Preliminary Merits Review for Class Actions in Ontario: Thanks, But No Thanks!

• Author: Ian C. Matthews
• Pages: 119-156

119

Preliminary merits review for

Class aCtions in ontario:

thanks, But no thanks!

Ian C. Matthews*

It is often said that certification is “the single most important issue”1 in a class

action. For the representative plaintiff, it is the point in the litigation where

he learns if his individual claim will be aggregated with those of dozens,

hundreds, or even millions of similarly-situated class members. Certification

is an equally important issue for the defendants, given its potential to result

in negative publicity and the prospect of a costly, risky trial.

But as class actions have developed and solidified their place in the legal

landscapes of the United States and Canada, it has become increasingly clear

that settlement, not trial, is the eventual outcome for most certified cases.2

This is not particularly surprising, given that the vast majority of civil litiga-

tion results in settlement. However, there is a commonly-held perception

that class certification gives a representative plaintiff exponentially more

negotiating leverage over a defendant than a plaintiff possesses in an ord-

inary civil case.3 This leverage purportedly manifests itself in “blackmail”

* Associate, Osler, Hoskin & Harcourt LLP, Toronto, Ontario. This paper was

initially prepared in May 2009 in partial fulfillment of the requirements for

an LL.M. at Harvard Law School. I am grateful to my supervisor, Prof. David

Rosenberg, and to Prof. W.A. Bogart, Prof. Jasminka Kalajdzic, Gillian White,

Jared Craft, Vanessa MacDonnell, Lee Seshagiri and Hena Singh for their helpful

comments. The views and opinions expressed in this paper are my own.

1 Bartlett H. McGuire, “The Death Knell for Eisen: Why the Class Action Analysis

Should Include an Assessment of the Merits,” 168 F.R.D. 366 at 370, n. 11

(1996). See also Geoffrey P. Miller, “Review of the Merits in Class Action

Certification” (2004–2005) 33 Hofstra L. Rev. 51 at n. 4; Michael A. Eizenga et

al., Class Actions Law and Practice, 2d ed., looseleaf (Markham, ON: LexisNexis

Canada, 2009) at § 3.1 (certification is the “first critical step in a class proceed-

ing”).

2 For the United States, see Richard A. Nagareda, “Class Certification in the Age of

Aggregate Proof” (2009) 84 N.Y.U.L. Rev. 97 at 99. For Canada, see Cara Faith

Zwibel, “Settling for Less? Problems and Proposals in the Settlement of Class

Actions” (2004) 1:2 Can. Class Action Rev. 165 at 165.

3 For the United States, see George L. Priest, “Procedural versus Substantive

120 THE CANADIAN CLASS ACTION REVIEW

settlements, which occur when a defendant is bludgeoned into settling the

class action, even when its merits appear dubious or weak.

One possible solution to the alleged blackmail settlement problem

would be to conduct a preliminary merits review (PMR) as part of class

action certification. In its most basic form, a PMR would require a represen-

tative plaintiff to demonstrate the substantive adequacy of their class action

as a precondition to it being certified. This could involve, for example, a

showing at the certification stage that the class claim has a reasonable pos-

sibility of succeeding at trial. The higher the standard of proof employed on

a PMR, the fewer the number of class actions that would advance beyond

certification. In this way, a PMR would deter or screen out “bad” cases prior

to certification, thereby reducing the likelihood that blackmail settlements

would result from frivolous class actions.4

This paper considers whether a PMR should be mandated as a requisite

for class certification in Ontario, both as a means of reducing blackmail

settlements and capitalizing on any incidental benefits such a review may

engender. Indeed, a formal PMR for class actions may not represent a drastic

departure from what is already occurring in practice in the United States

and Canada, as judges in both countries have long recognized the relevance

of merit-related evidence to the certification decision and have taken it into

account on many occasions.

Despite assertions that a PMR would reduce the number of blackmail

settlements, upon closer inspection it appears that allegations of blackmail

are overstated. Not only is there an absence of clear empirical evidence

that certified class actions go to trial less often and settle more frequently

than ordinary civil cases, but the blackmail settlement claim tends to over-

emphasize defendants’ vulnerability to settlement without fully appreciating

Controls of Mass Tort Class Actions” (1997) 26 J. Legal Stud. 521 at 521. For

Canada, see Ward K. Branch & Don Montrichard, “Exposing the ‘Litigation

Blackmail’ Myth” (Paper presented at British Columbia CLE, February 2005) 1

at 1, online: Branch MacMaster www.branmac.com/go/download/Exposing_the_

Litigation_Blackmail_Myth.pdf.

4 In reference to class actions, this paper uses the terms “bad,” “frivolous,” “unmeri-In reference to class actions, this paper uses the terms “bad,” “frivolous,” “unmeri-

torious,” and “meritless” interchangeably to broadly describe those class claims

that would not have a reasonable possibility of success at trial. This could include

class actions asserted in good or bad faith. This paper is cognizant of the difficulty

that such a description presents, since a “reasonable possibility of success at trial”

envisions a judicial determination to this effect — something that many class

actions never receive (because, for example, they settle before trial). Nevertheless,

this paper proceeds with its definition on the assumption that the reader can

conceptualize a subset of “bad,” “frivolous,” “unmeritorious,” or “meritless” class

action litigation.

VOLUME 6, No 1, april 2010 121

the pressure that a class representative and their counsel may face to settle

a certified class action and the natural advantages that most defendants

possess in class litigation. Moreover, adequate safeguards inherent in class

action procedure are sufficient to prevent defendants from being systemati-

cally victimized by frivolous class actions, and a number of key differences

in the American and Canadian legal systems suggest that to the extent that

blackmail settlements are even occurring, they are less likely to manifest

themselves in Canada. In truth, blackmail settlements of class actions

appear to be more of a myth than a reality and instituting a PMR in Ontario

solely for the purpose of addressing a problem that cannot be clearly sub-

stantiated is undesirable.

Beyond any impact a PMR may have on blackmail settlements, con-

sideration of the incidental benefits and costs of implementing such a

review support the conclusion that presently, there is no need for a PMR in

Ontario. Certainly, a PMR has many potential advantages. It could facilitate

access to justice for representative plaintiffs by reducing their exposure to

large adverse cost awards under Ontario’s “loser pays” cost rules. It can

foster judicial economy, not only by deterring or screening out bad class

actions early on, but by focusing on the triable issues, promoting more accu-

rate settlements, and potentially obviating the need for separate (and costly)

merit-based motions such as summary judgment. To the extent that a PMR

is able to rid the civil litigation system of frivolous class actions, defendants

will face class-wide liability only when appropriate.

Yet the incidental costs associated with a PMR are significant and mili-

tate against mandating such a review in Ontario. A PMR makes class certi-

fication more onerous and costly for a class representative and its counsel,

reducing the likelihood that risky, but meritorious, class actions will be ini-

tiated or certified. Such a review may also consume more judicial resources

and present tricky preclusion issues, since an unfavourable pre-certification

merits determination may not prevent subsequent re-litigation by absent

class members. Generally, the potential for a PMR to discourage some

meritorious class actions means that introducing such a review may allow

some defendants’ blameworthy conduct to continue undeterred. Overall,

the absence of a clear blackmail settlement problem, coupled with consid-

eration of the incidental benefits and costs of a PMR, counsel in favour of

rejecting a PMR for class actions in Ontario.