ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 08-CV-347263PD2
DATE: 20120629

BETWEEN:

DAVID OSMUN and METRO (WINDSOR) ENTERPRISES INC.
Plaintiffs

– and –

CADBURY ADAMS CANADA INC., THE HERSHEY COMPANY, HERSHEY CANADA INC., NESTLÉ CANADA, INC., MARS, INCORPORATED, MARS CANADA INC. and ITWAL LIMITED
Defendants

Charles M. Wright, for the plaintiffs

Scott Maidment and Lisa Parliament, for the defendants The Hershey Company and Hershey Canada Inc.
Christopher P. Naudie for the defendant Cadbury Adams Canada Inc. (now Kraft Canada Inc.)
Catherine Beagan Flood, for the defendant Nestlé Canada Inc.
Donald Houston, for the defendant ITWAL Limited
Matthew Milne-Smith, for the defendants Mars Incorporated and Mars Canada Inc.

HEARD: May 28, 2012

Proceedings under the Class Proceedings Act, 1992

REASONS FOR DECISION – HERSHEY CERTIFICATION, settlement approval AND CLASS COUNSEL FEE APPROVAL

G.R. Strathy J.

[1] The plaintiffs move for an Order:

(a) certifying this action as a class proceeding pursuant to the Class Proceedings Act, 1992, S.O. 1992 c. 6 (the C.P.A.) as against the defendants Hershey Canada Inc. (Hershey Canada) and The Hershey Company (collectively, Hershey) for the purposes of settlement only;

(b) approving a settlement agreement made between the plaintiffs and Hershey Canada; and

(c) approving payment of a fee to Ontario and British Columbia Class Counsel in the amount of $1,232,354.86 plus disbursements of $186,626.75.

Background

[2] The plaintiffs have commenced class actions alleging that the defendants conspired to fix, maintain and/or stabilize prices of chocolate confectionary products in Canada and that the defendant ITWAL Limited (ITWAL) engaged in price maintenance. ITWAL is a distributor and wholesaler. The other defendants are manufacturers of chocolates.

[3] Companion proceedings have been commenced in British Columbia and Québec regarding alleged price-fixing in the chocolate confectionary industry:

(a) British Columbia action titled Jacob Stuart Main v. Cadbury Schweppes plc, Cadbury Adams Canada Inc., Mars, Incorporated, Mars Canada Inc. formerly known as Effem Inc., The Hershey Company, Hershey Canada Inc., Nestlé S.A., Nestlé Canada Inc. and ITWAL Limited (Vancouver Registry, Court File No. S078807);

(b) Québec action titled Gaetan Roy v. Cadbury Adams Canada Inc., Hershey Canada Inc., Mars Canada Inc., Nestlé Canada Inc. (File No. 200-06-000094-071).

[4] The plaintiffs have reached a settlement with Hershey Canada. I will describe the settlement in more detail below, but in substance, Hershey Canada will pay $5.3 million for the benefit of the settlement class members and the claims against Hershey will be dismissed.

[5] This follows earlier settlements with ITWAL and the Cadbury Defendants, which were approved by this court, the Québec Superior Court and the British Columbia Supreme Court: see: Osmun v. Cadbury Adams Canada Inc., [2009] O.J. No. 5566, 85 C.P.C. (6 th) 148 (certification); Osmun v. Cadbury Adams Canada Inc., 2010 ONSC 2643, [2010] O.J. No. 1877, affd 2010 ONCA 841, [2010] O.J. No. 5304, leave to appeal denied [2011] S.C.C.A. No. 55 (settlement approval).

[6] The background facts are set out in those decisions and I will not repeat them. I will begin by outlining the key features of the ITWAL and Cadbury settlements and the Hershey settlement. I will then describe the process that was adopted for the hearing of the motions. Finally, I will set out my conclusions on certification, settlement approval and fee approval.

The ITWAL and Cadbury Settlements

[7] The plaintiffs have been pursuing a strategy of serial settlements with the defendants, obtaining both settlement funds and cooperation agreements in the process. This not only provides funds for the ultimate distribution to the class, and provides some indemnity for the fees and disbursements of class counsel, it also secures the cooperation of the settling defendants to assist the plaintiffs in building their case against the non-settling defendants.

