A hundred or more lawyers and onlookers were assembled for the first day of the "Comeback" hearing that had been set up to hash out terms under which Canada's three large tobacco companies (Imperial Tobacco, Rothmans, Benson and Hedges and JTI-Mcdonald) could continue to be sheltered from their debts. All the seats were taken well before the scheduled beginning (10:00 am).
The absence of overflow chairs was only one of many details that were not thought through before the day's beginning. A schedule to allow presentation and responses to the many motions that had been filed over the last week had not been agreed to by starting time. Almost an hour was taken up while lawyers met in the Judges' library to work such details out.
Nonetheless, when the hearing did start (at 11:00) things ran very smoothly - and continued to do so throughout the day. Smoothly - yes - but not without some very disturbing moments.
The unopposed items first
It took very little time to dispense with a handful of items to which there was little or no opposition: impediments to confirming settlements with between insurance companies were removed; a cash collateral issue was resolved; the role of former Justice Winkler was transformed from 'Interim Tobacco Claimant Coordinator' to 'Court-Appointed Mediator'.
The view from Quebec
The rest of the day was taken up with the only one proposal -- the request of the Quebec class action lawyers for Justice McEwen to limit the ability of the tobacco companies to simultaneously use creditor protection to negotiate a settlement while also maintaining their right to appeal a court decision.
They have offered two suggestions to the judge: a) the CCAA process would be disbanded for any defendant who makes an appeal to the Supreme Court, or b) decisions on staying the Quebec court judgment be made by the Quebec Courts, not the CCAA process.
The arguments in support of these suggestions were not made by the lawyers whose work has been described here over the past many years. The CCAA process has brought new legal talent to the teem -- Montreal specialists in insolvency law at the law firm Fishman Flanz Meland Paquin LLP.
It was Mark Meland of this firm who presented the case over the morning's hearing. In doing so, he provided colourful (and, to these ears, compelling) background to the proceedings.
Forum shopping
Mr. Meland said that the tripwire to the CCAA process was the judgment issued by the Quebec Court of Appeal in favour of Quebec smokers on March 1st - a judgment that has now been put on ice as a result of the CCAA Orders signed by 3 Ontario judges.
He framed the CCAA process (and the stay on the Quebec judgment) as an attempt of the tobacco companies to "evade improperly the jurisdiction of the Quebec Court of Appeal" . He called it a collateral attack on the jurisdiction of that court that was "unlawful, disrespectful and should not be sanctioned by this court."
In the hours after learning that it had lost the appeal, ITL had initiated a request to the Quebec Court of Appeal for a stay on the judgment until it had gone to the Supreme Court. A brief court hearing had taken place at the Quebec Court of Appeal on the next business day (Monday), with all parties agreeing to set March 25 as the day of hearing that motion. Mr. Meland called this a "judicial contract" and went through the exchange of emails and motions on the subject.
But instead of honouring this process, Mr. Meland pointed out, the companies had "gone down the 401" looking for a friendlier court and a friendlier statute to achieve their ends.
A creditor like no other
Mr. Meland said that the Quebec class action members deserved special consideration in the CCAA process. "They are not like every other creditor. Against all odds they achieved two remarkable judgments - there are no judgments anywhere else in the world where big tobacco has been found to be so negligent and where an award on a mass tort basis has been rendered. It is a credit to the Quebec justice system that this has been rendered."
These creditors were different also in that the CCAA was altering the status quo in their case, not protecting it. "Their definition of status quo and our definition of status quo are different ... The only party today that is affected by your order in a fundamental way is the Quebec Class Action Plaintiffs. I acknowledge there are other creditors, but there are none that are so close," said Mr. Meland.
Yes, there were other people suing the tobacco companies -- "there is not one other single pending case that will be heard in this year."
CCAA Applicants like no other
Mr. Meland warned the judge about the past behaviour of the tobacco companies - their persistent efforts to impede litigants and the "critical and scathing" conclusions of the Quebec court. "These are the people who are before you and who are asking for your assistance."
He gave an immediate example of their tactical ambiguity. When first appearing before justice McEwen Imperial Tobacco had said that it did not intend to seek leave to appeal -- yet had filed documents indicating they still wanted to keep this option open.
He signaled the dangers of giving the companies the capacity to cause further delays, and how a special concession which allowed them to appeal but which prevented other movements on cases would give them a new tactical weapon. They could eat up the clock in negotiations and then turn to the Supreme Court for further delays. This was too much. "Those who don't learn from history are condemned to repeat it." '"After 21 years - enough is enough"
Justice McEwen was urged to consider the impact of this on the 100,000 Quebec victims, and how his making this concession to the companies would ensure that there will not be one living member of the Quebec class to receive compensation. "When you weigh that group against the perpetrators, do you opt for the victims of the perpetrator."
