It’s Settled — The Binding Nature of Class Settlement Agreements

It is a common feature of class certification and settlement that many class members will be unaware of the existence of either. While adequate notice of certification and settlement is a mandatory requirement under class action legislation, the binding nature of each is not dependent on actual notice to each and every class member.

Two recent cases involving class settlement agreements illustrate this point and highlight the importance of carefully scrutinizing the terms of the release when class members who did not opt out later seek to bring individual claims.

3113736 Canada Ltd. v. Cozy Corner Bedding Inc., 2020 ONCA 235

The respondent, Valle Foam, pleaded guilty to charges under the Competition Act and entered into an agreement to settle a class action on terms that did not include any payment to the class. Immediately after it agreed to settle the class action, Valle Foam filed for CCAA insolvency protection.

While under CCAA protection, Valle Foam commenced an action against the appellant, Cozy Corner, for unpaid invoices. Cozy Corner, which made purchases during the price-fixing period, relied on equitable set off to defend the action and counterclaim. It alleged that, due to the price-fixing scheme, it had overpaid Valle Foam in amounts that exceeded Valle Foam’s claim.

Valle Foam relied on the release in the settlement agreement to defend the counterclaim and obtained summary judgment for the invoiced amounts. The motions judge rejected Cozy Corner’s argument it was not bound by the class action settlement because it had not received actual notice of it. He also found the claims advanced in the defence and counterclaim fell within the definition of “Released Claims” in the settlement agreement.

The Court of Appeal agreed that Cozy Corner was bound by the class release. Relying on subsection 29(3) of the Class Proceedings Act, 1992, S.O. 1992, c. 6 the Court noted:

[31] Cozy Corner’s argument that it did not receive actual notice of the class action, the settlement approval hearing, or of the opportunity to opt out, is therefore unavailing. While the law is clear that adequate notice to class members must be provided, the lack of actual notice to any particular class member does not prevent the class (except for opt outs) from being bound where sufficient steps have been undertaken to provide adequate notice…

[32] The motion judge’s finding that sufficient steps to provide adequate notice had been undertaken was completely justified on the record. It is entitled to deference. Cozy Corner’s lack of actual notice did not prevent it from being bound by the Class Action Release.

 However, the Court went on to find that the claims advanced by Cozy Corner on the one hand fell within the scope of released claims but were also subject to an exception set out in the release:

[38] The definition of Released Claims refers to “any and all manner of claim” and also to “liabilities of any nature whatsoever”. In my view, this language is broad enough to capture a claim for equitable set-off.

[39] However, the exception (excerpted at para. 20 of these reasons) is an important restriction on what would otherwise be the broad effect flowing from the definition of Released Claims. The exception allows class members (like Cozy Corner) to make claims arising from the matters in issue in the Class Actions (i.e. the price-fixing activities) in the course of an insolvency proceeding taken by a beneficiary of the Class Action Release (like Valle Foam). It leaves the right to make such claims unimpaired.

On this basis the Court of Appeal sent the matter back down to proceed to trial.

Yashcheshen v Merck Canada (unreported, Feb. 3, 2020) Saskatchewan Q.B.

In 2012 Merck entered in a pan-Canadian settlement of class actions involving its anti-inflammatory drug Vioxx that it had voluntarily removed from the market in 2004. The settlement covered certain injuries that met negotiated eligibility requirements. It also included a release covering a broader array of injury claims than those eligible for payment under the settlement. Despite being a class member under the settlement agreement, the Plaintiff commenced an action for injuries she claimed to have suffered from her Vioxx prescription in 2003 and 2004, nearly 15 years before the issuance of her statement of claim.

Merck moved to strike on a number of grounds but Justice Chow focused his analysis solely on the res judicata abuse of process ground. He concluded that all of the claims pleaded and alluded to in argument fell “squarely within the broad comprehensive definition of ‘Claims’ contemplated by the 2020 Settlement Agreement.” He went on to refer to the orders from the Court in 2012 approving the Settlement Agreement and the uncontroverted evidence that the Plaintiff did not opt out of the settlement.

[44] Section 38(4) of The Class Actions Act explicitly provides that, once approved by the Court, a class action settlement binds all class members.

[45] The July 25 Final Order of Currie J. is precisely that – a final determination, made by a court of competent jurisdiction made in respect of the same issues and causes of action raised by or in relation to the same parties or their privies.

[46] As such, the Plaintiff’s Statement of Claim offends both cause of action and issue estoppel.

Justice Chow also concluded that the “bare assertion” of deficiencies in the notice plan due to her lack of actual notice was not a factor that should impact his decision to strike the claim. He indicated the notice program was detailed. Further, perfect reach is not required under the legislation. In all the circumstances, it was neither unjust or unfair to strike the Claim as res judicata and an abuse of process.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.