Jones v Gerosa, 2016 ABQB 207

Court of Queen ’ s Bench of Alberta Citation: Jones v Gerosa, 2016 ABQB 207 Date: 20160408 Docket: 0103 24943 Registry: Edmonton Between: Robert Martin Jones Plaintiff/Defendant by Counterclaim - and - Mary Gerosa and Jack Phan Defendants/Plaintiffs by Counterclaim _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice Robert A. Graesser _______________________________________________________ Introduction [ 1 ] The parties are dentists who formerly practiced together in Fort McMurray, Alberta.

Robert Martin Jones established a dental clinic (the Peter Pond Dental Clinic) in the Peter Pond Mall in Fort McMurray in 1993. Mary Gerosa immediately became an associate dentist and on March 6, 1997 signed an associate agreement with Dr. Jones. [ 2 ] In 2000, Dr. Gerosa left practice on a maternity leave, and Jack Phan was recruited to come to work for Dr. Jones and to cover Dr. Gerosa’s practice. Dr. Phan signed an associate agreement with Dr. Jones dated September 25, 2000. [ 3 ] In July, 2001, Dr. Gerosa and Dr. Phan resigned from Dr.

Jones’ clinic and opened their own dental clinic, the Northern Lights Dental Clinic, in the Peter Pond Mall.

[ 4 ] In December, 2001, Dr. Jones commenced action against Drs. Gerosa and Phan, seeking judgment for amounts he claimed he was owed under the terms of the associate agreements. The Defendants filed a statement of defence and counterclaim on January 17, 2002. [ 5 ] Dr. Gerosa counterclaimed for monies she claimed had been wrongly deducted from her pay. Dr. Phan counterclaimed for monies he claimed were owed to him under the terms of the associate agreement. [ 6 ] Examinations for discovery were held in February, 2003 and continued in February, 2009.

This action has worked its way very slowly to a week-long trial before me. Background [ 7 ] Dr. Jones began to practice dentistry in Fort McMurray as an associate with Dr. Rory McLean in 1991. He had practiced in Fort McMurray earlier, but with another dentist. Dr. McLean had an established practice in the Peter Pond Mall known as the Fort McMurray Dental Clinic. However, Dr. McLean was mainly resident in Las Vegas. Dr. Gerosa was also an associate with Dr. McLean, starting with him in approximately 1992. Both Drs. Jones and Gerosa were paid 40 percent of their collected billings. Dr.

McLean was responsible for all expenses of the practice. [ 8 ] Neither Dr. Jones nor Dr. Gerosa had written associate agreements with Dr. McLean. [ 9 ] Dr. Jones did not reside in Fort McMurray but rather commuted in and out on alternate weeks. Dr. Gerosa lived in Fort McMurray and worked the weeks that Dr. Jones did not. Dr. McLean did not actually practice dentistry in Fort McMurray during this time. [ 10 ] Dr. Jones attempted to purchase the practice from Dr. McLean, but was unsuccessful. Dr. McLean’s lease in the Peter Pond Shopping Center was expiring, so Dr.

Jones negotiated with the landlord and entered into a lease of the same premises himself. The equipment belonging to Dr. McLean was apparently removed, and Dr. Jones made arrangements to acquire equipment and supplies sufficient to operate the dental practice. He also hired staff. I assume that most if not all of the staff had been formerly employed by Dr. McLean. Dr. McLean did not return to Fort McMurray, so essentially Dr. Jones was able to acquire the goodwill of Dr. McLean’s practice at no cost. [ 11 ] Dr. Gerosa continued to work at the clinic for Dr.

Jones on the same basis as she had as an associate with Dr. McLean. From an early time after Dr. Jones took over, he wanted Dr. Gerosa to enter into an associate agreement. According to Dr. Jones, he had received advice from colleagues and dental equipment suppliers that it was important to have associates hired or contracted under a written agreement, particularly so that they could not leave and take clients with them without some compensation to the employer. [ 12 ] Dr. Jones prepared a form of associate agreement himself, using a precedent he had received from a chiropractor friend.

He did not have legal advice at the time. He provided the form of agreement to Dr. Gerosa. She was not keen on signing it and delayed signing it for a considerable period of time. [ 13 ] Dr. Gerosa and Dr. Jones rarely met face to face. They did not work together in the clinic, as they alternated weeks. They spoke by phone. There is nothing to suggest that they did not have a cordial relationship. The unsigned associate agreement was a point of discussion from time to time. [ 14 ] Ultimately, the associate agreement is dated January 1, 1996, but was not signed until March, 1997.

Myra Bailey witnessed the two signatures, and swore an affidavit of execution before a commissioner for oaths. Attached to the agreement is a promissory note for $90,000 in favour of Dr. Jones, signed by Dr. Gerosa. [ 15 ] There is a duplicate agreement signed by Mary Line Gerosa Professional Corporation, bearing the same dates. The circumstances surrounding its execution are unclear, but it was acknowledged as being signed by Dr. Gerosa and neither its authenticity nor validity is objected to. [ 16 ] The key portions of Dr.

Gerosa’s associate agreement are paragraphs 1.01, 2.01, 5.0, 5.01, 6.01 and 6.01(a): 1.01 The term of this Agreement shall commence on the 1st day of January 1996 and shall continue until terminated by either party in accordance with the terms and conditions of this Agreement. 2.01 The Associate and the Owner agree with each other that they are independently carrying on their own active businesses (sic), and that the Associate in practicing his profession, and utilizing the Facility and manpower of the Owner, shall not be deemed to, nor shall it create any form of partnership, or joint venture between the parties, it being understood that the Associate is carrying on her practice as an independent practioner (sic). 5.0 BILLINGS AND COLLECTION THEREOF: For the purposes of this Agreement and this paragraph the words “net collected billings” shall mean the difference between total collected billings of the Associate minus all laboratory costs, credit card and the cost of collecting accounts receivable attributable to the Associate’s provision of services. 5.01 The billings attributable to the Associate’s work shall be prepared, forwarded and collected by the Owner and upon collection of the same, the net collected billings shall be distributed as follows:

(a) 60% of the collected billings attributable to the Associate’s work per month shall be retained by the Owner. (

b) The Dental laboratory billings shall be paid 60% by the Owner, 40% by the Associate. (

c) The residue of the net collected billings shall be paid to the Associate for the provision of Dental services at the Clinic in accordance with this Agreement, provided that the Owner shall be authorized to deduct from the residue, any amounts owed by the Associate to the Owner, where the Owner has paid expenses that the Associate is otherwise responsible to pay pursuant to this Agreement. 6.01 The Associate shall not, during the term of this Agreement, directly or indirectly, as principal, agent, owner, partner, shareholder, director, officer or otherwise, own, operate, be engaged in the operation of or have any financial interest in any business operation, whether a proprietorship, partnership, joint venture, corporation or other form of business organization, engaged in the practice of Dentistry at any location within the City of Fort McMurray, Province of Alberta or a radius of fifty miles thereof. (

a) However, if the Associate wishes to leave, the Associate is free to practice anywhere in the city of Fort McMurray at anytime provided the Associate buys the goodwill (income from patients the Associate has accumulated) pertaining to the Associate portion of the practice. The price of this goodwill will be assessed at the industry average of 3 - 4 months gross revenue, which in this case as of December 1996 is approximately $90,000.00. This obligation will be in the form of a personal promisory (sic) note offered by the Associate to the owner.

The note will be called in only on the termination of this agreement. Be it clear the intent and spirit of this agreement is to allow professional freedom to the Associate and owner and to allow a fair and amicable separation if need be - in essence the Associate is buying her share of the practice, patient goodwill, as fair payment to the owner for the facilities, infrastructure that allowed that goodwill to be accumulated. [ 17 ] Dr.

Gerosa was not happy signing the agreement, but recognized that she had committed to do so very early in their professional relationship, and she ultimately signed the form of agreement that she had been provided with many months, if not years, earlier. [ 18 ] Dr. Gerosa’s evidence was that she did not obtain any legal advice with respect to the agreement. [ 19 ] Dr.

Jones testified that he had been advised either by a chiropractor friend or one of the equipment leasing salesmen that a “rule of thumb” for an associate dentist leaving the practice but continuing to practice dentistry in the same area as the principal was three to four months’ gross billings. [ 20 ] Dr. Jones testified that he had some discussions with Dr. Hugh Campbell, who was the Registrar of the Alberta Dental Association at that time, and understood that formal associate agreements were required by the Association.

However, there was no evidence to support that agreements were a “requirement” as opposed to a recommendation. Again, nothing turns on this. [ 21 ] Dr. Jones testified that around the time the associate agreement was signed with Dr. Gerosa, her average monthly collections were approximately $25,000. That figure was supported by the financial information put in evidence at the trial. [ 22 ] There was no evidence of any particular negotiations around this provision in the associate agreement. On examinations for discovery, Dr.

