SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-14-10518-00CL

DATE: 2015-12-23

RE: IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36 AS AMENDED

AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF 1511419 ONTARIO INC., FORMERLY KNOWN AS THE CASH STORE FINANCIAL SERVICES, 1545688 ALBERTA INC., FORMERLY KNOWN AS THE CASH STORE INC., 986301 ALBERTA INC., FORMERLY KNOWN AS TCS CASH STORE INC., 1152919 ALBERTA INC., FORMERLY KNOWN AS INSTALOANS INC., 7252331 CANADA INC., 5515433 MANITOBA INC., 1693926 ALBERTA LTD. doing business as “THE TITLE STORE”

BEFORE: Regional Senior Justice G. B. Morawetz

COUNSEL:
Jonathan Foreman and Lindsay Merrifield, for the Ontario Consumers Class Action

James Harnum, Agent to Harrison Pensa

David Mann and Robert Kennedy, for DirectCash in CCAA Proceedings

Eric R. Hoaken, for DirectCash in Class Action Proceedings

Peter Griffin and Matthew Lerner, for Gordon Reykdal

Jeff Galway, for N. Bland

Mark Polley and Eric Brousseau, for National Money Mart Company

Andrew Faith and Jeff Haylock, for 1573568 Alberta Ltd.

Geoff R. Hall and Stephen Fulton, for the Monitor (FTI Consulting Canada Inc.)

Patrick Riesterer, for the Chief Restructuring Officer of the Applicants

Michael Byers, for Craig Warnock

Serge Khallughlian and Charles Wright, for the Ad Hoc Committee of Purchasers of Applicants’ Securities, including the Plaintiff in the Ontario Securities Class Action

Mary Margaret Fox, for ACE Insurance Company

Doug McInnis, for Axis Reinsurance Company

Brendan O’Neill and Carolyn Descours, for the Ad Hoc Committee of Noteholders

Rebecca Wise, for Albert Mondor, Michael Shaw, Ron Chicoyne, William Dunn and Robert Gibson

Ilan Ishai, for the McCann Entities

David Hoffner, U.S. Counsel for the Monitor in Chapter 14 Proceedings

HEARD and ENDORSED: November 19, 2015

REASONS: December 23, 2015

ENDORSEMENT

onTARIO CONSUMER CLASS ACTIONS: Settlement administration matters

[1] At the conclusion of a joint hearing of the Manitoba Court of Queen’s Bench and this court, the motion was granted with reasons to follow. These are the reasons.

[2] The Ontario Consumer Class Action Members moved for an order approving a series of administrative matters which are required to give effect to distribution of the recoveries achieved in the Ontario Consumer Class Action Settlements.

[3] The requested administrative approvals are as follows:

a. Approval of the Settlement Distribution Protocol for the Ontario Consumer Class Actions (“Distribution Protocol”), which will guide the process by which Class Members can claim and receive settlement benefits;

b. Approval of the Plan for achieving Notice of the Settlement Claims Process (“Notice of Plan”) and the Short and Long Form Notices themselves (“Notices”);

c. Approval of the Privacy and Information Management Protocol of the Consumer Class Action (“Privacy and Information Management Protocol”), which is a document that will apply to the information received from certain of the settling defendants; and

d. Approval of the Appointment RicePoint Administration Inc. as the Claims Administrator and approval of the proposed Cost Structure in connection with its mandate.

[4] The only contrary position to the motion was put forward by National Money Mart (“Money Mart”). The position of Money Mart was in the form of a Request for Accommodation. Money Mart requested an order that any eventual distribution protocol include a provision that Money Mart is entitled to an equitable right for set-off against the claims of Class Members.

[5] Money Mart purchased consumer loan receivables (“Consumer Loan Receivables”) from Cash Store (i.e., debts owed to the Cash Store by its customers relating to Pay Day Loans and other services used by its customers) and all claims, remedies and other rights relating thereto.

[6] Under the Class Action Settlements, these same customers (the “Settlement Class Members”) are entitled to make claims against the Cash Store in respect of the fees charged to them by The Cash Store for these Pay Day Loans and other services.

[7] Money Mart submits that there is an equitable right to set-off the Consumer Loan Receivables against the claims of Settlement Class Members.

[8] I address the Accommodation Request of Money Mart, followed by a consideration of the request to approve the administrative matters.

[9] Money Mart submits that it has a right of set-off in the Consumer Class Action Settlements based on the following:

i. Under the Asset Purchase Agreement (“APA”), Money Mart purchased the Consumer Loan Receivables from the Cash Store;

ii. The Consumer Loan Receivables are owed to the Cash Store by some or all of the proposed Settlement Class Members who will be making claims against the Cash Store in the Consumer Class Action Settlements;

iii. Money Mart, as Assignee of the Consumer Loan Receivables is entitled to “the full benefit of all … rights to payment … and … any and all claims, remedies or other rights relating to them” including a right of equitable set-off;

iv. Under the APA, the Cash Store has an obligation to turn over to Money Mart any Consumer Loan Receivables that the Cash Store receives; and

v. Money Mart is seeking to have this right of equitable set-off asserted against individual Settlement Class Members.

