In re Altaba, Inc. ( 2022 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
)
IN RE ALTABA, INC. ) C.A. No. 2020-0413-JTL
)
MEMORANDUM OPINION
Date Submitted: February 11, 2022
Date Decided: April 18, 2022
Paul J. Lockwood, Arthur R. Bookout, Matthew P. Majarian, Kathryn S. Bartolacci,
Gregory P. Ranzini, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP,
Wilmington, Delaware; David E. Ross, ROSS ARONSTAM & MORITZ LLP,
Wilmington, Delaware; Attorneys for Petitioner Altaba, Inc.
Christopher P. Simon, Kevin S. Mann, David G. Holmes, CROSS & SIMON, LLC,
Wilmington Delaware; E.F. Anthony Merchant, Q.C., MERCHANT LAW GROUP LLP,
Regina, Saskatchewan; Attorneys for Claimant Emily Larocque.
LASTER, V.C.
Petitioner Altaba, Inc. (the “Company”) is a dissolved Delaware corporation.
Between 2012 and 2016, hackers victimized the Company repeatedly, resulting in massive
data breaches. After the breaches, but before disclosing them, the Company consolidated
its operating businesses into a subsidiary named Oath Holdings, Inc., then entered into an
agreement to sell Oath Holdings to Verizon Communications Inc. (the “Verizon Sale”).
After agreeing to the Verizon Sale, the Company disclosed the data breaches. The
disclosures predictably resulted in litigation across multiple jurisdictions. The Company
and Verizon renegotiated the Verizon Sale, resulting in the Company agreeing to bear half
of any losses from the litigation.
Pertinent to this decision, various plaintiffs filed six putative class action lawsuits
against the Company in five different Canadian provinces. Canada lacks any mechanism
for consolidating class actions across provinces. Instead, the class actions in different
provinces may proceed to judgment, with the court adjusting the remedy in a particular
action to avoid duplicative recoveries.
The Company subsequently dissolved and elected to wind up its affairs and make
liquidating distributions using the optional, court-supervised process under Sections 280
and 281(a) of the Delaware General Corporation Law (the “Elective Path”). Under the
Elective Path, the dissolved corporation “shall petition the Court of Chancery to determine
the amount and form of security that will be reasonably likely to be sufficient to provide
compensation for any claim against the corporation which is the subject of a pending
action, suit or proceeding to which the corporation is a party.” 8 Del. C. § 280(c)(1).
The Company sent notice of this proceeding to the putative plaintiffs in the six
Canadian class actions, and plaintiff’s counsel in two of the actions submitted claims (the
“Canadian Claims”). The first action, captioned Karasik v. Yahoo! Inc., No. CV-16-
566248-00CP, is pending in the Ontario Superior Court of Justice (respectively, the
“Ontario Action” and the “Ontario Court”). The second action, Larocque v. Yahoo! Inc.,
No. QBG-1242, is pending before the Queen’s Bench of Saskatchewan (respectively, the
“Saskatchewan Action” and the “Saskatchewan Court”). This decision refers to the Ontario
Action and the Saskatchewan Action together as the “Canadian Actions.”
The Company chose to engage with counsel for the putative class in the Ontario
Action (“Ontario Counsel”). Ontario Counsel agreed that the Company need only withhold
$50 million as security for the Ontario Action.1 In this proceeding, the Company sought to
rely on that agreement for purposes of making an interim distribution to its stockholders.
The court found that the Company had not carried its burden of proof and required the
Company to retain security of $800 million on an interim basis. In re Altaba, Inc. (Interim
Security Decision), 241 A.3d 768, 782 (Del. Ch. 2020).
1
All dollar figures are in U.S. dollars, not Canadian dollars, unless otherwise
specified. The parties used a conversion rate of 1 Canadian dollar ≈ 0.76 U.S dollar in the
briefing. The court recognizes that the value of currency fluctuates over time, and the
Canadian dollar has strengthened since the parties briefed the issue. Nevertheless, the court
has applied the conversion rate used by the parties for purposes of its decision.
2
The Company, Verizon, and Ontario Counsel subsequently settled the Ontario
Action for $15 million. Under the agreement governing the Verizon Sale, the Company
was obligated to contribute $7.5 million to fund the settlement.
Under Canadian law, the settlement in the Ontario Action did not automatically
dispose of the Saskatchewan Action. The Saskatchewan Court has discretion over whether
to permit the Saskatchewan Action to proceed. The defendants in the Saskatchewan Action
have asked the Saskatchewan Court to dismiss or permanently stay the Saskatchewan
Action in deference to the settled Ontario Action. It has been nearly a year since the
defendants made that motion, and the Saskatchewan Court has not yet issued a ruling.
The Company now seeks a final determination that the Company need only retain
security of $50 million for the Canadian Claims as a whole. The Company regards its
proposal as generous given the approval of the settlement in the Ontario Action. The
Company maintains the Saskatchewan Action is duplicative of the Ontario Action and
contends that it is reasonably likely that the Saskatchewan Action will be dismissed or
permanently stayed in deference to the Ontario Action.
Counsel for the putative class in the Saskatchewan Action (“Saskatchewan
Counsel”) asks that the Company retain $800 million as security until the final disposition
of the Saskatchewan Action. Saskatchewan Counsel regards that amount as a reasonable
estimate of the damages that could be awarded to the putative class members in the four
provinces where statutes authorize an award of per se damages for breaches of privacy.
And while a permanent stay of the Saskatchewan Action may be the most likely outcome,
Saskatchewan Counsel correctly points out that it is not the only possible outcome. The
3
Saskatchewan Court has demonstrated a willingness to reject settlements approved in other
jurisdictions, and the Saskatchewan Court must follow Saskatchewan legislation on class
actions and breaches of privacy. Saskatchewan Counsel correctly points out that if this
court only approves security in the amount of $50 million, then it will be impossible for
the class to recover the full value of their claims, even if they litigate through trial and
prevail on every issue. The court’s determination also would affect any settlement
negotiations, because rather than facing an admittedly low probability of a massive
damages award, the Company’s risk would be capped at $50 million. Thus, by approving
security in the amount of $50 million, the court would be pre-judging the outcome of the
Saskatchewan Action, reducing the value of the Canadian Claims, and affecting the course
of litigation before a sister court.
The Company had the burden of providing that the amount of security it proposed
was reasonably likely to be sufficient to satisfy the Canadian Claims. The Company proved
that the most likely result in the Saskatchewan Action is dismissal or a permanent stay in
favor of the Ontario Action, and it is self-evident that in that setting, the Company’s
proposed amount of security is more than sufficient. That, however, is a different issue than
whether the Company’s proposed amount of security is reasonably likely to be sufficient
to satisfy the Canadian Claims.
The operative test does not call for the court to pick the most likely outcome and set
an amount of security based on what would be sufficient in that eventuality. The operative
test does not even call for the court to use the risk-adjusted outcome. The test instead calls
for the court to assess the range of possible outcomes and determine whether the Company
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has proven that across those outcomes, the proposed security is reasonably likely to be
sufficient.
