Minnesota Mining And Manufacturing Co. v. Chemque Inc., 2001 FCT 216

Date: 20010321

Docket: T-748-98

Neutral Citation: 2001 FCT 216

BETWEEN:

                  MINNESOTA MINING AND MANUFACTURING COMPANY

Plaintiff

- and -

CHEMQUE, INC.

Defendant

                                                    REASONS FOR ORDER

HENEGHAN J.

INTRODUCTION

[1]         Minnesota Mining and Manufacturing Company (the "Plaintiff") seeks various orders pursuant to the Federal Court Rules, 1998 (the "Rules"), further to the Order of Prothonotary Lafrenière dated June 12, 2000, which permitted Chemque, Inc. (the "Defendant") to further amend its Statement of Defence and Counterclaim.

[2]                 The Plaintiff seeks an order pursuant to Rule 399(2) of the Rules to set aside the Order of Prothonotary Lafrenière. Alternatively, the Plaintiff seeks an order pursuant to Rule 221(1) striking all amendments in the Defendant's Amended Amended Statement of Defence and Counterclaim dated June 12, 2000, without leave to amend. Next, the Plaintiff seeks an order removing the law firm of Sim, Hughes, Ashton & McKay as solicitors of record for the Defendants in this matter. Finally, the Plaintiff seeks a restraining order in the following terms:

           (a)        seeking to reintroduce any of the amendments made in the Amended Amended Statement of Defence and Counterclaim;

           (b)        producing, relying on, disclosing to its solicitors of record, or any counsel or consultants, or otherwise using in this action, any documents designated as "Confidential" and/or "Attorney's Eyes Only" pursuant to the Protective Order that issued in proceedings A-98-CA-241-SHC in the United States District Court for the Western District of Texas, Austin Division; or

           (c)        using as counsel, solicitors, or consultants, the firm of Sim, Hughes, Ashton & McKay, or any member thereof.

FACTS

[3]                 The Plaintiff and Defendant are engaged in litigation in this action concerning Canadian Patent No. 1, 312, 158 entitled "Encapsulant Compositions for Use in Signal Transmission Devices". The Plaintiff alleges that the Defendant has infringed its patent. The Defendant denies any such infringement. The present action, in which the Plaintiff seeks a declaration that its patent is valid and has been infringed by the Defendant, parallels proceedings commenced in the United States District Court for the Western District of Texas, involving alleged infringement of the companion United States patent. The Plaintiff and the Defendant are the Plaintiff and first Defendant in the Texas proceedings.

[4]                 A Protective Order was issued in the American proceedings, restricting the production of certain documents. The Protective Order was amended as required and varying levels of confidentiality were imposed with the affected documents being marked either as "confidential" or "attorney's eyes only". The Order in question was filed December 23, 1998 and was modified by further orders filed January 21, 2000 and February 14, 2000.^[1]

[5]                 By letter dated April 27, 2000^[2], counsel for the Defendant wrote to counsel for the Plaintiff, enclosing a draft Amended Amended Statement of Defence and Counterclaim to be filed in this proceeding. Counsel for the Defendant inquired if the Plaintiff would consent to the proposed amendment and enclosed, with his letter, a draft Affidavit of Documents. Item 70 in the draft Affidavit of Documents is headed "Exhibits from U.S. Proceeding". Item 70 identifies some 220 documents.^[3]

[6]                 The Notice of Motion seeking leave to file a further Amended Amended Statement of Defence is dated May 18, 2000. This Notice of Motion is supported by the Affidavit of Stephen Lane, a lawyer with Sim, Hughes, Ashton & McKay, solicitors of record for the Defendant in this action.

[7]                 Mr. Lane's affidavit provides as follows:

I, Stephen M. Lane, Barrister and Solicitor, of the City of Toronto, in the Province of Ontario, make oath and say:

                1.             I am counsel for the Defendant, Plaintiff by Counterclaim, in this action and as such have personal knowledge of the facts and matters hereinafter deposed.

                2.             The Plaintiff's action is for alleged infringement of Canadian patent 1,312,158 entitled "Encapsulant Compositions for Use in Signal Transmission Devices". The Defendant, Chemque, has defended the action and also advanced a counterclaim. The full particulars of the claims and defences are set out in the pleadings, which are included in the motion record.

