Court File and Parties

Court File No.: CV-06-309948PD3 Date: 2019-01-08 Superior Court of Justice - Ontario

Re: ALI HOLDCO INC. AND DAVID YARLETT, Plaintiffs And: ARCHER DANIELS MIDLAND COMPANY, ADM AGRI-INDUSTRIES COMPANY, TATE & LYLE INGREDIENTS AMERICAS, INC., CARGILL, INC., CARGILL LIMITED, CASCO INC., CERESTAR USA, INC., BESTFOODS, INC., UNILEVER PLC DOING BUSINESS AS UNILEVER BESTFOODS NORTH AMERICA, AND CORN PRODUCTS INTERNATIONAL, INC., Defendants

Before: Justice Glustein

Counsel: S.F. Rosenhek and M. Stephenson, for the Plaintiffs D. Michael Brown, for the Defendants Archer Daniels Midland Company and ADM Agri-Industries Company S. Chang, for the Defendants Cargill Inc., Cargill Limited, and Cerestar USA, Inc. No one appearing for the Defendants Casco Inc., Bestfoods Inc., Unilever PLC doing business as Unilever Bestfoods North America, and Corn Products International Inc.

Heard: January 7, 2019

Reasons for Decision

Nature of Motion and Overview

[1] The plaintiffs bring a motion under ss. 29(1) and 32(2) of the Class Proceedings Act, 1992, S.O. 1992, c. 6 (the “CPA”) for an order of the court approving: (i) The retainer agreements between Ontario class counsel and the representative plaintiffs Ali Holdco Inc. and David Yarlett, effective as of November 18, 2005 and July 5, 2006 respectively; (ii) The payment of disbursements of $215.95 to the law firm of Camp Fiorante Matthews Mogerman LLP (“BC Class Counsel”) [1] out of the total settlement funds of $46,535.89 currently held in trust; (iii) The cy-près distribution of $46,319.94 [2] (the “Remaining Settlement Funds”) to the Breakfast Club of Canada; and (iv) The discontinuance of the present action in Court File No. CV-06-309948PD3 (the “Ontario Action”) as against the Remaining Defendants [3] without costs.

[2] The Remaining Defendants do not oppose the relief sought.

Facts

[3] The affidavit evidence before the court was uncontested. I set out the relevant facts below.

(a) Nature of the action

[4] Both the BC Action and the Ontario Action (collectively, the “Canadian HFCS Litigation”) are class action proceedings against the manufacturers of high fructose corn syrup (“HFCS”). The plaintiffs in the Canadian HFCS Litigation allege an unlawful conspiracy to fix the prices of both HFCS and products containing HFCS sold in Canada.

[5] HFCS is a sweetening agent widely used in the manufactured food industry including in drinks, baked goods, and processed foods.

[6] The Ontario Action and the BC Action include both direct and indirect purchaser classes. Indirect purchasers are customers who did not purchase a product directly from the alleged price-fixers/overchargers but who purchased it indirectly from a party further down the chain of distribution. Direct purchasers are customers who purchased a product directly from the alleged price-fixers/overchargers. [4]

[7] Pursuant to an agreement between Fasken Martineau DuMoulin LLP (“Ontario Class Counsel”) and BC Class Counsel (collectively “Canadian Class Counsel”), all the major steps in the Canadian HFCS Litigation took place in British Columbia and were argued by BC Class Counsel.

(b) The BC Action retainer agreements and commencement of action

[8] In June 2005, BC Class Counsel entered into retainer agreements for the BC Action with the representative plaintiffs Sun-Rype Products Ltd. and Wendy Weberg.

[9] The BC Action was commenced by Statement of Claim on June 14, 2005.

(c) The Ontario Action retainer agreements and commencement of action

[10] Ontario Class Counsel entered into retainer agreements for the Ontario Action with the representative plaintiffs Ali Holdco Inc. and David Yarlett on November 18, 2005 and July 5, 2006, respectively.

