter came before Justice Vermette in CPC on October 25, 2023. She scheduled the motion for December 22, 2023. The parties returned before Justice Vermette for a case conference on December 4, 2023. At that time, she ordered the cross-examinations of all affiants to be conducted on December 8, 2023.

THE ISSUES

[26] I will address the following issues:

Issue # 1 – Are the Plaintiffs entitled to Injunctive Relief? and Issue # 2 – Are the Plaintiffs entitled to an order for the transfer of Mr. Katzberg’s phone numbers and for production of the phone and e-mail records from August 16, 2022?

ANALYSIS

Issue # 1 – Are the Plaintiffs Entitled to an Order for Injunctive Relief?

[27] The Plaintiffs seek an injunction against Mr. Katzberg to restrain him from competing with Empire and holding himself out as a representative of Empire.

[28] With respect to the injunction that Mr. Katzberg not hold himself out as a representative of Empire, I find that Mr. Katzberg was a consultant of Empire until the Plaintiffs discontinued the installments due under the SPA. At that point, Mr. Katzberg was terminated as a consultant, and was not permitted to hold himself out as a representative of Empire. Mr. Katzberg states that he has no interest in being affiliated with the business and has no intention of holding himself out as a representative of Empire. Mr. Katzberg does not oppose this relief.

[29] I grant the order restraining Mr. Katzberg from holding himself out as a representative of Empire.

[30] I will go on to consider the Plaintiffs’ motion for an injunction to enjoin Mr. Katzberg from competing with Empire.

The Test for an Injunction

[31] Section 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43, provides that an interlocutory injunction may be granted where it appears to the judge to be just or convenient to do so. The test for granting an injunction is not in dispute. The test consists of three parts:

(a) There is a serious issue to be tried; (b) The moving party will suffer irreparable harm if the relief is not granted; and (c) The balance of convenience favours granting the injunction: RJR MacDonald Inc. v. Canada (Attorney General), [1994] 1 SCR 311 at p. 335-337.

[32] The test is not to be rigidly applied. It is to be considered as a whole. Strength in one part of the test can make up for a weakness in another. The court is to consider, in light of the three parts of the test, whether injunctive relief is appropriate: Brown v. First Contact Software Consultants Incorporated, 2009 ONSC 48504, at paras. 21-22.

1. Serious Issue/Strong Prima Facie Case

[33] In answering the first branch of the test, the standard is whether there is a serious issue to be tried. However, where the injunction seeks to enforce a restrictive covenant, the plaintiff must make out a strong prima facie case: Loops v. Maxill Inc., 2020 ONSC 971, at para. 6. As noted by Justice O’Brien in Camino Modular Systems Inc. v. Kranidis, 2019 ONSC 7437, at para. 15:

Instead of showing a serious issue to be tried at the first step of the test, the moving party must show that it has a strong prima facie case. This higher threshold is appropriate since the injunction is intended to place restrictions on a persons’ ability to engage in their chosen professions and to earn a livelihood.

[34] The Plaintiffs argue that the restrictive covenant is in an agreement to sell a business and not an employment contract and therefore the higher standard does not apply. The Plaintiffs also argue that the non-solicitation clause in the SPA is restricted in geographic scope and duration and therefore Justice O’Brien’s rationale for imposing the higher standard does not apply: Parekh v. Schecter et al, 2022 ONSC 302, at para. 34. Here, the Plaintiffs are seeking to enforce not just a non-solicitation clause but also the non-compete restrictive covenants. In Parekh, the court held that the higher strong prima facie case standard applied with respect to the non-competition clause.

[35] I am satisfied that the standard that applies in the circumstances of this case is the higher standard of a strong prima facie case. As stated by Justice O’Brien, the higher standard is appropriate because the Plaintiffs seek to enforce a restrictive covenant that will affect Mr. Katzberg’s ability to earn an income. Although Mr. Katzberg may have intended to retire when he entered into the SPA, that option may no longer be available to him now that the Plaintiffs have discontinued the installments owing under the SPA. Also, the fact that the restrictive covenant is found in a share purchase agreement instead of an employment agreement does not alter the fact that the injunction is intended to place restrictions on Mr. Katzberg’s ability to work and earn a livelihood: Mandeville Holdings Inc. v. Santucci, 2021 ONSC 4321, at para. 29 and Dentalcorp Health Services v. Poorsina, 2023 ONSC 3531, at para. 15.