                3.             The Plaintiff also brought an action against the Defendant in the United States District Court for the Western District of Texas, Austin Division, alleging infringement of the companion U.S. patent ("the U.S. action").

                4.             The trial of the U.S. action has been completed. Chemque was not found to infringe any valid claims, of 3M's patent. Damages were not awarded.

                5.             After the trial of the U.S. action and following the first round of oral examinations for discovery in this proceedings, I received copies of the exhibits filed in the U.S. action. These exhibits comprise some fourteen binders.

                6.             Based on my review of the exhibits from the U.S. action, it is my view that the Statement of Defence and Counterclaim in this proceeding requires further amendment to expressly plead new prior art, as well as the defence of ambiguity and laches and acquiescence.

                7.             I believe the Defendant would be prejudiced if the proposed amendments were not granted as it would not be able to fully present all meritorious defences to the court.^[4]

[8]                 Mr. Lane was cross-examined on his Affidavit on June 6, 2000 prior to the hearing of the motion before Prothonotary Lafrenière. He was specifically asked about item 70 in the Amended List of Documents, that is the list of exhibits from the U.S. proceeding. He offered copies of the documents to counsel for the Plaintiff.^[5] In answer to a question, he said that he first became aware that the Defendant had possession of the documents in the Amended List of Documents after completion of the trial in the United States.^[6]

[9]                 The motion for leave to file the further Amended Amended Statement of Defence and Counterclaim and the Amended Affidavit of Documents was heard on June 12, 2000. On the same day, Prothonotary Lafrenière granted an Order in the following terms:

1.             IT IS HEREBY ORDERED that the Defendant, Chemque, Inc., be permitted to further amend its Statement of Defence and Counterclaim in accordance with the Amended Amended Statement of Defence and Counterclaim attached hereto as Schedule "A".

                2.             IT IS HEREBY ORDERED that the Plaintiff, Minnesota Mining and Manufacturing Company is entitled to its costs, in any event of the cause, for two days of examinations for discovery pursuant to the maximum amounts permitted under Column V of Tariff B and also the cost of the re-attendance of the Plaintiff's witness should the Defendant require further discovery.

                3.             IT IS HEREBY ORDERED that costs of this motion shall be paid to the Plaintiff in any event of the cause.

[10]            On July 5, 2000, counsel for the Defendant forwarded to counsel for the Plaintiff copies of the documents added to the Affidavit of Documents, together with an invoice to cover the photocopying costs. This letter contained the following information:

I note that many of the documents were stamped confidential or counsel's eyes only, in the U.S. action. They have been stamped with the equivalent level of confidentiality for the Canadian action.^[7]

[11]            On August 9, 2000, counsel for the Defendant forwarded to counsel for the Plaintiff the Defendant's Amended Amended Statement of Defence and Counterclaim, for the purpose of service.^[8]

[12]            The parties then began preparing for further oral discovery in connection with the Amended Amended Defence and Amended Affidavit of Documents. According to Mr. Kohji Suzuki, one of the Plaintiff's counsel in this proceeding, he met with Ms. Nicole Stafford on September 25 and 26, 2000 for the purpose of preparing for the continuing discovery examinations. During these meetings, it was learned that some of the documents which had been provided by the Defendant's counsel on August 9, 2000 to the Plaintiff's counsel included documents which were subject to the Protective Order issued by the United States District Court for the Western District of Texas, Austin Division. According to the Affidavit of Mr. Suzuki filed in support of the present motion, the Plaintiff, its American lawyers, and its Canadian counsel were unaware of the disclosure of this material by the Defendant to its Canadian counsel, prior to September 25-26, 2000.^[9]

[13]            Subsequently, the Plaintiff took steps in the United States to enforce the Protective Order issued by the American Court. On November 17, 2000, the United States District Court for the Western District of Texas, Austin Division, issued an Order respecting the Protective Order, and modifying orders previously issued by it. That Order provided as follows:

                ...by Monday, December 4, 2000, Chemque and Chemque's U.S. counsel must:

                (1)           provide a declaration from someone with personal knowledge to (a) identify with specificity all documents and information subject to the U.S. Protective Order that have been disclosed to and/or used by Canadian counsel for any party to the Canadian action or others for purposes other than the U.S. litigation, and (b) state with specificity all steps that have been taken to insure compliance with this Order;