In this case, the Company failed to carry its burden of proof. There are realistic—
albeit low probability—outcomes in which the Company’s liability in the Saskatchewan
Action would vastly exceed the amount of security that the Company has proposed. In
those situations, the claimants in the Canadian Actions would be left holding the bag, and
any liquidating distribution that the Company made based on the inadequate security would
constitute a windfall for stockholders at the expense of the Company’s creditors. Such a
result violates the absolute priority rule and results in an improper preference in favor of
equity.
The next question is how much security to require. The Company’s figure is not
persuasive. Saskatchewan Counsel has proposed an amount of security that accounts for
known risks and falls within a range of reasonableness, but which will prove excessive
unless low probability events arise.
The General Assembly created the Elective Path to enable companies to deal with
long-tail risks involving large numbers of claims, where statistical methods would enable
a court to determine with some confidence that a form and amount of security was
reasonably likely to be sufficient. When setting security for a single claim—even for a
single claim in an aggregated class action—the law of large numbers provides no
protection. Respect for creditors’ rights and the rule of absolute priority requires a
conservative approach.
5
The security that Saskatchewan Counsel proposed has a reasoned basis damages
figure for claimants in the four provinces that have data security laws that contemplate per
se statutory damages. Although the court might have approved a different amount on a
different record, the court adopts Saskatchewan Counsel’s proposal.
The Company asks that it only be required to maintain the security for the Canadian
Claims until the Saskatchewan Court approves the permanent stay—not through final
disposition following any appeal. As creditors, the putative class members have priority
over the Company’s stockholders, who are the residual claimants. In a dissolution process,
the court must err on the side of protecting creditors, even when their claims seem unlikely
to succeed. The statutory procedure for dissolution contemplates a three-year period for
winding up the entity’s affairs, with an automatic extension of that period to address
pending litigation. Given that timeline, it is not a meaningful hardship for the Company to
maintain the $800 million through the final resolution of the Canadian Actions. That
outcome will ensure that putative class members may recover amounts to which they are
entitled.
The Company will retain a total of $800 million as security, inclusive of the $7.5
million that the Company placed in escrow to fund the settlement in the Ontario Action.
The Company will retain this amount of security until a final resolution of the Canadian
Actions.
I. FACTUAL BACKGROUND
The court conducted a three-day trial to receive evidence regarding the appropriate
form and amount of security that the Company would post for a range of claims. The
6
Company and the claimants introduced 990 exhibits into evidence, including twenty-seven
deposition transcripts. Four fact witnesses and seven experts testified live. In the pre-trial
order, the parties agreed to 250 stipulations of fact.
Only a portion of the record concerned the security for the Canadian Claims, and
that portion consisted solely of documents. The record supports the following findings of
fact based on a preponderance of the evidence.2
A. The Data Breaches
Between 2012 and 2016, hackers repeatedly victimized the Company, resulting in
massive data breaches. The hackers obtained personal account information from the
Company’s users, including “names, email addresses, telephone numbers, dates of birth,
hashed passwords . . . and, in some cases, encrypted or unencrypted security questions and
answers.” JX 834 at 6.
Under a stock purchase agreement dated July 23, 2016, the Company agreed to sell
its operating business to Verizon. JX 7. To facilitate the sale, the Company concurrently
entered into a reorganization agreement under which the Company transferred the assets
and liabilities associated with its operating business to a newly formed, wholly owned
subsidiary, subsequently known as Oath Holdings. See JX 6. Under the stock purchase
agreement, Verizon agreed to acquire all of the stock of Oath Holdings.
2
Citations in the form “PTO ¶ —” refer to stipulated facts in the pre-trial order.
Dkt. 252. Citations in the form “JX — at —” refer to a trial exhibit with the page designated
by the internal page number. If a trial exhibit used paragraph numbers, then references are
by paragraph.
7
In September 2016, the Company issued a misleading partial disclosure about the
data breaches which stated that the hackers had stolen customers’ account information
beginning “in late 2014.” JX 834 at 3. In November and December 2016, the Company
disclosed that additional data breaches occurred in 2013, 2015, and 2016. In re Altaba, Inc.
(National Class Actions Decision), 264 A.3d 1138, 1146 (Del. Ch. Oct. 8, 2021). The
disclosure of the data breaches prompted a range of lawsuits in multiple jurisdictions,
including the six putative class action lawsuits, filed in five different Canadian provinces.3
After the Company disclosed the data breaches, Verizon and the Company
renegotiated aspects of the stock purchase agreement, and they agreed to share the liability
for the Canadian Actions equally. See JX 9 § 3(a). The sale of Oath Holdings to Verizon
closed in June 2017. PTO ¶ 27.
B. The Attempted Mediation
As this court explained in the Interim Security Decision, Canada handles class
actions differently than the United States:
Canada does not have an equivalent to the Judicial Panel on Multidistrict
Litigation, nor does it have a transfer statute to facilitate the consolidation of
cases. Under Canadian law, civil claims (including class action claims) are
more often than not determined by a provincial Superior Court, and there is
no coordinated “federal” system for class action proceedings. Each province
(except Prince Edward Island) has its own separate and distinct class action
legislation prescribing the practice and procedures for certifying class
3
In addition to the Ontario Action and the Saskatchewan Action, the other Canadian
lawsuits were captioned: Gill v. Yahoo! Canada, No. S168873 (Can. B.C. S. Ct.); Sidhu,
et al. v. Yahoo! Canada, No. 1603-22837 (Can. Alta. Q.B.); Chami v. Altaba Inc., No.
CV19-00614734-00CP (Can. Ont. Sup. Ct. J.); and Boubonniere v. Yahoo! Inc., Nos. SMC
500-06-000841-177 & SMC 500-06-000842-175 (Can. Que. Sup. Ct.). PTO ¶ 203.
8
proceedings and carrying them through common issues trials and individual
issue resolutions. In Canada, there is no procedural or systemic bar to
preclude multiple proposed representative plaintiffs from commencing
separate claims in different provinces relating to the same underlying factual
circumstances, nor is there a procedural or systemic bar to multiple class
actions being certified in multiple jurisdictions in respect of the same
underlying facts.
Interim Security Decision, 241 A.3d at 779 (cleaned up).
Canada’s approach to class actions meant that the Company could not negotiate with
a single class representative to obtain global peace. In December 2018, therefore, the
Company attempted to hold a mediation with counsel from all six Canadian lawsuits. The
lawyers who had filed lawsuits in Ontario, Alberta, and British Columbia formed a
consortium to negotiate with the Company. The lawyers who filed in Saskatchewan and
Quebec did not join the consortium. They negotiated with the Company separately. The
mediation did not result in a settlement. JX 258 ¶ 58.
C. The Company Dissolves.
On October 4, 2019, the Company filed a certificate of dissolution with the
Secretary of State. The Company chose to wind up its affairs and make liquidating
distributions using the Elective Path.
