COURT FILE NO.: CV-11-16465; 4622/11CP
DATE: 20120120
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Bruce Simmonds, Robert Grant and Gordon Moore
Plaintiffs
– and –
Armtec Infrastructure Inc., Charles M. Phillips, James R. Newell, Michael S. Skea, Donald W. Cameron, Scotia Capital Inc., TD Securities Inc. and BMO Nesbitt Burns Inc.
Defendants
David B. Williams and
S. Alex Constantin, for the Plaintiffs
Proceeding under the Class Proceedings Act, 1992
BETWEEN:
Keith Locking
Plaintiff
– and –
Armtec Infrastructure Inc., Scotia Capital Inc., TD Securities Inc. and BMO Nesbitt Burns Inc., Charles M. Phillips, Ron V. Adams, Donald W. Cameron, Brian W. Jamieson, John E. Richardson, Michael S. Skea
Defendants
Earl A. Cherniak, for the Plaintiff
HEARD: December 16, 2011
Proceeding under the Class Proceedings Act, 1992
Thomas J.:
Matters at Issue
[1] The plaintiffs in these two actions bring two motions to determine the issue of carriage for these intended class proceedings. Both Ontario actions are against Armtec Infrastructure Inc. (“Armtec”), their officers, directors and underwriters. The claims allege misrepresentations by Armtec in the offering of common shares in March, 2011.
[2] Two law firms are competing for the carriage of this proposed class action Sutts, Strosberg LLP for the plaintiffs Bruce Simmonds (“Simmonds”), Robert Grant (“Grant”) and Gordon Moore (“Moore”) (“the Simmonds action”); and Siskinds LLP for the plaintiff Keith Locking (“Locking”) (“the Locking action”). Each seeks a stay of the competitor’s litigation.
Background and Overview of the Claims Asserted Against the Defendant Armtec
[3] The following brief factual background is drawn from the unproven allegations in the Statements of Claim in the two proposed class actions and from the unproven allegations in the additional materials delivered by the parties in connection with this carriage motion.
[4] Armtec is an Ontario corporation based in Guelph, Ontario. Its common shares and debentures trade on the Toronto Stock Exchange (the “TSX”). Armtec securities also trade over various alternative (non-stock exchange) platforms in Ontario and the U.S. Armtec is in the business of manufacturing and marketing infrastructure and engineered construction solutions.
[5] On March 24, 2011, Armtec issued a press release signalling an agreement with underwriters to purchase 3,100,000 common shares for sale to the public. The press release was optimistic about maintaining current dividends and the new financial flexibility provided by the share offer.
[6] In April 2011, Armtec raised gross proceeds of $57,753,000 through an offering of 3,565,000 common shares at a price of $16.20 per common share, pursuant to a preliminary short-form prospectus dated March 30, 2011 and a final short-form prospectus dated April 6, 2011.
[7] On June 8, 2011, Armtec announced that it was suspending its dividends due (at least in part) to issues that arose in the three months ended March 31, 2011, and which, were not disclosed in the March 30, 2011 preliminary prospectus, which purported to contain “full, true and plain disclosure of all material facts relating to the securities offered” by the prospectus.
[8] Upon this disclosure, the price of Armtec’s securities declined by more than fifty-eight (58) percent and it is alleged the class members lost tens of millions of dollars. Both the Locking action and the Simmonds action therefore allege that the preliminary prospectus and the prospectus contained one or more misrepresentations within the meaning of the Ontario Securities Act, R.S.O. 1990, c S.5 (the “SA”) and at common law.
[9] The Simmonds action was commenced by the issuance of a notice of action on June 16, 2011. The Locking action was commenced by statement of claim filed on July 7, 2011. The statement of claim in the Simmonds action was then filed on July 15, 2011.
[10] The notice of action in the Simmonds action was amended on July 8, 2011 (the day after the filing of the Locking action), and a statement of claim was filed on July 15, 2011 and amended on August 11, 2011 and November 8, 2011.
[11] The statement of claim in the Locking action was amended on November 2, 2011.
[12] On August 26 and 31, 2011, the plaintiffs in the Simmonds action served the defendants with their certification / SA motion record, save for an accounting opinion that could not be delivered because of the expert’s previous commitments.
[13] On October 12, 2011, Siskinds Desmeules, a Quebec-based law firm filed a petition for an order authorizing the bringing of a class action and granting the status of a representative in the Quebec Superior Court. Dimitri Lascaris, counsel involved in this litigation, is a partner of both Siskinds and Siskinds Desmeules.
[14] On November 2, 2011, Siskinds served the defendants with their certification / SA material.
Carriage Motions
[15] In the circumstances such as this, where two or more potential class proceedings are commenced asserting the same causes(s) of action, it is appropriate that a motion be brought for the court to determine which action should continue (Sharma v. Timminco Ltd. (2009), 2009 CanLII 58974 (ON SC), 99 O.R. (3d) 260 (S.C.) (“Timminco”); and Setterington v. Merck Frosst Canada Ltd. (2006), 2006 CanLII 2623 (ON SC), 26 C.P.C. (6th) 173 (“Setterington”)). The court, by its analysis, determines which plaintiffs, and thereby which representing law firm, will have carriage of the cause of action.
