Friday, 13 November 2015

The Court of Appeal keeps Riordan in the game, but suggests restraint

Last week, two of the defendant tobacco companies in the Quebec class actions asked the Court of Appeal to block any further involvement of Justice Brian J. Riordan in the case until the higher courts had weighed in on his judgment.

My colleague who observed the hearing on November 5, conjectured that the unexpected delay in their ruling meant the three judges were not agreed on how to respond. But today Justices Bich, Savard and Schrager gave every appearance of agreement in their unanimous ruling. They spoke together in rejecting the companies' request.

Or did they just employ another style of split decision? At the same time that they rejected the request, their comments while doing so effectively gave the companies most of the outcome they were seeking.

A request for a suspension of any lower court action

In their motion for a "Stay of First Instance Proceedings" Rothmans, Benson and Hedges and Imperial Tobacco had asked the Court to "suspend all proceedings before the Superior Court of Quebec in [the tobacco class actions] until final judgment to be rendered by the Court of Appeal."

As explained in today's ruling, this request was triggered when Justice Riordan and the the plaintiffs tried to set up a case management meeting to discuss some hanging threads.
* The plaintiffs, wanted to do some advance work in identifying the 100,000 eligible claimants, such as gaining access to the province's cancer registry.
* The plaintiffs wanted to be able to present their view that the companies had been guilty of "abuse of procedure" in the scorched-earth style of their defence.

Neither of these two issues found favour with these two defendants. (JTI-Macdonald did not participate in the request for a suspension). Their view was that all these threads should be considered cut after the Court of Appeal struck down the provisional execution element in Justice Riordan's ruling,

"Abuse of Process as a strategy"

In the decade and a half it took before they were able to present their final written arguments, the plaintiffs had gathered examples of conduct by the tobacco companies which they considered went beyond those of acceptable practice in Quebec. They detailed these in the final pages of their brief, hoping to get a ruling from Justice Riordan that validated their concerns about abuse of process.

But Justice Riordan refused permission to present these issues during closing arguments last fall. Not because he felt they were not a valid issue for concern, but because he did not want to derail the final steps of the trial. He left open the possibility that he would consider this issue after he had ruled on the main substance of their claim.

Technically, the complaints were linked to a request for provisional execution (which can be granted on the basis of abuse of process). But even without this connection - and after provisional execution has been taken permanently off the table by the Court of Appeal -  the plaintiffs still want to be able to air their grievances with how the companies ran their case.

Getting a ruling about the infamous scorched-earth litigation tactics of the companies would not only feel good, it might help prevent this industry or others from trying it again.

The companies strongly want to avoid such a review. Last week's request would have had the effect of at least postponing this review, and they also want Justice Riordan to recuse himself from any such process. (Cited in para 12 of today's ruling)

Not what you asked for, but what you wanted

The Court of Appeal ruled today it would not agree to imposing a suspension on lower court proceedings during the appeal. They said the circumstances were too iffy ("nous nageons dans les hypothèses") for them to wade in. Their was no clear vision of what it was that they were being asked to prevent.

Justice Riordan is thus under no order to suspend his involvement. But the plaintiffs and the judge received some heavy advice to hold their horses on the two issues that had been proposed for discussion at the management conference.

The plaintiffs were told that advance work on identifying potential claimants was not on, as it fell into the realm of "execution of judgment" that was suspended during an Appeal. (para 25) They were also told that they should take the question of abuse of process off the table until after the Appeal was heard, as it would not be possible to consider any individual actions by the companies without also looking at the overall context bound up in the appeal. (para 32).

The advice to Justice Riordan, albeit couched in softened and hypothetical language, was that he should refuse to hear the plaintiffs on this question in order to avoid 'potentially conflicting rulings and a waste of judicial time'. (free translation, para 33).

So the judges say they turned the companies down. But to these eyes, by getting most of what they wanted, it looks like the companies won.

Friday, 6 November 2015

Tobacco companies seek to bench Justice Riordan

It would appear that it is not enough for the the tobacco companies who came out on the losing side of Justice Riordan's decision to take their complaints about his ruling to the Appeal Court. On November 5 they were back at the higher court to ask it to put a stop to any future involvement by Justice Riordan in the case until their appeal is finally resolved.

What triggered their demand was an email they had received from the judge on August 13 2015, in which he reminded all parties that he had not received the information he had ordered be sent to him within 60 days of his judgment. The order is in paragraph 1247 of his judgment.
ORDERS the Plaintiffs to submit to the Court within sixty (60) days of the date of the present judgment, with copy to the Companies, a detailed proposal for the distribution of all amounts awarded herein, both with respect to punitive damages and to moral damages for Blais Class Members, including provisions for the publication of notices, for time limits to file claims, for adjudication mechanisms and any other relevant issues, as well as with respect to the treatment of any amounts resulting from provisional execution.
The final phrase (marked in bold) was rendered inoperative by the Court of Appeal's rejection of provisional execution, but the Judge was anxious to get on with the first part of his order and finalize a distribution plan of monies to the class members, victims of cancer and emphysema.