He signaled the dangers of giving the companies the capacity to cause further delays, and how a special concession which allowed them to appeal but which prevented other movements on cases would give them a new tactical weapon. They could eat up the clock in negotiations and then turn to the Supreme Court for further delays. This was too much. "Those who don't learn from history are condemned to repeat it." '"After 21 years - enough is enough"
Justice McEwen was urged to consider the impact of this on the 100,000 Quebec victims, and how his making this concession to the companies would ensure that there will not be one living member of the Quebec class to receive compensation. "When you weigh that group against the perpetrators, do you opt for the victims of the perpetrator."
Don't interfere in Quebec Court matters
He appealed to Justice McEwen's judicial comity - citing other CCAA rulings where courts had refrained from trumping each other's decisions. "Superior courts do not order each other about or make orders interfering with each other's process. Rather, it is essential that they should cooperate. Conflicts between courts, or other bodies having ultimate judicial power, may well have serious results, including perhaps even loss of liberty. In Canada, superior courts do not compete with one another. They accord to one another "full faith and credit..."
To usurp the Quebec Court's role on a stay, Mr. Meland stressed, would be a "slap in the face" of Quebec jurisdiction.
The government of Ontario - the lone supporter
After lunch, other parties were invited to air their views on the Quebec plaintiff's request, with those in support going first. Of the almost dozen other parties, only one sided on this issue with Quebec smokers -- the government of Ontario.
On behalf of Canada's largest province (also the party with the largest claim against the tobacco companies - a gulping $330 billion!), Ms. Jacqueline Wall of the Ontario Attorney General's office said that she too felt that if the companies were able to keep their appeal options open that they would have an unfair upper hand in negotiations.
"Seeking to have the advantage of a sword of Damocles is not an expression of good faith. If the purpose is to be a global settlement - including Quebec and other applicants -- then such impediments to discussion should be removed. ...The applicants should waive their appeal rights or pursue their appeal."
The first to speak was Ms. Deborah Glendinning on behalf of Imperial Tobacco. She reframed the discussion away from issues of mutual respect between courts and towards an issue that seems top of mind to many -- money.
By her account, the real motivation of the Quebec lawyers was to get their hands on the security deposit that ITL and RBH had made at the order of the Court of Appeal over 2015-2017.
By her account, the real motivation of the Quebec lawyers was to get their hands on the security deposit that ITL and RBH had made at the order of the Court of Appeal over 2015-2017.
"The $1 billion – that’s what it has been all about since March 1." She said the goal of the plaintiffs was to get a final ruling in Quebec because doing so would give them an edge - "a leg up" - in any future insolvency decisions.
She gave a very different account of the hours and days after the March 1 decision. "The moment we were released from the lock up they ran to the
register asking for the money.... Our filing was not some tactical event to evade the jurisdiction of
the Quebec Court of Appeal or 'forum shopping'. In large measure ti was to prevent the Quebec
plaintiffs from getting their hands on the $1 billion."
"They forced our hand... They forced us into this position."
For those concerned that Imperial Tobacco was seeking an advantageous position, Ms. Glendinning offered that their main concern was for others. They wanted to make sure that the process was fair to the provinces and others suing them. They wanted to prevent giving a benefit to Quebec over "all the other people who
want to lay a claim to that money."
"All we are saying is give peace a chance"
As Ms. Glendinning sat down, Mr. Jeffrey Leon stood up to support her position.
In itself, this was enough to make eyebrows rise, given that he is the lawyer representing 6 provincial governments (British Columbia, Saskatchewan, Manitoba, New Brunswick, Nova Scotia and Prince Edward Island).
And as part of peace talks, he wanted to make sure that all of the money was on the table. "No one has a monopoly on the value of their claim at this
stage.... If
the process can't be divided it has to include everyone."
Mr. Max Starnino, speaking on behalf of the governments of Alberta and Newfoundland, expressed his opposition to the Quebec class action proposal. As their Factum makes clear, they are concerned that allowing the Quebec case to proceed in any way that results in a transfer of money (including through settlements of insurance companies) could harm their chances.
The others pile on
Less surprisingly, lawyers for Rothmans, Benson and Hedges and JTI-Macdonald also gave the thumbs down to the idea that Quebec courts should decide on the question of a stay of the class action.
Less surprisingly, lawyers for Rothmans, Benson and Hedges and JTI-Macdonald also gave the thumbs down to the idea that Quebec courts should decide on the question of a stay of the class action.
Paul Steep (for RBH) outlined the approach that RBH and JTIM preferred as the "narrowest and least intrusive way" forward. Their proposal maintains the right to file a request for appeal, but subjects any other steps to decisions of the CCAA court.
