Olson Lemons LLP v. Kearl, 2012 ABQB 95

Court of Queen ’ s Bench of Alberta Citation: Olson Lemons LLP v. Kearl, 2012 ABQB 95 Date: 20120209 Docket: 1101 12305 Registry: Calgary Between: Olson Lemons LLP, Olson Tax Consultants Inc. and Laga Management Inc. Plaintiffs - and - Brian J.

Kearl, 1123684 Alberta Ltd. and Gowling Lafleur Henderson Defendants _______________________________________________________ Reasons for Judgment of Chief Justice Neil Wittmann _______________________________________________________ Introduction [ 1 ] This application by the Defendants requests this Court to order the striking out of the Plaintiffs’ claim, in whole or in part, against all of the Defendants, pursuant to the Alberta Rules of Court (“ARC”) 3.68(2)(b), (

c) and (d). The grounds are that the Statement of Claim does not disclose a reasonable claim against any of the Defendants with sufficient particularity to enable the Defendants to respond, does not identify the basis of a cause of action and is abusive in the context of being a “fishing expedition”.

Facts 1. The Statement of Claim [ 2 ] The Statement of Claim and the transcript of certain proceedings in this Court, July 12, 2011, were put before me. Dealing first with the Statement of Claim, the first

section deals with the parties. Olson Lemons LLP (“Olson Lemons”) is described as a registered Alberta Limited Liability Partnership of Barristers and Solicitors. Olson Tax Consultants Inc. is alleged to be a corporation registered to do business in Alberta, as is Laga Management Inc. (“Laga”). The Plaintiffs are collectively self-described as (“Olson”). [ 3 ] The description of the Defendants is that Brian J. Kearl is a Barrister and Solicitor and an active member of the Law Society of Alberta, practising as an associate at Gowling Lafleur Henderson LLP in Calgary and that 1123684 Alberta Ltd. is Mr.

Kearl’s Professional Corporation (“Kearl PC”). They are collectively described as (“the Kearl Defendants”). Gowling Lafleur Henderson LLP is described as an extra provincially registered Ontario Limited Liability Partnership of Barristers and Solicitors (“Gowlings”). [ 4 ] Thereafter follows a

section called “the Agreements”. It is alleged that effective July 1, 2006, Kearl PC agreed to provide contract legal services to Olson Lemons under a Legal Services Agreement and that the Kearl Defendants were in a solicitor/client relationship with Olson and owed Olson all of the trust and fiduciary duties generally owed by a lawyer to a client. [ 5 ] Further, it is alleged that on or about July 1, 2006, the Kearl Defendants entered into a “Confidentiality and Non-Disclosure Agreement” with Olson and Laga.

Allegedly, that Agreement placed significant limitations on the use that could be made by the Kearl Defendants of any and all Trade Secrets or Confidential Information as defined in the Confidentiality and Non-Disclosure Agreement and as disclosed to the Kearl Defendants by Olson, while the Kearl Defendants were performing their independent consulting services for Olson. [ 6 ] A further allegation is that during the term of the Legal Services Agreement and Non-Disclosure Agreement, Kearl was given access to Olson’s precedents and confidential information stored electronically on the Olson computer system which could be accessed by Kearl, on his home computer and his computer at Olson Lemons.

It is further alleged, that the day after Kearl left his employment at Olson Lemons, Kearl’s computer at Olson Lemons was inspected and everything on it had been deleted. [ 7 ] The allegation is that Kearl was in breach of the Confidentiality and Non-Disclosure Agreement in that he did not return to Olson all the proprietary and confidential information that had been entrusted to him as a barrister and solicitor, but rather purported to destroy it and that known only to the Kearl Defendants is whether Kearl retained copies of such information on his home computer and whether he is now using that information in breach of his obligations and agreements and duties. [ 8 ] It is further alleged, that in breach of the fiduciary and contractual duties and obligations owed by the Kearl Defendants to the Plaintiffs, the Kearl Defendants or one of them has contacted clients and prospective clients of the Plaintiffs.

