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Winnipeg Free Press - PRINT EDITION
Crocus shareholders pursue another claim
When maverick Crocus shareholder Bernie Bellan convinced some lawyers to file a class-action suit against Crocus Investment Fund officers and directors and some of its professional service providers several years ago, few would have predicted that it would be as successful as it was.
In time, it has become almost a cottage industry of sorts.
More than a year ago, the class won a total of $12.5 million in out-of-court settlement agreements against the fund's auditors, underwriters, directors and officers and the province.
Another $5-million claim was filed last week by the class.
This time the defendants are the fund's former lawyers, Fillmore Riley, and the independent business valuator Stafford Swain & Associates.
According to lawyers, the shareholders would not normally have the right to make a direct claim against the lawyers and valuators, but rather it would be the officers and directors -- who already settled out of court with the shareholders -- who have might have a claim.
But in arriving at the agreement to settle with the shareholders, the officers and directors assigned any claims they may have for contribution or indemnity arising from the class action to the shareholder group led by Bellan.
Thus the latest legal action.
The officers and directors' defence in the original class-action claim was that they relied on what turned out to be faulty advice from their professional advisers, namely the lawyers who signed off on the prospectus and the business valuators who may not have executed their duties exactly as they were set out in the prospectus.
"The twist in this case is that the shareholders have no direct claims," said David Klein, the Vancouver-based lawyer who has represented the shareholder class for some time. "In this lawsuit, it is the shareholder class that steps into the shoes of the directors and officers to assert the indemnity claim."
The $5-million claim is based on the fact the officers and directors were insured for $5 million and that claim paid out $3.15 million as a settlement and, Klein believes, at least another $1 million in legal fees.
If it all sounds like an attempt at a cash grab, it sort of is.
"We are continuing to try to provide value to the shareholders through the class-action litigation," Klein said. "We have not let go of the case just yet."
Of course the lawyers will likely receive one-third of the total of any settlement as they have in the past, but despite the lengthy legal battle and massive court costs Crocus shareholders have definitely benefited from the legal enterprise.
Last fall, the 33,000 shareholders received cheques for $4.31 a share with about 50 cents per share of that -- or close to $7 million -- coming from the proceeds of the settlements.
Klein would not comment on whether a settlement was attempted before this latest action was filed.
A spokesman for Fillmore Riley was not available for comment.
Ken Filkow, the lawyer representing many of the directors, said this latest installment in the class-action litigation does have interest for him and his clients.
That's because there is still an outstanding action against the directors from the Manitoba Securities Commission that had been on hold until the conclusion of the class-action matter and is still to be heard.
The MSC's allegations against the directors include the manner in which directors handled share valuations, concern that sales and redemptions were made at a price that had not been approved by the board and the fact that directors did not seek a suspension of trading when they became aware of a material change that may have had an effect on the value of some of the fund's assets.
Some of those issues pertain pretty close to the claims being made against the lawyers and valuators in this latest action.
"To the extent there are allegations being made with respect to directors having not received good advice, that can have some relevance to those (MSC) proceedings," Filkow said.
martin.cash@freepress.mb.ca
Republished from the Winnipeg Free Press print edition July 2, 2010 B4
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