The Class Action Storm

Despite a seemingly calm evolution for class actions in recent years, new forces are emerging that threaten foundational change
The Class Action Storm
What happens when change intersects with evolution? That question is a timely one in the context of Canada's class-action regimes, which now have a two-decade history in the common-law provinces and about 35 years in Quebec. Even as the Supreme Court of Canada and the country's appellate courts nudge the existing system to something that may one day resemble a comfort zone for its stakeholders, external forces threaten foundational change that may require a retreat closer to the starting line.

The forces of change are twofold, emanating both from within and without the domestic system. Internally, the first concrete sign of change came in January 2014, when the Law Commission of Ontario (LCO) announced a sweeping framework for an ambitious review of the province's class-action legislation. Simultaneously, enterprising plaintiffs' lawyers, fed up with the frustrations and delays in the class-action regime, began sowing the seeds of a “mass tort” movement, one that challenges the fundamental notion that class actions are the best vehicle by which individuals can obtain access to justice.

Externally, the growing gap between the US and Canada in class-action practice, procedure and substantive law threatens to overwhelm an already overburdened Canadian system – ironically, some would say – by potentially ensconcing Canada as the North American jurisdiction of choice for initiating certain species of cross-border class actions.

“We have a very unique system here, in which plaintiffs don't necessarily face the same hurdles that they face in the US,” says Paul Martin in Fasken Martineau DuMoulin LLP's Toronto office. “American counsel are starting to understand these differences and ponder the opportunities.”

The extent to which these developments will impact the Canadian system is as yet somewhat speculative. Close examination, however, reveals that, individually or collectively, they have real potential to overtake and even overrun the forces of evolution.

What is apparent from the Law Commission of Ontario's announcement of its framework for class-action review is that tinkering is not on the agenda.

While concerns about self-dealing by plaintiffs' counsel and the dangers of third-party funding permeated the announcement, the list of core issues include access to justice, whether Ontario should become a “no-costs” class-action regime, and the shape and sustainability of the Class Proceedings Fund. The list goes on to embrace other procedural, substantive and costs matters, including national classes, procedural efficiency, certification and evidentiary requirements, take-up rates, the cy-près doctrine, the interaction of common law and statutory causes of action, and the treatment of waiver of tort. The LCO also cautions that “the list is far from exhaustive” and promises consideration of additional issues that arise as the project proceeds.

Throughout, access to justice, a primary goal of the Class Proceedings Act (CPA), is an overriding concern. As the LCO sees it, consistently low take-up rates by class members raise troubling questions about why take-up is so low, whether notices to class members are reaching their targets, whether the notices are understood, and the extent to which the choice of claims process affects settlement negotiations and take-up rates.

“It is unclear whether the CPA is working as intended and many unforeseen challenges associated with it have become fodder for discussion in conferences, academic papers, professional associations, social media and other commentary,” the LCO states.

Still, Calgary-based Peter Driscoll and Halifax-based Dan Wallace of McInnes Cooper, whose class-action practice focuses on actions against governments, insist that class actions are indeed working. They cite the disabled veterans proceedings, which otherwise would have involved 10,000 individual claims.

“We ended up with 8,000 class members, a $1-billion settlement, and our fees were 8 per cent of what we achieved for members, who got a 92 per cent return,” Driscoll says. “That kind of result for so many people is unheard of without resort to a class action. It happened only because a large firm like ours could take on that type of case knowing that we would survive even if we lost.”

To be sure, the commission is hardly unaware of the evolution in the system that has taken place in the last two decades: the LCO acknowledges, for example, that Ontario courts are aware of the risks and benefits posed by third-party funding practices and have done their best to impose terms that protect class members from improper interference in strategic decisions.

Still, citing concerns about situations where plaintiff's counsel “have effective free rein” and where their interests “may be more closely aligned” with the funder, the commission suggests that evolution may not be enough.

“In the absence of a savvy or interested plaintiff representative to supervise the litigation, and in the face of the financial temptations that class actions offer, how can the court reduce the risk of self-dealing?” the commission asks. “Does the CPA offer sufficient tools and guidance to the courts to assist in this regard?”

