DEFENCE & SECURITY: GasTOPS’s legal weight lifted

Elizabeth
Elizabeth Howell
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Revenues reach $20M as fight with Mxi finally ends

In the late 1990s, GasTOPS found itself missing two-thirds of its staff, engaged in a multimillion-dollar lawsuit with another Ottawa company and trying to balance its books after revenues fell by two-thirds.

Dave Muir, GasTOPS’s president and CEO.

GasTOPS was dealt a blow after a small group of employees left the firm, started Mxi Technologies and enticed many other workers and clients to go with them, according to court documents.

GasTOPS today has a suite of newer businesses in aircraft maintenance, repair and overhaul; monitoring metal and oil stress; and industrial applications for engine technology such as wind turbines. It just renewed a major service contract with the Royal Canadian Air Force, and has new offices in Dartmouth, Halifax and Beijing.

“The main reason why we were able to recover and survive (was) we had a small core group of engineers and professionals who rolled up their sleeves and recovered a piece of our business and built the new pieces,” said Dave Muir, GasTOPS’s president and CEO.

This month marked the end of a nearly 16-year odyssey for the Gloucester-based firm, which has since regained its footing.

At its founding, the 33-year-old company focused on computer software for maintaining gas turbine engines, beginning with military contracts and then expanding into the commercial sphere. Its most prominent clients in the mid-1990s were the Canadian military and steel giant Dofasco, and it was looking to get business from the U.S. Navy.

Court documents state that four people who were “effectively the designers of the core programs within the family of GasTOPS’ technology products” submitted their resignations around the same time in the fall of 1996, taking much of the company’s expertise with them, and starting up Mxi Technologies.

That core group also encouraged more employees to follow. Mr. Muir reckoned about 25 of the company’s 40 employees left.

“It was pretty grim for two or three years after the event,” he said.

Company growth was hindered for years afterwards, he added, not only because the employees were gone along with the technology, but also because of the lengthy lawsuit that followed.

In 2009, the Ontario Superior Court of Justice ruled that Bradley Forsyth, Douglas Brouse, Jeffrey Cass and Robert Vandenberg breached fiduciary duty, confidence and their employment contracts. Mxi Technologies was found liable for breach of confidence.

Mxi and the appellants were ordered to pay $12.3 million in damages (disgorged from Mxi profits from military contracts over 10 years), as well as pre-judgment interest of $3 million with costs on a full indemnity basis of $4.3 million.

The case went to appeal on both sides, with the appellants maintaining Mr. Cass and Mr. Vandenberg did not owe fiduciary duty, and that 10 years was too long of a time to use for the damages, among other arguments. GasTOPS said Mxi should be permanently barred from using the information it took or should be ordered to pay GasTOPS a portion of its profits indefinitely.

Both appeals were rejected and in March, Mxi was ordered to pay up.

The saga appeared to finally come to a close on May 22 when Mxi announced it was ending its litigation efforts. That same day, the company announced it would be acquired by private equity firm Moelis Capital Partners.

“We've been looking for investment partners for quite some time,” said Trisha Cooke, Mxi's director of marketing. “We've been talking with a range of folks ... this made sense for us. It was not an overnight thing.”

Ms. Cooke said the firm did not have much to say about the court case beyond what was already stated in the documents. “It’s ended, and I can’t stress how happy we are.”

GasTOPS feels the same way, saying its annual revenues of $20 million today are now 100 per cent more than when the initial round of litigation ended in 2006.

“We are able to devote our attention and our resources financially to the new business areas,” said Mr. Muir, “and things are going really good.”

Organizations: Canadian Air Force, Dofasco, U.S. Navy.Court Ontario Superior Court Moelis Capital Partners

Geographic location: Dartmouth, Halifax, Beijing

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