So you're faced with a class action, now what?
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Brief The Board, Osler’s new five part webinar series, will provide you with practical tips on how to brief your board members and senior management, both in terms of key substantive points and effective (and privileged) communication skills, so you and your organization can respond nimbly and competently in business critical situations.
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So you're faced with a class action, now what?
- 1. Osler Hoskin & Harcourt LLP Wednesday, July 6, 2016 Brief the Board webinar wednesdays Craig Lockwood – Osler, Hoskin & Harcourt LLP Melissa Krishna – Pacific Exploration & Production Corp. So you’re faced with a class action, now what?
- 2. 2 Craig Lockwood Partner, Litigation Osler clockwood@osler.com 416.862.5988 Melissa Krishna Deputy General Counsel , Special Projects Pacific Exploration & Production Corp. BRIEF THE BOARD - WEBINAR WEDNESDAYS
- 3. 3 BRIEF THE BOARD – WEBINAR WEDNESDAYS Objective Provide you with strategies to help you respond effectively to the threat of a class action. Assessing the scope and size Understanding the business and legal implications of the various stages of a class proceeding Mitigating the impact
- 4. So you’re served with a class action, now what?
- 5. 5 BRIEF THE BOARD – WEBINAR WEDNESDAYS Preliminary Assessment: Getting a handle on the claim DETERMINE The Scope of the Claim The Size of the Claim Other Jurisdiction(s) Involved Other Parties Involved
- 6. 6 Preliminary Assessment: Getting a handle on the claim DETERMINE The Scope of the Claim Is this a historical or ongoing issue? If ongoing, does it require active intervention by the company? Are there multiple/competing claims? BRIEF THE BOARD – WEBINAR WEDNESDAYS
- 7. 7 Preliminary Assessment: Getting a handle on the claim DETERMINE The Size of the Claim Does the claim trigger any reporting obligations to insurers, shareholders, regulators, etc.? Determine The Scope of the Claim BRIEF THE BOARD – WEBINAR WEDNESDAYS
- 8. 8 Preliminary Assessment: Getting a handle on the claim Parallel U.S. litigation? (very common) Other Canadian provinces? National class or other parallel class actions? Determine The Scope of the Claim Determine The Size of the Claim DETERMINE Other Jurisdiction(s) Involved? BRIEF THE BOARD – WEBINAR WEDNESDAYS
- 9. 9 Preliminary Assessment: Getting a handle on the claim Any 3rd parties or co-defendants? Foreign affiliates? Regulators? Insurers? Consider need to issue notices under applicable indemnities, etc. Determine The Scope of the Claim Determine The Size of the Claim DETERMINE The Parties Involved Determine Other Jurisdiction(s) Involved? BRIEF THE BOARD – WEBINAR WEDNESDAYS
- 10. 10 BRIEF THE BOARD – WEBINAR WEDNESDAYS Initial steps What “First Steps” should you take? Retain Counsel Internal Fact Finding Implement Document Retention/Collection GC Tip: Have a Document Retention Policy
- 11. 11 Assessing potential liability CONSIDER Merits of the Claim & “Legal” Considerations Exposure? Defences? “Bad facts” / “good facts” Jurisdictional challenges? Other preliminary challenges (service / pleadings issues, etc.) BRIEF THE BOARD – WEBINAR WEDNESDAYS
- 12. 12 Assessing potential liability CONSIDER Plaintiff’s Position Are the Plaintiffs recipients of any third-party funding? Is there a singular plaintiffs’ firm? Consortium? Possible carriage motion? Consider reaching out to plaintiffs’ counsel Consider Merits of the Claim & “Legal” Considerations BRIEF THE BOARD – WEBINAR WEDNESDAYS
- 13. 13 Assessing potential liability CONSIDER Public Disclosure Obligations Class actions inevitably trigger reporting obligations for public issuers Consider Plaintiff’s Position BRIEF THE BOARD – WEBINAR WEDNESDAYS Consider Merits of the Claim & “Legal” Considerations
- 14. 14 Assessing potential liability CONSIDER Reporting Obligations to Regulators Defendants in regulated industries may have additional obligations to regulators Consider Plaintiff’s Position BRIEF THE BOARD – WEBINAR WEDNESDAYS Consider Merits of the Claim & “Legal” Considerations Consider Public Disclosure Obligations
- 15. 15 Assessing potential liability BRIEF THE BOARD – WEBINAR WEDNESDAYS Joint Defence Agreements with Co-defendants? Third Party Claims? Timing of Defences? (pre or post-certification) Expert Retention?
