COURT FILE NO.: 06-CV-316859PD2
CITATION: IPEX Inc. v. AT Plastics Inc., 2017 ONSC 7706
DATE: 2017/12/22
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: IPEX Inc. v. AT Plastics Inc.
BEFORE: MASTER GRAHAM
HEARD: July 25, 2017
COUNSEL: J. Kimmel and C. Fox for the plaintiff
E. Dolden and M. Pearce for the defendant (moving party)
P. Wells for Lubrizol, defendant in action no. CV-08-365112
REASONS FOR DECISION
(Defendant’s motion for production of settlement agreement)
[1] The plaintiff IPEX Inc. (“IPEX”) manufactured a product called Kitec Pipe (“the Pipe”) using raw materials including resin supplied first by the defendant AT Plastics Inc. (“ATP”) and subsequently by a company referred to in these reasons as “Lubrizol”. Various end users of the Pipe brought class action lawsuits against IPEX in the U.S., Ontario, and Quebec, claiming damages based on deficiencies in the Pipe. In 2011, IPEX settled those class action claims for $125 Million (U.S.).
[2] In this action, IPEX claims damages from ATP for the amount paid to settle the class action claims, alleging that any deficiencies in the Pipe resulted from deficiencies in the materials supplied by ATP beginning in 1996 and continuing until December 21, 2001.
[3] In a separate action (CV-08-365112), IPEX sued Lubrizol Advanced Materials Canada Inc. and its parent company Lubrizol Advanced Materials Inc. (“Lubrizol”) to recover amounts paid to settle the claims of end users of the Pipe based on Lubrizol’s supply of materials to IPEX commencing December 22, 2001.
[4] In correspondence dated February 10, 2017, Lubrizol informed ATP’s counsel that Lubrizol and IPEX reached a confidential settlement with respect to IPEX’s claims related to materials “supplied to IPEX by Lubrizol for use in Kitec Pipe from and after December 22, 2001.” The terms and conditions of the settlement were stated to be confidential, except as disclosed in the letter as follows:
Lubrizol will consent, subject to the court’s confidentiality order, and subject to any ruling of the court on admissibility, to the continued use of documentary and oral discovery from the Lubrizol action in the ATP action. On the same terms, Lubrizol will also co-operate in facilitating and permitting the disclosure of the formulations of resin supplied to IPEX for use in the Pipe by both ATP and Lubrizol to all experts and to the court.
Lubrizol’s experts and consultants have withdrawn from the matter and shall cease all involvement as expert witnesses with respect to the action, including communications with anyone other than Lubrizol and its counsel.
In the event that Lubrizol or a current or former employee of Lubrizol receives a valid subpoena from either ATP or IPEX, Lubrizol will not object to any party or its counsel speaking to its current or former employees regarding the action, provided that counsel for Lubrizol is present during all such communications and that the communications concern only non-privileged matters that current or former employees were involved in or had personal knowledge of before the commencement of the action. With respect to two specifically identified individuals, any communications are to be limited to non-privileged matters concerning their knowledge of facts prior to the commencement of the action and shall not include any discussion about their opinions formed as experts.
[5] In correspondence dated March 17, 2017, counsel for Lubrizol informed counsel for ATP that they declined to produce a copy of the settlement agreement between IPEX and Lubrizol on the basis that it was not relevant to the IPEX v. ATP action and it was also the subject of settlement privilege. Counsel stated that any relevant terms of the settlement were already provided in Lubrizol’s letter of February 10, 2017. Counsel for IPEX communicated their agreement with Lubrizol’s position on March 17, 2017.
[6] ATP now moves for production of a copy of the settlement agreement between IPEX and Lubrizol. For the reasons set out below, the motion is dismissed.
[7] In response to this motion, Lubrizol provided further details of the non-monetary terms of the settlement agreement disclosed in Lubrizol’s letter of February 10, 2017. Paragraph 6 of the affidavit of Nancy Chaves, sworn July 12, 2017, is as follows:
- The Confidential Settlement Agreement provides:
(a) That it finally settles all the IPEX claims against Lubrizol relating to Lubrizol’s supply of PEX to IPEX for use in the Kitec System as that term was defined in the Class Action Settlement. This was set out in the first sentence of [Lubrizol’s February 10, 2017 letter];
(b) Includes a term that IPEX will not make a claim against any party, including ATP, that could claim for contribution and indemnity against Lubrizol for any claims related to PEX material supplied to IPEX for Kitec Pipe used in the Kitec System from and after December 22, 2001 while not affecting or limiting IPEX’s right to continue its action against ATP with respect to material supplied by ATP prior to December 22, 2001;
(c) Contains no term in which any right that Lubrizol might have against ATP is assigned to any party;
(d) Does not contain a term that would require Lubrizol to provide any information supplied under the Joint Defence and Confidentiality Agreement [in effect between Lubrizol and ATP prior to Lubrizol’s settlement with IPEX];
(e) Contains terms in which Lubrizol consents to the continued use by all parties in the action by IPEX against ATP of the documentary and oral discovery or Lubrizol and access to Lubrizol witnesses as detailed [in Lubrizol’s February 10, 2017 letter].
