McCann et al. v. CMHC et al., 2015 ONSCDC 20904

Court File and Parties

DIVISIONAL COURT FILE NO.: 99-CV-37862 and 99-CV-10694

DATE: April 15, 2015

ONTARIO

DIVISIONAL COURT

BEFORE: PATRICK SMITH J. sitting as a judge of the Superior Court of Justice

BETWEEN:

Frank McCann et al

And

Nicole Lacroix et al

Plaintiffs/Responding Parties

– and –

CMHC et al

Defendants/Moving Parties

William Sammon,

for the Plaintiffs/Responding Parties,

Lacroix et al

Paull Leaman

For the Plaintiffs/Responding Parties,

McCann et al

Brett Ledger, Lauren Tomasich and Lia Bruschetta for the Defendants/Moving Parties CMHC et al

HEARD: via written submissions

Endorsement

Justice Patrick Smith

1There are two motions in writing before the court.

2In the first motion the defendants, Canada Mortgage and Housing Corporation (CMHC) et al seek an order granting leave to appeal to the Divisional Court from the order made January 23, 2015 granting the plaintiffs’ motion in Court File No. 99-CV-37862 for certification of their action against the defendants pursuant to the Class Proceedings Act, 1992 (S.O.. 1992, c.6) (“the CPA”).

3In the second motion the defendants, CMHC et al seeks an order granting leave to appeal to the Divisional Court from the order made January 23, 2015 granting the plaintiffs’ motion in Court File No. 99-CV-10694 certifying additional common issues (the “Conflict of Interest Issues”) pursuant to the CPA.

Litigation Background

4The current class proceeding was certified on consent on May 4th, 2000.

5The class was defined as:

All former employees who left Canada Mortgage and Housing (“CMHC”) from the 1 January 1995 to October 23, 1998 due to CMHC’s Work Adjustment (downsizing program) who did not receive their alleged share of a pension surplus (Which has been paid by what the Defendants have characterized as “benefit enhancements” funder from surplus and which the Plaintiffs allege was a distribution of surplus).

6The Plaintiffs brought a motion to amend the Statement of Claim and to obtain certification of four “partial termination common issues”. That motion was dismissed on January 26th, 2009. Further appeals to the Divisional Court and Court of Appeal were dismissed on June 16th 2010 and on November 8th 2012 respectively.

7The Divisional Court found that, notwithstanding that the partial termination common issues could not be certified, the Plaintiffs had a statutory cause of action pursuant to ss. 8(10) and (11) of the Pension Benefits Standards Act, stating: “Our decision does not preclude the Lacroix and McCann appellants from pursuing the issue of breach of s. 8(10) and the appropriate remedy pursuant to s. 8(11) of the PBSA (apart from relief based upon partial termination), as a common issue before the certification judge”.

8The decision of Charbonneau J. certifies four additional common issues. The reason for the decision note that this was a companion action to action 99-CV-10194 (“the Lacroix action”) and that the plaintiffs were asking “to have certified issues very similar to common issues certified in the Lacroix action by consent in 2000 and additional common issues which I just recently agreed to certify in the Lacroix action.”

9In his decision Charbonneau J. commented:

3The plaintiffs claim in this action is an attempt to obtain a pro-rata share of benefit enhancements paid to pension plan members who were still members of the plan as of the January 1, 2001. Unlike the plaintiffs in the Lacroix action, they are not claiming a pro-rata share of the first benefit enhancement awarded on January 1999 as they were still plan members at that time and therefore received a pro-rata share of those benefits. The motions by the Lacroix group and the McCann group motion were heard together.

6I have come to the conclusion that for the reasons I gave in the Lacroix action that the proposed conflict of interest common issues v, vi, vii, and viii should also be certified in this action.

8For the same reasons, I gave in the Lacroix action, I am of the view the above class definition meets with the criteria required for a proper class definition: it identifies who have a potential claim against the defendants; defines the parameters of the lawsuit so as to identify those persons bound by its results; and describes who is entitled to notice of the action.

12The present action is certified as a class proceeding subject to the modifications of the proposed benefit enhancements in order to make them identical to the benefit enhancement issues in the Lacroix action subject to referencing only the second benefit enhancement pay out.

Factual Background

10Between 1995 and 2000 CMHC downsized its operation and terminated approximately 50 per cent of its workforce through a Workforce Adjustment Program (“WFA”).

