Omeganutrel Inc. v. Food Systems Innovations Inc., 2006 FC 1023

 

 

 

 

Date: 20060824

Docket: T-920-05

Citation: 2006 FC 1023

OTTAWA, Ontario, August 24, 2006

PRESENT:     The Honourable Paul U.C. Rouleau

 

BETWEEN:

OMEGANUTREL INC. and GRAND VALLEY FORTIFIERS INC.

Plaintiffs

and

 

FOOD SYSTEMS INNOVATIONS INC. and THE UNIVERSITY OF GUELPH

Defendants

 

REASONS FOR ORDER AND ORDER

 

[1]               This is a motion brought by the defendant the University of Guelph for an order setting aside the Order of Madam Prothonotary Milczynski on June 6, 2006 (“the Reconsideration Order”).  In that Order the Prothonotary dismissed the University’s motion to set aside or vary her order of April 3, 2006 (“the Joinder Order”) which permitted, inter alia, the joinder of the University as a party to these proceedings pursuant to Rule 104 of the Federal Court Rules.  In addition, the defendant Food Systems Innovation Inc. (“FSI”) brings a motion to overturn the Protohontary’s Order of April 3, 2006, wherein she dismissed FSI’s motion to stay these proceedings.

 

[2]               The events leading to this application are as follows.  On May 27, 2005, the plaintiffs commenced this Federal Court action wherein they seek redress from the Court under paragraph 7(a) of the Trade-marks Act for FSI’s dissemination of allegedly false and misleading statements to the trade concerning the plaintiffs and their now patented technology (“ONI technology”).  The statements were disseminated in letters to the trade in which FSI, inter alia, allegedly threatened patent infringement proceedings if the recipients did not desist from the use of ONI technology or products made from its use. 

 

[3]               On January 19, 2006, the defendants commenced an action in the Ontario Superior Court alleging that the plaintiff’s ONI technology infringes the University’s patent.  The Ontario action also includes allegation that ONI, a related ONI company, and a director of ONI owed a fiduciary duty to the University of Guelph, and that they breached their fiduciary duties of good faith and loyalty and confidence.  The Ontario action claims the remedy of constructive trust and a tracing order for proceeds of the breach of these duties.  This action is at the pleadings stage, with a motion brought by FSI and the University of Guelph to strike the defendants’ counterclaim scheduled to be heard in October 2006.

 

[4]               On March 28, 2006, the defendant FSI filed a motion in this court for an Order, pursuant to section 50 of the Federal Court Rules, staying the proceeding.  By Order dated April 7, 2006, Madam Prothonotary Milczynski, in her capacity as case manager, dismissed the application stating her reasons, in part, as follows:

 

FSI argues that notwithstanding that the Federal Court action was commenced first and has progressed further in pre-trial steps, because the claims for breach of fiduciary duties cannot e heard in the Federal Court, it would be efficient and just for all issues to be determined in the Ontario action.  The factors noted above, however, clearly indicate that this fact alone is insufficient to warrant staying the Plaintiffs’ action, particularly in this case, where the Plaintiff OMI has filed evidence of the serious impact that FSI’s actions have had on its business and ability to exploit its patented technology, and the continuing prejudice caused by the uncertainty and any delay in resolving the infringement issue.  In that respect, there does not seem to be any serious disagreement between the parties that is most likely that the Federal Court action will be heard first.  This will settle the matter of OMI’s patented technology and its ability to conduct its business, but will also thereby significantly narrow the issues to be determined in the Ontario action.  Counsel for FSI agrees that should the Federal Court determine the issue of non-infringement for the purposes of subsection 7(a) of the Trade-marks Act, this will be dispositive of the issue of infringement in the Ontario action.  There is thus no possibility of inconsistent results, and I therefore see no basis to delay such determination.  There is little, if any, evidence of prejudice to FSI in having such determination made before the claims based on breach of fiduciary duties are heard.  Counsel for FSI agreed that the claims that are within the exclusive jurisdiction of the Ontario Court are not dependent upon the infringement and can proceed regardless of the disposition of the issue of infringement.