- 16. 16 BRIEF THE BOARD – WEBINAR WEDNESDAYS Assessing potential liability Analysis Consider merits of the claim and “legal” considerations Consider Plaintiff’s Position Consider Public Disclosure Obligations Consider ongoing reporting obligations to regulators Action Joint Defence Agreements with Co-Defendants? Third Party Claims? Timing of Defences? (pre or post-certification) Expert Retention?
- 17. Certification is the first “HURDLE” in ANY class proceeding
- 18. 18 BRIEF THE BOARD – WEBINAR WEDNESDAYS The implications of class certification Possible outcomes: Class certified (settlement implications?) Certification dismissed (possible abandonment of the claim) Modified class certified Forum issues
- 19. 19 BRIEF THE BOARD – WEBINAR WEDNESDAYS The dichotomy • Purely procedural, but significant “publicity” surrounding certification • Settlement discussions often oriented around certification Purely Procedural Highly Public
- 20. 20 BRIEF THE BOARD – WEBINAR WEDNESDAYS The Post-Certification Landscape A matter of years, not months Settlement can be driven off of any procedural steps that follow certification Settlements are often guided by plaintiffs’ counsel, subject to court approval GC Tip: Have a pre-approved range of settlement with the board
- 21. 21 BRIEF THE BOARD – WEBINAR WEDNESDAYS Prepare for a class action before it happens Insurance Considerations Limits & Coverage Claims Response Scope of Coverage Exclusions
- 22. 22 BRIEF THE BOARD – WEBINAR WEDNESDAYS Best Practices for When “IT” Happens Debrief Right Away Know The Limit, Play Within It Introduce External Counsel Frequent & Consistent Communication PR Training
- 23. Managing a business in the shadow of a class action 23
- 24. 24 BRIEF THE BOARD – WEBINAR WEDNESDAYS Managing a business in the shadow of a class action INTERNALLY Financial reporting Internal communications to employees For multi-national entities, implications for affiliates in other jurisdictions Insurance costs
- 25. 25 BRIEF THE BOARD – WEBINAR WEDNESDAYS Managing a business in the shadow of a class action EXTERNALLY Consider the nature of the ongoing relationship with class members Impact on relationship with third parties (suppliers, etc.) Impact of the proceedings on goodwill Ongoing relationship with the regulator
Hinweis der Redaktion
- Craig has extensive experience in class proceedings, product liability matters, securities regulation, commercial banking litigation and pension litigation. He also has significant experience with corporate arrangement transactions under the OBCA and the CBCA. Craig has appeared at all levels of the Ontario, Quebec and New Brunswick courts, and has appeared at the Supreme Court of Canada on multiple occasions. Craig is the Chair of the Osler Product Liability and Food Products Practice Group, as well as Chair of Osler’s Student Committee (Toronto). Melissa is the Deputy General Counsel, Special Projects of Pacific Exploration & Production Corp. In her five years at the company, she has been leading complex transactions including the Company’s largest acquisition to date, overseeing the company’s corporate governance and compliance, and collaborating with its board of directors, senior management and business units to further strategic objectives. She also manages the Corporation’s insurance program. Before joining Pacific E&P, Melissa practiced corporate and securities law at Osler, Hoskin & Harcourt LLP.