Gerosa acknowledged that she considered herself bound by the provisions of the associate agreement. [ 23 ] Dr. Jones and Dr. Gerosa continued their relationship under the associate agreement for some time. They continued to alternate weeks. There was some friction about weekend work. Dr. Jones was keen to expand the dental practice, and expected Dr. Gerosa to work every Saturday. Dr. Gerosa for her part was not keen on weekend work as she had begun a family. [ 24 ] In May, 1999, Dr. Jones approached Dr.

Gerosa and advised her that his costs were increasing such that he needed to reduce her portion of her collected billings to offset some of his cost increases. Dr. Gerosa objected. Apparently, Dr. Jones had suggested 35 percent; Dr. Gerosa wanted to remain at 40 percent. Ultimately, Dr. Jones reduced her percentage to 37.5 percent. [ 25 ] According to Dr. Jones, they had agreed on that number and nothing more was said about it. [ 26 ] According to Dr.

Gerosa, she did not agree to the reduction, but felt she had no choice as she did not want to leave the practice at that time, and did nothing to object at that time. [ 27 ] Calculations provided by Dr. Gerosa quantify the difference in payments from May, 1999 to August, 2001 when she left Dr. Jones’ practice at $13,861.20. [ 28 ] She also advanced at trial a claim for payments she alleged were due to her under the associate agreement for services provided to the time of her departure. That claim is for $1,984.07. [ 29 ] In November, 1999, Dr. Gerosa decided to leave Dr.

Jones’ practice over a disagreement she was having with Dr. Jones over weekend work. She wanted to spend more time with her family and was not happy about the pressure Dr. Jones was exerting to keep weekend office hours. She provided a letter of resignation on November 24, 1999. However, following discussions with Dr. Jones, who attempted to talk her out of leaving, she did not pursue the issue and the “notice period” lapsed without her acting on it. Shortly after that, Dr.

Gerosa learned she was pregnant, so decided to work until sometime before her delivery date. [ 30 ] Ultimately, in the first part of 2000, Dr. Gerosa advised Dr. Jones that she would be leaving. Her evidence was somewhat vague on whether she was leaving dentistry indefinitely, leaving Dr. Jones’ office permanently or taking a maternity leave. Dr. Jones testified that Dr. Gerosa was only taking a maternity leave and she was not severing her relationship with him. [ 31 ] A letter from the Canadian Dental Services Plan Inc. to Dr.

Gerosa dated November 21, 2000 states: We acknowledge receipt of your advice that as of January 1, 2001 you will be on maternity leave for a period of one year, therefore you

will not be requiring Malpractice insurance. [ 32 ] The letter from the CDSPI is somewhat confirmatory of Dr. Jones’ version. Again, I do not see that anything turns on this issue, as there was no formal termination of the associate agreement, and events transpired that had Dr. Gerosa return to Dr. Jones’ practice in March, 2001. [ 33 ] In any event, in the late winter or early spring of 2000, Dr. Jones began to look for another associate. According to Dr. Jones, he was looking not only for someone to replace Dr. Gerosa during her maternity leave, but also to expand the practice and cover longer hours.

He expected Dr. Gerosa to return to practice at some stage. [ 34 ] Dr. Phan was recruited to cover Dr. Gerosa’s “shifts”. He had graduated from dental school about a year earlier, and had practiced as an associate in Calgary. The arrangements made with Dr. Jones were that he would be an associate dentist. He would be paid 40 percent of his collected billings. Dr. Jones would be responsible for all other costs. Dr. Jones would also pay for Dr. Phan’s travel to Fort McMurray on the same week-on week-off rotation as Dr. Phan intended to continue to live in Edmonton. [ 35 ] Dr. Jones would provide Dr.

Phan with the use of his apartment in Fort McMurray while Dr. Phan was there, as well as use of a car that Dr. Jones kept in Fort McMurray. Dr. Phan understood that Dr. Jones required him to sign an associate agreement. [ 36 ] Dr. Phan began to work for Dr. Jones in May, 2000. It is unclear exactly what the working arrangements were during this period when all three dentists practiced together, as the Peter Pond Dental Clinic could only occupy one dentist at a time. [ 37 ] In any event, Dr. Phan slowly assumed Dr. Gerosa’s hours and worked longer hours than had Dr. Gerosa. Dr.

Gerosa left on her maternity leave in July, 2000. [ 38 ] Dr. Jones was complimentary of the skill levels of Drs. Gerosa and Phan, and described Dr. Phan as a very ambitious, hard- working dentist. [ 39 ] On his weeks of work, Dr. Phan apparently worked 9 to 6 Mondays, Tuesdays and Fridays, 9 to 9 Wednesdays and Thursdays and 9 to 5 on Saturdays. Dr. Phan became active in Fort McMurray in order to become better known and to develop his practice. His clientele included Dr. Gerosa’s clients, walk-in clients, clients referred by Dr. Jones and clients resulting from his own activities. [ 40 ] Dr. Jones presented Dr.

Phan with a draft associate agreement. Dr. Phan reviewed it and asked for some changes. Those changes were made. Dr. Phan testified that he did not obtain any legal advice about the associate agreement, but did talk to his brother about it. His brother had graduated from dentistry a year earlier than had Dr. Phan. [ 41 ] The agreement states that it is “entered into this 1st day of September, 2000”. The evidence varied as to the timing and circumstances of the signing of the associate agreement with Dr. Phan. According to Dr.

Jones, the agreement was signed in the Peter Pond Dental Clinic on the date indicated, being September 25, 2000. Myra Bailey witnessed his and Dr. Phan’s signatures. [ 42 ] Attached to the agreement that Dr. Phan acknowledged signing is an affidavit of execution, sworn by Myra Bailey before a justice of the peace. The date in the jurat is September 26, 2000. [ 43 ] Myra Bailey testified at the trial, and confirmed that the agreement was signed by Drs. Jones and Phan at the clinic on the date indicated. [ 44 ] Dr. Phan testified that the agreement was not signed at the clinic, but rather was signed at Dr.

Jones’ home in Edmonton in late November, 2000, a Saturday night. Dr. Phan had returned from Fort McMurray after working that day. Dr. Jones had invited Dr. Phan to his residence. Dr. Phan was accompanied by Dr. Shen, an optometrist who was at the time looking to open a joint optometry- dental clinic in Fort McMurray. [ 45 ] According to Dr. Phan, he and Dr. Jones signed the agreement there, but not with Dr. Shen present. He testified that he signed the agreement under duress. He did not want to sign the agreement but felt that if he did not sign it, Dr. Jones would require him to leave his practice.

He testified that put him under a lot of stress at the time. In addition, his father was seriously ill, and that was causing him considerable stress. [ 46 ] It was clear that Dr. Phan had taken some time to review and consider the agreement. Dr. Jones was responsive to the requests for changes initiated by Dr. Phan. Dr. Phan’s stress levels at the time were not so great as to prevent him and Dr. Shen from going to a bar or nightclub after the agreement was signed. Dr.

Phan’s father did not pass away for some several years after the agreement was signed, so his father was not in extremis or close to death at the time. [ 47 ] The execution date of the agreement is not relevant to any issues. If I was required to make a finding, I consider the best evidence to be in the affidavit of execution. I find it difficult to believe that an Alberta justice of the peace would backdate a jurat . The JP did not testify. Ms. Bailey’s evidence is second best as she is not a party and has no direct interest in the litigation.

This is ultimately a “noise” issue and not one that needs resolution. [ 48 ] In any event, the associate agreement was signed, and the relevant portions are contained in paragraphs 1.01, 3.1(

e) and (g), 5.01, 5.02, 6.01, 6.01(a), 7.02, 8.01: 1.01 The term of this Agreement shall commence on the 1st day of September 2000 and shall continue until terminated by either party in accordance with the terms and conditions of this Agreement. 3.1 The Owner covenants: …

(

e) To exercise its best efforts in the collection of the Associate’s accounts, provided that this obligation shall not be deemed a guarantee of the collection of such accounts. It is agreed, that after the Owner has exercised reasonable steps in attempting to collect any outstanding account, that it shall be authorized to refer the collection to its solicitors, or other collecting agency, provided that all fees so incurred for the collection shall be borne exclusively by the Associate. … (

g) To provide shared accommodation at the Owner’s apartment and use of the Owner’s vehicle for transportation during the Associate’s scheduled work period. As well the Owner will provide air transportation for the Associate to Edmonton or Calgary at the beginning and end of scheduled work periods. 5.01 The billings attributable to the Associate’s work shall be prepared, forwarded and collected by the Owner and upon collection of the same, the net collected billings shall be distributed as follows: (a) 60% of the collected billings attributable to the Associate’s work per month shall be retained by the owner.

