ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 10-CV-412963CP

DATE: June 10, 2013

BETWEEN:

ANDREW SORENSON

Plaintiff

– and –

EASYHOME LTD., DAVID INGRAM, STEVE GOERTZ and CHRIS FREGREN

Defendants

Daniel E.H. Bach for the Plaintiff

Ronald Slaght, Q.C. for the Defendants

Proceeding under the Class Proceedings Act, 1992

HEARD: June 10 2013,

PERELL, J.

REASONS FOR DECISION

A. INTRODUCTION

[1] Andrew Sorenson, the Representative Plaintiff in a certified class action under the Class Proceedings Act, 1992, S.O. 1992, brings a motion for the approval of a settlement and for approval of Class Counsel’s fee. The motion is on consent save for one element, the identity of the cy près beneficiary. The Defendants, easyhome Ltd., David Ingram, Steve Goertz, and Chris Fregren, make a late arriving challenge to Mr. Sorenson’s choice of Canadian Foundation for Advancement of Investor Rights/ fondation canadienne pour l’avancement des droits des investisseurs (“FAIR Canada”) as the beneficiary.

[2] For the reasons that follow, subject to the court approving a different beneficiary, I approve the settlement, the counsel fee, and the modest honorarium for Mr. Sorenson.

B. FACTUAL BACKGROUND

[3] easyhome, whose business is to rent consumer goods, is a corporation with common shares listed for trading on the Toronto Stock Exchange (“TSX”). It is a reporting issuer under the Ontario Securities Act, RSO 1990, c S5. Messrs. Ingram, Goertz, and Fregren are senior officers or directors of easyhome.

[4] Mr. Sorenson, who, on September 20, 2010, purchased 800 common shares of easyhome at a price of $11.90 per share, alleges that between April 8, 2008 and October 14, 2010, easyhome’s public disclosures contained material misrepresentations and omissions of material facts due to a significant employee fraud at one of its kiosks, with the result that its share price was artificially inflated to the detriment of the Class.

[5] On October 25, 2010, Mr. Sorenson commenced a proposed class action. Before commencing his action, he signed a contingency fee retainer agreement that provided that Class Counsel’s compensation should be 25% of the total recovery available to Class Members obtained in the Action, plus disbursements and taxes.

[6] In November 2011, settlement discussion were unsuccessful

[7] On March 26, 2012, on consent, this Court certified the action as a class action and granted leave pursuant to Part XXIII.1 of the Securities Act. The Defendants consented to that relief. Siskinds was appointed Class Counsel.

[8] After the consent certification, the action advanced in an adversarial way as a contest on its merits. easyhome advanced several defences. First, it denied that there were any misrepresentations. Second, it asserted that it caused or conducted reasonable investigations with respect to the accuracy of its financial statements and therefore was released from liability by virtue of the reasonable investigation defence under s. 138.4(6) of the Securities Act. Third, it denied that the Class Members sustained damages. Fourth, it argued that the claims advanced in respect of its public filings for the year 2007 and the first quarter of 2008 were statute-barred.

[9] Settlement discussions resumed in September, 2012, and on November 6, 2012, the parties reached an agreement in principle. In the following months, the parties negotiated the Settlement Agreement, which was finalized and dated for February 19, 2013.

[10] Before the settlement negotiations, Siskinds received a preliminary damages estimate from Paul Mulholland, a forensic accountant. Based on Mr. Mulholland’s opinion, Siskinds estimated that the damages of secondary market purchasers encompassed within the certified class could be as high as $4.6 million, depending on a number of factors, including the method of calculating inflation and the effect of a volatile stock price on the Part XXIII.1 damages formula.

[11] The key terms of the Settlement Agreement are as follows:

• easyhome agreed to cause its insurers to pay $2,250,000.00, into the Escrow Account for the benefit of the Class.

• There is no right of reversion of the Settlement Amount unless the Settlement Agreement is terminated.

• The Defendants may terminate the Settlement Agreement in the event that an Opt-Out Threshold is exceeded.

• The Settlement Amount will be distributed, after payment of any administration costs and legal fees and expenses as awarded by the Court, among all Class Members who timely submit valid Claim Forms to the Administrator.

• In exchange for payment of the Settlement Amount, Defendants receive a full and final release from all Class Members.

