Class action litigation is a unique part of the legal universe in Canada. These special cases tend to have a high profile and affect a wide range of stakeholders on both sides of a deeply adversarial divide.
Class actions are the result of a deliberate legislative action to address recurrent weaknesses in the modern legal system for claimants, such as economic barriers to accessing the courtroom, other natural imbalances in procedural power and lack of access to skilled advisers.
They also have special technical and procedural machinery that sets them apart from other kinds of litigation — the certification motion and requirements to notify class members, for example. Because of the scope and impact of these proceedings, public policy elements also play a regular role in such cases.
As a result, class actions can give rise to a number of ethical and professionalism issues that do not occur elsewhere. It is useful to highlight some professionalism issues found in recent case law that could only arise in the class action context.
Put simply, a carriage motion is necessary where there are multiple class actions filed in the same jurisdiction, all seeking to prosecute essentially the same case. Multiple filings cannot be permitted to stand and only one case can move forward. In a carriage motion, the case that is selected will move forward and all others will be stayed or dismissed.
Carriage motions allow clear mandates to be created so that cases can proceed to a certification motion and a resolution on their merits. The problem is that they can balloon into heavy litigation quite quickly, and disputes between competing candidates for carriage will delay progress in the case. In addition, the defendant stands on the sidelines watching the competing would-be class counsel highlight the other’s weaknesses.
Most firms on the plaintiff side quickly resolve carriage issues and get on with the case. But in other cases, it is clear that there are heavily mismatched objectives between contestants. There can even be examples where it appears one party’s objective might be to contest carriage in order to negotiate a share of fees that will be earned by the successful counsel in exchange for standing down. In those circumstances, is a fee-sharing agreement acceptable, since it dispenses with delay and other difficulties, or is the whole concept an outrage that should be prohibited? Therein lies the ethical question.
In Bancroft-Snell v. Visa Canada Corp. 2016 ONCA 896, the Ontario Court of Appeal confronted the payment of fees, out of settlement recoveries, to a former carriage contestant under a fee-sharing agreement reached to settle a carriage motion.
The Court of Appeal refused to approve the proposal to pay any portion of the contingency fees to a former carriage contestant and took the opportunity to weigh in on these arrangements. It found that the fee-sharing agreement improperly required class members to pay, out of their recoveries, for work done by a firm that had provided them with no actual benefit. The court further held that class counsel “should pay the fees out of their own pockets as part of their variable costs of doing business and not expect that the counsel walking away will have direct access to payment out of the contingency fee.”
The Appeal Court also upheld a decision by the motion judge to reduce the requested class counsel fees by 10 per cent to “reflect his view of legal services that were not earned.”
One message made abundantly clear is that the court disapproved of an undeserved windfall to the counsel “walking away.” That is a welcome sentiment for any committed counsel with a genuine desire to litigate class action cases without interference from ongoing carriage contests.
But that view also appears to have teeth for the successful contestant in the carriage motion. The court’s decision suggests that class counsel can enter into these agreements if they so choose, but with the specific direction that they should fund them out of their own pockets. The message is clear that the courts may deliver a penalty, through the reduction of a contingency fee that might otherwise have been paid, to signify their disapproval.
There may be plenty of practical questions that remain in the ultimate execution of the Court of Appeal’s reasoning, but all contestants to carriage should be warned: Clear disincentives abound for both payor and payee if a fee-sharing agreement is reached.
There have been a number of instances where defendants or their counsel have set out to communicate with class members in some fashion. While some communications seem to be innocuous and justified, especially in the context of an ongoing business relationship, others raise serious ethical concerns. Defendants and their counsel must be aware of their ethical, professional and legal obligations in this context.
Where a putative class member has formally retained plaintiff’s counsel, or where the class has been certified, Ontario defence counsel must abide by Rule 7.2-6 of the Rules of Professional Conduct, which prohibits direct communication or negotiation between defence counsel and a represented class member without the consent of class counsel.
Serious questions are also raised in the context of a court-approved communications program, such as a notice of certification, which includes the opportunity for a class member to opt out of a class action. In that setting, what if a defendant decides to engage in a campaign of its own to encourage class members to opt out?
Some important ethical and philosophical questions emerge: Should opt-out processes be like elections and either party can engage in “campaigns” to sway the class members to either opt out or remain in the case? Or should they be sacrosanct and subject to communications “blackouts,” other than court-approved communications and reasonable responses to questions initiated by class members?
In ALS Society of Essex County v. Windsor (City) 2016 ONSC 676, Ontario’s Superior Court of Justice was asked to regulate a particularly acute example of a communications campaign by a defendant in a class action. The plaintiffs organized a certification notice to a class of charities that had been allegedly overcharged by municipalities for fundraising licences, and the defendants participated in approval hearings. As a result, the defendants had full details of the plaintiffs’ communications plans.
Without notice to the plaintiffs or to the court, the defendants launched a massive counter campaign, concurrent with the certification notice, using such things as superior media placements and billboards. The campaign encouraged class members to opt out of the class action.
The court said the campaign “went over the line” because it claimed that the expense of any judgment in the case would ultimately be borne by municipal taxpayers, creating “a situation that pits taxpayers against each other,” and encouraged “potential claimants not to pursue a valid claim.” The court further concluded that “the effect of the entire opt-out campaign results in claimants not being ‘free from undue influence.’ ”
The court noted a history of cases on the topic of defence communications with class members, and stated that a court will interfere where a defendant’s communications to class members are “inaccurate, intimidating or coercive or made for some other improper purpose aimed at undermining the process of the court.”
Clearly the thrust of the jurisprudence is that defendants can only communicate directly with class members at their own risk. After all, they are adversaries to the class members in litigation. Communications with any hint of a strategic objective in the litigation can easily backfire and qualify as a communication that will require regulation or even prohibition by the court.
Class actions are an area ripe with unique questions surrounding ethics and professionalism issues. Because these issues have the potential to affect or even frustrate the goals of class proceedings legislation, it is important that all stakeholders be aware of the unique ethical landscape that exists in the class actions context.
About the Authors
Jonathan Foreman is a partner at Harrison Pensa LLP in London, Ont., and leader of its plaintiff-side class action group. He is also an adjunct professor at Western Law.