Dimitri Lascaris of Siskinds in Canada has been showing up on our radar screen a lot recently. On Monday, September 8, we noticed that Lascaris was involved in the CP Ships Ltd. case in Canada. Lascaris’ clients are objecting to a settlement in the separate U.S. case against CP Ships Ltd. that he says extinguishes the rights of certain Canadians. Then on Thursday, September 11, we saw that Lascaris’ clients settled a securities class action against Vancouver-based Southwestern Resources Corp. for $15.5 million, reportedly the first major securities class action settlement to occur following changes to the Ontario Securities Act that were introduced at the end of 2005.
Securities Docket reached out to Lascaris to ask a few questions, and learned a good bit about the state of securities class actions in Canada under the revised Ontario Securities Act, as well as Siskinds’ significant role in these cases. Highlights of our discussion are below.
Securities Docket: You seem to be knee deep in the securities class action area in Canada, leading cases such as Southwestern and CP Ships. Is this a relatively new practice area for Canadian lawyers? How long have you specialized in it?
Lascaris: Prior to 2004, probably less than 5 securities class actions were filed in Canada. This was due largely to the widely held view that these cases were difficult to certify due to the purported obligation of each class member to prove detrimental reliance. In 2004, I joined Siskinds after having worked as a securities lawyer with Sullivan & Cromwell. At that time, Siskinds formed the view that the prospects for certifying cases of this nature were better than generally believed. We also decided that it was only a matter of time before the legislature adopted a law designed to facilitate the certification of securities class actions. We did not wait, however, for such a law to be adopted, and we began filing cases in 2004. Since that time, my practice has been devoted full-time to the prosecution of securities class actions. I also have four associates devoted full-time to prosecuting these cases.
From 2004 to the current time, our firm has filed about 15 securities class actions. About 5 were filed under the regime that was in effect when I joined Siskinds, and the rest were filed after the new law came into effect on December 31, 2005. Since 2004, all of Siskinds’ competitors combined have filed less than 5 securities class actions. As far as I know, the only lawyers in Canada who are devoted full-time to the prosecution of securities class actions are Siskinds lawyers.
Securities Docket: You stated recently that the Southwestern settlement was aided by the revisions to the Ontario Securities Act. How has it impacted investors and corporate defendants?
Lascaris: The new law is now embodied in Part XXIII.1 of the Ontario Securities Act, and creates a statutory cause of action for misrepresentations disseminated in the secondary market. Previously, the Securities Act provided a cause of action only for prospectus misrepresentation, and claims for secondary market misrepresentations were based largely on the common law. The new law goes further than creating a presumption of reliance — it declares reliance to be an irrelevancy. Also, once the plaintiff demonstrates that the defendants made a material misstatement, the defendants bear the burden of proving that they exercised due diligence.
There is no scienter requirement. However, if the Court finds that the the defendants did not act with fraudulent intent and were merely negligent, then the defendants’ liability is capped. The issuer’s liability limit is 5% of market capitalization. For directors and officers, the limit is basically compensation earned over the prior 12 months. Also, to screen out frivolous actions, the Act requires plaintiffs to obtain leave of the Court to pursue an action. In order to obtain leave, the plaintiff must demonstrate that he/she is acting in good faith and has a “reasonable possibility of success at trial.” In order to determine whether this standard has been met, the plaintiffs and all proposed defendants are required to file sworn statements with the Court, and may be cross-examined on those statements.
Our firm filed the first case under the new law (as well as the next eight cases). The first case was against Imax, the shares of which are listed on both the NASDAQ and the Toronto Stock Exchange. In support of our leave application, we have cross-examined every director and senior officer of Imax. In the meantime, the parties to the U.S. action just argued the motion to dismiss, meaning that the discovery stay is still in effect. In the Canadian Imax case, the defendants refused to answer various questions and produce various documents. This resulted in a motion for an order compelling disclosure by the defendants. We won that motion, which was the first decision rendered under Part XXIII.1 of the Ontario Securities Act.
Securities Docket: Approximately half of the settlement funds agreed to in Southwestern are coming from individuals rather than the corporate defendant. Is this typical in Canadian settlements?
Lascaris: Although I mostly disagree with Professor Coffee’s critique of securities class actions, I do agree with him that the deterrence effect of securities class actions is enhanced considerably when directors and officers are forced to make personal contributions to the settlement fund. As a result, our firm generally seeks personal contributions from directors and officers. To date, we have obtained personal contributions in about half of the cases we have settled, including Southwestern, the FMF securities class action and the Research in Motion stock options litigation.
Securities Docket: The CP Ships case that you are also leading for investors in Canada has a parallel US action. Has it been necessary or challenging to coordinate your case with counsel in the US? And what is the status of the US case–there were reports that the case had settled, but there were also reports that it was dismissed?
Lascaris: The action filed against CP Ships in the US was dismissed for failure to plead scienter with adequate particularity. Conversely, a motion to dismiss brought by the defendants in Canada was denied in its entirety. Moreover, the Quebec Superior Court has just certified a national class in CP Ships, and in its certification decision strongly endorsed the fraud-on-the-market theory (CP Ships was commenced before Part XXIII.1 came into force and is therefore based principally upon the common law (in Ontario) and the civil law (in Quebec)). The Quebec certification decision is the first time that a Canadian court has endorsed the fraud-on-the-market theory. Meanwhile, while an appeal from the US dismissal order was pending, the US plaintiffs settled their action for $1.3 million, and in so doing sought to extinguish the claims of certain Canadians. As a result, we have filed an objection to the US settlement. Our objection will be considered at a hearing to be held on October 2 before Judge Whittemore of the Middle District of Florida.