A Thunder Bay machine shop owner contends a taxpayer-funded milling centre, owned by the Northwestern Ontario Innovation Centre, has been used to poach manufacturing work from his company.
Mike Rudnicki has filed a $3.5-million lawsuit in an Ontario Superior Court of Justice against the not-for-profit organization and Kam Valley Industries, the private operator of the centre’s advanced manufacturing lab.
In his statement of claim, filed Feb. 15, 2015, Rudnicki is suing for misrepresentation and breach of contract, the latter related to having access to a state-of-the-art CNC milling machine located at the college.
The Innovation Centre, which operates on a mix of government funding dollars, is considered the go-to place in Thunder Bay for fledgling entrepreneurs to get assistance with business planning, marketing, writing grant applications, and to find experts to help in manufacturing processes, engineering and patent law.
Rudnicki claims he was led to believe the MI-Zone lab was to foster local innovation through manufacturing and to keep that kind of specialized work in Thunder Bay that otherwise might have been contracted out to firms outside of the area.
The equipment, he was told, would not engage in general manufacturing, and would only be used for innovation purposes or items that could not be done in Thunder Bay, such as making medical parts, for sanitary reasons.
Rudnicki, the owner of Rudnicki Industrial, claims Kam Valley is using the lab’s publicly-funded equipment for its own business purposes in operating as a commercial manufacturing facility that's in direct competition with him.
He argues the MI-Zone lab has gone beyond its original innovation mandate and has now become a platform for Kam Valley to pursue clients and manufacturing opportunities in the area.
The MI-Zone (Makers and Innovators) advanced manufacturing lab was established in 2013 to work with their clients, startup companies and entrepreneurs who need technical design capabilities.
Kam Valley Industries was selected by the Innovation Centre to run the facility, located in the McIntyre Building on the Confederation College campus.
Rudnicki claims a major client of his – Cinevate, a Thunder Bay film equipment company – was stolen away by Kam Valley and Tyler Bragnalo, a former employee of Rudnicki Industrial.
The loss of Cinevate, he claims, has conservatively cost him more than $3 million in lost business, and five of the nine employees at his Dawson Road shop who were dedicated to Cinevate parts production.
Bragnalo worked for Rudnicki Industrial for five years and, according to Rudnicki, worked directly with Cinevate owner Dennis Wood at the time when Rudnicki first began making parts for the company.
The litigation is ongoing and none of the allegations have been proven in court.
“All allegations of wrongdoing will be denied,” Innovation Centre manager Judy Sander replied by email.
When contacted by Northern Ontario Business, lawyers for the Innovation Centre and Kam Valley said they were in the process of finalizing statements of defence for their respective clients.
At issue is the centrepiece of the MI-Zone lab, a top-of-the-line, mill-turning machine known as a DMG CTX beta 1250, capable of performing long production runs of intricate parts and one-off specialized prototype work.
In 2013, the Northern Ontario Heritage Fund contributed $500,000 and FedNor contributed $390,000 toward MI-Zone with additional money coming from the Thunder Bay Community Economic Development Commission toward the equipment procurement and the lab’s setup.
Before the cheques arrived, Rudnicki said he was approached by the Innovation Centre in the spring of 2013 to provide a letter of support to be used in the funding applications.
The original concept that was pitched to him was for a highly sophisticated machine shop that would be open to the community to assist small manufacturers and inventors to bring their product ideas to the design and prototype stage.
If proven viable for commercial production runs, those opportunities would be spun out to local machine shops.
Rudnicki said he wholeheartedly supported that concept.
“The way this was initially laid out, yeah, you do support this because it’s going to help the community,” Rudnicki said in an interview with Northern Ontario Business.
“I didn’t have a problem with that. If you’re sending Innovation (clients) over to Tyler (Bragnalo) at MI-Zone, that’s great because that’s where it should be going.”
He was assured MI-Zone would not act as direct competition to his shop, that no attempts would be made to solicit his clients, and that Confederation students would have access to the lab.
But Rudnicki said he began having second thoughts when he discovered the Innovation Centre was ordering this high-precision milling machine.
He asked manager Judy Sander why they were ordering such a complex, high-production CNC machine for innovation work.
To him, it wasn’t the kind of machine to use as a training tool for students.
Rudnicki said he was informed by Sander that all the equipment decisions to stock the lab were being left up to Bragnalo.
Soon after the machine arrived and was installed in 2014, Rudnicki said access to it was restricted.
When Rudnicki requested time to use the machine to make parts for an “innovation-type project,” he claims he was told by Sander to deal directly with Bragnalo, who was the only person qualified to run the machine.
“Tyler did the job,” said Rudnicki. “He charged me through the nose, and the invoice came from Kam Valley Industries, not the Innovation Centre or FedNor. I paid Kam Valley Industries to do this.”