[16] The court’s primary concern on a class action carriage motion is to determine which of the competing actions is more, or most, likely to advance the interests of the class. The task, in other words is to find a solution that is in the best interests of the putative class members, promotes the objectives of the Class Proceedings Act, 1992, S.O. 1992 c. 6 (“CPA”) and is fair to the defendants (Timminco, at para. 14; Setterington, at para. 13; Ricardo v. Air Transat A T Inc. (2002), 21 C.P.C. (5th) 297, at para. 31 (“Ricardo”); and Vitapharm Canada Ltd. v. F. Hoffman-Laroche Ltd. (2000), 4 C.P.C. (5th) 169, at para. 48 (“Vitapharm”)).
[17] The court has broad discretion under ss. 12 and 13 of the CPA to make any order it considers appropriate. The court has the discretion to award carriage and to stay any related proceeding, on such terms as it considers appropriate (Setterington, at para. 10; Vitapharm, at para. 25; CPA, ss. 12, 13; and Courts of Justice Act, R.S.O. 1990, c. C-43, ss. 106, 138 (“CJA”)).
[18] In determining which counsel group should have carriage of the action, the court should engage in a qualitative as opposed to a quantitative analysis. Specifically, the court should consider, among other factors, the following:
a) the nature and scope of the causes of action advanced;
b) the presence of any conflicts of interest;
c) counsel factors including:
i) the theories advanced by counsel;
ii) the status of each class action, including preparation;
iii) the resources, experience and competence of counsel; and
iv) the prior success of counsel in class actions, particularly, similar class actions.
d) the number, size, and extent of involvement of the proposed representative plaintiffs; and
e) the relative priority of commencing the class actions.
(Vitapharm, at para. 49)
[19] It is inappropriate for me in this carriage motion to, “parse the action finely or overly analyse it for the purposes of comparison but rather to scrutinize each for any glaring deficiencies” (Setterington, at para. 19). Further, this is not a time for me to attempt to determine the ultimate success of a claim unless one is “frivolous or fanciful” (Gorecki v. Canada (A.G.) (2004), 47 C.P.C. (5th) 151 (Ont. S.C.)).
[20] Ultimately, the court must engage in a balancing of the factors set out above to determine which action best melds the cohesive with the comprehensive and thereby best promotes and protects the identified class. Drawing upon the analytical framework of Perell J. in Timminco I have created the chart below to assist in comparing the competing actions.
Class Counsel
Plaintiffs
Background of Plaintiffs
Plaintiffs’ Investments and
Loss
Defendants
Other possible Defendants
Commencement Date
Developments & Present Status
Causes of Action
Quantum
Class Period
Class Definition
Sutts, Strosberg LLP
-A nine lawyer class action section (five with experience in securities class actions)
-Bruce Simmonds (prospectus class)
-Robert Grant and Gordon Moore (secondary class)
-Simmonds is a CA and CEO of an international corporation with 25 years of experience in publicly traded corporations and their internal operations.
Moore is a CMA and was a corporate officer in a number of publicly traded corporations.
-Simmonds - invested $29,160 – lost $22,174
-Grant – invested $64,996 – lost $47,329
-Moore – invested $42,780 – lost $30,960
Armtec Infrastructure Inc., Charles M. Phillips, James R. Newell, Michael S. Skea, Donald W. Cameron, Scotia Capital Inc., TD Securities Inc. and BMO Nesbitt Burns Inc.
Robert J. Wright, Ron V. Adams, Brian W. Jamieson, John E. Richardson
Notice of Action – June 16, 2011
-Notice of Action and amended July 8, 2011
-Statement of Claim filed July 15, 2011 and amended August 11, 2011 and November 8, 2011
-August 26 and 31, 2011 certification / SA
Motion Record served (but for expert’s report)
-Breach of s. 130 (SA)
-Negligence and Negligent misrepresentation
-Leave for a misrepresentation claim Part XXIII.1 (SA)
$100 million
March 24, 2011 to June 8, 2011
[A]ll persons other than excluded persons, who acquired securities of Armtec pursuant to the prospectuses and held some or all of those securities at the close of trading on the TSX on June 8, 2011.
“Secondary Market Class” and “Secondary Market Class Members” means all persons, other than excluded persons, who acquired securities of Armtec during the Class Period on secondary markets and held some or all of those securities at the close of trading on the TSX on June 8, 2011.
Siskinds LLP
-An eight lawyer class action section focusing on securities class actions.
Keith Locking
-Locking is a retired business owner who has been investing in public markets for over 20 years.
-Locking – invested $4,489 – loss undisclosed
Armtec Infrastructure Inc., Scotia Capital Inc., TD Securities Inc. and BMO Nesbitt Burns Inc., Charles M. Phillips, Ron V. Adams, Donald W. Cameron, Brian W. Jamieson, John E. Richardson, Michael S. Skea
-Statement of Claim – July 7, 2011
-Statement of Claim amended November 2, 2011
-November 2, 2011 Certification / SA
Motion Record served
-Breach of s. 130 (SA)
-Negligence and Negligent misrepresentation
-Leave for a misrepresentation claim
Part XXIII.1 (SA)
-Unjust Enrichment and Waiver of Tort
$70 million
March 30, 2011 to June 8, 2011
[A]ll persons and entities, wherever they may reside or be domiciled, who purchased or otherwise acquired securities of Armtec during the class period, except for (i) the excluded persons, and (ii) all persons and entities resident or domiciled in the Province of Québec who are not precluded from participating in a class action by virtue of Article 999 of the Québec Code of Civil Procedure, R.S.Q., c. C-25, and who do not opt out of the proposed class action pending in the Superior Court and styled Drakkar Capital v. Armtec Infrastructure Inc., et al.