[8] During the hearing of the motion, counsel for IPEX provided me with a copy of the “Confidential Settlement Agreement and Release” between the Lubrizol companies and IPEX, signed by all parties on February 7, 2017, with the “Amount to be Paid by Lubrizol” redacted. I have reviewed this agreement and confirm that the details set out in Lubrizol’s letter of February 10, 2017 and in paragraph 6 of the Chaves affidavit accurately reflect its substance.
The law
[9] Both IPEX Inc. and Lubrizol (which as indicated below is now a third party in this action) oppose ATP’s motion on the basis that their settlement agreement is protected by settlement privilege. The applicable law on settlement privilege was set out by the Supreme Court of Canada in Sable Offshore Energy Inc. v. Ameron International Corporation, 2013 SCC 37, [2013] 2 S.C.R. 623, the key passages of which are as follows:
“2. The purpose of settlement privilege is to promote settlement. The privilege wraps a protective veil around the efforts parties make to settle their disputes by ensuring that communications made in the course of these negotiations are inadmissible. . . .
Since the negotiated amount is a key component of the “content of successful negotiations”, reflecting the admissions, offers, and compromises made in the course of negotiations, it too is protected by the privilege. I am aware that some earlier jurisprudence did not extend privilege to the concluded agreement [citations omitted] but in my respectful view, it is better to adopt an approach that more robustly promotes settlement by including its content.
There are, inevitably, exceptions to the privilege. To come within those exceptions, a defendant must show that, on balance, “a competing public interest outweighs the public interest in encouraging settlement” [citations omitted]. These countervailing interests have been found to include allegations of misrepresentation, fraud or undue influence [citations omitted] and preventing a plaintiff from being overcompensated.
The non-settling defendants argue that there should be an exception to the privilege for the amounts of the settlements because they say they need this information to conduct their litigation. I see no tangible prejudice created by withholding the amounts of the settlements which can be said to outweigh the public interest in promoting settlements.
[emphasis added throughout]
[10] The settlement in Sable Offshore was characterized as a “Pierringer Agreement”, which the court describes as follows:
- . . . Named for the 1963 Wisconsin case of Pierringer v. Hoger, 124 N.W. 2d 106 (Wis. 1963), a Pierringer Agreement allows one or more defendants in a multi-party proceeding to settle with the plaintiff and withdraw from the litigation, leaving the remaining defendants responsible only for the loss they actually caused. There is no joint liability with the settling defendants, but non-settling deendants may be jointly liable with each other.
[11] It is significant that in Sable Offshore, the only issue was whether the amounts paid by the settling defendants should have to be disclosed to the non-settling defendants, and in this regard, the court stated:
- The non-settling defendants have in fact received all the non-financial terms of the Pierringer Agreements. They have access to all the relevant documents and other evidence that was in the settling defendants’ possession. They also have the assurance that they will not be held liable for more than their share of damages. Moreover, Sable agreed that at the end of the trial, once liability had been determined, it would disclose to the trial judge the amounts it settled for. As a result, should the non-settling defendants establish a right to set-off in this case, their liability for damages will be adjusted downwards if necessary to avoid overcompensating the plaintiff.
The issue
[12] The issue is therefore not whether the settlement agreement between IPEX and Lubrizol is privileged, because based on Sable Offshore, it clearly is, but rather whether some or all of it should be disclosed on the basis of an exception to the privilege. The only basis for any exception in this case would be if the terms of settlement could result in the plaintiff being compensated to an extent greater than its loss. The resolution of the motion therefore turns on the same issue faced by the court in Sable Offshore, which is whether the court should order the settling parties to disclose the monetary amount of their settlement to prevent IPEX from being overcompensated.
The relevant pleadings
[13] A review of the pleadings is necessary to address the issue of whether IPEX’s settlement with Lubrizol will result in IPEX being overcompensated in the event that it is awarded a judgment against ATP at trial.
