Article by Ian F. Leach2
Maleva: "A werewolf can only be killed by a silver bullet, or a silver knife, or a stick with a silver handle..."
Larry Talbot: "You're insane, I tell you!..." –
From "The Wolf Man". Universal Pictures (1941).3
Afraid of class actions? Hoping to avoid them?
It no doubt depends on your perspective.
There are reasons why plaintiffs and their counsel may be independently motivated to steer clear of class proceeding litigation, and look for alternative but effective options. For example, a sufficiently funded individual with a meritorious claim, able to litigate in the absence of a class action dimension, may very well want to avoid:
- adding inevitable delay to resolution of his/her own claim, (e.g., treading the minefield of extended certification proceedings and appeals, waiting for notices to be published and opt out periods to expire, or waiting for relief for the entire class to be determined and distributed prior to receiving any individual entitlements);
- galvanizing the full litigation resources of a defendant or insurer, which otherwise might have been inclined to discuss early settlement of a much smaller individual claim;
- taking on the added work and responsibilities of a representative plaintiff; or
- risking added exposure to adverse cost awards in the event of failure, (at least in Ontario and Quebec).4
A plaintiff in that situation may stick to litigation of his/her individual claim, particularly if it can be done in a way that effectively benefits all similarly placed claimants anyway; (e.g., by way of a test case, or a request for injunctive relief that will benefit all those in a similar situation).
For most plaintiffs, however, class proceedings offer economies of scale, settlement leverage, safety in numbers, and corresponding incentives for plaintiff counsel involvement, all of which often combine to make litigation feasible where it otherwise could not have been pursued.5 For such litigants and their counsel, the obvious goal is to maximize a defendant's exposure and the scope of the class proceeding.
In short: only defendants focus on how to avoid or mitigate class action exposure risk and, viewed solely from their perspective, being targeted by a class action is not unlike the standard plot of a horror film classic.
There you (the defendant) are, successful and happy, enjoying a situation that's seemingly benign - - perhaps even beautiful. (Just look at that moon!)
And then the danger is suddenly there, on a massive scale. Something not anticipated, and never seen before, threatening to maim or kill you. (Rare today is the class action not seeking sums in the seven to nine figure range, and not every defendant has access to that kind of insurance or asset portfolio. Regardless of whether the claim ultimately lacks merit, or whether the numbers set forth in the statement of claim are inflated beyond reason, it will have to be noted as a contingent liability, and explained to financiers, shareholders and other investors. The fall-out from bad publicity today will rarely be offset by vindication months or years down the road.)
You search for a gun, only to find that normal bullets just don't work (In Ontario, at least, the normal rules of court are supposed to apply to a class proceeding.6 It also has been said many times7, and emphasized in recent years by the Supreme Court of Canada,8 that the class proceeding statutes supposedly are procedural only, and create no new causes of action. However, a defendant facing a class action may feel, with some justification, that it really does not enjoy the same rights, tools and treatment extended to defendants in "normal" litigation. For example, the ability to rely on limitation periods is modified.9 The ability to enforce agreed arbitration provisions may be restricted, either by legislation or judicial discretion.10 Permission to proceed with certain preliminary motions, normally permitted by the rules of civil procedure, may be postponed or denied.11 Court willingness to address and resolve difficult constitutional issues relating to the assumption of extra-territorial jurisdiction seems markedly different in the class action context.12 The ability to raise possible issues of fact and law relating to individual claims effectively may be lost via aggregate damage assessments.13)
And even when you do apparently manage to wound or kill the monster, it rises again (Successfully dissuade an original representative plaintiff from continuing, or identify a fatal flaw in the named representative plaintiff's individual claim? All for naught if plaintiff counsel move to substitute another representative plaintiff before the action can be dismissed; e.g., before you can get a motion for summary judgment heard and decided.14 Successfully defeat certification at first instance, because the proposed common issues and theory of the plaintiff's case made a class action inappropriate? Prepare for the prospect of certification, on appeal, of a substantially different class action than that proposed and argued at first instance.15)
To those working in this area, and familiar with the background to class proceeding legislation, none of this is particularly surprising. Class actions were designed to redress historic and institutional factors favouring large defendants at the expense of multiple claimants, and therefore serve important goals;16 goals that the courts understandably will support in furtherance of the clear legislative policy.17 If certain aspects of the class proceeding landscape occasionally suggest an incline favouring plaintiffs, they were required to level the global playing field.
But to most defendants (even those who have experienced "normal" litigation), facing a class action will be a new, unfamiliar, challenging, and more than usually unpleasant litigation experience.
