Putting it all together - A sample research problem and memorandum of law

• Author: Ted Tjaden
• Profession: National Director of Knowledge Management McMillan LLP
• Pages: 360-394

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A Introduction

This chapter sets out a hypothetical legal problem and then seeks to answer it using the Legal Research Checklist in Chapter 11, Section E, and the other resources and techniques described in this book. This research culminates in a sample law office memo set out in Section D, below in this appendix.

B Hypothetical problem¹

You work as a student at the law firm of Berger and Khan in Toronto. A client of the firm is purchasing the ESL 123 Learning Centre chain of private schools (the "new business"). The new business has developed a good reputation for teaching English as a Second Language due to the innovative teaching programs and materials developed by its founder, Monica Lee. As part of the purchase, the client wishes to restrict Monica

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Lee, the vendor, from competing with the new business after the sale has been completed. The partner acting on behalf of the client has asked you to research the enforceability of non-compete clauses in takeovers and the likely maximum length of time and geographic distance a court would enforce against Monica Lee to prevent her or a new company she controlled from competing with the business being purchased.

C Analysis and approach

Since legal research remains an art rather than a science, there is never only one correct way to answer a problem. Instead, so long as one takes a methodical and thorough approach using the major secondary and primary legal resources, there is usually some assurance of finding relevant legal information.

1) Step 1: Facts

Do you have all of the relevant facts? What assumptions are being made? This is the first step of the Legal Research Checklist and also corresponds to the first step of the "FILAC" legal research process discussed in more detail in Chapter 1, Section B.

Arguably, the legal researcher can take the position that he need only research the problem as presented, without having to worry about other possibly relevant facts. This can be dangerous, however, since a change in facts can change the issues which need to be researched. In many cases, the lawyer representing the client is also the same person who conducts the legal research, so there is less chance of miscommunication or a misunderstanding of relevant facts. Where the researcher is not the lawyer dealing directly with the client, however, it is important for the researcher to anticipate questions that may be relevant to the legal issues and to communicate any concerns to the lawyer responsible for the client’s file. In the hypothetical scenario above, the legal researcher might consider some of the following questions before beginning the research; alternatively, some of these questions might only arise after the research has begun. It would ordinarily be prudent for the legal researcher to raise these questions or issues with the lawyer (or the client, if appropriate) as the research progresses:

· In what jurisdictions and specifically where do the ESL 123 Learning Centres operate? The answer to this question will impact how broadly the geographic scope of the non-competition clause could be.

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· What is the purchase price for the new business? What comprises the goodwill and how much of the purchase price is being allocated towards goodwill? Will Monica Lee continue on as a consultant after the purchase? What is the exact nature of the business and the scope of its contracts, students, copyright, technology, or trade secrets? These questions might not be obvious to the student when starting the research but the issue could affect the duration of the non-competition clause.

· Is Monica Lee represented by her own lawyer? Are there any family members involved in the business against whom non-compete clauses should also be sought? One can likely safely assume that the vendor will have her own counsel (thereby eliminating the need for the vendor to receive independent legal advice), but it is worth determining whether there are other relatives or key employees in the business against whom restrictive covenants should be sought.

2) Step 2: Preliminary Questions and Issues

Once you have considered the facts, it is then important to ask yourself some preliminary questions to help identify the relevant issues. This corresponds to the second step of the FILAC legal research process discussed in more detail in Chapter 1, Section B.

The first two preliminary questions in this step of the Legal Research Checklist are basic questions that should be asked at the start of any legal research problem, even if the research has not formally begun and even if these questions end up being irrelevant:

a) Is there federal, provincial, or municipal legislation that governs this problem?

At this stage, many researchers may not know the answer to this question from first-hand knowledge. If so, it is worth keeping this question in mind as the research progresses. Since, as it turns out, the enforceability of restrictive covenants is governed largely by the common law

(i.e., judicial decisions), the question of what legislation governs is not so applicable in this research problem. However, there would likely be legislation impacting the transaction, and the lawyer advising your client would want to check for any applicable legislation governing private schools, for example, and whether the new business is governed by such legislation.²In addition, if the purchase is taking place in Ontario

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and is a purchase of all of the assets of the ESL 123 Learning Centres, the Bulk Sales Act³might also apply.

The point to make for now is that many, if not most, legal problems are affected by legislation, and it is therefore important to always consider what legislation might apply to the problem. In reality, there is a good chance the instructing lawyer or client may already be familiar with any relevant statutes or regulations governing the operations of the new business or the issues at hand. It would therefore be worth asking the instructing lawyer or the client about this, if only to save time and avoid unnecessary work or research.

b) Is there a limitation period problem?

Once again, the answer to this question may not be immediately obvious, but you should consider potential limitation period issues for every legal research problem. If the client is facing a deadline by which to sue and you or your firm miss the filing deadline pending your research and investigation into the client’s more substantive rights, your work on the substantive issues would be wasted and you or your firm would risk being liable for professional negligence in failing to identify the client’s limitation period problem.

Since this hypothetical problem anticipates a successful takeover (instead of a dispute), no limitation problem exists per se. Assuming this transaction takes place entirely within Ontario (or assuming the parties choose in their contract to have the laws of Ontario apply to the transaction), the client may not be aware of new limitations legislation in Ontario. Section 4 of Ontario’s Limitations Act, 2002,⁴for example, sets out a basic limitation period of two years that would likely apply if the vendor were to sue for breach of contract or if your client determined that the vendor was carrying on business in violation of the restrictive covenant and wished to sue the vendor:

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

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Section 5 of this new Act also codifies the discoverability principle (i.e., that the claim is discovered only when the person knew about it or ought to have known about it). To ensure more certainty, parties in a commercial transaction will often agree to vary or exclude any limitation periods by which either party may sue the other.⁵As such, even though this hypothetical problem does not raise limitation issues, it is worth raising the issue, if only as a trigger to consider whether to vary or exclude limitation periods as part of the purchase contract. Unless the limitation period is an issue, it is not always mentioned in a legal research memo on the more substantive issues.

The other points mentioned in this section of the Legal Research Checklist have you consider how urgently the research is needed, how much time and money can be spent, and whether this research has already been done on another file in the law firm or whether there is someone with expertise on the subject that you can speak to, all important things to consider before beginning the substantive research.

At this stage, you would try to identify the issues that need to be researched. For this problem, the issues are relatively straightforward; with what is known at present, it might be reasonable to frame the issues as follows, keeping in mind the possible need to redefine them as the research progresses:

· What is the likely maximum length of time and geographic distance a court would enforce against a vendor of a chain of English language instruction schools to restrict the vendor from competing with the purchaser after the sale is completed?

· What factors does a judge consider in determining whether restrictive covenants are enforceable?

For the first-time researcher not familiar with this area of law, it may take some time to uncover...