Canadian Appeals Monitor

Information and Commentary on Upcoming and Recent Appeal Court Decisions

The Second Opinion: “The Class Action…is Frequently Abused” — Judge Posner Provides Unvarnished Commentary on Class Proceedings

A Commentary on Recent Legal Developments by the Opinions Group of McCarthy Tétrault LLP

Posted in The Second Opinion
Anthony Alexander

For the Canadian class actions defence bar — which must occasionally feel disheartened by the unwavering enthusiasm with which our courts have championed class proceedings — the recent ruling in Eubank v. Pella Corporation (7th Cir. June 2, 2014) represents a breath of fresh air from south of the border.

Judge Richard Posner, speaking for a unanimous panel of the Seventh Circuit Court of Appeal, uses blunt and forthright language — alien to a Canadian ear — in acknowledging the risks to justice created by such proceedings.  He places particular emphasis on the inherent conflicts faced by plaintiffs’ class counsel.

To place this candid judicial language in a domestic context, it is necessary to acknowledge that many Canadian judges have embraced class actions with what sometimes appears to be an uncritical and unquestioning enthusiasm.  The bench has exhibited great inventiveness in ensuring that substantive and procedural hurdles are overcome in the interests of permitting proposed class actions to proceed.  Claims which have (at best) marginal merit have received certification.  The fact that almost all such claims are initiated — not by a genuinely aggrieved plaintiff or group of plaintiffs — but rather by a highly motivated and entrepreneurial plaintiffs’ bar, is rarely acknowledged or addressed by Canadian courts.

Refreshingly, Judge Posner exhibits no such reticence, and refuses to treat class actions (or class counsel) with politically correct “kid gloves.”

The Seventh Circuit’s ruling in Eubank commences in an even-handed fashion, with Judge Posner acknowledging that, in the case of meritorious claims, class proceedings are “an ingenious procedural innovation” and ”a worthwhile supplement to conventional litigation procedure.”

However, the Court of Appeal goes on to recognize — and unsparingly describes — the inherent conflicts which accompany such proceedings.  As noted by Judge Posner, the concern begins with class counsel’s self-serving selection of a malleable representative plaintiff (emphasis added):

…Normally only a few of the claimants are named as plaintiffs (sometimes only one, though there are several in this case). The named plaintiffs are the representatives of the class—fiduciaries of its members—and therefore charged with monitoring the lawyers who prosecute the case on behalf of the class (class counsel). They receive modest compensation, in addition to their damages as class members, for their normally quite limited services—often little more than sitting for a deposition—as class representatives. Invariably they are selected by class counsel, who as a practical matter control the litigation by the class. The selection of the class representatives by class counsel inevitably dilutes their fiduciary commitment.

….

The class action is a worthwhile supplement to conventional litigation procedure…, but it is controversial and embattled…, in part because it is frequently abused…. The control of the class over its lawyers usually is attenuated, often to the point of nonexistence. Except for the named plaintiffs, the members of the class are more like beneficiaries than like parties; for although they are authorized to appeal from an adverse judgment…., they have no control over class counsel. In principle the named plaintiffs do have that control, but as we’ve already hinted this is rarely true in practice. Class actions are the brainchildren of the lawyers who specialize in prosecuting such actions, and in picking class representatives they have no incentive to select persons capable or desirous of monitoring the lawyers’ conduct of the litigation.

The Eubank v. Pella appeal arose out of a disputed settlement.  As Judge Posner explained, the settlement of class actions represents one area where class counsel run the risk of abusing their authority (emphasis added):

…The reasons that class actions invariably are settled are twofold. Aggregating a great many claims (sometimes tens or even hundreds of thousands—occasionally millions) often creates a potential liability so great that the defendant is unwilling to bear the risk, even if it is only a small probability, of an adverse judgment. At the same time, class counsel, ungoverned as a practical matter by either the named plaintiffs or the other members of the class, have an opportunity to maximize their attorneys’ fees—which (besides other expenses) are all they can get from the class action—at the expense of the class. The defendant cares only about the size of the settlement, not how it is divided between attorneys’ fees and compensation for the class. …

Thus, the natural self-interest of the parties leads to a settlement amount that is as low as possible, “but heavily tilted toward attorneys’ fees.”

