Releases Under Scrutiny: Protecting the Best Interests of the Class

By: Iman Naqvi

A broad legal release threatens the principle of access to justice in class proceedings. A release prevents the parties in a lawsuit from pursuing further legal action against the other over the same issue – the plaintiff is compensated by the defendant and in exchange, the plaintiff agrees to release the defendant from liability. In a class action, legal releases are more complicated because they affect a large swath of people, most of whom did not have input in the creation of the release or the terms of the settlement. Class members rely on class counsel to look out for their best interests and negotiate settlement terms that will benefit them. When class members are not satisfied with a release or find it unfair, there is only one avenue they can take – to object to the settlement.

Class members are generally uninvolved in the class action process. They rely on class counsel and the representative plaintiff to drive the action forward while providing updates at various stages of the process. Class members have a limited number of rights in a class proceeding. These include the right to notice of certification, the right to opt out of a class proceeding, the right to notice of a proposed settlement, and the right to object to it. Class members in several cases have objected to a settlement over its terms and the scope of the release.

A notable case where a release was brought into question for being too broad is the action against Quiznos Corporation. In 2038724 Ontario Ltd. v. Quizno’s Canada Restaurant Corporation, franchise owners sued the Quiznos corporation for overcharging for supplies. After a settlement agreement was reached, a class member entered a last-minute objection. The objector took issue with the settlement because class counsel would receive $275,000, while class members received nothing, and the release was too broad. This case is striking because the settlement offered no compensation to the class members, in exchange for a broad release of liability. The proposed release could have been interpreted to prevent all future lawsuits alleging breaches of the franchise agreement but not yet known and which would have affected all franchises, even those outside the specified period. Ultimately, Justice Perell did not approve the settlement because the release was overbroad, and had the potential to insulate the defendant from being sued for future breaches of their agreements.

As class members have the least bargaining power in this process, it is imperative that courts protect the rights of class members. One of the primary goals of class actions is to achieve access to justice. If class members must give up rights in exchange for nothing, has justice been achieved? As the judge in Quiznos put it, “it is one thing for Class Members to not have gained anything by a class action, it is another thing to give up rights as the price for settling the Class Action.” For this reason, releases need to be scrutinized by the courts because of the adverse consequences they could have on class members.

The scope of a release was at the heart of another successful objection.Berg v Canadian Hockey League was one of three class actions against the Canadian Hockey League, alleging injuries due to brain concussions, physical and sexual harassment, and breaches of the Competition Act. The objectors in Berg argued that the proposed release would release the defendants from liability in parallel class actions in Alberta and Quebec. Class counsel argued that the court did not have the authority to examine the release because its scope could be determined later, if and when the defendant seeks to use the release as a shield to litigation. Justice Perell disagreed and stated that it is precisely the role of the court to evaluate a settlement agreement to determine whether it is in the best interests of the class. Ultimately, he rejected the settlement agreement and suggested the parties return with a revised release as class counsel did in Quiznos. The court must safeguard the interests of the class, especially in cases where economic interests might put class counsel at odds with class members.

Class actions are complicated procedures and not everyone will be pleased with a settlement. A settlement agreement can be particularly problematic when class members are giving up rights that go beyond the issues in the statement of claim. As class members have the least amount of bargaining power in a class action, their interests have to be considered the most. Broad releases that shield the defendant from future litigation in exchange for little or no compensation to the class become, in effect, a cheap form of litigation insurance. Careful analysis by the courts is necessary to protect the rights of class members and ensure access to justice is being achieved.

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