November 3, 2022
Dolden Wallace Folick’s Class Action Newsletter – November 2022
The Preferable Procedure Criterion in Class Action Certification
By Christopher Stribopoulos and Elka Dadmand, Dolden Wallace Folick Toronto
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In Curtis v. Medcan Health Management Inc., 2022 ONSC 5176, the Ontario Divisional Court overturned the decision of the certification judge who denied certification, by analysis of the preferable procedure criterion and the principles set out by the Supreme Court of Canada in Fischer v. IG Investment Management Ltd., 2013 SCC 69.
The representative plaintiffs brought a class action alleging that the defendant, Medcan Health Management Inc., miscalculated vacation and public holiday pay. Medcan confirmed the miscalculation over 15 years, but sought to cap payments to the two year limitation period. The plaintiffs brought a motion to certify the class action proceeding seeking back pay to 2003. The certification judge held that the plaintiffs failed to meet the preferable procedure criterion under s. 5(1)(d) of the Class Proceedings Act, S.O. 1992, c. 6 (the “CPA”). The plaintiffs appealed.
The Applicable Principles
Relying on Fischer, Justice Nishikawa of the Divisional Court reiterated that the Court’s analysis of the preferable procedure criterion must be conducted through the lens of judicial economy, behaviour modification and access to justice.
Access to Justice
Justice Nishikawa held that the certification judge failed to consider the barriers to access to justice and the potential for a class proceeding to address those barriers. Justice Nishikawa found that the cost of litigation for each individual claim was disproportionate to the amount claimed, such that many class members would not bring a claim. Moreover, the fear of reprisal would operate as a barrier to access to justice because the claim included current employees.
Justice Nishikawa held that the certification judge failed to address the extent to which a class proceeding would or would not serve the goal of behaviour modification. Justice Nishikawa highlighted that behavior modification aimed not only at the defendants in a particular case, but also at similar defendants. To that end, class proceedings were more effective at signaling to employers their obligation to be informed of and to comply with their statutory obligations regarding employee compensation.
Justice Nishikawa concluded that the certification judge erred in failing to consider the barriers to access to justice in individual claims compared to class proceedings and the goals of behaviour modification. Accordingly, the action was certified as a class proceeding based on the common issues found by the certification judge. The matter was referred back to the certification judge for a determination as to costs on the certification motion and the appeal.
Approaches to Unclaimed Settlement Funds in Canadian Class Actions
By David Girard, Dolden Wallace Folick Calgary
Email: [email protected]
In Canada, where there are unclaimed settlement funds in a class proceeding, three common approaches to the dispersal of those funds are: reversion, pro rata distribution, and cy-près. In this brief article, we outline these approaches and provide insight into the history and current trends regarding their use.
Reversion to the Defendants. The first, and perhaps simplest approach that was traditionally used to dispose of the residue of unclaimed settlement funds was reversion to the defendant: in a nutshell, this means that the defendant receives back the remainder of funds not claimed by class members. As a mechanism to deal with the residue, reversion has now fallen out of favour in certain jurisdictions, such as Ontario and British Columbia, mainly for public policy reasons:
1. If the defendant gets to keep the funds, the class proceeding goal of behaviour modification is unlikely to happen.
2. Access to justice is not bettered, as the funds do not benefit the members of the class.
3. Reversion potentially creates the wrong incentives for the defendant, who may be encouraged to suggest less effective notice procedures or complicated claims administration processes.
Pro Rata Payment to the Class Members. Under this scheme, class members receive a pro rata distribution of some or all of the unclaimed funds. While generally considered preferable to reversion, this approach has also been criticized on the grounds that: (1) distributing additional funds to class members in essence provides those class members with a windfall, rather than merely compensating them for their loss; and (2) there may be less incentive for class counsel to push for the most comprehensive notification procedures, as all of the funds will still be distributed.
Cy-près Distribution. Cy-près is an approach to the distribution of unclaimed class action settlement funds that has quickly gained in popularity. What is it? Cy-près (as near as) is a concept that originates in estates law. It originally found application in cases where it became impractical or uneconomical to direct the funds in the manner desired by the settlor; the Court would then permit the funds to be directed in a manner that was as close as possible to the settlor’s original intent.
By analogy, in the context of class actions, Cy-près finds application where identifying, locating and paying out the funds to class members would be uneconomical. A typical case is where the funds being distributed to certain class members are disproportionately small compared to the costs involved in getting those funds into their hands. In such cases, Courts will often order that the unclaimed funds be donated to charitable organizations that have close ties to the underlying issues in the action. Courts have highlighted that this approach benefits the class members, if only indirectly, and serves the purposes of specific and general deterrence.
Suitability and Revolving Door of Proposed Representative Plaintiffs in Class Proceedings
By Christine Galea and Chelsea Kalla, Dolden Wallace Folick Toronto / British Columbia
In Azar v. Strada Crush Limited, 2022 ONSC 3666 (“Azar”), the Ontario Divisional Court upheld the dismissal of a motion to re-certify a class proceeding with a new representative plaintiff.
