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Easy Come, Easy Go
Published in the July 2007 issue of Litigation Notes - View Article
John Ord was an investment advisor with BMO Nesbitt Burns Inc. (Nesbitt) for 14 years. He became frustrated with the fact that he was not promoted to branch manager and in March of 2007 accepted a position with RBC Dominion Securities (Dominion). He persuaded his colleague Darren Wolpert (Wolpert) to leave with him.
On May 4, 2007 Ord met with the manager of his branch at Nesbitt and advised him that he and Wolpert were leaving Nesbitt to join Dominion. He handed in written resignations for himself and Wolpert and handed in their pass cards. They then went straight to begin work at the offices of Dominion. According to Nesbitt, by May 10, 2007 it had lost 25 clients formerly managed by Ord, representing more than $43 million in assets under administration. By June 1, the number had risen to 79 clients and $75 million of assets. By the time of Ord’s cross-examination in connection with the injunction application, he testified that clients with approximately $95 million in assets had moved to Dominion and clients with another $20 million of assets had indicated their intention to do so.
Nesbitt sought an injunction restraining Ord and Wolpert from directly or indirectly soliciting any of Nesbitt’s clients, in the case of Ord for 12 months and in the case of Wolpert for 6 months on the ground that Ord and Wolpert were in breach of their contractual and/or common law obligations to Nesbitt. It also sought an order restraining Dominion from directly or indirectly using or disclosing confidential information belonging to Nesbitt’or soliciting Nesbitt’s clients and employees on the grounds that Dominion had directly or indirectly assisted and or directed Ord and Wolpert in breaching their obligations to Nesbitt.
There was no evidence that Ord or Wolpert had advised any of their clients of their intention to leave Nesbitt prior to doing so, or that they took written client lists or other proprietary or confidential information. However, as soon as they left they began compiling a list of clients’ names from memory and with the assistance of the phone book and immediately began contacting clients to solicit them to transfer their business to Dominion.
Ord’s only agreement with Nesbitt was a two page letter dating back to 1993 which set out the basic terms of his employment and did not contain any provisions with respect to resignation, non-solicitation or non-competition. Wolpert had signed an agreement containing a non-solicitation covenant which provided that he could not directly or indirectly solicit Nesbitt’s clients in Ontario during his employment or for a period of 6 months thereafter.
Justice Patillo of the Ontario Superior Court of Justice began by setting out the three-stage test required for an interlocutory injunction:
1. There is a serious question to be tried on the merits (subject in certain circumstances to a requirement that a strong prima facie case be shown.
2. Irreparable harm will be suffered if the injunction is not granted.
3. The balance of convenience favours granting the injunction.
He began by reviewing the caselaw which had originally set the test at a “strong prima facie case” but had gradually watered it down to a “serious question to be tried”. The threshold for a “serious question to be tried” is not high. Basically if the action is not frivolous and vexatious the test is met. However, there are certain instances in which a strong prima facie case must be demonstrated and one of those instances relates to restrictive covenants in employment contracts and breaches of negative covenants.
With respect to Ord, Nesbitt was claiming both that he breached a fiduciary duty and that he breached common law duties of good faith and fidelity by failing to honour a one week-notice period and by soliciting clients while employed by Nesbitt. The Court ruled that Nesbitt had an obligation to make out a strong prima facie case with respect to the claim for a fiduciary duty and that it had failed to do so. However, with respect to the claim for a breach of good faith and fidelity, Nesbitt had only to establish that there was serious issue to be tried and the Court ruled that it had met that threshold. Similarly with respect to Wolpert, Nesbitt failed to establish a strong prima facie case with respect to his breach of the non-solicitation covenant in his agreement, but was able to establish that there was a serious issue to be tried with respect to his breach of the duties of good faith and fidelity.
The Court also found that there was serious issue to be tried concerning Dominion’s involvement in the breaches of good faith and fidelity committed by Ord and Wolpert.
The Court then went on to consider the question of irreparable harm. Nesbitt argued that the loss of a group of investment advisors can have a devastating impact which includes not only the loss of the clients but market share, goodwill and loss of residual or extra benefits in the form of additional business generated by the clients over and above direct commissions.
However, the Court pointed out that the $175 million of assets managed by Ord represented only 2.6% of the total assets under administration at the branch where he worked and less than .2% of all of the assets that Nesbitt had under administration. Furthermore, the Court stated that large brokerage firms such as Nesbitt and Dominion keep accurate records and that the loss of business could be easily quantified in monetary terms and recovered following a trial.
With respect to balance of convenience, the Court said that it was not necessary to spend a great deal of time considering this issue in view of Nesbitt’s failure to establish irreparable harm. However, the Court did say that the balance of convenience tipped in favour of the defendants and of not granting the injunction.
While Nesbitt may have lost significant business it would nonetheless remain in business whereas an injunction would severely restrict the ability of Ord and Wolpert to earn a living while it was in place.
The Court also pointed out that it is important to consider the interests of the clients, who are entitled to have access to the investment advisor of their choice. Consequently, the injunction application was dismissed.
BMO Nesbitt Burns Inc. v. Ord, 2007 CanLII 24673