[36] The strong prima facie case standard has been described as follows:

[17] This brings me to just what is entailed by showing a “strong prima facie case”. Courts have employed various formulations, requiring the applicant to establish a “strong and clear chance of success”; a “strong and clear” or “unusually strong and clear” case; that he or she is “clearly right” or “clearly in the right”: that he or she enjoys a “high probability” or “great likelihood of success”; a “high degree of assurance” of success; a “significant prospect” of success; of “almost certain” success. Common to all these formulations is a burden on the applicant to show a case of such merit that it is very likely to succeed at trial. Meaning, that upon a preliminary review of the case, the application judge must be satisfied that there is a strong likelihood on the law and the evidence presented that, at trial, the applicant will be ultimately successful in proving the allegations set out in the originating notice: R. v. Canadian Broadcasting Corp., 2018 SCC 5, at para. 17.

[37] The burden is on the moving party to show a strong prima facie case. It is my view that the Plaintiffs failed to satisfy its burden to establish a strong prima facie case. I am unable to conclude on the evidence on this motion, that there is a “great likelihood of success” or that success is “almost certain”.

[38] The injunction is to enjoin Mr. Katzberg from competing with the Plaintiffs. Mr. Katzberg takes the position that the Plaintiffs have not made any installment payments since June 12, 2023, and are thereby in breach of the SPA. Mr. Katzberg argues that as a result of the Plaintiffs’ breach, he is not bound by the restrictive covenants. Clause 6.07(g) of the SPA, provides:

The Purchaser acknowledges and agrees that the restrictions in this Section 6.07 shall be of no force and effect during any period, and only for the duration of that period, that the Purchaser is in breach of its obligations under this Agreement or any document delivered hereunder.

[39] The Plaintiffs argue that section 6.07(g) does not apply because the SPA was not breached. Instead, the installment payments were simply suspended pending an investigation. I reject the Plaintiffs’ argument. In my view, the SPA requires installments to be made by the Purchaser. If the installments are not being made, the Purchaser is in breach of its obligations. The SPA does not provide that the installments may be suspended if there has been a breach by Mr. Katzberg.

[40] Mr. Katzberg states that there is no evidence that he competed with Empire before the installments were discontinued after June 12, 2023. After that date, there were isolated transactions involving Ms. Rubinger in August 2023, and Mr. Nygot in October 2023. On the evidence before me on this motion, I am unable to conclude that the Plaintiffs have established a strong prima facie case that Mr. Katzberg competed with Empire. In any event, the isolated transactions took place after the Plaintiffs stopped the installment payments. Pursuant to s. 6.07 (g), the restrictive covenants are of no force during the period the purchaser is in breach of any obligation under the agreement.

[41] I conclude that the Plaintiffs failed to establish a strong prima facie case. This finding is sufficient to dispose of the motion. However, because the issues were fully argued, I will go on to consider the issues of irreparable harm and balance of convenience.

2. Irreparable Harm

[42] There will be a finding of irreparable harm if the harm to the moving party cannot be quantified in monetary terms or is harm that cannot be cured by damages. Irreparable harm refers to the nature of the harm suffered and not the magnitude: RJR-MacDonald, at p. 341. Irreparable harm occurs if one party cannot collect damages from the other. The inability of a defendant to satisfy an award of damages is a “very serious consideration in establishing irreparable harm”: Turbo-Resources Ltd. v. Petro-Canada Inc. (C.A.), at 22-23.

[43] Section 6.07(c) of the SPA provides that, “a breach or threatened breach of [the non-competition/non-solicitation provisions] would give rise to irreparable harm to the [plaintiffs]”, and thereby permits the Plaintiffs to obtain injunctive relief. The Plaintiffs rely on this section of the SPA to support their argument that there is irreparable harm. Irreparable harm clauses are a factor but not determinative in deciding if there is irreparable harm: MD Management Limited v. Campbell, 2010 ONSC 2315, at para. 35 and Homestead House Paint Co. Inc. v. Jamieson, 2019 ONSC 2660, at para. 34.

[44] I am of the view that the Plaintiffs have not established that they will suffer irreparable harm if the injunction is not granted. As noted above, the restrictive covenants are not in force while the Plaintiffs are in breach of the payment obligations in the SPA. The Plaintiffs have questioned some transactions that may have taken place after the installment payments were discontinued. Mr. Katzberg denies that the Plaintiffs suffered any harm from those transactions. In the alternative, he argues that the uncontradicted evidence is that Empire has hundreds of clients and the small subset of customers identified by the Plaintiffs does not constitute irreparable harm. Mr. Katzberg argues that any harm that can be proven by the Plaintiffs is minor and quantifiable. I agree.

