OSHAWA COURT FILE NO.: 66247/10
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
JOHN SHERLOCK ROWLANDS
Todd J. McCarthy/Sean A. Brown/Matthew J. Stepura, for the Plaintiff
Plaintiff
- and -
DURHAM REGION HEALTH, also known as DURHAM REGIONAL HEALTH DEPARTMENT, also known as THE REGIONAL MUNICIPALITY OF DURHAM HEALTH DEPARTMENT and THE REGIONAL MUNICIPALITY OF DURHAM
Defendants
David B. Boghosian/Ward Branch/Laura Day, for the Defendants
HEARD: July 3, 2012
REASONS FOR DECISION
LAUWERS J.
1On or about December 16, 2009, a nurse employed by the Durham Regional Health Department lost a digital memory USB key. It held the unencrypted personal and confidential information of 83,524 individuals who, between about October 1, 2009 and December 16, 2009, received an H1N1 immunization shot at a clinic in Durham Region. The plaintiff sues on his own behalf and on behalf of the Class Members for damages arising out of the loss of the USB key, and especially in light of the prospect that the confidential information about the Class Members contained in the USB key might be used to facilitate identity theft. I certified this case as a class action under the Class Proceedings Act, 1992, S.O. 1992 c. 6 (“CPA”) at [2011] O.J. No. 1864, modified at [2011] O.J. No. 1710. The parties move for approval of a proposed settlement agreement under section 29(2) of the CPA.
2The broad scope of the action can be seen in the common issues:
(1) Did the Defendants owe a duty of care to the Class Members in relation to the collection, storage, transportation and safeguarding of personal and confidential information collected by the Defendants from the Class Members? If so, did the Defendants breach that duty? If so, was it reasonably foreseeable that harm to the Class Members would result from the breach of the duty?
(2) Did the Defendants owe a fiduciary duty to the Class Members in relation to the collection, storage, transportation and safeguarding of personal and confidential information collected by the Defendants from the Class Members? If so, did the Defendants breach that duty? If so, was it reasonably foreseeable that harm to the Class Members would result from the breach of the duty?
(3) Did the Defendants have a duty to maintain the confidence of the Class Members as a consequence of the Defendants’ collection, storage, transportation and safeguarding of personal and confidential information from the Class Members? If so, did the Defendants breach that confidence? If so, was it reasonably foreseeable that harm to the Class Members would result from the breach of the duty?
(4) Did the Defendants have a duty to maintain the privacy of the Class Members as a consequence of the Defendants’ collection, storage, transportation and safeguarding of personal and confidential information from the Class Members? If so, did the Defendants breach that privacy? If so, was it reasonably foreseeable that harm to the Class Members would result from the breach of the duty?
(5) Did the Defendants have a statutory duty pursuant to the Personal Health Information Protection Act in relation to the collection, storage, transportation and safeguarding of personal and confidential information collected by the Defendants from the Class Members? If so, did the Defendants breach that statutory duty? If so, was it reasonably foreseeable that harm to the Class Members would result from the breach of the statutory duty? In addition, or in the alternative, if the Defendants have breached a statutory duty pursuant to the Personal Health Information Protection Act, are the Class Members entitled to damages pursuant to s. 65(1) of the Personal Health Information Protection Act (PHIPA)?
(5.1)Did the Defendants have a duty to the Class Members, pursuant to Section 7 of the Canadian Charter of Rights and Freedoms, in relation to the collection, storage, transportation and safeguarding of personal and confidential information collected by the Defendants from the Class Members? If so, did the Defendants breach that Charter duty? If so, was it reasonably foreseeable that harm to the Class Members would result from the breach of the statutory duty?
(6) If it is established that the Defendants breached any of its duties referred to above, are the Class Members entitled to an award of money damages for the purpose of obtaining credit monitoring for a period of years to be determined by the Court? If so, what is the appropriate quantum of damages? If so, are the Class Members entitled to an aggregate assessment of damages for part or all of the damages they suffered? If so, which part of the damages? How will the award be distributed among Class Members?
(7) Are the Class Members entitled to punitive, aggravated and/or exemplary damages? If so, in what amount? How will the award be distributed among Class Members?
