ONTARIO

SUPERIOR COURT OF JUSTICE

CITATION: Nicole Lacroix and Rosie Ladouceur v. Canada Mortgage and Housing Corporation and Marc Rochon, Claude Poirier-Defoy, Jim Millar, Karen Kinsley, Gerald Norbraten, Jean-Guy Tanguay, David Metzak and Brian Knight, being the Trustees of the Canada Mortgage and Housing Corporation Pension Fund, 2015 ONSC 387.

COURT FILE NO.: 99-CV-10694

DATE: 2015/01/23

BETWEEN:

Nicole Lacroix and Rosie Ladouceur, Plaintiffs

and –

Canada Mortgage and Housing Corporation and Marc Rochon, Claude Poirier-Defoy, Jim Millar, Karen Kinsley, Gerald Norbraten, Jean-Guy Tanguay, David Metzak and Brian Knight, being the Trustees of the Canada Mortgage and Housing Corporation Pension Fund, Defendants

William J. Sammon, counsel for the Plaintiffs

J. Brett Ledger, Lauren Tomosich, Lia Bruschetta, counsel for the Defendants

HEARD: December 8, 9 and 10, 2014

REASONS FOR JUDGMENT

CHARBONNEAU, M.Z.

[1] The plaintiffs bring a motion for an order adding the following common issues to this class action:

a) Was CMHC in a conflict of interest within the meaning of s. 8 (10) of the PBSA when it

failed to advise the class members at the beginning of the WFA or anytime thereafter that they had or may have had a beneficial interest in the pension fund surplus prior to those class members electing to take their commuted value and leaving the plan?

b) Was CMHC in a conflict of interest within the meaning of s. 8(10) of the PBSA when by word and/or conduct it took the position that it owned the surplus to the exclusion of plan members including the class members?

c) Was CMHC in a conflict of interest within the meaning of s. 8(10) of the PBSA when it made and when it implemented its surplus sharing decisions on the 1 January 1999 and the 1 January 2001, without including the class members as beneficiaries of those decisions.

d) If the answer to any of (a), (b) or (c) is yes, what is the appropriate remedy for the class members pursuant to s. 8 (11) of the PBSA?

[2] The action was first certified by consent order in 2000. A number of motions were subsequently brought by both parties, some of which are still pending.

[3] The consent order certified the following class and common issues.

. “All former employees who left Canada Mortgage and Housing Corporation (“CMHC”) from the 1 January 1995 to October 23, 2008 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” funded from surplus and which the Plaintiffs allege was a distribution of surplus).

1. Do members of the propose class have an equitable and/or beneficial interest in the pension fund surplus which entitled them to an equitable share of what the defendants have characterized as “benefits enhancements” funded out of surplus?

2. If the answer to 1 is yes, did the election by the members to take the commuted value of their pension terminate any beneficial right or interest they might have had in the surplus by virtue of the trust and/or fiduciary relationship?

3. If the answer to 2 is no, did the failure of the defendants to include members of the class to the extent of their equitable share in what the defendants have characterized as “benefits enhancements” funded from surplus amount to breach of trust or fiduciary duty?

4. If the answer to 3 is yes, are the class members entitled to any remedy and, if so, on what basis?

5. If the answer to 2 is yes, should those class members

a) whose commuted value transfer election was reduced by the amount of the maximum income tax limit, but

b) who were permitted by CMHC to leave any commuted value balance over such limit in the plan to be received as a transfer restriction annuity rather than a residual cash payment (TRA subclass), nevertheless be entitled to have any beneficial right or interest in the surplus determined as if their commuted value transfer had not occurred or only to the extent of the value of the transfer restriction annuity as was done by CMHC.

6. Are class members entitled to exemplary and/or punitive damages and, if so, in what amount?

[4] In June 2002, the plaintiffs moved to amend their statement of claim by adding plaintiffs as a second group of plaintiffs (the McCann group). They also sought to amend by alleging that the WFA created a partial termination of the pension plan which required the defendants to include the plaintiffs in the distribution of the enhanced benefits derived from the plan surplus after they voluntarily left the plan. The motion was dismissed on April 3, 2003, in large part because of the conflict of interests between the original Lacroix plaintiffs and the added McCann plaintiffs. Subsequent appeals to the Divisional Court and the Court of Appeal were unsuccessful.

