SSE Holdings, LLC v. Le Chic Shack Inc.

SSE Holdings, LLC v. Le Chic Shack Inc.
Court (s) Database
Federal Court Decisions
Date
2020-10-05
Neutral citation
2020 FC 983
File numbers
T-917-17
Decision Content
Date: 20201005
Docket: T-917-17
Citation: 2020 FC 983
Montreal, Quebec, October 5, 2020
PRESENT: Mr. Justice Gascon
BETWEEN:
SSE HOLDINGS, LLC and SSE IP, LLC
Plaintiffs
and
LE CHIC SHACK INC.
Defendant
PUBLIC JUDGMENT AND REASONS
I. Overview
[1] In 2017, the Plaintiffs, SSE Holdings, LLC and SSE IP, LLC [together, Shake Shack] brought an action for trademark infringement against the Defendant, Le Chic Shack Inc. [Chic Shack]. In 2019, as the matter was progressing towards trial, the parties agreed to enter into a Court-assisted mediation governed by Rules 387 to 389 of the Federal Courts Rules, SOR/98-106 [Rules]. A mediation session presided by Prothonotary Steele – who also acts as the case management judge in this proceeding – took place on December 18, 2019 [Mediation Session]. Shake Shack is of the view that, at the end of the Mediation Session, the parties had an agreement to settle the action. Chic Shack disagrees and denies that any settlement was reached at the mediation or afterwards.
[2] On June 8, 2020, Shake Shack brought a motion to enforce what it argues are the terms of the alleged settlement [Motion]. In its Motion, Shake Shack seeks an order from the Court: 1) declaring that, during the Mediation Session, the parties entered into a binding transaction agreement to put an end to the present litigation; 2) that the parties prepare in good faith a formal settlement and license agreement on the basis of a term sheet dated December 20, 2019 [Term Sheet]; 3) that the Court remains seized of this matter in the event there is a disagreement on the drafting of the formal agreement; 4) vacating the dates set aside for the trial of this matter in November 2020; 5) awarding the costs of the Motion to Shake Shack; and 6) granting such further and other relief as to this Court may seem just.
[3] The issue before the Court is whether the parties had agreed to settle.
[4] The Motion proceeded before me by video conference on August 13, 2020. After hearing the submissions of the parties, I reserved judgment on the Motion. On August 20, 2020, I dismissed Shake Shack’s Motion, with reasons to follow. These are my reasons for dismissing the Motion.
[5] For the reasons detailed below, Shake Shack’s Motion fails for lack of supporting evidence. Further to my review of the parties’ written and oral submissions and materials, I am not satisfied that Shake Shack has presented clear and convincing evidence sufficient to satisfy the Court, on a balance of probabilities, that a settlement agreement on the terms alleged by Shake Shack has been reached by the parties at the end of the Court-assisted Mediation Session. Three main evidentiary findings lead me to this conclusion. First, in a direction dated December 23, 2019, Prothonotary Steele expressly stated that the mediation was “adjourned at the request of the parties” [December 2019 Direction], and neither the parties nor the mediator took any of the steps prescribed by Rule 389 when “a settlement of all or part of a proceeding is reached” at a dispute resolution conference. Second, Shake Shack has failed to persuade me that the parties have reached an agreement on all essential elements of the transaction contemplated by them during the Mediation Session. More specifically, viewed objectively, the size of the exclusivity zone where Chic Shack could continue to use its trademark was an essential element on which there was no agreement. Third, the terms upon which Shake Shack claims that a settlement has allegedly been reached, as summarized in the Term Sheet, differ from the evidence provided by one of its own representatives contemporaneously with the end of the Mediation Session. Moreover, the Term Sheet does not conform with how the elements of the alleged transaction were later presented to Prothonotary Steele by counsel for Shake Shack in January 2020.
II. Background
A. The parties
[6] Shake Shack operates and licenses SHAKE SHACK restaurants in the United States and internationally, and owns assets such as the SHAKE SHACK word and design marks. SHAKE SHACK restaurants are modern day “roadside” burger stands serving premium burgers, hot dogs, crinkle-cut fries, shakes, frozen custard, beer and wine. It is not disputed that Shake Shack has been successful in the United States and internationally over the last 15 years and that SHAKE SHACK has become an iconic brand (especially with the younger generations). Despite the fact that there is still no permanent SHAKE SHACK restaurant in Canada, Shake Shack claims that its brand nonetheless quickly became known in Canada.
