Donohue v. Baja Mining, 2016 ONSC 1569

CITATION: Donohue v. Baja Mining 2016 ONSC 1569

COURT FILE NO.: 7876/12

DATE: 20160304

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

John Matthew Donohue

Plaintiff

– and –

Baja Mining Corp., John Greenslade, Rowland L. Wallenius, Michael Shaw, Adam Wright, and PriceWaterhouseCoopers LLP

Defendant

Jonathan J. Foreman and Stephanie Legdon, in person, and Paul Bates via telephone for the plaintiff

Laura Cooper and Sarah Armstrong, for the defendants Baja Mining Corp., Michael Shaw, and Adam Wright via telephone

Helen Daley, for the defendants John Greenslade and Rowland Wallenius via telephone

Michael Schafler, for the defendant PriceWaterhouseCoopers LLP via telephone

HEARD: February 18 and 19, 2016

leitch j.

1The plaintiff seeks an order approving the settlement agreement between the plaintiff and the defendants which will resolve this action in its entirety.

Background

2This action was certified as a class proceeding with the consent of the defendants on April 8, 2014 and leave was granted pursuant to s. 138.3 of the Ontario Securities Act, R.S.O. 1990, c. S.5.

3The plaintiff alleged in this action that the defendants misrepresented the cost of development of its primary asset, a copper, cobalt, zinc and manganese mine.

4The class was defined as all persons and entities who acquired securities of Baja Mining Corp. between November 1, 2010 and April 23, 2012 and who held some or all of those securities as of April 23, 2012 (excluding certain specified persons who were related to Baja Mining Corp.).

5Notice of certification and the granting of leave was given in accordance with a notice plan approved by the court.

6There have been thirteen retail purchasers who have opted out from participating in this class action.

7The plaintiff and the defendants entered into a settlement agreement on November 6, 2015, which resolves this action.

8The form of notice of this settlement approval hearing and the plan of dissemination of that notice was approved by order dated September 16, 2015.

9Class counsel have confirmed that they have received a strong response from affected shareholders and the notice programs have created a culture of awareness in connection with this litigation.

10There have been no objections to the proposed settlement.

The Settlement Agreement

11The settlement agreement provides that Baja Mining Corp., John Greenslade, Rowland Wallenius, Michael Shaw, and Adam Wright (“the Baja defendants”) will pay $11 million for the benefit of class members.

12This settlement agreement has been entered into by the defendants without any admission of wrongdoing or liability and without any concession or admission of the truthfulness of any claim or allegation asserted in this action.

13The representative plaintiff has filed an affidavit in support of this motion in which he confirms he instructed class counsel to execute the settlement agreement after a thorough negotiation process respecting the settlement value to be paid and the terms to be included in the comprehensive settlement agreement.

14He indicated that he has given careful consideration to the interests of the class, the resources that are available to compensate class members and the risk factors which could work against class members on a legal, factual or practical basis. He further indicated in his affidavit that he believes this action has achieved a strong resolution for class members.

15The representative plaintiff has fully accepted the recommendation of class counsel bearing in mind the extensive and intensive work that has been undertaken and the astute assessment of the risks relating to the answers and defences presented by each of the defendants.

Assessment of the Settlement

16The factors for consideration on a motion for settlement approval are well established (the presence of arm’s length bargaining and the absence of collusion; the likelihood of recovery, or likelihood of success; the amount and nature of discovery evidence; the settlement terms and conditions; the recommendation, and experience of counsel; future expense and likely duration of litigation; recommendations of neutral parties if any; number of objectors and nature of objections; the presence of good faith and the absence of collusion; the degree and nature of communications by counsel and the representative plaintiff with class members during the litigation; and information conveying to the court the dynamics of, and the positions taken by the parties during the negotiation.)

17Class counsel advised that the parties entered into serious bargaining and negotiations between September and November 2015 after a thorough exchange of positions on the issues in the action and a significant exchange of information respecting their competing positions including mediation briefs and participation by the parties in a private mediation.

18Class counsel are experienced in class actions including those involving the Securities Act and the proposed settlement is fully recommended by them. This is important particularly when class counsel were well-informed about the strengths and weaknesses of the case having engaged in substantial document production as well as the preparation of a discovery plan.

19As previously noted, this settlement also received the full endorsement of the representative plaintiff who has been heavily involved in the action throughout the litigation.

20Class counsel consider the result of the settlement as being a very good recovery for the class in the circumstances.

21In particular, class counsel note that all of the defendants denied that there had been any misrepresentation made and the issue of liability would have been a significant one if the action proceeded. Furthermore, class counsel explained that what they refer to as the “liability cap” under part XXIII.1 of the Securities Act has never been interpreted by a court and there is a strong argument that the total liability limit in this action with its class period commencing on November 1, 2010 is approximately $12 million.

22Class counsel indicated that the best the liability limit could be extended to would be approximately $15 million but such an expansion would require an innovative interpretation by the court.

23Class counsel pointed out that in order to eliminate the liability limit it would be necessary to prove that individual defendants knowingly made the alleged misrepresentation, a difficult standard to meet and one which the defendants might assert requires proof of fraud. As class counsel recognized, those circumstances might lead to the insurers for the defendants taking an off coverage position.

24Insurance resources were an important consideration in entering into the settlement and that resource would decline as litigation proceeded and litigation costs were incurred by the defendants.

25Class counsel indicated the settlement amount is very close to the reasonable liability cap and the available insurance limits. As they put it, the settlement reflects a strong optimization of resources considering the risks in relation to continuing the litigation and the challenges in relation to the assessment of damages.

