Category: Settlement

Structured Settlements in Claims Involving Minor Plaintiffs

BACKGROUND

The claim involved an eleven year-old plaintiff named Audrey Serravalle. She was struck by the defendant, Thomas Duggan (“Mr. Duggan”), when she was a crossing a residential road on May 17, 2018. Mr. Duggan was travelling eastbound and crossed the yellow line to pass a garbage truck that had stopped in the eastbound lane. Audrey ran out from in front of the garbage truck and was struck by Mr. Duggan’s vehicle. Audrey suffered multiple fractures to her skull, clavicle, and pelvis, a tear to her right meniscus, and a serious degloving injury to the left foot.

Audrey commenced an action through her father who acted as her litigation guardian. The matter proceeded to mediation on February 9, 2022 and settled for $400,000, plus costs and disbursements. On March 21, 2022, the plaintiff’s law firm placed $150,000 of the settlement into a structured settlement.

The plaintiffs brought a written motion seeking court approval of the portion of the settlement pertaining to the minor plaintiff Audrey (the “Settlement”) pursuant to Rule 7.08 of the Rules of Civil Procedure.

ISSUE

Have the plaintiffs satisfied the court that the proposed settlement is fair and reasonable?

DECISION

The court ultimately approved the Settlement after performing a thorough analysis of Mr. Duggan’s liability, Audrey’s contributory negligence, her injuries, and her projected future impairments and loss of competitive advantage.

However, the court did not approve of the plaintiff law firm’s decision to place $150,000 of the Settlement into a structured settlement prior to receiving court approval. By doing so, the court stated that the plaintiff law firm had violated Rule 7.09(1) of the Rules of Civil Procedure. Citing Rule 7.08 and Wu (Estate) v. Zurich Insurance Company (2006), the court stated that the operation of a settlement involving a minor plaintiff was suspended until it had been approved by the court. The court held that payment of settlement funds into the court was required unless leave had been granted.

The court also ruled that the plaintiff law firm’s Contingency Fee Agreement was unenforceable. The agreement appeared to have been signed by the parties on June 27, 2018, while the plaintiff law firm’s dockets indicated that its first meeting with the plaintiffs was on June 28, 2018. The court also found that Audrey’s father, the litigation guardian for the action, had not understood the implications of the agreement as he appeared to have mistakenly believed that the plaintiffs would not be responsible for any fees or disbursements if they lost at trial. The plaintiff law firm’s contingency rate was reduced from 30% to 25% due to vague dockets, services that were properly overhead, and the lack of analysis regarding liability, contributory negligence, and damages provided in the law firm’s affidavit for the motion.

[2006] OJ No 1939 (QL) , 27 CPC (6th) 207.

The court further found that the plaintiff law firm’s Referral Agreement was unenforceable as it had been signed after the matter settled at mediation and nearly four years after the plaintiffs had been referred to the plaintiff law firm. The court reasoned that it was unclear whether the plaintiffs’ lawyers had explained the nature of the Referral Agreement at the time of the referral, given that the agreement had been signed nearly four years after the referral occurred. The court ruled that to permit an agreement entered into under such circumstances would undermine the Law Society’s objectives of transparency and disclosure, and ruled that the agreement and referral fee of $11,524.77 were not enforceable.

TAKEAWAYS

Parties should exercise caution if they place settlement funds into structured settlements prior to receiving court approval, regardless of whether the structure is funded in escrow and on the condition that it may be collapsed if the court does not approve of the settlement. Courts may no longer be agreeable to these arrangements pursuant to Rule 7.09 of the Rules of Civil Procedure.

The plaintiff law firm in this matter is currently in the process of appealing the decision and is seeking clarification regarding the court’s position on whether structured settlements can be arranged in escrow prior to receiving court approval. It remains to be seen whether the practice of placing settlement funds into structured settlements prior to being granted court approval will be upheld or denied by the courts.

Poirier v Logan, 2021 ONSC 1633

Justice Perell’s reasons in Poirier v. Logan outline the importance of prompt disclosure of settlement agreements that change the landscape of the litigation.

In this action, the Plaintiff had made a Settlement Agreement with one of the Defendants, but not all of them. Neither Plaintiff’s counsel nor the Defendant in question immediately disclosed the settlement to the remaining co-Defendants.

Relying on the Court of Appeal’s decisions in Laudon v. Roberts, Handley Estate v. DTA Insutries Limites and Aecon Buildings v. Stephenson Engineering Limited, the co-Defendants/Cross claimants, brought a motion to have the Plaintiff’s action dismissed as an abuse of process.

Justice Perell agreed, granting the motion, and dismissing the Plaintiff’s action.

Background

In October of 2019, counsel for the Defendant, Mr. Friedberg, and counsel for the Plaintiff, Mr. Poirier, had settlement discussions. On October 24, 2019, without explanation to the co-Defendants and without disclosing the settlement discussions, counsel for Mr. Friedberg advised counsel for the co-Defendants that she and Mr. Poirier’s counsel had agreed to adjourn the examinations.

On October 28, 2019, counsel for Mr. Poirier sent counsel for Mr. Friedberg an email outlining what was discussed and stating that they will confirm an agreement to not continue against Mr. Friedberg and that the action will be dismissed or discontinued, without costs. Mr. Poirier was to provide a Full and Final Release to Mr. Friedberg.

Later that day, counsel for Mr. Poirier advised the co-Defendants’ counsel that the examination of Mr. Friedberg, scheduled for the next day, would not be proceeding. No explanation was provided.

On October 30, 2019, counsel for Mr. Poirier and counsel for Mr. Friedberg finalized the settlement.

On November 5, 2019, counsel for Mr. Poirier asked counsel for Mr. Friedberg not to write to the co-Defendants and to wait for further instruction.