As contemplated by the Elective Path, the Company mailed a notice of dissolution
to the Canadian plaintiffs. See JX 23. Ontario Counsel and Saskatchewan Counsel
submitted claims in response. See PTO ¶¶ 207–08; JX 210; JX 214.
On January 14, 2020, the Company engaged in a follow-on mediation with Ontario
Counsel. The subject of the mediation was the amount of security that the Company should
retain for the Ontario Action. When the mediation took place, Ontario Counsel did not have
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any special authority to negotiate on behalf of a class. The Company and Ontario Counsel
agreed that the Company should retain $50 million as security for any liability the
Company might face in the Ontario Action. See JX 258 ¶ 72.
Saskatchewan Counsel was not invited to participate in the follow-on mediation.
The Company has argued that it did not engage with Saskatchewan Counsel because they
did not have authority to represent a class, but at that point, Ontario Counsel did not either.
D. The Representation Order In The Ontario Action
To obtain retroactive authority for Ontario Counsel’s agreement to the $50 million
figure, Ontario Counsel asked the Ontario Court to issue a pre-certification representation
order authorizing them to address the amount of security. On March 3, 2020, the Ontario
Court issued the order. JX 222.
On May 8, 2020, Saskatchewan Counsel asked the Saskatchewan Court to issue a
pre-certification representation order giving them authority comparable to the Ontario
Court’s order. JX 223. The Saskatchewan Court has not ruled on the motion.
E. The Ontario Settlement
On July 6, 2020, the Company and Ontario Counsel reached a settlement. JX 228
Sched. 1 (the “Ontario Settlement”). In return for an aggregate settlement consideration of
$15 million, Ontario Counsel granted the defendants in the Ontario Action a global release
covering all of the Canadian Claims. See id. § 2.1. The Ontario Settlement allows class
members to waive their share of the settlement consideration and receive at least one year
of free credit monitoring services. Id. § 5.1. The Company and Verizon each paid $7.5
million to fund the Ontario Settlement. See Dkt. 24, Decl. of Thomas J. McInerney ¶ 9.
10
The Ontario Settlement binds all members of a nationwide class who do not opt out.
The effectiveness of the settlement, however, was conditioned on both final approval from
the Ontario Court and the dismissal or permanent stay of the Saskatchewan Action (the
“Permanent Stay Condition”). Ontario Settlement §§ 14.1; 15.1. The defendants in the
Ontario Action (the “Ontario Defendants”) can waive the Permanent Stay Condition in
their sole discretion. Id. § 14.3.
After agreeing to the Ontario Settlement, Ontario Counsel moved in the Ontario
Action for an order certifying a class for settlement purposes only. See JX 228 ¶¶ 1, 23.
Saskatchewan Counsel intervened in the Ontario Action to oppose the motion for class
certification, arguing that the Ontario Court should wait until the Saskatchewan Court had
ruled on Saskatchewan Counsel’s request for a representation order and until this court
determined the amount of security for the Canadian Claims. JX 228 ¶ 27.
Saskatchewan Counsel also contended that the Ontario Settlement provided
inadequate consideration to the class. Saskatchewan Counsel asserted that the Ontario
Settlement was especially inadequate for class members who lived in Saskatchewan,
British Columbia, Manitoba, and Newfoundland and Labrador, because those four
provinces each have privacy statutes that impose per se damages for breaches of privacy.
Id. ¶ 29.
On August 26, 2020, the Ontario Court certified a class for settlement purposes. Id.
¶¶ 47, 50–51. The Ontario Court noted that because Saskatchewan Counsel believed class
treatment was appropriate for the Saskatchewan Action, the only viable argument they
could make against class treatment for the Ontario Action was their request that the court
11
defer its ruling. The Ontario Court rejected that argument, finding it “indisputable that an
action certified for settlement purposes is preferable to an uncertified and vigorously
contested action in another jurisdiction.” Id. ¶ 39. The Ontario Court noted that
Saskatchewan Counsel was free to object to the Ontario Settlement. In addition, because
the Ontario Settlement was conditioned on a dismissal or stay of the Saskatchewan Action,
Saskatchewan Counsel could oppose the Company’s efforts in the Saskatchewan Action to
satisfy the Permanent Stay Condition. Id. ¶¶ 40–41.
F. The Interim Security Decision
On August 20, 2020, the Company sought leave from this court to make an interim
distribution. Relying on its agreement with Ontario Counsel, the Company argued that a
reserve of $50 million was adequate security for the Canadian Claims. Interim Security
Decision, 241 A.3d at 780.
Saskatchewan Counsel asked the court to require the Company to hold back $800
million “at least until additional rulings are received from the Canadian Courts.” Id. at 781.
To calculate the value of the claims in the Saskatchewan Action, Saskatchewan Counsel
presented the following evidence:
• Four Canadian provinces—British Columbia, Saskatchewan, Manitoba, and
Newfoundland—have privacy legislation that creates actions in tort for breach
of privacy without proof of damages. Claimants in these four provinces thus can
seek damages and other relief, including per se damages, even if they cannot
prove actual losses. Ontario does not have analogous privacy legislation,
meaning that the plaintiffs in the Ontario Action cannot seek per se damages.
• Together, those four Canadian provinces have a combined population that
represents 21% of the total population of Canada. The Company has estimated
that the Canadian class as a whole would consist of around five million
members. Assuming that approximately 21% of those members live in either
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British Columbia, Saskatchewan, Manitoba, or Newfoundland, then 1.05 million
class members could be entitled to per se damages.
• Canadian courts have awarded per se damages for privacy violations between
$1,000 (CAD) and $3,500 (CAD).
• Based on those awards, the recovery for the class members living in British
Columbia, Saskatchewan, Manitoba, or Newfoundland could range from $1.05
billion (CAD) to $3.68 billion (CAD), or $800 million to $2.8 billion. And that
figure does not take into account the damages that members residing in one of
Canada’s other provinces potentially could prove.
Id. at 780–81.
Citing the complex issues created by the dueling Canadian Actions, the court
declined to “hazard a guess about what will happen in the Canadian Actions” for purposes
of the interim distribution. Id. at 782. Instead, the court found that “[t]he risk of
undervaluing the Canadian Claims . . . outweighs the Board’s interest in providing
additional value to the stockholders immediately, particularly given that more information
about the Canadian Actions will become available soon.” Id. The court therefore ordered
the Company to reserve $800 million as security for the Canadian Claims when making
the interim distribution.
G. The Ontario Court Approves The Ontario Settlement.
Meanwhile, Ontario Counsel asked the Saskatchewan Court to stay the
Saskatchewan Action until the Ontario Court had ruled on the Ontario Settlement. JX 258
¶ 81. The Saskatchewan Court granted the stay. Id. ¶ 82.
On December 21, 2020, Saskatchewan Counsel filed objections to the Ontario
Settlement. JX 245. Saskatchewan Counsel argued principally that the settlement
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consideration was inadequate because of the availability of per se damages under privacy
statutes in Saskatchewan and other provinces. JX 245 ¶¶ 24–25.