- Speaking notes: Focus of Today’s discussion What do you do when confronted with a potential class action? What are the implications of the various “stages” of a class action (i.e., commencement of the claim, certification, post-certification)? How can you manage the ongoing business against the backdrop of an ongoing class action?
- Determine the Scope of the Claim Is this a historical or ongoing issue? If ongoing, does it require active intervention by the company (i.e., product recalls, special committees, press releases, etc.)? Are there multiple/competing claims?
- Determine the Size of the Claim Does the claim trigger any reporting obligations to insurers, shareholders, regulators, etc. Most class actions, by their very nature, rise above a de minimis level of exposure For reporting issuers – and arguably others – the nature and scope of public disclosure should be assessed. Melissa One way that insurers might try to assess potential claim amounts would be to look at the decrease in market cap. For example, in PetroMagdalena, where potential production was reported as actual production, there was a resulting decline in market cap of about 40% attributed to the inaccurate disclosure to the market. The class action claim ended up settling at approximately 20% of the amount of decrease in the market cap.
- Determine Whether There Are Any Other Jurisdiction(s) Involved Parallel U.S. litigation? (very common) Other Canadian provinces? National class or other parallel class actions? Is this a regional issue, or is there a risk of spillover (i.e., food products… FDA vs. Health Canada)
- Determine the Parties Involved Any 3rd parties or co-defendants? Foreign affiliates? (consider issues of attornment) Regulators? (ongoing dialogue? adversity of interest?) Insurers? (consider extent to which the company can/should control the defence, instruct counsel, etc.) Melissa – note the difference in types of policies: private, small companies – “Insurer’s Duty to Defend” Public companies – “Insured’s Duty to Defend” Consider where the insurer’s claims authority resides Need to issues notices under applicable indemnities, etc.
- What “First Steps” should you take? Retain counsel (the sooner the better) Internal fact finding: Commence internal investigation? Strike a special committee? Discussions with regulators? Retain experts? (product testing, etc.) Retain P.R. firm? Melissa to discuss experience with P.R. firms, investor relations issues (GC’s role) Implement Document Retention/Collection Work with counsel to identify custodian(s), and to circulate document retention and collection notices Melissa to discuss importance of having a standing document retention policies and the associated complexities
- Consider merits of the claim and related “legal” considerations: Exposure? Defences? “Bad facts” / “good facts” Jurisdictional challenges? Other preliminary challenges (service / pleadings issues, etc.)
- Consider plaintiffs’ position Are the Plaintiffs recipients of any third-party funding? – discussion of the impact of their presence on the assessment of the merits Is there a singular plaintiffs’ firm? Consortium? Possible carriage motion? Consider reaching out to plaintiffs’ counsel, depending upon the nature of the claim and relations between the parties / counsel
- Melissa to comment on reporting obligations – class actions due to their size will generally meet the materiality threshold for most companies and therefore it will be material information requiring disclosure under the securities legislation – can work with PR firm on messaging
- For regulated entities, there may be ongoing reporting obligations / ongoing dialogue with the applicable regulator (i.e., Health Canada, CFIA, financial regulators, etc.)