There followed some back-and-forth correspondence between the lawyers and Judge Riordan.  Predictably, the plaintiffs' lawyers wanted to proceed with case management in Judge Riordan's court and the tobacco company lawyers did not.

The plaintiffs'  lawyers proposed preliminary work on a distribution plan for monies awarded and revisiting the question of abuse of process as agenda items for a case management conference.

And that brings us to the request the companies put to the Appeal Court this Thursday for an order suspending all proceedings in the lower court until final judgment is rendered, an event that will be years away. 

Industry:  A threat to their rights to appeal

Uncharacteristically, the court hearing started an hour late at 12:15 PM.  Judges Marie-France Bich, Manon Savard and Mark Schrager had to finish dealing with other cases before them the same morning.  When proceedings finally got underway, lawyer Simon Potter explained that any action in Justice Brian Riordan's court on the case would jeopardize their appeal.

Deborah Glendinning  for Imperial Tobacco focussed her attention on the suggestion that the question of abuse of process might once again be discussed.  According to her, not only was their no abuse of process, any further discussion of it in Superior Court would also threaten the appeal process. (Her colleague, Eric Préfontaine, played his usual back-up role, offering various precedents to support the arguments of his colleagues.)

Once again, the third company (JTI-Macdonald) was not involved in this procedural appeal. This makes the third court hearing in a row in which they have not been a participant. Hmmmm...

Smokers: Getting a head start on a big administrative task

In a brief presentation, Philippe Trudel acknowledged that most, but not all, issues were under appeal. But he felt there were still some areas of legitimate discussion and some preliminary work that could usefully be done in Superior Court.

He pointed out that identifying 100,000 potential class members was a big job and that doing some preliminary work through the lower court would save time later on.  However, Philippe Trudel lamented that, not only were the tobacco companies seeking to stop this work, they were seeking to stop all work by the Superior Court on tobacco.  The tobacco companies wanted to block even a case management meeting to discuss what could and what could not be done by the Superior Court while the tobacco case was under appeal.

Not an easy decision?

The judges frequently interrupted the lawyers seeking clarification of the relevant sections of the Civil Code of Procedure (Articles 999, 1030, 1042, 1043). Seeking clarification, however, is not the same as getting it.

The conflicting views between the parties of how the rules should be applied is not as surprising, perhaps, as the judges' shifting signals on how straightforward their decision was. There was some thought they would render judgment right after the hearing. However, after a short recess, they came back to the bench and said judgment would be delayed until the following morning (Friday). But when Friday morning came, their decision was delayed once again. Possibly next week.

Monday, 2 November 2015

"Winding up" in Toronto

If you are among those, like myself, who ever thought that insurance companies were too savvy to sell liability insurance to tobacco companies, then today's hearing at an Ontario Superior Court might offer you a few surprises.

Justice Frank Newbould who handles files on the commercial list of that Court was today on the receiving end of arguments why he should - or should not - accept a deal that had been reached between two tobacco companies facing dozens of lawsuits in Canada and an Insurance company that was willing to buy peace instead of defending its right to deny those claims.

Strongly objecting to this "settlement" were lawyers representing the Blais-Létourneau class members as well as lawyers representing Ontario and six other provinces whose lawsuits are in play.

The background:
Winding up Reliance in Canada

In 2001, the U.S. parent of Reliance Insurance went bankrupt and its Canadian branch had its assets put under third party management (in compliance with the federal Winding Up and Restructuring Act, WURA).

In the intervening years, the Liquidator (KPMG) has been paying off the thousands of claims of former policy holders and trying to resolve all outstanding business in Canada. Only when things are truly wound up will it be able to return the money left over to its American corporate parents.

Among the policy holders were Rothmans, Benson and Hedges and Imperial Tobacco Canada Ltd. Each company had each purchased liability insurance from this company between the late 1980s and the end of the century, with a maximum coverage of about $100 million. (Policies were purchased from another 34 other insurers - the list is appended to the end of this blog)

These policies, we were told, contain exclusion for coverage for diseases that result from tobacco consumption, but it is not clearcut (according to all sides except the insurance company) that these exclusions would apply to some of the wrongdoings for which the companies are being held liable (i.e. conspiracy, failure to warn).

This spring, shortly before (RBH) and shortly after (ITL) Justice Riordan's ruling against them, the two companies informed the KPMG Liquidator that they had Potential Occurring Claims.

