After 18 years of litigation, a settlement has delivered $7 million to former employees of the Canada Mortgage and Housing Corp. involved in two class action cases over their pension plan’s actuarial surplus.
In the twin cases of Lacroix v. Canada Mortgage and Housing Corp. and McCann v. Canada Mortgage and Housing Corp., almost two decades of litigation saw divided success between plaintiffs and defendants at the motion and appeal levels, including 20 motions in the Ontario Superior Court of Justice, three Divisional Court appeals, one appeal and two leave motions in the Court of Appeal and two leave motions in the Supreme Court of Canada.
Last month, Justice Michel Charbonneau approved the $7-million settlement, which includes almost $5 million allocated to the Lacroix participants and about $1.3 million for the McCann litigants, as well as legal and administration fees. The two cases include 672 members who have opted to participate in the class action litigation, according to a mediator’s report filed in the matter.
The actions arose after the CMHC defined benefit pension plan accumulated a large actuarial surplus between 1988 and the early 2000s, topping out at $153.6 million in 1998. Three years earlier, the CMHC had begun downsizing its workforce. Subsequently, it decided to enhance benefits for remaining employees and those who retained pension monies in the fund. The enhancements resulted in a decrease in surplus.
The plaintiffs in Lacroix had left the plan before the first enhanced benefits payment in January 1999. The McCann plaintiffs left before the second payment in January 2001. Both sets of plaintiffs, who had commuted their benefits on leaving the company, claimed damages for class members equivalent to a portion of the surplus funds distributed after they terminated participation in the plan.
Justice Charbonneau’s decision followed a report from mediator Ari Kaplan of Kaplan Law in Toronto. The case involved novel issues and an “ever-changing landscape of pension jurisprudence,” both of which accounted for the “evolving nature of the claims since the first statement of claim was issued,” Kaplan pointed out in his report.
As one veteran lawyer sees it, the case demonstrates the importance of arriving at focused and arguable common issues in facilitating settlement. “The entire period was spent on litigating common issues motions,” says the lawyer, who spoke on condition of anonymity. “What made it worse is that the common issues were not well-framed.”
The parties spent the first 13 years of the litigation dealing with arguments focused on class members’ continuing beneficial interest in the plan, despite their having accepted a lump-sum commuted value when they left the company. During the course of the mediation, the plaintiffs acknowledged that “they are unlikely to succeed” on that issue.
It wasn’t until 2013 that the plaintiffs first raised the conflict of interest claim that led to the settlement. Here, the plaintiffs alleged a breach of duty on CMHC’s part to advise them of material facts about the surplus that were relevant to their decision to accept a commuted lump-sum settlement.
It took another three years of litigation for the courts to certify the conflict-related common issue.
“This issue included allegations against individual trustees and directors, and there were some documents that didn’t look very good for them on the conflict issue,” the lawyer says. “I can see why the company wanted to avoid that.”
In other words, the time for settlement was ripe.
“When the plaintiffs finally got certified on a decent common issue, it for the first time put the case in a place that could be described as serious litigation,” the lawyer says. “That’s the point at which it became clear to the defendant that there was an opportunity to settle for less than it would cost to litigate.”
But the issues were complex, and the parties remained far apart on the viability of the conflict issue on the merits and on whether interest was payable on the claim. Hence the appointment of the mediator. “The rationale and considerations underlying the settlement amount flow from an assessment made on the relative risks on liability, damages and prejudgment interest in the event of a common issues trial,” wrote Kaplan.
The plaintiffs had virtually no chance of success on the argument related to beneficial interest, Kaplan noted in his report. “It is settled law that plan members who voluntarily leave a pension plan by transferring their pension benefits no longer retain any rights in the plan,” he wrote.
The upshot was that a settlement based on 50 per cent of the claims was reasonable. According to the mediator’s report, the amount is “equal to 50 per cent of the prorated value of the payments that would have been made to members of the Lacroix class had they participated in both the first and second benefit enhancement decisions, and to the McCann class had they participated in the second benefit enhancement decision,” plus interest.