Can You Tell Me Where the Exit Is?

Class action settlements — perhaps a bit arcane for a blog post, but a gripper if you are defending a class action.

Class action proceedings can be lengthy. The certification process easily adds an extra two years to the proceeding. Not surprisingly, defendants peripheral to the plaintiff’s case often look for an early exit.

In conventional actions, plaintiffs often throw a wide net hoping to find one or more defendants at fault.

Class proceedings have called for different strategies. Plaintiff have the onus of constructing a case with common issues of liability or damages. The common issues must advance the case. Class plaintiffs must be more selective and choose a limited number of issues and defendants that present sufficient commonality between the class of plaintiffs and the dispute.

The restriction of claims can also provide opportunities for defendants to exit proceedings. Mary Carter type agreements provide liability caps but require settling defendants to remain in the lawsuit. This defeats one of the main benefits of settlement for the settling defendant.

Proportionate share settlements permit the settling defendant to leave the proceeding, and the plaintiff restricts the plaintiff claim to the liability share of the remaining defendants. But its not an either a Mary Carter or a Pierringer situation. A third alternative is the type of settlement in Sauer v. Canada (Agriculture), 2008 CanLII 43774 (ON S.C.). The key elements in the Sauer settlement were payment by the settling defendant into a Settlement Fund, in this case a Trust Fund to be used by plaintiff counsel in the continuing litigation against the target defendant. The settlement defendant’s liability was capped through indemnity and hold harmless provisions and covenants not to sue given by the plaintiff.

Under the original agreement, the settling defendant would remain in the litigation if any party claimed the settling defendant was at fault. Most recently, the target defendant has confirmed that it will not seek to apportion liability against the settling defendant resulting in an opportunity for the settling defendant to exit the action. [See endorsement by Lax J., July 28, 2009 — PDF; not on CanLII at time of writing.]

Sauer is a reminder that a settlement both advances and compromises a party’s interest, but represents another doorway marked “Exit.”