Class Action Settlement Negotiations: Timing is Everything

It is common practice for defendants to enter into settlement negotiations with plaintiffs’ counsel before a proposed class action is authorized or certified.  However, as the recent decision in Brunet c. Zimmer demonstrates, defendants remain vulnerable during such negotiations to individual and group claims commenced by other prospective class members.

The Facts

In 2012, Merchant Law Group LLP won carriage of a proposed class action against the defendant regarding allegedly defective hip implants (the “Wainberg Class Action”). The defendants then  entered into settlement negotiations with Merchant Law before the class action was authorized. Eventually, the parties reached an agreement in principle.

However, in 2014, Kugler Kandestin LLP – the law firm that lost the carriage battle in 2012 - started a group action against the defendant with respect to the same hip implant (the “Brunet Group Action”). The defendant argued that the plaintiffs in the Brunet Group Action were obliged to opt out of the prospective Wainberg Class Action before they could pursue their claims since this was a “precedent obligation” pursuant to article 168(3) of the Quebec Code of Civil Procedure. The defendants therefore sought to stay the Brunet Group Action.

The Decision

The Court denied the stay, finding that it could not be a “precedent obligation” for the prospective class members to opt out of the potential Wainberg Class Action since the class action had not yet been authorized. The Court rejected the defendants’ argument that refusing to grant a stay would lead to an inappropriate use of judicial resources.

Additionally, the Court held that the fate of the plaintiffs in the Brunet Group Action should not be dependent on the outcome of negotiations in the context of the not-yet-authorized Wainberg Class Action, especially in light of the lack of significant progress towards a final settlement between the filing of the Motion to Stay in September 2014 and its hearing in February 2015.

Implications for Defendants

Entering into negotiations before authorization or certification does not provide defendants with any guarantees that they are negotiating a settlement of all potential class member claims – even when plaintiff’s counsel has been awarded carriage of a potential class action. Defendants can still be hit with individual or group actions spearheaded by enterprising plaintiffs’ counsel.  Defendants should be careful to:

• Apply for court approval of a settlement as soon as possible once an agreement in principle has been reached in order to head off other actions at the pass.
• Consider opt-out thresholds as part of the settlement agreement to ensure a minimum value/number of claims are included in the settlement.
• Be strategic about when to commence negotiations – in some circumstances, it could make sense to wait until after certification.
• Consider the implications of carriage battles, as plaintiffs’ counsel excluded from the settlement table may seek other ways to get a piece of the pie.