[5] In February 2007, the plaintiffs moved to remove the McCann plaintiffs from this action and allow the original plaintiffs to proceed with a new request to certify the partial termination issues. It was proposed that the McCann group of plaintiffs would proceed separately with their own class action asking for certification of the existing common issues in the Lacroix action plus the certification of the partial termination issues. The severance motion was allowed and the Court agreed to allow each group of plaintiffs to proceed separately with their certification motion.

[6] Both certification motions were ultimately dismissed on January 26, 2009. Subsequent appeals to the Divisional Court, Court of Appeal and Supreme Court of Canada (leave refused) were dismissed.

[7] The action therefore reverted to its original status namely based on the original consent certification order of 2000. Various motions including a motion for judgment were and are still pending.

[8] In August 2013, the plaintiffs in the present action delivered a motion seeking to add the four (4) additional common issues. For the following reason I have decided to allow the motion.

The Background Facts

[9] I have extensively outlined the facts in several previous decisions. The Divisional Court at 2010 ONSC 65, [2010] O.J. No. 2599 and the Court of Appeal at [2012] ONCA 243 have also summarized the facts. I will only give the highlights at this time.

[10] In 1995, the defendant Canada Mortgage and Housing Corporation (CMHC) decided to substantially reduce its workforce. This became known as the Work Force Adjustment Program (WFA). From 1995 to 2001, 1400 employees were let go in various phases. The certified class in this action is made up of individuals who were dismissed and took the commuted value of their pension plan between January 1995 and October 23, 2009. When they left the pension plan there was a substantial surplus in the plan.

[11] As part of the initial steps in the implementation of the WFA, CMHC decided that it would offer employees who were over 50 years old and had been with the Corporation for at least 10 years a reduced retirement pension benefit. It cost CMHC approximately 60 million dollars to provide this Early Retirement Reduction Waiver (ERRW).

[12] On January 1st, 1999, CMHC used part of the pension plan surplus to give to the individuals who were members of the plan as of January 1, 1999, so-called enhanced benefits. This amounted to approximately 40 million dollars. CMHC also used 60 million dollars of the surplus to repay the 60 million dollars it had incurred to fund the ERRW. The 60 million dollars was shown on the financial statements of CMHC as a debt to the pension fund.

[13] At the same time as the defendants were implementing the WFA they were proceeding with a pension surplus review. The decisions relating to what use could and should be made with the surplus were being made during that same period.

[14] The defendants paid out a second distribution of benefit enhancements from surplus on January 2001 to individuals who were still members of the plan on that date. The plaintiffs, who had already left the plan, did not share in any of the benefit enhancements.

The position of the plaintiffs

[15] The plaintiffs allege that the defendants have wrongfully deprived them of their pro rata share of the benefits by putting the interest of CMHC and the individual defendants ahead of the interest of the plan members as they elaborated and implemented the WFA and the Surplus Review. As such the defendants were in a conflict of interest within the meaning of sub-section 8(10) and 8 (11) of the P.B.S.A. which provide:

Other conflicts of interest

8 (10) If there is a material conflict of interest between the role of an employer who is an administrator and their role in any other capacity, the administrator

a) shall, within thirty days after becoming aware that a material conflict of interest exists, declare that conflict of interest to the pension council or to the members of the pension plan; and

b) shall act in the best interests of the members of the pension plan.

Court Order

8 (11) If an administrator contravenes subsection (10), a court of competent jurisdiction may, on application by the Superintendent or any other interested person, make an order on such terms as the court considers appropriate.

[16] The plaintiffs asks the court, as an appropriate remedy pursuant to section 8 (11), to order the defendants to pay them an amount equal to the pro rata share of the benefits enhancements they would have received had the defendants complied with section 8 (10) of the PBSA.

