In This Issue
“Actually, It’s About Ethics in Class Action Litigation”: Ontario Court Issues Harsh Rebuke of Class Counsel’s Fee Arrangement in Playstation 4 Class Action
“Disturbing,” “deplorable,” “the very antithesis of what is in the best interests of the class” – these are just a few of the choice words an Ontario Superior Court judge used to describe the billing practices of the class counsel involved in a recent product liability class action.
McCallum-Boxe v. Sony, 2015 ONSC 6896 was commenced as a proposed class action on behalf of Sony Playstation 4 owners with respect to an alleged defect in the console’s controller grips which caused them to deteriorate prematurely. Disgruntled gamers were required to pay a shipping fee for the repair and replacement of the controllers, which was alleged to be contrary to law. Apparently, class counsel overestimated the size of the class. While initially thought to be as high as several hundred thousand, only a few hundred Playstation owners were actually affected. Sony agreed to reimburse all class members $20 each to compensate for shipping costs incurred to return the console for repair and replacement, for a total settlement value of $8,000.
As part of the settlement, Sony also agreed to pay the representative plaintiffs’ legal fees “in an amount to be determined by the Ontario Court.” Under Ontario’s Class Proceedings Act, the Court must approve all settlements as being fair and reasonable for the class.1 In its motion for approval of the settlement, class counsel sought an award of up to $225,000 in legal fees for having negotiated the $8,000 class settlement.
In assessing the fairness and reasonableness of class counsel’s fees, the Court was “shocked” to discover that class counsel had no written retainer agreement or contingency fee arrangement with the representative plaintiffs and that they expected only to recover their legal fees “directly” as part of an eventual settlement. The Court found this arrangement to be “profoundly unacceptable” as it “encourages only a minimal commitment of class counsel on behalf of the class leading to sub-optimal settlements negotiated by class counsel who are primarily interested in recovering a generous legal fees payment.” Although noting that the Court was not tasked with approving class counsel’s legal fees arrangement, it stated that class counsel would be wise to abandon such “one-sided” and “settlement-driven” legal fee arrangements.
Ultimately, the Court approved the settlement as being in the best interests of the class. In assessing the legal fees portion of the settlement, the Court affirmed that the degree of assumption of risk by class counsel and proportionality to the results achieved for the class are relevant considerations. Taking these factors into account, the Court awarded class counsel $30,000 for legal fees.
McCallum-Boxe provides a rare “behind the scenes” look at the economics of class action litigation. The decision serves as a warning to class action plaintiffs’ counsel that courts will not condone settlements or fee arrangements which provide a disproportionate benefit to class counsel over class members.
Location, Location, Location: Supreme Court of Canada to Hear Two Appeals on Process & Procedure for Multi-Jurisdictional Class Actions
The Supreme Court of Canada has granted leave to appeal Endean v British Columbia, 2014 BCCA 61 and Parsons v Ontario, 2015 ONCA 158 on the issue of process and procedure in national/multi-jurisdictional class actions.
These cases involved a class action against the Canadian Red Cross Society and the federal, provincial, and territorial governments in relation to the distribution of tainted blood. The result of the class action was a pan-Canadian settlement agreement amongst the parties. The superior courts in Ontario, British Columbia, and Quebec were assigned a supervisory role under the terms of the settlement agreement. In 2012, class action counsel brought a motion for directions in all three provinces to determine whether supervising judges could sit together to hear a motion in Alberta. The Attorney Generals of each province opposed on the basis that judges cannot sit outside the territorial boundaries of their province. The motions judges in all three provinces found in favour of class counsel.
While the Ontario appellate court in Parsons found that a judge had authority to sit with other supervising judges outside the province of Ontario, the Endean case reached the opposite conclusion, finding that the common law prohibits domestic courts from holding hearings outside of their territorial boundaries.
In granting leave, the Supreme Court of Canada is now taking the opportunity to clarify the law with respect to the legality, and practicality, of the procedural issues which arise in the context of multi-jurisdictional class actions. This will undoubtedly be a case to watch as the highest court in Canada grapples with the important role of the courts in presiding over, and managing, national class actions.
