Ontario judge slams use of ‘boiler plate’ submissions in class action settlement motions

Justice Edward Belobaba from the Ontario Superior Court on Friday approved a $17-million settlement in a securities class action lawsuit brought against gold miner Agnico-Eagle Mines Ltd. and three of their executives.

Before signing off on the settlement, he expressed concern that judges might not be putting proposed settlements through enough scrutiny.

 “The judicial approval of class action settlements, especially securities class action lawsuit settlements, leaves much to become desired. Judges should do more to ensure that a proposed money is in the needs from the class,” he writes in the seven-page decision released Friday morning.

In particular, he wants class action lawyers to prevent relying on generic, “boiler plate” arguments towards proposed settlements. He says lawyers must provide specific arguments on why a specific settlement amount fits the situation in the court.  “Class action lawsuit judges must do more than acquiesce towards the self-serving submissions of sophistication counsel that often amount to nothing more than – ‘We’re experienced class counsel – we know what we’re doing – trust us.’”

Siskinds LLP filed the Ontario case, Leslie v. Agnico-Eagle, in March 2012. The situation alleges Agnico-Eagle’s stock was inflated because the Toronto-based company allegedly didn’t disclose risks of a flood at its Goldex mine in Quebec. 

Ontario’s class action statute, the Class Proceedings Act, requires judges approve proposed settlements. Ontario case law requires judges to fulfill themselves that a “proposed money is fair and reasonable and in the best interests from the class.”

The law sees that when judges approve a proposed class action settlement, the ruling could affect numerous parties – perhaps hundreds or thousands – who weren’t actively active in the litigation. A settlement has a claims bar that insulates the defendant from future lawsuits within the facts alleged within the action. What’s more, part of funds goes to plaintiff lawyers as payment for his or her work. Judges are meant to prevent class action lawsuit counsel from abusing the system by seeking exorbitant fees.

Because a settlement may be the result of private negotiations, and never the result of evidence heard in the court, Belobaba points out that judges are in no position to second-guess the settlement amount the parties accept. What judges can perform is examine whether the proposed fees for that plaintiffs’ lawyers suggest these were more interested in getting themselves paid than recovering money for the class members. Judges can also make a judgment ask if the proposed settlement would fall within a reasonable range.

The problem, Belobaba explains, is that judges rarely receive any guidance from counsel on what a reasonable amount should be. The arguments in favour of proposed settlement amounts have become so generic they’re really just boiler plate – that is, exactly the same generic wording about risks and hard-fought negotiation is copied from previous submissions and pasted into brand new ones.  “It doesn’t help the court,” Belobaba writes.

Belobaba recalls that whenever he encountered generic boiler-plate in an earlier settlement hearing called Sheridan Chevrolet v. Furakawa, he asked counsel to follow along with track of case specific info on the settlement. They accomplished it, so he signed off on the proposed settlement.

He asked the lawyers within the Agnico-Eagle Mines case to provide detailed reasons on why $17 million was the best number. The lawyers gave Belobaba some good info on “recently discovered risks” towards the case which had dropped the “high-end” of the damages sought to $30 million from an authentic claim of $300 million. He therefore found $17 million to become reasonable. Plaintiffs’ counsel sought 29.5 percent from the proceeds or about $4.A million, and also the judge was okay with that.

Some commenters, Belobaba notes, have suggested judges appoint an independent counsel to examine proposed class action lawsuit settlements. When they discover the settlement to become unfair to the class, they are able to appear at the settlement hearing and argue against. Perhaps it’s time to start doing that in appropriate cases, he suggests.

“I don’t know exactly what the future holds,” Belobaba writes. “Probably the time has indeed come for judges in appropriate cases to appoint independent counsel (together with his or her attorney’s fees paid through the parties) to be able to add a much-needed adversarial dimension to the settlement approval hearing.”

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Leslie v. Agnico-Eagle Mines, 2016 ONSC 532