COURT FILE AND PARTIES
COURT FILE NO.: 03-CV-254970CP
DATE: 20121017
ONTARIO SUPERIOR COURT OF JUSTICE
PROCEEDING UNDER the Class Action Proceedings Act, 1992 , S.O. 1992, C. 6
BETWEEN:
stephen markson Plaintiff – and – MBNA CANADA BANK Defendant
Margaret L. Waddell and Kirk Baert , for the Plaintiff/Moving Party
Jill Lawrie and David Noseworthy , for the Defendant/Respondent
HEARD: October 11, 2012
c. hORKINS J.
[ 1 ] This is a motion for approval of the settlement of this class action and class counsel fees pursuant to s. 29 of the Class Proceedings Act , 1992, S.O. 1992, c. C.6 (" Class Proceedings Act "). Notice of this approval hearing has been given to the class.
background
[ 2 ] This action was commenced on September 9, 2003. The plaintiff asserts causes of action for: (i) breach of contract, (ii) unjust enrichment and for restitution of criminal interest paid to MBNA Canada Bank (“MBNA”), and (iii) a declaration that MBNA has violated s. 347 of the Criminal Code , R.S.C. 1985 c. C-46.
[ 3 ] The action relates to cash advance transaction fees and related compound interest that MBNA charged and received. The fees and interest occurred when MBNA customers took a cash advance using the credit facilities accessed through their MBNA credit cards (“Cash Advances”).
[ 4 ] MBNA charged its cardholders a transaction fee of 1% of the principal amount of each Cash Advance, subject to minimum and maximum fees (the “Cash Advance Fee”). In addition to the Cash Advance Fee, MBNA charged compound periodic interest on each cash advance transaction until it was repaid in full. It is the imposition of a flat fee that can cause the interest received to exceed the maximum effective annual interest rate, if the debt is repaid in a short period of time.
[ 5 ] In situations where the Cash Advance and associated periodic interest and the Cash Advance Fee are repaid in full in a relatively short period of time, the plaintiff alleges that MBNA received interest at an effective annual rate in excess of 60%, contrary to the provisions of s. 347(1) of the Criminal Code and in breach of the terms of its cardholder agreements.
[ 6 ] The plaintiff alleges, and MBNA now admits that the Cash Advance Fee as well as the periodic interest charged and received by MBNA on Cash Advances are “interest” as defined in s. 347(2) of the Criminal Code . While MBNA conceded this point for the certification motion, it did not concede this point for the purpose of trial until the plaintiff brought the motion for summary judgment.
[ 7 ] The following overview of the litigation demonstrates how vigorously the action was pursued and defended. Since the commencement of this action in 2003, the parties have taken numerous steps as follows:
(a) The motion for certification was heard June 28 and July 5, 2004. The motion was denied by order dated July 28, 2004.
(b) The plaintiff appealed to the Divisional Court. The appeal was heard on May 26 and 27, 2005, and the appeal was denied on October 27, 2005, with Justice O’Driscoll dissenting.
(c) Leave to appeal to the Court of Appeal was granted by order dated April 2, 2006.
(d) The appeal was argued on December 7, 2006. Certification was granted by the Court of Appeal by order dated May 2, 2007.
(e) The defendant sought and was denied leave to appeal to the Supreme Court of Canada by order dated November 15, 2007.
(f) On October 21, 2009, the parties brought competing motions for approval of their respective litigation plans. The defendant was granted an order bifurcating the trial.
(g) By order dated February 4, 2011, the court ordered MBNA to produce additional documents.
(h) MBNA’s representative was examined for discovery on July 19, 2011 and undertakings were then answered.
(i) The plaintiff brought a motion for summary judgment on the Phase 1 common issues (liability). This motion was scheduled to be argued during the week of June 25 and August 20 and 21, 2012.
(j) The plaintiff conducted cross-examinations of the defendant’s affiants in response to the motion for summary judgment on April 20, 2012.
(k) A mediation was held on May 14, 2012.
(l) The general parameters of a settlement were reached at the mediation on May 14, 2012. The final terms of the settlement are set out in a Settlement Agreement, dated August 10, 2012.