[7] LE CHIC SHACK is a restaurant located in Quebec City. It was founded around June 2012 by Mr. Evan Price and his sister Ms. Alexandra Lucy Price. Mr. and Ms. Price are both members of the Price family, who is involved in a number of local businesses in the Quebec City area. There is currently only one LE CHIC SHACK restaurant, located in the old part of Quebec City, in the same building as the Musée du Fort (owned by the Price family), across from the legendary Château Frontenac. LE CHIC SHACK restaurant offers premium gourmet burgers, made of high quality, locally sourced, fresh ingredients. Chic Shack has been using the trademark LE CHIC SHACK in Canada in association with restaurant services since 2012. The type of restaurant and offering of LE CHIC SHACK is similar to the SHAKE SHACK restaurants.
B. Procedural history
[8] Shortly after a successful SHAKE SHACK pop-up event in Toronto in January 2017, Chic Shack sent a cease and desist letter threatening Shake Shack with litigation.
[9] In June 2017, Shake Shack responded by initiating the present proceeding. As of the date of its Statement of Claim, Shake Shack had secured its trademark registration for SHAKE SHACK whereas Chic Shack’s trademark applications were still pending. Shake Shack thus alleged trademark infringement pursuant to section 20 of the Trademarks Act, RSC 1985, c T-13 [TMA], depreciation of goodwill pursuant to section 22 and passing off pursuant to paragraph 7(b). Chic Shack obtained its trademark registrations for LE CHIC SHACK and LE CHIC SHACK & Design in July 2017 and September 2019, respectively. As a result, Shake Shack amended its Statement of Claim to challenge the validity of these registrations.
[10] In its action, Shake Shack is seeking a declaration that the use of the trademark LE CHIC SHACK by Chic Shack depreciates the value of its SHAKE SHACK trademark and creates confusion. Shake Shack also requests that a permanent injunction be issued to prevent Chic Shack from using its trademark, as well as damages (or an accounting of profits).
[11] In defense to the Statement of Claim, Chic Shack alleges that the SHAKE SHACK brand had not achieved the level of recognition that would be required to claim prior rights as of 2012. In its defense and counter-claim, Chic Shack seeks a declaration that the registration for SHAKE SHACK based on a declaration of use filed in 2017 is invalid in view of the prior pending applications for LE CHIC SHACK. Chic Shack also seeks a permanent injunction preventing Shake Shack from using the SHAKE SHACK marks in Canada.
[12] In sum, this is a trademark case where both parties have registered trademarks they agree are confusing when used in association with similar restaurants. The main issue on the merits will be who has prior and valid rights. For the purpose of this Motion, there is no need to review the parties’ respective trademarks and allegations in any further detail.
[13] In July 2019, the Court ordered that the trial would take place in Quebec City for a duration of five (5) days, starting on November 23, 2020. In a direction issued on July 30, 2019, Prothonotary Steele established a schedule fixing the time frame for completing the pre-trial steps in the proceeding. This direction also provided that a pre-trial conference and mediation would be held in Montreal for a duration of one (1) day. Prothonotary Steele eventually confirmed, on September 10, 2019, that the mediation would be convened on December 18, 2019, specifying that the representatives of the parties to the mediation needed to have full settlement authority.
C. The Mediation Session
[14] On December 10 and 11, 2019, the parties exchanged and filed under seal their respective mediation briefs.
[15] On December 18, 2019, Prothonotary Steele led the Mediation Session. In attendance on behalf of Shake Shack were Mr. Ronald Palmese, Jr., Shake Shack’s General Counsel and Corporate Secretary, and Mr. Michael Kark, Shake Shack’s Chief Global Licensing Officer, together with Shake Shack’s counsel, Mr. Guay and Mr. Dupont. Mr. Price represented Chic Shack, and he was accompanied by Chic Shack’s counsel, Mr. Lauzon and Ms. Hébert-Tremblay.
[16] In its pre-mediation brief, Shake Shack stated, under its views on mediation, that its management’s position has always been that it should not have to give any money to a business that they and consumers see as a copycat, and that Shake Shack preferred to pay legal fees instead. Shake Shack was however willing to explore some form of co-existence with Chic Shack, and it entered the mediation committed to find a reasonable business solution satisfactory to both parties.
[17] In its pre-mediation brief, Chic Shack notably laid out the bases upon which it would consider a negotiated settlement. These included four distinct possible options, described as follows: 1) Shake Shack simply buys out Chic Shack at a price that reflects past investments, developed goodwill and expansion potential; 2) Chic Shack phases out the use of LE CHIC SHACK, adopts a new mark and is properly compensated; 3) Chic Shack’s radius for exclusive expansion is defined and the compensation varies with the degree of the geographical limitations imposed; or 4) Shake Shack abandons all plans for an eventual Canadian expansion.
