Justice Edward Belobaba from the Ontario Superior Court on Friday approved a $17-million settlement inside 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 may 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 best interests of the class,” he writes within the seven-page decision released Friday morning.
In particular, he wants class action lawsuit 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 case in the court. “Class action judges should do more than acquiesce towards the self-serving submissions of sophistication counsel that usually add up to simply – ‘We’re experienced class counsel – we all 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 since the Toronto-based company allegedly didn’t disclose risks connected with a flood at its Goldex mine in Quebec.
Ontario’s class action statute, the category Proceedings Act, requires judges approve proposed settlements. Ontario case law requires judges to satisfy themselves that the “proposed settlement is fair and reasonable as well as in the very best interests from the class.”
The law sees that when judges approve a proposed class action settlement, the ruling can impact numerous parties – perhaps hundreds or thousands – who weren’t actively involved in the litigation. Funds has a claims bar that insulates the defendant from future lawsuits within the facts alleged in the action. What’s more, part of funds goes to plaintiff lawyers as payment for their work. Judges are supposed to prevent class action counsel from abusing the machine by seeking exorbitant fees.
Because a settlement is the consequence of private negotiations, and not the result of evidence heard in court, Belobaba highlights that judges have been in no position to second-guess the settlement amount the parties agree to. What judges can do is examine if the proposed fees for the plaintiffs’ lawyers suggest these were 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 inside a reasonable range.
The problem, Belobaba explains, is that judges rarely receive any guidance from counsel on which a reasonable amount ought to be. The arguments in favour of proposed settlement amounts have become so generic they’re really just boiler plate – that’s, 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 assist the court,” Belobaba writes.
Belobaba recalls that when he encountered generic boiler-plate in an earlier settlement hearing called Sheridan Chevrolet v. Furakawa, he asked counsel to follow up with case specific information on the settlement. They accomplished it, so he signed off on the proposed settlement.
He asked the lawyers in the Agnico-Eagle Mines case to supply detailed reasons on why $17 million was the best number. The lawyers gave Belobaba some information 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 of the proceeds or about $4.A million, and the judge was okay with this.
Some commenters, Belobaba notes, have suggested judges appoint an independent counsel to review proposed class action settlements. If they discover the settlement to be unfair to the class, they can appear in the settlement hearing and argue against. Perhaps it’s time to start doing that in appropriate cases, he suggests.
“I’m not sure exactly what the future holds,” Belobaba writes. “Probably the time has indeed come for judges in appropriate cases to appoint independent counsel (with his or her attorney’s fees paid through the parties) to be able to add a much-needed adversarial dimension towards the settlement approval hearing.”
Financial Post
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Leslie v. Agnico-Eagle Mines, 2016 ONSC 532