The settlement that had been proposed in the Eubank case was described by Judge Posner as “inequitable — even scandalous,” with class counsel blatantly enriching himself at the expense of his “clients.”  Not surprisingly, it was rejected by the Seventh Circuit Court of Appeal.  Judge Posner’s recitation of class counsel’s misconduct provides a salutary object lesson for any reader.

It is sometimes said that “bad facts make bad law.”  In contrast, the “bad facts” of the Eubank ruling were the catalyst for “very good law.”  Judge Posner’s unvarnished criticism valuably underlines the drawbacks and vulnerabilities that are inherent in every class action, but which are almost never acknowledged by the courts.

The McCarthy Tétrault Opinions Group consists of members of the firm’s litigation department whose practices focus on written advocacy and the provision of strategic advice and opinions in the context of complex business disputes and transactions. The members of the Opinions Group are Anthony Alexander, Martin Boodman, Brandon Kain and Hovsep Afarian.

Dead Again: Court of Appeal makes Clear that Certification of Misclassification Overtime Class Actions Remains as Hard as Ever

Posted in Case Comments, Class Actions
Elder MarquesKosta Kalogiros

Last week, the Ontario Court of Appeal released its decision in Brown v. Canadian Imperial Bank of Commerce, upholding the Divisional Court’s decision affirming the dismissal of a certification motion in a proposed “misclassification” overtime class action (previously blogged about in the spring and fall of 2013). The appeal decision is of particular interest as “misclassification” overtime class actions (i.e. class actions alleging that an employer has misclassified employees and managers to avoid overtime pay obligations) were thought, by many observers, to have already been dealt a fatal blow by the Court in its prior decision in McCracken v. Canadian National Railway Company, but a recent certification decision had raised questions about whether that was right.

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This Week at the SCC (03/10/2014)

A Commentary on Recent Legal Developments by the Opinions Group of McCarthy Tétrault LLP

Posted in Case Comments, This Week at the SCC
Hovsep Afarian

The Supreme Court of Canada issued a judgment in one case and denied leave to appeal in another case of interest to Canadian businesses and professions.

In Trial Lawyers Association of British Columbia v. British Columbia (Attorney General), a majority of the Court ruled that a provincial rule requiring the payment of court hearing fees, with limited exemptions, was unconstitutional, as it infringed litigants’ right to access to justice.  The majority of the Court ruled that, in order to pass constitutional muster, such fees cannot be so high as to cause litigants to “sacrifice reasonable expenses in order to bring a claim.”

In Fédération des médecins spécialistes du Québec v. Conseil pour la protection des malades, the Court refused to grant leave to appeal a decision of the Quebec Court of Appeal which had awarded moral damages to a class comprised of patients whose surgeries had been postponed as a result of employment-related protest actions taken by the Federation of Medical Specialists of Quebec against the Minister of Health and Social Services.

Preliminary Dismissal of Meritless Case: A Second Message of Encouragement from the Supreme Court

Posted in Case Comments, Procedure
Pierre-Jerome BouchardAlexandre Boulé

The Supreme Court of Canada recently released an important decision regarding the preliminary dismissal of cases, this time through the doctrine of stare decisis, which dictates that a precedent case rendered by a higher court binds a lower court’s decision.  In Attorney General of Canada v. Confédération des syndicats nationaux, 2014 SCC 49 (“CSN 2014”), Justices Lebel and Wagner, writing for a unanimous Court, confirmed that the action of the plaintiffs unions had no reasonable chance of success and should be dismissed based on stare decisis.  The Court’s decision, in a case originating from Quebec, echoes its earlier ruling in Hryniak v. Mauldin, 2014 SCC 7 (“Hryniak”)[1], promoting procedural tools which can lead to preliminary dismissal of actions.

