Court File and Parties

COURT FILE NO.: 534/15CP

DATE: 20210616

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: John Devries, Plaintiff

AND:

Espar Inc.; Espar Products Inc.; Eberspaecher Climate Control Systems International Beteilungs-GMBN; Eberspaecher Climate Control Systems GMBH & Co. KG (formerly known as J. Eberspaecher GMBH and Co. KG); Eberspaecher Gruppe GMBH and Co. KG; Webasto Thermo and Comfort North America Inc.; Marine Canada Acquisition Inc. (O/A Seastar Solutions); Volker Hohensee; Webasto SE; and Webasto Thermo & Comfort SE Defendants

BEFORE: Justice R. Raikes

COUNSEL: Jonathan Foreman and Sarah Bowden - Counsel, for the Plaintiff

Nathaniel Read-Ellis - Counsel, for the Defendant, Volker Hohensee

David Kent and John Clifford – Counsel for the Espar and Eberspaecher Defendants

Emrys Davis, John Rook, and Ian Thompson – Counsel for the Webasto Defendants

HEARD: April 29, 2021

ENDORSEMENT

[1] The plaintiff seeks approval of a settlement reached with the defendant, Volker Hohensee, pursuant to s. 29 of the Class Proceedings Act, 1992, S.O. 1992, c. 6, as am. (hereafter “CPA”).

[2] The plaintiff entered into a settlement agreement with the lone individual defendant, Mr. Hohensee, on December 6, 2017. The agreement was amended by correspondence dated October 20, 2020. The agreement followed several months of adversarial, arm’s length negotiations between counsel. In addition, the plaintiff relies on plaintiff counsel’s investigations in the action including US antitrust prosecutions and civil litigation as part of the background to the negotiations.

[3] Mr. Hohensee was an executive with Espar Products Inc., a Canadian subsidiary of Espar Inc, during the time period covered by this claim. He is no longer employed by that defendant or any of the defendants. He is not a resident of Canada. His current whereabouts are unknown. Plaintiff’s counsel believe that Mr. Hohensee has left North America and is living somewhere overseas.

[4] Mr. Hohensee was indicted by the United States Department of Justice for his involvement in the alleged price fixing conspiracy that is the subject matter of this action. He was named as a defendant in this action and in a parallel BC class proceeding because he likely had first-hand knowledge of the events surrounding the alleged conspiracy.

[5] The settlement with Mr. Hohensee provides no direct financial benefit to the plaintiff class. He pays nothing. Instead, the settlement agreement requires that Mr. Hohensee provide information, documents, and cooperation to plaintiff’s counsel that counsel assert will provide significant strategic and tactical benefit to the class in the prosecution of this action as against the remaining defendants. The action was certified on consent as against those defendants.

[6] Pursuant to the settlement agreement, Mr. Hohensee is required to provide the following by way of cooperation:

1. A written evidentiary proffer providing information as to the range, scope, nature, duration, and impact of the alleged conspiracy (section 3.1(1)(a));

2. An hour-long interview with plaintiff’s counsel to respond to questions arising from the evidentiary proffer (section 3.1(1)(b));

3. Up to 24 hours of questioning of Mr. Hohensee by the plaintiff (section 3.1(2));

4. An exchange of documents in his possession, power, or control within 30 days or such time as the parties agree, and on an ongoing basis (section 3.1(2)(c) and 3.1(3));

5. Assistance in establishing the authenticity of documents when and as requested by plaintiff’s counsel (section 3.1(4)); and

6. Evidence at trial (section 3.1(5)).

[7] The obligation to provide assistance ends only when final judgments in the action has been reached as against all defendants (section 3.1(8)).

[8] The plaintiff may move to set aside the approval of this settlement if Mr. Hohensee materially breaches the terms of the agreement (section 3.1(9)).

[9] Mr. Hohensee attorns to the jurisdiction of this court for purposes of enforcement of the agreement as is stated in para. 14 of the approved draft order filed with this motion.

[10] The evidentiary proffer occurred in December 2017. According to the evidence on the motion, the proffer provided information and context about the alleged cartel including how the conspiracy worked, the roles of key players, the market in Canada and elsewhere, and the time frame of the conspiracy. Plaintiff’s counsel points to the tolling and standstill agreement that was reached with Marine Acquisition as evidence of the benefits obtained from that cooperation. The claim against Marine Acquisition was discontinued with leave earlier as a result.

[11] The settlement agreement does not include the usual “bar order” so that the liability exposure of the non-settling defendants is not reduced or affected. The plaintiff class may pursue the full measure of its losses from the remaining defendants.