[21] As is always the case, a number of the factors are more important to the determination of this motion than others. My emphasis, I suspect, will be clear upon a review of the reasons that follow. Let me say at the outset that both firms, here, took a principled approach to the motion, were appropriately respectful of each other in both the written and oral submissions, and retained skilled counsel to put their respective positions before the court. I have drawn heavily from their factums in creating these reasons.
[22] They have met the obligation described by then Winkler J. in paragraph 26 of Setterington and I have been able to reap the benefits in preparing this decision.
On a carriage motion, much as in the case of a settlement approval hearing, there is a requirement of utmost good faith on the part of counsel to forego reliance on the adversarial system as a fact-finding mechanism and place all material facts which can have any bearing on the issues before the court, whether these may be against their interests or not. It would be to ignore the reality of class proceedings to disregard the fact that counsel granted carriage of a class proceeding stand to reap a substantial fee if successful. Accordingly, there must be a concomitant obligation to ensure full and frank disclosure of all material facts because the protection of the interests of the silent class members, in those circumstances, demands no less.
The Nature and Scope of the Causes of Action Advanced
Causes of Action
[23] The plaintiffs in both actions plead the following:
a) breach of s. 130 of the SA and the comparable provisions of the equivalent securities acts;
b) negligence and negligent misrepresentation; and
c) seek leave to assert a claim for misrepresentation pursuant to Part XXIII.1 of the SA.
[24] The plaintiff, Locking, additionally pleads unjust enrichment and waiver of tort. Waiver of tort allows a plaintiff who would otherwise be entitled to sue in tort for damages to elect instead to base his, her or its claim in restitution. Because the magnitude of a restitutionary remedy can be based on the defendant’s enrichment, rather than the plaintiff’s loss, waiver of tort allows plaintiffs to exploit a situation where the defendant’s enrichment resulting from tortious behaviour exceeds the loss occasioned by the plaintiff (Andrew Bernstein & Emily Kirkpatrick, “Class Actions and Waiver of Tort – Where Do We Go From Here?” Class Action Defence Quarterly 4:2 (December 2009) at pp. 13-15).
[25] Mr. Cherniak on behalf of Siskinds reminds the court that Strathy J. certified a claim for unjust enrichment and waiver of tort in McKenna v. Gammon Gold Inc., 2010 ONSC 1591 (“Gammon Gold”).
[26] The argument here is that, as an alternative approach to damage assessments, unjust enrichment and waiver of tort claims provide otherwise unattainable exposure of profits and enhances settlement to the benefit of the class.
[27] I am aware that in the recent case of Andersen v. St. Jude Medical Inc., 2010 ONSC 77 (“St. Jude”), Lax J. admitted expert evidence of the social and economic impact of waiver of tort as a novel theory of liability, drawing at least in part on the reasoning of Cullity J. in Healey v. Lakeridge Health Corp. (2006), 38 C.P.C. (6th) 145, at para. 73, that expert evidence was helpful in considering the policy analysis under the second stage of the Anns test.
[28] The following passage from Lax J. at para. 14 of St. Jude is apt:
There is no dispute that waiver of tort is a novel claim in the context of class actions and negligence law. It first surfaced in the certification decision in Serhan v. Johnson and Johnson (2004), 2004 CanLII 1533 (ON SC), 72 O.R. (3d) 296, [2004] O.J. No. 2904 (S.C.J.), leave to appeal to Div. Ct. granted, [2004] O.J. No. 4580 (S.C.J.) aff’d (2006), 2006 CanLII 20322 (ON SCDC), 85 O.R. (3d) 665 (Div. Ct.). Since then, Ontario courts have repeatedly recognized waiver of tort in class actions for negligence involving medical devices and pharmaceutical products for the purposes of s. 5(1) (a) of the Class Proceedings Act, 1992, S.O. 1992, c.6: Heward v. Eli Lilly & Co. (2007), 2007 CanLII 2651 (ON SC), 39 C.P.C. (6th) 153, [2007] O.J. No. 404 (S.C.J.), leave to appeal to Div. Ct. granted, 2007 CanLII 26607 (ON SC), [2007] O.J. No. 2709 (S.C.J.), aff’d (2008), 2008 CanLII 32303 (ON SCDC), 91 O.R. (3d) 691.
[29] The action in St. Jude seeks to have the defendant disgorge profits from the sale of mechanical heart valves. I note as well that in Gammon Gold the waiver of tort claim was certified only as against the underwriters.
