Makris v Endo International PLC
On October 1, 2020 the Ontario Superior Court approved a securities class action settlement agreement in the amount of $700,000 and a plan of allocation providing for the distribution of the settlement amount, net of legal fees, disbursements and taxes, to two investor protection legal clinics.
The Cy-près Distribution of the “Uneconomic” Net Settlement Amount
During the class period, the defendant’s securities traded on both the Nasdaq and the TSX, with trading volumes on the TSX accounting for less than 1% of the trading volume on the US exchanges. Most class members in the Ontario class action were entitled to recover their losses though settlement of a parallel US securities class action based upon the same alleged misrepresentations (“US Settlement”). As the US class included purchasers of the defendant corporation’s securities regardless of their country of residence, only those investors who opted out of the US Settlement would be entitled to recover in Ontario. The settlement amount of $700,000 reflected this reality.
In approving the settlement amount and the plan of allocation, the Court observed that a direct distribution to investors of the net settlement amount of approximately $408,000 would be “uneconomic”: the cost to do so would be high, and as a result, the remaining amount for distribution would likely be minimal. Instead, the representative plaintiff proposed that the net settlement amount (after payment of a requested $15,000 honorarium to herself) be donated as cy-près distributions to the Osgoode Hall Law School Investor Protection Clinic, and as seed money for McGill University to set up its own investor protection clinic. While the cy-près distribution to the law clinics was approved, the honorarium was not.
Justice Glustein observed that as the protection of investors’ rights was at the core of the action, it was appropriate that the settlement funds be distributed to organizations devoted to that issue. The allocation to the clinics would provide an “indirect benefit” to the class members, on top of the monetary recovery that most of them would be entitled to receive under the U.S. Settlement.
This is not the first time the Ontario Courts have approved distributions of securities class action settlement funds to investor protection clinics. In 2018, the Ontario Superior Court approved a similar cy-près distribution in Calhoun v Barkerville Gold Mines Ltd., through which the Osgoode Hall Law School Investor Protection Clinic received part of the settlement funds as a donation.
Request for Honorarium Denied
The representative plaintiff’s request for a $15,000 honorarium was, however declined. Justice Glustein confirmed that representative plaintiffs are not entitled to honorarium awards for merely fulfilling their duties. Rather, an honorarium is reserved for representative plaintiffs who go far beyond what is expected of them. In this case, the representative plaintiff’s review of pleadings and expert reports, provision of instructions to class counsel and attendance at meetings with them to discuss the progress of the action did not establish any exceptional circumstances, nor did the fact that she had lost approximately $6,000 to $7,000 on her investment. A representative plaintiff is not entitled to benefit from recovering a loss “over other class members only because of taking on the role of a representative plaintiff”.
As in Calhoun, this case demonstrates the willingness of the courts to approve cy-près distributions in securities class actions to further access to justice and protect retail investors.
It also confirms existing law concerning the exceptional nature of payments of honoraria to representative plaintiffs.
The author would like to thank Lauren Rennie for her contributions.