                (2)           retrieve all designated documents and information, including all copies and information and documents derived therefrom, from such unauthorized persons; and

                (3)           discontinue any utilization of or reliance upon any improperly-disclosed U.S. Documents for purposes other than those specifically authorized under the U.S. Protective Order; it is further

ORDERED that the relief ordered above does not require the withdrawal or amendment of any pleadings or documents filed in the Canadian suit which are based upon the U.S. Documents, which refer to the U.S. Documents, or which include any of the U.S. Documents, because this Court cannot order that action occur in the Canadian suit; instead, any action needed in the Canadian suit regarding the use of the U.S. Documents are decisions to be made by the parties to the Canadian suit, their Canadian counsel, and the Canadian court, it is further

ORDERED that 3M's U.S. Counsel is granted its reasonable attorney's fees and costs incurred in bringing this enforcement action, with 3M's US. Counsel to provide the Court with affidavit(s) supporting the request for fees and costs and any supporting documentation by Monday, December 4, 2000 (emphasis in original).^[10]

[14]            Some time after the delivery of this Order on November 17, 2000 and prior to the hearing of this motion, the documents were returned by the Defendant, in accordance with the Order of the Texas court.

[15]            This is the background to the motion which was filed by the Plaintiff in this proceeding on December 22, 2000.

PLAINTIFF'S SUBMISSIONS

[16]            The Plaintiff argues that the Defendant has committed an illegal act by producing documents which were subject to the Protective Order issued by the American court. It says that it could not reasonably have been expected to know exactly what documents were sought to be introduced by the Defendant, pursuant to its amended Affidavit of Documents, until the documents were produced to and reviewed by the Plaintiff.

[17]            The Plaintiff submits that it could not have anticipated the commission of an illegal act by the Defendant. The Plaintiff says that there has been a finding that the American Order was breached and accordingly, the finding of an illegal act has been determined and the doctrine of res judicata applies. Accordingly, this is a proper case for relief pursuant to Rule 399(2) of the Rules.

[18]            In support of this argument, the Plaintiff relies upon the decision of the Federal Court of Appeal in Saywack v. Canada (Minister of Employment and Immigration), [1986] 3 F.C. 189 (C.A.). The test set out in this case is that to obtain relief, the Applicant must show that the new matter was discovered subsequent to the entry of the order under challenge, could not with reasonable diligence have been discovered sooner and is of such character that if it had been brought forward earlier it would have altered the order.

[19]            The Plaintiff's alternative argument with respect to striking out the Amended Amended Defence is reliance on Rule 221(1). First, the Plaintiff argues that if the documents in question had not come into the possession of the Defendant's lawyers, that is Sim, Hughes, Ashton & McKay, there would be no basis for seeking an amendment of the pleadings pursuant to Rule 221(1). The Plaintiff argues that since the Defendant has returned the documents in question, there is no evidence to support the pleadings raised in the Amended Amended Defence and it should be stricken out.

[20]            Second, the Plaintiff repeats that the Defendant acted illegally in disclosing the documents which were covered by the Protective Order issued by the United States District Court for the Western District of Texas, Austin Division. The Plaintiff says that the Defendant should not be entitled to benefit from an illegal act and to allow the pleading to stand amounts to an abuse of process.

[21]            The Plaintiff says that there would be no prejudice to the Defendant if the Amended Amended Defence were stricken out. On the contrary, the Plaintiff argues that such a step would put the parties in the same situation they were in before the Defendant relied on material which it should not have had.

[22]            Next, concerning its request for the removal of Sim, Hughes, Ashton & McKay as solicitors of record for the Defendant in the proceeding, the Plaintiff argues that the confidential material is now "irretrievably impressed" upon the collective minds of the Defendant's counsel, that they should not have had access to the material in the first place, and that the situation calls out for the extreme remedy of removing this law firm as counsel of record for the Defendant. In support of this argument, the Plaintiff relies upon the decision of the Supreme Court of Canada in MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235 at pages 1259-1260 where the court said as follows:

...the test must be such that the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur. That, in my opinion, is the overriding policy that applies and must inform the court in answering the question: Is there a disqualifying conflict of interest?

