It is becoming increasingly difficult to distinguish the front pages of Canada’s major newspapers from the lead copy in their business sections. More and more the stories making the front pages centre on the activities of publicly traded companies. In August, for instance, the National Post featured at least three major securities related stories on its front pages: BAT’s proposed sale of Canada Trust to the Toronto-Dominion Bank; the Ontario Securities Commission’s (OSC) decision to strip discredited dealer Marchment & MacKay Ltd. of its registration; and allegations of leaks in the OSC’s investigation of Ottawa-based software developer Corel Corporation’s trading activities. The media also prominently featured Alcan Aluminum’s proposed merger with France’s Pechiney SA and Switzerland’s Allusuisse Lonza Group. In late August and early September the papers were filled with stories providing a blow-by-blow analysis of the dogfight taking place for control of Canada’s airline industry. The gloves off nature of this particular corporate fist fight prompted Globe & Mail writers to note that “Onex and Air Canada have assembled some of the most powerful legal and investment advisory teams in the country to argue the case in the legal and financial arenas.”
“Whatever happens with public companies, it hits the press,” says Michel Décary, whose litigation practice at Stikeman Elliott’s Montreal office includes an active securities component. The solicitors who put mergers, acquisitions and reorganizations together - a recognizable, longstanding and highly specialized segment of Canada’s bar - are, as they always have been, avid readers of these stories. But, like Décary, there’s a relatively new and growing group of litigation lawyers watching the securities world, and practising in it.
These are the securities litigators, though not all of the lawyers involved would describe themselves that way. Still, neither their interest nor their presence is surprising. Within two weeks of the BAT/Imasco merger announcement, shareholders filed an international class action lawsuit in Ontario Superior Court to block the $10 billion offer for Imasco, which must precede the sale of Canada Trust to the TD. Hostile takeover litigation and shareholder oppression suits relating to public companies have increasingly followed on the record volume of M&A activity that characterizes today’s public markets. And the jurisprudence arising from these actions is evolving rapidly.
Recent law reports abound with important decisions. In Pente v. Schneider, stemming from Maple Leaf Foods’ unsuccessful attempt to acquire family-controlled Schneider Corporation, the Ontario Court of Appeal, affirming the “business judgment rule”, confirmed courts’ deference to the reasonable decisions of company directors. Ontario Court Justice Robert Blair reached the same conclusion on the same day in CW Shareholdings Inc. v. WIC Western International. In dismissing minority shareholder CanWest’s attempt to set aside CW’s pre-acquisition agreement with rival bidder Shaw Communications, Blair set down valuable guidelines for the conduct of directors’ committees faced with competing bids. And in yet another chapter in the protracted litigation resulting from the collapse of Royal Trust in 1993, Ontario’s highest court has required shareholders seeking personal relief against officers and directors to allege specific acts of misconduct in their oppression pleadings under s. 241 of the Canada Business Corporations Act. Plaintiffs who rely on bald allegations, said the Court of Appeal in Budd v. Gentra, stand to have their lawsuits summarily dismissed.
Meanwhile, securities commissions and self-regulators like the Investment Dealers Association are beefing up their enforcement staffs and getting tough on offenders. David Brown, Chairman of the recently self-funded OSC, has stated publicly that Commission staff should not refrain from aggressively pursuing securities charges merely for fear of losing some cases. “Now that’s a very proactive approach to protecting capital markets,” says Jeffrey Leon of Toronto’s Fasken Campbell Godfrey, who represented Toronto Maple Leafs owner Steve Stavro in his much-publicized battle with the OSC over Stavro’s purchase of the hockey team.
But apart from the takeover-related litigation and the regulatory appearances, no discussion of securities litigation is complete without reference to the “deep pockets” litigation surrounding brokers and other advisors whom investors look to when investments go sour. That kind of litigation has been around for many years in every province. But the advent of class actions in Ontario, British Columbia and Quebec has brought a new perspective to the Canadian legal vista. In the United States, securities class action litigation is a self-sustaining industry. Here, where judges rather than juries decide such cases and where punitive damage awards have so far been rare, the impact of class action securities litigation is still uncertain.
