Made in the U.S.A.
- Subtitle: Cover Story
Ford Motor Co. of Canada Ltd. faced a relatively straightforward product liability class action in 2006. The case surrounded allegations of defective door latches in various truck models, involving some 300,000 vehicles. While it was unsurprising to see the action end up at the Ontario Superior Court, how it got there was somewhat anomalous.
The court’s ruling in Poulin v. Ford Motor Co. of Canada noted that parallel litigation led by plaintiffs’ litigation firm Motley Rice LLC existed in the U.S. Curiously, the firm entered into an agreement to act as a consultant to Canadian class counsel firm Will Barristers: Morin & Miller LLP, which filed the Poulin action in Ontario. The deal would see the Canadian firm collect 70 per cent of approved fees, with the remainder going to Motley Rice, which would also fund disbursements. The atypical arrangement caught the court’s attention, especially a separate agreement between the firms indicating that Will Barristers must consult with Motley Rice before incurring and paying any disbursement of more than $2,500. That reluctance was framed around the separate finding that the Canadian representative plaintiff, Maurice Poulin, seemed to lack awareness of the nature of the claim and was therefore of questionable value in that capacity.
The court determined the U.S. firm was acting more as “underwriters for the litigation” than consultants to the Canadian class counsel. It went on to identify Poulin as an “unwitting pawn” in the action. The court denied the certification motion, a decision later backed by a Divisional Court appeal panel.
While the formulation of the proposed Poulin action seemed unusual just a few years ago, it is just the type of action that David Kent, the Toronto-based chairman of McMillan LLP’s class action group, is increasingly defending. He says while parallel actions of all varieties have sprouted up, they are most common in the antitrust and competition law areas. Some of the top actions have targeted alleged price-fixing of products such as vitamins, feed additives, computer memory technology, and flat-screen monitors. Plaintiffs’ lawyers in Canada have also seized opportunities based on cases of product liability and securities fraud.
Such actions have gained prominence as Canada’s class actions plaintiffs’ bar gains strength and sophistication. It has also become more of a headache for corporations thanks to the bar’s closer ties with counterparts south of the border, as seen in the Poulin case. Many of the parallel class actions brought forward have been brazen enough to include identical paragraphs in their separate statements of claim.
While some Canadian courts have voiced concern over these arrangements, others have begun to support fee-splitting deals between plaintiffs’ firms on opposite sides of the border. “It used to be kind of a hidden disbursement,” says Kent. “But now everybody’s pretty upfront about it.”
The changing relationship means Canadian companies will face a steadier onslaught of class actions, and corporate counsel on both sides of the border will increasingly be called upon to work together to manage the ensuing high-stakes litigation. It won’t be an easy task, with Canada’s relatively young class actions jurisprudence and lack of country-wide protocols adding to the cross-border confusion.
But experts maintain that various strategies can be employed to help in-house counsel best defend their company when faced with parallel Canadian and U.S. class actions. Michael Mori, general counsel of Epson Electronics America Inc., has experience dealing with this type of class action in his role managing antitrust litigation globally for parent Seiko Epson Corp. The company recently faced antitrust class action litigation in both countries regarding thin film transistor-liquid crystal display panels, which are most often found in computer monitors and flat-panel televisions. Epson is one of several global companies targeted in the actions, which involve allegations of price-fixing and other anti-competitive behaviour. While Mori is unable to comment on the approach taken in that ongoing litigation, he asserts his first move when these matters arise is to retain top-notch outside counsel. That’s particularly important in class actions involving multiple defendants — the pool of unconflicted and competent firms can quickly dry up, and the company could end up with inferior representation if the services of a top firm aren’t quickly retained.
Mori emphasizes that parallel U.S.-Canada class actions can cost as much as US$30 million to defend once fees for experts, outside counsel, and vendors are factored in. The financial commitment can soar exponentially when investigations in multiple jurisdictions are factored in, along with the potential for additional opt-out cases in the U.S. That’s not to mention the possibility of state attorneys general suing companies on behalf of residents or governmental agencies who may have purchased a product or service that has been called into question. On top of all that, authorities may target certain company executives for their personal roles in a matter that has prompted class action litigation — organizations are typically responsible for bankrolling those defences.
In light of these cost considerations, Mori encourages corporate counsel to conduct a cost-benefit analysis when pondering a settlement agreement. “Quantitatively, it could simply be the math of, ‘Well, how much is it going to cost me, and what is my exposure, and what good defences do I have, etc.’,” he says. “Qualitatively, you have to think about the impact on the reputation of the company and those kinds of things.”
If a decision is made to go forward with the defence, it’s crucial to include solid outside counsel guidelines in any retainers. Those guidelines should include the company’s expectations for the firm, and what the firm is permitted to bill for. Efforts should be made to minimize intra-firm conferences and maximize efficiencies by eliminating the duplication of work, says Mori.
A detailed litigation plan, which includes phases and cost estimates with rigid budgets, is also essential for managing expenses, he adds. Firms should also be encouraged to avoid conducting work too far in advance. “You certainly don’t want to be unprepared, but on the other hand, you don’t want to have the firm doing research and work that would be relevant later but not now,” he says. “That work would have to be revisited at the later time, or if something intervenes and that work becomes unnecessary, then you’ve authorized work that wasn’t required.”
Tim Buckley, national leader of Borden Ladner Gervais LLP’s class actions group in Toronto, says a costly oversight in many parallel class action defences comes in the document production process. He says defendants are wise to seek an order from the U.S. court stipulating that any document provided can be used only for the U.S. litigation, and may not be passed along to Canadian plaintiffs’ counsel. Many corporate counsel, unaware of the level of co-ordination between class counsel in both countries, have had to learn that lesson the hard way. This is particularly troublesome for companies that have settled a defensible class action due to cost concerns, or to simply put to rest an action involving a product it no longer sells.
Buckley has worked with in-house lawyers who were shocked to discover that documents turned over in a settled U.S. action have been used in a separate lawsuit in Canada. After all, litigation costs north of the border can be on par with what they hoped to avoid by settling in the U.S. “When the U.S. [counsel] is sitting down and looking at the defence of claims, they’re looking at precluding claims worldwide,” says Buckley. “They have to understand that Canada may have different procedures, may have different damages awards, but has the prospect of the same defence costs and the same requirement of management time and operations time in defending a case. So in some respects, they should look upon us as another state with a population of [33 million] people.”
Similarly, Kent urges in-house counsel to put their minds to the future when it comes to the discovery process. In parallel U.S.-Canadian class actions, discovery typically first takes place in the U.S. That means Canadian class counsel may ask defendants to simply turn over all documents produced for the U.S. action. Kent describes such requests as “good news, bad news.”
Published in InHouse Cover Story