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An Ontario judge has tossed out a proposed multi-billion-dollar shareholder class action against Canadian Imperial Bank of Commerce that alleged the bank misled investors over its exposure to the U.S. subprime mortgage market.
The decision by Justice George Strathy of the Ontario Superior Court is the first to apply a controversial recent Ontario Court of Appeal decision that strictly interprets a three-year deadline for this kind of shareholder class action.
The case against CIBC, launched on behalf of shareholders by Toronto lawyer Joel Rochon of Rochon Genova LLP in July 2008, alleged that the bank misled investors by playing down its exposure to the U.S. subprime mortgage market before it collapsed and caused the financial crisis.
This kept the bank's stock price artificially high, the lawsuit alleged, until CIBC revealed steep losses that would eventually see it reel from $10 billion in write-downs.
Judge Strathy rules that he would have certified the case as a class action, but says he was forced to deny it the green light it needs to proceed under the Ontario Securities Act because of the recent ruling in a case against Timminco Ltd.
In a February decision, the Court of Appeal ruled that the three-year limitation period for this kind of class-action lawsuit, which alleges losses from a purchase of shares on a stock exchange, runs from the last date that a defendant is alleged to have made a misrepresentation to shareholders.
Plaintiffs must not only file their case but actually secure the leave they need from a judge in this time, the ruling says, unless they make a deal with the defendants to stop the clock. This means the case against CIBC, launched four years ago, has expired.
"As a result of the expiry of the limitation period, this class action, which has a reasonable possibility of success, will not be resolved on its merits, an unfortunate conclusion, under the circumstances," the decision reads.
A similar case against CIBC was thrown out in the United States, after a federal court judge ruled that the bank could not have known how the crisis would unfold.
The plaintiffs' lawyers could not be reached. CIBC declined to comment on the lawsuit.
Dimitri Lascaris of Siskinds LLP in London, Ont., represents plaintiffs in many similar shareholder class actions, but is not involved in this case.
He has been very critical of the Timminco decision, arguing that it is practically impossible to secure leave in complex shareholder class actions before a three-year deadline.
Defence lawyers on Bay Street have praised the Timminco ruling, arguing that a a three-year deadline is needed to limit the damage that having a large shareholder lawsuit hanging over a company can cause.
Lascaris says the Timminco decision unfairly threatens a list of other cases now before the courts. He said ensuring courts have bigger budgets to handle these complex cases is the best way to ensure they are heard promptly, not by enforcing an arbitrary deadline.
"The way to speed it up frankly is to give the courts greater resources, not to put a gun to the plaintiffs' head," Lascaris said.