[11] The Ontario Action was commenced by Statement of Claim issued on April 21, 2006.

(d) Settlement with the defendant Tate & Lyle

[12] On February 2, 2010, the plaintiffs in both the BC Action and the Ontario Action entered into a settlement agreement (the “Settlement Agreement”) with Tate & Lyle for $650,000.00, all inclusive (the “Settlement Funds”).

[13] By orders dated June 25, 2010 and May 5, 2010, respectively, Justice Rice of the Supreme Court of British Columbia and Justice Strathy of the Ontario Superior Court of Justice (as he then was) approved the terms of the Settlement Agreement.

[14] Pursuant to the above orders, the Settlement Funds were paid to BC Class Counsel in trust and were held in an interest-bearing trust account for the benefit of the settlement class members.

(e) Interim payment of disbursements

[15] Since November 2010, there have been two interim payments from the Settlement Funds to reimburse BC Class Counsel for disbursements incurred in the litigation.

[16] By orders dated November 29, 2010 and March 28, 2011, respectively, Justice Rice in the BC Action and Justice Strathy in the Ontario Action approved the first interim payment of disbursements in the amount of $517,973.55 (inclusive of taxes) to BC Class Counsel from the Settlement Funds. These funds were paid to BC Class Counsel on April 5, 2011.

[17] By order dated November 13, 2014, Justice Myers in the BC Action approved the second interim payment of disbursements in the amount of $92,405.45 (inclusive of taxes) to BC Class Counsel from the Settlement Funds. These funds were paid to BC Class Counsel on December 16, 2014.

[18] Consequently, the total disbursements paid to date are $610,379, leaving a balance of $46,535.89 in the Settlement Funds currently held in an interest-bearing trust account by BC Class Counsel for the benefit of the settlement class members.

(f) The Supreme Court of Canada decision in Sun-Rype

[19] The litigation proceeded against the Remaining Defendants and was vigorously contested. The certification issues in the BC Action were addressed by the Supreme Court of Canada in Sun-Rype Products Ltd. v. Archer Daniels Midland Co., 2013 SCC 58, released on October 31, 2013. [5]

[20] The court in Sun-Rype denied certification in the BC Action for both the indirect and direct purchaser classes. Rothstein J. (speaking for the majority) summarized his conclusion (at para. 3): (i) “[T]here is not an identifiable class of indirect purchasers as required for certification under the British Columbia Class Proceedings Act, R.S.B.C. 1996, c. 50”; and (ii) “The case of the direct purchasers, which is restricted to constructive trust, is dismissed as […] there is no cause of action. The cross-appeal is therefore allowed”.

[21] Rothstein J. relied on uncontested evidence that the defendants used HFCS and liquid sugar interchangeably during the class period, and, as such, indirect individual purchasers could not know whether the product they purchased contained HFCS. Consequently, Rothstein J. held that the indirect purchaser class could not be identified (at paras. 61-75).

[22] Rothstein J. further held that the claims of the direct purchasers in constructive trust disclosed no cause of action. He held (at para. 41): In Pro-Sys [Pro-Sys Consultants Ltd. v. Microsoft Corp., 2013 SCC 57], noting that Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269 (S.C.C.), was the relevant controlling authority, I found that the claim in constructive trust must fail because there was no referential property and no explanation by the appellants why a monetary remedy would be inappropriate or insufficient. For the same reasons, I find it plain and obvious that Sun-Rype’s claim in constructive trust in this case must fail and should be struck. [Emphasis added.]

[23] Rothstein J. denied certification and concluded (at para. 80): Given the finding that an identifiable class cannot be established for the indirect purchasers, the class action as it relates to the indirect purchasers cannot be certified. I would dismiss the appeal with costs. Given the finding that the pleadings do not disclose a cause of action in constructive trust, the claim of the direct purchasers cannot succeed and should be dismissed. The class action as it relates to the direct purchasers cannot be certified. The cross-appeal is allowed with costs.

