Kwong v iAnthus Capital Holdings Inc.1 illustrates the risks associated with inadequate coordination of settlements of securities class actions commenced in different jurisdictions arising out of the same matter.

In parallel class actions commenced in Ontario (the Canadian Action) and in the United States Federal District Court for the Southern District of New York (the US Action), the corporate defendant, iAnthus Capital Holdings, Inc., was alleged to have made materially false and misleading public disclosures relating primarily to a loan facility. A settlement agreement in the US Action for USD $2.9 million was negotiated separately and in advance of a settlement agreement reached in the Canadian Action which provided for a settlement amount of CAD $500,000. At the time of the hearing to approve the settlement of the Canadian Action in the Ontario Superior Court of Justice the settlement in the US Action had not yet received court approval.

At the urging of an objecting class member (the Objector), Justice Akbarali refused to approve the proposed settlement of the Canadian Action. Notwithstanding the strong presumption of fairness arising from the fact that the settlement had been negotiated by experienced counsel acting at arms-length and the risks of the proceeding and of recovery, Her Honour was not satisfied that the plaintiff had satisfied his burden of establishing on a balance of probabilities that the settlement was fair, reasonable, and in the best interests of the class.

Her Honour identified several troubling factors, falling principally into two categories: insufficient evidence filed by the plaintiff in support of the settlement, and the "gross" and unexplained discrepancy between the settlement amount negotiated in the US Action and the proposed settlement amount in the Canadian Action.

With respect to the former, Her Honour noted the lack of evidence about any investigations undertaken in the litigation. In particular, there was no evidence that the plaintiff had retained any expert to assist with evaluation of the claim, no discoveries had taken place and documentary productions appeared to have been limited. Her Honour was also troubled by the absence of any evidence about the estimated class size in the Canadian Action and the likely recovery per class member if the settlement was approved. In addition, there was very little evidence in the record about the dynamics of the settlement negotiations between the parties.

With respect to the disparity in the settlement amounts, Her Honour observed that the proposed settlement amount in the Canadian Action (CAD $500,000) was "inferior by a wide margin" to the amount negotiated in the US action (USD $2.9 million). This disparity was exacerbated by the fact that the trading volume of iAnthus common shares in Canada was approximately 1.5 times the volume in the United States. Further, the net settlement amount that would be available for distribution to class members in the Canadian Action, most of whom were alleged to have lost the entirety of their investment, was only $195,787.85 after payment of proposed class counsel fees of $150,000, an honorarium for the representative plaintiff of $15,000, disbursements of $1,000 and a claims administration fee of $118,712.15. According to the Objector's submissions, the net settlement amount would result in "almost no recovery" per class member.

Finally, Her Honour was troubled by the plaintiff's evidence concerning available insurance that was relied upon to try to justify the "gross disparity" between the settlement amounts in the Canadian and US Actions. According to information provided by the plaintiff, only USD $500,000 was left of the original USD $5 million of coverage under a policy responding to the claims against iAnthus. Although another policy providing USD $2 million had been available to cover the claims against the two individual defendants named in the Canadian Action, an agreement by iAnthus to indemnify those individuals had apparently triggered an exclusion in the policy. However, no other evidence concerning the scope or context of the indemnification agreement and the consequent unavailability of the $2 million policy was offered.

Key Takeaways

There are several key takeaways.

The failure to coordinate settlement of parallel, cross-border securities class actions arising from substantially the same alleged misrepresentations may undermine the ability of counsel to persuade a court to approve settlement of the Canadian action where there is significant disparity in the proposed settlement amounts to the apparent detriment of the Canadian class.

For that reason, it is advisable for counsel in the Canadian action to attempt to coordinate with their US counterparts (and any responding insurers) settlement of the various actions in a manner that ensures that class members in all actions receive equitable, though not necessarily identical, treatment having regard for factors including litigation risk and expense in each action, comparative class size, relative damages exposure and the availability of funds under responsive insurance policies.

At the settlement approval hearing, class counsel should be prepared to file evidence demonstrating that members of the Canadian class are being treated equitably in comparison to members of the US class.

Finally, in an appropriate case, a class member's reasoned and supportable objections to a proposed settlement may be provided significant weight. In Kwong, the expert evidence filed by the Objector was found by Justice Akbarali to have been "necessary and relevant" to assist her in evaluating the reasonableness of the settlement. It is evident from the Endorsement that it influenced her decision not to approve the settlement.

*The author would like to thank Maxim Tchoudnovski, articling student, for his assistance in preparing this article.


1. 2024 ONSC 1311 [Kwong]

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Linda Fuerst
Crawley MacKewn Brush LLP
Suite 800 - 179 John Street
Ontario, M5T 1X4

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