CITATION: Batalla v. St. Michael’s Hospital, 2016 ONSC 1513

COURT FILE NO.: CV-10-416727 COURT FILE NO.: Click and Type

DATE: 20160309

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Mercelita Batalla, Rogelio Batalla and Aaron Jake Batalla, a minor by his Litigation Guardian, Mercelita Batalla, Primo Eroles, Calixta Eroles and Mercela Batalla, Plaintiffs

AND:

St. Michael’s Hospital and Dr. Filomena Mary Meffe, Defendants

BEFORE: Madam Justice Darla A. Wilson.

COUNSEL: Joel P. Freedman, for the Plaintiffs

HEARD: In Writing

ENDORSEMENT

[1] This is a motion brought pursuant to Rule 7 of the Rules of Civil Procedure, O. Reg. 193/15, for approval of the settlement of the claims of the minor Plaintiff Aaron Jake Batalla [“Aaron”] who was born April 23, 1999. The action claims damages arising from the birth of Aaron. The Plaintiffs are Aaron’s mother, father and his grandparents. Aaron’s mother, Mercelita Batalla, is his litigation guardian. It is alleged that the attending physician and the nurses were negligent during Aaron’s delivery and as a result he has severe brain damage resulting in very limited cognitive functioning and impaired motor skills. He is also visually impaired.

BACKGROUND

[2] The motion was filed with the court in July 2014. It contained the affidavit of the solicitor, Joel Freedman [“Mr. Freedman”], sworn April 29, 2014, the affidavit of the litigation guardian, sworn April 29, 2014, the supplementary affidavit of solicitor, sworn July 16, 2014, the signed Minutes of Settlement and a draft judgment.

[3] After reviewing the materials, I had a number of concerns so I requested that the Office of the Children’s Lawyer [“OCL”] review the motion record and provide the court with a report commenting on the proposed settlement, including the proposed distribution of funds and the fees proposed to be charged as well as the proposed apportionment of liability. My endorsement was dated November 10, 2014.

[4] The report of the OCL was completed July 13, 2015, and served shortly thereafter. A supplementary affidavit of the litigation guardian dated August 12, 2015, was served on the court as well as a second supplementary affidavit of solicitor (Mr. Freedman) sworn August 10, 2015. Counsel for the Plaintiff has advised that once he is in receipt of my endorsement on the proposed settlement for the minor, he will proceed with the Guardianship Application.

[5] Briefly put, the mother, Ms. Batalla, tested positive for Group B Streptococcus during her pregnancy. The Defendant doctor decided to proceed with an emergency Caesarean section. Aaron was born with thick meconium and he required resuscitation. Testing done after his birth demonstrated intra-amniotic bacterial infection, and inflammation of the umbilical cord.

[6] The action proceeded through examinations for discovery and the solicitor for the Plaintiffs secured various expert reports on the issues of standard of care and causation as well as on the issue of the infant’s damages. The defence obtained their own expert reports on causation and damages although it seems they did not serve any reports on standard of care. There was mediation in April 2014, at which time the solicitors agreed to resolve the action for the all-inclusive sum of $6,625,000, subject to court approval. Counsel for the Plaintiffs, Mr. Freedman, served this motion to obtain court approval of this proposed settlement.

The Original Rule 7 Motion

[7] In his supporting affidavit, Mr. Freedman deposes that the issue of causation was hotly contested by the Defendants, who took the position that the brain injury of the infant was caused by an infection in the mother’s uterus that pre-dated the delivery and this view was supported by their expert opinions. Mr. Freedman believes that because of the causation issue, the damages ought to be reduced by 35 percent. He calculates the damages, after reduction of 35 percent for the causation issue, to be $5,741,560.00 inclusive of pre-judgment interest. In addition, although there was no specific figure provided for the partial indemnity costs to be paid by the Defendants, Mr. Freedman estimates the costs figure at $720,000, HST of $93,600, and disbursements of $69,840 for a total costs figure of $883,440. As mentioned, the total amount of the offer of settlement is $6,625,000.

[8] In the motion materials, Mr. Freedman states that he has docketed $96,300 of his own time on this file and his clerk has spent an additional $5,537 for a total time value of $101,837. He asserts that the Plaintiffs signed a contingency fee agreement [“the CFA”] for 30 percent of all monies received less disbursements and, as a result, he is entitled to charge 30 percent of $6,555,000. However, he is prepared to accept 25 percent of the damages and interest of $5,441,500 for a fee of $1,360,375 plus HST of $176,848 for a total of $1,537,223 plus the disbursements of $69,840. He deposes that the case was very complex with a significant financial risk. He states that he is entitled to a bonus or premium because he obtained an outstanding result for the Plaintiffs. He cites Sandhu v. Wellington Place Apartments (2006), 2006 CanLII 20540 (ON SC), 81 O.R. (3d) 307 (S.C.), as support for his submission that he is entitled to a premium. It is unclear if Mr. Freedman is seeking a premium on top of the fee he proposes to charge pursuant to the CFA.