The decision demonstrates the importance of the abuse of process doctrine in the class action context, where defendants can be subject to a revolving door of proposed representative plaintiffs, and highlights how Ontario’s costs structure for class proceedings impacts the suitability analysis for proposed representative plaintiffs.
It was alleged in Azar that the defendant, Strada Crush Limited (“Strada”), failed to pay over 160 employees holiday and overtime wages. In 2018, the action was certified as a class proceeding, with George Azar as representative plaintiff and Henry Juroviesky as class counsel: 2018 ONSC 4763.
A conflict subsequently arose between Mr. Juroviesky and Mr. Azar. Mr. Juroviesky applied to appoint a litigation guardian over Mr. Azar. In response, Mr. Azar applied to replace Mr. Juroviesky as class counsel, making several misconduct allegations against him. The motions judge determined that Mr. Azar had put his own interests above those of the class in seeking to replace Mr. Juroviesky as class counsel and was, therefore, not a suitable representative plaintiff. Mr. Juroviesky was given 60 days to put forward an alternative representative plaintiff, failing which Strada could bring a motion for de-certification.
The motions judge also considered that Mr. Azar’s retainer agreement failed to properly address exposure to an adverse costs award against him.
The motions judge ordered Mr. Juroviesky to ensure that a proper indemnity arrangement be set up for any future representative plaintiff.
In class proceedings, each province has their own costs system, defined by its applicable legislation and rules of practice. For example, the general rule in B.C. is that no costs are awarded for certification applications, common issues trials, or any appeals to the British Columbia Court of Appeal.
Conversely, Ontario follows the “loser pays” system for class proceedings, where unsuccessful parties are generally responsible for costs. To guard for this risk, representative plaintiffs will often be indemnified for adverse costs awards against them, either through class counsel or under the Province’s Class Proceedings Fund.
Instead of offering a new representative plaintiff, Mr. Juroviesky brought a motion to reinstate Mr. Azar. As nothing had changed to make Mr. Azar an appropriate representative plaintiff, and Mr. Juroviesky failed to come up with a suitable representative plaintiff within the 60-day period, the motions judge granted Strada’s motion to de-certify the proceedings: 2020 ONSC 549.
Application to Re-Certify
Nearly two years later, Mr. Juroviesky brought a motion to re-certify the action, with Taylor Wineck as the proposed representative plaintiff: 2021 ONSC 4758. However, no evidence was offered to indicate a proper indemnity arrangement had been put into place for Mr. Wineck.
Strada argued that the re-certification motion constituted an attempt to re-litigate an issue already ruled by the court, thus violating the principle of finality. In Canada, the abuse of process doctrine allows the exercise of judicial discretion to prevent the misuse of the court’s procedure in a way that would be manifestly unfair, or bring the administration of justice into disrepute. Canadian courts have applied the doctrine to preclude re-litigation where allowing the litigation to proceed would violate the principle of finality: Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63.
In regular litigation, the plaintiff is obliged to bring their best case on their first attempt. Accordingly, once a case has been dismissed, subsequent efforts to remedy a defective claim will generally be rejected as an abuse of process. In class proceedings, however, defendants face multiple proposed representative plaintiffs. In Bear v. Merck Frosst Canada & Co, 2011 SKCA 152, the Saskatchewan Court of Appeal considered what can constitute re- litigation in the context of class proceedings. The court reasoned that “a defendant in a class action environment should not face a revolving door of representative plaintiffs who serially advance certification application after certification application until they (perhaps) find one that succeeds”.
As in the case of Bear, Mr. Juroviesky brought successive motions to certify the action – twice with Mr. Azar as representative plaintiff, and finally with Mr. Wineck. No novel circumstances caused the bar against re-litigation to be unfair to the plaintiff. Morgan J. concluded that the defendants deserved the principle of finality to be taken seriously, and dismissed the application.
Appeal to the Divisional Court
The plaintiff’s appeal was dismissed. The Divisional Court upheld the motion judge’s conclusion that the abuse of process doctrine applied. Three separate motions concerning representative plaintiffs, all brought by Mr. Juroviesky, constituted a factual basis for the motion judge’s concerns regarding the “revolving door” of potential litigants. The application to appoint Mr. Wineck as a representative plaintiff constituted re-litigation.
The Divisional Court also accepted that a proper indemnity arrangement was a condition for Mr. Juroviesky to continue with any representative plaintiff. The lack of any evidence to this effect was sufficient to find Mr. Wineck unsuitable as representative plaintiff.
The Divisional Court’s decision affirms that the existence of a proper indemnity arrangement for a proposed representative plaintiff will inform the suitability analysis. This may lead to additional forum shopping on the part of plaintiffs, who may choose to select provinces that employ the “no costs” approach to class actions – particularly B.C and Manitoba. Notably, B.C. already sees a disproportionate number of class proceedings per capita relative to Ontario.
The decision also sheds light on the abuse of process doctrine. As highlighted in Azar and Bear, courts are willing to look beyond the named parties to determine whether a class proceeding constitutes re-litigation. This is particularly the case where one lawyer or law firm is involved in multiple attempts at certification.
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