Court File and Parties
COURT FILE NO.: CV-16-548624 DATE: 2021-05-05
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
CRAIG JOHNSON and WOLFGANG VAETH Plaintiffs
- and -
NORTH AMERICAN PALLADIUM, LTD. Defendant
Counsel: Joe Wahba for the Plaintiffs
Proceeding under the Class Proceedings Act, 1992
HEARD: In writing
REASONS FOR DECISION
PERELL, J.
[1] On August 7, 2015, Wolfgang Vaeth, Anika Vaeth, Saskia Vaeth, Thorsten Fuerholzer, Roswitha Fuerholzer, Sabine Fuerholzer, and Burkhard Schneider (the “Vaeth Plaintiffs”) sued North American Palladium Ltd., Phil Du Toit, David Langille, (collectively, the “Palladium Defendants”) and KPMG LLP, which was Palladium’s auditor.
[2] The Vaeth Action concerned alleged misrepresentations made in Palladium’s corporate public disclosure documents between July 30, 2014 and April 14, 2015 inclusive. The Vaeth Plaintiffs advanced common law negligence claims.
[3] On March 14, 2016, pursuant to the Class Proceedings Act,[^1] Craig Johnson commenced a proposed class action to assert a statutory secondary market misrepresentation claim under Part XXIII.1 of the Ontario Securities Act[^2] against North American Palladium Ltd.
[4] The Defendants in both the Vaeth Action and the Johnson Action asserted there was a conflict of interest because the same lawyers were acting in the Vaeth Action and in the Johnson class action. As the aftermath of the Defendants’ motion, the Vaeth Action was abandoned and Mr. Vaeth was joined as a co-plaintiff in the proposed class proceeding that was being prosecuted by Mr. Johnson.[^3]
[5] On March 8, 2017, Mr. Vaeth was added to Mr. Johnson’s proceeding as a co-plaintiff to represent a proposed class of investors advancing only a common law negligent misrepresentation claim.
[6] Because a series of decisions have increased the litigation risk of class proceedings,[^4] Messrs. Johnson and Vaeth and their proposed Class Counsel are no longer prepared to prosecute a class action. Mr. Johnson wishes to be removed as a plaintiff and representative plaintiff. Mr. Vaeth wishes to prosecute his common negligence law claim against North American Palladium Ltd. on his own behalf and not on behalf of other investors.
[7] In short, although Mr. Vaeth wishes to proceed as an individual plaintiff, there are no candidates for a Representative Plaintiff and Class Counsel. Putative Class Counsel has inquired, but no investor has come forward to act as a representative plaintiff.
[8] In these circumstances, Mr. Johnson and Mr. Vaeth bring a motion for an Order pursuant to s. 29 of the Class Proceedings Act:
a. granting leave to Mr. Johnson to discontinue the proposed claims under s. 138.3 of the Ontario Securities Act on his own behalf and on behalf of proposed Class A with prejudice;
b. granting leave to Mr. Vaeth to discontinue the common law misrepresentation claims made on behalf of proposed Class B Members with prejudice;
c. approving the Notice of Discontinuance to be published to the putative Class Members.
[9] Putative Class Counsel has agreed to pay North American Palladium Ltd. its wasted costs of $130,000 in defending the proposed class action and preparing for the leave motion under the Ontario Securities Act. North American Palladium Ltd. consents to the Plaintiffs’ discontinuance motion.
[10] The Plaintiffs are receiving no personal benefit by way of discontinuance. They pursued the proposed class proceeding at some considerable expense, but they are now confronted with a challenging litigation path to achieve leave for the statutory claim and to achieve certification of the common law misrepresentation claim. Therefore, the Plaintiffs wish to discontinue the proposed class action to avoid incurring additional costs exposure to the Defendant.
[11] Proceeding as an individual plaintiff, Mr. Vaeth avoids all the procedural hurdles of a certification motion and he is not pursuing a claim that requires leave under the Ontario Securities Act.