• The Short Form Notice of Settlement will be published: (a) in the English language in the business/legal section of the national editions of the National Post and The Globe and Mail; (b) in the French language in the business section of La Presse; and (c) in the French and English languages across Marketwire, a major business newswire in Canada.

• The Long Form Notice of Settlement will be published: (a) in both the French and English languages on www.classaction.ca; (b) in both the French and English languages on the Administrator’s website; and (c) mailed or emailed, along with the Claim Form and the Opt-Out Form, directly to persons that have contacted Class Counsel regarding this Action and have provided Siskinds with their contact information.

• The Long Form Notice of Settlement, the Claim Form, and the Opt-Out Form will be sent by the Administrator: (a) directly to persons identified as Class Members by way of a computer-generated list provided by easyhome to Class Counsel and the Administrator; and (b) to the brokerage firms in the Administrator’s proprietary databases, requesting that these firms either send a copy of the materials to all individuals and entities identified as Class Members, or to send the names and addresses of all such individuals and entities to the Administrator, who will mail these materials to the individuals and entities so identified.

• The Administrator will execute the Plan of Notice. The estimated cost of implementing the Plan of Notice, including the notice that has already been published, is $50,000.

• A Plan of Allocation governs how the proceeds of the Settlement Amount, after payment of Administration Expenses and Class Counsel Fees will be distributed among Class Members who timely submit valid Claim Forms.

• The Plan of Allocation calculates Class Members’ entitlements in a manner analogous to the damages provisions in s.138.5 of the Securities Act, which sets out three damage formulae for application to the sale of affected shares; namely: (1) a formula for shares disposed of on or before the tenth trading day following the alleged corrective disclosure, in this case, October 28, 2010; (2) a formula for shares disposed of after the tenth trading day following the alleged corrective disclosure; and (c) a formula for shares that have not been disposed of, or are otherwise still held by the Claimant.

• Ultimately, the amount of each Class Member’s actual compensation from the Net Settlement Amount will depend upon: (a) the number and price of easyhome securities purchased by the Class Member during the Class Period; and (b) the total number and value of all claims for compensation filed with the Administrator.

• If there are funds left following the distribution to the class members, these funds will be donated, cy près.

• Subject to Court approval, Canadian Foundation for Advancement of Investor Rights / fondation canadienne pour l’avancement des droits des investisseurs (“FAIR Canada”) is designated as the receipt of the cy près distribution.

[12] As may be noted, the settlement envisions what may be a very modest cy près distribution. Recently, easyhome learned that Siskinds and FAIR Canada have linkages that were not known to the Defendants before the settlement. The linkages are that: (1) FAIR Canada has been a pro bono client of the firm; and (2) it and the law firm have been allies in making responses to the Ontario Securities Commission. More precisely, FAIR Canada took a similar position to Siskinds in submissions to the Ontario Securities Commission with regard to OSC Staff Notice 15-704, which related to so-called “no-contest settlements.” The Defendants submit that these linkages are such that the Court should consider requiring the parties to name a new cy près beneficiary.

[13] Mr. Sorenson submits that none of the linkages rise to the level that would invalidate FAIR Canada as a cy près beneficiary. He submits that the most that can be said is that FAIR Canada seeks to protect investors, and thus from time-to-time takes a similar view as Class Counsel, which practices investor protection litigation. He submits that in the absence of any pecuniary or personnel connection, FAIR Canada is an appropriate beneficiary.

[14] On April 12, 2013, the court approved a notice plan to give notice of the Settlement Approval Hearing, and pursuant to the court’s order, the Notice of Settlement Approval Hearing was posted on Class Counsel’s website, and was published in The Globe and Mail, the National Post, and La Presse on April 19, 2013.

[15] There have been no objections to the proposed settlement.

[16] Class Counsel’s opinion is that the settlement terms and conditions are fair and reasonable and represent a significant recovery for Class Members. Class Counsel recommends approval of the Settlement Agreement.

[17] Siskinds seeks approval of legal fees plus disbursements and applicable taxes in the amount of $661,547.94, broken down as follows: (a) legal fees, $562,500.00; (b) H.S.T. $73,125.00; and (c) disbursements (incl. taxes as applicable), $25,922.94.

[18] Siskinds LLP docketed time is in excess of $183,403.00 and disbursements are in excess of $23,019.93, plus taxes.

[19] Mr. Sorensen supports Class Counsel’s legal fee request.