[8] On October 2, 2009, the plaintiffs entered into a settlement agreement with ITWAL, obtaining an assignment of ITWAL’s claims against the defendants as well as an agreement to cooperate in providing relevant documents and information.

[9] On October 14, 2009, the plaintiffs entered into an agreement with Cadbury Adams Canada Inc. and Cadbury Holdings Limited (collectively Cadbury) for the payment of a settlement of $5.7 million plus interest. Cadbury also agreed to cooperate with the prosecution of these proceedings by providing relevant documents and information to the plaintiffs.

[10] These settlements were approved by this court and by the courts of British Columbia and Québec. The settlements were found to be fair, reasonable, and in the best interests of the class:

The Hershey Settlement

[11] Under the terms of this settlement Hershey has agreed to pay $5.3 million for the benefit of settlement class members. The settlement amount has been held in an interest-bearing trust account for the benefit of settlement class members.

[12] The settlement amount represents 2.6% of Hershey Canada’s sales of the chocolate products at issue between October 2005 and September 2007. During that period, Hershey Canada’s sales totalled $204 million.

[13] Given the size of the market relative to the size of the settlement, class counsel are not proposing to distribute the settlement funds at this time. The monies will be held in trust for the benefit of settlement class members until further settlement(s) and/or award(s) are achieved and a distribution protocol is approved.

[14] Hershey Canada has agreed to cooperate with the plaintiffs in pursuing their claims against the non-settling defendants. Hershey Canada is required to:

(a) provide an evidentiary proffer;

(b) produce relevant documents, including transactional data and price announcements; and

(c) make available current and former (if reasonably necessary) directors, officers or employees of Hershey Canada for interviews with class counsel and/or experts retained by class counsel, to provide testimony at trial, and/or affidavit evidence.

[15] The Hershey settlement agreement includes a “most favoured nations” clause, which essentially permits Hershey to claw back any amount by which the percentage of its sales that it has paid by way of settlement exceeds the percentage of sales paid by any subsequent settling defendant. To prevent this clause being applied in cases where the differential is attributable to extraneous factors, such as a change in the law, the settlement agreement introduces the concept of a “Materially Adverse Litigation Event”. A Materially Adverse Litigation Event is defined to include a decision of a court in the Canadian proceedings or a change in the financial circumstances of a non-settling defendant that could reasonably cause responsible counsel to materially alter their position in settlement negotiations, and has a materially adverse effect on the plaintiffs’ prospects of success and/or enforcement or has the effect of materially decreasing the valuation of the Canadian proceedings.

[16] As a quid pro quo for the “most favoured nations” clause, the settlement agreement permits the plaintiffs to demand an additional payment in the event that Hershey pleads guilty to charges involving a period greater than 24 months or that affected commerce to a greater extent than $204 million (Conditional Additional Payment).

[17] As was the case in the Cadbury settlement, the parties seek a bar order, barring claims for contribution and indemnity by the non-settling defendants as against the settling defendants. There is no objection to this term.

[18] The settlement agreement is conditional on approval by each of the three courts.

Multijurisdictional Case Management Orders, Joint Notice and Joint Hearing

[19] Prior to this hearing, each of the courts issued a multijurisdictional case management order, pursuant to the Canadian Judicial Protocol for the Management of Multijurisdictional Class Actions (the Protocol).

[20] The orders were in substantially the same form and provided that:

(a) the Protocol was adopted for the purpose of the approval of the Hershey settlement and all ancillary orders;

(b) the plaintiffs could file a motion to conditionally certify each of the three actions and to approve the Hershey settlement under the combined style of cause of the actions;

(c) subject to similar orders being made in each of the other actions, the hearing of the certification and settlement approval motions and the fee approval motion would proceed by way of joint videoconference or teleconference before the three courts; and

(d) the plaintiffs could file a joint motion for approval of class counsel’s fees in a similar manner.

[21] Orders were duly issued by each of the three courts. The courts also approved standard short-form and long-form notices of hearings and a plan of dissemination for both notices. The notice plan called for publication of the short-form notice in each of five newspapers with wide distribution nationally and in Ontario, British Columbia and Québec. It also called for publication of the notice in an industry magazine and distribution to various industry organizations for voluntary dissemination to their membership. Significantly, it called for direct mail distribution of the long-form notice to customers of Hershey, Cadbury and ITWAL during the settlement class period, based on information provided by those defendants.