Procedural efficiency is also a major concern with the certification test, burden of proof, evidentiary requirements, appeal routes and carriage motions among the more troubling issues noted.

Then there are the “potential frailties” within the Class Proceedings Fund (CPF) structure. The advisory group notes that since its inception, the fund has considered more than 130 applications for funding and has approved 82 of them, 30 of which have so far produced settlements or awards.

“Given that Ontario's class proceedings legislation adopted ‘ordinary' costs rules for class proceedings (instead of a regime of ‘no costs') there appears to be some agreement amongst all that a sustainable public fund is required to achieve meaningful access to justice for litigants,” the advisory group writes in its report.

As it stands, however, the Class Proceedings Fund's sustainability is vulnerable. There is no assurance, for example, that the CPF and the courts will agree on what engages the public interest, a finding that is central to the judicial determination of whether costs against publicly funded plaintiffs should be discounted.

Adding to the uncertain future is the fact that the fund is not publicly insured.

“If the CPF were to run out of funds, there is no statutory guarantee that the government would step in to prevent a fiscal cliff,” the LCO writes, observing also that the 10 per cent statutory levy on awards and settlement does not provide “sufficient flexibility to alter the size of the levy to reflect more accurately the risk and better to compete with private third-party funders for less risky matters with the potential for a large award.”

This being said, it is also true that a beefed-up sustainable fund would add to the system's caseload and require even more emphasis on functional change.

Still, Christopher Naudie in Osler, Hoskin & Harcourt LLP's Toronto office believes both sides of the Bar will welcome the review. “The Law Commission has clearly signalled that it is going to explore the full waterfront of issues relating to class-actions practice in Ontario,” he says. “Given that it has been over 20 years since the original passage of the Act in 1992, it is certainly time for a refresh to consider whether the Act is meeting its original goals.”

For his part, Paul Miller of Toronto and his firm, Will Davidson LLP, grew tired of waiting for the system to change.

Encouraged by the results of the Vioxx litigation in the US, which proceeded by way of individual “mass tort” cases rather than a class action, Miller and his colleagues decided to take a similar approach for their 215 clients with claims arising from allegedly defective pelvic mesh devices.

Mass tort lawsuits cover a much broader range of claim types than class actions. They are particularly useful when defective products injure a large number of consumers. Because defects can cause a wide range of problems for claimants, the cases may be difficult to group into a single class.

“For example, it's almost impossible to get drug or medical device cases certified in the US, but that hasn't meant that there's no access to justice,” says Michael Eizenga of Bennett Jones LLP's Toronto office. “While these cases may not normally be viable as one-off for law firms, they become so when plaintiff's counsel and even trial lawyers' organizations coordinate their actions and assemble a large number of cases.”

Mass tort cases in the US, however, are subject to the multidistrict litigation (MDL) process that the federal court system has developed. The MDL regime consolidates complex cases with similar issues so they are managed by one court, which handles all case management matters and aggregates discovery proceedings for the lawsuits. The goal of MDL is to conserve resources and foster consistent court rulings. Cases that do not settle or are not dismissed during MDL go back to their original jurisdictions for trial.

In Canada, of course, there is no federal system that is jurisdictionally analogous to the one in the United States. Here, most mass torts are the domain of provincial superior courts. And as the class action experience has shown, particularly with regard to national classes, melding a cohesive process among these courts can be a daunting challenge at times.

Still, experience suggests, as it did to Will Davidson, that the mass tort approach is worth a try.

In the US, for example, the defendants in the Vioxx proceedings paid out US$4.85 billion to settle the claims of some 45,000 individuals after plaintiffs and defendants each won five of 10 cases tried individually. The settlements amounted to about $100,000 for each claimant.

By comparison, the Canadian class-action settlement garnered only $36.8 million, with just $5,000 maximums available to claimants who suffered non-fatal strokes and roughly $50,000 maximums available to those who suffered more serious problems.