There is little doubt, however, that class action securities litigation in some form is here to stay. Witness the Bre-X litigation, instituted by past Law Society of Upper Canada Treasurer Harvey Strosberg, Q.C., from Windsor, Ontario’s Gignac Sutts, whom Maclean’s magazine has dubbed “The King of Torts.” Brokers and investment dealers have been breathing a heavy sigh of relief since Ontario Superior Court Justice Warren Winkler ruled that the defendant brokers, including most of Canada’s major institutional investment houses, lacked sufficient commonality to constitute a defendant class. Rejecting American doctrines of “deemed reliance” and “market fraud,” Justice Winkler made life much more difficult for the plaintiffs by effectively requiring each of them to sue individual brokers in separate actions in separate jurisidictions. The decision, however, will almost certainly make its way to the Supreme Court of Canada. But even if the high court upholds Winkler, proposals to amend the Ontario Securities Act may bring features of American law — like “deemed reliance” and “continuing disclosure” — back to the fore, providing a statutory basis for investors’ suits against advisors.
All this securities litigation activity raises a host of questions. Who’s getting the legal work? Large firms, small firms, medium firms, boutiques? Where’s the work? Only in Toronto, or in all the country’s business centres? And just what are the litigators’ practices all about? Do they practise securities litigation full-time? Are they administrative law generalists or corporate commercial litigators who have developed a niche or sub-specialty? And finally, what does the future hold for this kind of practice? Will it all die off with an economic downturn? Or is it here to stay?
“My overall sense is that there’s been a big economic change in the way commercial activities are financed. Business has gravitated to public markets as opposed to secured financing,” says John Campion of Toronto’s Fasken Campbell Godfrey, who’s spent most of the last year of his professional life defending Nesbitt Burns in Bre-X. “But institutions that are doing the investing are tired of taking hits for things like Bre-X. They’re becoming proactive. So are the regulators. We’re getting larger numbers of big players who can afford to find mistakes in prospectuses and oversights in securities procedures. That will create a lot of securities litigation. And it won’t change. Eventually, the growth in securities litigation will be spectacular.”
This from the lead defence counsel in Bre-X, the man who formulated the arguments that - for the time being, at least - have taken Canada’s brokers off the class action hook. Campion’s perspective, however, speaks to all aspects of securities litigation: takeover-related and oppression litigation, regulatory and disciplinary work, and litigation surrounding brokers and dealers.
John A. Campion of Fasken Campbell Godfrey
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Lorne Morphy,QC, Sheila Block, James C. Tory and Robert Armstrong,QC, of Tory Tory DesLAuriers & Binnington
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There is really no one in Canada who regularly practises in each of these areas. And, with the exception of a handful of practitioners, none of the lawyers practised any combination of securities litigation 100 per cent of the time - at least not in the exclusive way that certain members of the labour bar, the criminal bar, or the insolvency bar pursue their specialties. Indeed, only counsel whose practice centres on securities commission hearings tend to describe themselves consistently as “securities litigators.” The other barristers whose practices include securities litigation prefer to describe themselves as “corporate commercial litigators,” with an “expertise” or “experience” in securities litigation.
“The same people are showing up on cases time after time,” says Benjamin Zarnett of Goodman Phillips & Vineberg’s Toronto office. Zarnett, who appeared at trial on Schneider Corp.’s behalf in Pente, and represents three brokers and their analysts in Bre-X, calls securities-related litigation a “signficant” part of his practice. “There is indeed an identifiable securities bar in Ontario,” agrees David Stockwood, Q.C., of Toronto’s Stockwood Spies, “but it’s co-extensive with the senior commercial litigation bar.”
That few pure securities litigators exist doesn’t surprise Jack Geller, Q.C., a Vice-Chairman of the OSC and formerly its Acting Chair. In fact, that there are litigators at all appearing before the securities commission is a relatively recent phenomenon. “Fifteen years ago, you rarely saw litigators, whether in enforcement proceedings or in commission proceedings associated with takeover bids,” Geller recalls. With the advent of the Charter of Rights and its influence on administrative fairness and procedural rights like cross-examination, however, barristers began replacing the solicitors who had dominated appearances at the OSC in the more informal years. “But the civil litigators who appear before us now are ordinary commercial litigators,” Geller says, “because these lawyers have to know a good deal of the commercial law that forms the basis of securities law.” Sheila Block of Tory Tory DesLauriers & Binnington agrees with Geller: “In the cases that I’ve been in, and in most of the big cases, it’s largely been trial lawyers like myself who do a variety of things. I don’t think anyone would call any of us securities litigators.”
