Settlement of a class action: Beware of disparities in compensation between the representative plaintiff and other class members
In the recent decision Salazar Pasaje v. BMW Canada Inc., where the Court of Appeal denied leave to appeal, the Quebec Superior Court approved the settlement agreement between the parties, with the exception of the portion of the settlement relating to the individual claim of the plaintiff-class representative, which provided for the payment of an amount nearly 10 times greater than that to which the other class members were entitled.
Summary of Facts
In 2018, the Plaintiff filed a class action on behalf of owners and lessees of BMW vehicles against Defendant BMW Canada Inc. based on alleged safety defects in vehicles that were subject to recalls in 2017. The parties agreed to a settlement.
The settlement agreement provided for monetary credits and awards to class members on a sliding scale depending on their individual circumstances, from $141 to $977 for parts replacement costs and certain eligible expenses. With respect to the Plaintiff's individual claim, however, the agreement provided for the payment of $7,103.12, representing the costs of a rental vehicle, driver, hotel room, meals and cabs incurred during a trip to the United States when the Plaintiff learned that her vehicle was subject to a recall. The parties also provided that the overall settlement agreement was not conditional on the court approving the settlement of the Plaintiff's individual claim and that any order in that regard would not have the effect of terminating or voiding the settlement agreement.
The settlement agreement was submitted to the Quebec Superior Court for approval, after authorization of the class action solely for the purpose of settlement. The respondent, the Fonds d'aide aux actions collectives ("FAAC"), asked the Court to dismiss the application for approval of the settlement agreement with respect to the Plaintiff's individual claim.
According to the FAAC, the Plaintiff's individual claim could not be approved because of the serious risk of conflict of interest. The FAAC claimed that, by settling her claim individually, the Plaintiff would receive undue benefit and additional compensation not available to other class members.
In response, the Plaintiff submitted that the settlement of the Plaintiff's individual claim did not violate article 593 of the Code of Civil Procedure ("C.C.P."), which allows for the payment of an indemnity to a representative of a class action. Secondly, the Plaintiff claimed to retain her interest to act, as per article 589 C.C.P., even if her personal claim were to be extinguished following the settlement of her individual claim.
From the outset, the Honorable Suzanne Courchesne dismissed the application of article 589 C.C.P., emphasizing that the issue at stake was not whether the Plaintiff could continue to act as a representative following the extinction of her personal claim due to the settlement of her individual claim. Rather, the issue is whether a settlement is fair and reasonable and whether the individual claim of the class representative is balanced against the compensation to which the other class members will be entitled.
Secondly, although article 593 C.C.P. allows a representative to receive an indemnity for his or her legal expenses, this does not give him or her the right to receive additional or preferential treatment beyond the indemnities offered to the other members of the class. In this case, the Plaintiff would be awarded a much larger amount for her individual claim than the other class members. In so doing, she is no longer acting in the sole interest of the members and demonstrates an appearance of conflict of interest that the Court cannot endorse. The court did, however, approve the rest of the settlement relating to the class.
The Court of Appeal, by the Honorable Marie-Josée Hogue, dismissed the Plaintiff's application for leave to appeal the Superior Court's decision. According to the Court of Appeal, the Superior Court did not decide the question of whether a representative may, as part of the overall settlement of a class action, settle his or her own claim on different terms than those applicable to all members. Rather, it was the disparity between the compensation of the class members and that of the plaintiff, giving rise to the appearance of a conflict of interest, that Justice Courchesne, exercising her discretion, refused to endorse.
This case is one of the few decisions concerning the legal framework for settling the individual claim of a class representative.
The Court of Appeal noted that the Superior Court's judgment did not address the question of whether a representative may, in the context of a class action settlement, settle his or her own claim on different terms than those applicable to the members as a whole. Parties who wish to consider such a possibility in the future must, at the very least, ensure that the indemnity intended for the representative is indeed intended to compensate him or her for a personal injury suffered, does not constitute a reward for simply having acted as a representative in the file, which is prohibited by article 593 C.C.P., and does not appear to be disproportionate to the indemnity provided for the other group members.
Indeed, a significant disparity between the indemnity intended for the representative and that intended for the other members of the class may give rise to an appearance of conflict of interest that could prevent approval of the settlement, at least with respect to the terms dealing with the representative. Given this issue, it becomes important for the parties to provide in the settlement agreement that the overall settlement agreement is not contingent upon approval of the settlement of the representative's individual claim, so that a refusal to approve that award does not jeopardize the overall negotiated settlement, just as the parties in this case had done.