(8) Should the Defendants be ordered to pay pre-judgment interest? If so, at what annual rate? How is the pre-judgment rate to be calculated?
(9) Should the Defendants pay the cost of administering and distributing any recovery? If so, in what amount?
3The parties proffer a proposed Amended Settlement Agreement for the court’s approval. In a nutshell, it provides for a claim period by class members up to and including August 1, 2016. A Class Member whose personal information was lost and who consequently suffers economic harm, can make a claim. The Defendant Durham Region will take steps to mitigate any economic harm that a Class Member claimant suffers because of the loss of his or her personal information. If the claimant is not satisfied with the mitigating steps taken by Durham Region, he or she may pursue his or her claim before the Claims Administrator, who may then order Durham Region to pay compensation to the claimant.
4The detailed elements of the proposed settlement agreement are described by class counsel as follows:
The Agreement provides for a Claim and Appeals process and proposes the Bruneau Group as Administrator and Mr. Clifford Hendler as Arbitrator.
Under the Agreement, Class Members who believe they have suffered economic harm as a result of the loss of the USB key can submit a Claim by completing the Claim Form. The Class Member must provide sufficient information to allow the Defendants to determine the harm they have suffered and to take steps to mitigate that harm. Class Members must cooperate with the Defendants in their efforts to mitigate any harm suffered.
If the Class Member feels the harm has been mitigated, the Class Member can withdraw his or her Claim. If the Class Member does not withdraw his or her Claim, the Claim will be assessed by the [Claims Administrator]. The [Claims Adminstrator] will determine if the Class Member suffered harm, if the harm was caused by the loss of the USB key, if that harm has been mitigated, if the Defendants should pay damages to the Class Member, and if so, in what amount.
If either the Class Member or the Defendants are not content with the Administrator’s decision, a streamlined Appeal process is also available, which will be overseen by the Arbitrator. The decision of the Arbitrator is final and is not subject to further appeals.
5The Agreement also provides fors the payment of costs to class counsel in the additional amount of $500,000.00 inclusive of taxes and disbursements, plus 25 per cent of actual claims paid by the defendant in the future.
6The formalities required under the CPA and my orders have all been observed to my satisfaction. In response to a significant notice process more than thirty objectors either filed written material or spoke to the court. I will address their concerns below.
The Legal Principles of Class Action Settlement Approval
7In considering whether to approve this settlement proposal, I am guided by the words of Callaghan A.C.J.H.C. in Sparling v. Southam Inc. (1988), 1988 4694 (ON SC), 66 O.R. (2d) 225 at 230-1, when he was considering approval of a settlement in a derivative action, which is analogous:
…I believe it should be observed at the outset that the courts consistently favour the settlement of lawsuits in general. To put it another way, there is an overriding public interest in favour of settlement. This policy promotes the interests of litigants generally by saving them the expense of trial of disputed issues, and it reduces the strain upon an already overburdened provincial court system.
In deciding whether or not to approve a proposed settlement…, the court must be satisfied that the proposal is fair and reasonable… the court must recognize that settlements are by their very nature compromises, which need not and usually do not satisfy every single concern of all parties affected. Acceptable settlements may fall within a broad range of upper and lower limits.
…it is not the court's function to substitute its judgment for that of the parties who negotiate the settlement. Nor is it the court's function to litigate the merits of the action. .. it is not the function of the court [to] simply rubber-stamp the proposal.
8I accept as correct the following propositions cited by Perell J. in Smith (Estate of) and Oriet v National Money Mart Company and Dollar Financial Group, Inc., 2010 ONSC 1334, [2010] O.J. No. 873 (appeal dismissed 2011 ONCA 233, 106 O.R. (3d) 37), at paras 18-21:
In determining whether to approve a settlement, the court, without making findings of facts on the merits of the litigation, examines the fairness and reasonableness of the proposed settlement and whether it is in the best interests of the class as a whole having regard to the claims and defences in the litigation and any objections raised to the settlement.
When considering the approval of negotiated settlements, the court may consider, among other things: (a) likelihood of recovery or likelihood of success; (b) amount and nature of discovery, evidence or investigation; (c) settlement terms and conditions; (d) recommendation and experience of counsel; (f) future expense and likely duration of litigation and risk; (g) recommendation of neutral parties, if any; (h) number of objectors and nature of objections; (i) the presence of good faith, arm's length bargaining and the absence of collusion; (j) the degree and nature of communications by counsel and the representative plaintiffs with class members during the litigation; and (k) information conveying to the court the dynamics of and the positions taken by the parties during the negotiation.