Small wonder, then, that the search continues for some effective and perhaps special means of defence; i.e., to slay the "monster", make it go away, and/or address the underlying complaints and concerns by some method other than a class action.
In the wake of appellate authority greatly facilitating and favouring certification,18 the only effective defence, barring exceptional cases, may prove to be a substantive one that a wrongly targeted defendant asserts at trial.19 However, the following offers a brief overview of measures that might be considered by defendants before or during class proceeding litigation to avoid or at least reduce class action exposure.
PRECAUTIONS AND PRESCRIPTIVE STEPS TO MITIGATE EXPOSURE
Dart Player at The Slaughtered Lamb: "Stay on the road. Keep clear of the moors." Chess Player at the same pub: "Beware the moon, lads." –
From "An American Werewolf in London". Universal Pictures (1981).20
What can a defendant do, before being hit with a class action, to head off the possibility or at least contain the damage? Not every contingency can be foreseen. However, experience and "reverse engineering", (i.e., working backwards from the hallmarks of successful class actions to develop a situation less amenable to such litigation), suggest some standard precautions and possibilities.
Standing Preparation: Have the defence and media teams in place
If and when a class action hits, plaintiff counsel may already be far ahead, in terms of investigation, strategy and preparation. In particular:
- If a plaintiff firm has chosen to devote considerable resources on a contingency basis to one of many possible time-consuming and expensive class actions, with correlative and potentially catastrophic risk, chances are good that the action has been considered and vetted in great detail.
- The plaintiff will have its team of lawyers in place; i.e., conflicts cleared, and responsibilities allocated.
- Those plaintiff lawyers already may have been at work for an extended period, so as to hit the ground running once the claim has been served. (The statement of claim may have been issued up to six months earlier but not served until now; e.g., to suspect operation of applicable limitation periods while further efforts were made to investigate and research the claim, unilaterally amend and perfect pleadings, and make the claim more amenable to certification.)
- Service of the statement of claim is likely to be accompanied by some form of press release or other media contact, designed to put the class action squarely in the public eye long before questions of certification and judicially controlled notice are considered by the court. This is not simply a question of fostering public and court sympathy, or counsel self-promotion. Plaintiff counsel usually will want to encourage direct contact from putative class members for at least three reasons:
(i) to provide a stable of alternate representative plaintiffs if the named one(s) prove to be problematic;
(ii) to facilitate individual damage assessments, after resolution of common issues by trial or settlement; and
(iii) to "lock in" as many individual retainers as possible so as to bolster the position of a particular representative plaintiff and his/her counsel in situations where multiple class actions cover the same ground, and a carriage battle looms on the horizon.21
Potential/probable class action defendants, (e.g., those with extensive business operations and deep pockets, either independently or via insurance), should neutralize such plaintiff advantages as much as possible by having pre-screened and selected defence counsel, familiar with class actions, on a standing retainer (For many institutions and insurers, such defence counsel may not be the same as counsel regularly entrusted with "ordinary" litigation.)
Once in place, defence class counsel also can be used to discuss and review, within the protected zone of solicitor-client privilege, matters giving rise to a reasonable anticipation of class action litigation. Whether urgency is created solely by public announcement of a class action, or compounded by an underlying emergency or disaster giving rise to rapid commencement of one or more class proceedings, (e.g., the drinking water tragedy in Walkerton, the recall of tainted pet food, withdrawal of the medication Vioxx, etc.), the public relations impact of the crisis and/or ensuing class actions can be contained to some extent by giving similar advance consideration to an appropriate media response.