The MI-Zone page on the Innovation Centre’s website said the facility is equipped to help with product design, engineering and prototype development, but also for “small to large run production” to bring products to market.
Rudnicki said he never was aware of any formal boundaries or thresholds established as to when prototyping work stops and commercial production runs start.
When Rudnicki attended the MI-Zone open house to showcase the new machine in the spring of 2014, he recognized and photographed “hundreds” of parts from Cinevate “that otherwise could have been made at my shop.”
At that time, Rudnicki said Cinevate owed them a “substantial amount of money” for work his shop had performed for owner Dennis Wood.
Wood, who now sits on the Innovation Centre’s board of directors, declined comment.
Years before, Wood had been a client of the Innovation Centre who had been directed to Rudnicki because of his extensive knowledge of the manufacturing process. Rudnicki was a one-time paid member of the Innovation Centre, who received an Innovation Hero award from them in 2011,
Rudnicki said he often helped their clients with product ideas, but most times it was never a moneymaking endeavour since many ideas never panned out.
Cinevate eventually became an Innovation Centre success story and Rudnicki claims he outfitted his shop to meet Wood’s exacting standards.
At one time, Rudnicki said approximately 55 per cent of his shop work was dedicated to Cinevate, producing more than 80 different parts for them.
Today, Rudnicki claims Cinevate-related work has been reduced to “about six per cent.”
His subsequent complaints to the government funders, who subsidized Mi-Zone, have gone nowhere.
Rudnicki contends the agencies are well aware of the situation but are not admitting to anything.
“Everybody wants to sweep it under the rug and hope it goes away,” he said. “They’re still trying to pass this off as an innovation lab.”
Senior officials at FedNor, the Northern Ontario Heritage Fund and the Ministry of Northern Development and Mines either offered no comment due to ongoing litigation or didn’t return media queries.
Doug Murray, CEO of the Thunder Bay Community Economic Development Commission, declined comment, as well.
Rudnicki further contends Kam Valley’s operations are being subsidized by the college and the company has an unfair advantage on machining rates compared to other shops in Thunder Bay.
The details of what arrangements exist between Kam Valley, the Innovation Centre and the college were not made available.
Confederation College was not named as a defendant but president Jim Madder, who sits on the Innovation Centre’s board of directors, declined comment due to the ongoing legal action.
In a March 2014 interview with Northern Ontario Business, Bragnalo emphasized the goal of MI-Zone wasn’t to directly compete against other manufacturers in town, but to help them bid on large projects.
“I’m trying to turn this into the opposite of conflict. Here’s a resource that few can afford and no one has. Rather than steal their work, we want this to be a test facility for them.
“We specifically sourced equipment that no one else had and we wouldn’t be in a position to push clients away from existing (manufacturers). That’s not what we are.”
The owner of another Thunder Bay machine shop contends MI-Zone needs to be shut down and its books opened up.
“You gotta stop everything right now,” said Jay Currie, president of Thunder Bay Hydraulics and Titan Worldwide.
“You have to shut this place down and come clean with all the information and present a set of guidelines, rules or regulations going forward to show how this is going to operate. You just can’t keep doing this.”
Currie is not involved in any of the litigation but had been asked by Rudnicki to accompany him on occasion to various meetings, including at the Innovation Centre – as a witness – in his attempts to resolve the matter prior to launching the lawsuit.
Currie said the lack of forthright answers or transparency from Sander and board chair Brian Ktytor on how the Innovation Centre-Kam Valley venture functioned "made my blood boil."
He said a full list of companies who’ve used the facility, the payment scheme, the menu of costs, the lab’s expenses, rent, its volume of work and all the consumables used should be made public.
“This is a taxpayer-funded operation sitting at the college,” said Currie. “We should be able to see the books, see exactly who’s donated what, and where the money’s coming from. Tyler chose to sign onto this as a public-private situation so he’s got to be expected to be held to the same type of transparency as the college is.”
The only time Currie has set foot in the MI-Zone lab was for the 2014 open house.
“I got the tour and saw that machine spitting stuff out. I saw a nylon part being made by the hundreds. It was not prototyping, it was Kam Valley.”
In Currie's opinion, operating the lab’s equipment without strict rules on serving Kam Valley’s customers and the Innovation Centre’s clients with taxpayer-funded equipment poses a “huge conflict of interest.”
Currie has no bottom line evidence if MI-Zone has adversely impacted his operation since his two companies specialize in the machining and fabrication of large components for the mining, forestry and green-tech sectors.
But he questioned if MI-Zone is allowed to operate without restrictions, using government-funded equipment, with possible access to more funding, what’s to stop Kam Valley from pursuing his clients?
“If he’s got unlimited access to taxpayer funds and can buy whatever equipment is required…with no restrictions, based on this public-private partnership, I guess really the sky’s the limit.”
