Wednesday, 15 May 2019

A wrinkle in time

May 14 saw the Quebec Class Action case before courts in Toronto and Montreal simultaneously.

A few gathered before Judge Brian Riordan in the intimate confines of small courtroom 16.03 in the Montreal court house for a micro-hearing of 15 minutes that produced a micro-decision.  Neither Alexandre Fallon for ITL nor Jean Lortie for RBH had much to say.  André Lespérance did most of the talking for the class action plaintiffs.  He was accompanied by his colleagues Gabrielle Gagné and Pierre Boivin.

Since the last meeting in Judge Riordan’s court over 22,000 class members had been contacted to seek their approval for the proposed use of the insurance company assets. Thirteen objected, of whom three withdrew their objections after being given some explanation. Judge Riordan reviewed the 10 remaining objections and concluded that the money should be used to better communicate with class members and to reimburse the Fonds d’aide as planned.  He concluded “that the Settlement Agreements are fair, reasonable and in the best interest of class members.”

Justice Riordan was told that the micro-matter of disposing of the assets of defunct insurance companies Kansa and Northumberland was the subject of much discussion in a Toronto court today which concluded with Justice McEwen announcing that on May 31 he would make a decision on which court had jurisdiction to decide the use of the insurance money, unless an agreement among the parties was reached first.  Justice Riordan scheduled another hearing on June 4 to further consider the insurance money question.  More is destined to be said on the jurisdiction issue.

In explaining to Justice Riordan the activities of the court-appointed mediator over the past few weeks, counsel for the plaintiffs stumbled slightly over the name of the former chief justice of the Ontario court. Then, from plaintiffs' counsel's back bench came, sotto voce, a polite correction - "Winkler, not Wrinkler."

Laughter all around, including from the speaker of the malapropism.  As the CCAA process drags on, moments of levity are regrettably becoming fewer and farther between.

 [1] CONSIDERING the Motion to Approve Settlements between the Class Action Plaintiffs and Certain Insurers in Liquidation;
[2] CONSIDERING the representations of the parties at the hearing;
[3] CONSIDERING the nature of the objections of the members filed pursuant to the notice approved by the court on April 30, 2019;
[4] CONSIDERING article 590 of the Code of civil procedure;
[5] CONSIDERING that this court is of the opinion that the Settlement Agreements are fair, reasonable and in the best interest of class members;

[6] GRANTS the present Motion in part;
[7] ORDERS that the Settlement Agreements remain under seal and that the settlement amounts payable thereunder not be disclosed unless otherwise ordered;
[8] APPROVE the settlement agreement dated July 4, 2017 (Exhibit P-1 under seal) entered into between Kansa General International Insurance Company Ltd., Ferdinand Alfieri, in his capacity as liquidator of Kansa General International Insurance Company Ltd., Jean-Yves Blais (now deceased) and Conseil Quebecois sur le Tabac et la Sante, in their capacity as class representatives in Court File
number 500-06-000076-980 and Cecilia Letourneau, in her capacity as class representative in Court File number 500-06-000070-983;
[9] APPROVE the settlement agreement dated February 16, 2017 (Exhibit P-3 under seal) entered into between Northumberland General Insurance Company, through its liquidator PricewaterhouseCoopers Inc., Jean-Yves Blais (now deceased) and Conseil Quebecois sur le Tabac et la Sante in their capacity as class representatives in Court File number 500-06-000076-980 and Cecilia Letourneau, in her capacity as class representative in Court File number 500-06-000070-983;
 [10] AUTHORIZE Class Counsel to withdraw from the Court record Exhibits P-1 and P-3;
[11] ORDER that the proceeds of the Settlement Agreements be paid to Fishman Flanz Meland Paquin LLP in trust ("FFMP"), as contemplated in the Settlement Agreements, and forthwith thereafter transferred by FFMP to the Trust account of the law firm Trudel Johnston & Lesperance;
[12] THE WHOLE without costs.

Tuesday, 14 May 2019

CCAA 5 : Whose money? Whose Jurisdiction?

The fifth day of hearings related to the future of Canada's tobacco companies opened with a now familiar pattern -- a lengthy secret meeting between Justice Thomas McEwen and 40 or more lawyers. Today the session in chambers lasted just shy of an hour.

When the public hearing opened, Justice McEwen made transparent efforts to be more transparent about what had been discussed in secret. He summarized the one-hour discussion in a few short sentences: 'I met with counsel in chambers to go over what matters would be on consent ... We will now go through the matters, starting with uncontested and finishing with contested.'

And that was that. So let's do as he suggested.


Collisions and health and safety with JTI-Macdonald
Justice McEwen has previously taken a 'no exceptions' stance with respect to whether any steps can be taken on the lawsuits the tobacco companies are facing. He has already flatly rejected requests from the government of Ontario and the Quebec class actions for limited exemptions to the stay that the tobacco companies asked for on all litigation proceedings against them.