(g) The order discontinuing the BC Action

[24] Justice Skolrood of the Supreme Court of British Columbia made an order dated July 4, 2018 (the “BC Order”), approving (i) the retainer agreements between the representative plaintiffs and BC Class Counsel, (ii) the payment of $215.95 (inclusive of applicable taxes) to BC Class Counsel for disbursements, (iii) the cy-près distribution of the Remaining Settlement Funds to the Breakfast Club of Canada, and (iv) the discontinuance of the BC Action without costs.

[25] The B.C. Order further provided that the terms of that order (i) were contingent on a parallel order being made by this court, and (ii) would not be effective until such a parallel order was made.

(h) The settlement funds currently held in trust by BC Class Counsel

[26] The current balance of the Settlement Funds held in trust by BC Class Counsel is $46,535.89.

[27] After the payment of the disbursements of $215.95, the amount of the Remaining Settlement Funds would total $46,319.94.

[28] No legal fees have been paid out of the Settlement Funds. Canadian Class Counsel are not seeking payment of legal fees.

(i) Proposed discontinuance of the Ontario Action

[29] By letter dated October 17, 2014, Ontario Class Counsel advised the Remaining Defendants that the Ontario plaintiffs “would now like to proceed” with the Ontario Action on behalf of the direct purchasers only. Subsequently, by letter dated November 21, 2016, Ontario Class Counsel advised the Remaining Defendants that the plaintiffs had “reconsidered their position and willingness to pursue” the Ontario Action.

[30] In the November 21, 2016 letter and in subsequent correspondence, Ontario Class Counsel requested the Remaining Defendants’ positions on a potential resolution of the Ontario Action on a without costs basis.

[31] Ontario Class Counsel considered the risks associated with pursuing the Ontario Action against the Remaining Defendants, particularly in light of the decision in Sun-Rype and the outcome of the BC Action. Ontario Class Counsel identified the following risks with continuing the action against the direct purchasers only: (i) the Court would not certify this action; (ii) any certified action would not be on a national basis; (iii) the inherent procedural and substantive risks associated with litigating against multiple international entities in various jurisdictions; (iv) any damages assessed on behalf of direct purchasers would be assessed by the Courts at a lower level than estimated, or would not be meaningful in relation to the expense of the litigation; (v) the Court would find that all or much of the alleged overcharge was passed on to the indirect purchasers such that no or few damages were suffered by the direct purchasers; (vi) the Court would find that the conduct engaged in by the Remaining Defendants was ineffective or had minimal effect on prices, or that the Court would find that there was no illegal agreement to fix prices; (vii) the plaintiffs could not prove the conspiracy against the Remaining Defendants and/or could not prove the conspiracy as against the Remaining Defendants for the entire alleged period; (viii) the length of time that would be required to bring the matter to its conclusion, including the likelihood of appeal, would not make this litigation financially viable; (ix) the difficulty on obtaining evidence to support the claims, due to the passage of time since the alleged conspiracy was undertaken, namely 1988 to 1995; (x) the difficulty presented by the fact there were no guilty pleas by or convictions against the Remaining Defendants in Canada; and (xi) the difficulty in overcoming the anticipated arguments of the Remaining Defendants that there never was an “agreement” and/or the alleged conspiracy was ineffective such that price increases were non-existent or nominal, that prices are negotiated individually on a customer-by-customer basis, that the products came in different types and specifications, and that it would be difficult to trace any artificial price increases through the distribution chain.

[32] After consideration of these risks, the representative plaintiffs advised Ontario Class Counsel that they did not wish to proceed further with the Ontario Action, and instructed Ontario Class Counsel to proceed with this motion for the relief sought.

[33] Ontario Class Counsel advised the court that neither they nor the representative plaintiffs will benefit privately from the discontinuance in this case. Canadian Class Counsel has not received, and will not receive, any legal fees out of the Settlement Funds.