There is a further general allegation of a breach of the duties of confidentiality respecting Olson’s precedents, confidential information and trade secrets as defined in the Confidentiality and Non-Disclosure Agreement between the Kearl Defendants and Olson, without any particulars. [ 9 ] With respect to Gowlings, it is alleged that Gowlings knew when it hired Kearl, or shortly thereafter, of the terms imposed upon Kearl by the Legal Services Agreement and the Confidentiality Agreement and is accordingly a party to continued breaches of the duties and obligations, existing between the Plaintiffs and the Kearl Defendants. [ 10 ] Finally, it is alleged that the Plaintiffs require information concerning the breaches of the Agreements of fiduciary duties by the Kearl Defendants and Gowlings in order that the Plaintiffs may take whatever steps necessary to limit the effects of those disclosures or further disclosures and to mitigate against those disclosures on behalf of clients who may suffer adverse consequences, or risk suffering adverse consequences, as a result of those disclosures. [ 11 ] The only remedy sought is an injunction restraining Kearl and the other defendants, from present and future breaches of the

Legal Services Agreement, the Confidentiality and Non-Disclosure Agreement and all of the common law and statutory obligations of trust, loyalty and confidence. 2. The July 12 th , 2011 Proceedings [ 12 ] The proceedings of July 12, 2011 before me arose as the result of the then prospective Plaintiffs bringing an application to seal the court file in advance of filing a Statement of Claim and to proceed with the action on the basis that there would be no public access or awareness of the existence of the action, the allegations or pleadings.

The application was made on the grounds that there would be deleterious effects of disclosure of any confidential information, trade secrets or other protected information. I refused the application and ordered the transcript of those proceedings sealed, not to be disclosed to anyone without further Order of the Court. I was asked to make the transcript available to the parties and did so. The Law [ 13 ] The new ARC have not changed the test articulated for striking out a claim in the cases decided pursuant to the old ARC: Donaldson v. Farrell , 2011 ABQB 11 at para. 30 .

In the Alberta Civil Procedure Handbook , 2011, Volume 1, Stevenson and Coté, (Jubiler), it is stated at 3-97, with respect to the striking out rule that “more time and money is wasted over this rule than any other”. The text goes on to state that ... “the most common misuse of ARC 3.68 is trying to strike out claims which are only probably bad, not certainly bad”. Applicable Rule: ARC 3.68 [ 14 ] ARC 3.68 reads as follows: Court options to deal with significant deficiencies 3.68(1) If the circumstances warrant and a condition under subrule (2) applies, the Court may order one or more of the following: (

a) that all or any part of a claim or defence be struck out; (

b) that a commencement document or pleading be amended or set aside; (

c) that judgment or an order be entered; . . .

(2) The conditions for the order are one or more of the following: . . . (

b) a commencement document or pleading discloses no reasonable claim or defence to a claim; (

c) a commencement document or pleading is frivolous, irrelevant or improper; (

d) a commencement document or pleading constitutes an abuse of process; . . .

(3) No evidence may be submitted on an application made on the basis of the condition set out in subrule (2)(b). [ 15 ] ARC 1.2 reads as follows: Purpose and intention of these rules 1.2(1) The purpose of these rules is to provide a means by which claims can be fairly and justly resolved in or by a court process in a timely and cost-effective way.

(2) In particular, these rules are intended to be used (

a) to identify the real issues in dispute, (

b) to facilitate the quickest means of resolving a claim at the least expense, (

c) to encourage the parties to resolve the claim themselves, by agreement, with or without assistance, as early in the process aspracticable, (

d) to oblige the parties to communicate honestly, openly and in a timely way, and (

e) to provide an effective, efficient and credible system of remedies and sanctions to enforce these rules and orders and judgments. The Position of the Applicants [16] The Applicants cite, in addition to the ARC, Martin v. General Teamsters, Local Union No. 362 et al, 2011 ABQB 412 andTottrup v. Alberta (Minister of Environmental Protection) 2000 ABCA 121. The Applicants agree that the new ARC 3.68 has notmodified the test for striking out a claim and rely on ARC 1.2(2)(a), to suggest that this foundational rule reinforces the requirement foradequate pleadings and the timely disposition of issues. [17] Relying on Tottrup, the Applicants submit that two principles bind this Court:

(1) An application to strike should be considered on the pleadings as they exist and should not be deferred until any potentialsummary judgment application, or in this case disclosure and submit that any such deferment would have the effect of enabling thePlaintiffs to go on a “fishing expedition”.

(2) The allegations in the Statement of Claim must be carefully reviewed to determine if they identify a cause of action, as a matterof alleged facts and legal causes of action. It is not sufficient to simply allege breach of a duty “at law”.

Thereafter, the Applicants referto paragraphs 10 through 16 inclusive, of the Tottrup majority judgment rendered by Conrad J.A. [18] With respect to the allegations in the Statement of Claim, the Applicants also argue that the whole of the Statement of Claimis tantamount to an allegation that the Plaintiffs know not whether the Kearl Defendants breached any obligations and simply wish to usethe action to find out whether such breaches occurred. They further submit that there is no identification of specific acts of wrongdoingand that any identifiable damage to the Plaintiffs is “suspect”.

