Proposed class action lawsuits against a couple of fund managers over their payment of trailing commissions to discount brokers can proceed, and are not prohibited by orders certifying similar, earlier lawsuits as class actions, an Ontario court has ruled, upholding a lower court decision.
A trio of firms — BMO Investments Inc., Natcan Trust Co. and National Bank Investments Inc. — appealed a lower court ruling from November 2024, which rejected their motions to dismiss new trailer fee class actions against them on the basis that the plaintiffs required leave from the court to bring their legal actions in the first place, which they didn’t obtain.
The three firms were the target of proposed class actions filed in 2018 over the payment of trailer fees to discount brokers. Those cases were certified as class actions with orders stipulating that leave from the court would be required to bring other legal actions over the same conduct.
And, when additional lawsuits were filed against the firms in 2022, without leave, the firms asked the court to dismiss those actions on the basis that the plaintiffs failed to obtain leave.
However, the Superior Court of Justice rejected that argument, finding that the investor classes represented by the 2018 lawsuits and 2022 lawsuits were different. The initial suits were brought on behalf of discount brokerage clients, while the latter suits were brought on behalf of full-service brokerage clients, also over the payment of trailers to discount brokers.
“The theory of liability in the 2022 actions was that the payment of trailing commissions to discount brokers increased the costs to all unitholders, and thus reduced the value of the 2022 class members’ investments,” the Court of Appeal for Ontario noted in its decision this week.
Those allegations have not been proven, but the motion judge ruled that the 2022 lawsuits shouldn’t be struck down on the basis of the leave provisions of the earlier certification orders, given that the two sets of claims involved different groups of plaintiffs.
The requirement for leave was intended to apply to participants in the original cases, the court noted — for example, if investors that are covered by the 2018 actions opt out of those cases, they would have to obtain leave to bring a new action over the same conduct. However, that doesn’t apply to entirely different groups of investors, the court found.
The firms appealed that decision, arguing that the motion judge made several legal errors in her decision.
“While these are framed as distinct errors, they all relate to the question of whether the motion judge properly interpreted and applied the leave provision in the certification orders,” the appeal court noted.
Ultimately, it ruled that the motion judge’s interpretation of the certification orders was correct, and a new group of plaintiffs (full-service clients) don’t require leave to bring a trailer fee class action of their own.
“The motion judge did not err in rejecting the appellants’ proposed broad interpretation of the leave requirements in the certification orders of the 2018 actions, or in determining that the leave requirements did not extend to the 2022 actions,” the appeal court said — adding that the leave requirement should be interpreted narrowly, as it may restrict access to the courts.