(j) Proposed cy-près distribution to the Breakfast Club of Canada

[34] Given the large number of settlement class members, the modest size of the Remaining Settlement Funds is insufficient to fund an effective or meaningful distribution. Administration of the claims process would require a national notice program and would create an unreasonable drain on the Remaining Settlement Funds.

[35] Instead, the plaintiffs propose a cy-près distribution to the Breakfast Club of Canada in order to maximize the distribution of the Remaining Settlement Funds. This proposed cy-près distribution has already been approved by Justice Skolrood.

[36] The Breakfast Club of Canada has been operating as a registered charity in Canada for 20 years. It is a nation-wide organization that works with regional teams to provide nutritious breakfasts for children and youth in schools across Canada.

[37] The Breakfast Club of Canada proposes to use the cy-près amount to support breakfast programs across the country through school funding, food donations, and equipment maintenance. A cy-près distribution to the Breakfast Club of Canada will assist the charity with providing breakfasts to school children across Canada.

Analysis

[38] I address each of the following issues raised in this motion: (i) approval of the retainer agreements in the Ontario Action and payment of disbursements of $215.95 to BC Class Counsel out of the total settlement funds of $46,535.89 currently held in trust; (ii) approval of the cy-près distribution of $46,319.94 (the Remaining Settlement Funds) to the Breakfast Club of Canada; and (iii) approval of the discontinuance of the Ontario Action as against the Remaining Defendants without costs.

Issue 1: Approval of the retainer agreements in the Ontario Action and payment of disbursements of $215.95 to BC Class Counsel out of the total settlement funds of $46,535.89 currently held in trust

(a) The applicable law

[39] In Cass v. Westernone Inc., 2018 ONSC 4794 (“Cass”), I reviewed the general principle that class counsel fees and disbursements are to be approved if the court finds that they are fair and reasonable in all of the circumstances (at paras. 117-118).

[40] In Cass, I also reviewed the applicable principles to approving a contingency fee agreement in a class action (at paras. 119-126): (i) An agreement to make a contingent payment, on the basis of a percentage of a settlement or recovery, is contemplated by the word “otherwise” in s. 32(1)(c) of the CPA, and has often been awarded; (ii) Contingency fee arrangements are an “important means” to provide “enhanced access to justice to those with claims that would not otherwise be brought because to do so as individual proceedings would be prohibitively uneconomic or inefficient”; and (iii) Contingency fee agreements can fairly reflect the considerable risks and costs undertaken by class counsel, including the risk that they will never be paid for their work, the risk that their compensation may come only after years of unpaid work and expense, and the risk that they will be exposed to substantial cost awards if the action fails.

(b) Application of the law to the facts of this case

[41] The retainer agreements are standard contingency fee agreements between class action counsel and a representative plaintiff. They provide for (i) a contingency fee of 25% of any award after deduction and payment of all disbursements, plus applicable taxes, (ii) payment of disbursements before payment of legal fees, and (iii) court approval of the retainer agreement. Consequently, the retainer agreements are consistent with the principles cited above.

[42] For the above reasons, I approve of the retainer agreements.

[43] Ontario Class Counsel seeks no fees in relation to the above retainer. Consequently, it is not necessary to consider whether fees sought are fair and reasonable.

[44] With respect to the remaining disbursements of $215.95 (inclusive of applicable taxes) sought by B.C. Class Counsel, given that more than four years have passed between the November 13, 2014 date of the order of Justice Myers approving the second set of disbursements until the present hearing (a time period which also included obtaining the recent BC Order), I find that the nominal amount of disbursements sought is fair and reasonable.

[45] Consequently, I approve (i) the retainer agreements in the Ontario Action and (ii) the disbursements of $215.95 (inclusive of applicable taxes) to be paid to BC Class Counsel.