On April 30, 2020, in an email message to the co-Defendants, counsel for Mr. Poirier disclosed that Mr. Poirier had settled with Mr. Friedberg. The terms of the settlement were not disclosed. That evening, counsel for the Goldstein co-Defendants wrote to counsel for Mr. Poirier and asked when the Settlement Agreement had been reached. They requested that documentation evidencing the Settlement Agreement be produced immediately.

On May 4, 2020, counsel for Mr. Poirier sent an email to counsel for the co-Defendants advising that Mr. Poirier and Mr. Friedberg had reached a settlement on October 30, 2019.

The law on Disclosure of Settlement Agreements

The law with respect to disclosure of settlement agreements states that when a Plaintiff settles with one or more of the Defendants but not all of them, and the settlement changes the adversarial orientation of the proceeding, the Plaintiff must immediately disclose to the non-settling Defendants that (a) there is a settlement and (b) the terms of the settlement that change the adversarial orientation of the proceeding.

In Pettey v. Avis Car Inc., Justice Ferrier explained why the settlement terms must be disclosed and how the adversarial orientation of a lawsuit can be changed by a settlement. He stated:

“The agreement must be disclosed to the parties and to the court as soon as the agreement is made. The non-contracting [non-settling] defendants must be advised immediately because the agreement may well have an impact on the strategy and line of cross-examination to be pursued and evidence to be led by them. The non-contracting parties must also be aware of the agreement so that they can properly assess the steps being taken from that point forward by the plaintiff and the contracting [settling] defendants. In short, procedural fairness requires immediate disclosure. Most importantly, the court must be informed immediately so that it can properly fulfil its role in controlling its process in the interests of fairness and justice to all
parties.”

Justice Perell stated that both the existence of the Settlement Agreement and the terms of it, other than the terms that do not affect the adversarial orientation of the lawsuit, must be disclosed. The failure to disclose immediately or the failure to disclose the terms of a settlement that changes the proceeding’s adversarial orientation is an abuse of process for which the only remedy is the dismissal of the proceeding.

Justice Perell’s Reasons

Justice Perell stated that he agrees with the Plaintiff’s argument that not all settlement agreements require immediate disclosure. Justice Perell agrees that a settlement agreement by one litigant to co-operate with another litigant, be that other a friend or a foe, does not necessarily fundamentally alter the litigation landscape or the adversarial orientation of the litigation. A settlement agreement may and most often will change the litigation landscape but whether that change actually occurs will ultimately depend on the circumstances of each particular case. Justice Perall believes that the agreement in this case, between Mr. Poirier and Mr. Friedberg did fundamentally change the litigation landscape. He states that there is little reason not to disclose a settlement agreement immediately. The risks of intentionally or unintentionally keeping a settlement agreement a secret are far too risky.

In this case, Plaintiff’s counsel was wrong to write to counsel for Mr. Friedberg and state that they did not want the co-Defendants to become aware of the Settlement Agreement yet. The responsibility for disclosure was on Mr. Poirier’s counsel, and there was no justification for letting the matter slip through the cracks. The Settlement Agreement was disclosed six months later.

The circumstances of each case will reveal whether the litigation landscape has actually changed as a result of a settlement agreement. In this case, Mr. Friedberg’s role was fundamental to the litigation. Mr. Friedberg was a potentially culpable party who was being let out of the main action, and the decision to settle was consequential to the litigation landscape.

Mr. Friedberg had agreed to deliver an affidavit that was vetted by Plaintiff’s counsel as part of the settlement. This affidavit would alter the strategy and potential outcome of the cross claims and would have assisted the Plaintiff. This is without a doubt a fundamental change in the litigation landscape.

Justice Perell stated that it was the responsibility of the Plaintiff in this case to disclose the Settlement Agreement, and as a result, he granted the motion and dismissed the action.

Tallman Truck Centre Ltd. v. K.S.P. Holdings Inc., 2021 ONSC 984

The plaintiff settled with only one of the two defendants in the action. The terms of settlement involved the settling defendant reversing its pleaded position, switching sides, and joining cause with the plaintiff. The plaintiff and the settling defendant failed to immediately disclose the settlement to the non-settling defendant. Certain aspects of the settlement were first disclosed three weeks after the agreement was reached. The non-settling defendant successfully brought a motion to permanently stay the action. Justice Myers reasoned that the Rules are clear with respect to a party switching sides from its pleaded position: such an agreement must be disclosed as soon as it is made. Prejudice to the non-settling defendant is not relevant. Failure to immediately disclose amounts to an abuse of process for which the only remedy is a stay of proceedings.

Toronto Hydro v. Gonte and City of Toronto, 2018 ONSC 4315

In this action, two of the three Defendants/Third Parties had settled. The settlement did not involve the remaining party and there were no terms in the settlement to limit continuing litigation in the nature of a Pierringer agreement. Toronto Hydro settled with the Plaintiffs and continued its claims against Gonte and the City. Subsequently, Toronto Hydro settled its claims against the City for a dismissal of all claims between them without costs. The City sought a determination regarding what claims, and the scope of the claims, that Toronto Hydro and Gonte were permitted to continue in light of Toronto Hydro’s settlement with the City. Justice Copeland held that where the settling party has chosen to give up its claim for contribution and indemnity against the other settling party, it is not entitled to indirectly reassert that claim by seeking a bigger share of liability from the non-settling party on the basis that it now only has one party to seek contribution from. Justice Copeland also found that where there are both contract and tort claims, if the non-settling party is found liable only in contract, it cannot make a claim for contribution and indemnity against one of the settling parties under the Negligence Act because it is not a “tortfeasor” as required by the Act.