A settlement must fall within a zone of reasonableness. Reasonableness allows for a range of possible resolutions and is an objective standard that allows for variation depending upon the subject matter of the litigation and the nature of the damages for which the settlement is to provide compensation.
A settlement does not have to be perfect, nor is it necessary for a settlement to treat everybody equally. (Internal citations omitted.)
The Views of the Objectors
9Few objectors, relative to the size of the class, raised objections. The court received 18 written submissions and heard oral submissions from 15 people, two of whom had filed a written submission. A good many people attended at the hearing and applauded the objectors’ submissions from time to time.
10Some objectors were quite emotional in their responses; their distress is not surprising given society’s growing apprehension about identity theft. A number spoke about telephone scams that have affected them or their friends, none of which are alleged to be the result of the loss of the digital USB key by the nurse. Some have taken extra steps, like replacing their OHIP cards, to protect their security.
11Some object to the lack of any cash going to the claimants in the settlement. One, for example, submits that each class member should get $1,000.00, at least. He, along with others, wants punitive damages. As another puts it: “We have to live with the threat of this being exposed…” This is a common concern among objectors.
12Objectors were concerned about the limited period for claims, since the settlement agreement would close off claims from class members on August 2, 2016. The objector submits that: “If I remain a member of the class, I effectively waive any right to a claim arising out of the lost information that occurs at a later date. For example, if the loss of my information leads to an economic loss at a later date, I believe that I could file a claim against Durham Region within two years of discovering that loss. As a member of the class, I could not do that.” Other objectors also worry about claims that are more remote in time particularly as identity theft might affect them or their children.
13Another objection is that by requiring proof of economic loss, the settlement would exclude many: “Under the outlined conditions neither my sons nor my mother will be compensated if this settlement is to be approved. I venture to say that a large percentage of people whose data was lost on that memory stick won’t qualify either due to the fact that they are children, stay at home moms, caregivers or seniors!!” The problem of proving direct financial loss is also raised by other objectors.
14Some of the Class Members object to the quantity of legal fees being paid, especially in light of the fact that the class members get no immediate cash. They also object to the ongoing 25 per cent share going to class counsel if there are payments of actual damages in the future.
15To summarize, the objectors encouraged the court to refuse to approve the proposed settlement agreement. The more concrete suggestions were that the court withhold approval until the settlement agreement is amended: so that the claims period be extended from four to ten years, or the end date be removed altogether; to create some mechanism to protect younger people from future identity theft; and to permit class members to opt out now to join the approximately 4,000 individuals who opted out in accordance with the certification order.
Discussion
16It is important to consider the context in which this case developed. The USB key was lost on or about December 16, 2009. In the midst of the anxiety created by that loss, the action was started on April 26, 2010. The certification motion was heard on December 16, 2010 with the decision rendered on February 4, 2011, and the certification order signed on April 26, 2011. Over the course of this action, anxiety about the abuse of private information has given way to the realization that it is now probable that no one has the missing USB key. This inference comes from the fact that no class member has claimed that information on the key has been used to financially damage his or her interests. This case, it bears emphasizing, would look far different if information from the lost USB key had been abused by a wrongdoer.
17I turn now to consider some of the criteria set by the courts in determining whether the proposed settlement is fair and reasonable in the circumstances.
18As a matter of law, in my view, the chances of success, in the circumstances as they have unfolded since the USB key was lost, are quite low.
19There was minimal information on the USB key consisting of the name, address, telephone numbers, gender, date of birth, Ontario heath card number with expiry date, name of primary physician, and some additional personal health information. Drivers’ licences were swiped in some instances but that would only provide access to the name and personal address of the licence holder, not to the licence number itself. Craig Hannaford, the former RCMP expert retained by the plaintiff, observed that more information is usually required to commit fraud using such information, which is obtained by identity thieves using trickery and small bits of existing information to get more information from the individuals themselves, once the thief has contact information. Some of the objectors were afraid that wrongdoers could get passports using this information. There is no evidence to substantiate that fear.