Issue 2: Approval of the cy-près distribution of $46,319.94 (the Remaining Settlement Funds) to the Breakfast Club of Canada

[46] In Cass (at para. 91), I set out the following principles relevant to court approval of cy-près settlements: Cy-près settlements have been ordered by the court where [citing (Serhan (Trustee of) v. Johnson & Johnson, 2011 ONSC 128, at paras. 58-59)]: (i) “it is not practical to distribute the benefits in any other manner”; (ii) “A direct distribution to the Settlement Class would be uneconomic considering the modest damages and the fact that there is no cost effective way of locating the Settlement Class Members, determining if they suffered damage and, if so, establishing their loss; and (iii) “[T]he cy-près distribution is directly related to the issues in the lawsuit” and will “directly benefit” people in similar circumstances to the class members”.

[47] I also rely on the following principles relevant to cy-près distribution, as set out by Perell J. in Slark v. Ontario, 2017 ONSC 4178 (“Slark”): (i) A cy-près distribution must be fair, reasonable and in the best interests of the class (Slark, at para. 36); (ii) A reasonable number of class members who would not otherwise receive monetary relief must benefit from the order (Slark, para. 36); (iii) Cy-près distributions are generally intended to meet at least two of the principal objectives of class actions. They are meant to enhance access to justice by directly or indirectly benefiting class members, and they may provide behaviour modification by ensuring that the unclaimed portion of an award or settlement is not reverted to the defendant (Slark, at para. 38); (iv) A cy-près distribution should be justified within the context of the particular class action for which settlement approval is being sought, and there should be some rational connection between the subject matter of a particular case, the interests of class members, and the recipient or recipients of the cy-près distribution (Slark, at para. 39); and (v) A cy-près distribution should not be used by class counsel, defence counsel, the defendant, or a judge as an opportunity to benefit charities with which they may be associated or which they may favour. To maintain the integrity of the class action regime, the indirect benefits of the class action should be exclusively for the class members (Slark, at para. 40).

(c) Application of the law to the facts of this case

[48] I find that a cy-près distribution is appropriate on the facts of this case.

[49] There is a rational connection between the subject matter of this litigation and the Breakfast Club of Canada. The litigation was based on the plaintiffs’ allegation that the defendants were unjustly enriched by a conspiracy to fix HFCS prices. As set out at paragraph 5 above, HFCS is a sweetening agent widely used in the manufactured food industry, including in drinks, baked goods, and processed foods.

[50] The Breakfast Club of Canada is an established charity with a 20 year history of providing nutritious breakfasts for children and youth in schools across Canada. The proposed cy-près distribution would provide school funding, food donations, and equipment maintenance to these nutrition programs.

[51] Further, the Breakfast Club of Canada’s intention to use the cy-près distribution to assist breakfast programs across the country reflects the national scope of the class.

[52] Given the modest size of the Remaining Settlement Funds, as well as the costs associated with (i) a national notice program and (ii) effective administration of the claims process, direct payment to class members would constitute an unreasonable drain on the Remaining Settlement Funds.

[53] For the above reasons, I find that the proposed cy-près distribution is fair, reasonable, and in the best interests of the class members.

Issue 3: Approval of the discontinuance of the Ontario Action as against the Remaining Defendants without costs