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This Week at the SCC (26/09/2014)

A Commentary on Recent Legal Developments by the Opinions Group of McCarthy Tétrault LLP

Posted in This Week at the SCC
Anthony Alexander

The Supreme Court of Canada granted leave to appeal in one case, and refused leave in several other cases, likely to be of interest to Canadian businesses and professions.

The Court granted leave from the ruling of the Saskatchewan Court of Appeal in Lemare Lake Logging Ltd v 3L Cattle Company Ltd, 2014 SKCA 35.  That constitutional law decision had addressed the alleged operational conflict between the federal Bankruptcy and Insolvency Act and the Saskatchewan Farm Security Act, regarding the appointment of a receiver.   The Court of Appeal had found the provincial enactment to be inoperative pursuant to the doctrine of federal paramountcy.

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Insider Trading: Securities Commission to Think Twice About Excessive Sanctions and Speculation

Posted in Case Comments, Securities
Kate Findlay

In a rare appellate court decision, the Court of Appeal in Walton v. Alberta (Securities Commission), 2014 ABCA 273, has set aside a decision by the Alberta Securities Commission and has held that any monetary penalties levied must be proportionate to the circumstances of the offender and supported by reasons. The Court also held that findings cannot be based upon speculation and that the Commission had improperly interpreted the “recommending or encouraging” provisions of the Alberta Securities Act (the “Act”) in a decision that is certain to give pause to Securities Commissions across Canada.

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This Week at the SCC (19/09/2014)

A Commentary on Recent Legal Developments by the Opinions Group of McCarthy Tétrault LLP

Posted in This Week at the SCC
Brandon Kain

The Supreme Court of Canada released judgment this week in a trilogy of cases of interest to Canadian businesses and professions.

In Bank of Montreal v. Marcotte, 2014 SCC 55, Amex Bank of Canada v. Adams, 2014 SCC 56 and Marcotte v. Fédération des caisses Desjardins du Québec, 2014 SCC 57, the Court upheld class action trial judgments against several financial institutions in which consumers recovered conversion charges that the defendants imposed upon credit card purchases made in foreign currencies.  The defendants were found not to have complied with certain disclosure required in the Quebec Consumer Protection Act (the “CPA”) with respect to conversion charges assessed by them.  The Court rejected arguments that the relevant CPA provisions were constitutionally inapplicable or inoperative under the doctrines of interjurisdictional immunity and paramountcy, based on their impairment of the federal banking power or conflict with the Bank Act.  As well, the Court clarified that a class action may be authorized even where the representative plaintiff does not have a direct cause of action against each named defendant, so long as he or she is an adequate representative of the class and the actions against each defendant involve identical, similar or related questions of fact.  The Court also addressed the threshold for awarding punitive damages in the class actions context.

For more extensive discussions of the Marcotte trilogy, please see the blog post prepared by my colleague Shaun Finn (focusing on its implications for class actions law), and the legal update prepared by my colleagues James Archer, Ana Badour and Robert Metcalfe (focusing on its implications for constitutional law and financial institutions).

The McCarthy Tétrault Opinions Group consists of members of the firm’s litigation department whose practices focus on written advocacy and the provision of strategic advice and opinions in the context of complex business disputes and transactions.  The members of the Opinions Group are Anthony Alexander, Martin Boodman, Brandon Kain and Hovsep Afarian.

SCC Maintains Permissive View of Quebec Class Actions and confirms the Consumer Protection Act applies to Bank Conversion Charges

Posted in Case Comments, Class Actions
Shaun Finn

The following post of the Canadian Class Actions Monitor blog may be of interest to readers of this blog: SCC Maintains Permissive View of Quebec Class Actions and confirms the Consumer Protection Act applies to Bank Conversion Charges.

