Defendants and their counsel should know that the Ontario Superior Court in Berry v Pulley1 has recently answered two important questions about settlement offers in class actions:
- Following certification and prior to any common issues trial, do class members retain the right to individually accept settlement offers?
- Where a representative plaintiff or representative defendant rejects a settlement offer, must class counsel disclose the rejected offer to class members?
The answer to both questions, according to Justice Perell, is a clear "no".
The underlying dispute in Berry relates to the rights of pilots following Air Canada's acquisition of Air Ontario, a regional airline. The case was certified as a class proceeding comprising a plaintiff class, seven defendant subclasses and a representative nominal third party.
The unusual feature of the settlement offer in Berry was this: the representative plaintiffs wanted to make the offer directly to the individual class members of two of the defendant subclasses, rather than to the representative defendants of those subclasses.
Defendants' class counsel refused to present the offer to individual class members and brought a motion for directions.
The court agreed with the defendants and found that during the "communal" stages of a class action (post-certification and prior to any individual issues trials) an individual class member has no right to accept settlement offers.
The court determined that any offers to settle must be made directly to the class representative. This representative, acting in the best interests of the class and with the guidance of class counsel, possesses the exclusive right to accept or reject such offers.
If the class representative ultimately rejects a settlement offer, there is no need to inform the class of the rejected offer since it is pointless for class members to be "tantalized" by an offer they have no power to accept.
Justice Perell provided the following reasons for his decision:
- Individual offer acceptance is contrary to the purposes of the CPA: According to Justice Perell, allowing individual class members to accept settlement offers and act in their own capacity destroys the representative nature of the proceedings and thereby undermines the purposes of the Class Proceedings Act . Furthermore, the effect of permitting class members to accept offers creates a second opt-out period post-certification, contrary to the single opportunity to opt-out provided for in the Act.
- Settlement offers should not create unfair tactical advantages: The court concluded that making offers directly to class members could result in parties gaining an unacceptable tactical and strategic means to thwart class actions. If such a practice were permitted, defendants could use settlement offers to "eviscerate" plaintiff classes. This would be problematic since class size directly affects ultimate recovery. Shrinking a class through individual settlements would reduce the economic incentive for class counsel to try class actions. This could, in turn, result in fewer class actions being brought, thereby undermining the access to justice purpose behind the class proceedings regime.
- Class members' rights are adequately protected: Judge Perell found that although class members lose their individual right to settle when a class proceeding is certified, their interests are protected by the mechanisms of the class proceedings regime. These protections include the presence of a representative plaintiff who must act in the best interest of the class. The court found that if class members wish to preserve their litigation autonomy, they may do so by exercising their right to opt-out of the class.
Following Berry, defendants and their counsel should be mindful that while offers to settle must be provided to the class representative and cannot be made directly to individual class members, this does not mean that offers to settle must provide for the identical treatment of all class members. Berry also affirms that the terms of a settlement offer may treat class members, including the representative plaintiff or defendant, differently. So, while the decision in Berry has limited the procedure for communicating offers to class members, it has not created new restrictions on the substantive content of offers to settle.