On February 9, 2021, the Ontario Court approved the Ontario Settlement. JX 258 ¶
13. In a detailed opinion, the Ontario Court considered and rejected the argument that
Saskatchewan Counsel could obtain “a better outcome for the class,” characterizing it as
resting on “pure speculation and unverifiable belief.” Id. ¶ 151. The Ontario Court
described taking a “deep dive into the case law about privacy breach class actions” and
concluded that the cases would not support Saskatchewan Counsel’s “aspirations for
enormous per capita awards of general damages (moral or symbolic damages) for intrusion
on seclusion or breach of privacy statutes.” Id. ¶¶ 125, 140.
By approving the Ontario Settlement, the Ontario Court did not purport to decide
the fate of the Saskatchewan Action. The Ontario Court noted that a motion for approval
of a settlement is not “a trial about the likelihood of whether another class action will be
certified, nor is it about the likelihood that if certified that rival action would provide more
access to justice and a better outcome for the Class Members.” Id. ¶ 11. The Ontario Court
acknowledged that it is conceivable that Saskatchewan Counsel “could achieve a better
outcome but that is not the issue before the court.” Id. The Ontario Court further explained
that “[w]hether another court will enforce the judgment of the Ontario [C]ourt or allow a
rival class to proceed are issues for that court, not this one.” Id.
The approval of the Ontario Settlement thus did not determine the outcome of the
Saskatchewan Action. Moreover, because of the Permanent Stay Condition, the approval
of the Ontario Settlement did not even determine the outcome of the Ontario Action.
14
On April 30, 2021, the Saskatchewan Court heard oral argument on the Company’s
motion for a permanent stay in favor of the Ontario Action. Dkt. 288 at 2. The
Saskatchewan Court indicated that it would decide the motion in due course. Id. The
Saskatchewan Court has not yet ruled.
H. Trial On The Amount Of Security For The Canadian Claims
At trial in this action, the Company sought to prove that a reserve of $50 million
would provide adequate security for the Canadian Claims. Saskatchewan Counsel argued
that the Company should be required to maintain $800 million as security until the final
resolution of the Canadian Actions. The parties introduced documentary evidence on the
issue. On July 20, 2021, the court heard post-trial argument.
On October 15, 2021, the court issued an order staying proceedings as to the
Canadian Claims for ninety days. In re Altaba, Inc., 2021 WL 4863102 (Del. Ch. Oct. 15,
2021). The court explained that it was granting the stay to permit the Saskatchewan Court
to rule on the Company’s motion for a permanent stay in favor of the Ontario Action. Id.
¶ 24.
The stay expired on January 13, 2022. The Saskatchewan Court has not yet ruled on
the fate of the Saskatchewan Action, nor has the Saskatchewan Court provided any
indication of when it plans to rule. The parties submitted letters regarding the implications
of the stay’s expiration in which neither side objected to the issuing of a ruling. The
Company affirmatively requested a ruling.
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II. LEGAL ANALYSIS
The question for decision is the amount of security that is reasonably likely to
provide sufficient compensation for the Canadian Claims. The Company had the burden of
proving that its proposed security meets the requisite standard. National Class Actions
Decision, 264 A.3d at 1144.
The Company failed to carry its burden of proof. Although the Company’s proposed
security likely would be sufficient in many scenarios, including in the most likely scenario,
there are reasonably likely outcomes in which the reserve would be woefully insufficient.
Using the Company’s proposed amount would prejudge the outcome of the Saskatchewan
Action by limiting the recovery that Saskatchewan Counsel could achieve, even in
scenarios where the class prevailed completely at trial. By capping the potential recovery,
such a ruling also would dramatically reduce the settlement value of the claims.
The alternative is Saskatchewan Counsel’s request for a reserve of $800 million.
That amount is likely to be excessive in many scenarios, but it is reasonably likely to
provide sufficient security across a wider range of outcomes, including scenarios in which
Saskatchewan Counsel achieves a meaningful recovery on the Canadian Claims.
This decision requires that the Company retain $800 million as security for the
Canadian Claims, inclusive of the $7.5 million that the Company already has placed in
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escrow for its share of the Ontario Settlement. The Company will retain that amount until
the final disposition of the Canadian Actions, including the resolution of any appeals.4
4
In its briefing, the Company revived an argument that failed at an earlier stage of
the case. The Company asserts that Emily Larocque, the putative plaintiff in the
Saskatchewan Action, lacks standing to object to the Company’s proposed security because
Larocque and Saskatchewan Counsel have not been granted authority to represent a
Canadian class. The Company argues that to have authority to object, Saskatchewan
Counsel must represent a certified class or have received a representation order from a
Canadian court. The Company’s argument misunderstands Saskatchewan Counsel’s
involvement in the case. They have appeared on behalf of a claimant in response to a notice
received from the Company, and they are objecting to the amount of security that the
Company sought to prove sufficient for the Canadian Claims.
Section 280 does not require that a claimant have the authority to represent a class
before the claimant may appear as an objector. The Company has the burden of proving
the amount of security. Section 280(c)(1) does not limit the parties who can object. The
Company gave notice to Larocque, and Saskatchewan Counsel appeared in response.
Policy considerations support this result. Claimants “need to participate in the
Section 280 procedures when a corporation elects to proceed pursuant to that section to
ensure that their claims are addressed in the dissolution process.” R. Franklin Balotti &
Jesse A. Finkelstein, 1 The Delaware Law of Corporations and Business Organizations §
10.18, at 10-57 (4th ed. & Supp. 2021-2). If a claimant cannot participate, then there is a
risk that the court would set security too low, prejudicing the claimant’s interests. A
claimant in a putative class should not have to await class certification or a representation
order before filing an objection.
The Company’s current concerns about unauthorized representatives are a recent
invention. When the Company convened a mediation to negotiate a global resolution
involving all six of the putative class actions filed in the Canadian provincial courts, no
class had been certified for any purpose in any province, and none of the plaintiffs had
received a representation order. The Company went forward with the mediation. When the
Company mailed notices of dissolution to potential claimants, including the plaintiffs in all
six of the putative class actions filed in Canada, no class had been certified in any province
for any purpose, and none of the counsel had received a representation order. If no one had
responded, the Company doubtless would have relied on that fact to argue that no security
was required for the Canadian Claims. The Company then turned to Ontario Counsel to
negotiate over the amount of security for this proceeding. At the time, no class had been
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A. The Legal Standard
Section 280(c)(1) requires that the court “determine the amount and form of security
that will be reasonably likely to be sufficient to provide compensation” for any claim that
is “the subject of a pending action, suit or proceeding to which the corporation is a party”
(a “Litigation Claim”). 8 Del. C. § 280(c)(1). Under this test, the Company bore the burden
of proving that its proposed amount of security is “reasonably likely to be sufficient” (the
“Reasonableness Standard”). See National Class Actions Decision, 264 A.3d at 1162.
