July 1, 2007 by Vanessa Mariga
Risk managers would do well to think of cross-border litigation as a single, complex claim that may be resolved in vastly different ways, depending on which side of the border the litigation takes place, a panel of experts told delegates attending the Risk and Insurance Management Society’s 2007 Conference in New Orleans.
The panel included representatives from both sides of the border, including Carolena Gordon, partner of the Montreal firm Nicholl Paskell-Mede, Martin Rosemann, Swiss Re Americas’ vice-president and senior claims manager, and Diane Wolfson, director of risk management for CAE in Montreal. The session discussed how what happens in Canadian courts might affect U.S. and global jurisdictions.
The panel brought up recent litigation against Merck & Co., a pharmaceutical company and makers of the painkiller Vioxx, as an example of the difference between the U.S. and Canadian judicial systems when it comes to class action certification.
In the United States for example, Merck & Co. avoided the certification of a class action suit. A U.S. multi-district litigation judicial panel ruled that each state’s law applied to those litigants whose claim arose out of the particular state.
Rosemann notes the laws of each state have different ways of handling the “typicality” required to certify class actions. In the Vioxx case, there were simply too many variables to demonstrate “typicality” required of a class. Such variables included the vast number of plaintiffs who took different doses at different times, using different accompanying medications, with different pre-existing conditions, and who suffered varying damages. All of these variables, in combination with each state’s legal treatment of them, precluded class certification in the United States.
But the legal landscape is very different north of the border. In Canada, litigation against Merck is underway; certification has already been granted to Quebec residents for a provincial class action suit, and an Ontario court in the fall is anticipated to rule on the certification of a national class action suit, Gordon said.
Sometimes a case deemed to be settled might not actually be settled at all, Gordon observed. In Currie v. McDonald’s Restaurants of Canada Ltd, a class action was filed alleging fraud in various contests that McDonald’s had run throughout North America. The class action suit was certified and settled in Illinois for all class members, including American and Canadian class members, she told the crowd.
The settlement was tendered to the record, the U.S. court adopted it and the process of paying out the settlement to the class action members began, Gordon said.
Meanwhile, in Ontario, two of the Ontario class action members said to McDonald’s (in Gordon’s words): “Thank you very much for settling the case with respect to Canadian class members, however, we think that settlement is not appropriate and we contest settlement. We contest the fact that you now don’t have to litigate with us in Ontario.'”
McDonalds filed proceedings to force these class actions to be dismissed or stayed. In their arguments, the fast food chain raised the issue of res judicata, or the issue of estoppel (the abuse of process). According to Gordon, McDonald’s essentially told the Ontario court: “We have settled this case in Illinois. We have done it in a broad fashion, and fairly, and with all of the appropriate bells and whistles. Now you’re telling us that we cannot rely on our settlement and now we have to continue to litigate with plaintiffs in Ontario?”
But the Ontario Superior Court disagreed with McDonald’s position, and the Ontario Court of Appeal dismissed McDonald’s appeal. The rulings allowed Currie to proceed with class action litigation against McDonald’s.
Rosemann said foreign judgements tend to enjoy a strong presumption of validity in U.S. courts. Generally, he noted, there are two sources for the law on the enforcement of foreign judgements: common law and the Foreign Money-Judgement Recognition Act . “In both the U.S. and Canada, tests regarding the recognition and enforceability of international judgements have been developed, but how they will apply in cross-border class actions is not yet settled,” Rosemann said.
Rosemann said he was unable to find, nor was he aware of any situations in which U.S. courts recognized a class action or mass tort litigation judgement that had been rendered in a foreign jurisdiction.
Gordon noted the Court of Appeal for Ontario’s test to ascertain whether Ontario residents like Currie should be bound by the terms of the U.S. settlement. “Before enforcing a foreign class action judgement in Ontario for its residents, the court should make sure that the foreign [U.S.] court properly asserted jurisdiction, the interests of the non-resident class members were properly protected and that procedural fairness (including proper notice of the settlement) was afforded to non-class members,” Gordon said of the Ontario Court of Appeal’s test.
The Ontario Court of Appeal affirmed the first part of the test, which is that there was a real and substantial connection between the wrong alleged and the State of Illinois, where the McDonald’s International head office was located.
But the second part of the test, which requires that consideration be given to the adequacy of procedural rights afforded to non-resident class members, was another story.
Procedural fairness includes adequacy of notice, Gordon noted. In other words, notice has to be assessed in terms of what is required to assert jurisdiction against non-residents in an international class action.
“The court found the notice was not adequate,” Gordon noted. “Why? Experts told the courts that the magazine chosen to publish the notice was only read by 29% of the hamburger-eating population (across Canada).”
The court also found the notice was highly technical and difficult to understand. Ultimately, the notice was found ineffective and did not meet the test. Partly on this basis, the appellate court ruled the class action could proceed in Ontario.
Now McDonalds had to proceed with a class action in Ontario, despite the fact that they thought they had settled in Ontario as part of the Illinois settlement, Gordon cautioned. “So, this demonstrates to you that unfortunately what is often thought to be certain is not always certain,” Gordon cautioned.
Just because something is happening outside of your jurisdiction, that doesn’t mean a decision made in the case will not impact your organization, cautioned Rosemann. “It is fairly widespread both in the United States and Canada [that] judgements that are rendered [elsewhere] are recognized so long as they are rendered fairly in foreign jurisdictions,” he said.
That, in turn, raises a question about the extent of legal exposure. “You have to be looking at vastly different exposures depending on where you end up or how this litigation goes about,” Rosemann observed.
HANDLING THE TWISTS
Wolfson stressed the importance of how the litigation is handled and managed. Simple claims tend to have disputes with respect to coverage, but cross-border litigation is an entirely different beast. “The more complicated the litigation, the more disputes you may end up having,” she observed. “So you need to make sure that everyone is on the same page in terms of strategy with respect to that management of the litigation.
“It’s your company’s reputation that’s at risk. It’s your company’s history and records that are at risk here. How the litigation is managed could have a serious impact.”
A risk manager’s company must be on the same page as the defence counsel providing legal advice, Wolfson said. Everyone involved in the litigation should be prepared to act on the basis of the same legal approach.
“Again, remember: It’s a litigation claim, but with a twist — a very serious twist, a
nd many twists,” she said. “And as you heard today, there are a tremendous amount of [jurisdictional] issues to take into consideration.”
Risk managers cannot be expected to be the legal experts, she noted. But they must recognize the need for support and expertise from their companies and legal experts.
“Don’t be a hero,” Wolfson advised risk managers. “Recognize there are some significant difficult issues to address here. And make sure you have a consolidated effort in terms of support and coordination of your defence.”
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