Be that defined as work done directly by the associate. However, dental cleanings and dental hygiene services are deemed work not directly attributable to the Associate and are therefore not included. (

b) The residue of the net collected billings shall be paid to the Associate for the provision of Dental services at the Clinic in accordance with this Agreement, provided that the Owner shall be authorized to deduct from the residue, any amounts owed by the Associate to the Owner, where the Owner has paid expenses that the Associate is otherwise responsible to pay pursuant to this Agreement. 5.02 The Associate covenants and irrevocably authorizes the Owner to prepare all billings to patients, and to collect all receipts arising by virtue of the Associate’s Dental practice, and to account to the Associate for those funds to which he is entitled pursuant to this agreement.

The Associate specifically agrees that he shall take no steps to assign, or redirect the payment for Dental services due and owing to him for services performed by him for any third party. … 6.01 The Associate shall not, during the term of this Agreement, directly or indirectly, as principal, agent, owner, partner, shareholder, director, officer or otherwise, own, operate, be engaged in the operation of or have any financial interest in any business operation, whether a proprietorship, partnership, joint venture, corporation or other form of business organization, engaged in the practice of Dentistry at any location within the City of Fort McMurray, Province of Alberta or a radius of fifty miles thereof. (

a) However, if the Associate wishes to leave, the Associate is free to practice anywhere in the city of Fort McMurray at anytime provided the Associate buys the goodwill (income from patients the Associate has accumulated) pertaining to the Associate portion of the practice. The price of this goodwill will be assessed at the industry average of 3 - 4 months gross revenue, which in this case as of September 2000 is calculated at 3 X $50,000 = $150,000. However due to the fact the Associate has just practiced a period of only 5 months the figure will be reduced to $90,000.

This obligation will be in the form of a personal promissory note offered by the Associate to the Owner. The note will be called in only on the termination of this agreement.

Be it clear the intent and spirit of this agreement is to allow professional freedom to the Associate and Owner and to allow a fair and amicable separation if need be - in essence the Associate is buying his share of the practice, patient goodwill, as fair payment to the Owner for the facilities, infrastructure that allowed that goodwill to be accumulated. 7. 02 The Owner covenants to indemnify and save harmless the Associate from any claims or causes of action arising out of the negligent operation of the Clinic by the Owner or any of its members.

In addition since the owner employs on the job trained individuals the Owner covenants to indemnify and save harmless the Associate from any claims or disciplinary actions arising from the employment of such individuals. ... 8.01 The parties mutually agree that either may terminate this Agreement at any time upon giving to the other, not less than sixty (60) days written notice of such termination, which notice may be served at the addresses and in accordance with the provisions of this Agreement. [ 49 ] The termination provisions are the same in Dr. Phan’s agreement as they are in Dr. Gerosa’s. [ 50 ] Dr.

Jones testified that the $90,000 figure for Dr. Phan was recognition on Dr. Jones’ part that Dr. Phan was junior and had not been with him for very long. At the time, Dr. Phan’s gross billings were approximately $50,000 per month, so from Dr. Jones’ perspective, the amount in the agreement was very fair having regard to what he believed to be the “rule of thumb” of three to four months’ gross billings. [ 51 ] Dr. Jones and Dr. Phan continued to practice together, sharing rotations as had Dr. Jones and Dr. Gerosa. Dr. Phan began to

express some concerns about the clinic and the way it was organized. He was unhappy that there was no certified dental hygienist, and was also concerned about the training levels of some of the staff. He also began to express concerns over the manner in which equipment was being cleaned or sterilized. [ 52 ] Dr. Phan had been discussing the prospects of a dental-optometry clinic with Dr. Shen, but ultimately nothing came of that. Because of the concerns being voiced by Dr. Phan, Dr.

Jones thought that a “bonding” experience would be helpful and suggested that the two of them participate in a dental hockey tournament in Calgary in March, 2011. To facilitate that, and to keep the office open, Dr. Jones approached Dr. Gerosa to see if she would come back to work, at least for the period of the hockey tournament. [ 53 ] Dr. Gerosa was still on maternity leave and, according to her testimony, she was unsettled about whether she wanted to return to dental practice.

She had suspended her membership in the Alberta Dental Association on the basis of a maternity leave, and had cancelled her professional liability insurance. [ 54 ] She testified that it would cost many thousands of dollars to reactivate her licensing and insurance, and that Dr. Jones had agreed to pay half of the re-registration costs with the Alberta Dental Association if she covered this time for him and Dr. Phan. [ 55 ] Dr. Gerosa agreed, and covered that time period. She was paid the same 37.5 percent of her collected billings for the time she worked. After the tournament, Dr.

Gerosa continued to work at the Peter Pond Dental Clinic for approximately two days or part days every other week. That is supported by the financial information submitted at trial. [ 56 ] Dr. Phan became increasingly discontented with the financial arrangements with Dr. Jones. By early 2001, his collections were averaging over $50,000 per month. He began to talk to Dr. Jones about increasing his share of his collected billings. Those discussions led to discussions about a new partnership between Drs. Jones and Phan. [ 57 ] Dr. Phan testified that at some time in early 2001, Dr.

Jones began to demand that the amount in the associate agreement for “goodwill” be increased to $150,000 from the $90,000 that had been earlier agreed. Dr. Jones denied that he had made any such demands. [ 58 ] There is no doubt that there were discussions between Dr. Jones and Dr. Phan. Dr. Gerosa does not appear to have been included in the discussions or negotiations. According to Dr. Jones, negotiations broke down because he was proposing a three-way partnership including Dr. Gerosa as a partner. Dr. Phan testified that Dr. Jones was not proposing that Dr.

Gerosa be a partner, but was unclear as to why the negotiations had failed. [ 59 ] According to Dr. Phan, negotiations ended during a telephone call between him (in the clinic) and Dr. Jones (in his car and on his cell phone). Myra Bailey had been asked to verify something for Dr. Phan and spoke to Dr. Jones. In their evidence, both Dr. Jones and Ms. Bailey denied that there had been any such conversation involving the two of them while Dr. Jones was en route to Edmonton. [ 60 ] Dr. Jones’ version is that Dr. Phan became angry when he was told that Dr. Jones would not agree to partnership terms. Dr.

Phan slammed the phone down, and when he angrily left the office, he pushed the door hard enough to cause the doorknob to go through the wall. [ 61 ] Dr. Phan denied slamming the phone down, and denied that he violently pushed the door causing damage to the wall. He says that he was disappointed when the negotiations ended, and he put the phone down hard. He inadvertently pushed the door and forgot to hold it from hitting the wall as there was no doorstop. [ 62 ] Myra Bailey confirmed that there had been damage to the wall; Dr.

Jones’ evidence as to what happened in the clinic was properly objected to as hearsay, as he was on his cell phone at the time and not present in the clinic. [ 63 ] Nothing turns on this incident, but it occupied an inordinate amount of time at the trial and, along with the timing of the signing of the associate agreement between Dr. Jones and Dr. Phan, demonstrates the bitterness between Dr. Jones and Dr. Phan. [ 64 ] Dr. Phan began to explore other options in Fort McMurray, and discussed the possibility of renting space in the Peter Pond Shopping Centre with the building manager.

He was initially told that he could not rent space in the Centre because of a restrictive covenant between the Centre and Dr. Jones preventing another dentist from operating in the Centre. However, the building manger got back to Dr. Phan some time later advising that he had space in an “annex” to the Shopping Centre. This “annex” had formerly been a department store and was not part of the “CRU” (commercial retail unit) space in the Centre. [ 65 ] The

interpretation put on the restrictive covenant with Dr. Jones by the building manager was that it did not apply to anything but the CRU space so the Centre was free to lease space to Dr. Phan in the annex. [ 66 ] Dr. Phan discussed the possibility of Dr. Gerosa joining him in a new clinic, and on April 20, 2001 they signed a lease for space on the main floor of the Shopping Centre. [ 67 ] Dr. Jones’ space was on the second floor of the Centre, up a central escalator. The space leased by Drs.

Phan and Gerosa was on the main floor, close to the entrance door to the Centre from Franklin Avenue, a main thoroughfare in Fort McMurray. [ 68 ] In May, 2001, Dr. Gerosa gave her notice to Dr. Jones. She had initially spoken to Dr. Jones about her resignation, and he asked her to put it in writing. She did so, by way of a brief, handwritten note dated May 23, 2001. She worked until the end of June, 2001. [ 69 ] Dr. Phan gave an oral notice to Dr. Jones on or about June 1, and gave Dr.

Jones a letter dated June 11, 2001 confirming his departure as at the end of July, 2001 and complaining about the manner in which equipment in the Peter Pond Dental Clinic was cleaned or sterilized. Dr. Phan’s last day of work at the Peter Pond Dental Clinic was July 28, 2001. [ 70 ] Work on the leasehold improvements in Dr. Phan’s and Dr. Gerosa’s new clinic began immediately after the lease was signed.