[30] While I agree that all these causes of action are relatively novel and untested with Kerr v. Danier Leather Inc. (2001), 14 C.P.C. (5th) 293 (Ont. S.C.) being the only securities class action tried in Canada. However, I also agree with the submissions of Mr. Williams that in this case the cause of action is potentially a simple, direct, uncomplicated claim which, if proven, will result in a straightforward assessment of damages easily calculated both under the statutory scheme and the common law. The time frame of the defendants’ alleged negligence and negligent misrepresentations is tight. The numbers are defined and the issues raised by the pleadings do not pose anywhere near the same levels of complexity as those other actions in which damage assessments may prove to be problematical. In the context of this case, the pleadings of waiver of tort and unjust enrichment by the Locking plaintiffs will potentially add unnecessary complexity and costs to the litigation, and perhaps delay resolution for class members. In my view, there is no need to set a higher, more challenging legal bar for the class to vault over, even if the strategy is potentially successful (Timminco, at para. 93).
Advantage: Simmonds
Proposed Class
[31] When the Simmonds action was initially commenced, the class definition included only those persons who acquired Armtec shares on the Toronto Stock Exchange (“TSX”). The pleading was subsequently amended to include persons who acquired shares regardless of the exchange or trading platform. Mr. Cherniak points out that this early error would have excluded 18 to 19 percent of the secondary market trading during the relevant period. He suggests that this error should be considered as part of this analysis as well as the section to follow that considers the experience and competence of counsel. In his affidavit, Jay Strosberg acknowledges the error and the corrective amendment. The class in the Simmonds action as it is now constituted for certification is broken into two groups.
[32] Mr. Simmonds seeks to represent the prospectus class described as:
[A]ll persons, other than Excluded Persons, who acquired securities of Armtec pursuant to the Prospectuses and held some or all of those securities at the close of trading on the TSX on June 8, 2011.
[33] Mr. Moore and Mr. Grant seek to represent the secondary market class described as:
[A]ll persons, other than Excluded Persons, who acquired securities of Armtec during the Class Period on secondary markets and held some or all of those securities at the close of trading on the TSX on June 8, 2011.
[34] When the Locking action was first commenced, Mr. Locking sought to represent a class described as:
[A]ll persons and entities, wherever they may reside or be domiciled, who purchased or otherwise acquired securities of Armtec during the Class Period, except for the Excluded Persons, or such other definition as may be approved by the Court.
[35] Mr. Locking then amended his class definition and now seeks to represent a class described as:
[A]ll persons and entities, wherever they may reside or be domiciled, who purchased or otherwise acquired securities of Armtec during the Class Period, except for the (i) the Excluded Persons, and (ii) all persons and entities resident or domiciled in the Province of Quebec who are not precluded from participating in a class action by virtue of Article 999 of the Quebec Code of Civil Procedure, RSO, c C-25, and who do not opt out of the proposed class action pending in the Quebec Superior Court and styled Drakkar Capital v. Armtec Infrastructure Inc., et al. (Court File No.: 200-06-000138-118), or such other definition as may be approved by the Court.
[36] The issue of the Quebec action contemplated in the Locking class definition will be dealt with in a later section of this decision.
[37] There are two differences in the proposed classes that must be discussed here. One difference has to do with the start of the class period. The Simmonds action proposes a class period commencing on March 24, 2011, the date that Armtec issued a press release. It is alleged in Simmonds that the press release contained a misrepresentation about Armtec’s ability to pay future dividends.
[38] The class period proposed in the Locking action commences on March 30, 2011 with the filing of the preliminary prospectus. It is alleged that this document failed to disclose “adverse material facts” from what purported to be “full, true and plain disclosure.”
[39] Mr. Cherniak argues that the Simmonds action creates an unnecessary issue in that it relies upon the context of the press release. He reminds me of the distinction between “core” and “non-core” documents as defined by Part XXIII.1 of the SA and that liability is essentially strict if a misrepresentation is found in the preliminary prospectus. He also points out that the press release itself contains a caution that it might contain “forward-looking statements” as defined by securities legislation. Sections 138.4 (a) and (9.1) of the SA may therefore provide a defence even if there is found to be a misrepresentation. Siskinds was concerned that the earlier date for the class period would overly complicate the action, particularly with respect to obtaining leave and establishing liability under Part XXIII.1 of the SA.
[40] Mr. Williams suggests that any issue posed by the early start date is easily resolved at certification. Moreover, he contends, the earlier date potentially captures early shareholders who should rightfully form part of the class. And, even if the court decides otherwise, the class period can easily be shortened from March 8, 2011 to March 24, 2011. The earlier date encompasses the latter one. In my view, therefore, Mr. Williams has provided a cogent, rational explanation for the decision of the Simmonds plaintiffs, at this early stage of the proceedings, to rely upon the earlier start date.
Advantage: Simmonds
[41] Though the competing law firms agree that June 8, 2011, the date on which Armtec issued a corrective press release, constitutes the appropriate end date for the class period, they do not agree on how the class should be composed as of that date. More specifically, they do not agree on whether a certain group of investors, the so-called “early sellers,” should be included or excluded.
[42] The Simmonds action requires that the Armtec securities be held by the investor as of June 8, 2011. It, therefore, eliminates the “early sellers,” who held securities during the balance of the period, but sold before the disclosure.
