Not all class action settlements will prevent defendants from being sued again
When a settlement of a class action is achieved and approved by the courts, class action defendants expect that the settlement will be final and they will be able to move on with confidence that their involvement has come to an end. However, in some instances, after a class action has been settled and class members have released their claims against the defendant, class members go on to pursue third parties for related matters, and those third parties elect to claim over against the original class action defendant for contribution and indemnity. To protect defendants from indirect liability through such claim-overs, settlement agreements often purport to prohibit class members from instituting related proceedings against anyone who might claim contribution and indemnity against the defendants. But how far do these claim-over prohibitions go – and how much can third parties rely on them?
The Ontario Superior Court of Justice recently considered these issues in IAP Claiming H-15019 v P James Wallbridge (2019 ONSC 1617). The plaintiff, a survivor of an Indian Residential School, retained the defendant law firm to advance his compensation claim at a hearing in the aftermath of the Indian Residential Schools Settlement Agreement (IRSSA). He was unsuccessful at the hearing. Later, the plaintiff retained new counsel and secured a rehearing of his claim; at the new hearing, the plaintiff was successful and was awarded compensation on the basis of having suffered severe sexual assault.
The plaintiff then brought a claim against the defendants – his former lawyers -- alleging that their negligence in prosecuting his IRSSA claim resulted in his testimony being disbelieved, causing further psychological harm. The defendants moved to dismiss the claim as an abuse of process because the defendants would necessarily claim over against the Government of Canada for contribution and indemnity. The defendants argued that the IRSSA prohibited the plaintiff from instituting proceedings “against any person… in connection with or related to the claims released… who might claim or take a proceeding against the Defendants… for contribution or indemnity… and this paragraph shall operate conclusively as a bar to any such action or proceeding.”
After closely analyzing the text of the release and the claim-over prohibition in the IRSSA, the Court dismissed the motion and allowed the plaintiff’s claim – and the defendants’ claim-over against the Government of Canada – to proceed. The events giving rise to the plaintiff’s claim against the defendants occurred after the effective date of the release in the IRSSA, and the IRSSA did not expressly release claims that arose in future. The release of causes of action in the release was restricted to factual situations which had already come to pass when the settlement and Order was signed. This is to be contrasted with the release provisions pertaining to damages, which provided for the release of “… damages… which they ever had, now have or may hereafter have, directly or indirectly..”. Accordingly, even though the plaintiff’s claim was related to the subject-matter of the IRSSA, and even though the defendant was entitled to claim over against the Government of Canada, the claim-over prohibition in the IRSSA did not apply to bar the plaintiff’s suit and the action was not an abuse of process.
Class action defendants ought to bear the Court’s reasoning in mind when structuring the terms of any proposed settlement. If class action defendants want to try to bar claim-overs for matters arising in future, they should consider including language in the release encompasses claims “which have arisen or may arise in the future”. While courts have not yet interpreted such language in the context of class action claim-overs, this could strengthen a defendant’s argument that the class action settlement was intended to be a full and final release of all related claims. Courts have held that while a release is generally limited to claims in contemplation of the parties at the time a release was signed, a release may contain sufficiently broad language to include claims unknown to the parties arising from the same subject-matter (Biancaniello v DMCT LLP, 2017 ONCA 386). Moreover, class action courts have approved settlements that released claims based on future continuing conduct (Bancroft-Snell v Visa Canada Corporation, 2018 ONSC 5166; Macaronies Hair Club and Laser Center Inc v BofA Canada Bank, 2019 ABQB 181). It remains to be seen how such provisions would impact claims against third parties.