Signage concerning the work advertised a new dental clinic. The evidence is contradictory as to whether the names of Dr. Phan and Dr. Gerosa were on the signage. Again, those contradictions are not relevant to any of the issues in this lawsuit. [ 71 ] The new clinic, known as Northern Lights Dental Center, opened for business on October 1, 2011. [ 72 ] After Dr. Jones received the resignations from Drs.

Phan and Gerosa, he wrote them both by letters dated July 21, 2001 advising that they were free to attend the Peter Pond Clinic and review their dental charts, and that they could pick up their charts on August 31, 2001 when they each paid him the $90,000 due to him under the terms of the associate agreements. [ 73 ] Dr. Gerosa did attend the Peter Pond Clinic at some time in August, 2001, accompanied by Lynn Gray. Ms. Gray had formerly worked at the Peter Pond Clinic but had agreed to work for Drs. Gerosa and Phan at their new clinic. Lynn Gray had by the time of this attendance already left Dr.

Jones’ employ. [ 74 ] According to Dr. Gerosa, she reviewed files and in discussions with Myra Bailey she understood that a determination would be made as to which of the three dentists each chart “belonged” to. That determination would be made by looking at the number of visits the patient had had and with which dentist. She did not have any discussions with Dr. Jones about this. [ 75 ] Dr. Phan testified that he had asked Dr.

Gerosa to review charts for him too, and when he learned how the charts were going to be divided, he concluded that he would end up with very few of them, as much of the work he had done was for patients of Dr. Gerosa and patients of the Peter Pond Clinic generally. [ 76 ] On September 4, 2001 Dr. Jones sent further letters to Drs. Phan and Gerosa reminding them of their obligations to pay him $90,000 each and of his willingness to turn over charts on receipt of payment.

The letter states: You mentioned when I spoke to you August 31, 2001 that transfer of funds is commitant (sic) on your office being in operation. This is clearly not the case and the contract makes no reference to that. When you start your office operation is your concern not mine. You have signed a lease in this mall, a telephone number, signage is up at your office and you have advertised in the Today for over a month… Let’s not play games, and let’s get this resolved as soon as possible. [ 77 ] No response was received directly, but a letter dated September 5, 2001 from K.D.

Wakefield, Q.C., was ultimately received by Dr. Jones. Drs. Phan and Gerosa had by then retained Mr. Wakefield to represent them in this matter. The September 5, 2001 letter advised: We act for Dr. Mary Gerosa and Dr. Jack Phan. Our clients have referred to us copies of their agreements with you dated January 1, 1996 and September 1, 2000, respectively, together with your written demand for payment from each of our clients in the amount of $90,000.00.

We are writing you to inform you that our clients are not prepared to pay to you the sum of $90,000.00 each which you have demanded and will vigorously resist any such claim by you. Our client’s position is based on the following considerations: 1. the Restrictive Covenant in

Article 6.0 of the Agreements purporting to proscribe the practice of dentistry in the City of Fort McMurray or within a radius of fifty miles for an indefinite period constitutes an improper restraint of trade and would likely not be upheld by the courts.

Since the demand that our clients each pay you $90,000.00 to practice in the City of Fort McMurray is predicated on the restrictive covenant, which is in restraint of trade, we suggest that the payment demanded by you is not legally exigible; 2. furthermore, your demand for payment from each of our clients in the amount of $90,000.00 does not and cannot represent the purchase of good will in the circumstances. In fact, we suggest your demands for payment in the amounts of $90,000.00 constitutes a penalty which is unenforceable in law.

In the result Clause 6.0 of the Agreements is likely not legally enforceable both because it constitutes an undue restraint of trade and because it contains a penalty clause and is, therefore, doubly deficient. 3. the Restrictive Covenant, including the provision respecting the amount of $90,000,00, does not survive termination of the Agreements; 4. you have not complied with your obligation to provide qualified staff to assist our clients. Your failure to provide qualified staff is not only a breach of your obligations to our clients, but to the profession; 5. further, with respect to Dr.

Mary Gerosa, the following additional considerations apply: (

a) Dr. Phan was hired to replace Dr. Gerosa by mutual consent. Dr. Phan started work in May 2000 at which point Dr. Gerosa reduced her load until July, 2000 when Dr. Phan replaced Dr. Gerosa entirely. Dr. Gerosa has not practiced dentistry for over a year except for the odd occasion starting in March 2001 when she filled in on an ad hoc basis for a few hours at a time at your request when the clinic was short-staffed; (

b) in or around 1998 you unilaterally reduced the payment to Dr. Gerosa to 37 ½ % of collected billings whereas the contract contemplates payment of 40%. You are therefore in breach of the contract and indebted to Dr. Gerosa. 6. further with respect to Dr. Jack Phan, the following additional considerations apply:

(

a) you advised Dr. Phan a number of times, starting in February, 2001, that he would have to sign a new employment contract with a $180,000.00 penalty instead of $90,000.00. You advised Dr. Phan that, if he did not sign a new contract you would give him notice. Dr. Phan refused to sign a new contract and has resigned; (

b) Dr. Phan has billed accounts receivable of about $120,000.00 to July 28, 2001. Of this, approximately $50,000.00 is owed to Dr. Phan as remuneration from employment and has not been paid. If the monies owed to Dr. Phan are not paid forthwith, he will commence legal proceedings to recover this debt. [ 78 ] And the fight was on. [ 79 ] After Drs. Phan and Gerosa left Dr. Jones’ practice, their billings continued to be collected by Dr. Jones. The evidence at trial was that all billings were done in the name of the dentist who provided the services to the patient.

Most of the work was covered by various dental plans or by the patients’ employers. [ 80 ] The billings to insurers or employers were done under the name of the specific dentist. These events preceded electronic billings and payments, such that bills were printed out and mailed out to insurers and employers. Non-insured services did not feature in the financial information at the trial. [ 81 ] Insurers and employers would take varying lengths of time to make payment. Sometimes, clarifications were required and sometimes payments were declined for various reasons.

The normal turnaround time for billings to be paid was at least 30 days, and it was not surprising for payments to take 90 days or longer to be paid. [ 82 ] Under the associate agreements, Dr. Jones was responsible for the billing and collection process. Cheques would come to the Clinic payable to any of the three of them, but would be deposited into the same Clinic account, to which only Dr. Jones had access. [ 83 ] From that account, Dr. Jones would on a monthly basis make the required payments to Drs. Phan and Gerosa, based on the collections for that month. [ 84 ] On September 20, 2001, Dr. Jones wrote Mr.

Wakefield regarding a mechanism for dealing with cheques payable to Drs. Phan and Gerosa for work done by them while at the Peter Pond Clinic. [ 85 ] Mr. Wakefield did not respond to Dr. Jones’ letter of September 20, 2001. As in the meantime, he had been contacted by Blair Maxton of Hendrickson Gower Massing Olivieri, who had been retained by Dr. Jones following his receipt of Mr. Wakefield’s letter of September 5. [ 86 ] Mr. Wakefield advised Mr. Maxton by letter of September 28 that he was planning to respond directly to Dr. Jones concerning the September 5 letter, but would not do so in light of Mr.

Maxton being retained. [ 87 ] On September 25, 2001 Dr. Phan notified Dr. Jones’ bank: As of today, Sept 25/01 3:00 pm, I Dr. Jack G.L. Phan request that all cheques payable to me to be stopped and not deposited as a joint account with Dr. Robert (RC) Jones. I withdraw authorization for Dr. Jones to negotiate deposits of my cheques. All cheques under my name should be returned to the Northern Lights Dental Center (Main Level Peter Pond Mall) [ 88 ] The result of that was that any cheques payable to Dr. Phan for services performed while he worked for Dr. Jones could no longer be cashed by Dr. Jones. Dr.

Jones had been able to do so for the month of August, and provided Dr. Phan with the appropriate percentage of August’s collections. [ 89 ] Dr. Jones continued to receive cheques for Dr. Phan, but could not cash them. He had not received a response to his proposal as to how cheques payable to Dr. Phan should be dealt with. [ 90 ] Ultimately, Dr. Jones’ lawyer and Mr. Wakefield had extensive correspondence about these cheques. Dr. Jones wanted the money to offset the $90,000 he believed he was owed under the associate agreement. Dr. Phan wanted his 40 percent of the money.

By then, many of the cheques were already stale-dated, yet the lawyers continued to write back and forth about them. [ 91 ] Ultimately, all of the cheques went stale-dated, and apparently have never been replaced by the insurers or employers who wrote them in the first place. [ 92 ] It is obvious that Dr. Jones’ enthusiasm for collection activities waned as he could do nothing about cheques that came to his clinic in Dr. Phan’s name. He became convinced that Dr. Phan was redirecting payments to his new clinic. Myra Bailey testified that she and her former colleague Lynn Gray (who was now working for Drs.

