Court Refuses to Approve Class Action Settlement Despite Approval in Other Provinces

Multi-jurisdictional class actions in Canada continue to create problems for parties and the courts. Recently, the problems associated with multi-jurisdictional class actions resulted in the scuttling of a national class action settlement involving the prescription drugs OxyContin® and OxyNeo®. Despite three other courts approving the settlement in their respective jurisdictions, the Saskatchewan court in Perdikaris v Purdue Pharma Inc., refused to approve the same settlement in not one, but two decisions[i].

While the Purdue decisions raise other important class action issues, and in particular how class actions involving subrogated claims of provincial health insurers, and the settlement of those actions, should be handled, including whether the provincial health insurers had in fact agreed to the settlement and whether the legislative requirements for settlement of provincial health insurance claims had been met, the focus of this commentary is on issues relating to the problems occasioned by multi-jurisdictional class actions in Canada.

Background

Proposed class actions against Purdue Pharma Inc. were commenced in 2007 in various jurisdictions, including Quebec, Ontario, and Nova Scotia, claiming damages as a result of the failure to warn consumers about the addictive properties of OxyContin and Oxy Neo. Similar class actions were brought between 2007 and 2012 in various other jurisdictions, with the last such proposed class action being brought in Saskatchewan in June of 2012. While contested certification applications were scheduled to proceed in the various jurisdictions in April and October of 2016, a national settlement agreement was reached before any of the contested certification applications were heard.

The Original Settlement

The original settlement involved an Agreement in Principle reached on April 4, 2016, amongst counsel in Ontario, Quebec, and Nova Scotia, just prior to the first scheduled contested certification hearing in Ontario.  Saskatchewan counsel had not, to that point, participated in the settlement discussions and there thus existed the prospect of three of the four actions being certified on a national basis in Ontario. Given the legislative provisions governing multi-jurisdictional class actions in Saskatchewan, it was possible the Saskatchewan proceeding would not be certified. [ii] 

Shortly thereafter, on April 15, 2016, the day prior to the commencement of the Saskatchewan certification hearing, a second agreement in principle was reached amongst the parties in all four actions.  The April 15, 2016 Agreement in Principle contemplated a $19 million settlement fund to cover administration costs, legal fees, class member claims, and included $1 million to cover the subrogated claims of the provincial health insurers. The settlement was to be processed in Ontario only, with a Canada wide certification followed by a settlement approval hearing in Ontario.

In accordance with the April 15, 2016 agreement, the parties obtained a consent order in the Ontario action certifying a national opt-out class in Ontario. Justice Belobaba granted conditional certification in Ontario on behalf of, inter alia, all Canadians who were prescribed and ingested Oxy Contin and/or Oxy Neo. The April 15, 2016 certification Order contemplated that it would be null and void in the event the settlement was not approved by the Ontario Court or in the event the settlement approval was not “recognized” by the Courts in Quebec, Nova Scotia, BC, or Saskatchewan.

The Revised Settlement

Over the next 11 months, the structure of the original settlement changed from an agreement to pursue only the Ontario proceeding on the basis of a national opt-out class, to an agreement requiring certification and Court approval in each of the four separate actions in four different provinces: Ontario, Quebec, Nova Scotia, and Saskatchewan.

The settlement payment under the revised agreement was to be $20 million, which included a $2 million payment to provincial health insurers (less counsel fees of $150,000) leaving $18 million to pay the costs of administering the settlement, legal costs of class counsel -including $400,000 to be paid to counsel who agreed to abandon their proposed class actions, and the claims of all class members.  The revised settlement was contingent on it being approved in all four provinces.

In accordance with the revised settlement agreement reached in March of 2017, Justice Belobaba rescinded the original Canada-wide certification Order of April 15, 2016 and replaced it with a conditional certification Order covering only Ontario and BC class members. Thereafter, the Quebec Court granted conditional certification/authorization on behalf of Quebec class members; the Nova Scotia Court granted conditional certification on behalf of class members in Nova Scotia, Newfoundland & Labrador, New Brunswick and PEI; and the Saskatchewan Court granted conditional certification on behalf of class members in Saskatchewan, Alberta, Manitoba, Yukon, NWT, and Nunavut.

Settlement and Fee Approval Motions

In July and August of 2017, motions for approval of the revised settlement were brought in each of Ontario, Nova Scotia and Quebec, and the Courts in each of those jurisdictions approved both the revised settlement agreement and the legal fees.