[22] A joint videoconference was held before the three courts on May 28, 2012. Justice La Rosa of the Cour Supérieure du Québec presided over the hearing in Québec. Justice Butler of the Supreme Court of British Columbia presided in Vancouver. I presided in Toronto. Class counsel and counsel on behalf of some or all of the defendants were present in each of the three jurisdictions.

[23] Submissions with respect to certification and settlement approval were made by Mr. Charles Wright in Toronto, with Mr. Scott Maidment on behalf of Hershey providing brief additional submissions. Questions were addressed to counsel from the bench in each of the three jurisdictions. Submissions on the fee approval motion were made by Mr. J.J. Camp in Vancouver, on behalf of the plaintiffs. Again, Mr. Camp responded to questions from the various courts concerning the motion. Following the joint hearing, additional submissions were made in Québec with respect to the fee approval motion by Québec counsel, which was being dealt with as a separate matter.

[24] Counsel for both the plaintiffs and Hershey advised the courts that they had no objection to the presiding judges discussing the matter after the hearing, without the presence of counsel. They were advised that it was the intention of the courts to do so, and that they would be advised in the event that additional questions were raised. A conference call took place within ten days of the hearing. There was no difference of opinion concerning the appropriate disposition of the motions.

[25] It was the consensus of the courts and counsel that the adoption of the Protocol and the use of the teleconference resulted in an efficient hearing.

Certification

[26] The plaintiffs move for the certification of this action against Hershey for the purposes of settlement.

[27] In my decision on the certification of the action against Cadbury for the purpose of settlement, I discussed the general test for certification (paras. 17-20), the somewhat less rigorous test for certification for the purposes of settlement (para. 21), and the application of those tests to the facts of this case (paras. 22-42). I found that the test had been met. Similar findings were made by the courts in Québec and British Columbia.

[28] I do not propose to repeat that analysis, which I adopt for the purposes of this motion. The representative plaintiffs are the same, the causes of action are the same, the class definition is the same and the proposed common issue is the same. A class proceeding will be the preferable procedure for determining the common issues, providing access to justice for class members, promoting judicial economy and contributing to behaviour modification. These goals have already been advanced by the partial settlements that have been made.

[29] Subject to similar orders being made by the Cour Supérieure du Québec and the Supreme Court of British Columbia, an order will therefore issue, certifying this action pursuant to the C.P.A., as against Hershey, for the purposes of settlement.

Settlement Approval

[30] I have described the proposed settlement above.

[31] Settlement class members were provided with an opportunity to opt out in the context of the Cadbury and ITWAL settlements. There were no opt-outs.

[32] Under the terms of the notice order, class members were entitled to object to the proposed Hershey settlement. There were no objections.

[33] In my reasons for approval of the Cadbury settlement, I discussed the authorities and the test for settlement approval, including in particular the leading cases of Nunes v. Air Transat A.T. Inc., [2005] O.J. No. 2527, 20 C.P.C. (6th) 93 (S.C.J.) and Dabbs v. Sun Life Assurance Company of Canada, [1998] O.J. No. 1598 (Gen. Div.) at para. 13; and (1998), 40 O.R. (3d) 429, [1998] O.J. No. 2811 (Gen. Div.) at pp. 439-444; aff'd (1998), 41 O.R. (3d) 97, 165 D.L.R. (4th) 482 (C.A.); leave to appeal to denied [1998] S.C.C.A. No. 372.

[34] Once again, the circumstances of the Hershey settlement are very similar to the Cadbury settlement, and I adopt the analysis and observations that I made in the case of the latter.

[35] I will, however, highlight several considerations that have a bearing on this settlement.

