Stier Financial Group Inc. v. Stier, 2012 ABQB 713

Court of Queen ’ s Bench of Alberta Citation: Stier Financial Group Inc. v. Stier, 2012 ABQB 713 Date: 20121116 Docket: 1101 15023 Registry: Calgary Between: Stier Financial Group Inc. Applicant (Plaintiff) - and - Sheldon P. Stier, Valerie Stier, and the said Defendants, carrying on business as Fresh Start Insurance and Investments, Kathryn Allard, and KGA (Centre) Financial Inc. Respondents (Defendants) _______________________________________________________ Memorandum of Judgment of the Honourable Mr. Justice Bruce A. Millar _______________________________________________________ 1.

Introduction [ 1 ] This is an application for an interim injunction order ( “ Order ” ) brought by Stier Financial Group Inc. ( “ the Plaintiff ” ), against Sheldon Stier and Valerie Stier (the “ Stiers ” ).

[ 2 ] The Plaintiff submits that the Defendants breached confidentiality and non-disclosure terms in contract agreements and common law duties by improperly using its confidential information, interfering with its client relationships, and wrongly soliciting its clients.

The Plaintiff ’ s claims against the Stiers concerning breach of employment contract and fiduciary duty were abandoned at the outset of the interim injunction hearing. [ 3 ] The Plaintiff earns commissions paid by insurance companies when its agents sell new insurance policies or investments to clients, and when its clients pay regular premiums. 2. Facts [ 4 ] Sheldon Stier and his wife Valerie Stier owned and operated Sheldon P. Stier Financial Group Inc. ( “ SheldonCo ” ).

SheldonCo was an insurance, financial planning, estate planning, and investment firm with a Calgary office. [ 5 ] On September 17, 2004, the Stiers agreed to sell 100% of SheldonCo ’ s shares to Mr. Hafer ’ s company 1111677 Alberta Ltd. (the “ Share Purchase Agreement ” ). 1111677 Alberta Ltd. later became the Plaintiff, Stier Financial Group Inc. [ 6 ] On September 17, 2004, pursuant to the Share Purchase Agreement, the Stiers, SheldonCo, Mr.

Hafer, and his company 1111677Alberta Ltd., entered into a Unanimous Shareholder Agreement (the “ USA ” ), which included confidentiality and non-disclosure provisions: [ 7 ] Clause 1.10(

j) of the USA defines confidential information: (j) “ Confidential Information ” shall mean all information of every nature and kind (financial, corporate, business or otherwise), knowledge, know-how, processes, techniques, protocols, plans, ideas, research, trade secrets, opportunities, concepts, data, research, work product, intellectual property, developments, activities, scope of operations, prototypes, theories, designs, specifications, improvements, innovations, printouts, reports, manuals, market intelligence, patent applications, drawings, parts, photographs, software, hardware, equipment, consumer lists, trade lists, supply sources, documents, engineering, financiers, investors and any and all other information of a confidential nature of or relating to the Corporation [SheldonCo], the Corporation ’ s technology, any of the products or services of the Corporation or relating to the business, affairs, customers, affiliates, associates or subsidiaries of the Corporation; ... [ 8 ] Clause 14 of the USA deals with confidentiality.

Pursuant to clause 14.01, the Stiers agreed: (

a) not to, directly or indirectly, disclose, disseminate or divulge to others, publish, distribute, reproduce, store (in any manner or by any means) or in any way use, for their own benefit or the benefit of others, the Confidential Information, in whole or in part, without first obtaining, in each instance, the written consent of the Corporation; and (

b) to take all such steps as may be necessary or desirable to protect the security of and avoid the disclosure of the Confidential Information in order to prevent same from falling into the public domain or into the hands of any party not bound to the Corporation to maintain its confidentiality; and (

c) to forthwith, on demand, return all Confidential Information to the Corporation. [ 9 ] Clause 14.02 of the USA deals with injunctions: 14.02 The Shareholders [the Stiers] agree that in the event of a breach or a threatened breach of

section 14.01 hereof by any Shareholder, the Corporation shall be entitled to an injunction restraining such Shareholder from breaching or further breaching the terms of this agreement without first having to show or prove any actual damages sustained or incurred by the Corporation.