11When the WFA was commenced there was approximately $64.8 million dollars in surplus funds in the company pension plan which would later grow to $432 million dollars before the end of the program.

12As early as May 1995 CMHC wanted to use surplus pension funds to help pay for the cost of downsizing. A “surplus review” was conducted by the fund trustees resulting in a distribution of $253.2 million of the surplus funds by attributing 60% of the funds to CMHC and the balance to employees and retirees who were plan members as of January 1, 1999 and January 1, 2001.

13CMHC also helped pay for an Early Retirement Reduction Waiver (“ERRW”) which provided retirement benefits to affected employees outside of the registered pension plan. Approximately $59.4 million dollars were used to pay for the ERRW from CMHC’s 60% share of the $128 million dollars distributed in the first distribution.

14After January 1, 1999 the sum of $59.4 million dollars was shown on CMHC’s books of account as a debt owing by the corporation to the Pension Fund, which debt was then forgiven through the allocation of the surplus.

15The “surplus review” also resulted in a “redesignation of contributions” allowing a return of contributions plus interest to ongoing employees/retirees amounting to $493.8 million dollars from the two distributions.

16The representative plaintiffs took their commuted value and left the plan and did not share in either distribution of the surplus. They allege that before electing to take their commuted value and leaving the plan they were not informed that they had a beneficial interest in the surplus. Conversely, the plaintiffs allege that they were informed by the corporation that the CMHC owned the surplus and that they had no beneficial interest in it.

Rule 62.02(4)

17Rule 62.02(4) of the Rules of Civil Procedure sets out a two part disjunctive test for leave to appeal to the Divisional Court:

Leave to appeal shall not be granted unless,

(a)there is a conflicting decision by another judge or court in Ontario or elsewhere on the matter involved in the proposed appeal and it is, in the opinion of the judge hearing the motion, desirable that leave to appeal be granted; or

(b) there appears to the judge hearing the motion good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted.

Discussion

Rule 62.02(4)(b)

18My decision and reasons pertain to both appeals and will only address the provisions of rule 62.02(4)(b).

19The plaintiffs were former employees CMHC and had left the Plan prior to the benefit enhancement program. Their claims were framed as an entitlement to a portion of the Plan surplus existing at that time.

20The law on this issue is clear. A number of decision including the Ontario Court of Appeal in Lacroix v. Canada Mortgage and Housing Corporation, 2012 ONCA 243 hold that Plan members who voluntarily leave a pension plan by transferring out the commuted value of the pension benefits no longer have any rights in the Plan.

21The common issues that were certified are founded upon the plaintiffs’ alleged ownership of the surplus that existed in the Plan when they elected to take their commuted value and leave the Plan. The allegations of conflict of interest relate to actions or inaction by CMHC that were in conflict with the plaintiffs’ alleged ownership interest.

22In paragraphs 32-33 in his reasons Charbonneau J. acknowledges the existence of case law holding that pension plan members do not have any rights to the actuarial surplus in an ongoing pension plan however, nevertheless made an order certifying issues premised, in part, on the plaintiffs’ alleged ownership.

23I agree with the Applicant that, despite the certification Judge’s clear acknowledgement of the principle that Plan member have no interest in the surplus of an ongoing pension plan, the order certified this as a common issue. For that reason alone, there is good reason to doubt the correctness of the order.

24Further, the certification of issues founded upon allegations of misrepresentation or failure to advise are questionably incorrect because they are premised on the principle of ownership and also because they are individual in nature and therefore not proper conflict of interest common issues.

25With respect to the importance of the issues, the order stands as a precedent with respect to section 8(10) of the PBSA and affects all pension plan administrators where the PBSA applies. Specifically, the order has broad and far reaching impact on the duties and/or potential conflicts which may arise where surplus reviews and benefit enhancement decisions are made.

26Further, the question of whether pension plan administrators may be subject to a class action for damages for failure to advise members on the issue of ownership prior to the decision to distribute a surplus or to enhance benefits raises an issue of considerable importance justifying appellate consideration.

Finding

27The application for leave to appeal is granted.

28In the event that counsel is unable to resolve the issue of costs themselves they may file written submissions with respect to costs within the next 30 days. Submissions are not to exceed 5 pages in length.

Patrick Smith J.