C. SETTLEMENT APPROVAL

[20] Section 29(2) of the Class Proceedings Act, 1992 provides that a settlement of a class proceeding is not binding unless approved by the court. To approve a settlement of a class proceeding, the court must find that, in all the circumstances, the settlement is fair, reasonable, and in the best interests of the class: Fantl v. Transamerica Life Canada, [2009] O.J. No. 3366 (S.C.J.) at para 57; Farkas v. Sunnybrook and Women’s Health Sciences Centre, [2009] O.J. No. 3533 (S.C.J.), at para. 43.

[21] In determining whether a settlement is reasonable and in the best interests of the class, the following factors may be considered: (a) the likelihood of recovery or likelihood of success; (b) the amount and nature of discovery, evidence or investigation; (c) the proposed settlement terms and conditions; (d) the recommendation and experience of counsel; (e) the future expense and likely duration of litigation; (f) the number of objectors and nature of objections; (g) the presence of good faith, arm’s-length bargaining and the absence of collusion; (h) the information conveying to the court the dynamics of, and the positions taken by, the parties during the negotiations; and, (i) the nature of communications by counsel and the representative plaintiff with class members during the litigation. See: Fantl v. Transamerica Life Canada, supra at para 59; Corless v. KPMG LLP, [2008] O.J. No. 3092 (S.C.J.), at para. 38; Farkas v. Sunnybrook and Women’s Health Sciences Centre, supra, at para. 45.

[22] With one exception, in my opinion, having regard to the various criteria set out above, the outcome of this class action is fair, reasonable, and in the best interests of the Class Members. The exception concerns the choice of FAIR Canada as the beneficiary of any cy près distribution of the residue.

[23] Borrowing an idea from equity’s regulation of trusts and charities, the Class Proceedings Act, 1992, permits the distribution of a judgment or of settlement funds to be made cy près (“as close as practically possible”): Gilbert v. Canadian Imperial Bank of Commerce, [2004] O.J. No. 4260 (S.C.J.) at paras. 14-15; Cassano v Toronto Dominion Bank (2009), 2009 35732 (ON SC), 98 O.R. (3d) 543 (S.C.J.) at para. 14.

[24] Although not specifically referred to in the Act, cy près awards have been approved pursuant to s. 26 of the Ontario Class Proceedings Act, 1992 to distribute money “whether or not all of the class members can be identified, or the exact share of each can be determined, and notwithstanding the fact that persons other than class members may incidentally benefit.”

[25] The Act contemplates that the cy près distribution will indirectly benefit the class. This is an important, indeed vital, point. The Ontario Law Reform Commission in its Report on Class Actions, said the purpose of a cy près distribution was compensation for class members through a benefit that “approaches as nearly as possible some form of recompense for injured class members:” Ontario Law Reform Commission, Report on Class Actions, 3 vols. (Toronto: Ministry of the Attorney General, 1982) vol. 2 at p. 572.

[26] Where in all the circumstances an aggregate settlement recovery cannot be economically distributed to individual class members, the court will approve a cy près distribution to credible organizations or institutions that will benefit class members: Sutherland v Boots Pharmaceutical plc (2002), 21 CPC (5th) 196 (Ont. SCJ) at para. 16; Alfresh Beverages Canada Corp v Hoechst AG (2002), 16 CPC (5th) 301 (Ont. SCJ).

[27] As a general rule, cy près distributions should not be approved where direct compensation to class members is practicable: Cassano v Toronto Dominion Bank (2009), 2009 35732 (ON SC), 98 OR (3d) 543 (SCJ) at para. 17. However, where the expense of any distribution among the class members individually would be prohibitive in view of the limited funds available and the problems of identifying them and verifying their status as members, a cy près distribution of the settlement proceeds is appropriate: Markson v. MBNA Canada Bank, 2012 ONSC 5891 at para. 27; Helm v. Toronto Hydro-Electric System Ltd., 2012 ONSC 2602 at para. 11; Serhan v Johnson & Johnson, 2011 ONSC 128 at paras. 57-59.

[28] By benefiting the class, at least indirectly, the cy près distribution provides access to justice, and the expenditure at the expense of the defendant may provide some behaviour modification.