[12] The plaintiff relies on the following risk factors which were considered in deciding whether to enter into the settlement with Mr. Hohensee:

1. The court might conclude that no cause of action lies against Mr. Hohensee. If so, there would be no discovery of his role in the conspiracy, nor evidence from him that would implicate the remaining defendants;

2. Because his current whereabouts are unknown, it was doubtful the plaintiff could effectively compel his attendance for discovery or trial;

3. Mr. Hohensee was employed by one of the defendants at the time. He might have no personal liability;

4. A court might ultimately find that he was not involved in the conspiracy; and

5. Even if the court found that he is liable and awarded damages, there are uncertainties surrounding enforcement of any judgment and collection.

[13] Absent an approved settlement, Mr. Hohensee remains a named defendant. The plaintiff would be required to move for certification as against him. If contested, there is a risk that the claim would not be certified against him. Where would that leave him and the action?

[14] Plaintiff’s counsel submit that Mr. Hohensee’s principal value is and has always been as a source of insider information about the alleged conspiracy. The settlement preserves that value and makes it more likely that the information will be provided in a more fulsome and timely manner. The adversarial discovery process is avoided. Cooperation is more likely to yield helpful information useful in pursuing the defendants who remain.

Law – Settlement Approval

[15] Settlement of a class proceeding requires court approval: s. 29 CPA. Once approved, the settlement binds all class members: s. 29(3) CPA.

[16] The applicable test is whether, in all the circumstances, the settlement is fair, reasonable and in the best interests of those affected by it. The following principles apply to the consideration of a proposed settlement:

• the resolution of complex litigation through compromise of claims is encouraged by the courts and is consistent with public policy

• a settlement negotiated at arms’ length by experienced counsel is presumptively fair

• to reject the terms of the settlement and require that litigation continue, a court must conclude that the settlement does not fall within a range of reasonable outcomes

• a court must be assured that the settlement secures appropriate consideration for the class in return for the surrender of litigation rights against the defendants. The court must recognize that there are a number of possible outcomes within a range of reasonableness

• it is not the court’s function to substitute its judgment for that of the parties or to attempt to renegotiate a proposed settlement

• it is also not the court’s function to litigate the merits of the action or simply rubber stamp a settlement.

(See Dabbs v. Sun Life Assurance Co. of Canada, [1998] O.J. No. 1598 (Ont. C.J. (Gen. Div.)) at para.9; Nunes v. Air Transat AT Inc. (2005), 20 C.P.C. (6th) 93 (Ont. S.C.) at para. 7; Osmun v. Cadbury Adams Canada Inc., 2010 ONSC 2643 at para. 31.)

[17] There are several factors which the courts have considered to assess the reasonableness of a proposed settlement. These factors include:

• the likelihood of recovery or likelihood of success, sometimes referred to as litigation risk

• the amount and nature of discovery, evidence or investigation

• the proposed settlement terms and conditions

• the recommendation and experience of counsel

• the likely duration of the litigation

• the number of objectors and the nature of the objections

• the presence of arms’ length bargaining and the absence of collusion

• the positions taken by the parties in the litigation and during negotiations.

(See Marcantonio v. TVI Pacific Inc. (2009), 82 C.P.C. (6th) 305 at para. 12; Parsons v. Canadian Red Cross Society (1999), 40 C.P.C. (4th) 151 at paras. 71 – 73.

[18] Settlements come in many different forms. Some are primarily economic, some have both an economic and non-monetary component, and some, like this settlement, have only non-economic benefits. A court may consider non-monetary benefits in assessing the reasonableness of a proposed settlement: Ali Holdco Inc. v. Archer Dennis Midland Company, 2010 ONSC 3075, at para. 29; Osmun, at para. 36.

[19] The court must be satisfied that the settlement reflects both substantive and procedural fairness. Procedural fairness deals with the manner in which the settlement has been reached. It requires a consideration of the process followed to get to the settlement. Hard-fought arms’ length negotiations go a long way to satisfy the requirement of procedural fairness.

[20] The burden of satisfying the court that a settlement should be approved is on the party seeking approval: Nunes, para. 7 citing Ford v. F. Hoffmann-La Roche Ltd., 2005 CanLII 8751 (ON SC), [2005] O.J. No. 1118 (S.C.J.).

Analysis

[21] I am satisfied that the settlement reached in this case came about through arms’ length adversarial negotiations between experienced counsel, both of whom were alive to the risks in the litigation for their respective clients. This was not a “quick and dirty” deal done early in the litigation that benefits counsel more than the class. To the contrary, the settlement provides no monetary benefit to counsel at this stage.

[22] As indicated, this settlement provides no direct economic benefit to the plaintiff class. Mr. Hohensee is paying nothing. That does not end the inquiry. A settlement may nonetheless be reasonable and in the best interests of the class where there is no direct monetary benefit when the settlement provides a material advantage in the continued prosecution of the action as against non-settling defendants.