In the National Class Actions Decision, this court ruled on the plain meaning of the
Reasonableness Standard. That standard starts with the concept of sufficiency. Black’s Law
Dictionary defines “sufficient” to mean “[a]dequate; of such quality, number, force, or
value as is necessary for a given purpose.” Sufficient, Black’s Law Dictionary (11th ed.
2019). The Reasonableness Standard thus looks to whether the amount of security is
adequate to provide compensation for the claimant.
certified in the Ontario Action, and Ontario Counsel did not have authority to act under a
representation order. It was only after agreeing to an amount of security that Ontario
Counsel obtained a representation order. Having sought to benefit from its interactions with
putative class representatives and counsel who were similarly situated to Saskatchewan
Counsel, the Company should not now be heard to object to their participation in this
proceeding.
It also bears noting that by appearing in this case, Saskatchewan Counsel has
provided the court with the benefits of an adversarial presentation on an important issue.
In their absence, the court could have appointed an amicus curiae or guardian ad litem to
facilitate adversarial briefing. Saskatchewan Counsel saved the court the trouble.
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Importantly, however, the Reasonableness Standard does not require an amount of
security that “will be sufficient.” Cf. 8 Del. C. § 280(c)(2). The Reasonableness Standard
calls for an amount of security that is “reasonably likely to be sufficient,” thereby
qualifying the concept of sufficiency with the adverbial phrase “reasonably likely.”
Something is “likely” to occur if it is more probable than not to occur. See, e.g.,
Likely, Black’s Law Dictionary (11th ed. 2019) ( “[a]pparently true or real; probable” or
“[s]howing a strong tendency; reasonably expected”). The Reasonableness Standard thus
calls for an amount of security that generally will be sufficient across the possible outcomes
of a Litigation Claim.
The Reasonableness Standard takes the additional step of modifying the adverb
“likely” with the adverb “reasonably.” In this context, the additional adverb has two
functions. First, it emphasizes the importance of judicial judgment.5 The court is not bound
to set security at the result that is 51% probable. The court can move to one side of the
distributional curve or the other, if the facts warrant. See National Class Actions Decision,
264 A.3d at 1164–65. Second, the adverb makes clear that the court must make an objective
5
See, e.g., AB Stable VII LLC v. Maps Hotels & Resorts One LLC, 2020 WL
7024929, at *91 (Del. Ch. Nov. 30, 2020) (explaining that the use of the qualifier
“reasonable” results in a “somewhat lesser standard” than a flat contractual requirement
(quoting ABA Mergers & Acqs. Comm., Model Stock Purchase Agreement with
Commentary 212 (2d ed. 2010))), aff’d 268 A.3d 198 (Del. 2021); see also Reasonable,
Black’s Law Dictionary (11th ed. 2019) ( “[f]air, proper, or moderate under the
circumstances”).
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determination, as in what “a reasonable person would believe,” rather than deferring to the
good faith judgment of the liquidating agent. Id. at 1164 n.19.6
The Reasonableness Standard does not call for picking the single most likely
outcome and setting security at that amount. The standard also does not call for setting
security at the risk-adjusted value of the Litigation Claim. Instead, the Reasonableness
Standard requires that the court evaluate the potential outcomes, then set security in an
amount that is reasonably likely to be sufficient to compensate the claimants. As
experienced Delaware practitioners have explained, the framing of the Reasonableness
Standard “suggests that security for pending litigation claims will ordinarily be the full
amount of the claim, absent a finding (probably on a basis similar to summary judgment,
and not binding in the other forum in any event) that judgment will not exceed some lower
amount.” Lawrence A. Hamermesh & Donald J. Wolfe, The Delaware Dissolution
Statutes: A Case Study, Del. Law., Fall 1994, at 24. “[T]his court is not required to set an
amount of security that guarantees that a plaintiff will have available the full amount of
any judgment that the plaintiff could achieve in a pending lawsuit.” National Class Actions
6
See In re RegO Co., 623 A.2d 92, 109 (Del. Ch. 1992) (explaining that “due respect
for the expertise and authority of corporate directors does not dictate deference to their
judgment on the question of what constitutes adequate protections to various competing
classes of claimants on dissolution”); Boesky Corp. v. CX P’rs, L.P., 1988 WL 42250, at
*16 (Del. Ch. Apr. 28, 1988) (“a liquidating trustee’s judgment as to what constitutes
adequate security, even when made in good faith and advisedly is not entitled to the
powerful effects of the business judgment rule; and that in such a setting, it is inescapably
the function of the court that supervises the liquidation to make an independent judgment
of the adequacy of such security when it is challenged”).
20
Decision, 264 A.3d at 1175; see In re Swisher Hygiene, Inc., 2020 WL 3125415, *4 (Del.
Ch. June 12, 2020). But that outcome often will be the amount necessary to protect the
interests of creditors.
As discussed at length in the National Class Actions Decision, the structure of
Delaware’s dissolution regime and related policy considerations inform the court’s
analysis. Delaware’s dissolution statute obligates a dissolved corporation to use its assets
to satisfy creditors before distributing “any remaining assets” to stockholders. 8 Del. C. §
278. That mandate reflects the absolute priority rule. As residual claimants, stockholders
must stand at the back of the line, await the results of the winding up process, and receive
what remains after creditors’ claims have been paid. See National Class Actions Decision,
264 A.3d at 1153–56.
The Elective Path enables a corporation to obtain upfront judicial determinations
regarding the amounts of security that are required for creditors’ claims before making a
liquidating distribution. Under the Elective Path, “[r]ather than having the sufficiency of
the security potentially decided long after the fact, with the benefit of hindsight, and at a
time when subsequent events would have revealed the reserve to be inadequate, the
question of sufficiency can be litigated up front.” Id. at 1157.
By facilitating an upfront judicial determination, the Elective Path does not
eliminate the difficulties inherent in setting an amount of security. It just changes the
decisionmaker who must make them. The risk remains that the reserve will turn out to be
insufficient. If stockholders receive a liquidating distribution based on an inadequate
reserve, then those stockholders have received a distribution to which they were not
21
entitled, contravening the rule of absolute priority. See id. at 1158. Respect for the absolute
priority rule calls for a conservative approach to security that protects the interests of
creditors.
A conservative approach is also warranted when a court sets the amount of security,
because that determination has at least two effects on the pending claim. First, once the
Company makes a liquidating distribution, the available security caps the amount that the
claimant can recover, even if the claimant prevails on every aspect of its claim. The
inadequate reserve impairs the claimant’s rights.
Second, because the amount of the reserve caps the claimant’s potential recovery,
the parties will update their assessments of the claim. Those updated assessments in turn
reduce the settlement value of the claim.
It is easy to perceive this second effect by envisioning three stylized distribution
curves:
In each case, assume that the court sets the amount of security at one of the measures of
central tendency, such as the mean, so as to reflect the reasonably likely outcome. By doing
22
so, the court eliminates the ability of the claimant to recover the greater amounts awarded
in any scenarios to the right of the mean. With the right tail of the curve eliminated, the
claim now only generates left-tailed results. Cutting off the right side of the distribution
reduces the area under the curve and resets the expected value of the claim.