“A dozen or so people do a disproportionate share of the securities litigation work,” says Edward Waitzer, former OSC Chairman and currently a partner and Chairman of Stikeman Elliott. “Nobody does it exclusively, and the fact is I haven’t met a good litigator of any kind who’s specialized. Good litigators are good litigators and some of them develop a particular competency in securities litigation.” High on everybody’s list as good securities litigators are Block and her partner James C. Tory, who represented CW Shareholdings in the WIC litigation, their colleagues Robert Armstrong, Q.C., and Lorne Morphy, Q.C., and Thomas Heintzman, Q.C., of McCarthy Tétrault’s Toronto office. Heintzman’s curriculum vitae reads like a history of securities litigation in Ontario back to 1986: Hiram Walker v. Olympia & York, Canadian Tire, Canadian Pacific, Palmer v. Carling O’Keefe, GATX Corp. v. Hawker Siddeley, Pente v. Schneider and Bre-X are but a few of his cases.
But even these securities litigation heavyweights don’t have enough M&A work to keep them busy full-time year round, though the “real time” nature of these intense cases may require their undivided attention for months at a stretch. “You tend to see a small number of firms doing most of the major M&A litigation in Ontario,” Tory says. “But I don’t think any firm could keep more than one lawyer busy doing M&A work exclusively, either in the courts or before the Commission. It’s just not work that’s continuous.”
James Hodgson, a founding partner of Toronto’s Hodgson Tough Shields DesBrisay O’Donnell, a recently formed litigation boutique, represents Ford Motor in its ongoing privatization litigation. He also considers himself a corporate-commercial litigator, but expects significant growth in M&A litigation. “Litigation has become part of the takeover box, because even if the parties don’t litigate, litigators are inevitably being called in to deal with that contingency.” We’re witnessing the Americanization of the Canadian legal system, where courts are suddenly becoming involved in matters that used to be strictly between business people.”
According to Hodgson, the securities litigation bar from the M&A perspective consists of the “same 40 or 50 names who keep popping up in the reports.” One name mentioned frequently is Alan Lenczner, Q.C., of Toronto’s Lenczner Slaght Royce Smith Griffin litigation boutique, who numbers RBC Dominion Securities among his clients. While Lenczner says there’s no identifiable securities litigation bar today, “only those of us who’ve grown into it on an occasional basis,” he thinks it won’t be long before securities litigation becomes a full-time occupation for some lawyers. Lenczner cites his involvement in TD Asset Management’s recent moves against the management of the Repap paper company, and the news that money managers are looking to oust the management of CallNet, a well-known telecommunications company, as signs that large investors and pension funds are more actively litigious.
Tom Heintzman, QC, McCarthy Tétrault
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Alan Lenczner, QC, Lanczner Slaght Royce Smith Griffin
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Neil Finkelstein, Davies, Ward & Beck
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Neil Finkelstein, a highly visible securities litigator with Toronto’s Davies, Ward & Beck, the law firm that repeatedly turns out the largest dollar volume of securities placements in the country, represented Shaw Communications in the WIC proceedings. Finkelstein, who also appeared on the Fonorola takeover poison pill hearings at the OSC, says there are no full-time takeover related and shareholder oppression practices in Canada, but there are full time M&A-related barristers’ practices. “M&A litigation includes competition litigation, associated constitutional litigation and dissent fair value cases,” he explains. Finkelstein’s views carry considerable weight: he’s been involved in every contested merger case before Canada’s competition tribunal, including the pending hearing over Superior Propane’s purchase of ICG Propane from PetroCan. And his message is clear: a reputation as a good securities litigator can be a conduit to very lucrative related work. So he prefers to talk about an M&A bar, which he calls “a small bar, but invariably drawn from the same people who do securities litigation.” And because most large securities litigation originates within the corporate departments of large firms, Finkelstein expects the bar will remain small.