So although at least three class actions had been also filed in the pelvic mesh litigation in Canada, Will Davidson decided to proceed on an individual basis for its clients, no doubt encouraged by the fact that, so far, plaintiffs have succeeded in four of five parallel pelvic mesh litigation trials in the US.

“The Vioxx experience convinced us that we needed to try some cases to set the parameters of who would be included in any final settlement,” Miller says. “In a class action, if you lose once, you're done. When you have 215 cases and lose one, you can analyze the weaknesses and perhaps rectify things for the next trial. There's a certain leverage in maintaining a ‘next case up' mentality.”

As well, Will Davidson reasoned that proceeding individually would allow the firm to maintain control of its cases rather than possibly having them subsumed in a larger class action of which the firm might not have carriage. There was also little risk that the class actions would settle without the participation of the numerous clients of Paul Miller's.

Still, the extent to which the “mass tort” approach will compete with product liability class actions or other types of class actions that take place in Canada remains to be seen. It's still too soon to draw much from the pelvic mesh litigation.

“We're at a bit of a standstill in Canada because the powers that be always want to focus on the US when there is hanging litigation there,” Miller says.

But even as the emergence of mass torts suggests that class actions will face some competition as the access-to-justice vehicle of choice in this country, a growing gulf between the class-action regimes in Canada and the US may make Canada more attractive as the jurisdiction where plaintiffs initiate cross-border proceedings.

As things stand now, a substantial portion of Canada's class-action docket falls into the “copycat” category. Cases are initiated in the US and imitated in Canada. The US proceedings drive discovery and settlement negotiations. Much of the time, Canadian proceedings remain on relative hold awaiting progress south of the border. What all this means is that US courts frequently bear the brunt of the administrative and other burdens of class-action proceedings.

But this could change for a very fundamental reason: in many ways, Canada has become more class-action friendly than the US.

To begin with, the US has stricter pleading standards that promote an emphasis on pre-certification disposition. “Canadian courts are engaged in an interesting and terrifying race to lower the certification standard to the absolute bottom,” says Jim Sullivan, a partner in Blake, Cassels & Graydon LLP's Vancouver office.

The US also approaches expert evidence very differently by subjecting it to rigorous analysis at an early stage.

“Both our pleading and certification bars are much lower, so cases tend to survive because our courts want everything heard together with the certification motion,” Paul Martin at Faskens says. “As well, Canadian courts have said that they will not engage in a battle of experts at the certification stage, while US lawyers are testing methodology and tearing experts apart very early in the proceedings.”

The low certification standards are also changing the dynamics of class-action practice. Somewhat counter-intuitively, they may prove instrumental in weeding out some of the inefficiencies and delays that have plagued the system so far.

“Because the SCC has confirmed that the bar for certification is so low, you're going to see that defence lawyers take much more creatively focused and narrow defences to certification, seeking out only the truly legitimate arguments instead of all the viable ones,” says Sandra Forbes in Davies Ward Phillips & Vineberg LLP's Toronto office. “Counsel are really going to have to focus.”

Mark Veneziano of Toronto's Lenczner Slaght Royce Smith Griffin LLP agrees. “Both sides spend too much money on certification,” he says. “Certification does not have the same impact as a judgment after trial, so you have to do it sensibly without blowing your brains out.”

Put another way, defence lawyers and their clients are discovering that settlement is not necessarily the inevitable consequence of certification.

“The premium for certification isn't what it used to be,” Eizenga says. “In many cases, defendants are assuming that certification of some sort of class will happen, and that impacts on the way we practise for example, by focusing on negotiations aimed at narrowing the class as much as possible.”

Jill Yates in McCarthy Tétrault LLP's Vancouver office also predicts that the SCC's decision early this year in Hryniak v. Mauldin (which was not a class-action proceeding), will encourage summary judgment motions at the certification stage and also before trial. Hryniak considerably broadened the parameters for granting summary judgment by allowing judges to determine whether summary disposition was a more proportionate way than a trial to achieve a just result in light of the evidence that was available.

“Summary judgment motions are now a much more viable alternative in class actions, one that judges have certainly shown they are willing to use in a wide range of cases since Hryniak,” she says. “It's a process that's a lot more appetizing than the cost and time associated with a full trial, and from defendants' perspective, a lot more appetizing than settling.”