20The expert evidence of Dr. Norman Archer, who gave evidence for the defendant, is that the information on the key would not be particularly useful in identity theft. Further, the expert relied upon by the plaintiff, Mr. Hannaford, gave the opinion that credit monitoring services would only be necessary for several years following the incident, after which the risk of identity theft dissipates considerably.
21These factual elements must be considered along with the decision of the Quebec Superior Court in Mazzonna v. DaimlerChrysler Financial Services Canada Inc. 2012 GCCS 958. In that case, the defendant lost a data tape containing the names and financial information associated with 240,000 customers. Lacoursiere J. had no hesitation in finding that the defendant was prima facie negligent (para. 27). He concluded that it was premature to determine whether the data was accessible to wrongdoers (para. 34). Over the four years from the date that the loss of the data tape occurred from the date of the hearing of the motion, there had been no abuse of the lost credit information (para. 39).
22The representative plaintiff in Mazzonna stated that she was experiencing “anxiety, inconvenience, pain, suffering, and/or fear that she be the target of fraud or identity theft” (para. 40). The court concluded, however, that “the petitioner fails to meet the tests that she has suffered damages” (para. 56). Instead, the court characterized this anxiety as “minor and transient upsets” that are non-compensable (para. 59), following the decision of the Supreme Court of Canada in Mustapha v. Culligan of Canada Ltd. 2008 SCC 27, [2008] 2 S.C.R. 114 at para. 9. The parallels to this case are striking, and although it is not binding on me I find it to be helpful in assessing the risks in this class action.
23Durham Region has made it clear that it intends to bring a motion for summary judgment if the settlement agreement is not approved. The plaintiff fears that the motion will be successful. There is a reasonable basis for that fear, given the outcome in Mazzonna. The costs of briefing and arguing a summary judgment motion would be considerable. In the circumstances, the risks to the class are high. Assuming that the plaintiff avoids summary judgment, the discovery and trial process would also be difficult and expensive with the risk of loss decidedly on the plaintiff’s side.
24The benefits of the settlement are the following: the defendant effectively waives any common law defences on liability if the claim is pursued before the expiry of the claim period; from the viewpoint of an individual claimant, the process is cost-free and relatively quick, by contrast to a lawsuit. The process proposed by the parties is consistent with the access to justice goal of class proceedings legislation.
25Durham Region and its insurer are not prepared to extend the claim period. This was, according to counsel, the hardest-fought element of the settlement. An incentive to the defendant to participate is in being able to close off the claim period. This is an element of importance in negotiations since it confers certainty and finality. In Baxter v. The Attorney General of Canada (2006), 2006 41673 (ON SC), 83 O.R. (3d) 481, the claim period for sexual abuse in residential schools was less than the applicable limitations period under most provincial legislation. The court did not refuse a settlement proposal on that basis. Counsel conceded that it is open to the court to reject the settlement proposal on the basis of limitation issue: Lakes v. MacDougall, [2011] B.C.J. No. 1782 at para 23. The egregious nature of the assaults in that case, however, makes it readily distinguishable.
26Based on Mr. Hannaford’s evidence, Durham Region and its insurer were initially only prepared to grant an additional two years from the date of the incident for a total of three years, which would, in the Region’s view, have dispelled the risk to the Class Members. In the interest of securing a settlement, however, Durham Region agreed to a claim period of four years in to end August 2, 2016, which would take the total period to about six and a half years, more than the “several years” Mr. Hannaford estimates would be needed to protect Class Members. In effect, Durham Region and its insurer have agreed to accept the transfer of risk of loss from a Class Member over the claim period, after which the risk will be virtually eliminated. This is of benefit to Class Members.
27The parties point out that Class Members had the choice to opt out, which would arguably have extended their effective limitations period to the date of discovery of the abuse of credit information. Permitting them to opt out at this late stage would, however, undermine the entire dynamic of the class proceeding and the incentive on the defendant to settle the action.
28There is a serious risk that if the approval is not granted on the basis that no cash is paid to the Class Members, that the claim period should be extended or eliminated, or that Class Members should be permitted to opt out at this late stage, there is no certainty that a new and better settlement can be negotiated. Indeed, the evidence and the bargaining dynamic show thata new settlement agreement would be highly unlikely. There is no evidence that any other class member is prepared to carry on and replace Mr. Rowlands.