[ 8 ] Finally, I add some background evidence about the defendant’s business that is relevant to how this settlement is structured. MBNA commenced its Canadian credit card operations in November 1997. It issued credit card products in Canada within the MBNA MasterCard® brand. On January 1, 2009, MBNA amalgamated with CUETS Financial Ltd. (“CUETS”), and continued to carry on business as MBNA. From January 1, 2009 to November 30, 2011, CUETS’ customers’ MasterCard® credit cards were issued by MBNA. On December 1, 2011, MBNA sold substantially all of its credit card business to The Toronto Dominion Bank (“TD”), including the accounts held through CUETS.
Summary of the Settlement
[ 9 ] The key terms of the Settlement Agreement are:
(a) The Class will be expanded to include all MBNA cardholders who, at any time between March 12, 2008 and November 30, 2011, held an MBNA credit card on which Cash Advances could be taken and all individuals who held a CUETS Financial credit card issued between January 1, 2009 and November 30, 2011 on which Cash Advances could be taken.
(b) MBNA will pay $8,000,000 into an interest bearing account, which will comprise the Settlement Fund to be paid out as follows:
Class Counsel’s fees and disbursements, inclusive of taxes, as approved by the court, will be deducted from the Settlement Fund.
10% of the net balance will be paid to the Class Proceedings Fund, along with reimbursement of the disbursements paid by the Fund.
$500,000 will be paid to the Law Foundation ’s Access to Justice Fund.
The balance of the Settlement Fund will be divided by the number of open MBNA accounts as of November 30, 2011 where at least one Cash Advance has been taken (the “Distribution Class Members” as defined in the Settlement Agreement) to determine the amount of credit (the “distribution credit”) to be applied to each qualifying account.
(c) The distribution credit will be applied to the Distribution Class Members’ accounts that remain active as at the date of distribution.
(d) Any remaining undistributed amount of the Settlement Fund will also be paid to the Law Foundation ’s Access to Justice Fund.
(e) MBNA will bear the costs of the notice programs and administration of the settlement, which will cost an estimated $425,000.
[ 10 ] It is important to note that only Distribution Class Members will receive a credit. Class Counsel’s best estimate of the amount of each credit is in the range of $5, assuming there are approximately 625,000 Distribution Class Members.
[ 11 ] A credit will only be paid to a Class Member who took at least one cash advance and whose account at TD remains open on the date of the distribution, regardless of whether the individual Class Member ever paid interest at a criminal rate.
[ 12 ] To actually identify which Class Member paid interest at a criminal rate (and calculate the actual interest) would require an individual review of about 1.925 million accounts. Such a process would be prohibitively expensive and time consuming. The parties agreed that this was not justified given the value of the estimated credit and the total amount of the Settlement Fund.
[ 13 ] When MBNA sold the credit card accounts to TD, the electronic credit card records for open accounts were transferred to TD. MBNA (and therefore Class Counsel) no longer have access to these records. However these records must be searched to identify who qualifies as a Distribution Class Member. TD has agreed to conduct the electronic search in accordance with the Settlement Agreement. TD is not providing a list of names of those who qualify. Rather, they will confirm the number of eligible open account holders and arrange for each eligible account holder to receive a credit on their account.
[ 14 ] The parties also decided to limit direct recovery to those Class Members who currently have open accounts that meet TD’s searchability criteria because of the prohibitive cost of identifying and processing payments to those whose accounts have been closed.
[ 15 ] Payment to a closed account holder would require a search to identify closed accounts and locate the closed account holder. MBNA’s electronic records only went back to 2005, so to identify those cardholders whose accounts were closed in 2004 or prior and who took one or more cash advances would require a manual search of micro-fiche records. The cost would be prohibitive and it would take an excessive amount of time.
[ 16 ] While it might be possible to identify accounts closed after January 2005, where one or more cash advances had been taken, MBNA’s records would not provide current address information for the closed account holder. As a result, there would be an additional cost to try and locate these Class Members.
[ 17 ] Even if current addresses could be found, the cost to process a cheque to pay these class members their share of the Settlement Fund would be excessive in relation to the amount of the payment. Alternatively, someone would have to contact each person and request current banking information to allow an electronic transfer of the credit. This too would be time consuming and expensive.
[ 18 ] As a result, the parties agreed to pay $500,000 to the Law Foundation ’s Access to Justice Fund. They propose that this payment be made as a cy près distribution in lieu of direct payment to those Class Members who do not have open accounts at TD on the date of distribution of the Settlement Fund.
