In a February 14, 2011 order (here), an Ontario Superior Court Justice has denied the motion of the defendants in the IMAX securities lawsuit pending in Ontario for leave to appeal the December 2009 rulings of Ontario Superior Court Justice Katherine van Rensberg granting the plaintiffs leave to pursue securities claims in a class proceeding.
At its most basic the order is essentially just a ruling that the defendants have not satisfied the relevant standard to justify an appeal at this stage in the proceedings. However, the court’s explanation of its decision implicitly endorses Judge Van Rensberg’s prior decisions – including in particular her decision to certify a global class of all Imax investors. Overall, as detailed below, the February 14 ruling is quite favorable to the plaintiffs.
As detailed here, in December 2009, in "groundbreaking" rulings representing the first application of Ontario’s newly revised securities laws, Judge van Rensberg entered two orders granting the plaintiffs leave to bring their case, as required under to proceed under the laws, and certifying the suit as a class action. These rulings allowed the plaintiffs leave to proceed with their case against several IMAX directors and officers over disclosures in the company’s 2005 financial statements.
Justice van Rensberg’s decisions were the first to test recent revisions to the Ontario Securities Act that potentially made it easier for disappointed investors to bring actions for civil liability against directors and officers of public companies for misrepresentations in public disclosure documents.
These statutory provisions, which became effective in December 2005, were first passed by the Legislative Assembly of Ontario in legislation now referred to simply as Bill 198, which is codified as Section XXIII.1 of the Ontario Securities Act. The provisions provide for the liability of certain specified individuals for misrepresentations in companies’ public disclosure documents.
Section 138.8 (1) of the statute specifies, however, that a liability action cannot be commenced "without leave of court granted upon motion with notice to each defendant." The court is to grant leave only "where it is satisfied" that the action "is being brought in good faith" and there is a "reasonable possibility" the plaintiff will prevail at trial.
In granting the plaintiffs’ motion for leave to proceed, Justice van Rensberg held that she "is satisfied that the action is brought in good faith and that the plaintiffs have a reasonable possibility of success at trial in pursuing the statuory claims against all… parties" other than with respect to two individual outside director defendants.
Justice van Rensberg also specifically held that the plaintiffs had satisfied the requirement for the certification of a global class to assert both the statutory claims and certain common law claims that the plaintiffs had raised. The approved class included both plaintiffs who had bought there IMAX shares on the TSX as well as those who had bought their shares on the NASDAQ exchange.
The defendants sought leave to appeal Judge van Rensberg’s rulings to the Divisional court.
The February 14 Ruling
Under applicable statutory provisions, leave to appeal may be granted at this stage in the proceedings, inter alia, when there is "good reason to doubt the correctness of the order." In his February 14 order, Superior Court Justice D.L. Corbett held that this standard had not been met and he denied the defendants’ motion for leave to appeal.
At its most basic, the order essentially just holds that the statutory standard has not been met. Indeed, throughout the February 14 order, Justice Corbett reiterates with respect to the various substantive issues presented that "appellate courts will be in a better position to address them on a full factual record, after trial."
However, in order to substantiate the ruling, Justice Corbett specifies the bases for the determination that "there is no good reason to doubt the correctness of the decision" – which is, as Justice Corbett specifically puts it, that "this is the sort of claim that ought to be permitted to proceed," adding, with respect to the plaintiffs’ substantive misrepresentation claims that "it seems that the plaintiffs have a good arguable case, one that is worthy of moving forward." As detailed in the Discussion section below, Justice Corbett’s analysis in this regard is quite favorable to the plaintiffs, and to plaintiffs generally.
Justice Corbett’s determination is most interesting with respect to Justice van Rensberg’s certification of a global class. In holding that there is "no reason to doubt the correctness" of Justice van Rensberg’s decision on these issues, Justice Corbett noted:
It would be wrong, of course, to compel foreign investors to be bound by Canadian proceedings, if they prefer to have their claims adjudicated elsewhere. But similarly, it would be wrong to preclude the from participating in Canadian proceedings if they wish their claims to be pursued in Ontario
Justice Corbett specifically found there is no prohibition of overlapping class proceedings in different jurisdictions, holding that the separate proceedings should not be viewed as "competing." Rather the proceedings should be "complementary" so as to "achieve a proper vindication of the rights of plaintiffs, fair process for the defendants and the plaintiffs, respect for the autonomous jurisdictions involved and an integrated and efficient resolution of claims." This process does not "required balkanization of class proceedings, but rather sensitive integration of them"
For the parties, Judge Corbett’s ruling essentially means that the case will now go forward in Ontario. The larger significance may be that another court has corroborated Justice van Rensbert’s approach and conclusions with respect to the application of the new statutory provisions to the IMAX case.