In Bank of Montreal v. Marcotte, 2014 SCC 55, the Supreme Court dismissed appeals brought by various banks contesting the applicability of the Quebec Consumer Protection Act (“CPA”) to conversion charges charged by banks of foreign currency transactions. The Court concluded that certain disclosure provisions of the CPA did apply to the conversion charges in issue.  The Court rejected the applicability of the doctrines of inter-jurisdictional immunity and paramountcy invoked by the banks.  The Court concluded that section 12 CPA had been breached (giving rise to a reduction in obligations and punitive damages). The Court also held that a representative plaintiff need not have a cause of action against each of the named defendants, that collective recovery and punitive damages are both available, and that punitive damages may be awarded if the impugned behaviour was “lax, passive or ignorant with respect to consumers’ rights.” Read more

Die Another Day: SCC Adjourns Appeal of National Class Actions Decision Sine Die

Posted in Case Comments, Class Actions, Conflict of Laws, Constitutional
Katherine Booth

Followers of Canadian class actions law will have longer to wait for a decision in the much anticipated appeal from the Manitoba Court of Appeal’s decision in Meeking v. Cash Store Inc. et al., 2013 MBCA 81. The appeal, which was scheduled to be heard on January 12, 2015 and expected to bring clarity on the issue of “national” class actions in Canada, was recently adjourned sine die.

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The Crucial Distinction Between Carrots and Sticks: Incentives and Penalties in the Interpretation of the Interest Act

Posted in Real Property
Timothy Froese

Do incentives for prompt payment in a mortgage, which would be lost on default, run afoul of the prohibition against penalties for non-performance contained in s.8 of the Interest Act? The Alberta Court of Appeal recently split over this question, with the majority saying no. This case could affect the structure of mortgages in Alberta, encouraging the use of “non-penal” devices to ensure performance that may be difficult to distinguish, in operation, from penalties.

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Ontario Court of Appeal Turns Against Cross-Border Securities Class Actions

Posted in Case Comments, Class Actions, Securities
Michael RosenbergSapna Thakker

The following post on the Canadian Class Actions Monitor blog may be of interest to readers of this blog: Ontario Court of Appeal Turns Against Cross-Border Securities Class Actions.

In the recent decision of Kaynes v. BP, PLC, 2014 ONCA 580, the Ontario Court of Appeal stayed a proposed secondary market securities class action on the basis of forum non conveniens.  Writing for a unanimous Court of Appeal, Sharpe J.A. found that Ontario could assume jurisdiction over claims by Canadian residents who purchased their shares on foreign exchanges.  Nevertheless, he held that Ontario should decline jurisdiction on the basis that foreign courts were better positioned to decide claims arising from transactions on foreign exchanges. Read more

 

Time to Leave: Supreme Court to Determine Securities Class Action Limitation Period

Posted in Case Comments, Class Actions, Securities
Elder MarquesMichael O'Brien

The Supreme Court of Canada has granted leave to appeal in a case that will determine how to apply the statutory limitation period for investors in Ontario who decide to sue public issuers and their executives under the Securities  Act.  Given similar legislation in other provinces, the case will be significant for investors and public issuers across Canada.

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A Costly Choice (of law): Determining the damages available for an extra-territorial tort

Posted in Case Comments, Conflict of Laws
Brooke MacKenzie

The recent UK Supreme Court decision in Cox v Ergo Versicherung AG, [2014] UKSC 22, provides helpful commentary and a potentially persuasive precedent for Canadian courts on issues of choice of law, the distinction between substance and procedure in the conflict of laws, and legislative extraterritoriality in circumstances where a cause of action is governed by a foreign law.

Consistent with Canadian law, the UK Supreme Court held in Cox that issues of substance are governed by the law of the place where the injury was sustained, but issues of procedure must be determined by the law of the forum where the case is tried.

