COURT FILE NO.: CV-15-534042CP DATE: 20190822
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
CHRISTOPHER WELSH Moving Party
- and -
HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO Respondent
-and-
AARON ZACHARY SMITH Intervener
-and-
LAW FOUNDATION OF ONTARIO (Class Proceedings Fund) Intervener
BEFORE: Justice Edward P. Belobaba
COUNSEL: Celeste Poltak and David Rosenfeld for the Plaintiff / Moving Party Jonathan Sydor and Christopher Wayland for the Defendant / Responding Party Shantona Chaudhury for the Intervener, Law Foundation of Ontario Stephanie DiGuiseppe for the Intervener, Aaron Smith
HEARD: June 24 and July 19, 2019 re-hearing on legal fees
[1] The settlement of this class action, claiming damages for physical and mental harm sustained by students at three provincial schools for the deaf, was approved, albeit reluctantly, by my colleague, Justice Perell on May 24, 2018. [1]
[2] Perell J. was disappointed with the $15 million settlement, a smidgen of the $325 million damage claim that was claimed in the pleadings. He noted that class member compensation was “confined to sexual and physical assault claims.” [2] The victims of mental or psychological abuse or those who complained about a substandard education would get nothing and worse had to release these claims even though they could have been pursued in other litigation. Perell J. was also concerned that the actual take-up would only be about 10 per cent. However, and on balance, he agreed to approve the settlement “for the simple reason that the settlement agreement was better than the alternative of proceeding to a trial.” [3]
[3] Because Perell J. perceived the overall result to be a “poor settlement” [4] he made his approval of class counsel’s $3.75 million in legal fees (based on their 25 per cent contingency agreement) conditional on a donation of $1.5 million to a charity for the deaf – leaving $2.25 million as the net legal fees payable to class counsel.
[4] The approval of the settlement itself was not appealed. However, class counsel appealed the charitable donation condition. The settlement agreement had provided for a precise order of payment: first legal fees, disbursements and taxes; then notice and administration costs; then payment of the Class Proceedings Fund (“CPF”) levy; and then compensation to class members in accordance with levels of harm sustained, as set out in an agreed-to compensation chart. Any monies that remained after all of these payments had been made would be returned to the defendant. Nothing was said about charitable donations.
[5] The Court of Appeal allowed the appeal holding that the imposition of the $1.5 million charitable donation condition amounted to an improper and unilateral modification of the terms of the settlement agreement. [5] The Court returned the legal fees determination back to this court “for a new hearing before a different judge on the class action list.” [6] The matter is now before me for the rehearing.
[6] I note that the claims administration process has now been completed. About $7.5 million has been paid out to class members, leaving a balance of $1.7 million that will be returned to Ontario.
[7] There are two issues on this rehearing: (1) the legal fees payable to class counsel and (2) the basis upon which the 10 per cent levy payable to the Class Proceedings Fund should be calculated. I will deal first with the legal fees.
The legal fees
[8] The applicable law when the legal fees are paid directly by the defendant pursuant to a provision in the settlement agreement is the same as in a motion by class counsel for the approval of a contingency fee arrangement under ss. 32 or 33 of the Class Proceedings Act, 1992, S.O. 1992, c.6, [7] namely whether the legal fees are fair and reasonable. [8]
[9] The list of factors that judges have traditionally considered when assessing whether the legal fees request is fair and reasonable is lengthy and includes (a) the time spent and work done; (b) the factual and legal complexities of the case; (c) the risk undertaken; (d) the degree of responsibility assumed by class counsel; (e) the monetary value of the matters in issue; (f) the importance of the matter to the class; (g) the degree of skill and competence demonstrated by class counsel; (h) the results achieved; (i) the ability of the class to pay; (j) the expectations of the class as to the amount of the fees; and (k) the opportunity cost to class counsel in the expenditure of time in pursuit of the litigation and settlement . [9]
[10] In my view, many of these factors are irrelevant and unhelpful. [10] Fortunately, the Court of Appeal has acknowledged that the two main factors are risk incurred and result achieved. [11]
[11] Of the two, risk incurred is the more important. [12] The nature of the risk incurred is primarily the risk of non-payment. As noted by the Ontario Law Reform Commission in its seminal Report on Class Actions , “the class lawyer will be assuming a risk that after the expenditure of time and effort no remuneration may be received … [that is] the risk of non-payment.” [13]
[12] I will now consider the result achieved and the risk incurred.