[9] The affidavit of the litigation guardian sworn April 29, 2014, states that she is agreeable to reducing the damages by 35 percent to reflect the risk of being unsuccessful at trial on the causation issue. She expresses concern that if the matter went to trial and the Plaintiffs lost, they would have to sell their house. Ms. Batalla deposes that she would like to purchase a five-bedroom home so Aaron can have his own bedroom and use their current home as a rental income property. She estimates the cost of a new house at $1,500,000 and, as a result, she requests that the judgment include a provision that the sum of $1,841,250 be paid to her to enable her to purchase the house and pay the legal fees. The balance of the money would be placed in a structure.

[10] The OCL’s Report [“the report”] is thorough and I found it to be of great assistance. It reviews the liability and damages issues as well as causation and summarizes the expert opinions. The report notes that Aaron’s cognitive functioning is severely compromised and will not improve. He will always be fully dependent on other people as a result of his cognitive limitations; he functions at a pre-linguistic level. It is thought Aaron is functioning perhaps at the level of a two- or three-year-old. Aaron is visually impaired as a result of his brain injury. It is beyond dispute that Aaron will never be able to live on his own or be competitively employable.

[11] The report notes that the materials are confusing with respect to the proposed fee to be charged. The report comments that the CFA entered into by Mr. Freedman and Ms. Batalla does not comply with the requirements of such an agreement under the Solicitors Act, R.S.O. 1990, c. S.15; it states that Mr. Freedman will received 30 percent of any costs paid by the Defendants in addition to 30 percent of the damages and pre-judgment interest. The OCL states that it is “unable to recommend a settlement that apportionions any less than $5,384,690 to Aaron, given the severity and permanency of Aaron’s injuries”. The OCL does not support the purchase of a five-bedroom house from the settlement funds and recommends that no more than $500,000 of the settlement funds be paid as a lump sum. A further affidavit from Mr. Freedman was requested to clarify the total amount of fees proposed to be charged and a proper draft judgment was needed as well.

Further Materials from the Plaintiffs

[12] Following delivery of the report of the OCL, Mr. Freedman delivered a second supplementary affidavit as well as a supplementary affidavit from the litigation guardian. In his affidavit, Mr. Freedman confirms that the fees sought to be charged are $1,360,375 plus HST of $176,848 for a total sum of $1,537,223. In addition, he has disbursements of $69,900. He makes reference to an OHIP account of $38,200 but in my view that is not part of fees; it is a subrogated amount that must be paid out of the settlement funds. He acknowledges receipt of a retainer from the Plaintiffs of $2,000.

[13] Mr. Freedman proposes that the sum of $3,330,000 be paid into a structured settlement plus $1,198,741 as a lump sum to the litigation guardian for a total net amount to Aaron of $4,528,741. Paragraph 12 of his affidavit makes it clear that he will not make adjustments so that the recommended sum as set out in the report of the OCL of $5,384,690 is paid to the infant. Mr. Freedman does not address the recommendation of the report that no more than $500,000 be paid to the litigation guardian in a lump sum.

[14] The other proposed distributions are as follows: Family Law Act, R.S.O. 1990, c. F.3 [“FLA”] claims of Eroles and Marcela Batalla (Aaron’s grandparents), $11,370; Marcelita personally for her FLA claim, cost of past care and interest, $202,310; to Rogelio (Aaron’s father) for his FLA claim, cost of past care and interest, $202,310.

[15] On the issues of the CFA and the fees proposed to be charged and in particular the comment from the OCL that the CFA does not comply with the requirements of the Solicitors Act, Mr. Freedman deposes that no specific amount was allocated in the settlement offer for costs. It was the solicitor’s estimation that the sum of $720,000 represents the costs being paid. Mr. Freedman refuses to reduce the quantum of fees sought to be charged in this case. He describes the results achieved as “remarkable” and disputes that the settlement was only “satisfactory” as described by the OCL. I note that the report describes the proposed settlement as “acceptable” not “satisfactory”. He also disputes the assertion in the report that the clients ought not to be charged interest on the disbursements incurred.