[23]            Much the same argument is directed to the fourth ground of relief sought by the Plaintiff, that is an order restraining the Defendant from relying in any manner upon advice emanating from the law firm of Sim, Hughes, Ashton & McKay or any member of that firm.

DEFENDANT'S SUBMISSIONS

[24]            The Defendant denies that the Plaintiff is entitled to any of the relief sought in its Notice of Motion. In the first place, the Defendant says that this whole matter has arisen because of the failure of the Plaintiff to honour its undertaking to obtain an amendment of the United States Protective Order to allow the distribution of the material covered by that Order to the parties' Canadian counsel.

[25]            Second, although the Defendant concedes that the nature of the disclosed documents as confidential under the Texas Protective Order is a "new matter", it argues that the Plaintiff has not met the second part of the test set out in Saywack, supra. The Respondent says that there was sufficient information in the proposed Amended Amended Defence and Counterclaim and draft Affidavit of Documents to put the Plaintiff on notice that the proposed amendments to the pleadings and the introduction of new documentation were related to the parallel proceedings in the United States concerning the issue of alleged patent infringement.

[26]            With respect to the Plaintiff's motion to strike the Amended Amended Defence and Counterclaim without leave to amend, the Defendant says that this is not necessary. The Defendant says that the pleadings can stand, but, due to the return of the disputed documentation, pursuant to the Order issued by the United States District Court for the Western District of Texas, Austin Division on November 17, 2000 it may find it difficult to prove the case set forth in its Amended Amended Defence and Counterclaim. The Defendant says this may cause a problem for it but is not sufficient cause to justify striking the pleading without leave to amend.

[27]            Finally, the Respondent says that the reliance upon MacDonald Estate v. Martin, supra, is misplaced since the present case does not involve a conflict of interest between a solicitor and client and indeed, does not involve a challenge to the solicitor-client relationship. In this regard, the Defendant relies upon the decision of the Associate Senior Prothonotary Giles in Merck & Co. v. Interpharm Inc., [1992] 3 F.C. 774. The Defendant says that the test for the removal of counsel of a party's choice is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice required the removal of such counsel from the record.

ANALYSIS

[28]            Rule 399(2) of the Rules provides as follows:

[29]            The parties are agreed that the test for applying this Rule was established by the Federal Court of Appeal in Saywack, supra.

[30]            I am not persuaded by the Plaintiff's submissions that it has shown that it is entitled to relief under this Rule.

[31]            Notwithstanding the Defendant's concession that the discovery that confidential documents from the American proceedings had been disclosed amounts to a "new matter", I am not satisfied that the Plaintiff was not put on notice as to the nature of the amendment sought to be made to the Defence or the nature of the documents sought to be added to the Affidavit of Documents.

[32]            Mr. Lane was cross-examined by counsel for the Plaintiff prior to the hearing of the motion for leave to amend the Defence. He was asked specifically about certain pleadings raised in the proposed Amended Amended Defence, including specific questions about the introduction of issues which were contested issues in the American proceedings. In that regard, I refer to the transcript of Mr. Lane's cross-examination, question 29 and its reply:

                Q.            Sir, when did you personally become aware of the fact that this issue was in dispute in the United States proceeding?

                A.            Shortly following the conclusion of the trial in the United States I was advised as to the outcome of the results in the United States, and it was at that time that I became aware that the matter had been pursued in the United States proceeding.

[33]            Furthermore, during the same cross-examination he was questioned specifically about the introduction of exhibits from the United States proceedings. Question 63 and its reply state as follows:

                Q.            Document 70 is a list of exhibits from the U.S. proceeding?

                A.            That is correct.

[34]            As well, counsel for the Plaintiff were provided with a copy of the amended draft Affidavit of Documents under cover of a letter dated April 27, 2000. That draft Affidavit of Documents specifically refers, at item 70 to "Exhibits from U.S. proceeding".^[11] The cross-examination of Mr. Lane included specific questions about issues and pleadings in the American litigation and also about documents which were exhibits in that litigation.

[35]            There was sufficient mention of the American litigation prior to the hearing of the motion on June 12, 2000 to at least sensitize the Plaintiff and its counsel to the proposed involvement in the Canadian action of certain documents and pleadings which were in play in the American proceedings. There was sufficient evidence in the Affidavit of Mr. Lane and in the answers provided on his cross-examination to put the Plaintiff on notice that the Defendant was proposing to amend its pleadings and introduce issues and documents that were related to the American litigation.