 

With respect to specific findings relating to each of the factors identified above, I adopt the submissions of the Plaintiffs at paragraphs 36 to 51 of the written representations and further note:

- the determination of the infringement issue will be delayed if left to the Ontario action - that action is still at the pleadings stage, with a motion in respect of pleadings no scheduled to be heard until October of this year;

 

- the delay in having the issue of infringement determined in the Ontario action would cause clear and significant prejudice to the Plaintiffs - FSI’s threats of patent infringement proceedings against ONI’s customers have affected ONI’s business and ability to exploit its patented technology;

 

- there is insufficient evidence of prejudice to FSI if the stay is not granted, and the better view is that continuing with the Federal Court action will led to a narrowing of the issues in the Ontario action and the most expeditious manner of proceeding;

 

- FSI itself created the situation it seeks to rely on in support of a stay - FSI and the University of Guelph claim patent infringement in the Ontario action, knowing that this was already in issue in the Federal Court action; and

 

- the addition of further claims in the Ontario action that are beyond the jurisdiction of the Federal Court are no basis to grant the stay as those claims based on breach of fiduciary duties are independent of patent infringement and may proceed wither or not infringement is found.

 

As noted above, I find that this motion was berefit of any merit.  It served only to delay the progress of the proceeding and seek to put of the ultimate disposition of the issue of patent infringement.  Such motions that seek to interfere with a plaintiff’s case should not be brought lightly, and in this case I find warrant being dismissed with costs at a higher scale of recovery.

                                             

                                                                        (emphasis added)

 

 

[5]               Subsequently, on April 20, 2006, in response to an application brought by the plaintiffs, the Prothonotary rendered an order wherein, inter alia, she granted leave for the adding of the University of Guelph as a defendant to the action.  On April 27, 2006, the defendant University brought a motion pursuant to Rule 399 of the Federal Court Rules, seeking a reconsideration of the Order issued by the Prothonotary adding the University as party.

 

[6]               By decision dated June 6, 2006, the Prothonotary issued an order dismissing the University’s application, stating her reasons, in part, as follows:

 

Having heard the submissions on behalf of the University of Guelph, and of the Plaintiffs, I see no basis under Rule 399 to set aside or vary the order to add the University of Guelph as a defendant in this proceeding.

 

Pursuant to Rule 399 of the Federal Courts Rules, the Court may set aside or vary an order that was made ex parte, if the party against whom the order is made discloses a prima facie case whey the order should not have been made, or by reason of a matter that arose or was discovered subsequent to the making of the order.  Neither circumstance applies here, and I am satisfied that the University of Guelph is added as a proper party to this action.

 

First, having regard to Rule 37 of the Federal Court Rules, discretion can be exercised to have heard the Plaintiff’s motion on an ex parte basis, having considered the involvement of the University of Guelph in the proceeding already (participating in the fulfilment of the Defendant Food Systems Innovation Inc.’s undertakings, being named and covered by the confidentiality order), and being fully aware for quite some time that the motion was being brought.

 

Secondly, I see no basis to vary or set aside the order on the basis that there were some changes to the draft amended statement of claim that was attached to the notice of motion.  Many changes were simply housekeeping in nature - the revisions reorganized information, or provided for further clarification or particulars.  Other changes were necessary and arose of the order severing the claims of Stoney Creek Dairy and incorporating those claims into a separate action.  In any event, I agree with the submissions of the Plaintiffs that it was open to the Plaintiffs to amend the pleading without leave pursuant to Rule 200 of the Federal Courts Rules.

 

Third there is no basis to revisit the issue of whether the Plaintiff is obliged to post security for costs.  The issue was canvassed at the hearing of the motion in April, and further submissions on the point made by the University of Guelph today do not change that result. 

 

 

[7]               The defendants have now filed an application in this court wherein they seek an order setting aside the above-noted Orders of the Prothonotary.

 

[8]               The University of Guelph’s complaint with the Joinder Order is that the Prothonotary improperly exercised her discretion in adding the University as a party on an ex parte motion.  It argues that it should have been formally served with the Motion documents.   With respect to the Reconsideration Order, the University maintains that the Prothonotary erred in law in holding that the claim made against the University of Guelph in the Further Amended Statement of Claim is sufficiently particular to constitute a valid claim pursuant to subsection 60(2) of the Patent Act.  It is further argued that the Prothonotary erred in law in holding that the Plaintiffs are not required to post security for costs pursuant to subsection 60(3) of the Patent Act.

 

[9]               Counsel for the defendant University spent considerable time before me arguing the merits of his case.  He discussed at length whether the letters the defendants had sent to the trade, the letters to which the plaintiffs took objection and which led them to commence their Federal Court action, could actually be perceived as threatening trademark action and the effect those letters had on the trade.  However, if those are questions which need to be determined for the disposition of this litigation, they are matters for the trial judge.  It has no relevance to the issues before me on this application.