Insurance company lawyers and tobacco industry lawyers settled down to talk and soon cut a deal. The "settlement agreement" they reached was made public mid-August (including in the Canada Gazette).
  • Reliance agreed to pay $9 million to RBH and $10 million to ITL. This represents about about 10 cents on the dollar of the maximum insured claim. 
  • RBH and ITL would receive the money whether or not they ever paid any money in damages. They could do with the money they wished.
  • The tobacco companies would relinquish any other future claims against Reliance.
  • Neither party had to yield any ground. Reliance did not admit that the "tobacco exception" in the policies did not cover all of the wrongdoings committed by the companies and the companies did not admit that the claim was related to any wrongdoing. 
  • The settlement also stipulated that the future claims of all other parties related to the companies' actions would be erased. This included members of the Quebec class actions and also those behind the other 22 (RBH) and 26 (ITL)identified claims against the companies. 
Not surprisingly, the prospect of litigation leading to a payout to tobacco companies while smokers and the governments that pay their medical bills get nothing raised a few hackles among the many who are battling these companies in court.

Those hackles were expressed today before Justice Newbould, whose approval was needed before these contentious settlements could become a done-deal.

A crotchety hearing

I am not sure if it was ironic or fitting that the hearing took place in a court room that was refashioned out of the former headquarters of an insurance company. Certainly the Canada Life Building is a beautiful spot to spend a day.

The large eighth-floor courtroom was full, but not crowded. Fourteen lawyers sat (gowned) in front of the bar. On the right hand side sat the team for KPMG, silently supported by lawyers representing Reliance USA, ITL and RBH. On the left were lawyers representing the Quebec Class Actions, the Ontario Government and the Consortium of provinces working together.

Although the room was equipped with plentiful video screens, there was nothing up-to-date in the way the hearing was managed. Thick cerlox-bound factums and books of authorities were hauled out, fumbled through, misplaced, sought and traded.

It was not only the paperwork which lent a clunkiness to the day. The presentations were far from fluid. Some lawyers were told to speed up, others told to slow down. Between these admonishments, long silences would stretch as Justice Newbould reviewed the material presented to him. Stop and go. Go and stop.

This judge did not make it easy for the lawyers to put their case, frequently directing them away from their speaking notes and towards his specific areas of concern. This was especially true for the lawyer representing KPMG (Mr. Graham Smith) and the Ontario government (Mr. Bill Manuel). Whether his grumpiness towards these men, and his apparent difficulty in following their arguments, was sincere or strategic is hard to guess.

In fits and starts by the end of the day four sides had made their case. Judge Newbould was left with three competing suggestions for what he should do.

The Liquidator's view:
a decision in the interests of efficiency

The background to the settlement and the Liquidator's recommendation was initially laid out in the reports filed on August 14 and available on the web-site that houses filings on this case.

Today, Mr. Smith filled in some of the missing pieces. He said it would be in the best interests of everyone legitimately concerned for the settlements to be approved so that the insurance company could avoid lengthy litigation and the winding up could be more quickly completed.

As a result of notifying the provinces and class action suits of the proposed settlement, he was aware of their concerns, but he was not sympathetic to them and he did not think they were well placed. The Ontario insurance law gave them no basis to have their claims considered. Nor was the Crown given any special consideration in cases like these. The Quebec law was irrelevant since the policies ha been sold and bought within Ontario.

Once these legally irrelevant considerations were dispensed with, then the settlement still reflected the best fit of those whose interests were protected under the law. He asked the judge to approve the settlement agreements as they had been negotiated -- and to keep under seal all of the supporting documentation from the companies.

The Quebec Class Actions:
give us the money instead

There were no familiar faces speaking on behalf of Quebec Smokers. A new counsel - Mr. Mark Meland - had been hired to represent the concerns of the Blais-Létourneau classes in this issue.

Mr. Meland offered the judge several reasons to hesitate before making a pronouncement on the settlements. He identified two areas where the law was too complex and proper evidence was needed before it could be said that the proposal from the Liquidator could be considered fair. These were 'Choice of law' - whether Quebec law applied and 'Coverage' - whether the policies covered the class action claims.

He suggested that there was a fix in the works by pointing out that years of silence had been followed by a quickie settlement.

He appealed to the inherent injustice of the situation. It was because of the Class Action suits that the companies were making claims. yet the victims were being deprived of any process in the proceedings. "The companies are receiving a windfall of $19 million and the victims are receiving zero." "Is that fair and reasonable? Or even permissible.?"

Having raised the "complex" issues about Choice of Law and Coverage, he did not encourage the judge to resolve them. The solution he proposed was that instead of giving the $19 million to ITL and RBH, it should be handed over to the victims in the Quebec class actions.