Or maybe that’s only true for members of the securities bar who represent corporations or large investors. Because the little guys, both lawyers and investors, also seem to be hopping on the bandwagon. It was, after all, the small Vancouver firm of Branch MacMaster that launched the suit seeking to block the BAT-Imasco deal. And Vancouver lawyer David Klein of Klein, Lyons, acting for a single Ontario investor, recently showed up in Ontario Superior Court with instructions to derail a shareholder meeting called to approve the National Bank’s takeover of First Marathon Securities. Klein, who also represents Bre-X investors from B.C., didn’t succeed, but he and his client certainly captured the attention of the lawyers for the National Bank and First Marathon.
“Just a few years ago, we wouldn’t have seen a single investor interfering in a takeover bid in the traditional American, entrepreneurial mode,” says Peter Wardle of Toronto’s Kelly Affleck Greene, who’s involved in the Garth Drabinsky-Livent battle which has various securities related disclosure issues at its core. “But it won’t be long before what’s groundbreaking today will be commonplace tomorrow.” Similarly, while Strosberg’s reputation in securities litigation relates primarily to his role as protagonist in Bre-X, it was also Strosberg who showed up as plaintiff’s counsel in Pente v. Schneider. Strosberg believes Pente type cases won’t proliferate if courts continue to defer to management. “In Pente, the CEO was on the so-called independent bid review committee,” he points out. “If dissenters can’t knock that one down on the basis of conflict, they won’t be able to knock anything down.”
On the other hand, Terry O’Sullivan, a founding partner of Toronto litigation boutique Lax O’Sullivan Cronk, looks to the breadth of the remedies available in oppression actions as important drivers to the emergence of a securities bar. The latitude courts have allowed counsel in oppression and shareholders actions in the private sector, O’Sullivan says, bodes well for securities litigators, who have similar remedies available in the public markets. And because of the conflicts inherent in securities litigation, notes O’Sullivan’s partner Clifford Lax, Q.C. , firms such as theirs have benefitted from the referrals that come to lititigation boutiques that do not constitute a competitive future threat to the referring firm’s corporate lawyers.
It all points to specialization. “Any time that you’re subjected to a beauty contest to obtain legal work, what the client wants to know these days is how much recent experience you have had with the client’s immediate problem,” says Lyndon Barnes of Toronto’s Osler, Hoskin & Harcourt. “Ten or 15 years ago, the clients were content if you told them you spent a lot of time in court.” Even a self-proclaimed “litigation generalist” like David Roebuck of Toronto’s Roebuck, Garbig, believes a “real” securities litigation bar is inevitable. “I’m a generalist, but I feel like I’ve been wandering in the desert for 40 years,” Roebuck says. “When I do securities litigation, I have to retain someone who’s primarily a securities lawyer. The area’s becoming very technical, to the point where you’ve got to have securities knowledge at your fingertips to make the discreet decisions effective counsel always have to make during examination and cross-examination.”
Securities litigation is also booming in Calgary, which houses more corporate head offices than any Canadian city except Toronto. “Hardly a week goes by when I’m not consulted in my capacity as a litigator on some aspect of securities law, even if it’s only to give advice and protection to clients,” observes Fraser Milner’s David Tavender, Q.C.. Much of the activity in Alberta, of course, is in the energy sector. But that’s nothing to sneer at. Although 85 percent of Canada’s M&A activity is Toronto-based, Calgary’s Burnet, Duckworth & Palmer was involved in more public placements in 1998 than any other law firm in the country. In terms of dollar value of placements, Burnets ranked second only to Toronto’s Davies, Ward & Beck. Securities litigation is a driving force behind the growth of Burnets’ litigation department, says partner Douglas McGillivray, who represents about 150 Bre-X claimants in a separate action in Alberta’s courts. McGillivray’s own practice embraces securities-related oppression cases, shareholder disputes, and “representing the alleged rogues” in securities enforcement matters. He expects the latter practice area to boom, a prediction buoyed last June when the provincial government finally empowered the Alberta Securities Commission (ASC) to fine offenders. And the Commission, McGillivray notes, is “beefing up with former prosecutors, pretty darn good lawyers who know how to run a case.”
