2020 QCCA 1746, 2020 QCCA 1746

9213-1705 Québec inc. v. Geitzen 2020 QCCA 1746 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-027741-180 (500-17-079536-135) DATE: December 17, 2020 CORAM: THE HONOURABLE FRANÇOIS DOYON, J.A. SUZANNE GAGNÉ, J.A. STEPHEN W. HAMILTON, J.A. 9213-1705 QUÉBEC INC. APPELLANT – Plaintiff v. AIZIK GEITZEN ALONA PLOTNIK 1208250 ONTARIO INC. 9253-0591 QUÉBEC INC.

ALEXANDRE PLOTNIK RESPONDENTS – Defendants JUDGMENT [ 1 ] The Appellant appeals from the judgment rendered on July 13, 2018, by the Superior Court, District of Montreal (the honourable Gérard Dugré), which dismissed its action in damages against the Respondents. On appeal, the Appellant asks the Court to condemn the Respondents to pay it $784,416.13 in damages for unfair competition. *** [ 2 ] The essential facts are relatively simple. The Appellant purchased the assets relating to a sandwich making and distribution business from the Respondent 1208250 Ontario Inc. (120 Ontario) in January 2011.

At the same time, it entered into a license agreement with 1794232 Ontario Limited (179 Ontario - a sister company to 120 Ontario) that gave it the exclusive right to use 179 Ontario’s system for making and distributing sandwiches and to use the name “A Bis Gourmet” for 10 years in the province of Québec (except for Gatineau), but obliged it to pay a weekly royalty fee. Both 120 Ontario and 179 Ontario are owned by the Respondent Aizik Geitzen.

In August 2013, the Respondent 9253-0591 Québec inc. (9253 Québec - which is owned by 120 Ontario and the Respondent Alexandre Plotnik) started to compete with the Appellant and the Appellant subsequently went out of business. The Respondent Alona Plotnik is Plotnik’s wife. The Appellant sued the Respondents for all of the money that it had invested in the business. [ 3 ] There are two diametrically opposed versions of what happened. [ 4 ] The Appellant pleads that there was a conspiracy among the Respondents to steal its customers and employees, in contravention of 120 Ontario’s non-compete obligations.

The Respondents plead that the Appellant was in default under the license agreement and that 179 Ontario terminated the license agreement, and therefore the Appellant’s exclusivity, on July 30, 2013. They say that there was no conspiracy before July 30, 2013, and only valid competition after July 30, 2013. [ 5 ] The trial judge accepted the Respondents’ version and dismissed the action [1] . *** [ 6 ] The Appellant raises the following grounds of appeal: 1. Did the trial judge err when he failed to decide or implicitly dismissed the objection to the production of Exhibits DAG-1, DAG-2 and D-2? 2.

Did the trial judge err when he concluded that 179 Ontario had terminated the license agreement for cause and further when he asserted that the Appellant had not contested its termination for cause? 3. Did the trial judge err when he refused to apply the relevant principles found in the jurisprudence, namely in Conexys [2] , because in this case it is the grantor of the license that terminated it for cause?

4. Did the trial judge err in asserting that the facts proven by the Appellant did not constitute unfair competition? 5. Did the trial judge err in fact and in law in not awarding the damages claimed by the Appellant? *** [ 7 ] The first ground of appeal is the failure of the trial judge to maintain the objections to Exhibits DAG-1 and DAG-2 (also referred to as Exhibit D-2). Exhibit DAG-1 includes five emails sent by 179 Ontario to the Appellant between April 22 and June 21, 2013, complaining about the Appellant’s failure to produce weekly sales reports and to make royalty payments.

Exhibit DAG-2 is the letter from 179 Ontario’s lawyer to the Appellant’s lawyer dated July 30, 2013, terminating the license agreement. [ 8 ] The two exhibits were alleged by 120 Ontario and Geitzen in support of their defense. [3] In its answer, the Appellant admitted having received the emails and the termination letter. The Appellant did not consent during the discussions at the beginning of the trial to the production of those exhibits and it objected during the trial when the two exhibits were shown to its representative, Vladimir Budker.

He testified that he remembered receiving the termination letter, but that he did not specifically remember receiving the emails. He did, however, acknowledge that the emails were sent to his email address and to one of his managers.

Further, Geitzen’s wife, a representative of 179 Ontario, testified that she had been copied on the emails and that she had knowledge of the defaults referred to in the emails and of the termination letter. [ 9 ] On appeal, the Appellant pleads that its objections to the emails and the termination letter should have been maintained, because (1) the emails and the letter emanate from or on behalf of 179 Ontario, which is not a party to the action, (2) the authors of the emails and the letter did not testify, and (3) the letter is privileged. [ 10 ] The objections are unfounded.

The fact that 179 Ontario is not a party to the action is not relevant to the admissibility of the documents. The Appellant cannot, by failing to sue a party, render emails and a letter emanating from that party inadmissible. Further, the Appellant admitted having received the emails and the letter and Budker and Mrs. Geitzen both testified with respect to the emails and the letter. Finally, the mere fact that the termination letter refers to negotiations between the parties cannot render the entire letter inadmissible.

There was some discussion at the trial about redacting the letter, but the paragraph referring to the negotiations is so vague that the failure to redact it did not cause any prejudice. *** [ 11 ] The second ground of appeal is that the trial judge erred when he concluded that 179 Ontario had terminated the license agreement for cause and further when he asserted that the Appellant had not contested its termination for cause. [ 12 ] The Appellant does not demonstrate any error. [ 13 ] The Respondents pleaded in their defenses that the license agreement had been terminated.

