NovaGold settlement set at $28M

…the Sotos firm has franchise cases ongoing where Cassels Brock are lawyers are on the other side, including the Quizno's case, which was certified and is under appeal. Quizno's has been represented by Cassels Brock lawyers Geoffrey B. Shaw, Timothy Pinos, and Eunice Machado. That case alone featured 20 hard-fought motions before certification.

National Post
February 17, 2010

NovaGold settlement set at $28M
Sutts, Strosberg deal awaits OK from judges
Jim Middlemiss

Sutts, Strosberg's investment in U.S. class-action securities lawyer Andrew Morganti appears to be paying off with the announcement that the firm has reached a $28-million cross-border settlement on behalf of investors in NovaGold Resources Inc. The settlement must still be approved by judges in Canada and the United States. NovaGold was represented by Gowlings lawyer Kelley McKinnon, a former deputy director of enforcement at the Ontario Securities Commission.

The Sutts, Strosberg firm sued NovaGold in October, explained Jay Strosberg, who worked on the case along with Mr. Morganti. Mr. Morganti joined Sutts Strosberg last April after working at the U.S. class-action giant Milberg LLP and knows all about class actions, having been involved in lawsuits that won millions of dollars for plaintiffs.

The Sutts, Strosberg firm became involved in the suit after U.S. law firm Labaton Sucharow sued NovaGold in the United States, but a court there ruled it didn't have the "jurisdiction to deal with Canadian investors," Mr. Strosberg said. So his firm launched a parallel action in Canada on behalf of Canadian investors.

The claim, directed at the company and its officers and directors, alleges the defendants misrepresented that the Galore Creek mining project was "economically feasible when they knew or should have known that the construction of the Tailings Dam would cost substantially more than publicly disclosed figures."

Mr. Morganti called the settlement, "fair and in the best interest of our plaintiffs." It exceeds the top settlement in 2009 for a securities class action in Canada of $19-million involving Aurelian Resources Inc.

Brad Heys, a vice-president of NERA Economic Consulting, which tracks securities class actions, says it's the only settlement so far in 2010. "The $28-million represents 28% of the damages claimed in the Canadian action," which was originally $100-million. "This is a larger percentage recovery than we saw in most cases in 2009 and obviously larger in absolute dollar terms' " he says. "That it is relatively large is consistent with it being a global settlement of a cross-border case, although it is still less than the median settlement of $43-million for cross-border settlements in our database of cases filed between 1997 and 2009."

Two class actions coupled with settlement discussions in Hollinger litigation should provide for interesting boardroom discussion at an under-the-radar, reciprocal insurance exchange known as the Canadian Lawyers Liability Assurance Society (CLLAS).

It's a collection of Canada's largest law firms, which have banded together to deal with liability coverage for negligence claims against their lawyers for amounts above the $1-million basic coverage provided by the Ontario law society. It's known as excess insurance.

The Financial Services Commission of Ontario (FSCO), which regulates insurance institutions, says CLLAS was formed in 1987. Industry sources say it was formed at a time when it was difficult for large law firms to obtain affordable excess liability insurance in the market. It's been reported CLLAS has saved law firms million of dollars in premiums.

Yet little is known about the organization. It's believed to have started with eight or nine firms and now includes as many as 14 of Canada's top law firms, covering more than 5,000 lawyers.

Among the firms that have been publicly linked to CLLAS in media reports over the years are: Fasken Martineau, Blakes, Cassels & Graydon, Borden Ladner, McMillan, Fraser Milner Casgrain and Torys. Behind the Bar has also confirmed that WeirFoulds and Cassels Brock & Blackwell are also part of the mix.

Calls to lawyers who sit on its board were met with stony silence and no comment. When contacted by Behind the Bar, Patrick Mahoney, who works for actuarial firm Dion Durrell & Associates, Inc. and is general manager of CLLAS, questioned Behind the Bar's interest in the secretive society, sniffing, "there's a gossip factor, I suppose, to it."

"I can't talk about this stuff. CLLAS is a private organization," he said. "It's not something we do. It's a sensitive organization managing the sorts of issues it has to manage and it sees no value in talking about private stuff in public."

No doubt the CLLAS board is talking about some recent developments and the potential impact it has on its members. Former justice Jack Ground, who is litigation trustee of Hollinger Corporation, continues to pursue claims Hollinger has against various parties, including CLLAS member Torys. The law firm was already part of an earlier $30-million settlement involving Hollinger International.

Next up is WeirFoulds, also a CLLAS firm. The Ontario Superior Court recently certified a class action against WeirFoulds over advice in a takeover bid circular involving Aspen Group Resources Corp.

While no dollar value was mentioned in the claim, it is easily a multi-million-dollar suit. The certification ruling is under appeal and the case must still be ruled on by a judge.

It has a long way to go before any finding of liability, though trends show that class actions that get certified tend to lead to a settlement.

The next up is the $750-million class action against Cassels Brock, another CLLAS firm, over its handling of the GM autodealers. That case was recently filed and there has been no finding of liability by a court and the case has not yet been certified.

That's a lot of potential exposure CLLAS faces in just three cases. But then again, law firms get sued all the time over their advice.

LawPRO, which in 2008 provided liability insurance to 21,500 members of the Law Society of Upper Canada and insured 1,400 law firms under its optional excess insurance program, says there were 2,175 claims against lawyers, which was 3% more than 2007.

According to its 2008 annual report, LawPRO maintains a $348.6-million provision on its books for unpaid claims.

Over the years, CLLAS has collected and paid out millions, according to filings with FSCO. Between 1999 to 2008, CLLAS collected $191.5-million in premiums and paid out $142.8-million. In the annual report dated 2007-2008, FSCO listed CLLAS's total assets at $120-million and its total liabilities at $104.5-million — $15.6-million in assets over liabilities.

When asked to comment, Mr. Mahoney said "the firms are properly insured." In a later email he wrote: "CLLAS commenced operations on June 30, 1987 and, over the course of its history, has been affected by claims trends and developments in law in the same manner as other professional liability insurers. It would be inappropriate for CLLAS, or any insurer for that matter, to discuss in public any details with respect to its insureds or the claims, if any, made against those insureds."

When David Sterns and John Sotos of Sotos LLP included Cassels Brock & Blackwell in its $750-million class action against General Motors on behalf of 215 dealers who were terminated by GM, it set the stage for some tough litigation down the road.

That's because the Sotos firm has franchise cases ongoing where Cassels Brock are lawyers are on the other side, including the Quizno's case, which was certified and is under appeal. Quizno's has been represented by Cassels Brock lawyers Geoffrey B. Shaw, Timothy Pinos, and Eunice Machado. That case alone featured 20 hard-fought motions before certification.

The Sotos firm often represents franchisees in litigation and commercial matters, while Cassels has built a strong practice representing franchisors.

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