[12] Rule 23.01 of the Rules of Civil Procedure is the rule that governs the discontinuance of actions. Rule 23.01 states:
DISCONTINUANCE BY PLAINTIFF
23.01 (1) A plaintiff may discontinue all or part of an action against any defendant,
(a) before the close of pleadings, by serving on all parties who have been served with the statement of claim a notice of discontinuance (Form 23A) and filing the notice with proof of service;
(b) after the close of pleadings, with leave of the court; or
(c) at any time, by filing the consent of all parties.
(2) If a party to an action is under disability, the action may be discontinued by or against the party only with leave of a judge obtained on motion under rule 7.07.1.
[13] In the immediate case, the Defendants have not delivered a statement of defence, and thus but for s. 29 of the Class Proceedings Act, 1992, the Plaintiffs could discontinue their action without leave or they could discontinue with the consent of the Defendant without the leave of the court. However, s. 29 of the Class Proceedings Act, 1992 requires court approval for the discontinuance, abandonment, dismissal, or settlement of a class action. Section 29 states:
Discontinuance, abandonment, and settlement
- (1) A proceeding commenced under this Act and a proceeding certified as a class proceeding under this Act may be discontinued or abandoned only with the approval of the court, on such terms as the court considers appropriate.
Settlement without court approval not binding
(2) A settlement of a class proceeding is not binding unless approved by the court.
Effect of settlement
(3) A settlement of a class proceeding that is approved by the court binds all class members.
Notice: dismissal, discontinuance, abandonment or settlement
(4) In dismissing a proceeding for delay or in approving a discontinuance, abandonment or settlement, the court shall consider whether notice should be given under section 19 and whether any notice should include,
(a) an account of the conduct of the proceeding;
(b) a statement of the result of the proceeding; and
(c) a description of any plan for distributing settlement funds.
[14] A motion for discontinuance or abandonment should be carefully scrutinized, and the court should consider, among other things: whether the proceeding was commenced for an improper purpose; whether, if necessary, there is a viable replacement party so that putative class members are not prejudiced; or whether the defendant will be prejudiced.[^5]
[15] The fundamental concern on a motion for court approval of a discontinuance is that the interests of putative Class Members will not be prejudiced or that any prejudice is mitigated.[^6] The test for approving a discontinuance is different from the test for approving a settlement. A discontinuance of a class action does not have to be beneficial or in the best interests of the putative class members; whereas a settlement must, in all circumstances, be fair, reasonable, and in the best interests of the class.[^7]
[16] From all appearances, the proposed class action was commenced in good faith and not for an improper purpose. Messrs. Johnson and Vaeth are not receiving any special treatment. Mr. Johnson no longer wants to be a party and Mr. Vaeth will soldier on against the Defendant but not as a Representative Plaintiff.
[17] A class proceeding requires both an actively interested and engaged representative plaintiff and also an engaged Class Counsel prepared to take on the risks of class proceedings litigation. In the immediate case there is neither an interested and engaged representative plaintiff nor a Class Counsel prepared to take on a class proceeding on behalf of the putative Class Members. The Plaintiffs’ reasons for no longer wishing to act on behalf of others are reasonable.
[18] No substitute Representative Plaintiffs or Class Counsel are available, and no useful purpose would be served by refusing leave to discontinue the proposed class action. The Defendants obviously are not prejudiced.
[19] In granting a discontinuance, the court will consider whether notice of the discontinuance ought to be given to the putative class members. The matter of notice is to be resolved based on the facts of the particular case.[^8]
[20] In the immediate case, if leave to discontinue is granted putative Class Counsel proposes to publish forthwith on its website and by electronic news release a notice of the discontinuance and to provide notice to those persons who contacted the firm. The text of the notice reads:
NOTICE OF DISMISSAL OF ONTARIO SUPERIOR COURT OF JUSTICE COURT FILE NO. CV-18-609766-00CP AGAINST NORTH AMERICAN PALLADIUM LTD. (IMPALA CANADA LTD.)
