Recent decisions of the Ontario Court of Appeal and the Supreme Court of Canada have given the go-ahead to class action lawsuits against Toronto-Dominion Bank and Ottawa-based MBNA Canada Bank. The rulings have sparked wide debate, with corporate lawyers who defend class actions predicting a flood of consumer lawsuits against financial institutions.
\u201cThe courts are creating a possible class-action nightmare,\u201d says Adrian Lang, a lawyer with Stikeman Elliott LLP<\/b> in Toronto who defends banks, pharmaceutical and insurance companies facing such suits. \u201cThe two decisions will help make certification of many class actions inevitable.\u201d
The newly approved class action lawsuits centre on allegations the banks levied undisclosed and unauthorized fees and charges against large numbers of customers. Both deal with the thorny question of assessing individual damages, a frequent barrier to the success of such actions in the past because of factors such as cost and availability of records. As a result of the decisions, it appears that Canadian courts will not require that specific amounts be proven for individuals in the class. Instead, damages will be measured on the basis of the total losses of the group.
In a decision released Nov. 14, the Ontario Court of Appeal overturned a March 2005, Ontario Superior Court ruling in TD\u2019s favour. The case was initiated by Paul Cassano, a University of Windsor administrator and TD Visa cardholder, who contested charges from a New York City hotel bill. Cassano claims TD breached its agreement with clients by imposing two \u201cundisclosed\u201d and \u201cunauthorized\u201d sets of fees on purchases made in foreign currency.
TD won at trial before Superior Court Justice Maurice Cullity: the bank successfully argued that a class action was unmanageable because of the near-impossible need to assess how individual cardholders would have behaved had they known about the allegedly undisclosed fees. The bank also argued that calculating foreign currency fees stretching back for several years would take a year and cost an estimated $48.5 million.
But both of those arguments failed to impress Ontario Chief Justice Warren Winkler, the Court of Appeal judge who wrote the recent decision overturning Cullity\u2019s refusal to certify a class action against TD. \u201cIt would hardly be sound policy to permit a defendant to retain a gain made from a breach of contract because the defendant estimates the cost of calculating the amount of the gain to be substantial,\u201d Justice Winkler wrote.
Part of Winkler\u2019s reasoning refers to a 2004 case, which he also adjudicated, in which Toronto-based CIBC<\/b> ultimately paid $16.5 million to settle a class action lawsuit over allegedly undisclosed and unauthorized charges similar to those alleged against TD.
Referring to the CIBC case, Winkler concluded that because \u201cindividual assessments of cardholder behaviour are not required to determine the extent of liability\u201d in such cases, \u201ca class proceeding is the preferable procedure.\u201d
\u201cThe defendants will read this and weep,\u201d says Windsor-based plaintiff\u2019s lawyer Harvey Strosberg, who represented Cassano. Strosberg notes TD\u2019s position on fee information \u201cstands in contrast to that of Royal Bank of Canada<\/b>, which particularized all the fees.\u201d In Strosberg\u2019s view, the Ontario Court of Appeal has \u201cdriven a stake\u201d through the claim \u2014 often employed by corporations facing class action lawsuits \u2014 that quantifying damages and compensation in class actions is unreasonably expensive and complex.
Bank officials have been reluctant to comment on the implications of the cases against TD and MBNA, and the new impetus given to class action suits. TD spokesperson Kelly Hechler says the bank will not comment because \u201cthe case is still under judicial review.\u201d Melanie Minos of the Canadian Banking Association<\/b> adds that because the issue is still before the courts, \u201cwe wouldn\u2019t have anything to say about the impacts to the industry.\u201d
Acknowledging that TD faces a continuing legal challenge, Hechler cautions that \u201cthe merits of the matter have not yet been considered. The matter that was before the courts related only to certification of the class action, not the merits of the case. So the matter is still under judicial consideration and technically it is our given right to appeal the decision.\u201d
Hechler says the bank will defend itself on the basis \u201cthat our method of handling foreign currency transactions is fair and lawful and transparent.\u201d In September, 2001, TD initiated changes to its consumer and commercial credit cardholder agreements to expressly include disclosure of the currency conversions fees that Cassano alleges were previously undisclosed and unauthorized.
@page_break@While the bank may seek leave to appeal, Strosberg says there is a good chance the Supreme Court would refuse the request. That\u2019s because of a decision released by the top court in the MBNA case only one day after the Ontario Court of Appeal\u2019s decision in the TD lawsuit. The Supreme Court ruling, which dealt with a leave-to-appeal application, was nonetheless significant: by refusing MNBA\u2019s request to appeal certification of a class action dealing with allegedly unfair credit card charges, the court sent a message that it saw no reason to review the lower court\u2019s ruling.
\u201cThe Supreme Court\u2019s decision in the MBNA case indicates TD will not likely get leave to appeal,\u201d Strosberg says. He points out that Winkler drew strong parallels between the TD and MBNA cases. Specifically, Winkler concluded that the \u201crelatively small amounts of money that are likely to be at stake in individual claims and the disproportionately high costs associated with litigating claims on an individual basis overwhelmingly favour a class proceeding.\u201d
Defence lawyer Michael Brown, with Ogilvy Renault LLP<\/b> in Toronto, agrees with Lang that the decisions will encourage class action lawsuits. He also thinks there will be an upswing in settlements such as the one CIBC reached over the Visa card fees that TD has attempted to defend.
\u201cThe risks of taking these cases to trial are high for defendants, now the courts aren\u2019t going to kill them at the certification stage,\u201d Brown says. \u201cYou\u2019ll see an increase in corporate defendants fighting these cases. You\u2019ll also see an increase in out-of-court settlements.\u201d \tIE<\/b>
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