Expansion of class
[ 19 ] As noted above, the settlement includes an agreement to expand the definition of the class. The approved class definition is “[a]ll persons in Canada who, at any time before the last of the dates on which notice of certification is given pursuant to the order of the Ontario Superior Court of Justice, hold or have held, an MBNA credit card on which cash advances could be obtained.” The Class Period ran from November 1, 1997, when MBNA commenced business in Canada, until March 12, 2008, the last date on which MBNA gave notice of certification.
[ 20 ] Under the proposed settlement the original Class Period will be extended until the end on November 30, 2011, which is when MBNA sold substantially all of its accounts to TD. The parties have agreed to extend the Class Period so that all MBNA cardholders are treated equally and receive the benefits of the settlement. The expanded definition is as follows:
All individuals who, at any time before March 12, 2008 held an MBNA credit card on which cash advances could be taken (Original Class) and who is not an Opt-Out; and all individuals who held an MBNA credit card issued between March 12, 2008 and November 30, 2011 on which cash advances could be taken and all individuals who held a CUETS Financial credit card issued between January 1, 2009 and November 30, 2011 on which cash advances could be taken (New Class) and who is not an Opt-Out (together, the “Class”).
[ 21 ] The parties negotiated the settlement assuming that this expansion would be accepted. As a result the quantum of the settlement was based on this expanded class. The fair and reasonable approach to settlement is to treat all MBNA cardholders equally. I accept the expansion of the class as set out above.
Settlement approval
Legal Framework
[ 22 ] Section 29(2) of the Class Proceedings Act provides that a settlement of a class proceeding is not binding unless it has been approved by the court. The test for approving a settlement is whether, in all of the circumstances, the settlement is fair, reasonable and in the best interests of the class as a whole, taking into account the claims and defences in the litigation and any objections to the settlement.
[ 23 ] When considering the approval of negotiated settlements, the court may consider, among other things the following factors: likelihood of recovery or likelihood of success; amount and nature of discovery, evidence or investigation; settlement terms and conditions; recommendation and experience of counsel; future expense and likely duration of litigation and risk; recommendation of neutral parties, if any; number of objectors and nature of objections; the presence of good faith, arm's length bargaining and the absence of collusion; the degree and nature of communications by counsel and the representative plaintiffs with class members during the litigation; and information conveying to the court the dynamics of and the positions taken by the parties during the negotiation.
[ 24 ] These factors provide a guide for analysis rather than a rigid set of criteria that must be applied to every settlement.
[ 25 ] The court is not required to have evidence sufficient to decide the merits of the issue. This “is not required because compromise is necessary to achieve any settlement. However, the court must possess adequate information to elevate its decision above mere conjecture. This is imperative in order that the court might be satisfied that the settlement delivers adequate relief for the class in exchange for the surrender of litigation rights against the defendants”.
[ 26 ] A settlement does not have to be perfect. It need only fall "within a zone or range of reasonableness".
[ 27 ] The "zone of reasonableness" concept helps to guide the exercise of the court's supervisory jurisdiction over the approval of a settlement of class actions.
[ 28 ] As stated in Dabbs v. Sun Life Assurance Co. of Canada, there is a strong initial presumption of fairness when a proposed class settlement negotiated at arm’s length by class counsel is presented for court approval.
Factors Supporting Approval
[ 29 ] I accept that the settlement was the product of hard fought negotiations conducted by experienced counsel at arm's length.
[ 30 ] Counsel had a sufficient evidentiary basis to evaluate liability and damages.
[ 31 ] When negotiating the settlement, counsel took into consideration the various risk factors.
[ 32 ] There was a fundamental dispute about which assumptions should apply to calculate the effective annual rate of interest on cash advances.
[ 33 ] There was also the risk of further delay in reaching the end of the litigation if not settled.
[ 34 ] It is significant that Mr. Markson supports and recommends approval of the settlement.
[ 35 ] The amount of the settlement exceeds the figure that the mediator recommended.
[ 36 ] Since notice of the settlement approval hearing was published, Class Counsel have received over 90 calls, emails, and letters from Class Members.
[ 37 ] The court considered similar objections to a settlement in Gilbert v. Canadian Imperial Bank of Commerce.
[ 38 ] Given the size of the class, the number of objectors is exceedingly small.
