Court of Appeal to consider whether a U.S. court-approved class action settlement binds Canadians

20 novembre 2004

Ce billet est disponible en anglais seulement.

Decisions of the Supreme Court of Canada in recent years have affirmed that Canadian courts should recognize foreign judgments in appropriate circumstances.1

Two companion decisions of the Ontario Superior Court of Justice released earlier this year make it clear, however, that it cannot simply be assumed that foreign judgments - or, in this case, a settlement reached in foreign class proceedings - will necessarily be enforced in Canada.

The Court of Appeal for Ontario is scheduled to hear the appeal next month

Parsons v. McDonald's Restaurants of Canada Ltd. (2004), 45 C.P.C. (5th) 304 (Ont. S.C.J.) considered the effect of a court-approved settled class action in Illinois on two class actions commenced in Ontario regarding substantially the same subject matter. The Illinois case was brought against McDonald's and Simon Marketing, a California firm hired by the restaurant chain to conduct promotional contests and games, some of which were offered to customers in Canada. The U.S. proceedings alleged that employees of the marketing firm had misappropriated prizes intended for customers. McDonald's and Simon Marketing reached a settlement with class members. The order of the Illinois court giving effect to the settlement included releases in favour of McDonald's and its subsidiaries, including in Canada. Notice of the settlement was to be given to class members, including regarding the right to opt out of the class, and the Illinois court made specific provision for notice to class members in Canada. Criminal charges had been brought against one of the Simon Marketing employees. At his trial, the employee made allegations that McDonald's had instructed him to manipulate the contests so that no high-value prizes were awarded in Canada. These allegations were not part of the U.S. proceedings, but Mr. Parsons, a Canadian, got wind of them and filed objections to the settlement before the Illinois court on behalf of Canadian class members.

He argued that the settlement could not extend to issues which were exclusively Canadian. These objections - and an appeal - were rejected in Illinois. Mr. Parsons, as representative plaintiff, commenced a class action in Ontario against McDonald's of Canada and Simon Marketing. A separate Ontario class action was also commenced by the same firm as that representing Mr. Parsons. The defendants moved to stay or dismiss the Ontario class actions as being frivolous, vexatious, or an abuse of the court's process because of the existence of the U.S. court-approved settlement. Mr. Justice Cullity of the Ontario Superior Court of Justice did dismiss the case started by Mr. Parsons, but ruled that the rest of the plaintiff class (represented in the second class action started by the same firm) was not bound by the Illinois judgment and could proceed with their case in Ontario. In the end, McDonald's lost, but so did Mr. Parsons. The first issue considered by Justice Cullity was the jurisdiction of the Illinois court to include Canadian class members in the proceedings. Justice Cullity made the general observation that the "special features" of class actions, where many class members have little or no involvement in the actual proceedings, may require some modification in the approach to the rules with respect to the enforcement of foreign judgments. On balance, he was satisfied that there was a sufficiently "real and substantial connection" with Illinois to allow its court to entertain the proceedings. The fact that Parsons had voluntarily submitted to the jurisdiction of the Illinois court (and would therefore be bound by the settlement terms) did not mean, however, that the settlement was necessarily binding on other Canadian class members. Justice Cullity then considered whether the Illinois settlement order should be recognized in Ontario. He noted that Canadian courts cannot ignore "the unique possibilities of abuse that may arise when settlements of class proceedings have been negotiated." Justice Cullity concluded that it would be a denial of natural justice to enforce the Illinois settlement in Ontario, because it would give McDonald's and Simon Marketing a complete defence to the claims about prize-manipulation in Canada, which were not even at issue in the Illinois proceedings. Justice Cullity also found that the notice provided to Canadian class members was "woefully inadequate" in terms of reaching them effectively through English and French language media. The natural justice arguments did not apply to Parsons himself, however, as he had submitted to the Illinois court's jurisdiction and could not say that he was inadequately informed of his rights as a class member. The defendants also claimed that the issues raised by Parsons were the subject of a final decision in Illinois and should not be allowed to be re-litigated in Ontario. On this point, Justice Cullity noted that the Illinois order was not a final decision on the merits - and that the allegations about the manipulation of prizes in Canada were in any event an entirely new issue. On the other hand, by submitting to the Illinois court, Parsons had in effect voluntarily agreed to the settlement, which was extensive enough to preclude a claim by him against McDonald's of Canada and Simon Marketing. As a result, his action was permanently stayed, while the other members of the Canadian class - who had not submitted to the Illinois court - were allowed to proceed.

In related proceedings, Currie v. McDonald's Restaurants of Canada Ltd., [2004] O.J. No.1862 (S.C.J.), McDonald's sought an order that would compel Canadian class members to choose between participating in the Canadian class proceedings and taking the benefits of the U.S. settlement. Mr. Justice Cullity stated that it was not appropriate for the courts to try to rectify decisions of a foreign court or to remedy its failures in terms of natural justice. He also concluded that McDonald's was seeking to impose an "opting in" system, which was specifically rejected when Ontario's class action legislation was adopted. As a final point, it was held that the legislation does not permit a judge to make orders prior to certification of a proceeding as a class action. Parsons has been appealed to the Court of Appeal for Ontario, and that court's consideration of the issue will be instructive. If the judgment stands, one cannot simply assume that Ontario courts will recognize and enforce a foreign order - including a foreign settlement. Regardless of the outcome in this particular case, the comments in the judgment on the "special nature" of settlements of cross-border class actions are important, and may take on a life of their own. U.S. defence counsel should be aware that, at the very least, in order to be in a position to assert that a "global" settlement binds Canadian plaintiffs, the class action settlement notice must meet Canadian standards of reasonableness and the defendants will need to be prepared to address plaintiffs' assertions of denial of natural justice if the U.S. settlement is enforced in Canada.

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