Product Recalls: Crisis Management and Class Action Prevention

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1 Product Recalls: Crisis Management and Class Action Prevention Gord McKee, Jill Lawrie, Nicole Henderson, Robin Linley & Marc-André Landry September 12, 2013

2 Recall Effectiveness

3 An effective recall An effective recall meets the following objectives: locates all recalled products removes all recalled products from the distribution chain and from the possession of consumers communicates accurate and understandable information about the recall issue, the hazard and the corrective action which reaches the parties in the distribution chain motivates consumers to take the recommended corrective action

4 Potential litigation ramifications in actions alleging breach of duty to warn and/or negligent recall as the central driver of a class action

5 Hutton v. General Motors (2010 decision of the Alberta Court of Queen s Bench) personal injury damages awarded following the inadvertent deployment of an airbag as a result of defects an earlier recall campaign purported to address the court found that the recall notice was misleading and under-inclusive as it left the impression that the identified defect had been fixed when there was more than one defect and they had not all been fixed the court held that this fell short of the standard required by the duty to warn the court also addressed what it termed negligent recall service

6 Hutton v. General Motors (2010 decision of the Alberta Court of Queen s Bench) Cont d found that when the defendant undertook the recall service it was at risk for doing so up to the requisite standard its failure to continue investigating for the causes of inadvertent deployments and for effective solutions to those cause(s) was found to be negligent while this decision speaks more to the substance of the warning, the discussion of the recall itself may encourage plaintiffs to argue that ineffective recalls could lead to liability

7 Hensley-Maclean v. Safeway, Inc., Northern District of California proposed class action in California against Safeway seeking injunctive relief requiring Safeway to inform Customers of product recalls and entitlement to refunds including direct contact using customer loyalty card data alleges breach of the duty to warn and unfair business practices as defined in California consumer and competition statutes certification hearing scheduled for October we have not identified any similar actions in Canada to date

8 Measuring effectiveness regulators may direct specific content, communications and reports for regulated products in the civil litigation context, likely subject to the reasonableness standard and may be informed by industry standards, practice or custom

9 Regulatory and Organizational Standards regulators and standards organizations such as Health Canada (Food & Drugs as well as Consumer Products), the U.S. Consumer Product Safety Commission and the International Standards Organization (ISO) all have recall guidelines and handbooks that speak, using varying degrees of directive or suggestive language that may be argued as informing the standard of care in ensuring the effectiveness of a recall

10 Factors to consider In addition to the central issues of the timing and content of the recall notice (which touch upon but go beyond the issue of effectiveness), a number of additional aspects of effectiveness should be considered and adapted to specific circumstances.

11 Locating and removing all recalled products from market identification of affected product (by UPC, date codes, model numbers, etc.) identification of participants in distribution chain identification and arrangements for return of in-transit shipments

12 Corrective action Determining the appropriate corrective action consider method most likely to result in removing identified hazard refund repair replacement destruction reverse logistics plan to process and track corrective action

13 Communication Consider available means of communication Direct to consumer through loyalty program, catalog, warranty or service inquiry lists Direct to consumer through credit card statements or bills Indirect options social media (Twitter, Facebook, Pinterest, etc.) websites retail posters paid advertising

14 Returned/repaired/destroyed product track product returned for repair and/or refund track and isolate product returned for destruction distinguish repaired products (new model/serial numbers, relabelled packaging or similar) test repaired and replacement product

15 Monitoring effectiveness audit recall implementation steps and consider further measures when appropriate (for e.g., if sufficient recalled product not returned)

16 Protecting privileged information during recalls

17 Maintaining privilege Product recalls may require disclosure of sensitive confidential information to: health authorities or other regulators media service providers (e.g. public relations consultants) Maintaining privilege is at issue!

18 Maintaining privilege The holder of the privilege must weigh what must be disclosed and when to disclose it As required by law For strategic reasons? For public relations purposes?

19 Maintaining privilege If disclosure is not mandatory, privilege must be protected Do not disclose more than necessary Limit circulation of privileged information State no intention to waive privilege Consider involving counsel in communications with third parties Training for employees and consultants

20 Class actions: choice of forum

21 Class actions: choice of forum When facing multiple class proceedings, defendants may prefer to litigate in one jurisdiction over another But remember: defendants have limited control over the choice of forum; and there is no golden rule

22 Key considerations Limiting the defence costs: Is it possible or likely that other proceedings will be stayed? Can the pace of the proceedings be controlled? Controlling individual actions: Can individual actions be stayed or otherwise set aside?