Such considerations increasingly now take place against a backdrop of legislation sheltering potential or actual defendants from the hitherto litigious implications of an apology. For example, here in Ontario, as of April 23, 2009:
- a defendant or potential defendant may render an apology, (defined as "an expression of sympathy or regret, a statement that a person is sorry or any other words or actions indicating contrition or commiseration, whether or not the words or actions admit fault or liability or imply an admission of fault or liability in connection with the matter to which the words or actions relate"); and
- with certain exceptions, (e.g., criminal proceedings, and apologies given during testimony at a civil proceeding), such an apology:
- does not, in law, constitute an express or implied admission of fault or liability or imply an admission of fault or liability in connection with the matter to which the words or actions relate;
- does not, despite any wording to the contrary in any contract of insurance or indemnity and despite any other Act or law, void, impair or otherwise affect any insurance or indemnity coverage for any person in connection with that matter; and
- shall not be taken into account in any determination of fault or liability in connection with that matter.22
In short, "sorry" may no longer be the hardest word. In fact, a potential defendant who gets out in front of breaking news of mistakes or bad judgment, tendering an appropriate and effective apology, actually may satisfy potential litigants and head off a lawsuit.23
Moreover, even where class action litigation is inevitable or already underway, a considered and professional media response might not only neutralize the effect of bad publicity on a business reputation and customer/consumer confidence, but actually turn the incident to a defendant's advantage. A recent paradigm is the conduct of Maple Leaf Foods in the wake of the listeriosis crisis that saw lives lost, significant negative media attention, millions in shareholder value evaporate over night, and ensuing class actions. The company's rapidly deployed public relations strategies arguably turned the crisis into an opportunity for proving its ethical mettle, while preserving its reputation and restoring consumer confidence. Financially, Maple Leaf was able to rebuild momentum, having its stock rebound and do well despite the global market downturn, and Michael McCain was named CEO of the year.24
Implications of the "cause of action" and "common issue" requirements
In most Canadian jurisdictions, the applicable class actions regime has a threshold certification requirement that the representative plaintiff's pleading must disclose a cause of action.25 Certification also usually requires that the claims of putative class members raise "common issues",26 (defined in Ontario as meaning "common but not necessarily identical issues of fact", or "common but not necessarily identical issues of law that arise from common but not necessarily identical issues of fact"27).
In many cases, having advance regard to these requirements would not result in a potential defendant acting much differently in the review and conduct of its affairs. For example, few defendants set out to make or market a dangerous product, act in violation of legislation, etc., and would implement appropriate checks and safeguards in any event. Moreover, the essence of most defendants' business operations, (to provide a product or service to many), will inevitably give rise to commonalities of fact and applicable law.
However, focusing additional review and consideration on potential causes of action flowing from areas of commonality, amenable to class determination, obviously may help to head off such problems and disputes. To the extent they are available, additional resources for secondary/supplementary inspection or review, (e.g., by independent technicians, analysts or defence counsel), should be directed to these areas.
The same is true of arrangements for third party liability insurance. If there are limits to the coverage a potential defendant can afford, it should at least be adequate in areas of possible liability, (i.e., causes of action), giving rise to probable class proceeding exposure.
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* This paper was originally prepared for presentation and discussion at The Canadian Institute's 10th Annual National Forum on "Class Actions Litigation", (September 2009), and to complement a companion presentation by Norm Emblem and his colleagues at Fraser Milner Casgrain LLP. Responding to a request for "prescriptive steps to avoid or mitigate class action exposure risk", and the use of "alternative compensation schemes to maintain controls over class actions exposure", it necessarily is written from a defence perspective. Viewed from the plaintiff perspective, it nevertheless also hopefully provides information helpful to screening possible class proceedings, and steering them through to a successful conclusion.
2 Ian F. Leach, B.A. (Toron.), LL.B. (Reg.), LL.M. (Cantab.), B.C.L. (Oxon.), is a partner with Lerners LLP. Since 1993, his practice has involved class proceedings from both the plaintiff and defence perspectives, including breast and TMJ implant claims, claims relating to late payment penalties charged by utilities, claims against pharmaceutical companies, claims against municipalities charging questionable licence fees, and claims against insurers relating to salvage appropriation, the use of after market parts, and denial of business interruption coverage in the wake of power failures. This paper was prepared with helpful and much appreciated research assistance and input provided by Jason Squire, Jason Schmidt and Ken Fraser, all with Lerners LLP.
3 "The Wolf Man", Universal Pictures (1941), starring Claude Rains, Lon Chaney Junior, and Bela Lugosi, and directed by George Waggner. Alternatively: "Silver bullets or fire, that's the only way to get rid of the damn things." -- From "The Howling", AVCO Embassy Pictures (1981), starring Dee Wallace and Patrick Macnee, and directed by Joe Dante.
4 For more extended discussion of the possible disadvantages to plaintiffs considering a class proceeding, see Ward Branch, Class Actions in Canada, looseleaf (Aurora: Canada Law Book, 2009) at 6.100 to 6.150.
5 For more extended discussion of the comparative advantages of class proceedings, see Branch, supra, note 4, at 6.10 to 6.90.
6 Class Proceedings Act, 1992, S.O. 1992. c.6, s.35.
7 Bendall v. McGhan Medical Corp. (1993), 14 O.R. (3d) 734 (Gen.Div.), motion for leave to appeal dismissed  O.J. No. 4210 (Gen.Div.); Peppiat v. Nicol (1993), 16 O.R. (3d) 133 (Gen.Div.); Campbell v. Flexwatt Corp. (1997), 44 B.C.L.R. (3d) 343 (C.A.), leave to appeal refused 228 N.R. 197 (note).; Ragoonanan v. Imperial Tobacco Canada Ltd. (2000), 51 O.R. (3d) 603 (S.C.).