[14] On April 5, 2017, subsequent to the settlement of the action between IPEX and Lubrizol, ATP amended its statement of defence to plead as follows:
That any damages sustained by IPEX “must be apportioned between IPEX, ATP, Lubrizol, installers and end users”. (paragraph 31)
That by reason of the settlement between IPEX and Lubrizol, any award of damages against it ought to be reduced to the extent of that settlement to avoid double recovery. (paragraph 32)
[15] In addition, on April 10, 2017, ATP commenced a third party action against Lubrizol. ATP’s third party claim is for contribution and indemnity for any amount for which it may be liable to IPEX, based on IPEX’s allegation in the main action that any defects in the Pipe “are solely attributable to allegedly defective material supplied to [IPEX] (between 1996 to 2003) by [ATP]” and IPEX’s allegation in the Lubrizol action (CV-08-365112) that “any such defects are solely attributable to defective material sold and supplied (between 2001 to 2008)” by Lubrizol to IPEX”. (paragraphs 6 and 7)
[16] ATP further pleads:
That any amounts paid by Lubrizol pursuant to its settlement agreement with IPEX “operate in reduction of any potential damage award that the Plaintiff has against the Defendant, so as to avoid or prevent double recovery”. (paragraph 29)
That any damages sustained by IPEX “as a result of any defective material in the Kitec Pipe . . . are in whole or in part due to [Lubrizol’s] negligence and breaches of contract and warranty”, as particularized. (paragraph 31)
[17] On June 23, 2017, IPEX amended its reply to ATP’s statement of defence. The significant amendments to IPEX’s reply to ATP’s statement of defence are as follows:
- IPEX’s claim against ATP “is solely in respect of material supplied by ATP to IPEX prior to December 22, 2001. IPEX is not making any claim in this Action against ATP relating to PEX material supplied to IPEX by [Lubrizol] . . . from and after December 22, 2001, those claims and the several liability of the Lubrizol Defendants having been settled in the settlement referred to in paragraph 6 below.”
“6. IPEX . . . continues to assert as its primary theory that ATP is liable for the amounts paid to settle the Canadian (class) Actions and the U.S. Kitec MDL Class Action (collectively, the “Class Action Settlement”), which IPEX maintains was a reasonably foreseeable consequence of ATP’s supply to IPEX of defective ATP Product and was a reasonable settlement judged at the relevant time – namely at the time it was made.”
“7. IPEX . . . pleads that if damages are assessed at the trial of IPEX’s claims against ATP on some other basis than the reasonableness of the ClassAction Settlement (described above) then IPEX’s claim will still be pursued against AT Plastics only for its several liability for losses attributable to pipe made with material supplied by AT Plastics prior to December 22, 2001, which is, in any event, the same basis on which IPEX claims against ATP for losses and damages arising from Complaints that do not form part of the Class Action Settlement.”
“26. With respect to the allegations contained in paragraph 32 of the Statement of Defence, and specifically the assertion that there may be a need for a reduction in the damages that IPEX is found to be entitled to in this action from ATP in order to avoid or prevent double recovery, IPEX . . . now pleads that if the entire amount of the Class Action Settlement, plus interest, is awarded in this action, in order to prevent any double recovery, IPEX will credit the amount recovered from the Lubrizol Defendants. Alternatively, if AT Plastics proves at trial that a reasonable settlement would have been less if, at the time of the Class Action Settlement IPEX was only facing claims in respect of Kitec Pipe used in Kitec Systems manufactured with AT Plastics resin supplied prior to December 22, 2001, then IPEX’s claim against AT Plastics will be for the lesser of : (i) the amount found to be reasonable under that scenario, or (ii) the entire Class Action Settlement amount of $125 million plus interest offset or reduced by the settlement amount paid by the Lubrizol Defendants, in which case the credit for the reverter would also be proportionally adjusted.”
“28. To the extent ATP is asserting that the [Lubrizol] settlement is a “collateral benefit” that must be accounted for, IPEX’s position on this is as set forth in the preceding section. To be clear, the [Lubrizol] settlement was not a partial contribution or payment of ATP’s liability for the ATP Product supplied to IPEX. Only ATP can be responsible for that since it pre-dates any supply of product by the Lubrizol Defendants to IPEX.”
“29 . . . On IPEX’s primary theory . . . ATP is liable for the amount of the Class Action Settlement, and that liability is not dependent upon the specific causes of failure underlying any individual claim subsequently made and paid out of the Class Fund, nor is it dependent on whether the particular Kitec Pipe that is the subject of such claim was made with ATP Product. The Class Action Settlement was a reasonable settlement, judged at the time it was made, and was a reasonably foreseeable consequence of ATP’s supply to IPEX of defective ATP Product with a propensity for premature failures. ATP’s supply of defective ATP Product to IPEX was a cause of the loss that led to the Class Action Settlement and ATP is therefore liable for it.”
