Court File and Parties

Court File No.: CV-20-00644525-00CP Date: 2023-11-16 Superior Court of Justice - Ontario

Re: Timothy Kwong, Plaintiff And: iAnthus Capital Holdings Inc., Hadley Ford and Julius Kalcevich, Defendants

Before: J.T. Akbarali J.

Counsel: Manjit Singh, for the plaintiff Jeffrey Levine, Stephen Brown-Okruhlik and Samantha Gordon, for the defendants iAnthus Capital Holdings, Inc. and Julius Kalcevich Kathryn J. Manning and Corey Groper, for the defendant Hadley Ford

Heard: In writing

Proceeding under the Class Proceedings Act, 1992

Endorsement

Overview

[1] The plaintiff brings this consent motion for an order granting leave to commence this action under s. 138.8(1) of the Securities Act, R.S.O. 1990, c. S.5 (“OSA”), and for certification of this proceeding under the Class Proceedings Act, 1992, S.O. 1992, c. 6 (“CPA”), for settlement purposes only.

Background

[2] This action was commenced on July 30, 2020, by the then-plaintiff, Blue Sky Realty Corporation, represented at the time by Morganti & Co., Professional Corporation.

[3] On September 15, 2020, a putative class action was commenced against the defendants and certain other parties via a Notice of Action by the plaintiff Sean Zaboroski, represented by M. Singh Law Professional Corporation.

[4] On September 27, 2021, further to a joint request from the plaintiffs in both actions, and unopposed by the defendants, I ordered that the two actions be consolidated into a single class action with Timothy Kwong named as the proposed representative plaintiff. I further ordered that M. Singh Law Professional Corporation have carriage of this action for the plaintiff.

[5] The action alleges that the defendants made misrepresentations in public statements during an identified class period that give rise to liability under s. 138.3 of the OSA and under equivalent statutory provisions in other Canadian jurisdictions. The action also pleads related causes of action.

[6] Although the defendants deny the plaintiff’s claims, I am advised that following arms-length negotiations that took place over several months, the parties have reached a proposed settlement, under which the defendants will pay or cause to be paid the all-inclusive sum of $500,000 for the benefit of the proposed class, and the plaintiff and the class members who do not opt out of the settlement will provide a release.

Leave to Proceed under s. 138.8(1) of the OSA

[7] For settlement purposes only, and without admitting any wrongdoing, the defendants consent to an order granting the plaintiff leave to proceed with this action under s. 138.8(1) of the OSA.

Certification

[8] Pursuant to s. 5(1) of the CPA, the court shall certify a class proceeding if: (a) the pleadings or the notice of application disclose a cause of action; (b) there is an identifiable class of two or more persons that would be represented by the representative plaintiff; (c) the claims or defences of the class members raise common issues; (d) a class proceeding would be the preferable procedure for the resolution of the common issues; and (e) there is a representative plaintiff who would fairly and adequately represent the interests of the class, has produced a workable plan for the proceeding, and does not have an interest in conflict with the interests of other class members.

[9] Where certification is sought for the purposes of settlement, all the criteria for certification must still be met, although compliance with the certification criteria is not as strictly required: Waheed v. Pfizer Canada Inc., 2011 ONSC 5057, at para. 36; Nutech Brands Inc. v. Air Canada, at para. 9. The representative plaintiff must provide a certain minimum evidentiary basis for certification order: Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 S.C.R. 158, at para. 24.

[10] I turn to consider each element of the test for certification.

Section 5(1)(a): The pleadings disclose a cause of action.

[11] Certification will not be denied under s. 5(1)(a) unless it is plain and obvious that the pleadings disclose no cause of action: Hollick, at para. 25.

[12] For the purposes of the settlement approval, the Canadian defendants do not dispute, and I accept, that the pleadings disclose a cause of action under s. 138.3 of the OSA for which facts are sufficiently pleaded.

Section 5(1)(b): There is an identifiable class of two or more persons that would be represented by the representative plaintiff.

[13] In determining whether there is an identifiable class, the court asks whether the plaintiff has defined the class by reference to objective criteria such that a person can be identified to be a class member without reference to the merits of the action. The class must be bounded, and not of unlimited membership, or unnecessarily broad, and have some rational relationship with the common issues: Hollick, at para. 17, Cloud v. Canada (Attorney General) (2004), 73 O.R. (3d) 401 (C.A.), at para. 45.

[14] For purposes of settlement, the plaintiff seeks to certify the following class:

All persons, other than Excluded Persons and Opt-Out Parties, who acquired iAnthus’ common shares in the secondary market before or during the Class Period, and who held some or all of those securities until after the close of trading on April 5, 2020.

[15] The Class Period is defined as the period from and including May 14, 2018, to and including April 5, 2020.

[16] Excluded Persons are defined as iAnthus’ subsidiaries, affiliates, officers, directors, senior employees, and their respective legal representatives, heirs, predecessors, successors and assigns, as well as any member of the individual defendants’ immediate families, and any entity in which any of the foregoing has or had any legal or de facto controlling interest during the Class Period.

[17] I am satisfied that the class is defined by reference to objective criteria, is bounded, and bears a rational relationship to the common issues, to which I turn next.

Section 5(1)(c): The claims raise common issues.

[18] The plaintiff proposes to certify the following common issues:

a. Did the defendants, or any of them, or any person or company with implied or apparent authority to act on behalf of iAnthus, make misrepresentations or omissions regarding iAnthus (whether contained in a public document or in an oral statement), or permit or acquiesce in such misrepresentation or omission, during the Class Period?

b. Did the April 6, 2020 Public Corrective Statement correct the previously released impugned documents containing alleged misrepresentations within the meaning of the OSA?

[19] The plaintiff argues that these issues are at the core of the action and their resolution would substantially advance the putative Class’s claims on any of the rights of action asserted.