[17] The plaintiffs found their inspiration for this new attempt at certification as a result of obiter comments made by the Divisional Court in its decision dismissing the plaintiffs’ appeal of the decision to refuse to certify the partial termination issues. At paragraphs 76, 77 and 78 under the heading: “Is there a remaining statutory common issue?”, the Divisional Court states:

76. Even though the partial termination issues cannot be certified for the reasons given a court has specific jurisdiction to determine whether a plan administrator acted in the member’s best interests when a material conflict of interest has been established under s. 8 (10) PBSA. The motions judge appears to have determined that there was some basis in fact for the claim that CMHC was in a conflict of interest position within the meaning of s. 8(10). Section 8 (11) gives a court broad discretion to fashion a remedy when there has been a breach of the s. 8 (10) conflict of interest provision. It may be that a common issue could be fashioned as to whether there is a breach of s. 8 (10) of the PBSA and, if so, what is the appropriate remedy under s. 8 (11).

77. Our decision does not preclude the Lacroix or McCann appellants from pursuing the issue of a 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.

78. This was not submitted or argued on the basis of a stand-alone common issue.

Given the procedural history of this matter and the numerous attempts to deal with

these issues and the reformulations of both the class members and the common issues, in our view, it is not appropriate that we attempt to fashion this as a common issue.

[18] The theory of the plaintiff as outlined in their allegations in the amended statement of claim is that the defendants proceeded with a large downsizing of the workforce while simultaneously looking at what could be done with the large surplus in the pension plan fund. They made decisions early in the process, to use the surplus to finance costs of the downsizing. They had various options and sought advice as to how to proceed. Eventually when they put the dismissed employees to their election whether they wished to continue or not their involvement in the plan, they did not advise the plaintiffs that there was a huge surplus which belonged to the plan members. In fact, the defendants took the position that CMHC owned the surplus. Some of the defendant trustees were the most senior officers of CMHC and were in charge of the implementation of both the workforce and the surplus review. They were instrumental in deciding which of the various options, CMHC would choose to adopt. As such they were in a conflict of interest pursuant to section 8 (10) of the PBSA and they failed to fulfill their statutory trust and fiduciary duty by not disclosing the true state of affairs concerning the surplus before each plaintiff elected to take his or her commuted value.

[19] Finally, the plaintiffs submit that the court may as part of its remedial jurisdiction under section 8 (11) of the Act award damages compensating the plaintiffs for the loss they incurred by not being allowed to receive their share of the benefit enhancements received by plan members who were either plan members at the time of the payment of the benefits or who had elected to remain inactive members of the plan and receive a deferred pension payable at 60.

The position of the defendants

[20] The defendants submit that the new amendments do not meet any of the requirements mandated by s.5 of the Class Proceeding Act. The new common issues do not disclose a cause of action. The defendants submit the plaintiffs had no ownership in the surplus of this ongoing plan at the time they left the plan. Therefore, there cannot exist a conflict of interest within section 8 (10) of the Act. Further, there was no action that was taken or ought to have been taken by CMHC as plan administrator which is in a material conflict under any other role of CMHC. Once the plaintiffs took the commuted value of the pension benefits all their rights in the plan terminated.

[21] There is no legal duty on an administrator to advise plan members of future possible facts or events, including advising plan members before electing to take their commuted value and leave the plan that benefits enhancements are being considered to be provided in the future.

[22] Any claim for improper withdrawal from an ongoing pension plan is a claim by the plan for return of such funds not a claim by members or former members for distribution to them of such funds.

[23] The class is over inclusive because it includes plan members who could not have received the alleged misrepresentation and members who did in fact receive correct information and were fully aware of the relevant facts before making their election.

[24] The common issues are based on misrepresentation or non-representation. They are not common issues but individual issues. There will be a need to examine whether any individual relied on the misrepresentation before electing to take commuted value.

[25] The class proceeding is not the preferable procedure because the individual issues will overwhelm the common issues and make the case unmanageable.

[26] The plaintiffs have failed to put forward a litigation plan to address the proposed new common issues. Neither Ms. Lacroix nor Mr. Ladouceur is an appropriate representative plaintiff because neither relied on the alleged representation.