Phan and Gerosa) compared notes on payments for some period, and she learned that Dr. Phan had collected some $2,000 for work done while he was working for Dr. Jones. [ 93 ] Dr. Phan believed that Dr. Jones had either collected a large amount of his billings and had not accounted to him for those collections, or had breached his collection obligations and owed him 40 percent of all of his billings. [ 94 ] The amounts were quantified and summarized at trial. Dr. Phan collected $1,963.27 that should have been paid over to Dr. Jones. Dr. Jones is clearly entitled to 60 percent of that amount. Dr.

Jones collected and deposited $45,087.09 of Dr. Phan’s billings before Dr. Phan disallowed deposits into Dr. Jones’ bank account. Dr. Phan is clearly entitled to 40 percent of that amount. [ 95 ] Dr. Phan identifies some $25,000 as being his 40 percent of uncollected billings that should have been collected by Dr. Jones. I will deal with the collection activities later in this decision. [ 96 ] Dr. Gerosa quantifies her share of collected billings, or uncollected billings that should have been collected and paid over to her, at $1,984.07. I will deal with that claim later in this decision.

[ 97 ] Dr. Jones testified that the departure of both of his associates left him in a bad way. Not only did his clinic lose a significant number of patients, but Drs. Phan and Gerosa hired four of his employees to work for them in their new clinic. Dr. Jones arranged for a friend to help him cover time and patients until he could find a new associate dentist. He described the period of time from Dr. Phan’s and Dr. Gerosa’s departure until he had new associates in place as “terrible”. [ 98 ] Drs. Phan and Gerosa argue that Dr. Jones suffered no loss as a result of their departure.

They retained a business valuator, Andrew Dey from Mowbrey Gill, to review Dr. Jones’ financial statements for the relevant periods. He concluded that Dr. Jones suffered no financial loss during the period. That conclusion was based on Dr. Jones’ reported “operating income” from 1997 to 2004. [ 99 ] The operating income was as follows: 1997 $90,000 1998 $118,000 1999 $190,000 2000 $222,000 2001 $358,000 2002 $361,000 2003 $446,000 2004 $437,000 [ 100 ] Those figures, which were relied on heavily by Mr.

Dey, show a consistent increase in operating income. 2002 shows only a small increase from 2001, but that would presumably be the period most affected by the departure of Drs. Phan and Gerosa. [ 101 ] The dental fees reported show a slightly different story: 1997 $956,000 1998 $1,015,000 1999 $1,096,000 2000 $1,217,000 2001 $1,555,000 2002 $1,496,000 2003 $1,689,000 2004 $1,978,000 [ 102 ] Mr. Dey’s conclusion was that “we have determined that there was no loss of goodwill associated with the Peter Pond Dental Clinic as a result of the departure of Drs. Phan and Gerosa.” [ 103 ] Dr.

Jones approached the subject of losses differently. He focused on what Drs. Phan and Gerosa gained as a result of their departure and the fact that a number of Peter Pond Dental Clinic patients followed them. [ 104 ] According to information provided by Drs. Phan and Gerosa following examinations for discovery in 2002, 806 patients left Dr. Jones’ clinic and went to the new Northern Lights Dental Clinic. I would observe from my review of their records that the 806 number is slightly overstated as there is some duplication on the lists prepared for Dr. Phan and for Dr. Gerosa.

The overstatement is not significant and not material. [ 105 ] For the first two years of operation (October, 2001 to October, 2003), Drs. Phan and Gerosa billed $650,094 with respect to these patients. [ 106 ] Dr. Jones called an expert witness, Alan Kaluta, of Practice Solutions Inc. Mr. Kaluta focused his evidence and opinions on dental associate agreements and the valuation of the goodwill relating to associate dentists.

His opinion, based on his many years as a dental practice valuator and broker for the purchase and sale of dental practices, was that there was a rule of thumb at the time of the associate agreements between Dr. Jones and Drs.

Gerosa and Phan that associates would pay something in the range of three to four months of average billings by way of a “break fee” or to purchase the goodwill of their practice in the event they left their principal and started a competing operation with the intention of taking their clients with them. [ 107 ] He said that the “rule of thumb” was more of a discussion point with dentists, and that it did not reflect a proper valuation of goodwill. [ 108 ] He also discussed a “chart value” referring to the estimated value of a patient’s chart.

He described the “chart value” used by him as a number derived by dividing the total value of goodwill for a dental practice (taken from approximately 25 actual sales he had been involved in) by the number of patient charts. [ 109 ] He did not suggest in his testimony that this was a way of valuing the goodwill of a practice. [ 110 ] Ron MacKenzie, of MacKenzie & Company in Vancouver, was called as a rebuttal witness by Drs. Phan and Gerosa. His opinion was that there was no such thing as the “rule of thumb” referred to by Mr.

Kaluta and was critical of any suggestion that there might be a “chart value”. [ 111 ] Mr. Dey also commented on Mr. Kaluta’s report. He too was highly critical of the use of a “chart value”.

[112] Both Mr. Dey and Mr. MacKenzie took issue with Mr. Kaluta’s opinion that it “is common industry standard for dental clinicsto enter into written contractual agreements between the principal and the associate” and that “standard associate agreements all hadrestrictive covenants to protect the Principal’s investment of time and money”. Notably, both defence experts agreed that associateagreements were a good idea for the principal and were recommended. Both also agreed that restrictive covenants were a usefulprotection for the principal. Positions Dr. Jones [113] Dr.

Jones’ position on the issues was straightforward. He argued that the associate agreements were clear, fair and enforceablewith respect to the obligation of Drs. Gerosa and Phan to pay him $90,000 each. The breach of contract alleged was the failure of Drs.Gerosa and Phan to pay him the $90,000 each when it was due on August 31, 2001. [114] He took no issue with their leaving his practice, nor with their setting up a competing business on the main floor of the shoppingcenter he operated in, nor with them taking patients or staff with them to their new clinic.

He said that they were entitled to do thosethings because of the relevant provisions in the associate agreements. [115] He acknowledged collecting funds payable to Dr. Phan and withholding Dr. Phan’s 40 percent after the end of August. Hebelieved he was entitled to do so because Dr. Phan had not paid him the $90,000 due to him. According to Dr. Jones’ records, hecollected $46,087.09 and acknowledged that Dr. Phan is entitled to a credit of 40 percent of that amount. He believes, however, that Dr.Phan collected more than that amount by way of directing payments from insurers and employers to Dr.

Phan’s new office, such that his60 percent of any amounts collected by Dr. Phan would exceed and fully offset any monies he might otherwise owe Dr. Phan. [116] Dr. Jones believes that he acted reasonably after Dr. Phan withdrew his consent to have cheques payable to Dr. Phan depositedin the Peter Pond Dental Clinic account. All monies collected from Dr. Phan’s billings have been accounted for. [117] With respect to Dr. Gerosa, Dr. Jones’ position is that she agreed to the reduction in percentage from 40 to 37 ½ percent andthus has no claim against him for breach of contract. He maintains that he paid Dr.

Gerosa her share of all collections on her billings. [118] Dr. Jones argues that the amount of $90,000 in each of the associate agreements is not a penalty because there was no breach ofcontract on the part of the Defendants that gave rise to the payment obligation, citing Gunning v Thorne Riddell, [1990] BCWLD 346(BCCA) and BLT Holdings Ltd. v Excelsior Life Insurance Co., 1986 ABCA 180 , [1986] 6 WWR 534 (ABCA). [119] Dr.

Jones also argued that the associate agreements did not constitute any restraint of trade, following Rhebergen v CrestonVeterinary Clinic Ltd., 2014 BCCA 97 and Doman Forest Products Ltd. v GMAC Commercial Credit Corp. – Canada, 2007 BCCA88. [120] Also cited for principles of

interpretation, performance and parol evidence were: Ledcor Construction Ltd. v Northbridge Indemnity Insurance Co., 2015 ABCA 121; Rohit Land Inc. v Cambrian Strathcona Properties Corp., 2015 ABQB 375; Schmidt v Wood, 2014 ABCA 80; Bhasin v Hrynew, 2014 SCC 71; Shelanu Inc. v Print Three Franchising Corp., [2001] OJ No. 1919 (ONCA); and Premier Marketing Solutions Inc. v NII Northern International Inc., 2012 BCSC 1478. Drs.

Phan and Gerosa [121] Their first position is that the restrictive covenants in their respective associate agreements are unenforceable because they donot specify any duration for the restrictive covenants. They also argue that the geographic restriction, 50 miles surrounding FortMcMurray, was too large. Thus the restrictive covenants are void for uncertainty, as well as being contrary to the public interest. Theyrely largely on J.G.