[43] Mr. Williams argues that this strategic decision by counsel for the Simmonds plaintiffs simplifies the action and the calculation of damages. The argument is just this: How can there be damages if the investors sold before the negative disclosure was released? He points out that in Gammon Gold, Strathy J., found a general rule based on the relevant authorities that “early sellers” be excluded. He recognizes that in Gammon Gold Strathy J. found an exception to this general rule but only because of a series of partial disclosures that are clearly absent here. I do not see why following the general rule should be seen as a negative. Additionally this is not the kind of arbitrary exclusion that concerned Winkler J. in Caputo v. Imperial Tobacco Ltd., 2004 CanLII 24753 (ON SC), [2004] O.J. No. 299 (Ont. S.C.) at para. 39.
[44] Mr. Cherniak on behalf of the Locking action suggests that to arbitrarily eliminate “early sellers” misses the mark on the considerations at this stage. He maintains that the class at this point should recognize persons with a common interest. It is not necessary that all proposed class members be ultimately successful (Frohlinger v. Nortel Networks Corp. (2007), 2007 CanLII 696 (ON SC), 40 C.P.C. (6th) 62 (Ont. S.C.), at paras. 23-28). Further, even at certification it is premature to eliminate “early sellers” and the issue of their actionable loss should be determined at trial unless certain to fail (Gammon Gold, at para. 122; and Dobbie v. Arctic Glacier Income Fund, 2011 ONSC 25, at para. 205). Practically speaking, those who advocate for the Locking action point out the noticeable decline in share prices within the two days immediately preceding June 8, 2011, and suggest that some leakage of the undisclosed material facts may have happened then. It is suggested that this possibility needs to be explored in the litigation process.
[45] While the facts of Gammon Gold may have warranted the inclusion of “early sellers,” I consider that the “hold through” proposed by the Simmonds action creates a clean, simple method of defining the class and determining damages and is in the best interests of the class.
Advantage: Simmonds
Defendants Named
[46] The majority of the defendants in both actions are the same. However, the Locking action includes as defendants, Robert J. Wright, John E. Richardson, Brian W. Jamieson and Ron V. Adams. These four were Armtec directors during the relevant time period and Richardson, Wright and Jamieson were members of Armtec’s Audit Committee.
[47] Mr. Cherniak, on behalf of the Locking action, sees no reason for their absence as party defendants in the Simmonds action. Sections 130 and 138.3(1) of the SA establish statutory causes of action for misrepresentation against each director for both the primary and secondary market claims. The addition of those defendants offers additional sources of information available during the discovery phase of the litigation. He further suggests that there is no way of knowing at this stage the limits of the Armtec director’s and officer’s liability insurance policy and naming all appropriate defendants widens the defendant base for recovery and potentially exerts more pressure on insurance counsel to settle the action within the policy limits.
[48] Finally, he points out that in the past courts have noted the significance of directors who are as well members of the audit committee (Silver v. Imax Corp. (2009), 2009 CanLII 72342 (ON SC), 66 B.L.R. (4th) 222 (Ont. S.C.) at paras. 410-11 and 420; and Ainslie v. Technologies Inc. (2008), 2008 CanLII 63217 (ON SC), 93 O.R. (3d) 200 (S.C.)). The attempted addition of any defendants later would be met with the argument that the limitation period contained in the provisions of the SA has expired and therefore further claims were statute barred.
[49] Here again the Simmonds action strives for simplicity. The material filed allows me to conclude that counsel for the Simmonds plaintiffs chose only to sue the directors who in fact signed the prospectus. The affidavit of Jay Strosberg outlines the reasons for this strategic decision. In his view additional defendants were unnecessary and their inclusion cumbersome. In his experience certified securities actions settled within the policy limits of the directors’ liability insurance, and all essential information could be retrieved from the directors who signed the prospectus, cross-examining the other directors would be a waste of time and money.
[50] Mr. Williams on behalf of the Simmonds action offers the following perspective from Winkler J. in Setterington.
Setterington counsel contend that the choice to name defendants in a class action is one that should be left to the proposed representative plaintiffs acting on the advice of experienced counsel. I agree. When the court is asked to choose between proceedings, the analysis must be qualitative rather than quantitative. The mere inclusion of a multitude of defendants is not sufficient to provide a basis for the preference of one action over another. At this stage of the proceeding, the Setterington plaintiffs assert, based on the advice of their counsel, that there is insufficient information to posit a sustainable claim against the Federal Government. That is a permissible exercise of judgment within the purview of a proposed representative plaintiff. Indeed, as held by the Supreme Court of Canada in Rumley v. British Columbia, 2001 SCC 69, [2001] 3 S.C.R. 184 (S.C.C.), plaintiffs are entitled to restrict the claims in a class proceeding to make it more amenable to certification. (See Rumley, para. 30; See also Pearson v. Inco, 2006 CanLII 913 (ON CA), [2005] O.J. No. 4918 (Ont. C.A.)).
In this case, the Setterington plaintiffs provided a sufficient explanation for their decision not to include the Federal Government as a defendant at this stage of the proceeding. The purpose of a carriage motion is not to parse the action finely or overly analyse it for purposes of comparison but rather to scrutinize each for any glaring deficiencies. Here there are different theories underlying the causes of action in the two competing Statements of Claim and each plaintiff group urge that their approach is to be preferred. However, on a carriage motion it is inappropriate for the Court to embark upon an analysis as to which claim is most likely to succeed unless one is “fanciful or frivolous”, to adopt the words of Rady J. in Gorecki. Contrary to the submission of the Walsh plaintiffs, I see none of these defects in the Setterington action.