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A blockbuster decision in contractual interpretation

Posted in Case Comments, Contracts
Geoff R. Hall

In the world of contractual interpretation, the decision of the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp. is a blockbuster. Sattva does three significant things. First, it determines that contractual interpretation generally involves a mixed question of fact and law, not a question of law alone. That holding has major implications for appellate review of decisions involving issues of contractual interpretation, and represents the resolution of an issue that had previously divided provincial appellate courts. Second, Sattva emphasizes the importance to contractual interpretation of evidence of the surrounding circumstances or the factual matrix in which a contract is formed. In doing so, Sattva implicitly overrules a 1998 Supreme Court of Canada precedent to the extent that it had downplayed the importance of the factual matrix. Third, Sattva reaffirms a number of principles of contractual interpretation which are well established in Canadian jurisprudence.

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Pay Me Now: Court of Appeal Delivers Lessons on fiduciary duties, the business judgment rule, and executive compensation

Posted in Case Comments, Corporate Law, Securities
Elder MarquesShane C. D'SouzaRobert Glasgow

The business judgment of directors setting executive compensation was front and centre in the Ontario Court of Appeal’s recent decision in Unique Broadband Systems, Inc. (Re), 2014 ONCA 538 (UBS). Although the decision is based on unique underlying facts, it offers several important lessons on corporate governance.

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Deemed Reliance in the U.S. Supreme Court

Posted in Case Comments, Class Actions, Securities
Eric BlockAndrew MathesonDana PeeblesStephanie Sugar

The following post on the Canadian Securities Regulatory Monitor blog may be of interest to readers of this blog: Deemed Reliance in the U.S. Supreme Court.

On June 23, 2014 the United States Supreme Court issued its much-anticipated decision in Halliburton Co. v. Erica P. John Fund (“Halliburton”), as issuers and investors in the U.S. (and Canada) wanted to see if the landscape for securities class actions in both countries would be fundamentally changed. The U.S. Supreme Court made only an uneventful change in U.S. law and so our Courts are not likely to see a sudden shift of class actions against cross-listed companies to Canada. The U.S. Supreme Court specifically held that defendants in securities class actions could rebut the presumption of investor reliance on public and material misrepresentations prior to class certification, by mounting evidence that the alleged misrepresentations did not, in fact, affect the issuer’s share price.  Read more

Halliburton: Deepening the Divide Between Certification of US and Canadian Securities Class Actions

Posted in Case Comments, Class Actions, Securities
Laurie Baptiste

Everyone has been talking about the recent decision from the US Supreme Court in Halliburton Co v Erica P. John Fund Inc (Halliburton) and its rulings regarding the “fraud on the market” doctrine in US securities class action litigation (previously reported on here and here). In Canada, many are likely wondering about the potential impact of the decision here.  However, what this case shows is a deepening divide between the certification process of such actions in the US and Canada. In the US, the process is becoming more difficult for investors, while Canada remains a very pro-certification jurisdiction.

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US Supreme Court Clarifies Law on Warrantless Cell Phone Searches. Will the Supreme Court of Canada Follow?

Posted in Case Comments, Charter of Rights, Criminal
Marlon Hylton

Lower courts in both Canada and the US have been deeply divided on the application of their respective Supreme Courts’ precedents on whether the police need a warrant to search the contents of a smart/cell phone seized during a lawful arrest.  On June 25, 2014, the US Supreme Court unanimously settled US law in Riley v. California, No. 13-132.  The court found that privacy interests at stake outweigh any legitimate governmental interest, absent any “exigent circumstances”.

The Fourth Amendment of the US Constitution provides protection against unreasonable search.  A common law exception to the protection under the Amendment is where the search is incident to a lawful arrest.