The Appellant did not plead in its answer that the termination was invalid. Rather, it admitted having received the emails and the termination letter, but added only that it “nie l’interprétation que tente de lui induire les défendeurs”. [ 14 ] The defaults were proven. Budker acknowledged in his examination before trial that the Appellant had not been sending the reports or paying the royalties in 2013. Mrs. Geitzen confirmed this. He also acknowledged at trial that the Appellant opened new premises and changed suppliers without 179 Ontario’s consent, as required by the license agreement.

These are all defaults under the license agreement. [ 15 ] The license agreement gives 179 Ontario the right to terminate the license agreement in the event of a default by the Appellant. The termination letter dated July 30, 2013, was sufficient to exercise that right. [ 16 ] Moreover, Budker did not testify that he contested the validity of the termination and did not explain why the termination was not valid.

In fact, the Appellant ceased using the name “A Bis Gourmet” in September 2013, which suggests that it accepted the termination of the license agreement. [ 17 ] The Appellant argues that 179 Ontario could not validly terminate the license agreement because the license agreement was with 120 Ontario and not 179 Ontario. [ 18 ] This flies in the face of the license agreement, which is signed by the Appellant and 179 Ontario, and contradicts both the fact that the Appellant paid the license fees to 179 Ontario for a period of time and the position taken by the Appellant in its written proceedings.

It is true that the asset purchase agreement between the Appellant and 120 Ontario has as a handwritten addition that the Appellant is paying $100,000 to 120 Ontario for the license, but the license agreement provides that the Appellant is paying $100,000 to 179 Ontario for the license. Even if the payment was in fact made to 120 Ontario, that does not necessarily mean that 120 Ontario is the licensor.

It could be transferring the license it held from 179 Ontario. [ 19 ] In all of the circumstances, the trial judge’s conclusion that 179 Ontario validly terminated the license agreement on July 30, 2013, cannot be overturned on appeal. *** [ 20 ] Next, the Appellant argues that, even in the absence of an express non-competition clause, the obligation of good faith required 120 Ontario not to compete with the Appellant.

It relies on the following passage from Conexsys : [133] Le Tribunal est d'avis que même si, comme en l'instance, l'entente verbale de distribution entre les parties ne contient pas de clause de non concurrence, les défendeurs doivent agir de bonne foi du début à la fin du contrat, ne peuvent abuser de leurs droits et ne peuvent poser de gestes déloyaux qui rendent ainsi déloyale la concurrence, par ailleurs légitime, qu'ils peuvent faire à la demanderesse.

[ 21 ] The trial judge distinguished Conexsys on the ground that 179 Ontario had terminated the license. He was right to distinguish Conexsys , but not on the basis of which party terminated the license. In Conexsys , the owner of a proprietary system was able to prevent its former distributor from distributing a similar system.

In that case, the judge stated the general proposition that when the parties have an agreement which does not include an express non-competition clause, the parties must nevertheless act in good faith after the termination of the agreement, which may in certain circumstances require one party not to compete with the other. This principle has no application in the present case. The Appellant had an express 10-year exclusivity clause under the license agreement with 179 Ontario. That agreement and the exclusivity clause were validly terminated by 179 Ontario when the Appellant breached its obligations.

The obligation of good faith does not impose an additional non-compete obligation on 179 Ontario in these circumstances. [ 22 ] As for 120 Ontario, there is no non-compete clause in the purchase agreement, probably because there was an exclusivity clause in the license agreement. The answer should be the same as for 179 Ontario.

Moreover, even if the obligation of good faith did prevent 120 Ontario from competing with the Appellant independently of the exclusivity clause with 179 Ontario, it would only require 120 Ontario not to compete with the Appellant for a reasonable time after the Appellant bought its assets.

In this matter, the competition only started 2 ½ years after the sale. *** [ 23 ] Finally, the Appellant argues that the proof at the trial establishes unfair competition. [ 24 ] The Appellant asked the trial judge to infer the existence of a conspiracy among the Respondents to steal the Appellant’s business that started prior to the termination of the license agreement, when the Plotniks had discussions with Budker and obtained information about the Appellant’s business from him starting in June 2013. The judge held that no such conspiracy had been proven.

There is no manifest and overriding error in that conclusion. Plotnik testified before trial and explained that he was genuinely interested in the Appellant’s business in June 2013 and that he did not start these discussions to obtain information for Geitzen. He testified that Geitzen only contacted him after his meetings with Budker. He acknowledged that Geitzen told him not to buy the Appellant’s business, but he nevertheless made an offer which the Appellant refused.

Neither Plotnik nor Geitzen took any steps to compete with the Appellant until August 2013, after the license agreement had been terminated. [ 25 ] As for the other conduct that is alleged to constitute unfair competition, it occurred after the termination of the license agreement. The trial judge concluded that 179 Ontario was entitled to take steps to preserve its business after it terminated the license agreement. As such, it was entitled to enter into a new license agreement with 9253 Québec, which in turn was entitled to compete with the Appellant.

The judge found that the evidence of the Respondents’ raiding of the Appellant’s employees was “nettement insuffisante”. The Appellant demonstrates no error in this reasoning. *** [ 26 ] Because of the conclusion that there was no fault by the Respondents, there is no need to consider the damages claimed by the Appellant. FOR THESE REASONS, THE COURT: [ 27 ] DISMISSES the appeal, with costs. FRANÇOIS DOYON, J.A. SUZANNE GAGNÉ, J.A. STEPHEN W. HAMILTON, J.A.

Mtre François Beauvais FRANÇOIS BEAUVAIS AVOCATS For the Appellant Mtre Jonathan Pierre-Étienne Mtre Antoun Alsaoub GRONDIN SAVARESE LEGAL For Aizik Geitzen, Alona Plotnik Date of hearing: December 3, 2020