However, in his September 2017 decision in Perdikaris v Purdue Pharma Inc., Justice Ball, just prior to his retirement at the end of 2017, refused to approve the revised settlement in Saskatchewan, raising concerns both about whether the settlement was fair and reasonable generally, and about specific issues related to the subrogated claims of the provincial health insurers.  In addition, Justice Ball expressed concern that the issue of legal fees being sought by class counsel ($4.65 million in fees, $348,519.92 in disbursements, and $558,378.56 in applicable taxes) “played a central role in the decision to settle”, noting that the parties had not explained the rationale for restructuring the settlement from a single national opt-out class to be pursued in Ontario only to a settlement requiring certification and approval in four separate actions in four different provinces.[iii]

Justice Ball set out the history of the matter, and drew the conclusion that the decision to restructure the settlement was done in order to avoid the criticism levelled at counsel in the Bancroft-Snell v Visa Canada Corporation decisions,[iv]  wherein the Ontario Court rejected a fee-sharing agreement between two law firms that had been engaged in a carriage dispute where one of the firms had agreed to accept a payment out of the other firm’s contingency fee in return for abandoning its action. The Court reduced the legal fees being sought in the Bancroft-Snell action in order to express its disapproval of the fee sharing arrangement.  In the Purdue case,  Justice Ball expressed similar concerns and went so far as to say that the decision to restructure the settlement in the present case was made so that none of the class counsel would be perceived as “buying off” or paying “ransom” to any of the others.

Justice Ball also noted that even though class counsel had agreed to pay $400,000 of their fee to the seven other firms who had brought and agreed to abandon their proposed class actions, none of the Courts approving the settlement and legal fees in Ontario, Nova Scotia, and Quebec, made any reference to the Bancroft-Snell decisions.

Finally, and in relation to the legal fees, Justice Ball wondered whether the restructuring of the settlement increased the legal and administrative costs for the benefit of class counsel at the expense of class members. Because Justice Ball decided not to approve the settlement at all, he did not specifically make any determination on the reasonableness of the fees being claimed.

Purdue #2

When the parties returned on amended materials addressing the Court’s concerns, Justice Barrington-Foote who had assumed the role of certification judge, again refused to approve the settlement.  He also had his own concerns about (i) whether the settlement was fair and reasonable, (ii) whether, in fact, the provincial health insurers had agreed to the settlement, and (iii) whether the legislative requirements for the settlement of the claims of the provincial health insurers had been met.[v] 

Justice Barrington-Foote raised concerns about the calculation of damages each class member would receive, noting that the assumptions made by counsel concerning the likely take-up rate and the amount that would ultimately be available to pay those claims, was somewhat flawed. He was not content to rely on the evidence presented as being sufficient to address these concerns.

After dealing extensively with the new evidence filed in relation to the provincial health insurers, Justice Barrington-Foote addressed the settlement itself and whether it was fair and reasonable and in the best interests of the class. He concluded that it was not, primarily because he was not satisfied that the assumptions identified by class counsel concerning the range of damages, the average recovery, the total recovery and the number of potential claimants were sound, noting that there was limited evidence as to the likelihood of success. The Judge also noted that this was, in substance, an early stage settlement, concluded after a one-day mediation session and a conference call.

In the end, the Judge concluded that he was not yet satisfied that the settlement was fair, reasonable and in the best interests of the class as a whole. He did, however, note that having reviewed the evidence and the representations of counsel, he would be strongly inclined to give his approval to the legal fees and disbursements requested by class counsel

Conclusions

The Purdue decisions raise two significant issues in the context of multi-jurisdictional class actions.  First, the concerns of the Court about whether the settlement is fair and reasonable included concerns about the manner in which the defendants had negotiated the settlement.  This so-called “defendant double-dealing” was one of the six serious problems identified by Justice Perell in his 2016 decision in Kowalyshyn v Valeant Pharmaceutical International, Inc.[vi]  However, this circumstance was not mentioned as a cause of concern (or at all) by the other three certifying Courts who had approved the settlement.

Second, the Purdue decisions are significant in that they reflect the fallout from the Ontario Courts’ decisions in Bancroft-Snell, referenced above.

In his later decision in Valeant, Justice Perell specifically stated he made the ruling in Bancroft-Snell in an attempt to put a stop to the practice of what he believed to be law firms prospecting for quick profits in class actions.[vii]  However, rather than contributing to the avoidance of a multiplicity of multi-jurisdictional class actions, the Bancroft-Snell decision may have led class counsel to look for other mechanisms to avoid a similar outcome, including the pursuit of more than one action in different jurisdictions.  As noted, this was a concern expressed by Justice Ball in Purdue #1.  Although not required to approve the legal fees because the settlement itself was not approved, Justice Ball opined that a better approach to legal fee approval would be to focus on whether the proposed counsel fees are fair and reasonable in light of the risk undertaken and the result achieved, rather than measuring class counsels’ respective contributions to the result achieved.

Leave to appeal the decision in Purdue #2 has been sought and is scheduled to be heard in July 2018.

The Purdue decisions highlight the need for Canadian courts to develop and apply a consistent approach to legal fee approval, particularly where counsel have entered into fee sharing or other consortium agreements.  The failure to do so may contribute to the multiplicity of multi-jurisdictional actions to avoid or mitigate risk on legal fee approval, as well as the risk and reality of irreconcilable judgments as seen in Purdue #1 and #2.