Ontario – summary judgment enforces settlement issuing from arbitration

In Furniture.com Inc. v. Leon’s Furniture Ltd., 2019 ONSC 7451,  Madam Justice Sandra Nishikawa granted summary judgment for breach of a settlement entered into after arbitration began.  Nishikawa J.’s decision was the latest in a sequence of different dispute resolution options undertaken by the parties – arbitration, court application for leave to appeal an award, private settlement and summary judgment to enforce settlement.  Nishikawa’s reasons also demonstrate that resolution went ahead despite defendant’s evidentiary objections and other ongoing dispute resolution in the U.S.

Furniture.com, Inc., d.b.a. Blueport Commerce (“Blueport”) and Leon’s Furniture Limited (“Leon’s”) entered into an April 13, 2005 agreement under which Blueport would provide e-commerce technology and services necessary to enable Leon’s to operate online for its furniture and appliance sales (“First Agreement”).  In exchange for providing Leon with e-commerce capabilities, Blueport would be paid a percentage of website sales, payable upon delivery of orders.  Following Leon’s 2012 acquisition of The Brick Group (“Brick”), Blueport and Leon’s amended the First Agreement on April 23, 2014 to add Brick to the First Agreement (“Amended Agreement”).  

At about the same time as Leon’s signed the Amended Agreement, by way of subscription agreement, Leon’s also invested in Blueport Investors (“Investors”), owner of 96.51% of the shares in Furniture.com Holdings, Inc. (“Holdings”).  An Amended and Restated Limited Liability Company Agreement (“LLC Agreement”) governed Leon’s shareholding.

In late 2016, Blueport and Leon’s began disputing their revenue sharing mechanism.  The dispute prompted Leon’s to issue a September 12, 2017 notice of dispute referring the dispute to arbitration. Blueport served notice, effective 90 days later, of its intention to terminate the Amended Agreement (“Termination Notice”).

Leon’s rejected Blueport’s Termination Notice and applied to the arbitrator for an injunction enjoining Blueprint from terminating the Amended Agreement. (No date is given for commencing arbitration or the date of the hearing on the injunction).  The arbitrator dismissed the motion and Leon applied on December 21, 2017 for leave to appeal the arbitrator’s refusal.  That application was dismissed: Leon’s Furniture Limited v. Furniture.com (Blueport Commerce), 2017 ONSC 7666 (not posted as of the date of this note).

Following dismissal of Leon’s leave application, Leon’s and Blueport signed a December 27, 2017 settlement agreement (“Settlement Agreement”).

Nishikawa J. set out the terms of the Settlement Agreement and the facts which lead the parties to her:

[16] Under the terms of the Settlement Agreement, Leon’s was permitted to remain on Blueport’s platform until September 30, 2018.  The Settlement Agreement included a term amending the revenue sharing mechanism.  While the Settlement Agreement contemplated a further agreement, the parties did not enter into a further agreement and acknowledged that they were bound by the terms of the Settlement Agreement.

[17] From January to July 2018, Leon’s paid fees invoiced by Blueport according to the terms of the Settlement Agreement. 

[18] In August 2018, Leon’s stopped paying fees to Blueport.  Blueport continued to provide services until September 30, 2018.  Blueport invoiced Leon’s $567,821.42 for services provided in August 2018 and $527,570.08 for services provided in September 2018.  Blueport rendered a further invoice for orders placed before September 30, 2018 but delivered after that date, in the amount of $231,099.68 (the “Post-Termination Amount”).  The total of all the invoices, including the Post-Termination Amount, is $1,326,491.18 (the “Outstanding Amount”), which is the amount Blueport claims in this action.  According to the terms of the Amended Agreement, the interest rate is five percent per year.  The Settlement Agreement did not modify this term and confirmed that, subject to the modifications, the Amended Agreement remained in effect”.

Nishikawa J.’s reasons also set out, at paras 20-29, other disputes involving Leon’s and litigation under the LLC Agreement undertaken in the courts of Ohio.

Blueport applied under Rule 20.04(2)(a) of the Rules of Civil Procedure, RRO 1990, Reg 194 for summary judgment on its claim for payment of $1,326,491.18 for services rendered under the Settlement Agreement.  Leon’s resisted, arguing that Blueport’s motion was premature and could not be determined because of its counterclaim and claim for equitable set-off against Blueport in regard to Leon’s claims that Blueport induced breach of the LLC Agreement with Investors.

At paras 31-34, Nishikawa J. set out the principles applicable to summary judgment, including the approach, set by Hryniak v. Mauldin, 2014 SCC 7 (CanLII), [2014] 1 SCR 87, that summary judgment must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims. Among the principles identified, one required the court to make its determination on the basis of the evidence before it which must provide a sufficient evidentiary basis.

Leon argued that it had yet to engage in discovery and obtain evidence to reply to Blueport’s evidence filed in support of the motion for summary judgment and that “its ability to put its best foot forward is compromised”. 

Nishikawa J. disagreed.

Blueport’s claim for breach of contract can be appropriately heard in a summary manner because Leon’s has not disputed that it owes fees to Blueport.  Leon’s only objection is to the Post-Termination Amount.  The only substantive defence that Leon’s raises is its claim for equitable set-off on its counterclaim against Blueport for inducing breach of the LLC Agreement.  For reasons that I expand upon further below, Leon’s counterclaim does not raise a genuine issue requiring a trial and does not preclude judgment in favour of Blueport”.

In addition to her comments on the substance of the dispute, Nishikawa J. added that Leon’s had consented to the timetable set in March 2019 for the hearing on the summary judgment and could have refused and sought directions.  It could not now claim that it needed documentary evidence issuing from discoveries it did not seek to conduct when setting the timetable.

In the balance of her reasons, Nishikawa J. addresses other issues raised by a summary judgment motion such as whether credibility issues preclude summary judgment (paras 62-65) and whether she should stay execution of her decision pending the result in the Ohio litigation (paras 70-71).

She granted summary judgment for breach of the Settlement Agreement in the amount of $1,326,491.18 plus interest as agreed to at 5%.

urbitral note – First, Nishikawa J.’s decision illustrates how various procedural tools can combine to obtain resolution of commercial differences.  The dispute began in arbitration, engaged in appeal in court, settled by private agreement and resolved by summary judgment in court.  Using the court’s own summary judgment process, Nishikawa J. avoided the delay and cost of a full trial and enforced a Settlement Agreement which itself flowed from parties engaged initially in an arbitral process. 

The parties engaged in arbitration as agreed but, rather that going to a full hearing, agreed to settle.  Then, disputing performance of that settlement, the parties obtained a decision on the merits without having to go to a full trial.

Second, Nishikawa J. was able to grant summary judgment because the parties had clearly written out, in their Settlement Agreement, the terms of their rights and obligations.  The clarity of those terms permitted Nishikawa J. to identify what was in dispute under that Settlement Agreement and to distinguish that dispute from others stemming from related activities/contractual undertakings.

Third, resolution appears to have benefitted from opportunities seized to move the dispute through all the available options using first arbitration, then negotiation and finally summary judgment.  Neither party tolerated much delay in the conduct of their dispute resolution.  The parties (i) undertook arbitration after September 2017, (ii) debated leave to appeal an award in December 2017, (iii) settled in December 2017 after leave to appeal was denied, (iv) disputed performance in August-September 2018, (v) commenced litigation in November 2018 and (vi) participated in a hearing held in August 2018.