Sauce for the goose, apparently, is not sauce for the gander.  Last week, JTI-Macdonald filed requests for two such carve-outs from the litigation stay.  One involved their desire to provide compensation for a man who had been severely injured when he was hit by a jet ski driven by a drunken JTI-Macdonald sales representative on a company-sponsored holiday. The other involved compensating a woman whose car had been rammed by a car being carelessly and recklessly driven by an on-duty JTI-Macdonald sales manager.

With no one in court opposing the motion, Justice McEwen decided that it was "fair and reasonable" to allow these lawsuits to be settled. He did not explain why he saw these individuals as more deserving of having their grievances addressed than the members of the Quebec class actions.

If the companies hurt you by accident, you will be compensated. If they hurt you intentionally, then you will have to wait!

JTI-Macdonald also requested dispensation to challenge demands from their unionized employees for enhancements to health and safety procedures. The irony seemed lost in the room, and this request also was deemed "fair and reasonable" by the court.

Imperial Tobacco's settlement with Genstar pensioners
The other uncontested exception granted today was on behalf of former employees of Genstar who are resident in the U.S. and who have until recently received pensions funded by Imperial Tobacco. Imperial Tobacco's proposed arrangement to manage this issue was also given swift approval, with consent voiced by the lawyers representing the retirees.


Settling the Insurance Settlement
The uncontested issues took less time than a coffee break, and soon the focus had changed to the two issues that the Quebec class action plaintiffs wanted addressed. The first involved the right of the Justice Riordan's court to manage a small amount of money received from insurance companies.

As explained here earlier, the lawyers representing injured Quebec smokers had pushed two bankrupt insurance companies into a settlement for an amount of money that has been shared with judges but not made public. (By inference, it is at least $1 million, but not more than Justice McEwen considers 'de minimis' in the context of the tobacco settlements).

This settlement had been reached long before the CCAA proceedings took place, but before the Quebec Court of Appeal had ruled. The process required that Justice Riordan approve the agreement, something he was not in a position to do until the Court of Appeal had ruled. The settlement was written in a way that the plaintiffs would get the money notwithstanding any requests to the Supreme Court.

This issue has been on the agenda since the first comeback hearing (in late March). In late April, it seemed headed for resolution through the mediation of Justice Winkler -- so much so that a very optimistic sounding report was given to Justice Riordan on April 30th.

Things change. But the change of heart in this case seems to be on the part of the lawyers who are representing all the provinces except Quebec and Ontario. (Quebec is not present at these hearings, and Ontario sat silent throughout today).

So contested was this issue today that those provinces and the tobacco companies did not even want a discussion to take place.

Although the request for adjournment was made by Deborah Glendinning, the reasons she gave were focused on the desires of the 8 provinces. She said they needed more time "to decide whether there is going to be anything to distribute and to give the other parties an opportunity to weigh in." (Hearing the interests of British Columbia being presented by their once arch-rival was a head shaking moment).

Eventually, Justice McEwen rejected her request for an adjournment, and allowed Mark Meland to make his case on why their motion should be allowed to fully proceed before Justice Riordan. He did so engagingly and -- even in this acoustical desert of a courtroom -- clearly. He pointed out that the money in question had nothing to do with any of the creditor tobacco companies (they had terminated their relationships with the insurers at the time), that it affected the rights of none of the other 'stakeholders' (provinces), that it pre-dated the CCAA by a wide margin. "We are talking about OUR money." 

It was a tough sell. Justice McEwen's body language and interjections were, to put it mildly, discouraging. "It is not your money.  The money is being held [in trust].  I don’t think that is your best argument."  

The tobacco company lawyers seem to have also decided that the judge was on their side. They threw away their prepared statements and made short interjections instead. They emphasized that even this small amount should be considered part of the "estate" that would be up for grabs by all litigants, that there was no basis for any discretion of the judge to grant this request, that answering phone calls by Quebec smokers wondering what was going on with the law suit was akin to setting up a parallel claims process that would compete with the rightful role of the Ontario court to "supervise" all claims.

Justice McEwen nodded along with these arguments. More than once he verbalized his agreement with their submissions.
Deborah Glendinning: You have jurisdiction, Justice Riordan does not.Justice McEwen: Right.

Acknowledge defeat or be defeated
At the end of the morning, Justice McEwen did not, however, rule against the Quebec requests. Instead he offered them a chance to retreat. He said he would decide on May 31st, and until then "I  order you to go back to see Mr. Winkler to see if you can resolve this. At that point [May 31st] there will be a decision on one side or another."

The Elephant in the Room 
Although the discussion was about the 'de minimis' hundreds of thousands or few millions involved in this settlement, a much bigger amount was the clear backdrop to today's hearings. In 2015 the Quebec Court of Appeal ordered the two biggest companies to post $984 million as security for an eventual award to Quebec Smokers. The 8 provinces have made clear that they want this money, and the tobacco companies have made clear that they intend to use it in any settlement that is reached.