Collins Insurance Agencies Ltd. v Elsley, (SCC), [1978] 2 SCR 916 and Shafron v KRG InsuranceBrokers (Western) Inc., 2009 SCC 6 and the tests described in those cases. [122] In the alternative, they argue that the $90,000 amounts specified in the associate agreements are a penalty and not a genuinepre-estimate of liquidated damages and thus the amounts in the agreements are unenforceable. [123] Further, they argue that Dr. Jones has not proven that he suffered any loss; indeed they argue that they have shown through theevidence of Mr. Dey that Dr. Jones did not suffer any loss whatsoever. [124] Dr.

Phan argues that he was justified in leaving Dr. Jones’ clinic and seeks judgment for $50,000, reflecting his 40 percent shareof the $95,221.97 in accounts receivable from his practice as at July 23, 2001 as well as approximately $40,000 of additional billings heclaims were not accounted for by Dr. Jones. Dr. Phan acknowledges that he collected $1,963.27 from insurers and employers for

services performed by him while working at the Peter Pond Dental Clinic. He agrees that Dr. Jones is entitled to 60 percent of thatamount, by way of an offset against what Dr. Jones owes him. [125] Dr. Gerosa seeks judgment for $13,861.20 being the difference between the contracted-for 40 percent and the 37 ½ percent paidto her starting in May, 1999. She also claims 40 percent of collections on her billings that were not paid to her after she left Dr.

Jones’office, totaling $1,984.07. [126] In addition to the cases cited above, the Defendants rely on the following authorities: Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co., [1894] AC 535 (UKHL); Tank Lining Corp. v Dunlop Industries Ltd., (1962), (ON CA), 40 OR (2d) 219 (ONCA); Goodman v Newman, [1986] OJ No 922 (ONHC); Thienes v Godenir, 2011 SKQB 271; Phytoderm Inc., v Urwin, [1999] OJ No 383 (ONGD); Ball, Canadian Employment Law, Aurora, ON: Canada Law Book, 1996- (looseleaf); Ernst & Young v Stuart, 1993 CarswellBC 115 (BCSC); H.F.

Clarke Ltd. v Thermidaire Corp., (SCC), [1976] 1 SCR 319; Judicature Act, RSA 2000, c J-2; Cote, An Introduction to the Law of Contract, Edmonton, AB: Juriliber, 1974; Sherk v Horwitz, [1972] OR 451 (ONHC); Lewison, The

Interpretation of Contracts, 4th Ed., United Kingdom: Sweet & Maxwell Ltd., 2007; Lyons v Multari, (2000) (ON CA), 50 OR (3d) 526 (ONCA); and Waddams, The Law of Damages, Toronto: Thomson Reuters, 2015 (loose-leaf updated 3015 release 24). Credibility Issues [127] The issues in this trial do not turn on the credibility of the three principal actors. There were a few areas where their respectivetestimonies could not be reconciled. However, it does not matter whether Dr. Gerosa agreed to the reduction in her percentage fee. Itdoes not matter when and where the associate agreement with Dr. Phan was signed.

It does not matter if Dr. Jones demanded that thebreak fee be increased to $150,000 in early 2001. Nor does it matter if Myra Bailey was part of a telephone conversation between Dr.Jones and Dr. Phan about a potential partnership arrangement, or if Dr. Phan got angry and pushed a door at the clinic causing somedamage to a wall. [128] The only area where credibility has any bearing is Dr. Phan’s allegation that he was coerced into signing the associateagreement, or that he signed the associate agreement under duress. [129] The onus is on Dr. Phan to establish coercion or duress on the balance of probabilities.

He has failed to meet that onus. Hissubjective assessment of his stress levels at the time of the agreement is insufficient to demonstrate that he was coerced by Dr. Jones.There is no evidence to suggest that Dr. Jones was aware of Dr. Phan’s stresses or the causes of them. There was no medical evidence asto any stresses or anxieties on Dr. Phan. There is certainly no evidence to suggest that Dr. Jones took advantage of Dr. Phan in any way. [130] Dr. Phan led no evidence of any financial pressures.

His father’s illness was undoubtedly a cause of upset and anxiety, but Dr.Phan’s activities at the time belie any real distress at least to the point of affecting his free will in entering into the associate agreement. [131] There was no evidence of any shortage of opportunities for a skilled, ambitious, recent dental school graduate in Alberta. WhileDr. Phan may not want to have given up the opportunities created for him by his association with the Peter Pond Dental Clinic, he hadonly been there for four and a half to six months at the time he signed the agreement.

The absence of signing the agreement meant onlythat he would have to leave the clinic, not Fort McMurray. [132] Ultimately, this concern over the validity of the associate agreement with Dr. Phan fails. [133] I need make no observations on the credibility of these three dentists. Consideration [134] The Defendants did not raise the absence of consideration as a defence to claims against them under the associate agreements.Francis v CIBC, (ON CA), [1994] OJ No 2657 (CA) and Globex Foreign Exchange Corp v Kelcher, 2011 ABCA240 come to mind on this subject.

I dealt with this issue recently in Stangenberg v Bellamy Software, 2016 ABQB 160.

[ 135 ] Since the issue was not raised by counsel, I will not deal with it other than to observe that I do not think it is necessary that an employment agreement be signed before the employee starts work, or if that does not happen that there be fresh consideration. [ 136 ] I would observe, however, that both Dr. Gerosa and Dr. Phan understood from the early stages of their association with Dr. Jones that they would be required to enter into an associate agreement. [ 137 ] Draft agreements were provided to them well in advance of the execution dates. In Dr.

Gerosa’s case, it appears that completion of the associate agreement was an outstanding issue between her and Dr. Jones for years. For Dr. Phan it came up very early in the discussions between him and Dr. Jones. [ 138 ] These are not situations where long-standing employees were required to sign employment agreements with their employer effectively changing the terms and conditions of their employment. Both Dr. Gerosa and Dr. Jones were aware around the time they began their contractual relationships with Dr. Jones that they would be required to enter into associate agreements.

The agreements had covenants going both ways and specified Dr. Jones’ obligations as to what he was to provide to enable Drs. Gerosa and Phan to practice their professions in his clinic. If the concepts had been objectionable to either Dr. Gerosa or Dr. Phan, their relationships with Dr. Jones could easily have been disentangled. [ 139 ] Rather, neither Dr. Gerosa nor Dr. Phan indicated at any time that they were unwilling to formalize their relationship with Dr.

Jones in a written agreement. [ 140 ] In this case, if it were necessary, I would find that continued employment, or more appropriately continued contractual relationships, provided sufficient consideration to support the formal, written associate agreements because of the understanding that the associates’ employment would not be continued if they did not sign. [ 141 ] It seems to me that the evidence of both Drs. Gerosa and Phan was to the effect that they were well aware that if they did not sign a formal contract with Dr.

Jones containing some restrictions on competition if they left his clinic, they would be required to leave. Dr. Jones had easy termination provisions, requiring that they be given only 2 months’ notice. [ 142 ] I do not see that Globex Foreign Exchange Corporation v Kelcher holds that continued employment cannot constitute consideration.

Rather, the difference between the majority and Slatter JA’s dissent centred on whether the discussion concerning the agreement included a threat of termination if the agreement were not signed. [ 143 ] I do not think that it is essential that a contract of employment or documenting an independent contractor relationship needs to be signed, sealed and delivered before the relationship commences to satisfy the requirement of consideration. [ 144 ] In any event, it was not raised by the Defendants, and I observe that the Defendants have been represented by senior and able counsel from the outset, such that it was undoubtedly recognized that the absence of consideration was a non-starter argument here.

Expert Witnesses [ 145 ] The Defendants objected to Mr. Kaluta’s expertise on the basis that a Saskatchewan Court of Queen’s Bench judge had refused to qualify him as an expert in the valuation of dental practices. I was satisfied that Mr. Kaluta had the necessary expertise and experience to offer expert opinion evidence on the valuation of dental practices. While he lacks professional qualifications, his business, Practice Solutions Inc., has been extensively involved in the valuation and sale of dental practices, primarily in Alberta, since 1999.

His background before that included valuation work with dental practices dating back to 1987. In the early days of his valuation experience, he worked for a company owned by the defence expert, Ron MacKenzie. [ 146 ] I ruled that any lack of professional qualifications and Mr. Kaluta’s failure to be qualified in Saskatchewan were matters that went to the weight of his evidence, but not as to admissibility. [ 147 ] His testimony at trial was presented fairly. He expressed two opinions that I find helpful in my consideration of the issues in this matter: 1.

Estimating goodwill at the industry average of three to four months’ gross revenue was standard and typical of agreements in existence between 1996 and 2001; and 2. The requirement to pay $90,000 in both the Gerosa Agreement and the Phan Agreement is reasonable, in keeping with industry standards and typical of associate agreements between 1996 and 2001. [ 148 ] I did not find the discussion about the value of patient charts to be helpful as it reflected only a mathematical calculation and does not appear to perform a useful or accepted function in the valuation of goodwill. [ 149 ] It was clear that Mr.