- Consider Joint Defence Agreements with Co-Defendants Consider possibility of Third Party Claims (be mindful of limitation periods) Consider Timing of Defences? (pre or post-certification) Consider whether to retain an expert (strategy of tying up experts, particularly in discrete fields)
- Certification is the first procedural “hurdle” in any class proceeding No assessment of the merits, but can be dispositive of the litigation Possible outcomes: Class certified (settlement implications?) Certification dismissed (possible abandonment of the claim) Modified class certified (scope of liability?) Forum issues (certification declined in favour of another forum / national class)
- Purely procedural, but significant “publicity” surrounding certification Media attention Notice to Class Members (opt outs, etc.) Settlement discussions often oriented around certification
- The Post-Certification Landscape Extensive “time lag” between certification and trial of the merits – a matter of years, not months Only a handful of class actions in Canada have ever gone to a trial on the merits Settlement can be driven off of any of the various procedural steps that follow certification: Discovery (documentary and oral) Preliminary motions Exchange of expert reports Settlements are often guided by plaintiffs’ counsel, subject to court approval Melissa to add some commentary about settlement before moving to slide 21 – have your board pre-approve a certain $ amount of settlement – this will help keep things moving during settlement negotiations so that you don’t have to keep breaking to get approval from your board
- Melissa: In determining limits of coverage: Can look at market cap and how much movement there might be in market cap – using the PetroMag example from earlier, if your market cap is $100M, at 40% market cap, that’s $40M with a settlement of about 20% of $40M, which is $8M, and you should then add defence costs of about $4.5M, so you’re looking at limit of about $12.5M Insurer stats – From 2002-2012, Chubb was involved in 26 of 30 Canadian securities claims – they incurred $36M in defence costs with an average of $4.5M in defence costs and $8.5M in settlement on average per suit Peer Group Benchmarking – Ex: Jones Brown, looking at public company clients across industries, general trend is for every $20M in assets, clients carry approximately $1M in D&O coverage Claims Response: Who has the duty to defend? Where is the claims authority? Have you met the claims team and understood their approach to claims management? Consider having a pre-approved slate of litigation counsel by the Board, to each of whom you’ve provided the insurer’s litigation guidelines (ex: hourly billing vs flat rate) Scope of Coverage D&O coverage can be extremely broad and will cover: Past, present and future D&Os Corporate entity itself Employees as codefendants Subsidiaries Outside entities Therefore, available limits for individual D&Os can be completely eroded by securities claims against the corporate entity Exclusions and how to preserve the limit for D&Os Get Excess Side A DIC coverage DIC is Difference in Conditions This type of insurance will kick in when indemnification is not provided by corporation, either due to inability (such as bankruptcy) or due to legal reasons A good Excess Side A DIC policy have very few exclusions as compared to the primary D&O policy, which usually have several exclusions For example, if D&Os are held individually liable for pollution clean-up costs, such costs are generally excluded from the primary policy. This was the situation in the Northstar case where the Ministry of Environment held the directors personally liable for clean-up costs due to pollution. The company filed for bankruptcy protection and did not have environmental insurance During the time of Northstar, Excess Side A coverage was not a widely offered product – which is why it is important for GCs to ensure their D&O programs have kept up with the market and such coverage has been added.
- Melissa: Debrief Right Away Explain the scope/size/liability and how it impacts the business immediately Know The Limits, Play Within Them With preapproved counsel, settlements etc. you can move forward knowing what your business is comfortable with Introduce External Counsel Have the external counsel come meet the board, explain the situation, get them comfortable Frequent & Consistent Communication After the initial meetings, frequent and consistent communication/updates are important – we did bi-weekly updates Whether in person or by email, the consistency in communication will help everyone feel up to date with the status of the issue keeping them calmer PR Training Appoint spokespersons who are the only ones to talk about the class action outside the corporation Might be self explanatory, but PR training goes a long way. Make sure the external faces of the company know how to deal with the issue publically. Ensure that employees know they are not to discuss/respond to questions about the class action and should direct anyone who is asking to the appropriate persons within the company, specifically the appointed spokespersons
- Financial / accounting considerations (i.e., financial reserves, etc.) Internal communications to employees For multi-national entities, consider implications for other jurisdictions Melissa to discuss issue of budgeting for insurance costs – once you’ve been hit with a class action, the cost of renewing your insurance will likely go up –make sure you budget for this increase
- Consider the nature of the ongoing relationship with the class members Franchisees? Shareholders? Clients / customers? Impact of the proceedings on goodwill Ongoing relationship with the regulator Often drives the decision of whether to claim against the regulatory for “wrongdoing” Melissa to discuss investor relations issues (to the extent not already covered, or recap of prior statements)