[18] There is some dispute between the parties as to what was said and done during the Mediation Session, but here is a summary of how the day unfolded.
[19] Initially, the mediation appeared to crawl along at a snail’s pace, but discussions picked up around mid-day. Shake Shack made the first concrete offer, proposing: 1) to pay Chic Shack’s legal fees (estimated at ||||||||||) and 2) that the parties would co-exist without any restriction across Canada, letting the free market decide how successful they are in Canada. Chic Shack’s first response to Shake Shack’s proposal was that: 1) it preferred to define an exclusivity zone of 50 or 100 kilometers [kms] around its existing location in Quebec City, where Shake Shack could not open any restaurants (i.e., no co-existence between Chic Shack and Shake Shack in the zone), and 2) Chic Shack was looking for financial compensation for abandoning its expansion projects elsewhere. At that point in time, however, Chic Shack did not propose any specific monetary terms.
[20] Later in the afternoon, Mr. Price suggested that the parties had made good progress with settlement discussions, and he proposed to suspend the mediation and to continue the discussions in the following weeks. Mr. Palmese expressed his frustration with Mr. Price’s suggestion and asked him to make an actual proposition with a number. Following a short break, Chic Shack made the following proposal: 1) an exclusivity zone of 100 kms for Chic Shack around its existing location in Quebec City; 2) a |||||||||| upfront payment to compensate Chic Shack’s legal fees; and 3) a |||||||||| payment for each SHAKE SHACK restaurant opened in Canada (with no limit in time or on the number of restaurants).
[21] Shake Shack came back with the following counter-offer on the monetary terms: a |||||||||| lump-sum payment or a |||||||||| upfront payment coupled with a |||||||||| payment for each of the first 10 SHAKE SHACK restaurants opened in Canada. As part of its counter-offer, Shake Shack also proposed not to enter Quebec City for five (5) years. However, Chic Shack was unwilling to entertain any offer that included a sunset on the geographical limitations of the exclusivity zone, no matter how that zone would be defined.
[22] In order to resolve the trademark issues raised in the litigation but also in the oppositions in the Trademarks Office, Shake Shack also proposed, in general terms and as part of its counter-offer, to acquire Chic Shack’s trademark rights and trade name, and to license those back exclusively to Chic Shack (with minimal control provisions), in order to allow Mr. Price and Ms. Price to continue their existing operations. According to Mr. Palmese, this aspect of the counter-offer (i.e., the structure of the future arrangement between the parties) was accepted by Mr. Price.
[23] Shake Shack claims that the parties had then reached an agreement on how the settlement transaction would be structured in terms of Shake Shack acquiring Chic Shack’s trademark rights and licensing those back. The discussions continued on the financial component of the deal and the geographical limitations of the exclusivity zone. While Mr. Price again suggested that the parties should call it a day and pick up the discussions after the Christmas holidays, Mr. Palmese insisted that the parties continue their discussions as, in his words, they were getting “very close to a meeting of the minds”.
[24] According to Shake Shack, the parties eventually reached an agreement on the monetary aspect of the deal (having already agreed earlier on the structure of the transaction) when Shake Shack accepted Mr. Price’s latest counter-offer, namely: 1) a |||||||||| upfront payment and 2) a |||||||||| payment (indexed annually) for each of the first 10 SHAKE SHACK restaurants opened in Canada.
[25] Shake Shack maintains that the parties’ representatives then shook hands to confirm their agreement on the financial terms as well as the structure of the deal (i.e., acquisition and license back of Chic Shack’s trademark rights within an exclusivity zone), and agreed that their counsel would follow up within 48 hours (before the holidays) to reiterate the settlement terms in writing, as well as to confirm the exact radius of the exclusivity zone. According to Mr. Palmese, the parties agreed on the principle that the exclusivity zone would be greater than just Quebec City but, its representatives not being familiar with the area, Shake Shack wanted to see the 100 kms radius on a map and confirm it with their team in New York. Mr. Price and Chic Shack disagree with this assessment of the discussions on the issue of the exclusivity zone.
[26] I pause to note that this chronology of the discussions emanates from the written testimonies filed by the parties in this Motion. At no point during the Mediation Session did either of the parties put the contents of their discussions or the proposed terms of an agreement in writing, nor did a party share any written terms of agreement with the other. Similarly, at the end of the Mediation Session, no written document was prepared and exchanged between the parties, until the Term Sheet (to which I shall return) was drafted by counsel for Shake Shack on December 20, 2019 and sent to counsel for Chic Shack.