A Costly Error: Written Offers to Settle Can Only Be Interpreted In Context
At issue in Puri Consulting Limited v. Kim Orr Barristers PC, 2015 ONCA 727 was the interpretation of an accepted offer to settle. The appellant, Puri, was retained by the respondent law firm to provide an expert opinion. When Puri’s account for services remained outstanding after repeated demands for payment, it brought an action seeking damages in the amount of the account, plus, among other things, costs.
Puri served an offer to settle under Rule 49 of the Rules of Civil Procedure, proposing that the proceeding be settled on the following terms:
Shortly before the trial commenced, the respondent accepted the offer and subsequently paid $50,000 plus HST. Puri asserted that it was additionally entitled to costs of its action and brought a motion to enforce the settlement.
The motions judge found that the offer was unambiguous and that the words “full and complete satisfaction” meant that the offer was inclusive of costs. The Court of Appeal overturned this decision, finding that the motions judge first made an error focusing only on the words “in full and complete satisfaction” and second, in failing to consider the factual matrix surrounding the offer, namely the timing of the offer and its acceptance in the litigation, and the fact that the parties were lawyers and represented by counsel.
Long story short, when drafting an offer to settle, make sure it clearly states whether or not costs are included as part of the proposed resolution. The meaning of a written agreement is derived from both the words used and from the circumstances in which the words are used. In a day and age in which litigation often ends in settlement, both parties and their counsel ought to be careful when drafting and accepting Rule 49 offers and mindful of the consequences of the language used. This will especially be the case where parties are sophisticated and represented by counsel, allowing them to be aware of the implications of a Rule 49 offer.
Regulating Risk: Keeping You Up-To-Date on Product Regulation
A look at what’s new in product regulation in Canada and abroad.
New Minister of Health
With the election of the Liberal government in the November 3rd election, a new Minister of Health has been appointed. The new Minister of Health is Dr. Jane Philpott, a family physician and former Chief of the Department of Family Medicine at the Markham Stouffville Hospital in Ontario.
Quarterly Consumer Product Safety Incident Summary Report
At the end of October, Health Canada issued two quarterly reports on its data for consumer product and cosmetics reports.
Focus on Food Safety – In the US and In Canada
News coverage out of the US this fall brought attention to new FDA rules that aim to require US food manufacturers to implement more stringent food-safety operations. This will include the development and implementation of detailed written plans to prevent food borne illnesses such as salmonella and E. coli. The implementation of these rules is to be phased in over time – beginning in September 2016 for larger manufacturers.
This American food safety focus mirrors, in many respects, Canada’s own Safe Food for Canadians Act. The Safe Food For Canadians Act, passed in 2012, also aims to address food safety issues through licensing requirements, and changes to inspection powers and processes. The details of exactly what these changes will require will be set out in Regulations to the Act that are still being developed. It is anticipated that they too will require licence holders to develop and implement written preventive control plans addressing:
With changes in food safety rules, requirements and procedures in both the US and Canada, the issue of harmonization is at the fore. Through the Canada/US Regulatory Cooperation Council, the American FDA and the Canadian Food Inspection Agency are undertaking joint activities to implement the “Canada-FDA Food Safety Systems Recognition Arrangement.” This Arrangement is set to be finalized and signed by Fall 2015 and accompanying guides are to be released by the end of the year.
We will be watching for developments on this.
An Unnatural Question ... A Canadian Perspective on US Food and Drug Administration Request for Public Commentary on the Use of the Term “Natural” on Food Labelling
As of November 12, 2015, the US Food and Drug Administration has been accepting public comments on use of the term “natural” on food labelling and in particular:
The FDA is seeking public commentary on this issue now as a result of multiple citizen petitions and requests from Federal courts to provide clearer guidance in the wake of litigation.
The FDA has to-date permitted use of the term “natural” with respect to a food that does not contain added color, artificial flavours, or synthetic substances. In contrast, Health Canada’s Food Labelling For Industry Guidance Document outlines a broader and more prescriptive set of expectations for foods and ingredients represented as natural. These expectations relate both to the ingredients in a food and the methods of production and processing to which it has been subject.
It will be interesting to watch what changes, if any, result from the FDA public commentary process and whether any such changes bring the FDA requirements into closer alignment with the Canadian model. We will be monitoring any reaction from Health Canada and Canadian stakeholders as this process continues.