(a) The applicable law

[54] Section 29(1) of the CPA requires court approval to discontinue a class action proceeding, even if the class action has not yet been certified. I summarize the relevant principles below: (i) In order to grant the discontinuance, the court must be satisfied that the interests of the proposed classes will not be prejudiced (Parker v. Pfizer Canada Inc., 2017 ONSC 2418 (“Parker”), at para. 17; Durling v. Sunrise Propane Energy Group Inc., 2009 CarswellOnt 9181 (S.C.J.) (“Durling”), at paras 14, 16); (ii) Consequently, the court can consider whether the chances of success in the litigation are “risky” or “remote” (Parker, at para. 20); (iii) Court approval prevents the use of a discontinuance for an improper purpose. The court reviews a proposed discontinuance to ensure that it does not result in collusive or inadequate settlements, including the risk that (a) a representative plaintiff can enhance his or her individual bargaining position or (b) counsel can use a discontinuance to sacrifice class members’ interests for legal fees (Durling, at para. 14, Parker, at para. 17); (iv) Court approval for the discontinuance of a proposed class action (a) deters plaintiffs and class counsel from abusing the class action procedure by bringing a meritless class proceeding to extract a payment as the price of discontinuing the class proceeding and (b) provides the court with an opportunity to ameliorate any adverse effect of the discontinuance on class members who might be prejudiced by the distribution (Parker, at para. 19); (v) A motion for discontinuance should be carefully scrutinized, and the court should consider, among other things, whether the proceeding was commenced for an improper purpose, whether there is a viable replacement party so that putative class members are not prejudiced or whether the defendant will be prejudiced (Parker, at para. 18); and (vi) The court can consider whether intervening events in the course of a class proceeding have caused the chances of success to become remote (Parker, at paras. 8, 9, and 12).

(b) Application of the law to the facts in this case

[55] I am satisfied that the proposed discontinuance should be approved.

[56] As a result of the decision in Sun-Rype, there is no possibility that the claim for the indirect purchasers can be certified. Further, the claim of the direct purchasers, based on a pleading of constructive trust basis, cannot succeed.

[57] The decision in Sun-Rype was adverse to the interests of the class members. The court in Sun-Rype essentially eliminated the claims for the indirect purchasers in the Ontario Action, and created a significant obstacle for the direct purchasers in the Ontario Action to obtain a successful outcome on certification, and, thereafter at trial.

[58] The representative plaintiffs in the Ontario Action instructed Ontario Class Counsel to seek a discontinuance after consideration of the decision in Sun-Rype.

[59] As Perell J. held in Parker (at para. 20): “Given the remote prospects of success, it is opportune to allow [the representative plaintiffs] to end [their] exposure to costs in what is now an extraordinarily risky litigation to pursue”. The same comment applies in the present case as a result of Sun-Rype.

[60] The action was reasonably prosecuted based on the case law, but the purported legal basis for certification rejected by the court in Sun-Rype is no longer tenable for the plaintiffs in the Ontario Action.

[61] Consequently, on the basis of the decision in Sun-Rype alone, I would approve the discontinuance of the Ontario Action.

[62] In addition, there is no evidence of any abuse by the representative plaintiffs or by counsel. To the contrary, I find that they are acting in good faith and in the best interests of class members, by choosing not to pursue the Ontario Action. Neither the representative plaintiffs nor Ontario Class Counsel will benefit privately from the discontinuance.

[63] Also, beyond the significant risks resulting from Sun-Rype, the additional risks identified by Ontario Class Counsel at paragraph 31 above remain for the direct purchasers, even if a class action could be certified on the basis of some other cause of action.

[64] Consequently, I approve the discontinuance of the Ontario Action.

Order

[65] For the above reasons, I grant the relief sought by the plaintiffs.

[66] The BC Order was contingent upon a parallel order being made by the Ontario court. For the reasons I set out above, I make such an order.

GLUSTEIN J. Date: 20190108

[1] BC Class Counsel acted for the representative plaintiffs Sun-Rype Products Ltd. and Wendy Weberg against the defendants in Court File No. L051456 (the “BC Action”), as set out in more detail below. [2] (the total balance of settlement funds of $46,535.89 currently held in trust by BC Class Counsel less the proposed payment to BC Class Counsel of $215.95 for disbursements) [3] (all of the named defendants except Tate & Lyle Ingredients Americas, Inc. (“Tate & Lyle”), who settled with the plaintiffs in the BC Action and Ontario Action as set out in more detail below) [4] (as the distinction is summarized by Rothstein J. in Sun-Rype Products Ltd. v. Archer Daniels Midland Co. , 2013 SCC 58 (“ Sun-Rype ”), at para. 1 ) [5] (see citation at footnote 4)