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A cautionary tale: Saskatchewan Court refuses to approve $20 million class action settlement

class action settlementThe recent decision in Perdikaris v. Purdue Pharma et al., 2018 SKQB 86 refusing approval of a $20 million class action settlement is an important reminder that settlement approval is not a “rubber stamp” process. Canadian Courts have generally exercised their supervisory jurisdiction over class action settlements liberally and approved them unless the settlements are clearly unfair. However, Perdikaris is an important reminder that Courts may closely scrutinize the proposed settlement—including the evidence, assumptions, and calculations put forward by class counsel to justify the settlement amount—to ensure the settlement is in the best interests of the class.

Perdikaris involved a proposed $20 million settlement of a class action against the makers of OxyContin® and OxyNEO® on behalf of persons who became addicted to the drugs prescribed by their physicians. The settlement had already been approved in Ontario, Nova Scotia and Québec but, in Saskatchewan, Justice Barrington-Foote refused. He was not satisfied the proposed settlement was fair, reasonable and in the best interests of the class. The judge was particularly concerned that class counsel had failed to use appropriate assumptions and estimates when calculating the number of class members and expected damages for settlement purposes, such that the potential damages of the class might be much larger than those estimated by class counsel.

The judge also found that the $2 million portion of the proposed settlement allocated to the provincial health insurers (PHIs) could not be approved because class counsel had not received approval for the settlement from the PHIs in accordance with their applicable subrogation legislation. Citing the Saskatchewan legislation as an example, the judge found that an action in which the PHI’s subrogated interest is advanced could only be settled for full payment of the cost of health services received by the beneficiary unless the Minister provided consent in writing, which was not obtained here.

In reaching his decision, the judge emphasised that there was limited evidence and analysis put before him by the plaintiff regarding the likelihood of success should the action proceed to certification and trial. He thus found there was inadequate information for him to reach a conclusion as to whether class counsel believed there was a material risk that the action would not be certified, which is a relevant factor in assessing the reasonableness of a proposed settlement. Justice Barrington-Foote did leave it open for the plaintiff to reapply for settlement approval with supplementary material addressing the concerns raised in the decision, or proceed with certification. The defendants have sought leave to appeal the decision.

Subject to the outcome of any appeal, Perdikaris serves as a cautionary tale to class action parties entering into a settlement that they keep in mind the reasonableness of the proposed settlement before concluding it. For class action defendants, the decision also serves as a reminder that, even though it is the plaintiff and class counsel who establish the reasonableness of a settlement before the Court, it is in settling defendants’ best interests to consider whether the materials put forward by class counsel are adequate to demonstrate the reasonableness of the settlement to the judge.

By Michel Gagné and Andrée-Anne Labbé

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McCarthy Tétrault LLP

McCarthy Tétrault is a Canadian law firm that delivers integrated business law, litigation services, tax law, real property law, labour and employment law nationally and globally.McCarthy publishes a series of blogs to share information with companies to help them comply and manage their businesses. On the Inside Internal Controls blog we will share some of those blog posts sharing their expertise among others, in the areas of Competition/Anti-trust, Corporate and Commercial Law, Intellectual Property, Privacy, Environmental Law, Technology and Litigation. Read more here
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