29I note that the behaviour modification goal of class actions has been accomplished in this case the pressure of this lawsuit has signalled to public authorities like Durham Region that adequate security to protect privacy is critical in our society.
30In my view, the proposed settlement is fair and reasonable in the circumstances as those have fortuitously evolved since the inception of the action. It is within a reasonable range of outcomes given the merits and the risks. This settlement agreement is, in my view, the best that the class can accomplish at this moment in time, given the developments in the case. The ongoing risks to members of the class appear to be negligible. I do not frankly see the further pursuit of this lawsuit being in the interests of the class or as being cost effective. I therefore approve the settlement.
31By way of aside, I make the following observation. The parties, who have counsel, are in agreement in the settlement approval process. By contrast, however, in a consumer-style class action such as this one, the members of the class are numerous but have limited financial interests. Objectors typically do not have an advocate for their positions and little financial incentive to pursue an objection through counsel. No counsel for the objectors appeared before me. This lack of an adversarial context has troubled judges from early days. See, for example, the observations of Sharpe J. in Dabbs v. Sun Life Assurance Company of Canada (1998), 1998 14855 (ON SC), 40 O.R. (3d) 429 (Gen. Div.) at 440-44, aff'd (1998), 1998 7165 (ON CA), 41 O.R. (3d) 97 (C.A.), leave to appeal to S.C.C. refused Oct.22, 1998, [1998] S.C.C.A. No. 372. Most recently, Juriansz J.A. responded to Perell J.’s sense of disquiet in Smith (Estate of) and Oriet v National Money Mart Company and Dollar Financial Group, Inc. at para 38, by suggesting that a motion judge could consider the appointment of an amicus. I gave the appointment of an amicus some thought, but the prospects of success for the class in the action are now so poor that no further investment in it is warranted.
Legal Fees
32I turn now to address the fairness and reasonableness of the legal fees that Durham Region and its insurer have agreed to pay to class counsel in the settlement agreement. I adopt the approach of Perell J. in Smith (Estate of) and Oriet v National Money Mart Company and Dollar Financial Group, Inc., at paras 22-25.
33Under the settlement agreement Durham Region and its insurer have agreed to pay additional costs of $500,000.00, inclusive of taxes and disbursements.
34I do not see class counsel as competing with Class Members for cash, as was the concern of Perell J. in Smith (Estate of) and Oriet v National Money Mart Company and Dollar Financial Group, Inc. Durham Region and its insurer were not prepared to pay any compensation to a Class Member in the absence of an actual financial loss.
35I have had an opportunity to review the retainer agreement and also to review the dockets of Flaherty Dow Elliott and McCarthy. I accept the accuracy of the dockets and I find that the time spent on the tasks described was both reasonable and necessary.
36The requested cost award is largely in the nature of compensation for time spent, although it does provide for a risk premium. I note that the factors for assessing costs would have led to a much larger award of costs if the facts had panned out differently; this is not a trite observation, since it must be recognized that it is a very rare case in which the facts on the ground actually change as the case develops, as they did here, showing that the alarm that understandably prompted the lawsuit has been largely and fortuitously dispelled. In the quite unique circumstances of this case, I share the view of Durham Region and its insurer that class counsel is entitled to be reasonably compensated for the considerable work undertaken to pursue this case. I therefore approve settlement agreement’s cost award of $500,000.00 all-inclusive, as requested.
37Finally, the settlement agreement also calls for a payment to class counsel in the future if a claim is pursued by a Class Member through the Claims Process set up in the agreement. Class counsel submits:
The Representative Plaintiff entered into contingency fee retainer agreement with Class Counsel. Since the inception of this claim, the retainer agreement stipulated a counsel fee of 25% of the value of any claim awarded to a Class Member. …The promise of 25% of the value of any claim awarded to a Class Member is a motivating factor to ensure that Class Counsel remains interested and involved in the Claims Process, which will benefit claiming Class Members.
38I accept this submission and approve the settlement agreement in its entirety.
Justice P.D. Lauwers
Released: July 4, 2012