(Setterington, at paras. 18-19)
[51] Further, Perell J. in Timminco considered the lack of joinder of a corporate defendant in one of the two proposed actions. There the consideration was again the probing of the party for information to be used against a corporate defendant with more resources. In that case, Perell J. concluded, “all I can say at this point is that they are both entitled to their opinions, and I cannot say at this point who is correct” (see Timminco, at para. 92).
[52] I view the actions before me quite differently than those considered in Setterington and Timminco. These defendants add no overlay of complexity at any level and while counsel is surely entitled to make decisions as to strategy, I am not content that I have sufficient explanation for that decision (Setterington, para. 19). On balance I agree with the upside of including them at this time.
Advantage: Locking
Counsel Factors
[53] Both counsel arguing these motions describe their principals as the leaders in the country in the litigating of complex class actions. Each of Sutts, Strosberg, and Siskinds is involved already in securities class action litigation. They have acted as co-counsel on numerous occasions to jointly prosecute similar litigation. The decisions on motions during the course of other class proceedings sing the praises of both firms. An alliance has not happened here and hence the need for this proceeding. The reasons for their failure to work together are of no importance to me.
[54] I have examined the “beauty pageant of evidence” as it was described by Perell J. at para. 83 of Timminco. All material I find to be fair and objective. I have laid out the basic firm attributes in my preceding chart. Counsel have tastefully skirted an issue that I believe I must take on directly. In the past, Harvey T. Strosberg was lead counsel for the firm in class action proceedings. His expertise is legendary. Because of a debilitating stroke his ability to practise at his previous torrid pace has been affected. It is proposed that Jay Strosberg will be lead counsel in the Simmonds litigation. Mr. Cherniak has asked me to consider if the best interests of the class would be served by that “passing of the torch.” It is argued that some of the early decisions in the Simmonds action suggest that this might be premature. I find, however, that it is not as if Jay Strosberg is being thrown to the lions on his own. He has a talented, supportive litigation team which includes his father.
[55] It is appropriate at this time to consider the impact of the separate class proceedings in Québec. Siskinds’ affiliate law firm in Québec, Siskinds Desmeules, has filed in the Québec Superior Court, a petition for an order authorizing the bringing of a class action against Armtec and the other defendants named in the Locking action. That proceeding was not commenced until October 12, 2011. Mr. Lascaris is noted as a partner in both firms and is counsel in the Locking action. He has significant expertise in the area.
[56] Mr. Cherniak suggests that the Québec action was commenced to offer benefits to its Québec class members, at least in part because of the certain advantages under Québec law including the more expeditious authorization (certification) of the class. Because of the relationship between Siskinds and Siskinds Desmeules both actions can be coordinated in a complementary fashion by:
a) Coordinating the class definitions so that they do not overlap;
b) Sharing the work of experts where appropriate;
c) Sharing factual investigation and analysis; and
d) Coordinating negations, approval, and administration in the event of a settlement.
[57] Mr. Williams counters that it is in the best interests of all class members to coordinate these two actions no matter which firm gains carriage of the Ontario proceedings. He suggests that historically plaintiffs’ firms have worked together and that the advantage gained by Siskinds’ affiliate in Québec is more speculative than real. Further, he points out that, while the class defined in the Locking action seeks to exempt those who are Québecers, no one is precluded from participating in the Québec action. Presently the action in Québec defines its class as:
All persons and entities wherever they may reside or be domiciled (other than the Respondents, members of the immediate family of each Individual Respondent, any officers, directors, or senior employees of Armtec, or any subsidiary thereof, any entity in respect of which any such person or entity has a legal or de facto controlling interest, and the legal representatives, heirs, successors or assigns of any such person or entity) who purchased or otherwise acquired securities of Armtec from and including March 30, 2011 to and including June 8, 2011.
[58] It is argued that Mr. Lascaris has a potential conflict given that the two actions are seeking to represent a global class, the issue being whether he can promise both clients, both classes, and both courts the necessary “undivided loyalty” (Bamrakha v. Zinner (1994), 1994 ABCA 341, 157 A.R. 279 (C.A.), at para. 73, cited in R. v. Neil, 2002 SCC 70, [2002] 3 S.C.R. 631, at para. 25).
[59] I frankly do not see a realistic conflict of interest in the scenarios laid out above, nor do I see that a telling strategic advantage rests with Siskinds and Siskinds Desmeules. The material before me and the comments of Mr. Cherniak convince me that the Québec class will be amended to include Québec residents only.
[60] On the record before me I am content that either of these firms can serve the best interests of the class.
Advantage: Neutral
Status of Each Class Action
[61] It seems to me that considerations of the status of each class action need to be considered as part of a continuum which commences with the priority of the commencement of each action considered later in the Vitapharm factors. That is particularly true for this carriage motion.
