Merchant lawyers not guilty of contempt

Lawyers say a recent Superior Court decision concerning a class action against Volkswagen serves as a warning to firms vying to represent plaintiffs in big class action suits.

Justice Edward Belobaba dismissed a contempt of court motion against Merchant Law Group LLP and two of its lawyers, Joshua Merchant and Anthony Tibbs, after it was alleged they had breached the carriage order of the class action being brought against Volkswagen in Ontario for its emissions scandal.

Belobaba said the allegations could not be proven beyond a reasonable doubt, but he awarded $5,000 in costs against MLG and its lawyers.

He also criticized the lawyers’ actions as “careless, unprofessional and arguable in breach” of his carriage order.

“The court’s displeasure could be expressed by simply denying costs to the defendants. But, in my opinion, this would be insufficient,” he wrote in the decision.

In December 2015, Belobaba granted carriage — the exclusive right to represent members of a class action lawsuit in the province — to a consortium of eight law firms, which did not include MLG.

Despite the order, the Regina-based firm sent out an e-mail blast in January to 9,500 potential members of the action nationwide — 3,500 of which were Ontario residents — inviting them to join their own individual-joinder action or class proceeding, according to the decision.

Around 150 Ontario residents signed and returned retainer agreements from the e-mails to MLG. The consortium then brought a motion on Feb. 3 when they were made aware of the situation.

In that proceeding, Belobaba told MLG that the e-mail blast “may well be misleading” and in breach of the December carriage order. MLG agreed not to carry out any of the 150 retainer agreements and to send out a clarifying e-mail, according to the decision of that proceeding, which was released on Feb. 12.

But then MLG lawyers continued to e-mail Ontario residents, the decision said.

Joshua Merchant allegedly sent a responding e-mail to a resident on Feb. 8 and Tibbs allegedly did so on Feb. 15 and 16.

Once this information surfaced, the consortium brought the motion of contempt against the two lawyers.

In his decision on the contempt motion, Belobaba said he could not find beyond a reasonable doubt that Merchant and Tibbs had intentionally and wilfully tried to scoop Ontario residents into their own class action suit.

This was because the retainer that MLG sent out invited residents to “individual proceedings by joinder or in class proceedings.”

Belobaba said Tibbs was “undoubtedly” trying to scoop Ontario members for a joinder action, but it could not be proven that he was doing so for an MLG class action suit.

“However, this disposition should not be misunderstood as an endorsement of the defendants’ behaviour,” he said.

“About 126 Ontario residents received MLG retainer agreements that explicitly mentioned ‘class proceedings.’ This was contrary to the Carriage Order.”

Belobaba’s criticism of the defendants and the fact he awarded costs against them should serve as a warning to lawyers thinking about testing the boundaries of a carriage order, lawyers say.

 “It highlights the importance of how critical it is that a lawyer not just govern themselves by the letter of the order but also by its spirit,” says Ren Bucholz, a class action lawyer with Lenczner Slaght Royce Smith Griffin LLP, who is not involved in the proceedings.

“This is certainly a situation where the lawyers involved and the conduct described in the decision skated right up to that line and, while it may not have been contempt for the reasons that Justice Belobaba found, it was certainly outside the bounds of what I would hope that any responsible counsel would engage in.”

Ian Matthews, a class action lawyer with Lax O’Sullivan Lisus Gottlieb LLP, says the decision was the latest instalment in what has been an ongoing saga concerning who has control over the Volkswagen emissions scandal suit in Ontario.

“The carriage motion is supposed to be the way in which these matters get resolved,” says Matthews, who is not involved in the Volkswagen class action.

“The court’s not going to look favourably on attempts that may be construed as circumventing the spirit of those orders,” he adds.

Bucholz says it is common for firms to explore different ways to identify potential class members, but what was unusual in this case was that MLG were allegedly doing so after they lost the carriage motion.

“This is very unusual and should be discouraged and is the kind of thing this decision will highlight as a no-fly zone for other plaintiff class action lawyers,” he says.

The consortium is still in discussions with Volkswagen, but no settlement has been reached in the class action suit, says the lawyer representing the consortium on the contempt of court motion, David O’Connor, of Roy O’Connor LLP.

O’Connor says Belobaba’s decision has given a clear indication of the court’s displeasure with the actions of the defendants.

“Our goal, our desire was to safeguard the interests of the potential class members and I think the decision has at least in some part achieved that,” he says.

Merchant, Tibbs and MLG did not respond to requests for comment.

“This decision is a reminder that that level of understandable self-interest on the part of the plaintiff law firms can’t be without limit and that lawyers should be very careful to remember that they are first and foremost officers of the court and not simply legal entrepreneurs out to secure their next opportunity,” Bucholz says.