[27] Shortly after the end of the Mediation Session, Prothonotary Steele issued her December 2019 Direction. This direction read as follows:
The mediation commenced on December 18, 2019 is adjourned at the request of the parties.
Given that the session was adjourned given time constraints, the parties are encouraged to pursue their discussions beyond the Court’s process. The Court wishes to commend the parties for their efforts, and their respective counsel for their assistance, throughout the mediation. The Court remains at the parties’ disposal should they wish to resume the mediation at any time.
(emphasis added)
[28] Following the adjournment of the mediation, Prothonotary Steele issued a further order on December 24, 2019 regarding amendments to the schedule for the pre-trial steps and filings in the action. Similarly, on February 5, 2020, another order was issued regarding additional revisions to the timetable leading up to the trial.
[29] Further to two letters received from counsel for each party on January 20 and 21, 2020 (to which I shall also come back later), Prothonotary Steele presided a confidential case management conference on January 27, 2020 to discuss the settlement agreement claimed to have been reached at the Mediation Session by Shake Shack. No further orders or directions were however issued by Prothonotary Steele regarding the adjourned mediation, neither after this case management conference nor later in the course of the proceeding.
D. The Rules on Court-assisted mediations
[30] The Mediation Session was a Court-assisted dispute resolution conference organized under the Rules. Neither of the parties disputes this. Prothonotary Steele’s Direction of July 30, 2019 leaves no doubt on this point.
[31] The provisions of the Rules dealing with “Dispute Resolution Services” and governing the Mediation Session are found at Rules 386 to 391. It is useful to reproduce in their entirety those portions that are relevant for the purpose of this Motion. They read as follows:
DISPUTES RESOLUTION SERVICES
Order for dispute resolution conference
386 (1) The Court may order that a proceeding, or any issue in a proceeding, be referred to a dispute resolution conference, to be conducted in accordance with rules 387 to 389 and any directions set out in the order.
[…]
Interpretation
387 A dispute resolution conference shall be conducted by a case management judge or prothonotary assigned under paragraph 383(c), who may
(a) conduct a mediation, to assist the parties by meeting with them together or separately to encourage and facilitate discussion between them in an attempt to reach a mutually acceptable resolution of the dispute;
[…]
Confidentiality
388 Discussions in a dispute resolution conference and documents prepared for the purposes of such a conference are confidential and shall not be disclosed.
Notice of settlement
389 (1) Where a settlement of all or part of a proceeding is reached at a dispute resolution conference,
(a) it shall be reduced to writing and signed by the parties or their solicitors; and
(b) a notice of settlement in Form 389 shall be filed within 10 days after the settlement is reached.
Report of partial settlement
(2) Where a settlement of only part of a proceeding is reached at a dispute resolution conference, the case management judge shall make an order setting out the issues that have not been resolved and giving such directions as he or she considers necessary for their adjudication.
Notice of failure to settle
(3) Where no settlement can be reached at a dispute resolution conference, the case management judge shall record that fact on the Court file.
[…]
SERVICE DE RÈGLEMENT DES LITIGES
Ordonnance de la Cour
386 (1) La Cour peut ordonner qu’une instance ou une question en litige dans celle-ci fasse l’objet d’une conférence de règlement des litiges, laquelle est tenue conformément aux règles 387 à 389 et aux directives énoncées dans l’ordonnance.
[…]
Définition
387 La conférence de règlement des litiges est présidée par un juge responsable de la gestion de l’instance ou le protonotaire visé à l’alinéa 383c), lequel :
a) s’il procède par médiation, aide les parties en les rencontrant ensemble ou individuellement afin de susciter et de faciliter les discussions entre elles dans le but de trouver une solution au litige qui convienne à chacune d’elles;
[…]
Confidentialité
388 Les discussions tenues au cours d’une conférence de règlement des litiges ainsi que les documents élaborés pour la conférence sont confidentiels et ne peuvent être divulgués.
Avis de règlement
389 (1) Si l’instance est réglée en tout ou en partie à la conférence de règlement des litiges :
a) le règlement obtenu est consigné et signé par les parties ou leurs avocats;
b) un avis de règlement, établi selon la formule 389, est déposé dans les 10 jours suivant la date du règlement.