Analysis

Cause of Action

[27] Section 8 (11) of the Act provides a right of action to any interested person when the administrator contravenes subsection 8 (10).

[28] In determining whether the plaintiffs’ pleading discloses a cause of action, the allegations in the statement of claim are deemed to be true. The Court will only find that no cause of action is disclosed if it is clear and obvious that the plaintiffs would not succeed even if the allegations were proven.

[29] The plaintiffs have alleged that the defendants incorrectly told the plaintiffs that CMHC owned the surplus, failed to tell them that a huge surplus existed in the plan and that they intended to use this surplus to pay enhance benefits to current and retired employees and also to pay CMHC’s costs of downsizing.

[30] The plaintiffs allege that the defendants had a trust, fiduciary and statutory duty to notify the plaintiffs of the existence of their intentions. In deciding not to do so the plaintiffs allege the defendants were in a conflict of interest within the meaning of subsection 8 (10) of the Act. The defendants did not declare this conflict nor act in their best interests as members of the plan at the relevant time. They seek damages equal to the pro-rata share of the enhanced benefits paid to members after the plaintiffs left the plan.

[31] The defendants submit as a preliminary procedural point that the plaintiffs have not put forward any pleading to support the present motion. I do not agree. It is clear that the plaintiffs in their factum indicate that they rely on the existing amended statement of claim, the same pleading, with the exception of the McCann as plaintiffs, that was put forward to obtain the consent certification order in 2000. I discussed this issue with counsel during oral submissions and made it perfectly clear that I was of the opinion that the fact that there might be procedural irregularities in formalizing the removal of the McCann proposed amendment sought at the time of the severance of the action would not in itself constitute a reason to refuse certification. My decision will be based on the allegations as they stand in the amended statement of claim. The plaintiff must deliver a statement of claim with the McCann Group deleted as plaintiffs in order to confirm the severance order of 2007. Otherwise, the allegations will remain the same.

[32] Secondly, the defendants submit that there cannot be a “conflict” without an “interest”. In the context of the decisions surrounding the WFA, the Benefits Enhancement and the dealings with actuarial surplus, neither the plaintiffs nor CMHC had an interest that conflicted. On the one hand, it is well settled law that the plaintiffs as members of an ongoing pension plan had no interest in the actuarial surplus. Therefore, CHMC could not have been in a conflict of interest in relation to anything said or not said concerning the surplus or for its intended use or for not taking steps to distribute a portion of surplus to the plaintiffs. Nor was there any obligation on CMHC to advise the class members that they may have some potential future benefits funded out of surplus. I do not agree with this submission.

[33] I am of the opinion that the plaintiffs’ pleading discloses a cause of action. The defendants are quite correct when they say a member of an ongoing plan has no right to the actuarial surplus. The law is well settled on this issue. However, the plaintiffs are not alleging they were entitled to claim a portion of the actuarial surplus but rather that they were entitled to be told and the defendants had a duty to tell them that the defendants intended to use the surplus to pay enhanced benefits to members who decided to remain in the plan. In not doing so they were in a conflict of interest within the meaning of section 8 (10).

[34] If, as alleged, the defendants made decisions during the implementation of the WFA and the surplus review that they, as the employer and sponsor of the plan, intended to use part of the surplus for CMHC’s own benefit and purposes, I find it is not clear and obvious that the defendants were not in a conflict of interest with the interest of dismissed employees who were being asked to choose whether to leave or stay in the pension plan. If such a conflict of interest existed they had a statutory duty to declare it and act in the best interests of all plan members.

[35] I have already indicated in a previous decision that there is evidence to support the plaintiffs’ allegations that in the context of the WFA and the surplus review the defendants were well aware of the potential conflict. My previous reasons in that decision are referred to by the Divisional Court in the appeal of the refusal to certify the partial termination issues, at paragraphs 52 and 53 2010 ONSC 65:

52. In the Jurisdiction Decision, at paras. 6-8, the certification judge made a number of findings on the same record relevant to the partial termination claim:

53. There is some evidence that when the defendants were devising and implementing the W.F.A., they considered whether they should partially terminate the plan. They consulted with their lawyers and actuaries. They discussed the matter with the Office of the Federal Superintendent of Insurance (OFSI). At one point, it would appear OFSI suggested to the defendants that the equitable treatment of the members of the plan might require that they declare a partial termination and suggested that the defendants should consider doing so. However, it would appear OFSI eventually completely left the issue with the defendants(…..)

