Certification Denied for Securities Class Action with “No Reasonable Chance of Success” at Trial

In Gould v. Western Coal Corporation, 2012 ONSC 5184, Justice Strathy denied the plaintiff leave to commence a securities secondary market misrepresentation claim and proposed class action.

The plaintiffs complained that the defendants manipulated Western Coal's cash flow projections, depressing the apparent value of its publicly-traded shares and causing the company's auditor to caution that there was “substantial doubt” about the Company's ability to meet its obligations. Later, after putative class members sold their shares, the Company arranged for new financing and dramatically improved its share price.

On a motion for leave to commence an action for securities misrepresentation under Part XX.I of the Securities Act, the proposed plaintiff must demonstrate that the proposed action has a reasonable possibility at trial.

Justice Strathy permitted the leave hearing to become a fairly comprehensive test of the case on the merits. He refused to give any weight to the expert evidence proffered by the plaintiffs – the plaintiffs' accounting experts stepped out of their areas of expertise, purported to weigh evidence and evaluate credibility and generally engaged in advocacy for the plaintiffs' cause. The judge was left with the defendants' version of events, which he found was complete explanation and he relied on to find that the plaintiffs had no chance of success at trial.

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