Règlement partiel
(2) Si l’instance n’est réglée qu’en partie à la conférence de règlement des litiges, le juge responsable de la gestion de l’instance rend une ordonnance dans laquelle il fait état des questions litigieuses pendantes et donne les directives qu’il estime nécessaires pour leur adjudication.
Avis de non-règlement
(3) Si l’instance n’est pas réglée à la conférence de règlement des litiges, le juge responsable de la gestion de l’instance consigne ce fait au dossier de la Cour.
[…]
[32] Rule 387 thus expressly provides that a mediation set up under the Rules is conducted by the mediator to assist the parties “in an attempt to reach a mutually acceptable resolution of the dispute” (emphasis added). Rule 388 ensures that the mediation process is confidential. In filing their submissions and evidence in the context of this Motion, both Shake Shack and Chic Shack have indeed invoked Rule 388 in respect of the discussions and documents prepared for the purpose of the mediation. Finally, Rule 389 sets up a specific process to be followed when a settlement of a proceeding is reached in the context of such mediations. Whether the settlement is total or partial, Rule 389(1) imposes the obligation (“shall”) to reduce the settlement to writing and to have it signed by the parties or their counsel. For its part, Rule 389(2) adds another requirement where the settlement reached is only partial: in such a case, “the case management judge shall make an order setting out the issues that have not been resolved” and giving directions that he or she deems necessary.
[33] In the present case, Prothonotary Steele did not make any order pursuant to Rule 389(2) and no settlement was reduced to writing and signed by the parties or their counsel pursuant to Rule 389(1). In addition, I observe that Prothonotary Steele did not confirm the existence of any agreement reached in the Court-assisted mediation process she had presided, even if she was invited to do so by Mr. Guay, counsel for Chic Shack, in his January 20, 2020 letter addressed to her [January 2020 Letter].
III. Evidence on the Motion
[34] On this Motion, the evidence provided by Shake Shack consisted of two affidavits each supported by numerous documents attached as exhibits. One was signed by Mr. Palmese [Palmese Affidavit] while the other was from Mr. Kark [Kark Affidavit]. Both were signed on June 3, 2020. In response, Chic Shack filed an affidavit signed by Mr. Price on July 6, 2020 [Price Affidavit], as well as a prior affidavit he had submitted in the course of this action. Mr. Price was cross-examined on his affidavit on July 17, 2020 [Price Cross-examination], and a video of the cross-examination was provided to the Court. Neither Mr. Palmese nor Mr. Kark were cross-examined on their respective affidavits.
[35] Further to my detailed review of this evidence, here is a summary of what, in my view, the testimonies and documents establish as far as the mediation is concerned.
A. Shake Shack
[36] The main elements established by Mr. Palmese in his affidavit show that:
Mr. Palmese’s “gut feeling” was that Mr. Price was trying to leverage Chic Shack’s alleged expansion plans to get a larger payout from Shake Shack (Palmese Affidavit at para 43);
The first offer made by Shake Shack included a monetary dimension (to pay Chic Shack’s legal fees estimated at ||||||||||||) as well as a territory dimension (the right for each party to co-exist without any restriction across Canada) (Palmese Affidavit at para 46);
The response from Chic Shack, as conveyed by Prothonotary Steele, specified that: 1) Chic Shack preferred to define an exclusivity zone of 50 kms or 100 kms around its existing location in Quebec City where Shake Shack could not open any restaurants (as opposed to a co-existence between Chic Shack and Shake Shack anywhere); and 2) Chic Shack was looking for a financial compensation for abandoning its expansion projects and for the value to Shake Shack of the Canadian market (Palmese Affidavit at para 47);
Mr. Palmese felt that Mr. Price approached the mediation by “playing games” (Palmese Affidavit at para 48);
The first formal offer from Mr. Price included: 1) an exclusivity zone for Chic Shack of 100 kms around the existing location of LE CHIC SHACK restaurant in Quebec City; 2) a ||||000000000||| upfront payment to compensate Chic Shack’s legal fees; and 3) a |0|||||| payment for each SHAKE SHACK restaurant opened in Canada (with no limit in time or in the number of restaurants) (Palmese Affidavit at para 57);
A few offers and counter-offers were exchanged, “all building on the three elements of Chic Shack’s first formal offer” (Palmese Affidavit at para 58);
Mr. Palmese specifically indicated that he made a counter-offer “on the monetary terms” when he referred to Shake Shack’s offer of a |000|||||| lump-sum payment or a |0|||||||| upfront payment coupled with a |||||||||payment for each of the first 10 SHAKE SHACK restaurants opened in Canada. Mr. Palmese then also proposed not to enter Quebec City for five (5) years (Palmese Affidavit at paras 59-60);