[36]            Furthermore, the Plaintiff has not shown that even if the Prothonotary had been aware of the breach of the Texas Order, his Order of June 12, 2000 would have been different. No authority was cited by the Plaintiff to support the argument that breach of an interlocutory order issued by a foreign court is a matter which would have altered the order sought from the Prothonotary.

[37]            The Plaintiff has not shown that it is entitled to relief pursuant to Rule 399(2) of the Rules.

[38]            I turn now to the submissions made concerning the Plaintiff's alternate request for an order to strike the Amended Amended Defence without leave to amend, on the grounds of abuse of process and prejudice. Underlying these arguments is the Plaintiff's reliance on the principle of res judicata, on the basis that the Texas Court has found that a breach of its Order occurred, that that finding is binding upon the parties for the purpose of the motion, and that a refusal to strike the amended pleadings will confer a benefit on the Defendant which would not otherwise be available to it.

[39]            In my opinion, that argument is not sound.

[40]            The Protective Order made by the Texas Court was applicable only to the matters at issue in the litigation proceeding in that Court. While it appears that there are points of similarity between the American proceedings and the present case, there is no evidence that the outcome of the American litigation is determinative of the present case. The finding by the Texas Court that a breach of its Order has occurred is a matter which is confined to those proceedings. It may be a matter of that court maintaining control over its own process.

[41]            The Texas Court recognized that its findings of a breach and its sanction of same, is not binding on this Court. However, both in its reasons for that Order and in its reasons for a subsequent order addressing the assessment of costs against the Defendant in the American proceedings^[12], that court specifically noted that it was not purporting to affect the conduct of these proceedings, that is the Canadian proceedings.

[42]            The Plaintiff is saying that if the Defendant had not obtained the documents which should not have been made available to it, then it would not have had the grounds to amend its defence and to seek leave to do so. The Defendant argues that there was an undertaking by the Plaintiff to obtain an amendment of the American order in order to allow the parties to this action to share the documents which were provided in the American proceedings.

[43]            It is not necessary for me to comment on whether there was such an undertaking. It is irrelevant to the question of res judicata.

[44]            However, the fact remains that this Court can deal only with matters which fall within its jurisdiction. There is no authority to enforce an interlocutory order of a foreign court nor to impose sanctions for the apparent breach of such order. I conclude that the appropriate remedy is to let the Amended Amended Defence stand. If the Defendant is unable to establish its case due to an unavailability of certain documents to support the defences, that will become apparent at the trial.

[45]            As for the request for an order to remove Sim, Hughes, Ashton & McKay as solicitors of record, I am not prepared to grant that relief. This is not a situation giving rise to a conflict of interest between solicitor and client. It is not a situation, as described by Associate Senior Prothonotary Giles, in Merck, supra, in which the public interest in the solicitor-client relationship is engaged.^[13]

[46]            It follows that the final prayer for relief sought by the Plaintiff on this motion is also denied. There is no basis for the issuance of a restraining order in the terms set forth in the Notice of Motion.

[47]            The motion is dismissed, with costs to the Defendant.

                "E. Heneghan"                      

J.F.C.C.

Ottawa, Ontario

March 21, 2001

                          FEDERAL COURT OF CANADA

                                       TRIAL DIVISION

    NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                   T-748-98

STYLE OF CAUSE:MINNESOTA MINING AND MANUFACTURING                                                                 COMPANY v. CHEMQUE, INC.

PLACE OF HEARING:                                   OTTAWA

DATE OF HEARING:                                     JANUARY 25, 2001

REASONS FOR ORDER OF HENEGHAN, J.

DATED:                      MARCH 21, 2001

APPEARANCES:

A. DAVID MORROW                                                    FOR PLAINTIFF

STEVEN B. GARLAND

STEPHEN M. LANE                                        FOR DEFENDANT

SOLICITORS OF RECORD:

SMART & BIGGAR                                           FOR PLAINTIFF

OTTAWA

SIM, HUGHES, ASHTON & McKAY            FOR DEFENDANT

TORONTO