54. The defendants did not declare a partial termination. They proceeded to

implement the WFA. In doing so, they used funds from the surplus to cover

approximately $60 million of the costs associated with the downsizing. Initially, the defendants showed this $60 million as a debt owed by the defendants to the plan. Later, when they made the first distribution of surplus, that debt was forgiven. The surplus was further distributed by other means such as declaring contribution holidays and enhancing benefits.

53. In essence, the appellants allege that CMHC chose not to partially terminate the plan in order to put its hands on some of the surplus. They allege that the respondents breached their trust, fiduciary, and statutory duty under s. 8 (10) of the Act, and that given the existence of a conflict of interest and their duties to the beneficiaries, CMHC was obligated to declare a partial termination to distribute the surplus funds.

[36] Counsel have not referred me to any cases interpreting subsection 8 (10) and 8 (11). I have not found any except this statement by Deschamps, J. in Buschau v. Rogers 2006 SCC 28, [2006] 1 S.C.R. 973 at paragraph 38:

38. Under s. 8 (3) of the P.B.S.A. plan members can object to an administrator’s

conduct if it is in breach of its fiduciary duty to them. Also, under s. 8 (10), an employer who is an administrator is forbidden to put itself in a material conflict of interest.

[37] I conclude that it is not clear and obvious that the defendants were not in a conflict of interest within the meaning of subsection 8 (10) of the Act when they were implementing the WFA and the pension surplus review.

[38] I am also of the opinion that the Court of Appeal decision in Hembruff v. Ontario Municipal Employees Retirement Board 2005 CanLII 39859 (ON CA), [2005], 78 OR (3rd) 561 is not an answer to this issue as submitted by the defendants. In Hembruff, Gillese J.A. states at para 90 and 91:

90. Imposition of a positive obligation to disclose plan changes under consideration would, in my view, result in an unmanageable burden being placed on the Board. Throughout the surplus management process in 1998, the Board discussed possible surplus management options at every meeting and consultation. It was a dynamic process, with options being considered and rejected and then considered again. The magnitude of the process can only be understood in context. OMERS has multiple constituencies: 3000,000 members (active, deferred and retired), and 900 employers, all of whom had different interests and to whom different things might be material at different times, depending on their individual situations.

91. In those circumstances, it is hard to conceive of how the Board could have met an obligation to disclose potential plan changes under consideration. How seriously, must a change be under consideration in order to trigger the disclosure obligation? What information would be sufficient to meet the obligation, given the breadth of the constituencies, member’s particular circumstances, the volume of options being considered and the dynamic nature of the surplus management process? When and how would the information have to be disseminated in order to satisfy such an obligation? These difficulties are not illusory as the facts themselves show. Had the Board disclosed the potential benefit enhancement in the summer of 1998, when it appeared likely that it would be recommended, but not disclosed the CVP withdrawal option, which was far less likely to be recommended, the information would have been incomplete and misleading as far as the respondents were concerned.

[39] However, I find that for pension plans covered by the Federal Act, not the case in Hembruff, subsection 8 (10) does impose a “positive” duty on the employer to declare the conflict and to act in the best benefits of class members. This is particular so when the WFA and the Surplus Pension proceeded together. There is no evidence from the defendants that they fulfilled that duty. As a result whether there was a conflict and what remedy should follow for its breach raises valid legal issues which can only be decided on a complete record.