But the most interesting aspect of Justice Corbett’s ruling is the determination that the certification of a global class was not clearly in error. The practical effect is a global class action might now go forward in Ontario courts under Ontario law under circumstances in which a global class might not be certified in U.S. courts under U.S. law.
As it happens, on December 22, 2010, Southern District of New York Naomi Reice Buchwald denied the motion for class certification in the parallel U.S. IMAX securities suit, holding that various circumstances prevented the lead plaintiff from serving as class representative.
But in any event, the plaintiffs in the U.S. case had not sought to include in the class the investors who had purchased their shares in IMAX on the Toronto stock exchange, having amended their motion for class certification in light of the U.S. Supreme Court’s decision in Morrison v. National Australia Bank, to limit their proposed class to those investors who purchased their shares on NASDAQ. That is, the plaintiffs essentially conceded that under Morrison the class in the U.S. class action could not include investors who purchased their shares outside the U.S.
In other words, the class certified by the Ontario court is more encompassing than the one that could be certified by a U.S. court. And Judge Corbett’s recent decision found no reason to doubt the correctness of Justice van Rensberg’s determination of these issues.
One of the questions commentators have asked in the wake of the U.S. Supreme Court’s decision in the Morrison case is whether plaintiffs’ counsel may seek to pursued securities claims outside of the U.S. The recent action filed in the Netherlands on behalf of Fortis investors provides some evidence that the plaintiffs’ attorneys are indeed pursuing alternatives to litigating cases outside of the U.S.
The recent affirmation that Ontario’s courts are authorized to certify a global class in a securities liability suit, in circumstances where a U.S. court cannot, highlights the question whether plaintiffs’ attorneys may look to Ontario’s courts as an alternative securities litigation forum, particularly in light of Justice van Rensberg’s earlier ruling that the threshold for establishing the right to pursue a securities claim under Ontario’s new legal provisions is a low one. Ontario’s courts certainly could be an attractive form at least with respect to Canadian companies.
I should add that even beyond the class certification issues, the February 14 opinion is favorable to plaintiffs. Among other things, Justice Corbett stated (in paragraph 29) that fraud alleged do "not require the plaintiffs to adduce direct evidence of the state of mind of the defendants" which "may be ‘inferred from all of the circumstances," which is "a common way of determining knowledge and intention."
Justice Corbett also evinced his support (in paragraph 32) for the view that "a different standard of proof" applies to defendants affirmative defenses than is to be applied to plaintiffs to determine whether they should be permitted to proceed. The plaintiffs standard is "relatively low" while the defendants must establish their affirmative defenses "to a standard sufficient to grand summary judgment dismissing a claim." Indeed, Justice Corbett went on (in paragraph 37), the "constellation of facts" alleged "may well preclude the defendants’ affirmative defenses."
Finally, Justice Corbett also supported the view that reliance be established by showing reliance on the market (in a manner similar to a fraud on ther market theory) rather than by individual reliance, if supported by the facts.
Special thanks to Daniel Bach of the Siskinds law firm for providing me with a copy of the February 14 decision. The Siskinds law firm and the Sutts, Strosberg law firm represent the plaintiffs in the IMAX case in Ontario.
The Sports Highlight of the Decade?: In a February 14, 2011 article, The Wall Street Journal asked the rhetorical questoin whether Wayne Rooney’s game-winning goal in the 78th minute of Saturday’s game between Manchester United (Rooney’s team) and Manchester City is the "sports highlight of the decade." All I know is that when Rooney executed his amazing, backwards bicycle kick, I shouted so loud that my wife came downstairs to make sure I was alright. Best of the decade or not, it is simplty amazing. So here is the video footage — be sure to watch the slow motion replay to really appreciate how amazing the goal is.