Mr. Palmese referred to Chic Shack refusing to include a sunset on the geographic restriction imposed by the exclusivity zone (Palmese Affidavit at para 60);
Mr. Palmese stated that, assuming the parties “could work through the other settlement terms”, Shake Shack would be agreeable to this perpetual restriction (namely, not to enter the area around Quebec City with no time limit) (Palmese Affidavit at para 60);
Mr. Palmese expressly stated that “[h]aving reached an agreement with Chic Shack on how the transaction would be structured in terms of Shake Shack acquiring Chic Shack’s trademark rights and licensing those back, the rest of the discussion focused on the financial components of the deal and, to a lesser extent, the exact geographical definition of the exclusivity zone […]” (Palmese Affidavit at para 63);
Mr. Palmese specified that Mr. Price’s counter-proposal was on the “monetary terms” when the latter offered a |00|||||||| upfront payment and a |000|||||||| payment (indexed annually) for each of the first 20 SHAKE SHACK restaurants opened in Canada (Palmese Affidavit at para 64);
Mr. Palmese said at one point, late in the afternoon, that the parties were getting “very close to a meeting of the minds”, thus indicating that no such meeting of the minds had yet occurred (Palmese Affidavit at para 65);
Mr. Palmese stated that the parties had finally reached an agreement on “the monetary aspect of the deal […]: a) |000|||||| upfront payment [and] b) ||||||||| payment (indexed annually) for each of the first 10 SHAKE SHACK restaurant [sic] opened in Canada” (Palmese Affidavit at para 67). No mention was made of the territorial restriction or exclusivity zone at that point in time;
Mr. Palmese referred to an “agreement on the financial terms as well as the structure of the deal (i.e., acquisition and license back of the trademark rights within an exclusivity zone)” but not to an overall deal (Palmese Affidavit at para 68);
Mr. Palmese also mentioned that the parties’ attorneys also agreed that, from a trademark law perspective, some parameters had to be defined to avoid any confusion in the consumers’ minds between the CHIC SHACK and SHAKE SHACK restaurants, considering that confusingly similar trademarks were held by two very distinct entities. According to Mr. Palmese, the parties agreed that the exact wording would be determined by the lawyers in the course of drafting the formal license agreement following the Mediation Session. There were apparently no further discussions between the parties on this issue throughout the mediation (Palmese Affidavit at para 62);
Mr. Palmese indicated that the parties agreed to work through the possibility of opening additional restaurants in the exclusivity zone within the following 48-hour timeframe, taking into account the overall settlement terms (Palmese Affidavit at para 69);
Mr. Palmese affirmed that the exact radius of the exclusivity zone was not agreed upon and needed to be confirmed. He acknowledged that Chic Shack was asking for 100 kms but added that Shake Shack wanted to see it on a map and to confirm (Palmese Affidavit at para 68);
Mr. Palmese indicated that Mr. Kark and himself had reviewed the Term Sheet and confirmed that “it was in line with [their] recollection and understanding of what was agreed-upon” (Palmese Affidavit at para 74);
After the exchange of emails between counsel on December 20, 2019 and in January 2020 (which I will address in a moment), Mr. Palmese suspected that Mr. Price might have had a “change of heart” (Palmese Affidavit at para 78);
At no point did Mr. Palmese suggest or state that a geographical restriction to the exclusive use of Chic Shack’s trademark was secondary or non-essential.
[37] I find that the Palmese Affidavit was comprehensive, clearly drafted and well nuanced in its statements. Throughout his written testimony, Mr. Palmese carefully distinguished the various phases of the discussions between the parties, as well as the main dimensions of the contemplated transaction: monetary terms, structure of the deal, and exclusivity zone. In the absence of cross-examination, there are no reasons to question Mr. Palmese’s credibility.
[38] Turning to the Kark Affidavit, Mr. Kark essentially adopted Mr. Palmese’s recollection of the events that punctuated the Mediation Session and the 48 hours that followed (Kark Affidavit at para 19). Mr. Kark further indicated that, immediately after leaving the Court’s premises at the end of the Mediation Session, he sent an email to Shake Shack’s CEO, CFO and Chief Development Officer, to report having reached an “agreement in principle” with Chic Shack on the terms set out in his email. This 7:48 pm email of December 18, 2019 sent by Mr. Kark and attached to his affidavit [Kark Email] is a key document. It is worth citing in its entirety as it expressed Mr. Kark’s understanding of the alleged agreement, contemporaneously with the end of the Mediation Session. The Kark Email read as follows:
It’s been a hell of a day!