Forbes also predicts that de-certification motions will gain popularity. “As more and more cases get closer to trial, it will become apparent that some of them are just not manageable as class actions,” she says. “I expect we're going to see some decertifications, primarily on the basis of complexity, in some of the more complicated proceedings.”

Apart from pleading and certification thresholds, there are other examples of the gaps that have arisen or may arise between American and Canadian class-action practice.

In securities cases, which are a staple of the US class-action scene, the US Supreme Court has under reserve a challenge to the “fraud on the market” presumption of class-wide reliance that is central to the success of these claims. Should the court reverse this longstanding presumption, the various Canadian provinces that have imported the presumption statutorily, including Ontario, may suddenly seem to be more propitious places in which to launch secondary market securities misrepresentation cases. Before the legislative changes, and as the Bre-X proceedings demonstrated, it was virtually impossible to certify a Canadian secondary market securities misrepresentation class action because the presumption has never been recognized in our common law.

Otherwise, Canadian plaintiffs so far have not had to deal with a US-style doctrine of “pre-emption,” which prohibits consumers in product liability cases from pursuing allegations that are within the realm of a regulator. While Canadian courts have recently taken a closer look at the feasibility of class actions for claims that might otherwise fall under the aegis of consumer-protection legislation (the Arora v. Whirlpool Canada LP case in Ontario, Wakelam v. Wyeth Consumer Healthcare in BC), they have not gone nearly so far as American courts.

“To some degree, we have moved into an examination of pre-emption,” Martin says. “But there's still plenty of room for class actions in the product liability area.”

The Supreme Court of Canada has also refused to adopt the 1977 US Supreme Court decision in Illinois Brick Co. v. Illinois, which has barred indirect purchaser anti-trust claims in federal courts for almost 40 years. Instead, in a landmark trilogy of decisions in 2013 (Pro-Sys Consultants), the SCC declared open season for direct and indirect purchasers who wish to use class actions to recover overpayments for products or services that have been the subject of price-fixing conspiracies.

Finally, arbitration clauses ousting the right to bring class actions have found considerable favour in American courts. “The US Supreme Court loves arbitration clauses,” Martin says.

Not only have Canadian courts taken a more circumspect approach to invalidating arbitration clauses, some Canadian provinces, including Ontario, have prohibited such clauses in consumer contracts.

“The messages we're getting from our Supreme Court is very different from the messages the Roberts court is sending, which may be part of a concerted effort at tort reform in the US as well as a conservative attack on the class-action mechanism,” Martin says.

As it turns out, however, legislative change and change wrought by external forces is drawing nigh just as the existing system appears to be evolving toward a welcome degree of maturity at an ever more rapid pace.

Consider, for example, the vexing and ubiquitous issue of national class actions, with which the SCC at last seems poised to deal. In February 2014, the court granted leave to appeal the decision of the Manitoba Court of Appeal in Meeking v. Cash Store Inc. At issue is the scope of a provincial superior court's jurisdiction in a class proceeding over residents of other provinces.

“The SCC has recently shown more interest than ever in class actions and continues to grant leave in these types of cases,” Yates says.

Should the parameters of national class actions be institutionalized by way of Meeking or otherwise, it may well be that lawyers in Quebec will benefit most. In its recent decisions in Vivendi Canada Inc. v. DellAniello and in Infineon Technologies v. Option consommateurs (part of the indirect purchaser trilogy), the SCC confirmed that the bar for certification in Quebec is lower than in the common-law provinces.

“The situation in Quebec is now that plaintiffs are not required to show that class actions are the best procedure, or that any common questions have a common answer,” says Christine Carron in Norton Rose Fulbright LLP's Montreal office. “All plaintiffs need is a common question, which amounts to no more than a question of fact or law that's not negligible and somehow advances the resolution of the issues for class members.”

But whether the discussion centres around Quebec or elsewhere in Canada, this much is certain: when it comes to the emerging shape of class actions in Canada, the crystal-ball gazers should be having a field day for a while yet.