“30. Alternatively, IPEX states that it will be for the court to determine the appropriate amount of the Class Action Settlement to apportion to ATP if the entire amount is not found to have been reasonable in relation to the risk of failures attributable to ATP Product at the time.”
“31. In the further alternative, if damages are assessed at the trial of IPEX’s claims against ATP on some other basis than the reasonableness of the Class Action Settlement (described above), then . . . IPEX’s claim will still be pursued against ATP but only for its several liability for losses attributable to Kitec Pipe made with ATP Product material supplied by ATP prior to December 22, 2001, which is, in any event, the basis on which IPEX claims against ATP for losses and expenses arising from Complaints that do not form part of the Class Actions”.
Analysis and decision
[18] The defendant ATP submits that, because IPEX has settled the class action claims for $125 Million (U.S.), and it asserted claims against both ATP and Lubrizol for indemnity with respect to those claims, a portion of the class action settlement must have been in respect of deficiencies in the Pipe for which ATP now claims indemnity from Lubrizol. In Sable Offshore, paragraph 19, the Supreme Court acknowledged an exception to settlement privilege where necessary to prevent a plaintiff from being overcompensated. ATP should therefore be informed of the amount of IPEX’s recovery in its settlement with Lubrizol to prevent IPEX from possibly recovering more than its total loss of $125 Million (U.S.).
[19] In response, IPEX relies on paragraphs 6 and 29 of its amended reply, reviewed in paragraph [17] above, to the effect that its primary theory is that ATP is liable for the entire amount of the Class Action Settlement on the basis that the entire settlement “was a reasonably foreseeable consequence of ATP’s supply to IPEX of defective ATP Product and was a reasonable settlement judged . . . at the time it was made”. Further, on IPEX’s primary theory, ATP’s liability for the Class Action Settlement does not depend upon the specific causes of failure underlying any individual claim.
[20] IPEX pleads in the alternative (paragraph 30 of its reply) that it will be for the court to determine the appropriate amount of the Class Action Settlement to apportion to ATP if the entire amount is not found to have been reasonable in relation to the risk of failures attributable to ATP Product at the time. Further, if damages are assessed at trial on a basis other than the reasonableness of the Class Action Settlement, then IPEX will pursue ATP only for its several liability for losses attributable to Pipe made with ATP Product material supplied by ATP prior to December 22, 2001. IPEX submits that since no claim is asserted against ATP for damages for the period after Lubrizol began to supply materials used in making the Pipe, any settlement paid by Lubrizol cannot be applied to reduce those damages.
[21] Based on IPEX’s pleading in its reply that it can recover the full amount of the Class Action Settlement from ATP on the basis that the entire settlement was a reasonably foreseeable consequence of ATP’s conduct, it is by no means clear at this time that a finding of liability against ATP on that basis would result in double recovery to IPEX.
[22] In order to determine whether the amount of IPEX’s settlement with Lubrizol should be disclosed to prevent IPEX being overcompensated, it is therefore necessary to await the outcome of the trial to know the basis of any finding of liability against ATP. Once this determination is made, the trial court can decide whether any liability on ATP is distinct from any liability on Lubrizol or whether it provides a basis for ATP to recover contribution and indemnity from Lubrizol such that the amount paid by Lubrizol becomes relevant for the purpose of preventing double recovery by IPEX.
[23] Counsel for ATP also attempted to distinguish this case from Sable Offshore, supra, on the basis that the settlement in Sable Offshore was in the form of a Pierringer agreement and the settlement between IPEX and Lubrizol is not. However, the court in Sable Offshore describes the privilege that attaches to all settlement agreements, regardless of whether they are the type of agreement under consideration in that case. There is therefore nothing to be gained by parsing the agreement in this case to determine whether it is or is not a Pierringer agreement because it is unquestionably a settlement agreement to which the privilege applies regardless.
[24] I conclude that there is no basis on which to invoke any exception to the privilege applicable to the amount of the settlement between IPEX and Lubrizol and accordingly, the motion is dismissed. The copy of the settlement agreement filed by IPEX on the motion is hereby ordered to be sealed.
Costs
[25] Ipex and Lubrizol were successful on the motion and should recover their costs. Ipex seeks partial indemnity fees and disbursements of $23,078.67 and Lubrizol seeks $15,763.27. As both these amounts are less than the $28,512.04 in partial indemnity costs that would have been claimed by ATP if it had been successful, ATP must accept that they are reasonable. ATP shall pay Ipex’s costs fixed at $23,078.67 and Lubrizol’s costs fixed at $15,763.27, payable within 45 days.
MASTER GRAHAM
DATE: December 22, 2017