On September 13, 2011, the Ontario Superior Court approved the settlement of a class action commenced by General Motors of Canada Limited (“GMC”) against its retired employees, in one of only a few “defendant class” class actions to be commenced in Ontario. In General Motors of Canada v. Abrams, Justice Perell sheds light on the court’s role in approving a settlement in a class proceeding. The decision highlights that it is not for the court to make ethical judgments about the present or future moral conduct of the parties; rather, the court’s role is to render its judgment in accordance with the law and without making a determination of the merits of the underlying case. The Court affirmed that it must find, in all the circumstances, that the settlement is fair, reasonable, and in the best interests of those affected by it.
The class action stemmed from the economic crisis of 2008-2009 that adversely affected the automobile industry. To survive the crisis and attain the necessary financial support from the Government of Canada, GMC was required to restructure its operations.
GMC was a party to collective bargaining agreements with the National Automobile, Aerospace Transportation and General Workers Union of Canada (“CAW”). As a matter of its collective agreements, GMC provided health care benefits for its retired hourly employees and for their surviving spouses and eligible dependents. A major issue in the restructuring of GMC concerned the treatment of post-retirement health care benefits, as the value of the claims for this group amounted to more than $100 million annually. Subsequently, GMC engaged in restructuring efforts, which involved the elimination of GMC’s retiree health care obligations in favour of the establishment of an independent health care trust to provide retiree health benefits. GMC negotiated with CAW on the terms of the trust, which ultimately led to a settlement agreement involving the establishment of the Auto Sector Retiree Health Care Trust (“Trust”). Under the proposed settlement, GMC was to make a series of contributions and promissory notes to the Trust, providing approximately $1.8 billion in funding. After providing the agreed-upon funding, GMC would have no further responsibility for the provision of retiree health benefits.
GMC initiated a class proceeding against its retired employees, and moved for certification of the action and for the approval of the settlement agreement. The former employees were sued as a defendant class. GMC sought a declaration that it can unilaterally alter or terminate its provision of post-retirement health care benefit to class members, as well as, the manner of delivery of such health care benefits.
Certification for Settlement
Justice Perell was persuaded that the proposed class action satisfied all five required elements of the test for certification under the Class Proceedings Act, 1992.
The first element of the test was met, as all claims for declaratory relief may satisfy the cause of action criterion. The second criterion regarding there being an “identifiable class” was satisfied because all class members could be specifically identified by reference to the records maintained by GMC. Given the issues raised in the proceeding were of immediate importance to both GMC and each member of the class, the common issue criterion was met. Turning to the preferable procedure criterion, Justice Perell recognized that where certification is sought for the purposes of implementing settlement, there is a strong argument that the preferable procedure criterion has been satisfied. He concluded that certification of the class proceeding would permit the court to give effect to the negotiated settlement and to bind all affected parties. Moreover, certification would permit the court to satisfy itself as to the appropriateness of, and oversee the implementation of, the settlement agreement. Noting that the proposed representative defendants have no conflicts of interests with their fellow class members, Justice Perell was also satisfied that the representative defendants would fairly and adequately represent the interests of class members.
Several objections were raised regarding the proposed settlement during the approval hearing. A number of these objections were procedural. For example, some class members objected to the process of negotiations and the failure to involve the retired employees in the initial negotiations. Others raised substantive objections claiming that their benefits were vested and could not be changed, or that the promissory notes from GMC were unsecured. A number of objections concerned the morality of the settlement. For instance, some class members objected to the approval of the settlement because they believed that GMC had reneged on binding commitments and was being disloyal. Others accused either or both of GMC or CAW of bargaining in bad faith. A few class members were frightened and dismayed by the creation of the Trust, and objected that any reduction of benefits would cause them financial hardship.
Justice Perell carefully considered the various objections made in connection with the proposed settlement agreement and weighed them in light of the factors to be considered by the Court in assessing the fairness and reasonableness of the settlement.
The objection that communications with the individual class members during the negotiations were poor and rushed was acknowledged by Justice Perell, however His Honour held that this unfavourable factor to settlement was outbalanced by the dedicated, strong minded composition of the Steering Committee that had been formed to represent the class members and their efforts to negotiate a better settlement. While Justice Perell commented that the lack of involvement of the retirees in the governance of the Trust was a true weakness of the settlement, he found that such an “imperfection” did not constitute a sufficient basis on which to reject it. His Honour reinforced the idea that a reasonable and fair settlement is inherently a compromise that need not be perfect, and found that the benefits of settlement provide a reasonable alternative to the benefits that might be achieved pursuing the litigation. Justice Perell concluded that the weakness of the settlement in not providing a fully-funded health care trust was overmatched by the prudent truth of the axiom “that a bird in the hand is worth more than two in the bush.”
His Honour went on to make reference to the age old “Trolley Problem” in examining the objection that the settlement agreement approves immoral conduct. He stated that the settlement in this case presents an ethical dilemma much like the one in the “Trolley Problem”. Drawing on this analogy, His Honour reasoned that the representative defendants did not cause the problem of the termination, or the diminishment of health care benefits, but “have adopted an utilitarian response of flipping the switch of settlement, where accepting a large immediate payment but a reduction in benefits is a greater good for the class members than the alternative of potentially having no benefits at all should they lose the litigation or win a dry judgment.”
Based on the evidentiary record before the Court, including evidence of hard bargaining and due diligence by competent and experienced class counsel and the recommendations made by class counsel for the representative defendants, Justice Perell was ultimately persuaded that the proposed settlement was fair, adequate, reasonable and in the best interests of the class members and should be approved by the Court despite objections and weaknesses with the settlement agreement. Further, Justice Perell found that, notwithstanding the suspicions of some objectors, GMC could justify its conduct by necessity not opportunism. Significantly, His Honour made clear that it is not for the court to make ethical judgments about the present or future moral conducts of the parties, but the focus of the court’s attention is “on what is today in the best interests of the class members as a class in this class action.”