The Applicants do concede that the statement that Kearl did not return allof propriety and confidential information but rather purported to destroy it, is “perhaps an allegation which as a stand alone allegationcan be answered”.

They also submit, that although it is alleged that the Kearl Defendants have contacted clients and prospective clientsof the Plaintiffs, that no facts are pleaded in terms of a particular client or under what circumstances, with what result. [19] The Applicants also assert, that they do not know what wrongdoing is actually alleged of them, nor can they identify what the“real matters in issue are” which will inhibit the preparation of an Affidavit of Records and that submitting to questioning will inevitablylead to a stalemate.

Finally, the Applicants submit that the remedy sought is inappropriate and unattainable in that the court cannot grantany injunction to restrain present and future breaches. During oral argument, the Applicants also argued that there were going to beLimitations Act, RSA 2000, c. L-12, issues and that it is necessary for specific dates to be known to the Defendants. The Position of the Respondents [20] The Respondents have cited the following authorities in support of their position: R. v. Imperial Tobacco Canada Ltd., 2011SCC 42; Bestwick v.

Bestwick, [1968] A.C. 58 (H.L.); McDonald’s Restaurants of Canada Ltd. v. West Edmonton Mall Ltd. (1994), (AB KB), 22 Alta. L.R. (3rd) 402 (Q.B.); Place Concorde East Limited Partnership v. Shelter Corp. of Canada Ltd. (2006)

(ON CA), 270 D.L.R. (4th) 181 (Ontario Court of Appeal); Canadian Arrow Services Ltd. v. O’Malley, (1973) (SCC), 40 D.L.R. (3rd) 371; Fiduciary Duties in Canada, M.V. Ellis, Toronto: Carswell, 2002; Peterson v. Highwood Distillers Ltd. (1998), 1998 ABCA 105 , 61 Alta. L.R. (3rd) 365 (C.A.). [21] The Respondents submit that the Statement of Claim pleads a breach of contract and a breach of fiduciary duty as against theKearl Defendants, that the Kearl Defendants were in a solicitor-client relationship with the Applicants, thereby establishing the factualexistence of a fiduciary duty.

The breach of both, they allege, is established by the publication and use of the confidential information.They indicate that as against Gowlings, there is an allegation that it knew when it hired Kearl of the confidentiality obligation imposedupon Kearl by the Legal Services Agreement and the Confidentiality Agreement or shortly thereafter, and Gowlings is, by reasonthereof, a party to the continued breaches of the duties and obligations existing between the Applicants and the Kearl Defendants. [22] Also argued by the Respondents, is that the Statement of Claim “was drafted pursuant to, and is in accordance with, thestatements by this Court in the in camera proceedings of July 12, 2011.” A transcript of those proceedings was made available to thisCourt and the parties for the hearing of this application. [23] During oral argument, the Respondents conceded that the pleadings were “anaemic” or “anorexic” and consisted only of thebare bones necessary to sustain a reasonable cause of action, precisely because of the concerns expressed to this Court by theRespondents when they applied on July 12, 2011 for leave of the Court to seal the entire file and to have the proceedings conducted inprivate.

This Court ruled, at that time, that it would not, in accordance with the open courts principle and Supreme Court of Canadaauthority pursuant thereto. It supported its reasons on the basis that, the proposed Plaintiffs (Respondents) could craft a pleading thatwould allay the Respondents’ privacy concerns. I stated at page 11, as referred to in the Respondents’ brief, lines 11 -20, while engagingcounsel during their submissions, particularly Mr. Nemetz: But I would suspect you could draft this Statement of Claim a lot tighter. You could draft it and say Kearl worked for our law firm.

Kearlhad an agreement with our law firm. Contrary to it, he breached the agreement. He disclosed or retained confidential information or tradesecrets, okay. And that would withstand, I dare say, an application to strike. Then you could demand or Mr. Scott could demandparticulars. You could give him all the detail that you’ve done in here of the precise clauses of the agreement that you are relying upon.Those don’t have to be filed. A request for particulars or a response, that doesn’t have to be filed. Your Affidavit of Records no longerhas to be filed.

And I or this Court will protect your trade secrets and your confidential information, in the case, which you say I can’tparse. [24] The Respondents also referred me to page 20, lines 34 - 38 of the July 12, 2011 transcript which stated as follows: I am prepared, as I said to Mr. Nemetz in argument, to protect the confidential information, if such is established. The trade secrets, ifsuch are established, as the litigation progresses.