Business is also humming at other securities commissions throughout the country. Like their counterparts in Ontario and Alberta, the British Columbia Securities Commission (BCSC) and the Quebec Securities Commission (QSC) have augmented their staffs and stepped up enforcement. The revitalized regulatory activity has upped the ante for a small group of lawyers nationwide who appear regularly before securities commissions in enforcement proceedings, and even in the criminal courts in securities-related matters.
Joseph Groia, Heenan Blaikie
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These lawyers are the counsel most comfortable calling themselves “securities litigation lawyers.” Certainly Joseph Groia of Heenan Blaikie’s Toronto office merits the designation. Groia spent five years at the OSC in the late eighties, where he served as head of enforcement and chief litigation counsel. His credits in the last fifteen years include appearances in the Canadian Tire and Torstar-Southam proceedings; as the prosecutor who sent Larry Woods to jail for insider trading in the Plastic Engine Technology scandal; and counsel for the Quebec Government in the long-running dispute over the Asbestos Corp. takeover. Groia currently represents John Felderhof, Bre-X’s chief geologist, charged with insider trading and participating in misleading press releases. And in addition to his white-collar defence work before the OSC and the courts, Groia’s practice encompasses a wide range of securities-related civil litigation, including oppression and valuation cases and defence work for brokers. “In the last three years, over 90 per cent of my practice hours have been related to securities matters,” he says. “I may be the odd man out in terms of doing securities litigation almost exclusively, but there’s definitely a securities litigation bar, something that didn’t exist ten years ago.”
Nigel Campbell of Blake, Cassels & Graydon’s Toronto office is another prominent member of the securities enforcement bar. He devotes 75 per cent of his time to civil litigation and regulatory work for brokers, with cross-country appearances in courts, at securities commissions, and before self-regulators. “Since David Brown took steps to double the OSC’s enforcement staff and is moving to triple it, I’ve been getting three or four times the calls that I used to,” Campbell says. Campbell’s experience coincides with that of Bryan Finlay, Q.C., a partner with Toronto’s Weir & Foulds. Finlay, an administrative lawyer who practises before both the OSC and the courts who review OSC decisions, believes the growth in securities litigation will come at the regulatory stage. Brian Bellmore of Bellmore & Moore, perhaps best known these days as counsel to the Toronto Maple Leafs and the team’s principal Steve Stavro, spent many years as a private prosecutor for the OSC. Nowadays, he’s on the other side, representing individuals like Rollie Francisco, formerly Bre-X’s chief financial officer. “Securities litigation will continue to be a growth area because more people have large personal stakes in the market,” Bellmore says. “My impression is that the business pages are as well-read as the sports pages and the comics.”
On the West Coast, Russell & DuMoulin’s William Berardino, Q.C., is a regular at the BCSC’s Vancouver hearing rooms, and on appeals from decisions taken there. He’s defended Arakis President Terry Alexander, and was counsel for Doman Industries in the insider trading proceedings involving former B.C. Premier Bill Bennett. Berardino also represented the Allard Group in the B.C. segment of the WIC proceedings. “There are a number of litigators in this province who are competent to do this kind of litigation, but I can’t say there’s a securities litigation bar here yet,” Berardino says. “Securities litigation, however, is a very steady growth area, and such a group is emerging.”
William Berardino, QC, Russell & DuMoulin
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Mark Skwarok of Vancouver’s Skwarok & Breivik, formerly Chief Counsel for the BCSC, may be a charter member of that bar. In private practice since 1996, he’s involved in administrative prosecutions and defence work, generally before the BCSC. Skwarok mixes the administrative work with plaintiffs’ litigation arising from securities losses. “Securities litigation is a full-time practice for me,” he explains. “Ten years ago, that was impossible because regulators didn’t enforce anything. It’s not that there’s more misfeasance, just that there’s a great deal more enthusiasm for securities enforcement.” By Skwarok’s estimate, 80 percent of British Columbia’s securities litigation goes to a small group of litigators, a statistic that he says points to the development of a very specialized bar.