[40] Similarly, I reject the defendants’ submission that the so-called “two hats” doctrine apply to the application of subsections 8 (10) and 8 (11). The “best interests” which are being protected by the subsections are the “best interests” of the plan members. It appears to me far from clear and obvious that because the role of the sponsor and the administrator are distinct, the employer may put himself in a conflict of interest and not have to declare the conflict and protect the best interests of the members. I am also of the opinion that the issue of whether CMHC was in a conflict of interest is a question of fact or at the very least a question of mixed law and fact. Such an issue should not be decided at the pleading stage. It requires a much better evidentiary record. I am also of the view that at least some of the decisions taken during the overall context of the WFA and the surplus Review were taken by CHMC as the employer and not as sponsor of the pension plan. To that extent also, the decision in Sun Indalex v. U.S.W. [2013] 1 SCC 6, supports the position of the plaintiffs.

Identifiable Class

[41] The proposed class has already been certified on consent when the original common issues were certified. The defendants’ submit that the class is irrationally over-inclusive because it includes former members who could not have received the alleged misrepresentation and former members who would have specifically been advised of the surplus review. That submission was not an impediment to the original consent certification when similar representations were also alleged. The proposed issues rely less on misrepresentations than the original certified issues did. I reject that submission. I find that the ultimate effect of the alleged representations on the choices of the plaintiffs is not the essence of the conflict of interest alleged. The common issue is whether the defendants were in a conflict of interest as a result of making the representations and thereby engaged the provisions of s. 8 (10) and 8 (11). As such the class is not irrationally over-inclusive. I am also satisfied that the proposed class meets the well-known requirements of the Class Proceedings Act as interpreted by our Courts. I need not say anymore on this issue.

Common Issues and Preferred Procedure

[42] I find that the proposed common issues a), b) and c) are common issues which should be certified. The adjudication of these issues is required for all class members’ claim and will greatly advance the litigation. I find commonality is clear.

[43] As I have already mentioned, the allegation here is not that representations caused the plaintiffs to take their commuted value but rather that the defendants were in a conflict when they made representations during the relevant period and failed to abide by the statutory duty placed on them by section 8 (10). As such, it is incorrect for the defendants to submit that individual issues will overwhelm the trial of the action. Individual issues may only arise when proposed common issue d) comes for decision. But depending on what the trial judge will find is the legal consequence of a breach of s. 8 (10), it is not certain whether any individual issue based on reliance will remain. Only after the trial judge has answered the common issues will individual issues potentially arise, if any. The present action is therefore the best procedure to address the conflict of interest common issues.

Representative Plaintiffs

[44] I reject the defendants’ submissions to the effect that Nicole Lacroix and Rosie Ladouceur are not proper representative plaintiffs because they would not have been influenced by any of the alleged representations. As indicated the proposed common issues do not raise individual representation issues. Rather the plaintiffs as a group are entitled to find out whether the defendants were in breach of their statutory duty to them and if so what remedy is appropriate in the circumstances.

Litigation Plan

[45] I agree with the defendants that the original litigation plan is out of date. This is however not a reason to refuse certification. The plaintiffs are ordered to deliver a fresh litigation plan with the corrected statement mentioned above.

Conclusion

[46] The proposed conflict of interests are common issues certified. The plaintiffs are required within 30 days to deliver a fresh amended statement of claim which removes the McCann group as plaintiffs and file an updated litigation plan.

[47] If counsel cannot agree on costs the plaintiffs may provide me with brief written submissions within 30 days and then 20 days for answer and 10 days for reply if need be.

Charbonneau, Justice M.Z.

Released: January 23, 2015

CITATION: Nicole Lacroix and Rosie Ladouceur v. Canada Mortgage and Housing Corporation and Marc Rochon, Claude Poirier-Defoy, Jim Millar, Karen Kinsley, Gerald Norbraten, Jean-Guy Tanguay, David Metzak and Brian Knight, being the Trustees of the Canada Mortgage and Housing Corporation Pension Fund, 2015 ONSC 387.

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Nicole Lacroix and Rosie Ladouceur, Plaintiffs

And -

Canada Mortgage and Housing Corporation and Marc Rochon, Claude Poirier-Defoy, Jim Millar, Karen Kinsley, Gerald Norbraten, Jean-Guy Tanguay, David Metzak and Brian Knight, being the Trustees of the Canada Mortgage and Housing Corporation Pension Fund, Defendants

REASONS FOR JUDGMENT

Charbonneau, Judge

Released: January 23, 2015