A shareholder lawsuit commenced in August of 2015, against North American Palladium, Ltd., n/k/a, Impala Canada Ltd. (“PDL”) in the Ontario Superior Court of Justice. The lawsuit commenced as a proposed securities class action under the Class Proceedings Act, 1992, S.O. 1992, c. 6, alleging claims under the Securities Act, R.S.O. 1990, c. S.5 and pursuant to the common law.
The lawsuit advanced two proposed Classes defined as all persons and entities, other than certain Excluded Persons, (a) who purchased shares of PDL’s securities between July 30, 2014 and April 14, 2015, and who held some or all of those securities at the close of trading on April 25, 2015 (the “statutory claim”); and (b) who purchased shares of PDL’s equity securities after June 17, 2013, and held those shares after April 14, 2015 (the “common law claim”).
The Plaintiffs claimed damages arising from alleged misrepresentations in disclosure documents released by PDL on July 30, 2014, November 5, 2014, and February 19, 2015, pertaining to its financial condition and the possibility of defaulting on its financial obligations with its senior secured lender. PDL announced on April 15, 2015, that it was recapitalizing its senior secured loan.
The lawsuit on behalf of both of the proposed classes is being discontinued. A discontinuance of the lawsuit means that it is not going forward or being pursued.
If you are relying on this action to protect your rights, you should seek your own legal advice immediately.
Discontinuance of the claims means that any applicable limitation periods in respect of these claims, which may have been suspended, will begin running again, and will ultimately expire (if they have not already done so).
Should you have any questions, please contact Andrew Morganti at info@investorcomplexlaw.com or call (647) 344-1900 or (416) 598-0601.
[21] In the circumstances of the immediate case, I am satisfied that the court should grant leave to discontinue pursuant to s. 29 of the Class Proceedings Act, 1992. I approve of the form of notice and the manner of giving notice.
[22] Order accordingly.
Perell, J.
Released: May 5, 2021
COURT FILE NO.: CV-16-548624 DATE: 2021-05-05
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
CRAIG JOHNSON and WOLFGANG VAETH Plaintiffs
- and -
NORTH AMERICAN PALLADIUM, LTD. Defendant
REASONS FOR DECISION
PERELL J.
Released: May 5, 2021
[^1]: 1992, S.O. 1992, c. 6.
[^2]: R.S.O. 1990, c. S.5.
[^3]: Vaeth v. North American Palladium Ltd., 2016 ONSC 5015.
[^4]: LBP Holdings Ltd v. Hycroft Mining Corp, 2020 ONSC 59; Cappelli v. Nobilis Health Corp., 2019 ONSC 2266; Paniccia v. MDC Partners Inc., 2018 ONSC 3470; Yip v. HSBC Holdings plc, 2017 ONSC 5332; Kaynes v. BP PLC, 2017 ONSC 5172.
[^5]: Lam v. Canada Goose Holdings Inc., 2021 ONSC 2627; Logan v. Canada (Minister of Health), [2003] O.J. No. 418 (S.C.J.), aff’d (2004), 2004 CanLII 184 (ON CA), 71 O.R. (3d) 451 (C.A.).
[^6]: Drywall Acoustic Lathing and Insulation Local 675 Pension Fund (Trustees of) v. SNC-Lavalin Group Inc, 2012 ONSC 5288; Frank v. Farlie, Turner & Co, LLC, 2011 ONSC 7137; Hudson v. Austin, 2010 ONSC 2789.
[^7]: Frank v. Farlie, Turner & Co, LLC, 2011 ONSC 7137
[^8]: Smith v. Crown Life Insurance Company, 2002 CanLII 79681 (ON SC), [2002] O.J. No. 5539 at para. 31; Chopik v. Mitsubishi Paper Mills Ltd., [2003] O.J. No. 192 at para 19 (S.C.J.).