[ 10 ] Clause 12 and 14.04 of the USA deal with the USA ’ s termination: 12.03 Subject to

section 14.00 hereof, this agreement shall terminate upon: (

a) the dissolution of the Corporation... ... 14.04 The covenants of the Shareholders set forth in this

section 14.00 shall not be limited in time and shall survive the termination of the agreement and the date the Shareholders no longer hold Securities and shall remain in force and effect for the benefit of the Corporation at all times thereafter. [ 11 ] On September 17, 2004, also pursuant to the Share Purchase Agreement, the Stiers entered into agreements to provide employment services to SheldonCo. [ 12 ] On August 31, 2008, SheldonCo was “ wound-up ” into the Plaintiff.

An agreement between SheldonCo and the Plaintiff, in which SheldonCo agreed to transfer and assign to the Plaintiff certain rights, title, and interest (the “ Assignment Agreement ” ), became effective the same date. Clause 1 of the Assignment Agreement states: 1. The Subsidiary Corporation [SheldonCo] hereby transfers and assigns to the Parent Corporation [Plaintiff], the Parent Corporation hereby acquires from the Subsidiary Corporation, 100% of the Subsidiary Corporation ’ s right, title and interest in and to: (

a) all remaining assets of the Subsidiary Corporation of every nature and kind owned by the Subsidiary Corporation as at Effective Date, including ... all good will, intellectual property, confidential information, customer lists, methods of operation, know-how, telephone numbers, fax numbers, websites, website operations and intangible assets; and (

b) all subsisting rights, interests and benefits of the Subsidiary Corporation in and to the USA and the Employment Agreement as at Effective Date. [ 13 ] On August 30, 2011, Mr. Stier signed a Broker Agreement with a new Managing General Agent ( “ MGA ” ), PPI Solutions Inc. (Calgary). An MGA is a company that manages the relationship between an agent and an insurance company.

The MGA screens new agents on behalf of insurance companies and, if the MGA recommends them, the agent can contract with the insurance company via the MGA and write policies for clients with that insurance company. [ 14 ] The Stiers either resigned or were terminated for cause sometime between August 30, 2011 and September 7, 2011. After Mr. Stier ceased working for the Plaintiff, Mr. Stier had the Plaintiff ’ s cell phone and Blackberry in his possession. [ 15 ] Also around this time, Mr. Stier set up his own proprietorship, Fresh Start.

Fresh Start has an office in Calgary and is a direct competitor with the Plaintiff. Presently, 90% of Fresh Start ’ s clients formerly held policies through the Plaintiff or its brokers ( “ Plaintiff ’ s Clients ” ). 3. Issues [ 16 ] The Plaintiff claims that the Defendants are improperly using its confidential information, interfering with its client

relationships, and wrongly soliciting its clients in breach of the USA. [17] The issue in the case at bar is whether the Plaintiff should be granted an interim injunction pending trial. 4. Law and Analysis [18] The Supreme Court of Canada established a tripartite test for issuing interlocutory injunctions in RJR-MacDonald Inc. v.Canada (Attorney General), (SCC), [1994] 1 SCR 311 at 334. The Plaintiff must demonstrate that: (

a) there is a seriousissue to be tried; (

b) that irreparable harm will be suffered if the application is not granted; and (

c) that the balance of conveniencefavours granting the relief sought.

a) Is there a serious issue to be tried? [19] In most cases, the appropriate test is whether the Plaintiff has demonstrated that there is a serious issue to be tried. Thethreshold is low, requiring only that the application is neither frivolous nor vexatious: RJR at 337. However, there are exceptions to thisgeneral rule: RJR at 338.

If an exception applies, then the threshold is held to a higher standard and the Plaintiff must establish a strongprima facie case. [20] The Plaintiff submits that there is a serious issue to be tried because of evidence demonstrating its alleged causes of action,including breach of the confidentiality and non-disclosure terms in the USA and various agreements, and wrongful use of confidentialinformation. The Plaintiff claims that where, as in the case at bar, the injunction application is based on the wrongful use of confidentialinformation, a lower threshold applies: C.B. Constantini Ltd. v.

Slozka, 2006 BCSC 1210 at paras 46-47. [21] The Defendants counter that the higher standard of having the Plaintiff prove a strong prima facie case applies in this instancebecause the issue involves a restrictive covenant that may restrict a defendant employee’s employment in a particular field: GlobexForeign Exchange Corp. v. Kelcher, 2005 ABCA 419, 53 Alta LR (4th) 258 at para 10 (aff’d 2005 ABQB 676) citing Enerflex SystemsLtd. v. Lynn, 2005 ABCA 62, 363 AR 136.