8 See Bisaillon v. Concordia University,  1 S.C.R. 666, at paras. 17-18: "The class action is ... a procedural vehicle whose use neither modifies nor creates substantive rights. ... It cannot serve as a basis for legal proceeding if the various claims it covers, taken individually, would not do so. ... Thus, unless otherwise provided, the substantive law continues to apply as it would to a traditional individual proceeding." See also Dell Computer Corp. v. Union des consommateurs,  2 S.C.R. 801, at paras. 105-107: "The class action is a procedure, and its purpose is not to create a new right. ... [The] class action is clearly of public interest. However, ... as important as it may be, the class action is only a legal procedure. ... The notion that the class action procedure does not create new rights has been reiterated on numerous occasions..."
9 See, for example, Ontario's Class Proceeding Act, 1992, supra, note 6, s.28.
10 The possibility of avoiding exposure to class proceeding litigation through the use of arbitration clauses is considered in greater detail below.
11 See, for example, Moyes v. Fortune Financial Corporation (2001), 13 C.P.C. (5th) 147 (Ont.Sup.Ct.), and Ward-Price v. Mariners Haven Inc.,  O.J. No. 4260 (S.C.J.). See also the Ontario Court of Appeal's general condemnation of "litigation by installments" expressed in Garland v. Consumers' Gas Co. (2001), 57 O.R. (3d) 127 (C.A.), at para. 76, endorsed by the Supreme Court of Canada in Garland v. Consumers' Gas Co.,  1 S.C.R. 629, at para. 90.
12 See Canada Post Corp. v. Lépine,  1 S.C.R. 549, at para. 57. At issue was the Quebec court's refusal to recognize and enforce a judgment, granted by the Ontario court, purporting to resolve a dispute certified by the Ontario court as a "national class" proceeding. The Quebec court grounded its decision, in part, on its view that the Ontario court should have declined the request to assert jurisdiction over Quebec residents in the Ontario class proceeding. Given the ongoing uncertainty, controversy and conflict arising from courts in one Canadian jurisdiction asserting jurisdiction over claimants and claims based in other provinces or territories, via certification of proceedings purporting to determine the substantive rights of a "national class", the willingness of our national court to address and resolve the underlying issues of constitutionality was less than robust: As can be seen in this appeal, the creation of national classes also raises the issue of relations between equal but different superior courts in a federal system in which civil procedure and the administration of justice are under provincial jurisdiction. This case shows that the decisions made may sometimes cause friction between courts in different provinces. This of course often involves problems with communications or contacts between the courts and between the lawyers involved in such proceedings. However, the provincial legislatures should pay more attention to the framework for national class actions and the problems they present. More effective methods for managing jurisdictional disputes should be established in the spirit of mutual comity that is required between the courts of different provinces in the Canadian legal space. It is not this Court's role to define the necessary solutions. However, it is important to note the problems that sometimes seem to arise in conducting such actions. The apparent reluctance of the Supreme Court to tackle such issues in the class proceeding context stands in marked contrast to some of its earlier conflict of law decisions recognizing and asserting constitutional imperatives. See for example Morguard Investments Ltd. v. De Savoye,  3 S.C.R. 1077, and Tolofson v. Jensen,  3 S.C.R. 1022.
13 See, for example, Ontario's Class Proceeding Act, 1992, supra, note 6, s.24, and Cassano v. Toronto-Dominion Bank (2007), 87 O.R. (3d) 401 (C.A.).
14 See, for example, Logan v. Canada (Minister of Health),  O.J. No. 418 (S.C.J.), and Giuliano v. Allstate Insurance Co. (2003), 66 O.R. (3d) 238 (S.C.J.). In this context, the better monster analogy is not the werewolf but the multi-headed Hydra of Lerna, faced (and killed) by Hercules as one of his Twelve Labours. Each time Hercules cut off one of its many heads, two more would grow back.
15 See Pearson v. Inco Ltd., 78 O.R. (3d) 641 (C.A.) , where the plaintiff filed a fresh as amended statement of claim, and significantly reframed the causes of action and proposed common issues, prior to revisitation of the certification question by the Ontario Court of Appeal. (At para. 51: "There is no doubt that the appellant's theory of liability has evolved in an attempt to make the action more amenable to certification".)
