Court of appeal decision ‘a wake-up call and a warning’

Personal Injury /
M. Steven Rastin
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By Tony Poland, LegalMatters Staff • Plaintiff lawyers negotiating settlements in complex actions involving multiple parties must pay heed to a recent Ontario Court of Appeal (OCA) ruling that has effectively made their task more difficult, says Barrie-area litigator Steve Rastin. 

Rastin, senior counsel at Rastin Gluckstein, says the decision in Crestwood Preparatory College Inc. v. Smith is a “wake-up call and a warning” to lawyers to consider the procedural requirements of making settlements when multiple claimants are not on the same page.

“This ruling essentially means lawyers will be facing landmines in terms of how to deal with a case involving multiple parties where some plaintiffs are reasonable and others are not,” he tells LegalMattersCanada.ca. “My advice to lawyers is to read the Crestwood decision very carefully.”

In that case, the OCA upheld a lower court ruling that found “where a settlement agreement has the effect of changing entirely the landscape of the litigation in a way that significantly alters the dynamics of the litigation, it must be immediately disclosed to the non-settling defendant(s).” Failing to do so amounts to abuse of process, resulting in an automatic stay of the proceeding, the appeal court found. 

Multiple defendants can complicate negotiations

Rastin, who was not involved in the case but comments generally, explains some litigation is straightforward because there is only one allegedly wronged plaintiff and one defendant.

In other cases, there may be multiple defendants with multiple theories of liability, he says.

“That can be problematic if one of the defendants has a radically different view of the case than the other parties,” says Rastin. “The parties may come together in mediation in an attempt to reach an accord. But if one takes an intransigent position and refuses to contribute anything to a settlement, your only option is to blow up the settlement and go to trial. That is unfortunate if most of the parties can actually agree on a settlement.”

He says there are two tools that lawyers have historically used in such situations. The first is known as a Mary Carter Agreement (MCA), which allows some participants in a multi-party litigation to settle their claims, while the claims against the non-settling parties go forward, says Rastin. 

The advantage to the plaintiff is they achieve partial success and some certainty while remaining part of the claim, he adds.

Agreements ‘fell out of vogue’

However, following the OCA decision in Laudon v. Roberts, Mary Carter Agreements “fell out of vogue” and are rarely, if ever, used, says Rastin. 

In that case, the plaintiff made a Mary Carter settlement with one defendant and won a judgment from another defendant at trial, which the appellate court ruled amounted to double recovery. That is not permitted except in a few narrow situations.

“Even though the lower court decided that the non-settling defendant owed the plaintiff money, he lost that case because basically, the OCA ruling was that the settlement had already been paid by the other party,” says Rastin. “Effectively, the result of the Loudon case has been that plaintiffs are very reluctant going forward to use Mary Carter Agreement. I used to use them, and so did other lawyers. We are not using them anymore.”

Since then, Pierringer Agreements have become more common, he says. These agreements allow defendants in a multi-party claim to settle and then be removed from the action while non-settling defendants would proceed to trial, says Rastin.

However, while Pierringer Agreements are still viable and preferred over Mary Carter Agreements, the Crestwood judgment serves as a warning about the need to be vigilant, he says.

‘Lawyers need to be hyper-aware of the procedural requirements’

“As Pierringer Agreements become more complicated or more common, lawyers need to be hyper-aware of the procedural requirements. Failure to do so is at their own risk,” he says. “They need to be aware of the stringent early disclosure obligations because what the court found in Crestwood and other cases is that it is an abuse of process not to disclose the settlement agreement immediately.

“Whether or not I agree is irrelevant,” Rastin adds. “The bottom line is, cases have been dismissed because there was no immediate disclosure.”

He says that in Crestwood, it is important to note that the case was stayed even though the delay in disclosure was only a few weeks.

“We are not talking about years,” says Rastin. “I would suspect that few lawyers would have a reason not to disclose a settlement, but it likely would not be their highest priority to disclose it immediately.

Appellant did not have to prove prejudice

“The other interesting thing here is that in order to get the case dismissed, the appellant did not have to show that they suffered any prejudice,” he adds. “You would think that would be a requirement.”

Rastin says the Laudon and Crestwood rulings have the potential to limit what lawyers can do to bring about settlements and keep claims out of overcrowded courts.

“Both of these interesting legal analyses, in my respectful view, fail to consider one of the problems we have as we pursue cases,” he says. “And that is, it is not uncommon when you are dealing with complex cases with multiple defendants that there can be one or two holdouts preventing you from coming to a reasonable solution.”

However, Rastin says he understands the fundamental reasoning behind the decisions.

Courts take a balanced approach

“Courts take a balanced approach to protect the integrity of the process and they do view the failure to disclose as an abuse of process. That is the role of judges,” he says. “However, there does not appear to have been a lot of discussion or consideration about the judicial economies in terms of encouraging settlement.

“I am not talking about allowing an abuse of process. But perhaps allowing notice to be given in a reasonable fashion and requiring an appellant to prove prejudice.” 

The bottom line, Rastin says, is that the court is entitled to do what it needs to protect the integrity of the process.

“The cost of that position is that plaintiff lawyers might perceive that it is harder to settle files with reasonable parties where there are unreasonable parties at the table,” he says. “There is still a benefit to all parties in trying to simplify a case and settle with parties who are reasonable.

“Lawyers just need to be careful,” Rastin adds. “They had better ensure that procedurally they dot their I’s and cross their T’s when using a Pierringer Agreement because if they settle a case and fail to disclose that fact quickly enough and the case is thereafter stayed, guess what? They have let their client down.”