With the distributions on the right side of the curve no longer achievable, the parties
update their assessments. A defendant will no longer settle for the expected value reflected
by the previous mean. Any new settlement will take into account the capped upside,
reducing the settlement value to the plaintiff and benefitting the defendant.
Because of these effects, setting security using a metric like the risk-adjusted value
of the claim or its value in the most likely scenario threatens to systematically under-
compensate creditors while conferring windfalls on equity. Even if this court gets the
probability distribution exactly right, the act of setting security changes the expected value
of the claim and causes the litigants to update their assessments. By doing so, the court
affects the course of a litigation proceeding before a sister court. Rather than the sister court
presiding over the claim and determining its fate, this court puts its thumb on the scales.
These risks operate most powerfully where, as here, a court sets a reserve for a single
claim. When a court sets an aggregate reserve for many similar claims, the law of large
numbers comes into play. Some claims will generate recoveries below their risk-adjusted
outcomes; others will generate recoveries above their risk-adjusted outcomes. As the
number of claims increases, the outcomes balance out and approach the weighted average.
See generally David H. Kaye & David A. Freedman, Reference Guide on Statistics, in
23
Annotated Reference Manual on Scientific Evidence 117–21 & n.117 (2d ed. Michael J.
Saks et al. eds., 2005).
When a court sets an aggregate reserve across a large number of claims, using a
risk-adjusted outcome does not pose a serious risk of undercompensating claimants and
conferring a windfall on equity. By contrast, the task of setting a reserve for a single claim
accentuates those risks. And that is particularly true in a right skewed distribution, where
many litigation outcomes will generate comparatively limited recoveries, but where there
are significant—albeit lower probability—outcomes that generate large recoveries.
Recognizing this reality, this court has erred on the side of providing meaningful security
for claimants, even where when their claims seemed unlikely to succeed. See In re Delta
Hldgs., Inc., 2004 WL 1752857, at *7–9 (Del. Ch. July 26, 2004); Boesky, 1988 WL 42250,
at *16–17.
B. The Possible Outcomes In The Canadian Actions
With the foregoing principles in mind, the court must consider the range of possible
outcomes in the Canadian Actions to determine whether the Company has carried its
burden of proving that $50 million in security satisfies the Reasonableness Standard. There
are three basic scenarios: the Dismissal Scenario, the Waiver Scenario, and the Parallel
Litigation Scenario.
1. The Dismissal Scenario
In the Dismissal Scenario, the Saskatchewan Action ends. Under the Dismissal
Scenario, the Company’s proposed security of $50 million is more than sufficient.
24
The Dismissal Scenario arises if the Saskatchewan Court dismisses or permanently
stays the Saskatchewan Action. The parties’ experts agree that “it is reasonably likely that
the [Saskatchewan Action] will be permanently stayed by the Saskatchewan Court.” JX
259 ¶ 5. The court concurs that this outcome is the most likely result.
A decision by the Saskatchewan Court that dismisses or permanently stays the
Saskatchewan Action is not the end of the line, because Saskatchewan Counsel could
appeal. A reversal, however, would be unlikely. By statute, the Saskatchewan Court has
“wide discretion in determining [whether a class action] will proceed.” JX 257 ¶ 16. If the
Court of Appeal for Saskatchewan affirms the permanent stay or dismissal of the
Saskatchewan Action, then that is the end of the Canadian Claims.
Under the Dismissal Scenario, the Company’s proposed security is more than
sufficient. That is the reasonably likely outcome. It is even the most likely outcome. But
as this decision has discussed, identifying the reasonably likely (or most likely) outcome
does not mean that the court should set security at the value the claim would have in that
state of the world. The Reasonableness Standard asks whether the security provided will
be reasonably likely to compensate the claimant across all potential outcomes, not whether
it will be reasonably likely to compensate the claimant under the odds-on outcome.
2. The Waiver Scenario
In the Waiver Scenario, the Saskatchewan Action moves forward, but the Ontario
Action does not. Under the Waiver Scenario, the Company’s proposed security of $50
million is not reasonably likely to be sufficient.
25
The Waiver Scenario could arise if the Saskatchewan Court does not dismiss or
permanently stay the Saskatchewan Action. It also could arise if the Saskatchewan Court
grants the dismissal or permanent stay, but the Court of Appeal reverses the Saskatchewan
Court’s decision.
In that setting, the litigation in the Ontario Action also could continue because the
Permanent Stay Condition would not be met. The Ontario Defendants, however, can
achieve finality in the Ontario Action by waiving the Permanent Stay Condition. With the
only outstanding condition waived, the Ontario Settlement would bring the Ontario Action
to an end.
The Waiver Scenario assumes that the Ontario Defendants waive the Permanent
Stay Condition, ending the Ontario Action. Only the Saskatchewan Action moves forward
to discovery, trial, and either a final judgment or settlement.
Although the court regards the Waiver Scenario as unlikely, it could produce results
in which the Company’s proposed security would be inadequate. Either an adverse
judgment or a further settlement could lead to those results.
a. The Risk Of An Adverse Judgment
One outcome potential outcome under the Waiver Scenario is for the Saskatchewan
Action to proceed through trial and produce a final judgment. If that occurs, then the
magnitude of the Company’s liability could be significant. As this court previously
explained, “the recovery for the class members living in British Columbia, Saskatchewan,
Manitoba, or Newfoundland could range from . . . $800 million to $2.8 billion in U.S.
dollars. And that figure does not take into account the damages that members residing in
26
one of Canada’s other provinces potentially could prove.” Interim Security Decision, 241
A.3d at 781 (cleaned up). That figure also does not take into account the possibility of
actual damages for breach of privacy, which can encompass emotional distress,
inconvenience, disruption due to risks of loss of personal information, or “other actual
loss.” JX 257 ¶ 33.
For purposes of the Reasonableness Standard, however, it is not enough to simply
recognize that adverse results of this magnitude are possible. The court must assess the
likelihood of those results occurring. For present purposes, rather than attempting to assign
a probability outcome to the adverse results, it is easier to estimate how unlikely those
results would have to be before the Company’s proposed security would be adequate.
Assume that the judgment in the Saskatchewan Action is the only source of liability
for the Canadian Claims and that $7.5 million of the Company’s security has been used to
fund the Ontario Settlement, leaving $42.5 million for the Saskatchewan Action. Recall
that the Company only faces liability for 50% of the Canadian Claims, because Verizon
must fund the other 50%.
The low-end estimate of $800 million makes the Company potentially liable for
$400 million. Using that figure, the Company’s proposed security is only sufficient if
Saskatchewan Counsel has less than a 10.6% chance of success.7 Viewed conversely, the
Company’s proposed security is only sufficient if the defendants in the Saskatchewan
7
($42.5 million / $400 million).