[13] Result achieved. For the purposes of the legal fee discussion, I do not agree that the settlement was a “poor settlement.” It is clear from the compensation chart that class members’ claims were not confined to physical and sexual assault claims. Claims are also allowed for repeated acts of “demeaning behaviour or humiliation.” This category of harm covers many of the non-physical complaints that were advanced by the class members.
[14] I agree with the objectors that the compensation amounts, given the nature and extent of harm sustained by many of the class members over many years of institutional abuse, are modest, almost insulting. I understand the disappointment and even anger that was undoubtedly felt by many of the class members when the $15 million settlement was approved. But the range of average payout, from $18,000 to $45,000, although meagre in terms of the abuse that was sustained, is decidedly more than would have been achieved had the case gone to trial.
[15] The many legal obstacles that the class would have faced at trial – the limitation periods, the unavailability of aggregate damages, the need for individual assessments, and then only for those who could establish physical or sexual assaults, and the difficulties of proving decades-old injuries [14] - would most likely have resulted in protracted litigation with even lower monetary awards to even fewer class members.
[16] Instead, Ontario has agreed to a compensation claims system that is largely honour-based – there is no need to provide proof and no questions are asked. The settlement structure is “a clone of the settlement in Seed ” [15] a class action alleging abuses at a provincial school for the blind that was settled in 2017. Class counsel well understood that Ontario was constrained by the compensation parameters in the Seed settlement or as Perell J. put it, “Ontario was prepared to bend only as far as it did in the Seed action.” [16]
[17] Given these negotiating realities, the result achieved was, frankly, impressive.
[18] The 10 per cent take-up in this case was not unusual. The take-up in the provincial/student institutional abuse cases that class counsel have litigated previously has been in the range of 10 to 14 per cent. Further, the fact that the class members had to abandon claims that would not be eligible for Level 1 compensation (say, claims of depression or loss of self-esteem, in the absence of repeated acts of demeaning behaviour or humiliation) or that were being advanced to recover some compensation for a substandard education, although genuinely posited, was not a matter of any real significance, at least not in legal terms. The stand-alone humiliation claim would not have been legally compensable under Canadian law and the substandard education claim, given the changing standards of care over the many decades of the class period, would have been overwhelmed with individual proof and causation issues. Simply put, the claims that were recognized in the multilevel compensation chart are most probably the only claims that could have been advanced in any event.
[19] For all of these reasons, the result achieved in my view was laudable.
[20] Risk incurred. Although this has been identified as the most important factor, it continues to frustrate judges in both its interpretation and application. Many judges approach the “risk incurred” analysis on a case-by-case basis. In other words, they try in good faith to assess the various risks incurred by class counsel and they purport to determine a fair and reasonable legal fee in a contingency fee context by considering only the case that is before them. [17]
[21] However, no lawyer that prices her services using a contingency fee litigates just one case. As personal injury lawyers will tell you, and as class counsel firms surely understand, the risk of losing and not being paid is a risk that is extrapolated over a portfolio of files and is priced to reflect wins and losses over many years. Just as automobile insurers would never assess your driving risks based on driving data from a single day, judges should not risk-rate the real costs of losing a contingency-based lawsuit based solely on the case before the court.
[22] For my part, as long as we have contingency fees (which are a much-needed access to justice reality) I am satisfied that the approach set out in Cannon, [18] and refined in Brown, [19] is a more transparent and more principled approach to legal fees. In cases where the judgement or settlement is under $50 million (that is, in class actions that are not mega-fund cases) and the representative plaintiff fully understands and agrees to a contingency fee of one-third or less, there is presumptively no good reason not to approve the agreed-to fee amount.
[23] The objector Smith complains that class counsel followed the Seed template in this case and therefore do not deserve more than the $2.25 million approved by the settlement judge. In my view, class counsel did not simply follow a template. The Welsh action was commenced while Seed was still proceeding to trial.
[24] In any event, following a template, whether one is a personal injury lawyer who has three serious whiplash cases in a row, or a class action lawyer with several class action files involving similar challenges of provincial/student institutional abuse, will obviously improve efficiencies, But again, this is the reality of any wide-ranging contingent fee-based practice and only goes to reinforce the wisdom of risk-rating over many years of wins and losses.