[62] The Simmonds action was commenced by notice of action on June 16, 2011. The Locking action was commenced 22 days later but by statement of claim, on July 7, 2011. Sutts, Strosberg filed its statement of claim on July 15, 2011. Both sets of pleadings have been amended, the Simmonds’ statement of claim twice. The Simmonds certification and SA motion record, but without its expert opinion, were served on August 26 and 31, 2011. The similar Locking material was served on November 2, 2011.
[63] In these circumstances, I am content that it is the present status of the actions that is important to me. They are, now, in virtually the same stage of progress (Setterington, at para. 22). In addition, this is not a circumstance where either firm can be accused of expropriating the other’s creativity (Timminco, at para. 71).
Preparation
[64] In this part of the analysis, apart from the steps I have considered above, it seems appropriate to consider communications with the proposed class and the time each firm has devoted to reaching this point in the litigation. With respect to the latter issue, I note that to the end of October, 2011 Siskinds had spent 280 hours valued at approximately $95,000 whereas Sutts, Strosberg had spent approximately 380 hours valued at $171,000.
[65] Hours docketed is of course not determinative of the level of preparation and I have noted above that each action has progressed to the stage of certification and clearly each firm has expended a great deal of effort on this motion itself.
[66] The Sutts, Strosberg material points out efforts made by that firm to locate and communicate with potential class members. This effort speaks not only to the level of preparation but as well the relative resources of counsel (Setterington, at para. 24; and Ricardo, at para. 31). A specific employee has been tasked with liaising with potential class members. A dedicated website has been established to disseminate information about the litigation and invites enquiries while asking for relevant information. A total of 151 individuals and corporations have contacted Sutts, Strosberg, sixty have registered on the website.
[67] I do not have comparable information regarding client contact from Siskinds.
Advantage: Simmonds
Number, Size, and Extent of Involvement of Representative Plaintiffs
[68] The names and background of the plaintiffs are detailed in the preceding chart. The need for an examination of the proposed plaintiffs was discussed by Winkler J. at para. 12 of Setterington:
It cannot be ignored that in seeking a stay of one class proceeding in favour of another, the proposed representative plaintiff seeking the stay is asking the court to rule that the putative class will be better served if he or she is permitted to prosecute the action. An inherent element in such a request is an affirmation that the counsel chosen by the moving party is similarly better suited to prosecute the action than the counsel of choice in the other action or actions. In fact, in many cases, there may be little difference between the proposed representative plaintiffs and the moving party will be relying upon the skill and experience of his or her chosen counsel and their resources as the distinguishing feature militating in favour of his or her action being permitted to go forward in preference to all other actions.
[69] In this case there are clear differences between the representative plaintiffs.
[70] Keith Locking is the only proposed plaintiff in the Locking action. He is a retired business owner who has been investing in the public market for over 20 years. He purchased Armtec securities in both primary and secondary markets. His investment in total is relatively small, being $4,480. The fact that he is the only proposed plaintiff is no impediment, that would be so even if he had not acquired shares on both markets (Smith v. Sino-Forest Corporation, 2012 ONSC 24, at para. 269). Similarly, the amount of his investment is not a factor per se (McCann v. C.P. Ships Ltd., [2008] O.J. No. 5957, at paras. 24-34; and Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46, [2001] 2 S.C.R. 534, at para. 41).
[71] Bruce Simmonds is one of three plaintiffs in the Simmonds action. He represents the primary market purchasers. He invested $29,160 in Armtec and lost $22,174. Bruce Simmonds:
a) holds a Bachelor Arts degree from the University of Toronto with a major in Commerce and Economics and he is also a Chartered Accountant;
b) has served, in the past 25 years, as President, Chief Financial Officer and Chief Executive Officer of several publicly-traded and privately held companies and has been a member of the Board of Directors of many companies, six of which were publicly-traded;
c) is currently the Chief Executive Officer of Pacific Links International, which owns and operates multiple upscale golf facilities in China, Hawaii and the western United States;
d) has experience in a variety of debt, equity and convertible debt private placements, fully marketed public equity financings and bought deal and has also completed a number of significant mergers and acquisitions including divestitures, acquisitions and public process company sales; and
e) while he was President and Chief Executive Officer of ClubLink Corporation, was involved with significant public offerings.
[72] In the Simmonds action Robert Grant and Gordon Moore represent the secondary market purchasers. Mr. Grant invested $64,996 in Armtec and lost $47,329. Mr. Moore invested $42,780 and lost $30,960.
[73] Mr. Moore:
a) is a Certified Management Accountant;
b) has, since 1978, held various positions at public and private corporations, including Secretary Treasurer, Executive Vice President Finance, Chief Financial Officer and Chief Executive Officer, and
c) in his capacity as Chief Financial Officer, was involved in an Ontario company going through an initial public offering process on the TSX and as such worked with legal counsel, audit counsel and the lead underwriting investment banker.
[74] Both Simmonds and Moore bring to the Simmonds action significant business acumen. They have held high-level positions in public and private companies and are experienced in the corporate responsibilities attached to public offerings. Their experience will not only benefit the class but it is important to recognize that they will be an easily accessed resource for plaintiffs’ counsel (Jeffrey v. London Life Insurance Co., [2008] O.J. No. 837, at paras. 138-139; and Sino-Forest, at para. 286).
[75] The appropriateness of Bruce Simmonds as a plaintiff has, however, been questioned by Mr. Cherniak.