3. Balance of Convenience

[45] The balance of convenience considers which of the two parties would suffer the greater harm from the granting, or refusal to grant, an interlocutory injunction: RJR-MacDonald, at p. 311.

[46] The Plaintiffs argue that because Mr. Katzberg sold his shares in Empire, he had no intention of continuing in the business, and therefore an injunction that prevented him from competing with Empire would not result in any prejudice to him. However, if the injunction was not granted, the Plaintiffs would continue to lose customers and market share and would suffer significant prejudice.

[47] Mr. Katzberg argues that he will suffer the greater harm if an injunction is ordered. He may have intended to retire, but when the Plaintiffs discontinued the installment payments in June 2023, he did not have the stream of income that he expected. He now has no source of income. In argument, counsel for Mr. Katzberg stated that if the installment payments were reinstated, Mr. Katzberg would be bound by the restrictive covenants in the SPA.

[48] I am satisfied that the balance of convenience favours not granting the injunction. An injunction would result in a windfall to the Plaintiffs. They would receive the benefit of the non-competition clause without having to make the installments to Mr. Katzberg. Mr. Katzberg would have no ability to work and earn income.

Issue # 2 – Are the Plaintiffs entitled to an order for the transfer of Mr. Katzberg’s phone numbers and for production of the phone and email records from August 16, 2022?

(a) Transfer of Phone Numbers

[49] The Plaintiffs seek an order compelling Mr. Katzberg to transfer the phone numbers to the Plaintiffs.

[50] Mr. Katzberg has had the use of his “416” phone number prior to his involvement in Empire. He states that he uses the phone number to communicate with friends, family, and doctors. His “647” number was obtained by Mr. Katzberg to be used as a personal number. There is no evidence of any connection between the “647” number and the Plaintiffs. Mr. Katzberg also argues that the phone numbers are his personal numbers. The SPA and Consulting Agreement do not contain a term that requires Mr. Katzberg to transfer his personal phone numbers to the Plaintiffs.

[51] The Plaintiffs were aware of the phone numbers at the time of the SPA and Consulting Agreement. No term was included in either agreement that would require Mr. Katzberg to transfer the phone numbers. There is no evidence of any consideration being paid to Mr. Katzberg for the transfer of the phone numbers. Mr. Katzberg argues that if the transfer of the phone numbers was important to the Plaintiffs, it would have been negotiated and included in the agreements. I agree. I do not order the transfer of Mr. Katzberg’s phone numbers to the Plaintiffs.

(b) Production of Phone Records and E-mails

[52] The Plaintiff seeks “particulars of all deals or transactions not made through Empire and which were not expressly authorized by the Plaintiffs from August 16, 2022, to date”. The Plaintiff argues that this production is necessary to determine whether Mr. Katzberg has competed against Empire. Mr. Katzberg argues that he complied with the disclosure obligations in the SPA and Consulting Agreement. Mr. Katzberg also argues that the request is a “fishing expedition”.

[53] The Plaintiff argues that the production sought could be expected as part of the Defendant’s affidavits of documents in the course of litigation or on an undertakings/refusals motion. Mr. Katzberg states that procedural fairness dictates that the parties complete the pleadings and exchange productions in a manner consistent with the Rules.

I am of the view that the motion for production is premature. The pleadings are not yet completed. The parties have not exchanged affidavits of documents. If, following the close of pleadings and the exchange of affidavits of documents, the Plaintiffs are not satisfied with the Defendant’s disclosure, the Plaintiffs may bring the appropriate motion before an Associate Judge.

DISPOSITION

[54] For the reasons set out above, I make the following order:

1. The Plaintiffs’ motion for injunctive relief to restrain Mr. Katzberg from holding himself out as a representative of Empire is granted. This relief is not opposed;
2. The Plaintiffs’ motion for injunctive relief to restrain Mr. Katzberg from competing with Empire is dismissed;
3. The Plaintiffs’ motion for the transfer of Mr. Katzberg’s phone numbers is dismissed; and
4. The Plaintiffs’ motion for production of the e-mail and phone records from August 16, 2022, is dismissed as being premature.

[55] The primary relief sought on this motion was to enjoin Mr. Katzberg from competing with Empire. Mr. Katzberg was successful with respect to this aspect of the motion and is presumptively entitled to his costs of the motion. If the parties are unable to agree on costs, the issue will be heard in-writing. Mr. Katzberg may deliver his written costs submissions of no more than 5 pages excluding offers to settle and caselaw within 15 days of this endorsement. The Plaintiffs may deliver their written cost submissions in response on the same basis within 15 days of receiving Mr. Katzberg’s written cost submissions.

Chalmers J Date: January 8, 2024