[23] In Osmun, Strathy J. (as he then was) wrote at para. 36:

[36] I have set out above the key terms of the settlement. In this case, the court is dealing with a partial settlement that resolves the plaintiffs’ claims against two of the defendants but leaves three remaining defendants in the action. There are direct financial benefits from the settlement, in that there will be a significant monetary recovery for the class. In addition, securing the cooperation of Cadbury and ITWAL is an important and immeasurable non-pecuniary benefit. This would be significant in any case, but in a conspiracy action, where the allegation is that the defendants share a dark secret, obtaining the cooperation of two of the alleged conspirators to assist the plaintiff in pursuing the alleged co-conspirators is of inestimable value. Cooperation of non settling defendants has been considered an important factor in other cases: Croslink Technology Inc. v. BASF Canada et al, (November 30, 2007), London 50305CP (Ont. S.C.J.) at p. 8, paras. 22, 23 (unreported); Nutech Brands Inc. et al v. Air Canada et al, (19 February 2009), London, 50389CP (S.C.J.) at paras. 29-30, 36-37.

[24] In Osmun, the settlement was mixed. It included both monetary and non-monetary elements. The settling defendants in that case were two large corporations who were alleged to be part of the price fixing cartel. By contrast, Mr. Hohensee is alleged to have participated in the alleged conspiracy while employed by one of the corporate defendants who remains a defendant in the action and whose liability, if any, is unaffected by the settlement. There is no evidence that Mr. Hohensee benefitted except as an employee.

[25] The advantage of this settlement to the plaintiff class comes in the form of inside information from someone who was involved and/or had knowledge of the alleged conspiracy. His information could prove vital in focussing plaintiffs’ counsel’s efforts and investigation. One does not have to be a fan of books about Watergate to understand the potential benefit of Mr. Hohensee’s information.

[26] I agree that if the settlement is not approved, the plaintiff may well have rights of discovery of Mr. Hohensee that could yield all or part of that information. However, the settlement provides access to the content of that information sooner, in a non-adversarial context, without the legal wrangling sometimes seen in discoveries. I cannot say whether at the end of the day Mr. Hohensee’s information will amount to much or nothing. Experienced counsel feel that his cooperation is very helpful and the evidentiary proffer reinforces their assessment.

[27] I also accept that there are risks inherent in continuing the action as against Mr. Hohensee. Will he attorn to the jurisdiction of this court? Can his evidence be obtained at all if not through this settlement? Will the court ultimately pierce the corporate veil to fix Mr. Hohensee with liability and, if so, how much? Even if ultimately successful, will the judgment against Mr. Hohensee yield any money? How much will it cost and how long will it take to collect? There are many risks that make Mr. Hohensee’s continued participation as a defendant in the action of questionable value.

[28] During argument of this motion, I raised the following concern: how can the plaintiff class be sure that Mr. Hohensee will fulfill his obligations under the settlement? All the impediments to litigating with him do not vanish overnight if he chooses to ignore the deal he signed. Counsel for Mr. Hohensee and plaintiff’s counsel point to Mr. Hohensee’s cooperation to this point and his willingness to enter into this settlement to provide comfort that he will honour his commitments.

[29] They also rely on section 3.1(9) of the settlement agreement which allows the plaintiff to seek to set aside the settlement approval later if Mr. Hohensee fails to continue to do as he has agreed. While not exactly a sure-fire method to compel his compliance, it offers an avenue to bring him back into this litigation as a party if he defaults.

[30] Mr. Hohensee is uniquely situated in this litigation. He is the only individually named defendant. He is not alleged to be one of the entities that profited from the alleged conspiracy. He did not personally manufacture and sell the product in question. He was a mere employee.

[31] Having regard to the factors enumerated above, I find that:

1. Because of his position as an employee, the litigation risk is greater as against Mr. Hohensee;

2. There has been no discovery but plaintiff’s counsel have done their due diligence. Mr. Hohensee’s cooperation and voluntary disclosure arguably improve the odds of success for the plaintiff class against the remaining defendants;

3. The information and disclosure from Mr. Hohensee should assist in streamlining and narrowing what is already lengthy litigation;

4. Counsel experienced in price fixing conspiracy class actions recommend the settlement as fair and reasonable;

5. The action was certified for settlement purposes vis-à-vis Mr. Hohensee. There were no opt outs; and

6. There are no objectors to the settlement. Counsel for the remaining defendants have seen the proposed order and take no position on the motion.

[32] I am satisfied that the settlement is fair and reasonable and in the best interests of the class. It offers inside information not otherwise readily available from someone with direct knowledge of events. It does so relatively early in the procedural life of the action. Balanced against the risks of litigation and the alternatives to settlement, the settlement with Mr. Hohensee is an appropriate compromise. The settlement is approved.

[33] Paragraph 17 of the draft order provided by counsel should indicate that “subject to paragraph 14 of this order, …” Counsel are asked to provide me with an amended order that incorporates that change.

Justice R. Raikes

Date: June 16, 2021