Civil Litigation
Rutherdord v. RBC Dominion Securities
Thomas Rutherford was an investment advisor at RBC Dominion Securities. He began working for RBC in December 1998. Many of the clients of his former employer, Royal Trust, followed him to RBC.
Rutherford worked for RBC for 10 years in which he continued to act as the investment advisor for the clients he brought with him and bringing in new clients. These clients were not serviced by other RBC employees.
Investment firms often have internal policies or contracts pursuant to which investment advisors employed by the same firm buy and sell “books of business” – i.e. lists of clients. Huge amounts of money flow from one investment advisor to another, through the employer, for these transactions.
In 2009, RBC terminated Rutherford’s employment after he refused to pay $320,000 to another RBC investment advisor, Elmwood Enns, purportedly to buy Enns’ book of business. The problem: Rutherford was being asked to “buy” his own list of 300 clients, including the clients he brought to RBC when he joined the firm. Enns claimed that an agreement had been reached when Rutherford first joined the firm that all of Rutherford's clients would belong to him.
Rutherford tried to explain to RBC that he had entered into no such agreement, but to no avail. Instead, RBC fired Rutherford and allowed Enns to sell Rutherford’s clients to other advisors at the firm. The clients were then sent letters and emails, and received telephone calls, telling them various things about Rutherford’s departure from RBC.
Rutherford sued for wrongful dismissal, and also alleged that some of the things said about him to clients were defamatory. He also sued for breach of contract, negligent misrepresentation, breach of fiduciary duty and unjust enrichment in connection with his lost book of business.
RBC brought a motion for summary judgment, asking the court to dismiss all of the causes of action except the wrongful dismissal action. It relied on a previous decision of the Superior Court to argue that RBC alone “owns” the clients and, since Rutherford had no proprietary interest in the book of business, the other causes of action could not be sustained.
On October 12, 2011, the Superior Court of Justice dismissed the RBC’s motion, holding that Rutherford’s claims in relation to the lost book of business can proceed to trial. The court rejected RBC’s claim that the issue had already been decided, noting that its previous case did not deal with the internal owndership of valued client raltionships or an employer's participation in those ownership claims. It may be possible that such an interest could exist, the Court held, stating, “It is obvious that there are serious factual issues to be determined about the terms of ‘ownership’ of files agreed to at the commencement of the employment relationship and whether a breach of those terms has occurred, including the consequences flowing therefrom. All will require a trial for resolution.” The Court also held that equitable causes of action may be applicable to protect Rutherford's interest in his client list. These issues could only be determined by way of a trial.
The Court ordered RBC to pay the costs of the motion on a substantial indemnity basis since there were no reasonable grounds for RBC to bring the motion.
The case will likely proceed to trial in 2012. It has the potential to set an important precedent about the legal principles by which courts will adjudicate disputes over books of business that may arise between investment advisors within the same investment firm, whether or not there has also been wrongful termination of employment.
You can read the Court's decision here.