[29] The court should have regard to the objectives of access to justice for class members and behaviour modification of the defendant as factors in considering whether or not to approve a particular cy près distribution: Cassano v Toronto Dominion Bank (2009), 2009 35732 (ON SC), 98 OR (3d) 543 (SCJ) at paras. 14-49. In Managing Class Action Litigation: A Pocket Guide for Judges (3rd ed.) (Federal Judicial Center, 2010) at p.19, B.J. Rothstein & Thomas E. Willging have the following suggestions for judges considering approval of a cy près distribution:

Cy près relief must come as close as possible to the objective of the case and the interests of the class members. Question whether the class members might feasibly obtain a personal benefit. Look for evidence that proof of individual claims would be burdensome or that distribution of damages would be costly. If individual recoveries do not seem feasible, examine the proximity or distance between the cy près recipient’s interests or activities and the particular interests and claims of the class members. When cy près relief consists of distributing products to charitable organizations or others, press for information about whether the products in question have retained their face value or might be out-of-date, duplicative, or of marginal value.

[30] Cy près relief should attempt to serve the objectives of the particular case and the interests of the class members. It should not be forgotten that the class action was brought on behalf of the class members and a cy près distribution is meant to be an indirect benefit for the class members and an approximation of remedial compensation for them. However well meaning, the prospect of a cy près distribution should not be used by Class Counsel, defence counsel, the defendant, or a judge as an opportunity to benefit charities with which they may be associated or which they may favour. To maintain the integrity of the class action regime, the indirect benefits of the class action should be exclusively for the class members.

[31] In the case at bar, I accept that since the class members were seeking to enforce shareholders’ rights that exist under Canadian securities law, the class members may obtain an indirect benefit by donating a portion of the settlement proceeds to an association that is dedicated to advancing investors’ rights, which I accept is a commendable project.

[32] However, in the case at bar, if Fair Canada is the cy près recipient, then Class Counsel also obtains an indirect benefit because they can take credit for the class members’ contribution to Fair Canada, another client of the firm. Further, for those that are cynically minded, there is the optics or appearance of a business development synergy in Class Counsel’s supporting FAIR Canada’s mission and this synergy would be another indirect benefit to Class Counsel.

[33] In my opinion, however well meaning, it is inappropriate for Class Counsel to indirectly benefit from a cy près distribution and it is inappropriate for Class Counsel to have any direct connection with a recipient of a cy près distribution. I think that it is undesirable for courts to have to determine whether the connection rises to any particular level. Given that there are many other worthy recipients of cy près distributions, in my opinion, in the circumstances of the case at bar, it is not in the best interests of class members to have a cy près distribution to FAIR Canada, and I do not approve this aspect of the proposed settlement.

[34] However, I do approve the settlement with another cy près recipient to be approved by motion in writing within 60 days. At the hearing of this motion, the parties agreed to this approach.

[35] Therefore, with the court to approve a different cy près recipient, the settlement is fair, reasonable, and in the best interests of class members, and it is approved.

D. FEE APPROVAL

[36] Turning to the matter of Class Counsel’s fee request, the fairness and reasonableness of the fee awarded in respect of class proceedings is to be determined in light of the risk undertaken by the lawyer in conducting the litigation and the degree of success or result achieved: Parsons v. Canadian Red Cross Society, 2000 22386 (ON SC), [2000] O.J. No. 2374 (S.C.J.), at para 13; Smith v. National Money Mart, 2010 ONSC 1334, [2010] O.J. No. 873 (S.C.J.), at paragraphs 19-20; Fischer v. I.G. Investment Management Ltd., [2010] O.J. No. 5649 (S.C.J.), at para 25.

[37] Factors relevant in assessing the reasonableness of the fees of class counsel include: (a) the factual and legal complexities of the matters dealt with; (b) the risk undertaken, including the risk that the matter might not be certified; (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 the fees; (j) the opportunity cost to class counsel in the expenditure of time in pursuit of the litigation and settlement: Smith v. National Money Mart, supra, at paragraphs. 19-20; Fischer v. I.G. Investment Management Ltd., supra, at para 28.

[38] Having regard to the above criteria, I am satisfied that the fee request is fair and reasonable and it should be approved.

E. CONCLUSION

[39] Orders accordingly.

Perell, J.

Released: June 10, 2013

COURT FILE NO.: 10-CV-412963CP

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

ANDREW SORENSON

Plaintiff

‑ and ‑

EASYHOME LTD., DAVID INGRAM, STEVE GOERTZ and CHRIS FREGREN

Defendants

REASONS FOR DECISION

Perell, J.

Released: June 10, 2013.