ONTARIO
SUPERIOR COURT OF JUSTICE
Proceeding under the Class Proceedings Act, 1992
B E T W E E N:
“Hi! Neighbor” Floor Covering Co. Limited
Heather Rumble Peterson, Reidar Mogerman, for the plaintiff (in person)
Plaintiff
- and -
Hickory Springs Manufacturing Company, Valle Foam Industries (1995), Inc., Domfoam International, Inc., The Carpenter Co., Carpenter Canada Co., Woodbridge Foam Corporation, Flexible Foam Products, Inc., Foamex Innovations, Inc., Future Foam, Inc., Leggett & Platt, Inc., Vitafoam Products Canada Limited, Vitafoam, Inc., Dean Brayiannis, Bruce Schneider, Robert Magee and Michael Lajambe
Defendants
David Kent, for the defendant, Hickory Springs Manufacturing Company (in person)
Christopher P. Naudie, for the defendants, Valle Foam Industries (1995), Inc., A-Z Sponge & Foam Products Ltd., and Domfoam International Inc. (by phone)
Paul V. McCallen, for the defendants, The Carpenter Co., Carpenter Canada Co. and as agent for Michael Lajambe (in person)
Donald B. Houston, for the defendant, Woodbridge Foam Corporation (in person)
Linda Plumpton (in person) and James Gotowiec (by phone), for the defendant, Flexible Foam Products, Inc.
Wendy Sun (in person) and Michelle E. Booth (by phone), for the defendant, Foamex Innovations, Inc.
Eliot Kolers for the defendant, Future Foam, Inc. and Bruce Schneider (in person)
Paul J. Martin, for the defendant, Leggett & Platt, Inc. (in person)
Jonathan Asseltine, for the defendants, Vitafoam Products Limited and Vitafoam, Inc. (by phone)
HEARD: October 29, 2015
COURT FILE NO.: CV-11-17279
ONTARIO
SUPERIOR COURT OF JUSTICE
Proceedings under the Class Proceedings Act, 1992
B E T W E E N:
“Hi! Neighbor” Floor Covering Co. Limited
Plaintiff
- and -
Hickory Springs Manufacturing Company, Valle Foam Industries (1995), Inc., Domfoam International, Inc., The Carpenter Co., Carpenter Canada Co., Flexible Foam Products, Inc., Foamex Innovations, Inc., Future Foam, Inc., Leggett & Platt, Inc., Mohawk Industries, Inc., Vitafoam Products Canada Limited, Vitafoam, Inc., Woodbridge Foam Corporation, David Carson, Louis Carson, Dean Brayiannis, Bruce Schneider, Michael Lajambe and Robert Magee
Defendants
Dustin Kenall, for the defendant, Mohawk Industries, Inc. (by phone)
HEARD: October 29, 2015
COURT FILE NO.: CV-12-18219
ONTARIO
SUPERIOR COURT OF JUSTICE
Proceedings under the Class Proceedings Act, 1992
B E T W E E N:
“Hi! Neighbor” Floor Covering Co. Limited
Plaintiff
- and -
Vincenzo Bonaddio, Michael Calderoni, Douglas Dolphin, Anthony Dacosta, and Donald Phillips
Wendy Sun (in person) and Michelle E. Booth (by phone), for the defendants Vincenzo Bonaddio, Michael Calderoni and Donald Phillips
Nikiforos Iatrou and Scott McGrath, for the defendants, Douglas Dolphin and Anthony Dacosta (by phone)
Defendants
HEARD: October 29, 2015
LEITCH J.
[1] The plaintiff moves for an order approving settlement agreements resolving the issues in actions CV-10-15164 and CV-11-17279 against The Carpenter Co. and Carpenter Canada Co. (“Carpenter”); Vitafoam Products Canada Limited and Vitafoam, Inc. (“Vitafoam”), Woodbridge Foam Corporation (“Woodbridge”) and Mohawk Industries, Inc. (“Mohawk”), Leggett & Platt, Inc. (“Leggett & Platt”), Flexible Foam Products, Inc., now known as FFP Holdings LLC (“FFP”), Hickory Springs Manufacturing Company (“Hickory Springs”), and Future Foam, Inc. (“Future Foam”).