27
Action have at least an 89.4% chance of success. If the defendants have an 85% chance of
success—overwhelming odds in any litigation—then the $50 million in security is
insufficient.
It is unlikely that Saskatchewan Counsel could convince the Saskatchewan Court to
move forward and then proceed to trial and obtain a result of $800 million. But the
Company has not demonstrated that Saskatchewan Counsel has less than an 11% chance
of success. Viewed from this standpoint, the Company’s proposed security is inadequate
in the low-end case.
The high-end estimate of $2.8 billion makes the Company potentially liable for $1.4
billion. Using that figure, the Company’s proposed security is only sufficient if
Saskatchewan Counsel has less than a 3% chance of success.8 Viewed conversely, the
Company’s proposed security is only sufficient if the defendants in the Saskatchewan
Action have at least a 97% chance of success.
Just as it is unlikely that Saskatchewan Counsel could proceed to trial and obtain
the low-end result, it is unlikelier still that Saskatchewan Counsel could obtain the high-
end result. But the Company has not demonstrated that Saskatchewan Counsel has less
than a 3% chance of success. Viewed from this standpoint, the Company’s proposed
security is inadequate in the high-end case.
8
($42.5 million / $1.4 billion).
28
b. The Risk Of A Larger Settlement
Another possibility in the Waiver Scenario is a new settlement. The Company has
set aside $50 million as security for the Canadian Claims, including $7.5 million to fund
the Ontario Settlement. In the Waiver Scenario, the Ontario Settlement brings the Ontario
Action to a close, leaving $42.5 million available to fund a settlement in the Saskatchewan
Action. The Saskatchewan Action continues, but rather than proceeding to trial, the
defendants reach a settlement with Saskatchewan Counsel.
By definition, a settlement involves compromise, so it seems safe to assume that
any settlement in the Saskatchewan Action would come in well below the Company’s $400
million share of a low-end result. Beyond that, it is difficult to predict where the parties
would end up. Here again, however, it is possible to calculate that in any settlement in
which Saskatchewan Counsel obtained 10.6% or more of the Company’s share of the low-
end damages demand, the Company’s security would be inadequate.9 Parties often settle
for cents on the dollar, but it is difficult to say in the abstract that Saskatchewan Counsel
could never achieve more than 11 cents on the dollar in a settlement. At levels of 11 cents
on the dollar or higher, the Company’s proposed security is inadequate.
3. The Parallel Litigation Scenario
A final possibility is the Parallel Litigation Scenario, in which both the
Saskatchewan Action and the Ontario Action move forward. Under the Parallel Litigation
9
($42.5 million / $400 million).
29
Scenario, the Company’s proposed security of $50 million is not reasonably likely to be
sufficient.
Like the Waiver Scenario, the Parallel Litigation Scenario arises only if (i) the
Saskatchewan Court does not dismiss or permanently stay the Saskatchewan Action or (ii)
the Saskatchewan Court grants the dismissal or permanent stay, but the Court of Appeal
for Saskatchewan reverses the Saskatchewan Court’s decision. Then, for the Parallel
Litigation Scenario to occur, the Ontario Defendants must opt not to waive the Permanent
Stay Condition. It seems unlikely that the Ontario Defendants would stand on the condition
and walk away from the Ontario Settlement, but in the abstract, the Ontario Defendants
might believe rationally that they could extract a better settlement by forcing the plaintiffs’
lawyers to invest in the case, or by demonstrating through discovery that the Ontario
Defendants’ case was particularly strong. The Parallel Litigation Scenario is thus less likely
than the unlikely Waiver Scenario, but it remains a possible path.
In the Parallel Litigation Scenario, the Company engages in parallel litigation in
Ontario and Saskatchewan. The Saskatchewan Action moves forward for the obvious
reason that it has not been dismissed or permanently stayed. In addition, the litigation in
the Ontario Action resumes, because the Permanent Stay Condition failed and the Ontario
Defendants did not waive it. The plaintiffs in the Ontario Action therefore can move
forward as well. Both actions proceed to discovery, both actions head to trial, and both
actions end in a judgment or a new settlement.
The analysis of the possible outcomes in the Waiver Scenario applies to the Parallel
Litigation Scenario, except (i) there is greater potential for damages because the Ontario
30
Action has not been resolved, (ii) there is greater volatility in the range of possible results
because there are two actions proceeding in two courts, and (iii) the full $50 million
security is available because of the non-consummation of the Ontario Settlement.
The analysis of the Waiver Scenario showed that the Company’s proposed security
was inadequate if Saskatchewan Counsel settled for 11 cents or more on the dollar. Any
award of additional damages in the Ontario Action would only make it more likely that the
Company’s proposed $50 million security would be inadequate. The Parallel Litigation
Scenario therefore only heightens the risk that the Company’s proposed security will not
be sufficient to cover the Canadian Claims.
The Parallel Litigation Scenario could result in a new global settlement for which
the entire $50 million would be available. Because the potential damages are greater in this
scenario, the calculations again make it more likely that the Company’s proposed $50
million security is inadequate.
C. Assessing Whether The Company’s Security Is Reasonably Likely To Be
Sufficient
The Company contends that its proposed security is reasonably likely to be
sufficient to satisfy the Canadian Claims because a stay of the Saskatchewan Action is the
most likely outcome. To reiterate, the court agrees as to the most likely outcome in the
Saskatchewan Action. The modal outcome is thus that the Canadian Actions will end, and
the Company’s security will be adequate. But that is a different analysis than whether the
Company’s security is reasonably likely to be sufficient.
31
As this decision has discussed, the Reasonableness Standard does not obligate the
court to pick a measure of central tendency, set the amount of security based on that
measure, and ignore the tail risks. Doing so threatens to undercompensate legitimate
creditors and confer an improper preference on stockholders, violating the absolute priority
rule. The Canadian Claims present a prototypical example. The distribution of outcomes is
skewed right, meaning that in most scenarios, the Company’s proposed security will be
adequate, but there are reasonably likely scenarios in which the Company’s proposed
security would cover only a small fraction of the creditors’ claims.
The Company bore the burden of proving that its proposed amount of security is
reasonably likely to be sufficient. The Company proved that it is highly likely to prevail in
the Saskatchewan Action. The Company did not prove that it has a better than 89.4%
chance of prevailing in the Saskatchewan Action, which is what the Company would have
to show for the court to have confidence that its proposed amount of security is adequate.
As discussed in the National Class Actions Decision, the Reasonableness Standard
“permits the court to move further away from the right side of the curve” when setting an
amount of security. 264 A.3d at 1164–65. The Company almost certainly could have
convinced the court that some discount from $800 million was warranted. The Company
might well have convinced the court that a meaningful discount was warranted. Instead,
the Company asked the court to move almost all the way to the left side of the curve and
view the Saskatchewan Action as having less than an 11% chance of success. The
Company did not make a sufficiently persuasive case to obtain that result.
