CP to challenge CCAA jurisdiction issue in Lac-Mégantic settlement

CP to challenge CCAA jurisdiction issue in Lac-Mégantic settlement
Lawyers will gather in Sherbrooke this month to consider next steps towards a proposed $300-million settlement in the Lac-Mégantic disaster. File photo: Mathieu Belanger/Reuters
Almost two years after a tragic train derailment and explosion hit the small town of Lac-Mégantic, Que., lawyers are set to gather in a Sherbrooke court this month to consider next steps towards a proposed $300-million settlement.

On July 6, 2013, a runaway Montreal Maine and Atlantic train hauling 72 tankers of crude oil derailed and exploded in Lac-Mégantic, killing 47 people and destroying more than 40 buildings. It set in motion a complicated cross-border insolvency case.

Settlement negotiations commenced late last year and continued into early 2015 led by the U.S. trustee addressing the 19 wrongful death cases in the U.S. as well as Companies’ Creditors Arrangement Act court proceedings in Canada and insolvency proceedings in the U.S.

Beginning June 9, three court dates will address approval of the settlement — they are about the wrongful-death victims, the government’s claims, and a class action.

The U.S. trustee in bankruptcy, lawyer Robert Keach, along with the counsel for the insolvent MMA railway, ran the settlement negotiations. They dealt with plaintiff counsel in the U.S. and Canada, as well as all defendants in both countries, trying to cut a deal that would result in any party that settled being fully released.

It permitted actions to continue against any non-settling parties. Settlement agreements were signed with almost all involved, and contributions from most of the defendants now total about $300 million.

To kick things off, a creditor’s meeting is being held June 9 when approvals will be sought for the settlement plan (it requires two-thirds approval). It is expected the plaintiffs in the class action will approve and then it will go before the CCAA judge June 17.

Only Canadian Pacific Railway Ltd. has not joined the settlement. On Monday, a settlement of US$110 million was announced with World Fuel Services.

On June 15, Justice Gaétan Dumas will hear a motion from CP that the CCAA doesn’t have jurisdiction. CP maintains it does not have any liability in the matter, according to Enrico Forlini, a partner with Fasken Martineau DuMoulin LLP in Montreal, speaking on behalf of the company.

Forlini says CP’s view is the train that derailed in Lac-Mégantic was operated by Montreal Maine and Atlantic Canada Co. on MMAC’s tracks, using MMAC crew/employees, and MMAC locomotives.

“CP does not oppose the payment of monies to victims of the tragic events and indeed welcomes the fact that those who understand that they have culpability have contributed,” Forlini said in an e-mail to Canadian Lawyer InHouse.

However, he adds that CP opposes the method MMAC, the monitor, and the U.S. trustee “purport to achieve the settlement.”

He says the CCAA is being used in a way it was never intended to be used and the law does not apply to railways. Moreover, he adds it is improper to use the CCAA to create a plan of arrangement through which:

1.    The company at the heart of the plan — MMAC — is never restructured/ reorganized, nor is it released from liability;
2.    CP is deprived of the opportunity to exercise its voting rights; and
3.    The releases contemplated in the plan are far-reaching, deprive CP of its right to a full and fair defence to the Quebec class action, and are not, directly or indirectly, related to the restructuring of MMAC.

CP has filed two motions with the Quebec Superior Court:

1.    A motion to compel the disclosure of settlement agreements that form part of the MMAC plan of arrangement (“Requête pour ordonner la communications de documents”);
2.    A motion to dismiss for lack of the court’s subject-matter jurisdiction under the CCAA (“Requête en exception déclinatoire”).

Forlini says with respect to the motion to compel disclosure of the settlement agreements, MMAC and the monitor will petition the court to approve the plan of arrangement and the settlement agreements, yet insist on keeping the settlement agreements secret.

“Such stealth conflicts with the open court principle and the public’s right to access materials before the court, a pillar of the Quebec and Canadian justice system,” he adds.

As for the motion challenging the Quebec Superior Court’s jurisdiction, the CCAA is clear: a “railway company” is not a “company” which can seek protection under the CCAA.

MMAC and its monitor will seek the Quebec Superior Court’s approval of the plan of arrangement and the settlement agreements at a hearing June 17. Subject to the court’s ruling on CP’s motion to dismiss for lack of jurisdiction, Forlini says CP will argue the court should not approve MMAA’s plan of arrangement for three reasons:

1.    The sole purpose of the plan is to compromise claims of third parties, while such releases are not, directly or indirectly, related to the restructuring of MMAC, the beneficiary of the CCAA proceedings;

2.    The approval of such a plan would extend the scope of the CCAA beyond Parliament’s authority to legislate in the field of bankruptcy and insolvency; and

3.    The use of the CCAA would produce an unconstitutional result considering that it would be a flagrant intrusion on the jurisdiction of the provinces in property and civil rights. “Such an intrusion into an exclusive provincial sphere necessarily goes far beyond an incidental and ancillary effect.”

Since the court already decided it was appropriate for the railway company to go the way of CCAA, CP’s jurisdiction challenge might be too late, says Andrew Winton, a lawyer with Lax O’Sullivan Scott Lisus LLP.

“While anything’s possible, it does seem to be a little late in the game for CP to be raising this as an issue. It would be problematic at this point if jurisdiction means the whole process was improper,” says Winton, who has acted on a case with a similar issue. “When the decision was first made to go CCAA, they should have anticipated that was the time to raise the issue, not 20 months later.”

Forlini says according to the Québec Code of Civil Procedure, lack of jurisdiction by reason of the subject matter may be raised at any stage of the case, and even on appeal and may even be declared by the court of its own motion.

If the plan of arrangement is approved it will then go to the U.S. to be approved by the bankruptcy court and then ideally the plans would be implemented.

If CP loses its argument it could seek leave to appeal to the Quebec Court of Appeal.

It is expected the trustee and settling defendants will argue the plan as presented is an efficient approach as opposed to complicated litigation in Canada and the U.S., which could last five years or more.

Canadian Lawyer InHouse contacted lawyers for the monitor and several of the defendants including World Fuel Services and MMA Canada. They either declined comment or did not return calls by time of publication.

Update June 9: Settlement with World Fuel Services added.

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