[2] The plaintiffs also seek an order approving a settlement agreement resolving the issues in action CV-12-18219 against Douglas Dolphin and Anthony Dacosta.
[3] This motion was heard prior to a motion seeking approval of class counsel fees and disbursements.
[4] The amounts paid pursuant to these settlements and an earlier settlement, described below, will be distributed to the class in the next few months pursuant to a distribution protocol that has not yet been developed. Updated pre-approval notices were published on the websites maintained by class counsel to reflect the fact that approval of a distribution protocol is not sought at this settlement approval hearing and a further notice concerning hearings to approve distribution will be published in the future.
[5] The plaintiff also seeks an order approving terms of a protective order to govern confidentiality of the productions made by Carpenter, Vitafoam, Woodbridge, Mohawk and Douglas Dolphin and Anthony Dacosta (the “settling defendants”). The criteria to grant a protective order was not addressed on the motion and that relief will be considered on the filing of further materials.
[6] In action CV-10-15164, the plaintiff alleges that the defendants unlawfully conspired to fix prices of polyurethane foam and products that contain polyurethane foam, other than carpet underlay, during the class period (the “Ontario General Foam Action”).
[7] In action CV-11-17279, the plaintiff alleges that the same and some additional defendants participated in an unlawful conspiracy to fix prices of carpet underlay during the class period (the “Ontario Carpet Underlay Action”).
[8] There are two parallel actions commenced in the province of British Columbia and the province of Quebec.[^1] Separate approval hearings occurred in relation to the approval of the settlement agreements in each province.
[9] These actions were previously settled against Domfoam International, Inc., Valle Foam Industries (1995) Inc., A-Z Sponge and Foam Products Ltd. (the “Domfoam defendants”). Dean Brayiannis and other individual defendants and that settlement was approved by the courts in Ontario, British Columbia and Quebec.
[10] This action was certified for settlement purposes against the settling defendants. A notice of certification and this settlement hearing was also approved. This notice was published in accordance with the approved plan of decimation.
[11] A settlement hearing was held in British Columbia, September 21, 2015. These settlements were approved by the British Columbia Supreme Court on September 21, 2015. A settlement hearing was held in Quebec on October 26, 2015.
Terms of the Settlement Agreements
[12] In total, the settling defendants have agreed to pay $29,282,497 for the benefit of the class as follows:
i. by Carpenter and Michael Lajambe $23,000,000;
ii. by Vitafoam $3,250,000 and an assignment of proceeds of other litigation;
iii. by Woodbridge $1,000,000;
iv. by Mohawk $675,000;
v. by Leggett and Platt $580,697;
vi. by FFP $476,800;
vii. by Hickory Springs $200,000;
viii. by Future Foam $100,000.
[13] These settlement amounts will be immediately available for distribution to the class once a distribution protocol is approved and are not subject to any reversion to the settling defendants.
[14] Mr. Dolphin and Mr. Dacosta are former employees of Foamex Innovations Inc. or Foamex Innovations Canada, Inc. They are defendants in what is referred to as the “individuals’ action” (action CV-12-18219).
[15] The settling defendants, including Mr. Dolphin and Mr. Dacosta, are required under the settlement agreements to cooperate with the plaintiff in pursuing its claims against Foamex Innovations, Inc., Foamex Innovations Canada, Inc., Vincenzo Bonaddio, Michael Calderoni and Donald Phillips (collectively “FXI”).
[16] The actions in Ontario, British Columbia and Quebec are being pursued on a national basis by a consortium of counsel.
[17] One of those counsel, Ms. Hermanson, affirmed an affidavit in support of this motion October 20, 2015.
[18] As she noted, pursuant to the settlement with the Domfoam defendants, $1,005,513.82 is being held in trust after the payment of approved disbursements. These funds have been invested to earn interest on behalf of the class.