 

[10]           My function in reviewing the Prothonotary’s discretionary Orders, issued in her case management capacity, is not to conduct a re-hearing on the merits of the case.  In Remo Imports Ltd. v. Jaguar Cars Ltd. [2003] F.C.J. No. 765, the Federal Court of Appeal made it very clear that deference is to be shown by the Court in these types of cases:

 

. . . this Court has decided that it should not intervene with a decision of a case management judge except “in the clearest case of misuse of judicial discretion”: Sawridge Band v. Canada [2002] 2 F.C. 346.  As this Court made clear in the companion case of Sawridge Band v. Canada, [2001] F.C.J. No. 1686, 2001 FCA 339 at paragraph 4, a question of joinder is quintessentially a matter of case management.  It is clear to us that Gibson J. was fully alive to these important new principles and that he correctly applied them in upholding the Prothonotary’s decision.

 

                                                          (emphasis added)

 

 

[11]           Neither of the defendants have persuaded me that the two Orders in question constitute a clear case of the Prothonotary’s misuse of her judicial discretion.

 

[12]           With respect to the University’s complaint about the Joinder Order, I do not understand why it believes that it was entitled to formal notice of the Motion wherein joinder was sought.  There is no Rule which requires that a prospective party be served with the Notice of Motion which seeks to add it as a party to the proceeding.  A prospective party does not have automatic standing on a motion which seeks to add it as  party to an ongoing proceeding.  The only parties who had automatic standing to contest the addition of the University as a new party were the former plaintiff, Stoney Creek Dairy Ltd. (“SCD”), and the defendant, Food Systems Innovation Inc. (“FSI”).  Both those parties were formally served with the plaintiffs’ motion material and both parties had counsel present who made submissions on April 3, 2006.

 

[13]           Rule 37 of the Federal Court Rules makes it a matter of judicial discretion as to whether a party will be joined.  I am satisfied that the Prothonotary properly exercised her discretion when she allowed the ex parte joinder motion to proceed.

 

[14]           First, the University’s position and its interests were in fact represented and advanced at the hearing before the Prothonotary on April 3, 2006 by Blake, Cassels, who also acts for the University in the Ontario Superior Court proceedings involving many of the same parties.  At the outset of the motion, counsel for the University placed into evidence e-mails which set out, inter alia, its position on the plaintiffs’ motion to add the University as a party.  The Prothonotary read this exchange and, in her discretion under Rule 37, proceeded to hear the motion notwithstanding the University’s position.

 

[15]           Furthermore, the evidence before the Prothonotary included evidence of the following:

(a) for a number of years the University has had a commercialization arrangement with the defendant Food Systems Innovation Inc. relating to the University’s technology;

 

(b) the University had been an active participant in the proceedings in terms of searching for and providing relevant documents to its licensee, FSI;

 

(c) the University was named as a person entitled to see information designated as confidential in the Confidentiality Order;

 

(d) the University has been represented by Blake, Cassels in the Ontario Superior Court proceedings since at least January 19, 2006 and was present at the hearing before the Prothonotary on April 3, 2006, but inexplicably chose not to make submissions on behalf of the University upon the plaintiff’s motion.

 

 

[16]           Based on the evidence and the submissions before her, the Prothonotary concluded that it was in the interests of justice to add the University to the ongoing proceeding rather than require the plaintiffs to begin a fresh action which, as she observed, could have been initiated without prior notice to the University.  That was an entirely appropriate exercise of her discretion and there is nothing which would warrant this Court’s interference with that Order.

 

[17]           I turn now to the Prothonotary’s order refusing a stay of proceedings.

 

[18]           As a general principle, when seeking a stay, it is not enough for the applicant to show that proceedings have been taken in another jurisdiction on the same subject matter.  It must be proven by the applicant that there is, in fact, a vexation; that is, the Court must be satisfied that the continuance of the action would work an injustice because it would be oppressive, but also that no injustice to the plaintiff would arise.  A plaintiff’s right of suit will not be lightly interfered with.

 

[19]           In the case at bar, there is simply no evidence whatsoever, that the continuation of the Federal Court action will cause prejudice of any kind to the defendants.  There is no explanation as to why the defendants chose to refrain from initiating patent infringement proceedings in the Federal Court action by way of counterclaim in July 2005 nor why the defendant FSI waited eight months to begin its own Ontario Court action and waited ten months to bring its motion to stay proceedings.

 

[20]           The Prothonotary made no “fundamental misapprehension of the nature of an injurious falsehood claim” as asserted by FSI.  She correctly recognized that the threats of patent infringement proceedings contained within FSI’s letters to the trade were a fundamental underpinning of the plaintiffs’ cause of action.  Accordingly, a finding by the Federal Court as to whether the ONI technology infringes the patent in question is a live issue in the Federal Court proceedings and the plaintiffs are entitled to a timely determination on that issue.

