Class actions can have devastating economic consequences for businesses, but in the ever-evolving landscape of product liability class actions, you can count on Dentons’ National Litigation team to protect your interests through innovative approaches, as demonstrated by a recent decision in favour of our clients, Subaru Canada Inc. (Subaru Canada) and Subaru Corporation (collectively with Subaru Canada, Subaru).
Background
The case is a proposed product liability class action based on an alleged defect in certain Subaru vehicles and model years which caused the atypically fast drain of these vehicles’ batteries. By the time the class action commenced in Ontario, a parallel action had already been brought in the US and multiple mediations had been completed. After the Ontario action commenced, the parallel US the class action settled, granting US class members an enhanced warranty which not only rectified the alleged underlying software defect at no charge, but also provided reimbursement for replacement batteries and related out-of-pocket costs. In order to access these settlement benefits, the US class were required to agree to a class-wide release in favour of Subaru Corporation against all future related claims.
Following suit, Subaru opted to provide the same enhanced warranty benefits subject of the US class action settlement to its customers in Canada. However, unlike in the US, Subaru Canada chose to administer the warranty directly to its customers outside of the court-approved settlement process and, in doing so, did not require eligible customers (i.e., those customers who were also putative class members in the proposed Ontario class action) to execute a release in order to access the enhanced warranty benefits.
The enhanced warranty covered substantially all of the damages sought in the Ontario class action and, as a result, the plaintiff withdrew his motion for certification. However, class counsel brought a motion for court approval of their fees (on a two times multiplier), arguing that the enhanced warranty benefits came about as a “direct result” of the Ontario action, and, on that basis, they should be given credit for the benefits received by the putative class members.
The Court denies class counsel’s fee approval motion
The Court denied class counsel’s fees on several grounds, affirming Subaru’s right to voluntarily administer the enhanced warranty and highlighting that neither the Class Proceedings Act, 1992 (CPA) nor the plaintiff’s retainer agreement authorized payment of class counsel’s fees in this scenario.
Sections 32 and 33 of the CPA set forth various requirements for retainer agreements between class counsel and representative plaintiffs that must be complied with in order to obtain court approval of the retainer agreement. Most notably, the retainer agreement can only provide for payment of fees and disbursements “in the event of success in a class proceeding.” The CPA provides in section 1(4) that “success in a proceeding” includes: (a) a judgment on common issues in favour of some or all class members; and (b) a settlement that benefits one or more class members.
In bringing their fee approval motion, class counsel’s overarching argument was that the enhanced warranty was only issued by Subaru Canada due to the bringing of the Ontario class action and it would be unfair and unjust not to extend the definition of “success in a class proceeding” to such circumstances. Class counsel argued that section 12 of the CPA provided the Court with jurisdiction to craft a “creative solution” to achieve a fair and efficient conclusion to this action.
In dismissing the motion for fee approval, the Court rejected class counsel’s position that the enhanced warranty benefits that Subaru issued in Canada came about as a direct result of the Ontario action. Additionally, Justice Leitch held that section 12 did not authorize the court to grant substantive relief such as the approval of class counsel fees, as the scope of section 12 is confined to matters of procedure and does not permit the Court to override other provisions of the CPA.
The decision confirmed that corporate defendants are entitled to voluntarily provide their customers/putative class members the relief sought in a proposed class action outside of the court-approved process. The Court found that Subaru’s voluntary conduct fulfilled the CPA’s overarching policy goals of access to justice, behaviour modification and judicial economy.
Additionally, the decision signals that in circumstances where such voluntary relief has been provided, the prospects of a proposed class action which seeks overlapping relief becoming certified may be tenuous (in the event that the plaintiff in similar circumstances decides to proceed with the certification motion, unlike what occurred in Subaru). Justice Leitch referred to the decision in Maginnis and Magnaye v. FCA Canada et al, 2020 ONSC 5462 to highlight that certification should be denied where a voluntary recall results in class members having no compensable harm. In those circumstances, the preferable procedure element of the certification test was not met as the voluntary actions of the Defendant manufacturer were preferable to a class action.
Significance of the decision
Beyond its immediate implications, this decision underscores the possibility of resolving matters directly with consumers, circumventing exorbitant litigation costs and sidestepping what some may term a “class action tax” paid to class counsel bringing actions in Canada that are duplicative of parallel US class actions.
Relatedly, the decision sends a clear message to the plaintiff’s class action bar to proceed with caution when pursuing copycat product liability claims. It signifies that class counsel do not possess an inherent entitlement to fees for initiating a copycat class action, particularly when a parallel action in the US has already settled.
In that context, this decision marks a potential paradigm shift in the realm of product liability class actions in Canada. It reflects a more pragmatic approach to dispute resolution, and challenges traditional notions of class counsel’s entitlements, ultimately fostering a more balanced and efficient legal landscape for all stakeholders involved.
Dentons Canada: Champion in product liability class action defence
This success not only marks a significant triumph for our clients, but it also highlights Dentons’ expertise in defending product liability class actions through its innovative strategies and commitment to protecting clients’ interests.
For decades, our experienced litigators have contributed to some of the country’s leading class action jurisprudence in the Common Law provinces and Québec, tailoring their approaches and employing a range of defence strategies that reduce or eliminate the exposure of clients.
At Dentons, we know complex class actions, we know class counsel and we deliver unparalleled client service, in Canada and across the globe. Learn more about our extensive experience in the defence of class actions.