[76] Mr. Simmonds was appointed President and CEO of the operating company of a publicly-traded income trust called Resolve Business Outsourcing Income Fund (“Resolve”) in December of 2008. On March 11, 2009, Mr. Simmonds was appointed as a director of RBO General Partner Inc., which was also part of the Resolve corporate group, although not to the Board of Trustees of Resolve itself.
[77] Each of John E. Richardson and Robert J. Wright, defendants in the Locking action, were directors of RBO General Partner Inc. and trustees of Resolve from March 17, 2006 until July 27, 2009.
[78] While Wright and Richardson were directors of RBO General Partner Inc. and trustees of Resolve and members of Resolve’s compensation committee, Mr. Simmonds negotiated a change of control agreement that would result in Mr. Simmonds receiving $2,270,000 in the event of termination of his employment following a change of control. Resolve was in fact sold, and Mr. Simmonds’ employment there terminated in around July 2009. There is no connection between Resolve and Armtec.
[79] Mr. Cherniak suggests that Simmonds’ connection to these two members of Armtec’s board of directors is a problem for two reasons.
[80] First, he questions whether class members can be assured that Simmonds will make the tough litigation decisions that may be necessary considering he is “friendly” with Richardson and Wright. Secondly, he points out that this whole issue only surfaced after Siskinds brought the information to the attention of Sutts, Strosberg and he questions why Simmonds would not have been more up front about this disclosure.
[81] I find the concern raised about a potential conflict for Simmonds to be entirely speculative. Bruce Simmonds is an accomplished businessman. I have no doubt that he understands the litigation process and his important representative role. I have no evidence to suggest that he would favour Richardson and Wright instead of his responsibility to the class or that he withheld his relationship for some nefarious reason. He is under no obligation to disclose everyone with whom he does not have a conflict. I am content that he will fairly and adequately and without conflict, represent the interests of the class as required by s. 5 of the CPA.
[82] While still considering the representative plaintiffs, Mr. Cherniak asks me to consider the fact that Mr. Locking has entered into a detailed fee agreement which discloses the contingency fee arrangement and offers indemnification of the plaintiff against an adverse costs finding. He points out that the Simmonds’ plaintiffs have executed only a simple retainer which authorizes Sutts, Strosberg to prosecute the class action and that courts in the past have considered respective fee arrangements to be a consideration in carriage motions (Mura v. Archer Daniels Midland Co. 2003 BCSC, 18 B.C.L.R. (4th) 194, at para. 8; and Timminco, at paras. 18 and 82).
[83] However, there is nothing in the circumstances of this motion that leads me to conclude that Simmonds, Grant and Moore might cut and run after receiving further information on fees and costs, nor do I have any concern that they will fail to act in the best interests of the class. While perhaps I might have gained further solace in that regard had they signed more fulsome retainers, still it will ultimately be for the court to determine whether the fees charged are fair and reasonable to the class (Timminco, at para. 82; and Charles Trust v. Atlas Cold Storage Holdings Inc. 2009 ONCA 690.
Advantage: Simmonds
Conclusion
[84] This was a decision made most difficult by the superb quality of the competing firms who have brought their expertise to bear on these actions. Consistent with their high standards they assisted me by retaining skilled and independent counsel to argue this motion. In the final analysis, however, I believe the Simmonds action should survive this motion because of its simple and cohesive yet adequately comprehensive approach to class and to damages and the fact that the benefits of its accomplished plaintiffs outweigh any concern I have over the fewer number of defendants named in the Simmonds action.
[85] For the reasons set out above, I conclude that:
a) the nature and scope of the causes of action advanced;
b) the theories advanced in support of those causes of action;
c) the best interests of all class members;
d) what is fair to the defendants; and
e) what is consistent with the policy objectives of the CPA;
dictate Sutts, Strosberg should be granted carriage.
[86] I dismiss Siskinds carriage motion and stay the Locking action. I order that no other actions be commenced in respect of Armtec securities purchased during the class period proposed in the Simmonds action without leave of the court.
[87] With regard to costs, I adopt the approach in Setterington and Sino-Forest. Taking into account all the circumstances and the fact that the successful party is now free to prosecute the class action of its choice, there will be no order as to costs.
Original signed “Thomas J.”
Bruce Thomas
Justice
Released: January 20, 2012
COURT FILE NO.: CV-11-16465; 4622/11CP
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Bruce Simmonds, Robert Grant and Gordon Moore
Plaintiffs
– and –
Armtec Infrastructure Inc., Charles M. Phillips, James R. Newell, Michael S. Skea, Donald W. Cameron, Scotia Capital Inc., TD Securities Inc. and BMO Nesbitt Burns Inc.
Defendants
Proceeding under the Class Proceedings Act, 1992
AND BETWEEN:
Keith Locking
Plaintiff
– and –
Armtec Infrastructure Inc., Scotia Capital Inc., TD Securities Inc. and BMO Nesbitt Burns Inc., Charles M. Phillips, Ron V. Adams, Donald W. Cameron, Brian W. Jamieson, John E. Richardson, Michael S. Skea
Defendants
Proceeding under the Class Proceedings Act, 1992
REASONS FOR JUDGMENT
Thomas J.
Released: January 20, 2012