I am also prepared to limit any harm or any – as the Sierra Club case denotes,deleterious effects of disclosure of any information, as between these parties, as the litigation progresses, if it does progress. [25] The Respondents argue, citing Imperial Tobacco at paragraph 17, that a claim will only be struck if it is plain and obviousthat the pleadings disclose no reasonable cause of action, assuming the facts pleaded in the claim to be true. [26] With respect to not asking for damages, the Respondents assert that ARC 13.6(2)(c)(

i) requires that the pleading must state ifrelevant the types of damages claimed but that here, only injunctive relief is claimed and that is the only remedy. In any event, theRespondents state that nominal damages may be awarded in the absence of proof of actual damages and cite Place Concorde in supportof this proposition. Moreover, the Respondents cite Canadian Arrow for the proposition that in the event of a breach of fiduciary duty,liability does not depend upon proof that the Plaintiff suffered damages. [27] With respect to Gowlings and knowledge of Kearl’s alleged breaches of duty, the Respondents cite Ellis in Fiduciary Duties inCanada at pages 15-30.18(

i) where it is stated that those who know about fiduciary duties owed by a fiduciary, will be “caught” if theyact in association with the fiduciary and with knowledge that the fiduciary was in breach. Analysis

[ 28 ] When the Respondents raised the issue of this Court’s comments during argument at the July 12, 2011 hearing, I suggested that it may be appropriate that this Court recuse itself from this application. Counsel did not bite. Accordingly, the Application continued. It is trite law however, that in an application to strike a claim, or parts of a claim, on the ground it discloses no reasonable cause of action, the Court is obliged to refer only to the pleading and to assume that the allegations in it are true: ARC 3.68(3).

I am doing so in this case without regard to the July 12, 2011 exchange between counsel and the Court quoted above from the transcript. The transcript is properly characterized as “evidence” for the purpose of ARC 3.68(3). However, as will be seen later, the transcript is not a prohibited consideration regarding ARC 3.68(2)(

c) or (d). [ 29 ] A leading case in Alberta is Tottrup . The Applicants, as indicated above, regard this case as dispositive. That is, the proper application of it should compel this Court to strike the Plaintiffs’ claim. Heavy reliance is place on paragraphs 10 - 16 inclusive from the judgment of Conrad J.A.

Specifically, in Tottrup , there was an allegation that certain Ministers of the Crown of the Province of Alberta owed a duty, under environmental statutes and “at law” to the Plaintiff, with respect to permitting the discharge or release of contaminates or remediating damages caused by pollution and flooding.

The example given by Conrad J.A. in paragraph 11 is that a statement of claim alleging only that “A” breached a duty owed to “B” resulting in damage to “A” does not disclose a cause of action because pleadings are to be allegations of fact which would be capable of sustaining a determination that a duty is owed, that

an act or omission occurred which constituted the breach of the duty, resulting in damages. She found that those elements were absent in Tottrup . [ 30 ] The decision of Conrad J.A. in Tottrup was concurred in, as to result only, by Berger J.A. who found the essence of the claim against the Ministers was a breach of statutory duty, not a duty “at law”. He went on to find that the statutory duties owed by Ministers were public law duties, ie. duties owed to the public at large, giving the Ministers a wide discretion which could not create any common law duty to the Plaintiff on the part of the Ministers.

Berger J.A. would not strike the allegations of negligence against the Ministers and would have given leave to amend the pleadings to properly name the Minister of the Environment as a Defendant, in a representative capacity only. [ 31 ] A case is only authority for what it actually decides. Tottrup decided that the Chambers Judge did not err in striking out the claim against the Ministers personally.

It concerned whether the facts pleaded gave rise to the existence of a private law duty or whether any private law duty could exist that the Ministers owed the Plaintiff. [ 32 ] The pleadings before me are quite different.

There is no issue as to a private or public law duty. [ 33 ] What captures the issue best, is in my view, is the statement by the Applicants in their written brief: The essence of the grounds for the application, is that there is no reasonable cause of action disclosed because of the total absence of any particulars of the alleged breaches of duty and that the claim as formulated is abusive as being in the nature of an improper “fishing expedition”. [ 34 ] To the extent that the complaint of the Applicants is that the Statement of Claim contains a “total absence of particulars”, ARC 3.61 provides a mechanism for the Applicants to serve on the Respondents a request for particulars “about anything in the pleading”.

If that request is not complied with, the requesting party may apply to the Court for an Order requiring the provision of the particulars. [ 35 ] I am not deciding that a claim that discloses no reasonable cause of action, can be remedied by the provision of particulars. It is, however, to be noted that a Court is required to undertake, pursuant ARC Rule 3.68, a two step reasoning process. First, a “condition” as stipulated in ARC 3.68(2) must be found by the Court. In this case, that the commencement document, the Statement of Claim, discloses no reasonable cause of action.

