Earlier this month, the Ontario Superior Court of Justice handed down its decisions in four separate actions in the Fortress cases, serving as a reminder to defendants about a useful tool that can still yield the favourable result of substantially narrowing a class proceeding: the pre-certification motion to strike.
Four land development projects in the Greater Toronto Area sought financing by means of syndicated mortgages in which relatively small investors participated. The projects ultimately entered creditor protection, and certain investors commenced proposed class proceedings against a number of participants in the projects. Among the defendants was the trust company involved in the syndication. The investors’ claim, which Justice Perell characterized as a “new genre of class action,” sought mass rescission of the investments in the mortgage, combined with a mass mortgage enforcement action, combined with tort, contract and breach of fiduciary duty claims.
Pre-Certification Motions to Strike
The first hurdle a class proceeding must clear to be certified is that it “discloses a cause of action”. The same test applies under this section as that on a motion to strike – namely, that the class will succeed unless it is “plain and obvious” that the claim fails to disclose a reasonable cause of action. Because the same test is applied on a certification motion, class proceedings judges are typically reluctant to hear motions to strike in advance of certification, particularly where the motion will not dispose of the entire action; and, moreover, certification motions are generally to be the first motion heard in a class proceeding.
Nonetheless, Justice Perell entertained the motions in these proceedings. It seems that the motions were appropriate despite the fact that they would not terminate the proceedings because of the weaknesses in the statements of claim. As Justice Perell described them:
Ms. McDowell’s and Mr. Aversa’s Amended Amended Statement of Claim is 90 pages in length. Its word count is 21,575 words. The pleading contains 214 main paragraphs and a total of 781 paragraphs and sub-paragraphs.
The allegations in the 781 main and sub-paragraphs, however, are sometimes inconsistent one with another. Many of the allegations are unclear. Many of the allegations, be they clear or unclear, are unnecessarily repeated. Some of the allegations properly group the Defendants, but, in other instances, the case against a particular Defendant should be differentiated and not lumped together and the collective allegation is confusing and unclear.
While some of the 781 paragraphs contain properly pleaded allegations, many of the paragraphs combine properly pleaded allegations with improperly pleaded allegations. Others of the 781 paragraphs contain no properly pleaded allegations of material fact. The pleading shows little concern for the reader and the Statement of Claim overall is ill-organized, prolix, and unclear.
Justice Perell applied the well-established law concerning pleadings rules to the statements of claim and ended up substantially narrowing the issues and removing large portions of irrelevant material. Despite the broad rejection of much of the plaintiffs’ allegations, he granted leave to amend the claims. Indeed, he observed that until the plaintiffs had amended the allegations to bring them in line with basic pleadings standards, he was unable to determine whether the plaintiffs had actually made a case against the trustee:
Based on the current state of the pleadings, I am unable to determine the merits of Olympia Trust’s substantive attacks on the Plaintiffs’ claims against them. It remains to be determined whether Fresh as Amended Statements of Claim will survive both technical and substantive attacks. It is for this reason that in granting leave to amend, I do so without prejudice to Olympia Trust’s arguments that the revised pleading also does not pass muster in showing a reasonable cause of action or in pleading the constituent elements of a cause of action.
In other words, it is a puerile exercise to analyze the substantive merits of whether or not the Plaintiffs have properly pleaded and shown a reasonable cause of action in negligence, misrepresentation, or breach of fiduciary duty, and I decline to do so.
The court’s decision in the Fortress cases demonstrates that pre-certification motions to strike remain a tool in the toolbox for defendants in class proceedings. Although defendants often are (and should be) reluctant to pursue those motions given the strong preference to get to certification first, this decision provides a helpful reminder for the court that defendants are entitled to a reasonable statement of claim to which to respond. Even where the motion will not dispose of the entire action, a motion to strike may narrow the issues on which the parties will be required to adduce evidence on the certification motion and reduce the potential exposure of a defendant, thus enhancing the efficiency of the litigation.