Kaluta had significant experience in the valuation and sale of dental practices, and the above opinions were not shaken on cross-examination. [ 150 ] Mr. MacKenzie had obvious expertise in relation to the valuation of dental practices. His opinions were limited to a critique of Mr. Kaluta’s report. [ 151 ] He rejected Mr. Kaluta’s opinion relating to the “rule of thumb” goodwill valuation based on three to four months’ gross billings. His opinion was that “there is no ‘method’ which all qualified professional dental practice evaluators use.” [ 152 ] Mr. MacKenzie disputed Mr.

Kaluta’s opinion relating to chart values, noting that “very few professional evaluations consider a goodwill value relating to the charts.”

[ 153 ] Mr. MacKenzie’s report stated “I have seldom seen any attempt to quantify a loss to the principal if an associate breaches the agreement” and finally that “Paragraph 12 of

Schedule C (to Mr. Kaluta’s report) also states that a $90,000 payment is “reasonable”. I have not seen any calculations to support that amount. [ 154 ] In his evidence at trial, Mr. MacKenzie confirmed the benefits to the principal of having an associate agreement in place to protect the principal’s practice. He was not familiar with any “rule of thumb” relating to associate goodwill. [ 155 ] Notably, Mr. MacKenzie performed no calculations and expressed no opinions on what might be a “reasonable payment” based on the situation facing the parties here. [ 156 ] Mr. Dey’s report provides commentary on Mr.

Kaluta’s opinions. In particular, he stated: 1. It is our understanding that while certain rules of thumb may be used as a potential value to the goodwill of a dental practice, a rule of thumb method, such as three to four months gross billings, is only a guideline; 2. Further, the use of rules of thumb is generally more applicable to negotiating price than determining fair market value…; … 3.

Accordingly, valuing goodwill on the basis of three to four months’ gross billings may not be indicative of the fair market value of the goodwill, as determined using a comprehensive approach to valuation. [ 157 ] With respect to Mr. Kaluta’s opinion on the reasonableness of the $90,000 specified payments, Mr. Dey says: 1. Mr. Kaluta has not provided calculations or analysis in support of the above claim regarding the reasonableness of the amount of $90,000; 2. Mr. Kaluta’s comments in Paragraph 8 refer to 806 patient charts being affected in total.

His opinion that $90,000 in both agreements is reasonable would appear to contradict the statement in Paragraph 8 and result in a double counting of the requirement to pay. [ 158 ] Mr. Dey did provide “alternative calculations” attempting to quantify the estimated damages suffered by Dr. Jones. His opinions were that Dr. Jones suffered no loss, and that his claim for three to four months’ gross revenue from each associate would tend to indicate that Dr. Jones is seeking payment for the same patients twice. Conclusion on Experts [ 159 ] The discussion about chart value was not helpful and was a red herring.

The associate agreements do not refer to chart values. There was no discussion about chart values when the agreements were negotiated. [ 160 ] Drs. Gerosa and Phan may have been of the view that they were entitled to take their charts with them and that is what they were getting for the $90,000 payment. They may have been led to that view by Dr. Jones’ correspondence to them, which tied their ability to collect their patient charts to payment of the $90,000. [ 161 ] The formula described in the agreements was described as being an “industry average”. [ 162 ] I accept Mr.

Kaluta’s opinion that during the relevant period there was a “rule of thumb” that approximated associate goodwill to three to four months’ average billings. Mr. Dey did not dispute that. Mr. MacKenzie rejected what he understood to be Mr. Kaluta’s opinion that goodwill was valued at three to four months’ gross billings. Mr. MacKenzie was not present when Mr.

Kaluta testified, and described the three to four months’ gross billings as a “rule of thumb” that was used by dentists and not by valuators. [ 163 ] Any opinion as to the “reasonableness” of the $90,000 in the agreements is interesting but is dependent on Mr. Kaluta’s evidence as to the existence of the rule of thumb. [ 164 ] I did not interpret Mr. Dey’s evidence to reject that there was a rule of thumb of the nature described by Mr. Kaluta. Mr. Dey’s experience with dental practices is much more limited than is Mr. Kaluta’s. [ 165 ] Mr.

MacKenzie’s opinions were helpful regarding chart values, but I have concluded that is a red herring issue, and he did not ultimately contradict Mr. Kaluta’s evidence as to the “rule of thumb”. His evidence was that he was not aware of a rule of thumb to that effect. [ 166 ] Ultimately, the determination of what was reasonable as between Dr. Jones and Drs. Gerosa and Phan at the time the associate agreements were entered into is my decision, not the decision of experts. Mr. Kaluta’s opinion was that the valuation in the agreements was reasonable; Mr. MacKenzie and Mr. Dey were of the view that Mr.

Kaluta had not put forward calculations justifying that. Mr. Dey’s calculations were after-the-fact calculations that had nothing to do with the time frame when the agreements were negotiated and concluded. [ 167 ] The key point from this analysis is that when the agreements were negotiated, Dr. Jones understood that there was a rule of thumb or industry average that applied to associate dentists. He based his calculations on his understanding. Neither Dr. Gerosa nor Dr. Phan disputed that at the time they negotiated over the agreements with Dr. Jones. [ 168 ] Dr. Jones did not get his information from Mr.

Kaluta or from any business valuator or accountant. He got it either from a chiropractor friend or from a dental equipment leasing salesman. What I take from Mr. Kaluta’s evidence is that there was a rule of thumb in existence to that effect.

[169] Mr. Kaluta had experience dealing with dentists in Alberta at the time, and has increased that experience over the intervening 20years. [170] As to Mr. Dey’s opinion that Dr. Jones suffered no loss as a result of the departure of Drs. Phan and Gerosa, his calculations donot take into account the growing nature of Dr. Jones’ practice. The impact of Dr. Phan seems obvious from looking at the numbers:dental fees went from $1,096,000 in 1999 to $1,217,000 in 2000 and $1,555,000 in 2001. Those figures reflect Dr. Phan’s billings foreight months in 2000 and seven months in 2001.

Some of those increases likely reflected that for some of that time, there were threedentists working in the Peter Pond Dental Clinic, and it was open extended hours. Dr. Jones testified that when he hired Dr. Phan, it wasto expand the practice. It seems clear that this was occurring during that period. [171] The impact of Dr. Phan’s and Dr. Gerosa’s departure can be seen for 2002, when billings dropped from $1,555,000 to$1,489,000. [172] I do not intend to perform any analysis myself. Instead, I simply point out that in my view, Mr.

Dey’s calculations ignore thetrend towards greater profitability that was interrupted in 2002 and then continued on for 2003. From 1997 to 2001, profitability asmeasured by operating income increased by an average of over 40 percent a year, with 2001 showing a 61 percent increase in operatingincome over 2000. Yet 2002’s increase over 2001 was less than 1 percent. [173] There are undoubtedly any number of reasons for the financial results, but I do not think it can be said that Dr. Jones suffered noloss as a result of the departure of Drs. Gerosa and Phan, and the departure of some 800 patients who followed Drs.

Gerosa and Phan tothe Northern Lights Dental Clinic downstairs. [174] A final comment here is that whether Dr. Jones actually suffered a loss or not is irrelevant. Damages in cases for breach ofrestrictive covenants can be calculated in one of two ways: the loss suffered by the victim of the breach (here Dr. Jones) or taking awaythe profits of the wrongdoers (here Drs. Gerosa and Phan). [175] Dr. Jones has never sought damages for breach of contract; rather, he seeks judgment for what he claims is owed to him underthe contract.

His losses are, for the purposes of this lawsuit, essentially irrelevant. [176] Elsley v J.G. Collins Insurance Agencies Ltd. discusses liquidated damages and penalty clauses at length, and holds that ifthere is a valid liqudated clause, “the plaintiff is entitled at law to recover this sum regardless of the actual loss sustained.” (at page 937) [177] Lyons v Multari, (ONCA) discusses the alternative of disgorgement of profits in a breach of restrictivecovenant claim at paragraph 52: [52] It needs to be recalled that Dr. Multari resisted all efforts, including a motion brought by Dr.

Lyons, to disclose informationabout his income in the three-year period covered by the covenant. Thus the trial judge did not have the option of calculating damages interms of the disgorgement of profits by Dr. Multari. In that circumstance, I cannot fault the trial judge's approach to the calculation ofdamages, namely by attempting to quantify the effect of Dr. Multari's departure on Dr. Lyons' income during the relevant time period.Accordingly, I would not allow the appellant's appeal on this issue. Enforceability of Paragraph 6.01(a) [178] Dr.

