Court rejects Canadian class action settlement agreement for failure to benefit class members

Publication | April 2014

The Ontario Superior Court recently released its decision in Waldman v Thomson Reuters Canada Limited1  in which the court refused to approve a settlement agreement reached in a copyright class action because the settlement did not benefit class members.

The underlying action was brought on behalf of lawyers and paralegals whose court documents were published by Thomson Reuters Canada Limited (Thomson) via its legal publishing branch.  The plaintiff alleged that by making lawyers’ court documents available to subscribers without the lawyers’ permission, Thomson infringed the copyrights of class members under Canada’s Copyright Act.

In determining that the proposed settlement was not fair, reasonable or in the best interests of the class as a whole, Justice Perell engaged in a lengthy discussion about the court’s role in assessing proposed settlement agreements in the class action context and the factors to be taken into account in the approval process.  

Court assessment of settlements

In general, it is the court’s role to examine “the fairness and reasonableness of the proposed settlement and whether it is in the best interests of the class as a whole having regard to the defences in the litigation and any objections raised to the settlement.”2   Proposed settlements, Perell added, must be evaluated on their tendency to promote the goals of the class action framework: access to justice, behaviour modification and judicial economy.  The most important of these goals is access to justice, which involves both procedural and substantive components.3  

In assessing whether a proposed settlement is fair, reasonable and in the best interests of the class as a whole, courts may take into account a variety of factors, including (a) likelihood of recovery; (b) amount and nature of discovery, evidence or investigation; (c) settlement terms and conditions; (d) recommendation and experience of counsel; (e) likely duration of litigation; (f) recommendations from neutral parties; (g) number and nature of objections; (h) the presence of good faith, arm’s length bargaining; (i) degree and nature of communication by counsel to class members; and (j) information regarding the dynamic between and the positions of the parties during settlement negotiations.4  


Circumstantial fairness

Further, Justice Perell explained that courts must have regard for circumstantial fairness, which involves a consideration of the particular circumstances of the parties and class members, institutional fairness and “a robust notion of access to justice that includes an outcome that objectively should satisfy the class members’ entitlement to justice for their grievances.”5   The notion of institutional fairness indicates that courts will not “rubber-stamp”6  settlements in circumstances where the case amounts to a strike suit, where the settlement promotes counsel’s entrepreneurial interests over the interests of class members or where the settlement is not in the best interests of class members.

In Waldman, the parties reached a settlement agreement, pursuant to which Thomson agreed, inter alia, to pay $350,000 to settle a cy-près trust fund to support public interest litigation, to notify lawyers prior to publication of their work for a 10-year period and to pay $825,000 to class counsel as costs.  In exchange, class members were to grant a release of claims advanced in the class action and a non-exclusive license in respect of their court documents on Thomson’s database.

Justice Perell refused the settlement, noting class members did not receive any direct benefit in exchange for their licenses,7  nor did the terms of the agreement prompt any behaviour modification by Thomson beyond the temporary 10-year notice period.8   As a result, the settlement agreement “was inconsistent with the purposes of the class action, which was never about the money but about the principle that Thomson should not infringe the Class Members’ copyrights in court documents.”9   

In a framework that seeks to provide procedural and substantive access to justice to class members, a settlement agreement that provides no direct benefit to class members, bears no connection to the issues in the litigation and is more beneficial for class counsel than class members, will likely not be upheld.

Link to decision.

Footnotes

1 Waldman v Thomson Reuters Canada Limited, 2014 ONSC 1288 [Waldman].

2 Waldman at para 86.

3 “In other words, the justness and fairness of the substantive outcome of the class action for class members genuinely matters.” (Waldman at para 83)

4 Waldman at para 87.

5 Waldman at para 88.

6 Waldman at para 89.

7 This point was distinguished from the facts of Robertson v Thomson Canada Ltd., [2009] OJ No 2650 (SCJ), in which Thomson agreed to compensate class members in exchange for licenses to their work.  In Robertson, “The class members’ livelihood was to be paid for their literary works.” (Waldman at para 98)

8 Thomson maintained its position that “its behaviour does not need to be modified and that it is providing a service to the legal community that enhances the quality of legal services.” (Waldman at para 102)  Interestingly, Justice Perell pointed out that “[o]ddly in the context of the conventional purposes of class actions, if anyone’s behaviour has been modified, it is Mr. Waldman and the Class Members who grant the Defendant Thomson a non-inclusive copyright license.” (Waldman at para 103)

9 Waldman at para 99.


Contacts

Marianne  Ignacz

Marianne Ignacz

Montréal
Randy Sutton

Randy Sutton

Toronto
Steven Leitl

Steven Leitl

Calgary