[19] She reported further that claims made in the Companies’ Creditors Arrangement Act (the “CCAA”) proceedings undertaken in relation to the Domfoam defendants have been approved. At the time this motion was heard, it was anticipated that monies in the range of $4.2 million would be paid for the benefit of class members pursuant to an interim distribution order. Subsequent to the hearing of this motion, I was advised in a further affidavit of Ms. Hermanson, affirmed November 24, 2015, that $4,224,780.44 was paid.
[20] As set out in para. 14 of her affidavit, the estimated amount that will ultimately be paid for the benefit of the class in the CCAA proceeding will be between $5.6 million and $13.8 million depending on amounts payable to Revenu Québec, and other factors which she summarized and which are more fully reported on in the monitor’s twelfth report.
[21] Ms. Hermanson’s affidavit also outlined the “substantial cooperation” received from the Domfoam defendants and some of the related individual settling defendants that provided substantial assistance in achieving the settlements that are before the court for approval.
[22] In addition, as Ms. Hermanson outlined, class counsel had the benefit of receiving information from related actions in the United States, including expert opinions and details respecting settlements in the United States with the settling defendants.
[23] Ms. Hermanson also outlined the information class counsel has obtained from regulatory proceedings in Canada, United States and Europe.
[24] Further, Ms. Hermanson outlined the arms-length and adversarial nature of the negotiations over an extended period of time that led to these settlements and the fact that, as she put it, “much of the settlement discussion was driven as a result of a scheduled mediation with former Supreme Court of Canada Justice Ian Binnie. This mediation was fully briefed, and then certain settlements occurred in the week leading up to the mediation, and one agreement in principle was achieved at the mediation proper”.
[25] All of the settlements are recommended for approval as being fair and reasonable by experienced class counsel.
[26] Ms. Hermanson’s affidavit outlined the basis on which class counsel reached their conclusions that each of the settlements was fair and reasonable, which included factors such as the quantity of Canadian sales and the financial circumstances of the settling defendants.
[27] Ms. Hermanson further affirmed that class counsel had the benefit of significant information on which the settlements could be evaluated, notwithstanding that no formal discovery had taken place.
[28] In considering the fairness and reasonableness of the proposed settlements, it is appropriate to consider the significant procedural and litigation risks as more particularly outlined in para. 76 of Ms. Hermanson’s affidavit.
[29] At the hearing of this motion, class counsel reiterated that these actions involved very complex evidentiary and legal issues and could be categorized as “very risky”. Because of the complexity of the factual and legal issues, the expert evidence was also very complex.
[30] Class counsel also noted that the action was undertaken in a shifting and uncertain regulatory and investigative environment.
[31] In addition, there was significant financial distress in the industry.
[32] As a result, class counsel characterized these settlements as a remarkable result efficiently obtained.
[33] The settlements are also supported by the representative plaintiff.
[34] Class counsel indicated that they are actively communicating with class members to design a distribution protocol respecting the settlement amounts. Therefore, class counsel were in a position to further add that no class members that they have communicated with have indicated any discontent with the results achieved in the settlements made thus far.
[35] Class counsel indicated their intention to continue to work with class members and experts to determine a fair and equitable system for distribution of the settlement amounts, which will be presented to the courts for approval in a number of months.
[36] There were no objections made to the settlement within the time period provided for objections (by September 5, 2015). However, a communication was received thereafter by Mr. Eric Letts, a lawyer in Ontario, who is an end-consumer of flexible foam products. Mr. Letts participated in the hearing of this motion by teleconference.
[37] Mr. Letts outlined in a September 21, 2015 email communication to class counsel and reiterated at the hearing of this motion that as an end-consumer he is concerned with the following:
“First, there is a lack of sufficient explanation, reasoning or evidence to demonstrate that the settlements will be sufficient to cover the damages of class members within the various supply chain groups. No doubt such information is crucial to understanding the viability of the settlements. If there is a short fall, is it reasonable in the circumstances? Further, this information will have to be obtained at the future expense of class members within the formation of the distribution protocol. This information (from a Canadian perspective) ought to have been determined and presented within the settlement approval process.