[36] First, liability remains a hotly contested issue. There have been no charges laid by the Competition Bureau. There is no guarantee that charges will be laid. There has obviously been no guilty plea and there are no pending proceedings in the United States. Hershey will vigorously defend any criminal proceedings and would no doubt have vigorously defended this action in the absence of settlement. The settlement is, of course, made without prejudice and without admission of liability

[37] Second, even if a conspiracy was established amongst some of the other defendants proving that Hershey was a party to the conspiracy, this might have presented difficulties. Its price increases after 2003 were the lowest of the four manufacturers. Price increases in 2005 and 2006 could have been attributable to the increased cost of ingredients, such as cocoa and milk. Price increases by Hershey in 2008 occurred much later than the increases by other manufacturers.

[38] Third, Hershey took the position in settlement negotiations that its sales to ITWAL during the relevant period should be excluded from the settlement because ITWAL was alleged to have participated in the wrongdoing, giving Hershey a claim over, and because it is alleged that the assignment of ITWAL’s damage claim was ineffective.

[39] These considerations warrant a reasonable compromise of the claim on behalf of the class. Success was by no means guaranteed and, even if the action had been successful, the extent of recovery could have been substantially reduced.

[40] The proposed settlement amount represents approximately 2.6% of Hershey Canada’s sales of chocolate products during the 24 month period of October 2005 to September 2007, when sales were in the total amount of $204 million. This is a marginally higher percentage of sales than was the case in the Cadbury settlement (2.395%). As in the case of the Cadbury settlement, this does not cover the sales during the entire class period (February 1, 2001 to November 28, 2007), reflecting the fact that the plaintiffs may well have significant difficulties in establishing a conspiracy of that duration.

[41] The “most favoured nation” provision of the Hershey settlement is unusual. While it is balanced by the possibility of a Conditional Additional Payment in the circumstances described above, it could result in some clawback of the settlement in the event that the plaintiffs settle with another defendant on more favourable terms than they have settled with Hershey, if there has been no Materially Adverse Litigation Event.

[42] I am satisfied that the “most favoured nation” provision is the kind of reasonable compromise that parties sometimes have to make in order to achieve a settlement. In some ways, it may actually work to the advantage of the class, as there will be a burden on class counsel, going forward, to use this settlement as an absolute floor for settlement discussions with the other parties. In the absence of a “Materially Adverse Litigation Event”, the onus will be on class counsel to show why any lesser settlement with the remaining defendants would be fair and reasonable and in the best interests of the class.

[43] As in the case of the Cadbury settlement, I find that the settlement terms are fair and reasonable. I have no doubt that, given the tenacity of Hershey and its counsel in relation to the bar order issue (which was pursued to a leave application in the Supreme Court of Canada), the negotiations leading to this settlement were hard fought and arm’s length. The settlement also comes with the recommendation of experienced and highly reputable class counsel. Finally, in spite of a focussed notice program to a sophisticated group of purchasers, there has been no objection to the settlement.

[44] Subject to similar orders being made by the Cour Supérieure du Québec and the Supreme Court of British Columbia, I will approve the settlement.

Fee Approval

[45] By agreement among counsel, 7.2% of the Hershey settlement amount has been allocated to the Québec action for the fees of Québec counsel. This equates to $382,454.95.

[46] The remaining settlement amount has been allocated to the Ontario and British Columbia actions for the purposes of a fee application. Because the litigation is being pursued and settled on a national basis, Ontario and British Columbia Class Counsel are seeking a joint fee award. Additional counsel acting in related proceedings will be paid out of the fees awarded to Ontario and British Columbia class counsel and will not be seeking additional fees.

[47] Counsel have agreed not to request legal fees in excess of 25% of the portion of the Hershey settlement amount allocated to them.

[48] Ontario and British Columbia class counsel are seeking a legal fee of $1,232,354.86, plus disbursements of $186,626.75 and applicable taxes. This represents 25% of the Hershey settlement amount (including accrued interest net of taxes) allocated to the Ontario and British Columbia actions for the purpose of this fee application. A legal fee in this amount is consistent with the retainer agreements entered into with the Ontario and British Columbia plaintiffs, which authorize contingency fees of up to 30% of recovery, plus disbursements and applicable taxes.

[49] Class counsel’s fee request is supported by the representative plaintiffs in Ontario and British Columbia. In spite of a fairly extensive notice program, including direct notice to the more substantial and sophisticated class members, there has been no objection to the proposed fee.