At Vancouver’s Farris, Vaughan, Wills & Murphy, the team of George Macintosh and Ken McEwan has been representing the Griffiths family in the B.C. proceedings in WIC. Macintosh, who’s appeared before both the BCSC and the OSC, calls himself a “corporate commercial litigator” with a history of becoming involved in shareholder disputes. McEwan, however, has gravitated towards the administrative end of securities litigation. As a private prosecutor for the BCSC, McEwan recently secured a 20-year trading ban and a $1.2 million administrative penalty - the largest in B.C. history - against Arakis Energy Corp. and its president, Terry Alexander. Macintosh and McEwan are emphatic that securities litigation will devolve into a separate specialty. “Changes in legislation at both the administrative and civil levels have made complaints and remedies more accessible to shareholders, investors and regulatory authorities,” says Macintosh. “Regardless of what may be happening elsewhere in Canada, the truth is that here we’re being increasingly driven by north-south rather than east-west considerations. And securities litigation is a well-established specialty south of the border.”
There won’t be a slowdown, argues Irwin Nathanson, Q.C., of Vancouver’s Nathanson Schachter & Thompson. “People are advancing their rights in all segments of society,” he observes. “And that’s especially true when large corporations are seen as the offenders. Who would have thought that someone like Yves Michaud would come along, attack the banks for overpaying their officers, and get support from the public, the press and the courts for his position?”
For the few lawyers who don’t already know, Yves Michaud is the shareholder activist from Quebec, whose campaign to invigorate the “proposal mechanism” under s. 143 of the Bank Act may have forever changed the way corporations conduct their annual meetings. When the National Bank of Canada and the Royal Bank of Canada refused to include five propositions submitted by the 66-year-old Michaud in a management proxy circular, he sought relief in Quebec Superior Court. The court, in a 1997 decision that crowned Michaud’s three-year battle with financial institutions over executive compensation and board composition, ordered the banks to do Michaud’s bidding on pain of having their imminent shareholder meetings cancelled.
Pierre Bourque, QC, Desjardins Ducharme Stein Monast
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Vincent O\'Donnell, QC, Lavery, de Billy
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Michaud’s success, a surprise to many commercial litigators and a boon to shareholders’ rights advocates, is little more than a blip in the career of Pierre Bourque, Q.C., of Montreal’s Desjardins Ducharme Stein Monast. The man’s seen it all in his 45-year career as a commercial litigator: shareholder disputes, oppression remedies, the Videotron-COGECO fight, counsel for Inco, the Asbestos Corp. litigation, and hearings before the QSC and the OSC, to name but a few of Bourque’s high profile briefs. Yet, of recent securities litigation in Quebec, Bourque says: “You’d starve in the last two years if you’d waited for the big ones.” But, he adds quickly, Quebec’s corporate-commercial litigators haven’t starved at all. Why? “Because any good corporate commercial litigator can do securities.”
Luc Giroux of Montreal’s Byers Casgrain, who has appeared in proceedings relating to the takeover of television station CFCF and the Repap affair, sees shareholders’ rights issues as the catalyst for securities litigation in the province. “The presence of arbitrageurs, and generally more sophisticated shareholders, means there are more people around who know when someone’s pulling a fast one,” he notes. “There’s a higher level of public education too, and that results in shareholders getting better organized and filing more complaints with the regulators.” But even Giroux, who classifies securities cases as “a very refined type of litigation,” notes that only 10 per cent of Canada’s M&A activity takes place in Quebec. Nevertheless, he makes a final important point, “you can’t practice in the takeover area without experience. It’s very fast-moving litigation, which requires specialized techniques for doing the work efficiently and rapidly.”
Class actions are the wild cards . Pretty well everyone agrees that if the securities litigation floodgates are going to burst, class actions will be the drivers. Quite apart from the M&A and oppression remedy litigation, class actions may ultimately have the greatest impact on the many Canadian lawyers who earn their living representing or suing brokers and other financial advisors. “Class actions are now driving litigation against people who put information out in the marketplace,” says Vincent O’Donnell, Q.C., of Montreal’s Lavery, de Billy, a senior corporate commercial litigator whose practice encompasses various aspects of securities litigation. “The press gives these lawsuits, and similar individual cases, large headlines, but only when they succeed. But the press isn’t there when plaintiffs lose. So the investing public gets the overall impression that a windfall is available whenever a stock has gone down a few points.”