16 From the outset of Ontario's class proceeding experience, the goals underlying the legislation repeatedly have been identified as increased access to justice, (for plaintiffs whose claims otherwise were not economically feasible), behaviour modification, (for defendants trusting in the improbability of such claims to act with impunity), and judicial economy, (for courts who required a mechanism to deal with multiple similar claims effectively and efficiently). See Bendall v. McGhan Medical Corp. (1993), supra note 7.
17 This judicial approach has been emphasized repeatedly by the Supreme Court of Canada; e.g., in the following passage from Bisaillon v. Concordia University, supra, note 8 at para. 16: "The class action has a social dimension. Its purpose is to facilitate access to justice for citizens who share common problems and would otherwise have little incentive to apply to the courts on an individual basis to assert their rights. ... This Court has already noted that legislation on class actions should be construed flexibly and generously: Hollick v. Toronto (Municipality),  3 S.C.R. 158, at para. 14; Western Canadian Shopping Centres Inc. v. Dutton,  2 S.C.R. 534, at para. 51."
18 See Cloud v. Canada (Attorney General) (2004), 73 O.R. (3d) 401 (C.A.), and Pearson v. Inco Limited, supra note 15, in particular.
19 Dr Vijay Alezias: "The demon wolf is not evil, unless the man he has bitten is evil." – From "Wolf", Columbia Pictures Corporation (1994), starring Jack Nicholson and Michelle Pfeiffer, and directed by Mike Nichols.
20 "An American Werewolf in London", Universal Pictures (1981), starring David Naughton, Jenny Agutter and Griffin Dunne, written and directed by John Landis. Alternatively: "Never stray from the path, never eat a windfall apple, and never trust a man whose eyebrows meet in the middle!" – From "The Company of Wolves", Palace Pictures, (1984), starring Angela Lansbury, Sarah Patterson, and David Warner, directed by Neil Jordan.
21 For detailed discussion of the significant management issues and problems arising from inability of proposed representative plaintiffs and their counsel to negotiate a sensible agreement on how such overlapping claims should be advanced, see Branch, supra, note 4 at paras. 4.1330 to 4.1340, and Eizenga et al., Class Actions Law and Practice, (2nd ed.), looseleaf (Markham: Lexis Nexis, 2009) at paras. 5.11 to 5.13. Of course, such divisions between competing representative plaintiffs and their respective counsel undermine their solidarity, which may very well benefit the targeted defendant. Progress of the litigation against the defendant will be delayed, (through no fault of the defendant), and both the court and the public increasingly may view an unseemly turf war between competing plaintiffs as an indication that the litigation has more to do with self-interest than genuine concern for the interests of class members. Compare the comments of Lucian, leader of the werewolves in Underworld: "You're acting like a pack of rabid dogs. And that, gentlemen, simply will not do. Not if you expect to defeat the vampires on their own ground. Not if you expect to survive at war..." – From "Underworld", Lakeshore Entertainment and Screen Gems (2003) starring Kate Beckinsale, Scott Speedman and Bill Nighy, directed by Len Wiseman,
22 Apology Act, S.O. 2009, c.3, ss.1-3. Ontario was the fourth Canadian province to enact apology legislation, following British Columbia, Saskatchewan and Manitoba. Most Australian states and more than thirty American states have similar laws in place.
23 Studies have shown that nearly one in three plaintiffs in the United States would not have sued had they received simple and timely apologies. The potential reduction in lawsuits resulting from accidents and wrongdoing was one of the principal reasons offered in support of the new legislation, which originated as a private member's bill. See "Toronto – In a litigious society, sometimes 'sorry' really is the hardest word" The Ottawa Citizen ( 8 October 2008), online: Canada.com < http://www.canada.com/ottawacitizen/news/story.html?id=f14b6844-5bae-48b9-9cec-0a578aaf57ec >
24 Sylvain Charlebois & Kenneth Levene, "Maple Leaf Foods showed that leadership can prevail in trying times" Financial Post ( 9 January 2009), online: Financial Post < http://www.financialpost.com/executive/story.html?id=1159895 >. See also the informative blog posting by Dave Fleet, marketing and media analyst with Fleishman-Hillard, at http://davefleet.com/2008/08/7-lessons-from-mapleleaf-foods-crisis-communications /: "7 Lessons From Maple Leaf Foods' Crisis Communications". The lessons? Use a prominent spokesperson. Publicly apologize. Be proactive. Fix the problem. Use appropriate messaging. Be consistent. Be open.
25 In Ontario, see Class Proceeding Act, 1992, supra, note 6, s.5(1)(a).
26 In Ontario, see Class Proceeding Act, 1992, supra, note 6, s.5(1)(c).
27 Class Proceedings Act, 1992, supra, note 6 s.1.
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