Show us the money
The second issue brought forward by the Quebec lawyers concerned their desire for regular (monthly) statements on how much the companies' high priced help is receiving. As they pointed out today, the projected costs are $29 million per quarter.

At the hearing in April this request had been agreed to -- Imperial Tobacco's Monitor had reported that they were willing to make such payments public. "..commencing in May, 2019, the Monitor will make available on its website, a summary showing the fees paid in the preceding month to the following parties: i) counsel to Imperial; ii) the Monitor; iii) counsel to the Monitor; iv) the Court Appointed Mediator; v) counsel to the Court Appointed Mediator; and vi) any other counsel or advisors who may be engaged by any of these parties in the future."

Others apparently disagreed. Today an agreement was being hammered out that would result in Mr. Winkler being provided with these sums, but I did not hear any commitment to public disclosure.

Scheduled for discussion -- but never discussed in earshot - was a protocol to allow Justice Winkler to have private off the record conversations with Justice McEwen. As helpful as this may be to reaching a settlement, such back door channels only add to the highly secretive nature of these proceedings.

The protocol was not agreed to during today's hearing.  My bet is that this will be agreed to through e-mails and other backdoor processes!

This morning's discussion was informative in many ways:
* We learned that the tobacco companies have not yet made any financial (or other) offers to the provinces or Quebec plaintiffs.
* Justice McEwen knows very little about Quebec class action law (he had not heard of the Fonds d'aide).

Sprinkled throughout the day, and included in Justice McEwen's closing comments was an acknowledgement that two months into the protection order, negotiations had not progressed beyond the throat-clearing stage: "All of this [discussion on professional fees] is distracting from the main event - I am getting concerned that we are spending a lot of time on minutiae."

Columnist Julius Melnitzer convinced some of the parties in theses proceedings to put on record some of their negotiating positions. The column appeared this week in the Financial Post. In it, Deborah Glendinning acknowledges the 'public policy' aspects of the negotiations.

“With government involved, public policy and national implications will have to be taken into account in any settlement... The court-ordered terms of the restructuring mean that neither the Quebec plaintiffs nor the governments-in-waiting can do a darn thing until the restructuring has been resolved.”

Thursday, 2 May 2019

Parsing Justice McEwen's reasons for saying 'no' to Ontario

A week ago today, Ontario government lawyer Jacqueline Wall tried to convince Justice Thomas McEwen that Ontario's lawsuit against Canadian tobacco companies and their multinational owners should be allowed to move forward a few more steps in spite of the freeze on all lawsuits that he and his colleagues had granted to the tobacco companies earlier this spring.

It was clear from the outset that she was headed for rejection -- and indeed the next day his handwritten thumb's down was circulated to the dozens of law firms involved in these CCAA proceedings.

Yesterday, his reasons for that decision were also circulated. They are a brief  22 paragraphs taking up only 3 pages.

Despite their brevity, his ruling gives insight into his view of the issues before him. By my read, he expects that the provinces should abandon their lawsuits in favour of negotiating an arrangement that is acceptable to tobacco companies.

Governments will never receive the compensation they are seeking.

[7] The Ontario Action has been on-going for approximately ten years. Ontario has recently obtained court approval to amend its statement of claim to seek damages of $330 billion. 

[8] By anyone's estimate it is an extremely significant lawsuit. It will take approximately one year or more of trial time. It raises the issue as to whether provinces can recover damages for health care costs expended with respect to smoking-related diseases. The other provinces also have litigation pending seeking the same relief, all of which are currently stayed.
(emphasis added)

Negotiating with the companies takes priority over allowing courts to decide where justice lies.

[14] If Ontario was allowed to proceed to trial with an anticipated trial date, perhaps as early as 2021, it would significantly distract Ontario and the Applicants from the CCAA proceedings. There is no doubt that the pre-trial and trial processes would be very expensive exercises which would divert significant time and resources away from settlement discussions.

[15] This CCAA process is at its very early stages. It must be given an opportunity to evolve and succeed without multiple, significant, expensive distractions.  

The CCAA process should not be seen as another tactic of the companies to avoid or delay accountability.

[16] Certainly the balance of convenience as between all stakeholders favours keeping the status quo in place. I reject Ontario's submissions that none of the Applicants have disclosed any meaningful or proposed restructuring plan that will be put at risk if Ontario is permitted to continue. Such a submission is entirely premature in light of the stated goal of the Applicants to use their best efforts to resolve the claims against them. While one can argue that the bona fides of this intention remains to be seen, it is entirely premature to dismiss it at this time. (emphasis added)

The enthusiasm to settle using CCAA that is expressed by private law firms working on contingency fees gets equal weight with the desire of the Attorney General to seek justice in other courts.

[19] In this regard it bears repeating that six of the provinces oppose Ontario's position on this motion and wish to give the CCAA process an opportunity to succeed. Overall, there is simply no principled basis to distinguish the Ontario Action from any of the other outstanding actions, all of which have been stayed.