 

[21]           I am satisfied that the Prothonotary properly exercised her discretion in her role of case management and she did not commit any error in either fact or in law which would warrant setting her decision aside.  I wholeheartedly agree with her observation that FSI’s motion was completely ill-advised and totally without merit, as the evidence upon its motion disclosed that FSI had completely failed to meet any of the criteria applied by this Court in guiding its discretion on motions to stay.  The Prothonotary properly applied to the law to the evidence before her.

 

[22]           In its submissions, FSI sets out a lengthy treatise of its position on the merits of the case, in an attempt to demonstrate that the case-management Prothonotary was clearly wrong in the exercise of her discretion.  However, it was not the place of the Prothonotary to assess the strength or weakness of any party’s case and, in rendering her reasons, she was not providing any conclusive disposition on the merits of any party’s position.  In her reasons, she merely justified why a stay was completely inappropriate based upon the evidence before her.

 

[23]           FSI argues that the Prothonotary misapprehended several facts material to the exercise of her discretion.  I do not agree.  To the contrary, she correctly apprehended that the Ontario proceedings involved a cause of action which could be pursued in the Federal Court.  She was not convinced, on the basis of the evidence before her, that FSI had met the high threshold for the grant of a stay, especially given FSI’s delay in seeking that relief and the complete absence of any evidence of prejudice that it would suffer if a stay was not granted.  In fact, FSI itself acknowledges that its claim to prejudice is speculative, stating in paragraph 64(f) of its submissions that it “could be prejudiced if the Federal Court action is not stayed”.  As correctly determined by the Prothonotary, the onus was on FSI to proffer evidence that the continuation of the Federal Court action would cause it substantial prejudice and not just inconvenience and extra cost.

 

[24]           I agree with the plaintiffs’ submission here that FSI’s motion to stay was brought solely for tactical reasons and to increase the costs burden for the plaintiffs.  FSI is well aware of ONI’s precarious financial condition.  I also agree with the Prothonotary that the motion to stay should never have been brought and she was entirely correct to make a sizeable cost award.  FSI is simply attempting to continue to delay the ultimate outcome of the Federal Court proceedings.  There is no evidence to support a finding that the amounts allowed are inappropriate or that the Prothonotary’s decision is so unreasonable as to suggest that she made an error in principle.

 

[25]           Frankly, I am genuinely disturbed by the conduct of the defendants in this action.  Their motions before the Prothonotary, and these motions before me, have been devoid of merit and appear to be nothing more than stall and delay tactics.  The applications have been frivolous, vexatious, an abuse of process and demonstrate a lack of respect for this Court which I find upsetting.  In addition, the Ontario Superior Court proceedings have now been significantly delayed because the defendants, again, have brought a motion to strike/stay the counterclaim filed by the plaintiffs in the Ontario Court.  This has resulted in more delay since that motion will not be heard until October 2, 2006, which was the earliest date available to the Court and all counsel.

 

[26]           Accordingly, I am granting the plaintiffs request that the Court use its discretion with respect to the award of costs.  The plaintiffs’ written submissions with respect to costs are to be filed with the Court by September 15, 2006, and reply submissions by the defendants are to filed by September 30, 2006.

 

 

 

 

 

 

 

ORDER

 

 

THIS COURT ORDERS that the defendants’ motions are dismissed.

 

 

 

"Paul U.C. Rouleau"

FEDERAL COURT

 

SOLICITORS OF RECORD

 

 

 

DOCKET:                                          T-920-05

 

STYLE OF CAUSE:                          OMEGANUTREL INC. and GRAND VALLEY FORTIFIERS INC. v. FOOD SYSTEMS INNOVATION INC. and THE UNIVERSITY OF GUELPH

 

PLACE OF HEARING:                    Toronto, Ontario

 

DATE OF HEARING:                      June 29, 2006

 

REASONS FOR ORDER:               ROULEAU D.J.

 

DATED:                                             August 24, 2006

 

 

 

APPEARANCES:

 

Arthur B. Renaud	FOR THE PLAINTIFFS
Tony S.K. Wong   Albert G. Formosa	FOR THE DEFENDANT Food Systems Innovations Inc. FOR THE DEFENDANT University of Guelph

 

SOLICITORS OF RECORD:

 

BENNETT JONES LLP Barristers and Solicitors	FOR THE PLAINTIFFS
BLAKE, CASSELS & GRAYDON LLP Barristers and Solicitors WEIRFOULDS LLP Barristers and Solicitors	FOR THE DEFENDANT Food Systems Innovations Inc.   FOR THE DEFENDANT University of Guelph