26Class counsel noted that there have been no objections to the settlement and there has been a strong positive response from affected shareholders, a number of whom are very large shareholders.

27The procedural risks of ongoing litigation were outlined in the affidavit filed in support of this motion and included the fact that the law applicable to this case has novel elements and is complex; and, the fact that there is a risk that a court would find there were no representations and/or no failure to make timely disclosure of the cost overruns and project delays or that the misrepresentation and/or failure to make timely disclosure did not cause damage to the class members.

28There were other risks referenced by class counsel and the representative plaintiff which included the efforts made by Baja Mining Corp. and the other defendants in relation to the mining project including their retention of reputable independent third party engineering firms; the skill and experience of the senior executives and directors; the statutory caps on the limit of liability earlier referenced and the contentious differences between the parties respecting the means by which to measure the losses or damages.

29Considering all of the above, I am satisfied that the settlement is fair, reasonable and in the best interests of the class members. The form of settlement approval order presented by class counsel reflecting the terms of the settlement agreement has been signed.

Settlement Administration

30The plaintiffs also brought a motion seeking an order appointing RicePoint Administration Inc. as claims administrator, approving its fee proposal, approving the short and long form notices of settlement approval and the plan of dissemination for such notices and approving the plan of distribution.

31Class counsel explained that it has expended considerable time and effort in developing the proposed plan of distribution to administer the settlement in a reasonable and simple way to encourage class members to make claims while requiring that claimants provide sufficient information to verify the validity of their claims and to calculate the appropriate compensation.

32It is important to note that class counsel consulted with both RicePoint Administration Inc. as well as Douglas Cumming, an economist, in designing and creating the plan of distribution.

33It is also important to note that the calculation of losses in relation to each claimant must be done in accordance with the provisions of the Ontario Securities Act which includes the establishment of the 10-day volume weighted average trading price of Baja common shares following the alleged corrective disclosure.

34As the affidavit filed in support of this motion explained, the use of the Settlement Input Value defined in the plan of distribution results in a common and consistent method of creating a fair input value for all claimants relative to the number of shares they held and the alleged losses suffered by them in connection with those shares.

35It is proposed that all class members be assigned their respective Settlement Input Value and compensation will be paid to each class member relative to that value with a $20 minimum settlement payment subject only to proration in the event of high claims rates.

36Class counsel have provided their opinion that the proposed plan of distribution is well and carefully designed, is fair and reasonable and in the best interest of class members and they whole-heartedly recommend approval of this plan.

37Based on the materials filed and the submissions of counsel, I am prepared to approve the proposed plan of distribution.

38Further, I approve the appointment of RicePoint Administration Inc. as claims administrator (who have been appointed previously in this action in relation to the previously approved notice programs). Again, this appointment was fully endorsed and supported by class counsel who considers its fee proposal to be reasonable.

39Accordingly, the appointment of RicePoint Administration Inc. is approved together with its fee proposal.

40Finally, the proposed short and long form notices are approved together with the proposed plan of dissemination. This plan tracks closely the previous notice plans in this action, which as class counsel advised have been very successful and have generated a strong response from class members. In addition, class counsel note Baja Mining Corp. has publically communicated with the markets in relation to this litigation as required which also serves to create awareness in relation to this action.

41The proposed form of order approving settlement administration has been signed.

Class Counsel Fees

42Class counsel seek an order approving the retainer agreement entered into between the representative claimant and class counsel and an order approving legal fees in the amount of $2,750,000 plus applicable taxes and disbursements of $77,696.06 inclusive of applicable taxes.

43The retainer agreement meets the requirements of s. 32 of the Class Proceedings Act, 1992, S.O. 1992 c. 6 – that is, it is in writing, states the terms under which fees and disbursements shall be paid, provides an estimate of the expected fee and states the methods by which payment is to be made.

44In addition, as permitted by s. 33 of the Class Proceedings Act, 1992, the retainer agreement provides that class counsel could seek legal fees of 30% of the amount of any recovery obtained on behalf of the class plus disbursements and taxes and such fees and expenses are payable only in the event of settlement or judgment in favour of the class.

45The affidavit and other materials filed in support of this motion outline the complexity of the matters in issue both factually and legally, the risks undertaken by class counsel, the time and expense committed by class counsel to investigate the case, including work with Mr. Cumming, the substantial monetary value recovered for the benefit of the class and the opportunity cost to class counsel in pursuing this action on a contingency basis.

46The material also reflects the fact that the matter is ongoing and further time and expenses will be necessary in relation to the ongoing notice and administration of the claims process and the distribution of settlement benefits to class members.

47The materials filed on this motion outline the disbursements incurred, the most significant of which are fees paid to Mr. Cumming, who was retained to provide his opinion in support of the certification and leave motion and his opinion in relation to the calculation of damages and who has completed all of the complicated calculations necessary for the plan of distribution.

48I approve all of the disbursements as being fair and reasonable.

49With respect to the legal fees sought the proposed fee is calculated on the basis of a 25% recovery of the settlement amount which is less than the percentage provided for in the retainer agreement and is therefore not inconsistent with the expectations of the class. Notice of the proposed fee was included in the notice given to class members and there has been no objections as previously noted.

50The proposed fee request is supported by the representative plaintiff. The representative plaintiff indicated that the very good result achieved in this case is a strong factor supporting the fee request by class counsel particularly considering the significant risks and expense that have been assumed.

51The proposed fees when cross checked against the time incurred are reasonable and fair.

52For these reasons, the requested legal fees and disbursements are approved.

53The form of order presented by counsel has been signed.