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

AuthorIan C. Matthews
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-
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
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
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.

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