The government claims:
the settlement can't touch our rights to make future claims

The governments of Ontario and six other provinces offered a third option offered to the judge.

On behalf of Ontario, Mr. Bill Manuel said he did not oppose the settlement reached between the insurer and the companies, but he would not accept that it would bind or restrict the government of Ontario. For him, "the sole issue is Crown immunity. The (WURA) act does not bind the crown."

He felt that the exclusion clauses in the insurance policies were unlikely to cover the claims by the governments, given that these claims were newly invented after the policies had been in place. The government was using a "statutory cause of action", therefor the policies would have covered any damages.

The government claims could not be extinguished by the settlement. If and when they got a judgment, they wanted the right to make their own claim on the assets of Reliance.

And, if push came to shove, it would be the government claims which would take precedence over the U.S. owners. A claim by the government would even have bumping rights over the Quebec class action claim, he said. "The crown has a higher priority than other creditors". (This seemed to be news to Justice Newbould, who asked at least twice for clarification).

These points were supported by Jeff Leon, who spoke on behalf of the other provinces participating in this hearing. He supported the view that the Insurance company should have sought a separate declaration from the court about the jurisdictional issues and the extent of the coverage, a process which would have gathered the evidence needed for such a decision.

And if Reliance were completely wound up before the provincial cases were heard? It seemed less of a concern that the money might be gone than that the court would establish a precedent for such a settlement "We take our chances. If the assets are gone, they are gone." ... "You are being asked to put the Court's imprimatur on the settlement and to decide a whole bunch of issue that you cant decide based on this record."

The last words?

Even the fun of bankruptcy court could not keep me in Toronto for another day. The short hearing scheduled for Tuesday morning, when the Liquidator replies to the concerns raised about the settlement, will go unreported here.

And an interesting footnote

Justice Newbould once represented the third defendant in the Blais-Létourneau case: JTI-Macdonald.

Recommended reading and a Montreal historical footnote

In an unsuccessful search on Legacy for copies of insurance policies in Canada, I came across versions of a readable history of insurance and tobacco companies

For many years, it would seem, tobacco companies bought insurance, but didn't make claims. They didn't want the risk of insurance company lawyers interfering in their litigation strategies and they didn't want disputes with insurance companies to result in document disclosure that might support more claims against them. 

All that changed in Montreal in 1996, when Imperial Tobacco filed a case against American Home Insurance ad the Commercial Union Company seeking coverage for defense costs and potential damages associated with the Caputo case.
In its coverage cases Imperial Tobacco, a subsidiary of Imasco Limited,24, alleges that American Home issued several excess umbrella liability policies to Imasco and that Commercial Union issued comprehensive general liability policies to Imasco. Imperial Tobacco contends it is covered by the policies issued by American Home and Commercial Union for any defense costs and any amounts awarded in a judgment or settlement which Imperial Tobacco may incur from third-party liabilities such as those alleged by the Caputo plaintiffs. Neither American Home nor Commercial Union has assumed the defense or acknowledged a duty to indemnify Imperial Tobacco, Imperial Tobacco claims it has had to pay in excess of $1,000,000 in defense costs in Caputo.
It was this act by Imperial Tobacco that triggered a reflection within the insurance industry about their vulnerability to successful lawsuits.

This might explain the eagerness of Reliance Insurance to put an end to future claims. It might also explain why lawyers representing insurance companies were a constant presence in Justice Riordan's court when RBH or ITL were presenting their case.

List of insurance companies who have sold policies to RBH and ITL, as reported by the Liquidator in Reliance:

ACE MI Insurance
Affiliated FM Insurance Company
AIG Commercial Insurance Company of
AllState Insurance Company of Canada
American Home Assurance Company,
American Re-Insurance Company
Canadian Indemnity
Chards Insurance Company of Canada
Cigna Insurance Company of Canada
Continental Insurance Company
General Accident Assurance Company
Guardian Insurance Company of Canada
Hartford Fire Insurance Company
Home of New York
INA Insurance Company of Canada
Intact Financial Corporation
Kansa General Insurance Company
La Nordique Compagnie D'Assurance Du Canada
Liberty Mutual Insurance Company
Lloyd's of London Toronto Office
Markel Insurance Company of Canada
New Hampshire Insurance Company
Northbridge Insurance
Northumberland General Insurance Company
Royal & Sun Alliance Insurance Company of Canada
Royal Insurance Company of Canada
Scottish & York Insurance Company Limited
Sun Alliance Insurance
The Commonwealth Insurance Company
The Continental Insurance Company of Canada
The Halifax Insurance Company
United States Fire Insurance Company
Zurich Canada
Zurich Insurance Company