[ 39 ] The decision to limit recovery to those with open accounts was not arbitrary.
[ 40 ] The facts of this case support use of a cy près distribution in lieu of direct payment to closed account holders.
[ 41 ] The Class Proceedings Act permits the court to direct the distribution of settlement monies by any means it considers appropriate.
[ 42 ] The Ontario Law Foundation’s Access to Justice Fund is a suitable recipient of the cy près distribution.
[ 43 ] In my view this approach should be encouraged where the recipient advances the objectives of the Class Proceedings Act.
[ 44 ] In summary, I conclude that this settlement is fair and reasonable and in the best interests of the class as a whole.
Approval of class Counsel fees
The Retainer Agreement
[ 45 ] Class Counsel entered into a contingency fee retainer agreement with Mr. Markson.
[ 46 ] An agreement respecting fees and disbursements between class counsel and a representative plaintiff is enforceable if approved by the court.
Legal Framework
[ 47 ] The court’s task is to determine a fee that is "fair and reasonable" in all of the circumstances.
[ 48 ] In Vitapharm Canada Ltd. v. F. Hoffmann-La Roche Ltd., Cumming J. summarized some of the factors to be considered when fixing class counsel's fees.
(a) the factual and legal complexities of the matters dealt with;
(b) the risk undertaken;
(c) the degree of responsibility assumed by class counsel;
(d) the monetary value of the matters in issue;
(e) the importance of the matter to the class;
(f) the degree of skill and competence demonstrated by class counsel;
(g) the results achieved;
(h) the ability of the class to pay;
(i) the expectations of the class as to the amount of fees; and
(j) the opportunity cost to class counsel.
[ 49 ] With these factors in mind, the following review confirms the reasonableness of the proposed fees and disbursements.
The Fee is Fair and Reasonable
[ 50 ] Class Counsel have invested almost $2 million of time in this case.
[ 51 ] Class Counsel assumed considerable risk in this case.
[ 52 ] The litigation process was complicated.
[ 53 ] MBNA is a sophisticated opponent who defended the action vigorously.
[ 54 ] The case was litigated for nine years before a settlement was achieved.
Compensation for Mr. MArkson
[ 55 ] The court is asked to approve payment of a $5,000 “honorarium” to Mr. Markson.
[ 56 ] Compensation for a representative plaintiff is rare and must be awarded sparingly.
[ 57 ] Compensation must only be awarded if the representative plaintiff has made an exceptional contribution that has resulted in success for the class.
[ 58 ] If compensation is justified it should be paid out of the settlement fund and not from class counsel fees.
[ 59 ] There is good reason to limit compensation to exceptional cases.
[ 60 ] I accept that Mr. Markson was dedicated to his job as the representative plaintiff and I acknowledge his contribution.
[ 61 ] Mr. Markson fulfilled the usual tasks expected of the position.
[ 62 ] Every representative plaintiff bears the burden of public scrutiny.
[ 63 ] Mr. Markson is a registered professional engineer.
[ 64 ] Counsel say that Mr. Markson’s expertise allowed him to identify the interest rate.
[ 65 ] A proceeding alleging criminal interest under s. 347 of the Criminal Code was not new when this action was started.
[ 66 ] Bringing the idea of a claim to counsel is not exceptional.
[ 67 ] Someone with average math skills could have questioned the charges.
[ 68 ] Many representative plaintiffs have a good understanding of the issues.
[ 69 ] There is no evidence that his assistance was necessary to the experts’ work.
[ 70 ] This is not a case like Windisman where the representative plaintiff assumed significant risk and recorded extensive effort.
[ 71 ] While Mr. Markson was dedicated, this is not an exceptional case that justifies compensation.
conclusion
[ 72 ] In summary, I approve the expanded class definition, the settlement and the fees and disbursements of class counsel. With the exception of the request for compensation for Mr. Markson, I grant the relief set out in the notice of motion dated October 1, 2012.
[ 73 ] When the administration of the settlement is completed, I request that counsel and the Administrator notify the court.
C. Horkins J.
Released: October 17, 2012
COURT FILE NO.: 03-CV-254970CP
DATE: 20121017
ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN:
stephen markson Plaintiff – and – MBNA CANADA BANK Defendant
REASONS FOR JUDGMENT
C. Horkins J.
Released: October 17, 2012