Here is where we ended with an agreement in principle.
|00|||||| upfront
|00|||||| (|00|||| per first 10 shacks)
We own his mark and license it back and he can operate in Quebec City (100 km radius) as long as he operates Le Chic Shack. He can only open additional locations in this area radius and no where else in Canada.
Still a few details to work through but generally I think we ended up in a great place.
After his attorney fees he doesn’t walk with much…and we will end up paying less and over a longer period than we would have paid to litigate.
Sincere appreciation and respect to Mr P who brought his game face today. This could have ended a lot of different ways (none of them beneficial) had Ron not driven the entire room the way he did. He may have missed his calling as a litigator?
Now we need to go get a deal done and capitalize on this frozen tundra (-16c here tonight)!
[39] In my view, this Kark Email, written in plain and concise terms immediately after the Mediation Session, deserves significant weight. In the case of inconsistency with the narrative contained in the written testimonies of Mr. Palmese and Mr. Kark in their affidavits, I shall prefer the evidence coming from this document.
[40] Further to the Mediation Session, counsel for the parties had several exchanges on December 20, 2019 and in January 2020 with respect to the agreement alleged to have resulted from the Mediation Session. All of these exchanges were attached as exhibits to the Palmese Affidavit in Mr. Palmese’s discussion of the events following the mediation. As will be seen later in these reasons, it is important to describe those various emails and letters in detail. This evidence is as follows:
Mr. Lauzon (counsel for Chic Shack) first wrote to Mr. Dupont (counsel for Shake Shack) around 9:46 am to inform him that he was leaving on vacation at noon that day and to inquire as to when he could expect to hear back from Shake Shack, noting that the remaining points were fairly minor [RP-16 Email];
In his 10:57 am email of December 20, 2019 to Mr. Lauzon [RP-17 Email], Mr. Dupont responded that a “one-pager” term sheet “avec les principaux points de l’entente” was forthcoming, and he indicated that he would send it “pour qu’on puisse au moins confirmer que nous avons une entente de principe”(emphasis added). He also referred to Shake Shack intending to pay the lump-sum amount before December 25 and that he would need some information in order for Shake Shack to issue the cheque;
In his 11:05 am email of December 20, 2019 to Mr. Dupont [RP-18 Email], Mr. Lauzon simply said “OK, merci !” to the previous email;
In his 11:07 am email of December 20, 2019 to Mr. Lauzon [RP-19 First Email], Mr. Dupont indicated that he would send the “key points” as soon as he gets approval from his client. He further stated that he would be able to start preparing a draft agreement “[a]ssumant que nous sommes tous sur la même longueur d’ondes pour les key points” (emphasis added);
In another subsequent 12:07 pm email of December 20, 2019 to Mr. Lauzon [RP-19 Second Email], Mr. Dupont referred to the “key points” that Shake Shack retained from the mediation, mentioned that “nous avons diminué le 100 kms à 50 kms” and that “cela ne fait probablement pas de différence dans les faits” (emphasis added). He added: “Je présume que ce n’est pas un problème” (emphasis added). He further stated that « Shake Shack aurait besoin que nous confirmions notre entente de principe aujourd’hui » (emphasis in original). Furthermore, this RP-19 Second Email contained, in capitalized, bold letters, the following heading note: « SOUS TOUTES RÉSERVES – DISCUSSIONS DE RÈGLEMENT »;
In his 2:07 pm email of December 20, 2019 to Mr. Dupont [RP-20 Email], Mr. Lauzon, responded that “les “key points” contiennent de nouveaux éléments qui méritent sérieuses réflexions”, and that Chic Shack would come back after the holidays;
In his 2:49 pm email of December 20, 2019 to Mr. Lauzon [RP-21 Email], Mr. Dupont tried to get Chic Shack’s conditional confirmation of the monetary terms and banking information so that Shake Shack could process the upfront payment before the end of its fiscal year, subject to finalizing the written agreement after the holiday season. Mr. Dupont said:“Pouvez-vous au moins confirmer que le point 5 relatif au paiement correspond bien à ce qui a été discuté, le tout conditionnel à finaliser les autres termes au retour des vacances?” (emphasis added);
In his 3:49 pm email of December 20, 2019 to Mr. Dupont [RP-22 Email], Mr. Lauzon replied that his instructions were to wait after the holidays and that there was notably a “deal breaker” in the key points sent by Shake Shack that, in Chic Shack’s view, had not been discussed;
On January 8, 2020, Mr. Lauzon sent an email to counsel for Shake Shack containing Chic Shack’s detailed response to the Term Sheet [RP-23 Email]. In that response, Chic Shack indicated, among other things, that it was willing to limit the exclusivity zone to a radius of 50 kms, but that making its license “valid as long as Le Chic Shack is owned by Mr. Evan Price and Lucy Price” was a “definite deal breaker”. Chic Shack notably asked that the license be valid “as long as Le Chic Shack or any of its sub-licensees use the trademark in the defined territory”. Chic Shack also materially modified the monetary terms as the initial proposal did not reflect “the actual business potential of an expansion in Canada”; the monetary terms were increased to a payment of |000| ||||||||||| upfront in addition to ||0000|| ||||||||||| (indexed annually) for each of the first 50 SHAKE SHACK restaurants opened in Canada, for a total which was several times higher than what was discussed at the Mediation Session.