Jones suggests that cases dealing with the enforceability of restrictive covenants in employment arrangements areinapplicable here because the clause in question is not a restrictive covenant. It is not in restraint of trade because it permits theDefendants to freely compete with no temporal or territorial restrictions. [179] Cases dealing with the unenforceability or relief from penalties are inapplicable because there is no default on the part of theDefendants to penalize. [180] Those are interesting arguments, but for the purposes of this decision, I will treat the provisions of paragraph 6.01(

a) in each ofthe associate agreements as restrictive covenants. [181] In a simplistic way, the argument fails the “duck test”: “If it looks like a duck, swims like a duck, and quacks like a duck, then itprobably is a duck”. [182] Here, the paragraph in question looks, swims and quacks like a restrictive covenant. [183] While the paragraph is permissive, it essentially constitutes a licence fee to compete.

Instead of the consequences being aninjunction or damages for breach of the restrictions, the consequences are judgment for an agreed amount in the nature of liquidateddamages. [184] This is consistent with the conclusion of the British Columbia Court of Appeal in Rhebergen v Creston Veterinary Clinic Ltd.,2014 BCCA 97. [185] That then requires consideration of Elsley and Shafron, amongst other leading cases on the enforceability of restrictivecovenants. [186] To be enforceable, a restrictive covenant in an employment agreement needs to be reasonable between the parties and withreference to the public interest (Elsley at page 923) [187] Elsley continues at p 926:

Whether a restriction is reasonably required for the protection of the covenantee can only be decided by considering the nature of the covenantee’s business and the nature and charter of the employment.

Admittedly, an employer could not have a proprietary interest in people who were not actual or potential customers. [ 188 ] And at p 925, the Court emphasized the importance of the geographic scope of the restrictive covenant as well as the period of time it is intended to apply. [ 189 ] One of the considerations is described in Thienes v Godenir was whether the restrictions imposed on the covenantors went beyond what was reasonably needed to protect the covenantee’s legitimate business interests. [ 190 ] Shafron deals with the issue of reasonableness.

At paragraphs 26 and 27, the Supreme Court stated: [26] As a general rule, according to Dickson J. in Elsley, at p. 925, the geographic coverage of the covenant and the period of time in which it is effective have been used to determine whether a restrictive covenant is reasonable. The extent of the activity sought to be prohibited is also relevant. [27] However, for a determination of reasonableness to be made, the terms of the restrictive covenant must be unambiguous. The reasonableness of a covenant cannot be determined without first establishing the meaning of the covenant.

The onus is on the party seeking to enforce the restrictive covenant to show the reasonableness of its terms. An ambiguous restrictive covenant will be prima facie unenforceable because the party seeking enforcement will be unable to demonstrate reasonableness in the face of an ambiguity.

As stated at the outset, the main difficulty that arises in this case is the ambiguity of the geographical restriction contained in the covenant… [ 191 ] It continued at paragraph 43: [43] Normally, the reasonableness of a restrictive covenant is determined by considering the extent of the activity sought to be prohibited and the extent of the temporal and spatial scope of the prohibition. This case is different because of the added issue of ambiguity. As indicated, a restrictive covenant is prima facie unenforceable unless it is shown to be reasonable.

However, if the covenant is ambiguous, in the sense that what is prohibited is not clear as to activity, time, or geography, it is not possible to demonstrate that it is reasonable. Thus, an ambiguous restrictive covenant is, by definition, prima facie unreasonable and unenforceable. Only if the ambiguity can be resolved is it then possible to determine whether the unambiguous restrictive covenant is reasonable. [ 192 ] Drs. Gerosa and Phan also cite Ernst & Young v Stuart , 1993 CarswellBC 115 (BCSC) .

That is a case where a chartered accountant left his firm and joined a competing accounting firm in the face of a covenant that prohibited him from “carrying on a practice or business providing to the public services similar to any of those provided by the Partnership and/or by any Associated Firm…” [ 193 ] Edwards J determined that the parties did not have equal bargaining power, noting that Mr.

Stuart had no capacity to influence the provisions of the partnership agreement. “If he wanted to become a partner he had to accept them.” (at page 14). [ 194 ] This case is clearly distinguishable from Ernst & Young v Stuart . I do not see that bargaining power has anything to do with the validity or reasonableness of the clause. That might be relevant if there were any uncertainties or scope for contra proferentum . In any event, with both Drs. Gerosa and Phan, there is no evidence of any pressures on them to take a position with Dr.

Jones. [ 195 ] That was a case that dealt with an absolute prohibition in competition. [ 196 ] For Dr. Gerosa, the arrangements with Dr. Jones were convenient and easy. She continued the same relationship with Dr. Jones as she had with Dr. McLean. Instead of becoming an associate of Dr. Jones’ and enjoying the benefits of him taking on all the responsibilities of the dental practice, she appears to have made no financial commitments and took no risks. At the point she agreed to become an associate with Dr.

Jones, and to the point she actually signed the associate agreement, she was free to start her own practice, move elsewhere and take her patients with her. [ 197 ] With Dr. Phan, he was not forced to come to Fort McMurray. His choice was to accept a job offer or not. In some ways he may have been in a better bargaining position than Dr. Jones as there was evidence that it was difficult to find associates in Fort McMurray, and Dr. Jones was facing Dr.

Gerosa’s maternity leave. [ 198 ] In any event, nothing turns on bargaining power here. [ 199 ] The key is to determine whether the restrictions on competition in the associate agreements are unreasonable. As Between the Parties [ 200 ] The clauses here are less common than outright prohibitions on competition. Here, competition is permitted, but at a cost. [ 201 ] A starting point is to consider whether it is reasonable for a dentist to have some restrictions from competition from his or her associates if the associates leave.

All three experts who testified in the trial agreed that the basic concept was reasonable. All agreed it was a good idea for a principal to have some protection so that associates could not simply leave and take the principal’s patients with them. [ 202 ] It seems to me that on this first test of the enforceability of the covenants, the question is whether the payment required was reasonable. [ 203 ] The experts disagreed as to whether there was a rule of thumb as described by Mr. Kaluta. However, neither Mr. MacKenzie nor Mr. Dey suggested that in the context of Dr.

Jones’ practice, and the work and billings of Drs. Gerosa and Phan, that the $90,000

break fee was unreasonable. [204] That is, essentially, the ultimate issue for me. Dr. Jones had advice from someone as to the formula described in the associateagreements. There is no suggestion that he simply made it up himself. Both Dr. Gerosa and Dr. Phan had an opportunity to obtain asmuch advice (legal or otherwise) as they chose. There was no evidence of financial hardship such that they could not afford legal advice.Both Dr. Gerosa and Dr. Phan are well educated, intelligent people. [205] The clause in question is not complicated, nor is it difficult to read or understand.

There is nothing unclear or ambiguous aboutit. If they leave Dr. Jones’ practice and decide to continue to practice in Fort McMurray, they each have to pay him $90,000. [206] They signed promissory notes to that effect. [207] In Dr. Gerosa’s case, her collections at the time she signed the associate agreement averaged $25,000 per month, suggestingthat the gross billings were higher. [208] With Dr. Phan, his collections for the three months before September, 2000 averaged nearly $40,000 per month.

If his evidenceas to the time of execution of the agreement were accepted, his collections for the three months before November, 2000 exceeded$50,000 per month. [209] I frankly see nothing unreasonable about payments at this level. There was no evidence from the defendants suggesting thatpayments of $90,000 would be crippling to them and would be tantamount to an absolute prohibition. [210] It is obvious that using Dr. Jones’ “formula”, the payment for Dr. Gerosa was at the high end and the payment for Dr. Phan wasat the low end. Dr. Jones explained in his evidence that he tried to be very fair with Dr.

Phan as he was young and newly graduated. [211] The only case cited to me with a clause similar to the one used in the associate agreements here was Rhebergen v CrestonVeterinary Clinic. There, Dr. Rehbergen, an associate, entered into an associate agreement with the defendant. The agreement provided: 11. NON-COMPETITION 1. The Associate acknowledges and agrees that she will gain knowledge of and a close working relationship with the CVC’s [CrestonVeterinary Clinic Ltd.’s] patients and clients which would injure CVC if made available to a competitor or used for competitivepurposes. 2.

The Associate covenants and agrees that in consideration of the investment in her training and the transfer of goodwill by CVC, if atthe termination of this contract with CVC she sets up a veterinary practice in Creston, BC or within a twenty-five (25) mile radius inBritish Columbia of CVC’s place of business in Creston, BC, she will pay CVC the following amounts: If her practice is set up within one (1) year termination of this contract - $150,000.00; If her practice is set up within two (2) years termination of this contract - $120,000.00; If her practice is set up within three (3) years termination of this contract - $90,000.00. ... 13.

TERMINATION 1. CVC agrees not to terminate this agreement during the term hereof except for just cause as hereinafter defined. 2. The Associate cannot terminate this agreement prior to the expiry of the term, except for death, permanent disability preventing theAssociate from continuing to practice veterinary medicine, or default of this agreement by the CVC…. [212] The trial judge had considered the following principles, as described in paragraph 10 of the Court of Ap

[…]