23 Key Considerations National classes: ability to avoid a multiplicity of proceedings and bind a larger class with a judgment or settlement some provinces permit certification of national classes constitutional validity remains uncertain

24 Key Considerations Opt-in vs. opt-out jurisdictions Alberta, Saskatchewan, Manitoba, Ontario, Québec, Nova Scotia: any class member may opt-out British Columbia, New Brunswick, Newfoundland & Labrador: residents must opt-out, non-residents must opt-in

25 Key Considerations Ability to present evidence at certification/authorization stage: Outside of Québec: certification motions generally involve affidavit evidence (including from experts) Québec: defendant requires leave to adduce evidence on motion for authorization; expert evidence almost never allowed

26 Key Considerations Appeal rights: British Columbia: either party may appeal a certification decision Ontario: leave required to appeal a decision certifying a class proceeding Québec: no right to appeal a decision authorizing the bringing of a class action

27 Key Considerations Costs awards: Availability and quantum vary between provinces Trends: Although uncertain and unpredictable, some jurisdictions are more favorable to class actions than others

28 Apology legislation

29 Apology legislation Encourages persons and companies to offer apologies without fear of compromising position in civil claims Apologies often resonate with claimants even if they have no legal effect Potential to avoid or shorten litigation and minimize reputational harm

30 Scope of apology legislation What is covered? expressions of sympathy or regret statements that one is sorry words or actions indicating contrition or commiseration Apologies protected regardless of whether the words or actions admit or imply fault

31 Apologies: Legal effect of apology legislation do not constitute admissions of fault or liability do not confirm a cause of action do not void, impair, or otherwise affect any insurance coverage cannot be taken into account in determination of fault are inadmissible in a civil proceeding

32 Limitations of apology legislation Protection limited to jurisdictions with apology legislation Apologies can still be used in criminal or provincial prosecutions Derivative evidence obtained as a result of an apology is admissible

33 Apology legislation unsettled issues What jurisdiction s law governs the apology? Admissibility of factual statements made in the context of an apology

34 Jurisdictions with apology legislation British Columbia Alberta Saskatchewan Manitoba Ontario Nova Scotia Newfoundland & Labrador Nunavut

35 Pre-Certification Communication with Class Members

36 Pre-certification Landscape Prevailing view is that there is no solicitor/client relationship between plaintiff s counsel and putative class members prior to certification Individuals may have their own counsel, or may wish to pursue separate proceedings By same token, proposed class members may not know there is a proposed class action

37 General Rules in Communications Pre-Certification Pre-certification communications are permitted, so long as conduct is not misleading, threatening or coercive Defence counsel must likely disclose existence of a class action counsel must also be forthright about who they represent

38 General Rules in Communications Pre-Certification Can contact putative class members precertification to gather evidence but he or she cannot make misleading statements or try to convince proposed class members to act in a manner contrary to their interests Cannot be a sugar coated interrorem device to intimidate class members from exercising their recourse to the courts [Atkinson v. Ault Foods Ltd. [1997] O.J. No (Gen.Div.)]

39 Post Certification Communications Prevailing view in common law provinces: Certification gives rise to the existence of a solicitor/client relationship between class counsel and class members with all of the responsibilities that entails Good argument to say that in common law provinces communications between defence counsel and class members who have not opted out are precluded by the Rules of Professional Conduct; however, there may be limited scope to collect information in order to prepare for trial

40 Strategic considerations: May be proof of a preferable procedure Build goodwill/reputational protection Small class (known group of people with similar injuries/damages)

41 Lundy v. Via Rail Canada [2012] O.J. No Motion by plaintiffs pre-certification for production of releases it had obtained from putative class members rescinding settlements with any putative class members and enjoining further communications with class members following a train derailment Held: VIA required to disclose releases but allowed to complete settlements and to communicate with putative class members provided plaintiff s counsel was provided with communication materials 7 days in advance and no communication with putative class members known to be represented by class counsel

42 Lundy v. Via Rail Canada [2012] O.J. No Cont d No evidence VIA had an agenda of interference Confirmed that defendants (and not their counsel) are not subject to Rules of Professional Conduct Not every communication will require court approval Parties are free to communicate to the public; a press release that provides information to the media and that does not evade the notice requirements of the CPA is not a notice regulated by the CPA An order restricting communication by the defendants to class members is extraordinary Should only be made if there is a real and substantial risk to the fair determination of a class proceeding

43 Durling v. Sunrise Propane Energy Order to restrain insurer and its counsel from communicating with class members during opt-out period Solicitor for insurer sent a letter to putative class members indicating intention to opt them out and requesting documentation in support of their claims Held breach of Rule 6.03(7) of the Rules of Professional Conduct to communicate with class members where known to be represented

44 Durling v. Sunrise Propane Energy Cont d Court must intervene where necessary to ensure that the integrity of the opt-out process is protected Orders to restrain communications during optout period are not limited to defendants and class members May include non-party where communication is improper

Supreme Court of Canada

Supreme Court of Canada Statistics - Supreme Court of Canada (2018) ISSN 1193-8536 (Print) ISSN 1918-8358 (Online) Photograph: Philippe Landreville 02. Introduction 04. The Appeal Process in the Supreme