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Grassy Narrows First Nation v. Ontario (Natural Resources) – SCC affirms Ontario’s taking up of treaty lands for resource development purposes

Posted in Aboriginal, Mining

The following Mining Prospects blog post by Sam Adkins and Stephanie Axmann may be of interest to our readers:

Grassy Narrows First Nation v. Ontario (Natural Resources) – SCC affirms Ontario’s taking up of treaty lands for resource development purposes

 

Nine Years Too Late, Wal-Mart’s First Unionized Employees Win at the Highest Court

Posted in Labour and Employment
Elder Marques

The saga of North America’s first unionized Wal-Mart has taken a significant turn in favour of its former employees, nine years after they lost their jobs when the store in Jonquière, Quebec was permanently shut.  Much ink has been spilled telling the story of the Jonquière store, its successful unionization in 2004, and its closure in 2005, which was announced on the very day that an arbitrator had been appointed in relation to the what was to have been the store’s first collective agreement.  Now, the Supreme Court of Canada in United Food and Commercial Workers, Local 503 v. Wal-Mart Canada Corp., 2014 SCC 45  has, for a second time, considered the rights of the store’s employees in the context of that store closure.  This time, however, the Court issued a significant victory in favour of the employees which may have implications across the country.

In 2009, the Court dismissed a pair of appeals – Plourde 2009 SCC 54  and Desbiens 2009 SCC 55 – in which former employees sought remedies after the store closure.  On June 27, 2014, the Court released the decision of a seven-member panel’s consideration of a grievance claiming that Wal-Mart’s closure of the store violated the “freeze” provisions of Quebec’s Labour Code.  Similar to provisions elsewhere, the s. 59 “freeze” restricts the employer’s ability to “change the conditions of employment of his employees” during certain phases of collective bargaining.  In a 5-2 ruling, the Court upheld an arbitrator’s award which had found that the closure of the store constituted an impermissible change in the employees’ employment conditions in the absence of evidence that the closure was made in the ordinary course of the company’s business. Continue Reading

Summary Judgment on Trial: Ontario Court of Appeal Revisits the Risks of Summary Adjudication

Posted in Case Comments, Procedure
Katherine Booth

In a recent decision, Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450, the Ontario Court of Appeal reiterates some of the risks of summary adjudication and reminds parties that, despite the enthusiasm for summary judgment endorsed by the Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7, summary judgment may not be appropriate in all cases – specifically, those in which a staged fact-finding process raises the spectre of inconsistent findings at summary judgment and at trial.

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This Week at the SCC (27/06/14)

A Commentary on Recent Legal Developments by the Opinions Group of McCarthy Tétrault LLP

Posted in This Week at the SCC
Anthony Alexander

This has been a particularly busy week at the Supreme Court of Canada vis-à-vis cases likely to be of interest to Canadian businesses and professionals.  The Court issued two significant rulings, and refused leave to appeal in another seven cases.

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The Aereo Decision – Canadian Content?

Posted in Case Comments, Intellectual Property
Daniel G.C. Glover

The following post on the snIP/ITs blog may be of interest to readers of this blog: The Aereo Decision – Canadian Content?

On June 25, 2014, the United States Supreme Court ruled in a 6-3 decision in American Broadcasting Cos., Inc. et al v. Aereo, Inc. that Aereo’s Internet retransmission service infringes copyright. McCarthy Tétrault played a small role by filing an amicus brief on behalf of a coalition of international rights holders and copyright scholars that drew the Court’s attention to the need to interpret the US Copyright Act in a technologically neutral way, as similar copyright laws have been construed by the Supreme Court of Canada and the European Court of Justice to conform to international copyright treaty law. Read more

 

 

 

Too Soon to Say Too Late? Reviewing a Tribunal’s decision to hear a late-filed complaint

Posted in Administrative, Case Comments
Ryann Atkins

This month the British Columbia Court of Appeal provided guidance on two administrative law questions, one procedural and one substantive. The Court weighed in on when it is appropriate to review a preliminary decision of a tribunal before the hearing on the merits, and confirmed that where the tribunal decides to hear a late-filed complaint, it is not open to the reviewing judge to reweigh the evidence. In Mzite v. British Columbia (Ministry of Public Safety and Solicitor General), the Court of Appeal upheld the decision of the lower court judge to review the Human Rights Tribunal’s decision to accept a late-filed complaint in the public interest, but overturned his order to set the Tribunal’s decision aside.

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