Class Actions Law, & Morality : Madam Justice Wears a Blindfold Over Her Eyes

Not a clamp on her nose.

Or, you can’t always get what you want, especially if the judge doesn’t agree that’s what you need.

Kidd v. Canada Life Assurance Co., 115 O.R. (3d) 256, 2013 ONSC 1868 per Perell J is instructive reading.

It is a class action in which a motion for approval of an amended settlement to replace the original settlement was rejected because the court held that the amended settlement was unfair, even if better than the original. The original settlement had become unfair to a significant portion of the class because unanticipated events that occurred after the approval of the original settlement substantially reduced ($14 million rather than $55) the amount available for distribution to that portion of the class.

[9] Unfortunately, after the Approved Settlement was approved by the court and after the parties set about to implement it, almost immediately, they discovered that their assumptions or predications about the value of the surplus to be distributed to the Integration Group were very-very wrong.

[10] The unhappy discovery was that the anticipated surplus of $55 million, upon which the Approved Settlement had been predicated and which, as noted above, was to be shared by the Integration Group and Canada Life was diminishing dramatically and quickly.

[11] The diminishment of the surplus came about mainly for two reasons. First, a decline in interest rates in the Canadian financial marketplace increased the notional liabilities of the Pension Plan for the Integration Group’s members, which liabilities are calculated in accordance with prescribed actuarial principles. Second, a greater than anticipated number of Integration Group class members chose or were deemed to have chosen pension benefit annuities rather than choosing to take the accumulated value of their pension benefits. In other words, fewer Integration Group pensioners than predicted cashed out their benefits and this, in turn, increased the liabilities of the Pension Plan on an on-going basis and all this diminished the actuarially calculated surplus or deficit.

[12] And to further complicate matters, there was another surprise for the Integration Group and Canada Life, because the marketplace for annuities shut down, and annuities were not available for those who had chosen to stay with Canada Life’s Pension Plan. The Plan’s Administrators had to internalize the cost of the annuities rather than outsource this liability for the pension benefits.

 

Canada Life attempted to unilaterally implement the original settlement. It was substantially better for it.

The affected group moved to enjoin Canada Life from doing what it proposed to do to implement the settlement.

In the meantime, Canada Life and class counsel negotiated an amended settlement. Class counsel and Canada Life then moved for approval of the amended settlement to replace the original. There were numerous objectors.

The motion was rejected.

Even if the amended settlement was fairer than the original settlement (taking into account the changed circumstances), and had some benefits, it was still not fair. Perell J wrote, in part:

[23] The court cannot make a fair settlement for the parties, and for the reasons that follow, my conclusion is that the Amended Settlement is not fair. The disappointment and anger of the objectors and the reasons for their objection are reasonable, and, I agree with them that the Amended Settlement is unfair. In my opinion, the Amended Settlement is all of substantively, procedurally, circumstantially, and institutionally unfair. Therefore, I shall not approve it. Approving an unfair settlement would be contrary to both the letter and the spirit of the Class Proceedings Act, 1992. It also would be inconsistent with the court’s responsibilities when asked to review a settlement under the Act. I cannot in judicial good conscience put the court’s endorsement to the Amended Settlement. Accordingly, I dismiss the motion.

…

[126] As may be observed from this brief discussion of settlement approval, courts have developed a test for settlement approval and courts have developed a non-exhaustive list of factors to use to apply the test. As it happens, the test for settlement approval is almost identical in Canadian and American class actions, and the test involves determining whether the settlement is fair, reasonable, and in the best interests of class members.

[127] Professor Piché in her text Fairness in Class Action Settlements, supra at pp. 179-80 summarizes the various factors for the settlement approval test into seven factors; i.e.: (1) judicial risk analysis: likelihood of recovery, or likelihood of success on the merits weighed against amount and form of settlement relief; (2) future expense, complexity and likely duration of litigation; (3) class reaction: number and nature of objections; (4) recommendations and experience of counsel and opinion of interested persons; (5) adequacy of representation: good faith and absence of collusion; (6) discovery evidence sufficient for “effective representation” and (7) adequacy of notice of proposed settlement to absent class members. Professor Piché observes that the first four factors are pertinent to substantive fairness and the remaining three factors are pertinent to procedural fairness.

[128] Professor Piché’s summary is very helpful, but I would add to it by suggesting that in addition to using the various factors to determine substantive and procedural fairness, the court should also examine circumstantial fairness and institutional fairness.

[129] By circumstantial fairness, I mean the fairness of the settlement to the parties and the class members in their particular circumstances, and by institutional fairness, I mean the fairness of the settlement from the perspective of a robust notion of access to justice that includes an outcome that objectively should satisfy the class members’ entitlement to justice for their grievances.

[130] Having regard to institutional fairness will elevate the standard for approval and send the message that courts will not rubber stamp settlements and turn a blind eye to what are in truth strike suits or suits where the defendant or the defendant’s insurer pays a modest price for buying peace rather than paying a fair price to compensate the class members for their injuries. Having regard to institutional fairness will send the message that the court will not rubber stamp settlements where the law suit is genuine but Class Counsel are content to take a low-ball offer because it suits their entrepreneurial business model. Having regard to institutional fairness will send the message that the court will not approve a settlement if through misadventure, incompetence, opportunism, lassitude, or fatigue the Representative Plaintiff and Class Counsel do not achieve a settlement that is truly fair, reasonable, and in the best interests of class members.

…

[132] In Canada, a few settlements have been initially rejected but subsequently approved after the parties fixed an apparent unfairness. … Very few settlements have been rejected, and it would be salutary for the institution of class actions if the standard for settlement approval was elevated by having regard to the institutional fairness of the settlement.

[133] With these comments as background, I turn now to evaluate the Amended Settlement and to explain why in my opinion, it is not substantively, procedurally, circumstantially, or institutionally fair. …

[134-174] … [DC: Justice Perell’s reasons why. He was not impressed with the moving parties grounds. Nor was he impressed by the fact that neither Class Counsel nor Canada Life were “sharing the disappointment caused by the false estimates” which were a significant part of the reason why the surplus available for distribution was significantly lower than anticipated.]

[175] However, I do not think that a court should approve an unfair settlement because it is the best monetary choice in a double bind. The court should not approve a settlement unless it is all of fair, reasonable, and in the best interests of the class. If the proposed settlement is not fair, the court should reject it. The court should not approve an unfair settlement simply because it’s the better of two unfair choices.

[176] In this case, the Amended Settlement is substantively, procedurally, circumstantially, and institutionally unfair. I do not approve it.

[177] Some good may yet come of not approving the Amended Settlement. It is open to the parties to come back with a fair settlement. But even if they do not, it will be a good thing for others to know that under the Class Proceedings Act, 1992, the court will not approve an unfair settlement. If that has the effect of elevating the standard for other settlements, then the institutional purposes of the class proceedings legislation of achieving meaningful access to justice will be served.