Partial Settlements of Class Actions: What Do You Do When You Settle Some Defendants and Not Others?

• Author: David A. Klein and Nicola Hartigan
• Pages: 585-601

585

PARTIAL SETTLEMENTS OF CLASS

ACTIONS:

WHAT DO YOU DO WHEN YOU SETTLE SOME

DEFENDANTS AND NOT OTHERS?

David A. Klein and Nicola Hartigan1

A. INTRODUCTION

Class actions often involve claims against multiple defendants who each

have a variety of different interests. In such actions, settlement discus-

sions can be complicated and at times impossible. Conflicts may form

between defendants who are not prepared to participate in settlement dis-

cussions and those who were willing to negotiate from the outset. From

the plaintiff’s perspective, movement towards reaching a settlement does

not need to be stalled as a result of these diverging positions. Instead,

there are methods by which a plaintiff can negotiate and implement a

settlement with those defendants who are interested in settling.

If a partial settlement is reached between the plaintiff and fewer than

all the defendants, it will usually be conditional on the granting of a “bar

order” by the court. The bar order is a procedural tool by which a plain-

tiff can partially settle a class proceeding with one or several defendants

while continuing the claim against the non-settling defendants. The

bar order becomes a term of the settlement agreement that prevents or

“bars” the non-settling defendant from making claims against the settling

defendant for contribution or indemnity on the basis that the plaintiff

agrees not to advance any claim against the non-settling defendant for

any amount above the non-settling defendants’ “several” (as opposed to

joint and several) liabilities.

Although a bar order limits the settling defendant’s liability, it might

not completely remove the settling defendant from the litigation. The

terms of the bar order will generally allow the non-settling defendants, on

application to the court, to have limited procedural access to the settling

defendant such as document discovery or oral discovery.

1 David A. Klein and Nicola Hartigan, Klein Lyons, Vancouver.

586 THE CANADIAN CLASS ACTION REVIEW

Generally, Canadian class action settlements that include some but

not all of the defendants have the following elements: 1) the partial settle-

ment is conditional on obtaining a bar order; 2) the action is certified as

against the settling defendants; and 3) the settlement must be approved

by the court. This article examines these three components of partial

settlements, focusing primarily on the use of and development of bar

orders.

B. THE PARTIAL SETTLEMENT IS

CONDI TIONAL ON OBTAIN ING

A BA R ORDER

Bar orders originate from American jurisprudence where they have been

used for many years to manage complex securities and class action litiga-

tion. In a U.S. securities case, Nelson v. Bennett,2 the court discussed the

futility of a partial settlement without a bar order:

Turning first to a “no-bar” rule, such a rule would quite clearly inhibit

the policy of encouraging settlements. A defendant has nothing to

gain by entering into a settlement that does not effectively terminate,

or for that matter even reduce, further financial exposure ... Indeed, a

defendant has everything to lose by so doing. Even in the strongest of

actions, there is always the possibility of a defense verdict and, thus, a

required payout of zero. At the very least, by remaining in the action a

defendant can defend himself and attempt to reduce his proportionate

share of liability. Since the upper-end risk is not reduced in the slightest

by a partial settlement, a rational defendant may as well “roll the dice,”

pursuing the matter to trial and hoping for a favorable verdict. [citations

omitted].

The court also explained that several states have enacted statutes

allowing settlement bar orders to counteract the inhibiting effect on

settlements of cross-claims for contribution:

Under the provisions of such statutes, a partial settlement will, in speci-

fied instances, operate so as to bar the non-settling defendants from

asserting cross-claims for contribution against the settling defendant. A

defendant contemplating settlement with a plaintiff is thereby granted

2 Nelson v. Bennett, 662 F. Supp. 1324 (E.D. Cal. 1987) (U.S. Dist. Ct.) at 1334.