Robert Thornton addressed the criticisms that had been levelled about the behaviour of the companies - and especially his client, JTI-Macdonald, It was time, he suggested to turn the page. "This is a new day. A new proceeding. A New Focus." The shift from the Quebec judicial system to the CCA in Ontario reflected the need for "Fresh faces and new ideas."
He echoed the view that the $1 billion that had been required by the Quebec Court of Appeal as a security deposit should not be released to Quebec smokers. Doing so would be to allow one creditor to "tactically manoeuvre to gain an advantage over others." JTIM escaped having to contribute to the deposit, and Mr. Thornton wanted to keep it that way. "Any further deposit that is for just one stakeholder...
shouldn’t happen on your watch.."
The next voice against the proposal to return to Quebec courts any decision-making on staying their own judgment was on behalf of other class actions. There is only one other certified class action in Canada (the Knight case against Imperial Tobacco on light and mild cigarettes). But a handful of copy-cat cases have been filed in several provinces by the (dare I say notorious?) Tony Merchant law firm.
Evatt Merchant urged the judge to consider that there was no reason for Quebec smokers to be compensated ahead of other victims in Canada. They want to be included in any global settlement negotiated through former Chief Justice Warren Winkler - and to make sure that no one gets a slice of the pie before they do. "Our ultimate concern is that this shouldn't be a form of litigation – whatever track we end up going down – where smokers in Quebec who have COPD are dramatically better compensated than end user smokers in other part of the country..."
Next to the stand were representatives of the Monitors. Despite their independent role, all of them wholly supported the positions of the companies they were recruited by.
The billion dollar question
Justice McEwan pushed the lawyer for ITL's Monitor to explain the legal standing of the security deposit now in Quebec courts. "Who owns the money?" he asked.
He did not get a clear answer, being told instead that was "fairly technical." What was clear was that all the monitors -- including that for JTIM -- characterized any money going to Quebec smokers as a result of last month's judgment would be giving "a leg up" to one creditor over the others.
"That ship has sailed"
By the time Avram Fishman stood to give the response of the Quebec plaintiffs, the discussion had clearly moved from how to respect the jurisdiction of Quebec's court to what to do about the $1 billion that had been set aside by that court for the Quebec plaintiffs.
By the time Avram Fishman stood to give the response of the Quebec plaintiffs, the discussion had clearly moved from how to respect the jurisdiction of Quebec's court to what to do about the $1 billion that had been set aside by that court for the Quebec plaintiffs.
Mr. Fishman made clear that while they were very much in favour of working with Warren Winkler towards a resolution, that they did not consider that initial payment to be part of the discussion.
He derided the statements by the company lawyers that they wanted to be "fair" to all creditors, and alluded again to the tactics of attrition. He reminded the court again that JTIM had suggested that the CCAA process could take years -- and that this company had previously dragged out CCAA protection for the 6 years between 2004 and 2010. "It's a little late in the day for tobacco companies to talk about being fair as their motivation. Its not their motivation. It is to have leverage over us to try to get a better deal."
Justice McEwen asked him about fairness in the context of other class actions - would it be preferential treatment if they received money just because they were the first.
To this question, Mr. Fishman was unequivocal that the position of the Quebec plaintiffs was that this money had been set aside for Quebec victims once a final judgment was established and that this happened before the CCAA was triggered. "This is not something that would improve with the passage of
time... That ship has sailed."
Justice McEwen pressed the issue in the context of settlement discussions. Mr. Fishman made clear that they intended to apply for the money once able to do so. "We cant get at it, but that doesn’t change the legal position. The
legal position is that the money is ours. Is ours vis à vis the applicants. Its
ours vis à vis the other."
Moreover, he later pointed out, "the matter of the billion dollars is not before the court today on the comeback motion... that is for another day."
And next?
When the court adjourned shortly before 5:00 only one of several contentious issues had been discussed. But the discussion about the concerns of the Quebec plaintiffs had fleshed out a lot of positions on other issues. It drew out the extent to which 8 Canadian provinces preferred to side with tobacco companies than with a co-litigant. It exposed the vulnerability of the Quebec claim to further lengthy and costly delays.
When the court adjourned shortly before 5:00 only one of several contentious issues had been discussed. But the discussion about the concerns of the Quebec plaintiffs had fleshed out a lot of positions on other issues. It drew out the extent to which 8 Canadian provinces preferred to side with tobacco companies than with a co-litigant. It exposed the vulnerability of the Quebec claim to further lengthy and costly delays.
The Quebec claimants had made their case clearly and well, but from the room of around 100 other lawyers wanting the same money, Justice McEwen would have seen very little support for it.
Friday will begin with an informal exchange about the order of discussion.