[50] In the Cadbury fee approval motion, I discussed the relevant principles applicable to the approval of Class Counsel’s fees. I also discussed the principles applicable to interim fee awards for class counsel.

[51] I approved a fee of $1,487,195.76, inclusive of disbursements in relation to the Cadbury and ITWAL settlements. At that point, class counsel had docketed time of $632,743.75 and disbursements of $81,231.04, plus applicable taxes. The “multiplier” effect was therefore about two, which was in a reasonable range. I noted that the settlement was a successful piece of work which could pave the way for future settlements (as it has) and that, in any case, it gave the plaintiffs a reasonable recovery and a strategic advantage going forward.

[52] The total time docketed on this matter to date by Ontario and British Columbia Counsel and Additional Counsel has been $1,621,401.85 and total disbursements have been $267,857.87. Since the Cadbury fee motions, Ontario and British Columbia Class Counsel and Additional Counsel have docketed time of $998,658.10 and incurred disbursements of $186,626.75. These figures are before taxes.

[53] The majority of the time spent since the Cadbury motion, and therefore the majority of the fees claimed, are attributable to the work of the Siskinds, Strosberg, Camp Fiorante and Branch McMaster firms. The fees are calculated at what must be considered top hourly rates, ranging between $750 to $930 per hour for the most senior counsel, to $500 to $650 for lawyers with 15 to 20 years’ experience, to $350 to $440 per hour for lawyers with 10 years’ or less experience. Given the number of firms involved, and the number of lawyers, it is not unreasonable to assume that there has been some degree of duplication of work and some inefficiency.

[54] While I am of the view that it would be appropriate to make a further interim award at this time, it is also my view that this interim award should be somewhat less than the first interim award, for various reasons which I shall discuss.

[55] On one side of the ledger, there is no question that class counsel should be compensated for good results. They have achieved good results in the case of this settlement, and they should be well paid for having done so. Fair compensation to class counsel at this stage will prevent the non-settling defendants using a war of attrition to wear down the plaintiffs and their lawyers.

[56] Balanced against this is the fact that this is a single action. The success of class counsel will be judged not on how well they have done in relation to each defendant, but on how well they do overall, against all defendants. A contingent fee of 25% or even more might be fair and reasonable in the context of a comparable or even better settlement with the remaining defendants. It might or might not be fair and reasonable in the event of a more modest settlement with the remaining defendants. Having made a substantial interim payment already, there is something to be said for adopting a modified “wait and see” approach to some portion of the fee claimed at this stage.

[57] This concern is amplified because there is at least a possibility that there will be a “clawback” of some part of the Hershey settlement due to the application of the “most favoured nation” clause. There is an element of unfairness to the class in compensating class counsel on an interim basis, as though the clause did not exist, but leaving the class exposed to the possibility that the amount of the settlement will be reduced.

[58] In fairness, on this point, class counsel concedes that the fee would have to be adjusted in the event that there was, ultimately, a clawback.

[59] In my view, the interim fee at this stage should attempt to balance the desirability of fairly compensating class counsel, rewarding class counsel for a job well done, and encouraging them to aggressively pursue the remaining defendants with the recognition that the action is by no means over and the results achieved by class counsel cannot be fairly assessed at this time.

[60] This balancing can best be achieved by indemnifying class counsel for their disbursements in full and awarding approximately 50% of the fee claimed. I would regard a total payment of $800,000.00, inclusive of GST and disbursements, as reasonable interim compensation at this stage, in respect of the Ontario and British Columbia proceedings. This will essentially provide class counsel with full indemnity for all fees and disbursements to date and leaves open the possibility of an enhanced fee, based on the retainer agreement, once the court is in a position to assess the overall results achieved and all the other factors that will be taken into account in arriving at a fair and reasonable fee, viewing the case as a whole.

[61] This interim payment will, of course, be without prejudice to the entitlement of class counsel to claim additional fees, based on the retainer agreement as applied to the Hershey settlement, at a future date. It will also be without prejudice to any future adjustment of the fee as a result of the operation of the “most favoured nation” clause. The interim payment is subject to a comparable order being made by the Supreme Court of British Columbia.

G.R. Strathy J.

Released: June 29, 2012