However, the Plaintiff’s claims concerning breach of employment contract and fiduciaryduty, which would have triggered the higher duty, were abandoned at the outset of the interim injunction hearing. I find that the Plaintiffmust show that there is a serious issue to be tried, by establishing that the application is neither frivolous nor vexatious. (

i) Applicability of the USA and the Assignment Agreement [22] A key element of the Plaintiff’s claim is the applicability of confidentiality and non-disclosure terms of the USA and theAssignment Agreement. [23] The Defendants submit that they could not have breached the terms of the USA, as the USA ceased to exist as of August 31,2008 and they did not enter into any subsequent agreements with the new entity (i.e. the Plaintiff). They also submit they were notparties to the Assignment Agreement.

The Defendants further argue that their evidence of non-solicitation letters and othercommunications shows that the Plaintiff’s Clients sought out the Defendants’ services on their own initiative. [24] On a plain reading of these agreements, Clause 14.04 of the USA states that the confidentiality provisions remain in forceafter SheldonCo’s dissolution, and Clause 1 of the Assignment Agreement states that SheldonCo transfers and assigns SheldonCo’srights, title and interest in confidential information, consumer lists, etc. to the Plaintiff as of the date of SheldonCo’s dissolution.Therefore, the Plaintiff has established that there is a serious issue to be tried as to whether the relevant terms of the USA and theAssignment Agreement were in effect at the time at issue. (ii) Evidence of Breach of the USA and the Assignment Agreement

[ 25 ] The parties provide differing accounts with respect to the following facts: (

i) Mr. Stier ’ s use and willingness to return the blackberry and cell phone, after ceasing to work for the Plaintiff; (ii) Mr. Stier ’ s use of the Plaintiff ’ s agent codes, after ceasing to work for the Plaintiff; (iii) the Stiers forwarding of mail intended for the Plaintiff to Fresh Start; (iv) Mr. Stier ’ s solicitation of the Plaintiff ’ s Clients, after ceasing to work for the Plaintiff; and (

v) Mr. Stier ’ s receipt of Manulife Statements, which contained confidential client information concerning the Plaintiff ’ s Clients, after ceasing to work for the Plaintiff. [ 26 ] The parties ’ submissions show common ground with regard to the following facts: [ 27 ] Blackberry and cell phone : The Plaintiff gave its employee, Mr. Stier, a Blackberry, Blackberry e-mail address, and cell phone. Mr. Stier had these items in his possession at the time that the Plaintiff filed its Statement of Claim. After ceasing to work for the Plaintiff, Mr.

Stier used these items, and the information contained within, to communicate with some of the Plaintiff ’ s Clients. [ 28 ] Agent Codes : Some of the Plaintiff ’ s agent codes were used to write new business for Fresh Start. [ 29 ] Mail Forwarding/Diversion : Mail intended for the Plaintiff has been forwarded to the Defendants. [ 30 ] Contacting/Soliciting the Plaintiff ’ s Clients : Mr. Stier sent an e-mail to some of the Plaintiff ’ s Clients advising them of his new business at Fresh Start. Others sought out Mr. Stier, and moved to Fresh Start, without his solicitation. [ 31 ] Manulife Statements : Mr.

Stier received some of the Plaintiff ’ s Client ’ s Manulife statements, and made efforts to contact the individuals named as addressees. Mr. Stier contacted the Plaintiff regarding his receipts of the Manulife statements, and the Plaintiff took steps to correct it. [ 32 ] These facts establish that there is a serious issue to be tried as to whether the Defendants wrongfully used the Plaintiff ’ s confidential information to solicit its clients.

b) Will the Plaintiff suffer irreparable harm if the application is not granted? [ 33 ] In the second branch of the test, the Plaintiff must show that it would suffer irreparable harm if the interim injunction were not granted: “ 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 which cannot be cured, usually because one party cannot collect damages from the other.

Examples of the former include instances where one party will be put out of business by the court ’ s decision...; where one party will suffer permanent market loss or irrevocable damage to its business reputation ...: RJR at 341. The Plaintiff notes that irreparable harm includes wrongful solicitation of clients and diminution of goodwill: Constantini at para 48 citing Merrill Lynch Canada Inc. v.