[25] In short, I have no difficulty applying my approach in Cannon [20] and concluding that the 25 per cent contingency in this case is indeed fair and reasonable, and together with the disbursements and taxes, and should be approved.
The CPF levy
[26] The second issue that materialized at the rehearing of the legal fees is the calculation of the 10 per cent levy that is payable to the Class Proceedings Fund.
[27] As I have already noted, under the settlement agreement the order of payment is as follows: class counsel legal fees, then the notice and administration costs, then the CPF levy, then payment of class member compensation. If any monies remain, they are to be returned to the defendant province. After the payment of the legal fees approved herein and the notice and administration costs, about $10.2 million will remain. If CPF is paid a 10 per cent levy on this amount, the total will be reduced to about $9.2 million. About $7.5 million has been paid out to claimants, leaving about $1.7 million to be returned to the defendant.
[28] The CPF says the levy should be based on the $10.2 million amount. The defendant province says the levy should be based on the $7.5 million actually paid out to class members. The difference is about $250,000.
[29] I note that Perell J. approved the settlement agreement which clearly provided for a precise order of payment that required the CPF levy to be paid before class member compensation and before the return of any balance to the defendant province. In other words, the levy is to be calculated and paid before the actual take-up or the amount that will be returned to the province is even determined.
[30] In my view, this approach is not only required by the plain language of the settlement agreement but also by the applicable legislation.
[31] The settlement agreement defines CPF Levy as follows:
“CPF Levy” means the Class Proceedings Fund levy applicable to compensation payable to the Class Members pursuant to O. Reg. 771/92.
[32] Section 10 of O. Reg. 771/92, enacted under the Law Society Act, [21] provides as follows:
- (1) This section applies in a proceeding in respect of which a party receives financial support from the Class Proceedings Fund. O. Reg. 771/92, s. 10 (1) . (2) A levy is payable in favour of the Fund, (a) when a monetary award is made in favour of one or more persons in a class that includes a plaintiff who received financial support under section 59.3 of the Act; or (b) when the proceeding is settled and one or more persons in such a class is entitled to receive settlement funds. O. Reg. 771/92, s. 10 (2) . (3) The amount of the levy is the sum of, (a) the amount of any financial support paid under section 59.3 of the Act, excluding any amount repaid by a plaintiff; and (b) 10 per cent of the amount of the award or settlement funds, if any, to which one or more persons in a class that includes a plaintiff who received financial support under section 59.3 of the Act is entitled. O. Reg. 771/92, s. 10 (3) (emphasis added).
[33] The dictionary definition of “entitled” is “the right to do or receive something.” [22]
[34] Here, having paid the legal fees and notice and administration costs as per the settlement agreement, the class members were entitled (before the imposition of the 10 per cent levy) to receive $10.2 million. It is at this point that the CPF levy is calculated.
[35] Having paid the 10 per cent levy on the $10.2 million, approximately $1 million, the amount available for actual take-up by class members was $9.2 million. The fact that only $7.5 million was paid out leaving a $1.7 million reversion is not relevant in the calculation of the CPF levy. There is nothing in the settlement agreement or in O. Reg. 771/92 that bases the 10 per cent levy on the amount that is actually distributed to class members or that defers this calculation until after this amount can be determined. To the contrary, s. 5 of the settlement agreement makes clear that it is only “after all of the payments have been made” that any remaining amount “will be returned to HMQO [Her Majesty the Queen in right of Ontario.]
[36] Ontario’s submission, notwithstanding all of the above, that the CPF levy must be calculated after the class member claims have been paid and the amount of the reversion has been determined is not only analytically untenable but administratively unwieldy.
[37] Consider the following example:
A nationwide consumer class action alleging nickel and dime price-fixing in the sale of candy bars is settled for $20 million. The action was supported by the CPF with its 10 per cent levy. The class members are obviously “entitled” to the full $20 million, minus legal fees and other typical charges. However, because individual claim values are low, the actual take-up is only 10 per cent. The remaining $18 million is either returned to the defendant pursuant to a provision in the settlement agreement or, absent a reversion provision, ends up going cy-pres and is donated to a public interest advocacy centre.