[10] The issue as framed by counsel to Money Mart is as follows: Should Money Mart’s equitable right of set-off be reflected in the Distribution Protocol of the proposed Consumer Class Action Settlements because, inter alia, it is a preferable procedure that will advance a key objective of class actions, namely, judicial economy.

[11] Counsel to Money Mart relies on Holt v. Telford, 1987 18 (SCC), [1987] 2 S.C.R. 193, in support of its position that equitable set-off is available.

[12] Counsel to Money Mart submits that as a matter of substantive law, Settlement Class Members who have not repaid their Consumer Loan Receivables are not entitled to recover the allegedly illegal amounts charged by The Cash Store absent a set-off for their outstanding debts. The right of equitable set-off prevents such a result. Counsel submits that equitable set-off does not require mutual debt, and it is available in any case where the defendant’s claim is so closely connected to the plaintiff’s claim that it would be unjust to allow the plaintiff to enforce payment without taking into account the defendant’s cross-claim.

[13] Counsel further submits that in these proceedings, The Cash Store provided Pay Day Loans and other services to the proposed Settlement Class Members which the Settlement Class Members defaulted on and consequently owe the Consumer Loan Receivables, which Money Mart is now the Assignee of pursuant to the APA. As such, counsel submits Money Mart is entitled to recover these amounts either by way of equitable set-off or pursuant to principles set down in Kerr v. Baranow, 2011 SCC. In Kerr, counsel submits that the Supreme Court of Canada held that at the defence and remedy stages of an action, the defendants conferral of a mutual benefit upon the plaintiff may justify a reduction of the plaintiff’s remedy for unjust enrichment “whether or not the defendant has made a formal counterclaim or pleaded set-off”.

[14] I am unable to give effect to the arguments put forth by counsel to Money Mart.

[15] The Settlement Class Members are making claims against Cash Store in respect of fees charged to them by Cash Store for loans and services. The claims in the Class Action proceeding does not involve Money Mart. Money Mart is not party to the Settlement.

[16] Money Mart is involved in the CCAA Proceedings as a result of an agreement of purchase and sale pursuant to which it acquired certain assets from The Cash Store. The Settlement Class Members were not party to this Agreement.

[17] In essence, Money Mart wishes to claim settlement funds from the Settlement Class Members before the funds reach those entitled to the funds.

[18] In my view, this is tantamount to a prejudgment garnishment. Money Mart took on the credit risk relating to the Consumer Loan Receivables when it purchased the assets from Cash Store.

[19] It seems to me that, Money Mart, a third party creditor, is pursuing the Settlement Class Members for monies derived from a settlement resulting from the alleged wrongdoing of Money Mart’s assignor. Further, as Mr. Bennett points out, the process being followed by Money Mart is procedurally flawed: they are not party to the Agreement and they have brought no motion to ask for intervenor status.

[20] Counsel to Money Mart suggests that equitable set-off is appropriate insofar as the three principal goals of class actions favor the application of equitable set-off. The three principal goals of class actions being judicial economy, behavior modification and access to justice. I fail to see how this submission favours the position of Money Mart. The application of equitable set-off may assist Money Mart in shortening or simplifying legal proceedings, but there are no such benefits for the Class Members. With respect to the second goal of behavior modification, the behavior that would seemingly require modification is that of Cash Store and not the Consumer Class. With respect to access to justice, it seems to me that it is the Class Members that require protection in this area and not Money Mart.

[21] The starting point to consider equitable set-off is the application of the principles set forth in Holt. In my view, the claim of Money Mart is not so closely connected to the Consumer Class that it would be unjust to allow the Consumer Class to access its recovery in the Class Action proceeding without taking into account the Commercial Loan Receivables.

[22] In my view, there is no basis for equitable set-off and consequently, there is no basis for the accommodation requested by Money Mart.

[23] Having addressed the objection of Money Mart to the Distribution Protocol, I am satisfied, having reviewed the evidentiary record and the written argument, that it is appropriate to approve the Distribution Protocol and the Related Administrative Matters. As pointed out by counsel to the Settlement Class Members, the principles to be applied on the motion to approve the Distribution Protocol and the Related Administrative Matters are, in essence, the same as the test for approval of a settlement agreement – namely, whether it is fair, reasonable and in the best interest of class members.

[24] I am satisfied that the record establishes that the Distribution Protocol meets the criteria for approval.

[25] Further, the Notice Plan is, in my view, fairly and reasonably constructed and will facilitate a meaningful distribution of the Notices to the Ontario Consumer Class Action Class Members.

[26] The Privacy and Information Management Protocol is also approved as is the appointment of RicePoint Administration Inc. as the Settlement Administrator.

[27] An order has been signed to give effect to the foregoing.

Regional Senior Justice Morawetz

Date: December 23, 2015