Secondly, the US companion litigation is bifurcated between settlements with end-user class members and settlements with direct purchaser class members. These Canadian class actions are not so arranged. …
By addressing these issues after the Settlement, the Canadian class counsel will without a doubt be seeking further payment for their energies spent in devising a fair and equitable distribution plan. …
The distribution protocol needs to be determined in tandem with the approval of the settlements – not after. …
For these reasons, as a class member, I do not support the final settlement approval without: 1. comprehensive and detailed evidence and analysis of the damages to class members at various positions within the supply chain system; and 2. a settled and approved distribution protocol. …
I am also concerned that no end-users seem to have been consulted in a meaningful way with respect to the quantum of the settlements.”
[38] I observe that Mr. Letts has made no objection to the quantum of the settlements or the other terms of the settlements. Clearly, he has concerns with respect to the distribution process.
[39] Mr. Letts in his submissions at the hearing reiterated his request that a distribution protocol be provided prior to approval of the settlement. He asserted that once a settlement is finalized, there is a competitive process between different and distinct groups as to how the settlement proceeds will be distributed and in his view, there is “immense pressure” against end-users to settle for less than “their due”.
[40] Dealing with the first objection of Mr. Letts, I agree with class counsel that it is not inappropriate for a court to approve a settlement before a distribution protocol is established particularly when, as is the case here, there have been a number of settlements with different groups of settling defendants since the actions began. Further, class counsel have stated that they will not be seeking any additional fee for any additional work required to approve or administer the distribution of the funds if they are successful in having approved their proposed fees and disbursements before the court.
[41] With respect to the second issue raised by Mr. Letts, class counsel advised that cases in the United States are structured as they are because of American jurisprudence which provides that a direct purchaser is the only purchaser who can sue in a federal action and there is an “independent track” for end-consumers. As a result in the United States, there are two separate actions and therefore, two separate settlements.
[42] In Canada, class proceedings cannot be structured in that manner and recent jurisprudence from the Supreme Court of Canada has confirmed that both indirect and direct purchasers have causes of action. I agree with class counsel that in that same jurisprudence, the Supreme Court of Canada rejected the American process which forms the basis of Mr. Letts’ objection.
[43] Further, I agree with the submission of class counsel that end-users are represented by a representative plaintiff in these Canadian class actions and the consortium of class counsel and the representative plaintiffs owe a duty to maximize overall recovery to all members of the class when they negotiate a settlement.
[44] Further notice will be given to the class in respect of a distribution process to be presented to the court for approval and Mr. Letts may participate in that approval process. As counsel noted, there will be mechanisms available to resolve disputes in relation to the distribution protocol should class members not be content with what counsel presents to the court.
[45] Therefore, the objection presented by Mr. Letts does not detract from the potential for a finding that the settlements are fair, reasonable and in the best interest of the class.
[46] I have considered the well-settled factors that are relevant to the approval of negotiated settlements, as outlined in earlier reasons released in this action in relation to the settlement with the Domfoam defendants: the likelihood of recovery or likelihood of success; the amount and nature of discovery evidence; settlement terms and conditions; recommendation and experience of counsel; future expense and likely duration of litigation; recommendation of neutral parties, if any; number of objectors and nature of objections; and, the presence of good faith and the absence of collusion. I am satisfied that in all the circumstances, these five settlements are a fair and reasonable resolution of the actions in relation to the settling defendants and they are in the best interest of the class members.
[47] The form of order presented to the court in relation to the settlements was not opposed by any of the non-settling defendants.
[48] For the foregoing reasons, that form of order has been signed.
Justice L. C. Leitch
Released: December 9, 2015
[^1]: Majestic Mattress Mfg. Ltd. v. Vitafoam Products Canada Limited et al., No. VLC-S-S-106362; Trillium Project Management Ltd., v. Hickory Springs Manufacturing Company et al., No. S-106213