[38] On these facts, Ontario would argue that the CPF levy should be calculated not on the $20 million that was recovered for the benefit of the class, but on the $2 million that was actually paid out.
[39] In my view, this approach is contrary not only to the Regulation but also to good public policy. The CPF is a public interest funding mechanism that is run by a volunteer committee. The committee receives applications and assesses the risk and reward of providing funding on the understanding that the 10 per cent levy is based on the monies that will likely be recovered (not actually paid out.) It would be unwise in the extreme to burden this committee with the additional and almost impossible task of assessing the likely take-up and the possibility that some of the monies may be returned to the defendant as part of a future settlement agreement or go cy-pres.
[40] In my view, it is better to stick with the plain language interpretation of the meaning of “entitled” in the Regulation. This also accords with the overall public interest in maintaining a viable CPF.
[41] If the words “[the plaintiff] is entitled” should be changed to “[the plaintiff] actually receives” this is a change that is best achieved by way of legislative amendment not judicial fiat.
I am satisfied that the CPF 10 per cent levy should be based on the $10.2 million quantum.
Disposition
[42] The requested legal fees and CPF levy are approved.
[43] Order to go as per the draft Order signed on August 9, 2019.
Justice Edward P. Belobaba
Date: August 22, 2019.
[1] Welsh v Ontario, 2018 ONSC 3217. [2] Ibid. at para. 56. [3] Ibid. at para. 91. [4] Ibid. at para. 92. [5] Welsh v Ontario, 2019 ONCA 41 at para. 11. [6] Ibid. at para. 17. [7] Class Proceedings Act, 1992, S.O. 1992, c.6. [8] Lavier v. MyTravel Canada Holidays Inc., 2013 ONCA 92, at paras. 23-25 and 27. [9] Smith v. National Money Mart, 2010 ONSC 1334, rev’d 2011 ONCA 233; and Fischer v. I.G. Investment Management Ltd., 2010 ONSC 7147. [10] In its recently released Class Actions Final Report (July 2019) at 75, the Ontario Law Commission agrees: “The list is lengthy and promotes uncertainty. Many factors are also effectively irrelevant in the context of modern-day class actions practice.” [11] Lavier, supra note 8, at para. 27. Also see Class Actions Final Report, supra note 11, at 75: “The most important factors … should be (1) the risks undertaken by counsel and (2) the results achieved for the class.” [12] Ibid, at para. 58. Also see Winkler J., as he then was, in Parsons v. Canadian Red Cross Society, [2000] O.J. No. 2374 (S.C.), at para. 18: the premium on fees in class action litigation is “for undertaking risk”. The same point is made in the CPA in the context of the multiplier approach. Section 33(7) of the CPA makes clear that the multiplier is intended to reflect “the risk incurred in undertaking and continuing the proceeding.” American courts have also concluded that the risk incurred is the most important factor in determining whether class counsel deserve an enhancement above the base fee/lodestar amount. See the discussion in Casey, “Reforming Securities Class Actions from the Bench: Judging Fiduciaries and Fiduciary Judging” (2003) 4 BYU L. Rev. 1239 at 1293 and Goldberger v. Integrated Res. Inc., 209 F. (3d) 43 (2d Cir. 2000) at 54. [13] Ontario Law Reform Commission, Report on Class Actions (1982), vol. III, at 737. [14] In approving the settlement, Perell J. noted that “only the student class members with claims for physical or sexual assault had a reasonable likelihood of success.” Supra, note 1, at para. 91. [15] Supra, note 1, at para. 55, referring to Seed v Ontario, 2017 ONSC 3534. [16] Supra, note 1 at para. 53. [17] I was frankly disappointed by the brief and under-researched conclusion of the Ontario Law Commission, supra, note 10 at 75, that (contingency-based) legal fees should always be determined on a case-by-case basis. They reached this conclusion without any discussion of the principles of modern risk-rating or even of the proposition that “risk incurred” in a contingent fee context is best understood as reflecting wins and losses over many years. [18] Cannon v. Funds for Canada Foundation, 2013 ONSC 7686. [19] Brown v. Canada (Attorney General), 2018 ONSC 3429. [20] Supra, note 18. [21] Law Society Act, R.S.O. 1990, c. L.8. [22] See any edition of the Concise Oxford English Dictionary.