32
D. The Amount Of Security
The Company failed to carry its burden of proving that its proposed security meets
the Reasonableness Standard. This court must therefore set an amount of security. The only
other figure in the record is the proposal of $800 million in security from Saskatchewan
Counsel.
This court has acknowledged that the statutory mandate for the Court of Chancery
to “determine the amount and form of security” resembles the mandate in the appraisal
statute that the court “determine the fair value of the shares.” Compare 8 Del. C. § 262(h),
with id. § 280(h); see National Class Actions Decision, 264 A.3d at 1175. Because of that
parallel, the court looked by analogy to how the Delaware Supreme Court has instructed
the court regarding valuation determinations under the appraisal statute. National Class
Actions Decision, 264 A.3d at 1175. For example, the Delaware Supreme Court has
explained that “the Court of Chancery has discretion to select one of the parties’ valuation
models as its general framework or to fashion its own.” M.G. Bancorporation, Inc. v. Le
Beau, 737 A.2d 513, 525–26 (Del. 1999). The Delaware Supreme Court also has explained
that the Court of Chancery may “adopt any one expert’s model, methodology, and
mathematical calculations, in toto, if that valuation is supported by credible evidence and
withstands a critical judicial analysis on the record.” Id. at 526. Or the court “may evaluate
the valuation opinions submitted by the parties, select the most representative analysis, and
then make appropriate adjustments to the resulting valuation.” Jesse A. Finkelstein & John
D. Hendershot, Appraisal Rights in Mergers and Consolidations, Corp. Prac. Series (BNA)
No. 38-5th, at A-31 (2010 & Supp. 2017) (collecting cases). The exercise ultimately is, at
33
bottom, “a fact-finding exercise.” In re Appraisal of Jarden Corp., 2019 WL 3244085, at
*1 (Del. Ch. July 19, 2019), aff’d sub nom. Fir Tree Value Master Fund, LP v. Jarden
Corp., 236 A.3d 313 (Del. 2020).
In its discretion, this court adopts Saskatchewan Counsel’s assessment of the
amount of security that will be sufficient for the Canadian Claims. The reserve of $800
million is based on a reasonable estimate of the damages that could be awarded to the 1.05
million residents of the four Canadian provinces with legislation permitting per se damages
for privacy violations. Because the Company and Verizon agreed to split liability, a reserve
of $800 million implies a total estimate of $1.6 billion in potential damages. This estimate
would result in an award of around $1,524 per claimant,10 or $2,000 (CAD). Saskatchewan
Counsel cited precedents which show that such an award is well within the potential range
of damages.
Under Canadian common law, plaintiffs are not required to prove actual loss to
receive nominal or symbolic damages. See Dkt. 188 at 13; JX 257 ¶¶ 29–31. Canadian
courts may award nominal damages “to recognize that [plaintiffs’] rights have been
invaded or interfered with by breach of contract or other legally actionable wrong by the
defendant.” JX 257 ¶ 30. Canadian courts may award symbolic damages “for actionable
misconduct by a defendant that contravenes public laws, such as privacy legislation.” Id.
¶ 31.
10
($1.6 billion / 1.05 million residents)
34
Both forms of damages could be available in the Saskatchewan Action. The
Canadian law concerning monetary remedies in privacy class actions remains in a nascent
stage. As the Ontario Court explained, “although many [of these] cases have been certified,
none have yet proceeded to trial.” JX 258 ¶ 125. Due to the absence of trial-level class
action decisions, Saskatchewan Counsel looked to existing jurisprudence on individual
privacy claims for guidance. Saskatchewan Counsel presented recent Canadian case law
where individual claimants recovered nominal damages of between $1,000 (CAD) to
$3,500 (CAD).11 See Dkt. 188 at 11–13 & nn.14–16 (collecting authorities).
Using these damages estimates, the recovery for the 1.05 million putative class
members living in British Columbia, Saskatchewan, Manitoba, or Newfoundland could
range from $800 million to $2.8 billion, or $1.05 billion (CAD) to $3.68 billion (CAD). A
reserve of $1.05 billion (CAD) would imply a total estimate of $2.10 billion (CAD) for
damages (50% to be funded by the Company and 50% to be funded by Verizon), which
would result in a nominal damages award of $2,000 (CAD) per claimant.12
11
The Company observes that the expert proffered by Saskatchewan Counsel, Paul
Joseph Bates, opined that the “sum which may be awarded for nominal damages varies
from a low of $1 to $250 or more.” JX 257 at ¶ 30. That figure of $250 (CAD) that Bates
selected is obviously below $1,000 (CAD). At the same time, Bates technically said “$250
or more,” and he cautioned that “[t]here is very little Canadian jurisprudence concerning
the proper quantum of nominal damages in Canadian law.” Id. Saskatchewan Counsel
provided examples of recent outcomes awarding more than $250 (CAD) in nominal
damages.
12
($2.10 billion / 1.05 million putative class members)
35
Based on these figures, Saskatchewan Counsel has proposed a reasonable amount
of security. In most future states of the world, the amount will be more than sufficient. Yet
the amount does not guarantee the full amount that the Canadian Claims could yield in the
Waiver Scenario or the Parallel Litigation Scenario. Unlike the Company’s figure, the
amount that Saskatchewan Counsel has proposed represents a persuasive effort to account
for the potential outcomes on the Canadian Claims, and the court adopts it.
E. How Long To Hold The Security
The Company argues that if the court requires security in the amount of $800
million, then the Company should be permitted to release the reserve if the Saskatchewan
Court grants the pending motion for dismissal or a permanent stay. The Company asserts
that it should not have to maintain a reserve through any appeal, because an appeal is
unlikely to succeed due to a deferential standard of review. See JX 256 ¶ 114–18.
Given the court’s confidence that any decision issued by the Saskatchewan Court
will be well-reasoned, and in light of the deferential standard of review that would apply
on appeal, it is highly unlikely that an appeal of a permanent stay would succeed. But the
outcome of an appeal is impossible to predict, particularly an appeal involving foreign law.
The better course is for the Company to retain the $800 million security until the final
disposition of the Canadian Actions, including any appeals.
The court recognizes that this decision will force the Company to maintain the $800
million reserve for an additional period of time. But even if it takes another year or two to
resolve the fate of the Canadian Actions, that time period would not be excessive. The
Delaware General Corporation Law contemplates a three-year winding-up process by
36
default, and the statute provides for automatic extensions of a corporation’s existence for
purposes of resolving claims that were pending at the time of dissolution or filed during
the three-year period. 8 Del. C. § 278. Under the absolute priority rule, stockholders must
wait to avoid prejudicing the rights of creditors.
III. CONCLUSION
The Company failed to carry its burden of proving that its proposed security of $50
million for the Canadian Claims satisfies the Reasonableness Standard. The Company shall
reserve $800 million for the Canadian Claims, inclusive of the $7.5 million that the
Company placed in escrow for its share of the Ontario Settlement. The Company shall
maintain the reserve until the final resolution of the Canadian Actions.
37