[20] I agree that these issues are common to the class. Determining these issues in a class proceeding would avoid the need for each class member to establish them in individual trials. This criterion is met.

Section 5(1)(d): Preferable Procedure

[21] In the context of the settlement, courts have recognized that a class proceeding is a fair, efficient, and manageable method for advancing the class members claims and is preferable to other procedures.

[22] I note that securities litigation, in particular, often requires expert evidence, and significant investigation and documentary review. It is expensive to litigate a securities claim. In this case, the losses the plaintiff alleges he has suffered were not enough to make it economically feasible for him to pursue individual litigation.

[23] As Perell J. held in Waheed, at para. 27, where there is a cause of action, an identifiable class, common issues, and a settlement, there is a strong basis to conclude that a class proceeding is the preferable procedure because certification would serve the primary purposes of the CPA: access to justice, behaviour modification, and judicial economy.

[24] Section 5(1.1) of the CPA sets out two further criteria for the court to consider when determining whether a class proceeding is the preferable procedure for resolution of common issues: superiority and predominance.

[25] I agree that, in the context of this settlement, a class proceeding is superior to all reasonably available means, both to determine the entitlement of the class members to redress and to address the impugned conduct of the defendant.

[26] Moreover, in the context of this settlement, there are no questions affecting only individual class members except as they relate to the distribution of the settlement. The proposed common issues thus predominate.

[27] I conclude that a class proceeding is the preferable procedure in this case.

Section 5(1)(e): There is an adequate representative plaintiff.

[28] The evidence before me indicates that the proposed representative plaintiff, Mr. Kwong, is a member of the class, having purchased iAnthus’ common shares during the Class Period as defined, and continued to hold those shares after April 5, 2022, the end of the Class Period. He deposes that by the end of the Class Period, he suffered a devaluation in his iAnthus shares equivalent to 64%. He states that he knows of no conflict of interest he may have with the interests of any other class members with respect to the common issues.

[29] Mr. Kwong deposes that he asked to be the representative plaintiff to ensure the defendants were held accountable for the misrepresentations he alleges. In his affidavit Mr. Kwong explains his involvement in the proceeding. He has conducted his own review of documents and taken legal advice. He instructed counsel with respect to the proposed settlement. I am satisfied that he will fairly and adequately represent the interests of the class.

[30] He has proposed a litigation plan that, with amendments as I describe below, will advance this action to the settlement approval hearing stage.

[31] Mr. Kwong is an adequate representative plaintiff.

Litigation Plan

[32] The litigation plan put forward for my consideration is jointly proposed by all parties to the litigation. It includes the proposed short and long-form notices, the proposed plan of dissemination of the notices, and the proposed opt-out plan.

[33] I address each of these in turn.

The Proposed Notices

[34] The notices are, for the most part, satisfactory. However, in my view, more detail is required in the notices as follows:

a. Both forms of notice make reference to class counsel’s request for fees “equal to 30% of the Settlement Amount plus reimbursement of their relevant expenses”. In my view, the actual fees request must be stated in a dollar figure, and an estimate of relevant expenses must also be given. Class members should be provided with an estimate of the Settlement Amount that will remain if all of the fees, disbursements, administration expenses, honorarium, taxes and interest that the plaintiff and counsel request are allowed by the court.

b. Similarly, both forms of notice make reference to the items to be deducted from the Settlement Amount but do not always include honorarium in the list of potential deductions. It must be included consistently.

c. Both notices occasionally refer to Class Members as “investors”. They should be referred to consistently as “Class Members”, or “those who opt out of being Class Members” throughout the notices so as to ensure clarity.

d. The notices indicate that Class Members may participate at the hearing “so long as they email any objections or comments to Class Counsel … no later than January 31, 2024”. That language imposes an artificial deadline on Class Members. The notice should indicate that “Any Class Member may participate in the Approval Hearing to object to the Agreement or comment on the Agreement, or Class Counsel’s Request for fees, expenses or honorarium. If they intend to do so, they are asked to email any objections or comments to Class Counsel at… no later than January 31, 2024.” It will be up to me to determine whether a Class Member who has not provided their objections or comments to Class Counsel by January 31, 2024 shall be entitled to make submissions at the settlement approval hearing.

Plan of Notice

[35] The proposed notice plan envisions that notice will be distributed by the court appointed administrator. It provides that distribution of the notice will occur by: (i) publishing the short form notice in the National Post legal and business section, (ii) disseminating the short form notice by press release; (iii) posting the long-form notice on a website, but it is not clear which one; and (iv) disseminating the long form notice by email to any potential Class Member who asks for a copy of it from the Court Appointed Administrator and for whom the Court Appointed Administrator has an email address.

[36] I require further submissions about this plan of notice as follows:

a. Why has the National Post alone been chosen as the newspaper within which to publicize the notice?

b. On which website is the long form notice intended to be published? Why has only that website been chosen?

Opt-Out Plan

[37] The Opt-Out plan and form is largely appropriate. For clarity, however, counsel shall add the following sentence to the plan:

I understand that by opting out, I will not be entitled to any distribution of settlement funds if the settlement is approved by the court.

Administrator

[38] The plaintiff proposes Epiq as the Court Approved Administrator. I am satisfied it can adequately fulfil the role, and I approve its appointment as administrator.

Order

[39] The plaintiff shall revise the draft order filed with the motion material, and the notices to make them consistent with these reasons. Counsel may email me their submissions on the notice plan. Once I am satisfied with the form of the order and schedules, I will require a PDF of the order attaching the schedules for signature.

[40] Given the timeline set for the settlement approval hearing, I ask that counsel provide me with updated documents as soon as possible.

J.T. Akbarali J. Date: November 16, 2023