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Challenges To Proposed Class Action Settlements Must Be Based On Reasonableness Or Fairness – Class Actions



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In Larocque v Yahoo! Inc., 2022 SKQB
136
, the Saskatchewan Court of Queen’s Bench
confirmed its jurisdiction to grant a permanent stay of a class
proceeding and held that there was no reason to find that a
proposed overlapping settlement in Ontario was unfair or
unreasonable, or that it failed to serve the best interests of the
class as a whole.

Larocque illustrates that a plaintiff asking the court
to reject a class action settlement must meaningfully challenge the
reasonableness or fairness of the settlement agreement. Conversely,
defendants must ensure their settlement agreements fall within a
zone of reasonableness.

Background

In December 2016, the Ontario Superior Court of Justice
certified a national class action styled as Karasik et al v
Yahoo! Inc. and Yahoo! Canada Co
. Five months later, and 2000
miles away, the plaintiff in Larocque commenced a
substantially similar action in Saskatchewan. Both actions were
purported national class actions arising from the alleged failure
of the same defendant to prevent data breaches.

In Larocque v Yahoo! Inc., 2020 SKQB
263
, Justice Elson adjourned the certification hearing
and ordered a permanent stay pending the Ontario court’s
decision on settlement approval. In January 2021, the Ontario court
approved a settlement agreement, conditional on the SKQB granting a
permanent stay of Larocque.

SKQB Decision

The central issues before the SKQB were whether:

  1. the court had jurisdiction to grant a permanent stay when not
    hearing a certification application; and

  2. the settlement terms in the Ontario action were fair,
    reasonable, and in the best interests of the class as a whole.

Jurisdiction Issue

The plaintiff argued that the court’s authority to grant a
stay in class action hearings was confined to the certification
stage, where the court must consider s. 6(2) and (3) of the
Saskatchewan Class Actions Act. S. 6(2) and (3) direct the
court to engage in a preferability analysis when deciding whether
to certify an action that involves similar subject matter to a
multi-jurisdictional class action commenced elsewhere in
Canada.

Justice Elson rejected the plaintiff’s argument. The court
has a broad authority to grant a stay under the Saskatchewan
Queen’s Bench Act. The court’s discretion simply
need be “based on evidence and [consistent] with recognized
principles of law” (para 47).

Best Interests of the Class

Justice Elson found that the Ontario court’s decision to
conditionally approve the settlement agreement, although not
binding, was reasonable. While settlement of civil litigation does
not generally require court approval, a class action is an
exception because most class members are not privy to or able to
participate in the negotiations that lead to settlements. Courts
will usually approve a settlement if it falls within a “zone
of reasonableness” (at para 53).

Thus, the central issue in Larocque was whether the
settlement terms were “fair, reasonable and in the best
interests of the class as a whole, including those class members
who would also form part of the proposed class in the Larocque
action” (at para 6). However, the plaintiff failed to
meaningfully challenge the reasonableness or fairness of the
settlement. The court held that the plaintiff overstated the
benefit of proceeding to trial under provincial privacy legislation
(that existed in Saskatchewan and few other provinces but not
Ontario) and made “highly speculative and probably quite
doubtful” assertions regarding “assured”
compensation greater than that to be realized by the settlement in
the Ontario action (at para 72).

The court concluded that “[the plaintiff] is not
meaningfully challenging the reasonableness or fairness of the
settlement, at all. Instead, she is seeking to re-write the
rulebook on settlements by asking the court to disregard its
supervisory role and embrace her cause. In short, the plaintiff is
essentially asking the Court to endorse her gamble that she will do
better, either by taking the case to trial or harassing the
defendants to pay more than the $20.4 million settlement figure. In
this context, it is difficult not to agree with the assessment of
[the Ontario court] that the plaintiff misses the point of the
entire exercise” (at para 73).

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The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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