Still, securities litigators are divided in assessing the impact of class action legislation. Half believe American-style litigation is inevitable; the other half say Canada is different, and we’ll always do things more moderately. However, virtually everyone agrees that two critical factors are the fate of Justice Winkler’s decision to excuse the brokers from Bre-X, and the extent to which future securities legislation incorporates an American-style regime for secondary market liability. Strosberg, however, points out that Winkler did not put an end to the Bre-X litigation, which is still alive against the company, its officers, directors and professional advisors. That in itself, Strosberg concludes, provides more than sufficient grist for the securities class action mill.
In other words, the incentive’s there for like-minded plaintiffs’ lawyers. Darrell Roberts, Q.C., of Vancouver’s Roberts & Baker, maintains that “common claims arising from pure securities questions” survived the brokers’ escape in Bre-X. As if to make his point, Roberts, at press time, had just launched what he says is British Columbia’s largest securities class action by suing Vancouver millionaire Jim Pattison and the CIBC, among others, for their allegedly unlawful conduct in the Westar privatization. Class actions, it seems, are on everyone’s mind. Immediately following the announcement by Eaton’s that the collapse of buyout talks was forcing closure of its Toronto distribution warehouse, the press reported talk among investors of class actions against those involved in the public offering following the department store’s reorganization two years ago. With Eaton’s stock at 75 cents in late August, class action damages could be huge. “Securities class action litigation is definitely a way to make a fortune,” says James Hodgson. “There will be more and more of this litigation because of guys like Strosberg. Even if there’s no flood, the creek’s going to turn into a stream and the stream’s going to turn into a river.” But when?
Not soon, says Blake Cassel’s Nigel Campbell. “First the plaintiffs’ bar will have to overcome certain hurdles. “Right now, class actions are so fraught with procedural difficulty that there’s no momentum. The details are still being worked out in the personal injury and product liability areas.” Heenan Blaikie’s Joseph Groia is dismayed at the conservatism of Canadian courts. He cites Bre-X, Pente, WIC and other cases as “extremely negative” decisions for plaintiffs.
Philip Anisman, a Toronto sole practitioner to whom corporate commercial litigators frequently turn for securities litigation expertise, believes growth depends on proposed legislation incorporating principles of American origin, like “deemed reliance”, “market fraud” and “continuous disclosure”. But a broadened basis of statutory liability in securities matters, he suggests, will not produce a tidal wave of securities class actions. “Even if we go in that direction in consumer litigation and product liability, I believe we’ll end up somewhere in the middle in the area of securities litigation,” Anisman says. American securities litigation, he notes, is moving in a more conservative direction itself with the passage of the Private Securities Litigation Reform Act (PSLRA) of 1995. The PSLRA requires plaintiffs in securities cases to plead facts supporting a “strong inference” of fraud in order to survive a pre-emptive motion for dismissal. While appellate courts have not yet given the legislation a definitive interpretation, initial results in the lower courts suggest that the PSLRA has raised the bar.
Nevertheless, the growing importance of the Americans is obvious to all. James C. Tory notes that American lawyers are a strong influence in moving “the securities class action industry” northward. “There are clear indications of American plaintiffs’ class action firms involving themselves in Canadian matters by working with Canadian firms,” Tory says. Once again, recent evidence is found in the front pages of the financial press. The National Post, for example, took pains to cite the involvement of New York’s Beatie & Osborn LLP in the BAT-Imasco suit. “It is the third time in recent weeks,” wrote Sandra Rubin on August 20, “that lawyers in Canada and the United States have teamed up to mount a U.S.-style shareholder challenge to a Canadian deal.”
This article opened with the famous quote from Thomas Hobbs - “Nasty, brutish and short” - which was how the 17th century English philosopher described civil life without the stabilizing presence of a monarchical system. It is also an apt expression for the fate of inexperienced litigators foolish enough to venture into the thicket of securities litigation. Throughout the interviews conducted for the article, it became increasingly clear that while few litigators devote their entire career to this work, there is an emerging and relatively small circle of practitioners who have the requisite specialized experience, skill and perhaps tenacity to conduct this high-stakes, high-speed work. They really are the “top guns”. And describing big-ticket securities litigation as a shark tank is no exaggeration. One has only to watch with amazement the rapid-fire pace with which the Onex and Air Canada corporate fist fight is unfolding. And as of September, we are only in round one!
Julius Melnitzer is a Toronto-based freelance journalist.