Only then should the Court go to ARC 3.68(1) and determine which of the four Orders it should make. One of them is of course that the claim be struck out. Another, is that the claim be amended. The other two are not applicable here. [ 36 ] I do not find it necessary to suggest or to allow an amendment at this stage. In this case, I find that the application should be dismissed because a reasonable cause of action has been made out on the pleadings as they now stand. That is to say, a reasonable cause of action, independent of any particulars, has been made out by the Respondents.

Perhaps particulars may be forthcoming, if requested,

by the Applicants. If not, the Applicants can plead affirmative defences, including the Limitations Act, without them. [37] Returning to Tottrup, it is important to note the description which characterizes the extreme standard necessary to strike.Those expressions include “doomed to fail”: paragraph 6; “plain and obvious that no cause of action exists”: paragraph 7. [38] The Applicants also rely on the phrase “fishing expedition” used by Conrad J.A. in Tottrup, paragraph 15, where she agreeswith Berger J.A. that

summary judgment should not be permitted as a “fishing expedition”. In Tottrup, this was said in the context of anargument that rather than strike the claim, a proper process would be to allow the matter to stand to await a

summary judgmentapplication which would of necessity involve affidavit evidence, including likely cross-examination on affidavits, resulting in significanttime and expense. Thus, at paragraph 44 of Tottrup, Berger J.A. referred to a court being in the position of acting, so as to “countenancefishing expeditions” and cited Temilini v. Ontario Provincial Police Commissioner (1990), (ON CA), 73 O.R. (2d)664 (Ont. C.A.) at page 670.

He said this after referencing the absence of any pleading or argument that the Ministers in question actedintentionally outside of any of their statutory of powers, or outside the purpose of the statute in issue, or in bad faith, or for an impropermotive. [39] It should be noted, that ARC 3.68(3) is applicable only to “an application made on the basis of the conditions set out in sub-rule (2)(b).” That is, that the claim in this case discloses no reasonable cause of action. But the Applicants also have relied on ARC3.68(2)(

c) and (d). Those grounds encompass submissions that the claim is frivolous, irrelevant or improper, or constitutes an abuse ofprocess. The July 12, 2011 proceedings are not prohibited to be adduced to the Court for its consideration on these latter grounds orissues. This goes to the submission that the Court is enabling an improper “fishing expedition”. [40] I do not find the phrase “fishing expedition” particularly helpful in this case. Indeed, the reference in Temilini at page 670, inits entire context is perhaps illuminating.

Grange, J.A. speaking for a unanimous Ontario Court of Appeal said: So far as the other respondents are concerned, I concede that the plaintiff should not enter litigation purely on a “fishing expedition” butthe distinction between that and using the processes such as production or discovery to supplement a case already based on someevidence is a fine one.

It is sufficient to say that a plaintiff who asserts a proper cause of action where there is some evidence upon whichthe case can be built should not be foreclosed. [41] Temilini was a claim by a Plaintiff, a lawyer who was charged with fraud in the course of some real estate transaction. He wasacquitted. Thereafter, he commenced an action for malicious prosecution and conspiracy against two Chiefs of Police, a Royal CanadianMounted Police officer, two vendors in a real estate transaction and their lawyer.

A motion was brought by the Defendants to dismiss theaction, as disclosing no reasonable cause of action and also as frivolous and vexatious. A dismissal was granted on the latter ground andan appeal taken by the Plaintiff. In allowing the appeal against some of the defendants and permitting the action to proceed, Grange, J.A.indicated that the case against the two Police Chiefs was doomed to fail upon the facts, but permitted the case to proceed against theother respondents as indicated above.

Conclusion [42] As indicated above, and as conceded by counsel for the Respondents, the Statement of Claim is variously anemic or anorexic.I agree that these metaphors are apt in the circumstances. That does not mean, that the claim as a whole discloses no reasonable cause ofaction. It is not plain and obvious; nor can I conclude it is doomed to fail. Therefore, the application is dismissed. If costs cannot beagreed upon, they may be spoken to. Heard on the 12th day of January, 2012. Dated at the City of Calgary, Alberta this 9th day of February, 2012.

Neil Wittmann C.J.C.Q.B.A. Appearances: B. Nemetz, Q.C. and P. Venschoote of Bennett Jones LLP for the Plaintiffs G. K. Scott, Q.C. of Fraser Milner Casgrain LLP for the Defendants