Pastro , 2000 BCCA 243 at para 5 . [ 34 ] The Federal Court of Appeal has stated that proof of irreparable harm cannot be inferred and that the evidence of irreparable harm must be clear and not speculative: Centre Ice Ltd. v. National Hockey League , [1994] FCJ No. 68 (FCA) at para 9 ; Syntex Inc. v. Novopharm Ltd. , [1991] FCJ No 424 (FCA) at para 15 , leave to appeal to SCC refused, [1991] SCCA No 309. [ 35 ] However, other courts generally employ a more flexible approach. This Court has held that a “ high degree of probability ” or a reasonable amount of “ apprehended harm ” is sufficient: Yaghi v.

WMS Gaming Inc ., 2003 ABQB 680 , 18 Alta LR (4th) 280 at para 40 . I

will apply this Court ’ s standard. [ 36 ] The Plaintiff alleges that the Defendants have actively solicited the Plaintiff ’ s Clients and present clients, based on specific insider information, as evidenced by the fact that 90% of Fresh Start ’ s clients are former clients of the Plaintiff. The Plaintiff submits that the Defendants have done damage to the Plaintiff ’ s goodwill, reputation, and market share. The Plaintiff asserts that the Defendants are damaging its relations with its customers, and its business reputation in Calgary.

The Plaintiff alleges, as an example, that the Stiers ’ wrongful forwarding of mail has caused delays in servicing its clients. [ 37 ] The Defendants claim that any losses the Plaintiff may have are based on lost commissions, which are quantifiable. The Defendants submit that the Plaintiff has failed to provide clear evidence of irreparable harm. The Defendants assert that the Plaintiff ’ s loss of reputation claims relates to mail issues, which are not the Defendants ’ fault, and that these issues have been largely resolved.

Finally, the Defendants claim that any harm to the Plaintiff ’ s reputation and business is self-inflicted, and that their clients were dissatisfied with the Plaintiff. [ 38 ] I agree with the Defendants that any financial losses are quantifiable and verifiable. [ 39 ] The problem with the Plaintiff ’ s submission of non-commission-based losses regarding goodwill, reputation, and market share, is that the Plaintiff has not provided evidence that meets the threshold of a “ high degree of probability ” or a reasonable amount of “ apprehended harm ” .

The Plaintiff states that its reputation has been harmed in the business community, but has provided no evidence of this. The Plaintiff has provided limited evidence that, as a result of the Defendants ’ activities to date, someone would think ill of Mr. Hafer or the Plaintiff. The Plaintiff ’ s submission that the mail forwarding resulted in significant delays for at least one claim is insufficient to meet this test. More is required.

The Defendants, meanwhile, have provided evidence that the Plaintiff ’ s Clients that have moved to Fresh Start have done so on their own initiative, out of dissatisfaction with the quality of the Plaintiff ’ s services once Mr. Stier ceased working for the Plaintiff. Market loss in this instance can be quantified. [ 40 ] Therefore, the Plaintiff has not met the test for harm. On this basis the application fails. However, I will consider the third branch of the test.

c) Does the balance of convenience favour the Plaintiff? [ 41 ] The third branch of the test requires an assessment as to which of the parties would suffer greater harm from the granting or the refusal to grant an interim injunction pending a decision on the merits. [ 42 ] The Plaintiff submits that it will suffer greater harm if an injunction is not granted. Its alleged harm includes greater loss of market share, as well as further damage to its reputation.

However, as discussed earlier, any harm to the Plaintiff is commission-based and therefore quantifiable and verifiable. [ 43 ] The Defendants submit that the balance of convenience favours permitting the Defendants to continue to service the Plaintiff ’ s Clients that have transferred to Fresh Start. I find the Defendants ’ submission more persuasive. The Plaintiff ’ s Clients comprise 90% of Fresh Start ’ s business. The Defendants say that these clients have sought them out, due to their dissatisfaction with the Plaintiff.

Only a trial will settle this issue. [ 44 ] Therefore, the balance of convenience favours the Defendants. 5. Conclusion [ 45 ] The Plaintiff was able to establish the first branch of its test, but was unable to demonstrate that the second and third branches are met. Therefore, this application is denied.

6. Costs [ 46 ] The parties have leave to speak to this Court as to costs. Heard on the 24 th day of September, 2012. Dated at Calgary, Alberta this 16 th day of November, 2012. Bruce A. Millar J.C.Q.B.A. Appearances: Norman D. Anderson Shea Nerland Calnan LLP for the Plaintiff Shane B. King McLeod & Company LLP for the Defendants