In a recent decision, Cameron-Gardos v. Crawford and Company (Canada) Inc., 2024 ONSC 700, Justice Perell heard a rare motion for leave to sue a class action administrator. In addition to reviewing the applicable law, Justice Perell’s decision offers several takeaways concerning claims against class action administrators.
Background
The plaintiffs were class members in a tainted blood class action that obtained Court settlement approval in 2007. The Settlement Agreement and its compensation scheme were based on complex actuarial predictions, and class members could file claims for several forms of compensation.
In 2009, the plaintiffs filed claims under the Settlement Agreement, which was administered by the defendant claims management company, Crawford and Company (Canada) Inc. To seek compensation for economic losses, the plaintiffs were required to elect between receiving a fixed sum or having their claims assessed and paid out of a segregated $93 million fund. The plaintiffs made the latter election, allegedly based on representations from Crawford that this election would result in a “significantly larger compensation amount”. However, the segregated $93 million fund proved to be insufficient to cover all the claims for economic losses and became insolvent. Ultimately, the $93 million fund was distributed pro rata, which reduced the plaintiffs’ compensation by approximately 80%.
After receiving their (diminished) compensation, the plaintiffs commenced a claim against Crawford, asserting claims for breach of contract, negligence, and breach of fiduciary duty in respect of the approximately $400,000 in settlement funds that they had not been paid. As Justice Perell explained:
… the essential allegation of wrongdoing is that Crawford – which as Administrator would necessarily have known that the PELD Fund was insolvent with no assurances that there would be a rescuing surplus from the general Compensation Fund – was advising Mr. Cameron-Gardos and Ms. Cameron about elections about compensation. Knowing what it knew, allegedly Crawford was organizing futility.
The test for leave to sue an administrator
The Settlement Approval Order contained a common provision that required a plaintiff to obtain leave in order to commence a proceeding against Crawford. The plaintiffs brought a motion for leave, and both parties argued that the applicable test was the statutory test for leave to bring a secondary market claim pursuant to the Securities Act.
However, Justice Perell explained, reviewing the relevant jurisprudence:
The test for leave to sue an administrator of a class action settlement is straightforward, and as it happens it is identical to the test used for the cause of action criterion for certification in a class action. The test is whether the class member’s claim against the Administrator has a reasonable possibility of success. This is also the test used under the Rules of Civil Procedure to determine whether a plaintiff has a legally viable cause of action.
Justice Perell added that “the question in the immediate case is whether Mr. Cameron-Gardos and Ms. Cameron have pleaded causes of action that have a reasonable possibility of success.”
Justice Perell’s approach appears to have lowered the threshold for leave and streamlined the procedure for a leave motion. Prior decisions on leave motions, which Justice Perell reviewed, had held that a plaintiff was required to lead evidence and that leave may be denied where a plaintiff “attempts to attack, and reopen, decisions made in accordance with the Settlement procedures”. By contrast, Justice Perell’s enunciation of the test for leave to sue an administrator focuses squarely on the sufficiency of a plaintiff’s pleading.
Other takeaways
In addition to reviewing the test for leave, Justice Perell’s decision offers several other takeaways.
First, just like on a motion to strike, courts may be reluctant on leave motions to accept arguments based on limitation periods and releases. Justice Perell concluded that neither was a basis “at this juncture” to deny leave to the plaintiffs to sue Crawford, especially given that Crawford had not yet defended the action.
Second, administrators should carefully consider potential issues that may arise in administering class action settlements before accepting mandates, as well as the possibility of obtaining an indemnity from settling defendants. An amendment in 2020 to the Class Proceedings Act (section 27.1(15)) now imposes an express statutory duty on administrators to “administer the distribution in a competent and diligent manner”. It is arguable that, even prior to the express codification of this duty imposed on administrators, the same duty may have existed at common law.
Third, unresolved questions remain concerning the liability of class action administrators for breach of contract under settlement agreements. Despite identifying privity of contract between class members and administrators as a “major pleading problem” because administrators are not signatories to settlement agreements, Justice Perell concluded that the contract claim should be permitted to proceed because it was “not plain and obvious that privity is an insurmountable problem that could not be addressed by an amended pleading”, having regard to the liberal approach to pleadings and exceptions to privity. He added: “it is not plain and obvious that a breach of contract claim could not be pleaded.” In this regard, Justice Perell’s decision suggests that for leave to be granted, a plaintiff need only demonstrate the potential to plead a viable cause of action, including a novel breach of contract claim.
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