From “I’m Sorry” to “We’ll Sue!”
Hockey, maple syrup, Celine Dion (ugh)… We’re known for many things, but we don’t have much of a reputation as a litigious country. Aren’t we supposed to be the polite ones? But a recent decision from the U.S. Supreme Court, Halliburton Co. v. Erica P. John Fund, may result in an increased number of class action lawsuits being filed in our courts instead of those of our southern neighbour.
Back on June 23, the U.S. Supreme Court released its long-awaited decision in Halliburton. The court considered whether class action plaintiffs in the U.S. can still invoke a presumption of reliance based on the “fraud-on-the-market” theory when seeking class action certification for a Section 10(b) claim. This presumption removes the need for plaintiffs to individually establish reliance on any particular misrepresentation by a company, making it easier to get class certification.
In Halliburton, the court refused to overturn the presumption of reliance, but held that a securities class action defendant should have the opportunity to rebut the presumption at the class certification stage, earlier in the process than was the case before this decision. This effectively provides defendants with an additional means to try to prevent class certification.
While Halliburton could help make us a more desirable class action jurisdiction, there are a number of other factors plaintiffs’ lawyers will consider when choosing where to proceed.
A court with broad jurisdiction is one. Before the U.S. Supreme Court’s decision in Morrison v. National Australia Bank in 2010, American courts would hear class action securities claims against foreign issuers. That all changed with Morrison, because now the courts uphold the legal tenet that U.S. securities laws cannot be applied extraterritorially. So, American courts have refused to hear class action securities claims brought by purchasers of shares of a foreign issuer on a foreign exchange, even where the shares are cross-listed on a U.S. exchange.
In Canada, recent decisions such as Kaynes v. BP and Abdula v. Canadian Solar Inc. suggest Canadian courts are taking a broader approach, with Ontario courts assuming jurisdiction over securities claims with strong foreign elements if there is a “real and substantial connection” between the province and the claim. This threshold may be satisfied with the presence of a secondary market purchaser of the foreign issuer’s securities in Ontario.
Securities laws that do not impose insurmountable hurdles to class certification are also considered. Class certification determines whether an action will be allowed to proceed, and also impacts the leverage plaintiffs will have in settlement negotiations. The U.S. Supreme Court originally endorsed the presumption of reliance because it recognized the onerous evidentiary burden on plaintiffs trying to prove individual reliance. But it also added a new hurdle, allowing defendants to rebut this presumption at the class certification stage. In Canada, provincial securities laws contain “deemed reliance” provisions that remove that burden.
In the face of Halliburton, an influx of class action claims from America may create a backlog in our courts and delay domestic class actions from being heard. Defendants may face multiple suits in different jurisdictions, fighting the same battle on a number of fronts.
The factors that boost Canada’s class action regime’s profile have been in place for years, and it is arguable that that U.S. plaintiffs’ current attitudes to Canada as a class action venue will change because of Halliburton. The fact that Canadian securities legislation caps amount of damages that can be awarded, that some consider courts in Canada to be less experienced at hearing class action lawsuits, or that plaintiffs must seek leave from the court to bring a motion for class certification under securities laws… All these might counteract the effect of the case.
Whether Canada becomes the new “class action haven” may depend on whether American plaintiffs see this decision as enough of a draw to shop their claim in our courts. If a snowstorm of briefs on the border is coming, it still seems to be a long way off.
Copyright 2014 Rogers Publishing Ltd. This article first appeared in the August 2014 edition of Corporate Risk Canada magazine