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Early resolution a developing area for class actions

|Written By Julius Melnitzer

As Canadian class actions mature and their strategic focus shifts from certification to trial, early resolution becomes more effective as a cost- and time-saving alternative.

‘Mediating class actions is not yet within lawyers’ comfort zone, but we are trying it in a couple of cases,’ says Sonia Bjorkquist.

“The stakes are so high in many of these cases that people think the only resolution is an all-out battle,” says Sonia Bjorkquist, a litigation partner at Osler Hoskin & Harcourt LLP. “But in some cases, thinking that way passes up an opportunity for early settlement.”

A recent ruling by Ontario Superior Court Justice Paul Perell that required the delivery of preliminary defence pleadings before certification compounds the problem.

“Delivering pleadings before certification may remove some of the complexities of certification but it loads up the costs at the front end and may require even more litigation before the certification motion than we have today,” says Bjorkquist.

“Counsel can provide considerable added value by understanding what a case is worth, what the plaintiffs are looking for, and using creativity to achieve results earlier rather than later.”

As well, with more cases going to trial and appeal, the uncertainties of an all-out battle mount.

“Take, for example, the Inco environmental litigation where the plaintiffs had a huge victory at trial and a total loss on appeal,” says Bjorkquist.

“That’s the type of thing that makes it incumbent on counsel to take a good hard look at settlement.”

The current focus of defence counsel tends to be on narrowing the class and the issues and defeating certification at the expense of settlement efforts.

“Part of that is because counsel don’t want to give good arguments away or because they don’t feel they have enough information, but there are ways around these issues, like arranging for an early exchange of documents,” Bjorkquist notes.

At same time, using good arguments counsel intended to bring up in court in order to get an acceptable settlement without spending a lot of money on motions doesn’t mean that they won’t remain relevant if resolution efforts fail.

As Bjorkquist sees it, the defence bar’s considerations should include internal claims resolution; the opportunity for alternative dispute mechanisms; options for claims-based settlements; non-cash considerations such as product or coupons; and managing the timing and implications of settlement, especially when there’s parallel litigation happening in other jurisdictions.

“Internal claims resolution procedures are particularly important in terms of litigation readiness and also because they are ways of avoiding lawsuits by dealing with issues early on, perhaps by way of product replacement or a recall program.”

Timing can also be critical in planning early resolution strategies because there are certain points in class action proceedings where costs increase and can drive counsel’s decision-making.

“Defence counsel can generally anticipate that class counsel will have to ramp up their investment before certification, perhaps before document production, before common issues discoveries, and before trial,” says Bjorkquist.

According to Sally Gomery of Norton Rose Canada LLP, counsel need to be more creative about the way in which they test the viability of certain claims. “Arbitration or neutral evaluation might work in the same way they do in individual actions,” she says.

One of the difficulties with early settlement is that certain techniques, such as mediation, have little precedent in the class action context.

“Mediating class actions is not yet within lawyers’ comfort zone, but we are trying it in a couple of cases,” Bjorkquist says.

“Apart from the fact that it may be more difficult dealing with a representative plaintiff, there’s no good reason why mediation shouldn’t work.”

If mediating a settlement fails, parties can also change track and try to resolve the scope of the certification hearing. “We’re operating in an environment where everyone knows that certain cases will be certified and in such cases it’s better to move on to narrowing the issues,” says Bjorkquist.

“So instead of launching into a motion to strike where settlement efforts fail, it might be better to try to agree with class counsel on dropping weaker causes of action and refining viable causes.”

Gomery is of similar mind.

“The principles of certification have been enunciated to the point that experienced counsel will have some idea of whether the plaintiffs can succeed, and frequently the key questions are the scope of the class and the viability of certain causes of action,” she says.

As Gomery sees it, early settlement should be in counsel’s mind from the moment they first meet with clients.

“At the earliest possible moment, clients should explore not only the extent of the exposure but the possibility of early settlement,” she says.

Early settlement can be particularly advantageous in cases with multiple defendants, especially when their risk profiles differ. “There’s a lot of value for a defendant in getting finality and knowing what the company will have to contribute instead of being tied up for years,” says Bjorkquist.

Bjorkquist suggests more creative uses of Mary Carter and Pierringer agreements in class actions could facilitate settlement.

In the case of Mary Carter agreements, a plaintiff agrees to limit the exposure of a particular defendant and continue the action against the other parties.

The settling defendant pays the plaintiff a sum of money, which is the maximum amount it’ll have to pay regardless of the outcome at trial. The settling defendant remains a party to the action and in some cases may even become an active proponent of the plaintiff’s case.

A Pierringer settlement is a proportionate-share agreement. Unlike in a Mary Carter scenario, the settling party under a Pierringer agreement withdraws from the litigation and leaves the remaining defendants responsible only for the loss they actually caused with no joint liability.

“Each of these agreements has innumerable complexities, but the point is that creative options are available that could result in clients settling for more predictable amounts and perhaps even getting an early exit from the litigation,” Bjorkquist says.

“My sense is, however, that they have been used fairly sparingly in Ontario class actions to date.”

One exception, however, is the agreement between Deutsche Lufthansa AG and Swiss International Air Lines Ltd. approved by Superior Court Justice Lynne Leitch in the 2009 settlement in Nutech Brands Inc. v. Air Canada.

The settlement agreement obliged Lufthansa to provide assistance to the plaintiffs in the ongoing litigation against the remaining defendants.

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