[41] The Term Sheet forwarded by Mr. Dupont in the RP-19 Second Email is another important document as it contains the terms of the alleged agreement upon which Shake Shack is asking the Court to order the parties to prepare a formal settlement and license agreement. The Term Sheet expressly listed seven (7) key points. For ease of reference, I reproduce them verbatim below:
1. Shake Shack acquires Le Chic Shack’s entire rights in LE CHIC SHACK tradename and trademarks, including LE CHIC SHACK & Design.
2. Shake Shack licenses back LE CHIC SHACK tradename and trademarks, including LE CHIC SHACK & Design:
a. Exclusive license; no sub-license
b. Limited geographically to a radius of 50kms around the existing location
c. Valid as long as Le Chic Shack is owned by Mr. Evan Price and Lucy Price
d. |||||||| / year
3. Shake Shack undertakes not to open any Shake Shack restaurants within a radius of 50kms around the existing Le Chic Shack restaurant, as long as the aforementioned license is in force
4. Le Chic Shack agrees on some measures to ensure there is no confusion caused with Shake Shack (no reference whatsoever to Shake Shack, no use of the Shake Shack trade dress, no use of Shake Shack’s menu items or similarly named items, etc.)
5. Payment:
a. |||||||| payable by December 24, 2019 (we will need Le Chic Shack’s info ASAP)
b. |00|||||| ||00|| (indexed annually according to CPI starting in 2021) payable within 30 days of the opening of each of the first 10 SHAKE SHACK locations in Canada (as the case may be)
6. Discontinuance of litigation (claim and counterclaim), and withdrawal of all opposition and S. 45 proceedings in the Trademarks Office. Le Chic Shacks [sic] undertakes not to oppose any future trademark applications by Shake Shack.
7. Standard provisions usually found in a settlement agreement (including confidentiality, mutual release, etc.) and a trademark license agreement (including control, etc.)
[42] The last document from Shake Shack’s evidence that needs to be mentioned is the January 2020 Letter addressed to Prothonotary Steele, also attached to the Palmese Affidavit as Exhibit RP-24. In that letter, Mr. Guay informed Prothonotary Steele of the situation and sought her assistance and guidance to resolve it. The letter referred to the mediation “adjourned on December 18, 2019” and requested the Prothonotary’s “continued assistance in that regard”, noting that Mr. Price should be held to honor “the settlement terms entered into at the mediation”. The January 2020 Letter stated that the parties had “agreed on all essential elements of a settlement agreement”, including five (5) points. It is again important to reproduce the exact language used by counsel in this January 2020 Letter. The essential elements of the alleged agreement were described as “including”:
1. The Plaintiffs [i.e., Shake Shack] acquire the Defendant’s [i.e., Chic Shack] rights in the LE CHIC SHACK name and trademark;
2. The Plaintiffs license back those rights exclusively to the Defendant so that it can continue its operations;
3. An exclusivity zone is defined around the Defendant’s restaurant where the Defendant can operate and the Plaintiffs cannot operate or license SHAKE SHACK restaurants (i.e., no co-existence between the parties in the same region, contrary to what was first explored);
4. The Plaintiffs agree to make the following payments to the Defendant:
a. Lump-sum of ||||||||||| payable immediately, and
b. |00|||||| (indexed annually) for the opening of each of the first 10 SHAKE SHACK locations in Canada (as the case may be); and
5. The parties would need to agree on some parameters to ensure there is no confusion between LE CHIC SHACK and SHAKE SHACK.
[43] The January 2020 Letter then went on to affirm that there “was a meeting of the minds on all essential terms of a s