[16] In the supplementary affidavit of the litigation guardian, Ms. Batalla sets out the various activities in which Aaron is involved as well as his anticipated treatments. She deposes that she no longer wishes to purchase a five-bedroom house from the settlement funds. Rather, she intends to use $400,000 of the funds and, after selling their present house, the family will buy a larger house with Aaron’s name on title.

ANALYSIS

Standard of Care

[17] I have read the expert reports contained in the motion record. There are no defence reports suggesting the conduct of the Defendants met the standard of care. If the standard of care issue was in dispute, I would have expected to have received expert opinions from the defence indicating that the treatment provided was appropriate in the circumstances; the fact that there were no such reports suggests that the Defendant physician and hospital were not seriously pursuing that issue. The reports of Dr. McGrath and Dr. Wood on behalf of the Plaintiffs state that the doctor and the nurses breached the standard of care and were negligent. Thus, on the evidence before me, the Defendants would be found negligent.

Causation

[18] I have read the various reports on causation. The experts retained by the Plaintiffs, Dr. MacGregor and Dr. Armstrong, are of the view that Aaron’s brain damage occurred during the course of Ms. Batalla’s labour. The defence theory can be summarized as follows: while there was a brief impairment of oxygen to Aaron’s brain just prior to his birth, this was of short duration and he responded well to resuscitation. His mother had tested positive for Group B Streptococcus and the defence experts conclude that Aaron had an additional severe compromise in the two or three days prior to his birth associated with infection in the placenta and umbilical cord and that is what accounts for his severe brain damage.

[19] On the issue of causation, I agree with Mr. Freedman’s statement that there is a risk that if the action proceeded to trial, the trier of fact might accept the defence theory of causation which attributes Aaron’s deficits to an infection in utero as opposed to a hypoxic ischemic event that occurred during the birth process. It is difficult to predict which theory would carry the day if the action proceeded to trial and clearly, that would have been a risk for the Plaintiffs. That is usually the state of affairs in a medical negligence trial or indeed in any personal injury trial with significant damages and markedly different expert opinions on causation.

[20] I concur with the comments of the OCL that it is unclear why Mr. Freedman retained a neurologist, Dr. Levin, to provide an opinion on causation when that area is generally accepted to be within the realm of subspecialists, usually neuro-radiologists. Further, the Rules do not require counsel to serve an expert report which is not supportive of a client’s case. Mr. Freedman served the draft expert report of Dr. Levin which did not support the Plaintiff’s theory of causation and did not concur with the opinions of the other Plaintiff causation experts. In all likelihood, this opinion was perceived as being helpful to the defence case. No explanation is provided in the affidavit material to explain this unusual step.

[21] The causation issue is a risky one for the Plaintiffs and given the risks inherent in proving causation, and the cost consequences of being unsuccessful at trial, I am of the view that a 65-35 apportionment of liability in the Plaintiffs’s favour is a reasonable one for settlement purposes.

Assessment of Damages

[22] Mr. Freedman does not indicate the figure at which Aaron’s damages were assessed for the purposes of settlement. At para. 163 of his first affidavit, he deposes that he recommends settlement of Aaron’s damages and interest, “after reducing the damages by 35%”, at $5,171,250, and for the FLA claims and OHIP, he states the appropriate figure is $570,310 for a total amount of $5,741,560. 65 percent of $8,800,000 is $5,720,000 which is very close to the figure of $5,741,560 which Mr. Freedman has identified as the amounts offered for damages and interest after the 35 percent reduction for the risk of proceeding to trial and losing on the causation issue. By my calculations, the proposed settlement assesses the damages inclusive of interest at approximately $8.8 million without any reduction for liability.

[23] I have read the reports on damages. Aaron’s pediatrician, Dr. Saunderson, as well as the expert Dr. MacGregor, both note that Aaron suffered a severe injury to his brain in the perinatal period. This has left him with profound intellectual impairment; he is essentially nonverbal. He has cortical blindness which means he is dependent on a caregiver when he is outside of his own home. He has seizures which are controlled with medication. He has impaired both gross and fine motor skills.

[24] I quote from Dr. Saunderson’s report: “Aaron sustained severe hypoxic ischemic encephalopathy in the perinatal period. This resulted in seizures and cortical blindness and profound developmental delay and intellectual impairment. I would state the degree of Aaron’s impairment is severe. He will continue to be totally dependent on his caregivers for activities of daily living. It is unlikely that he will ever communicate effectively verbally. He will require lifelong provision of care. He will never live independently. He will never be employed” (emphasis added).

[25] The defence experts agree that Aaron will require supervision and support for his activities of daily living. Dr. Finegan, the psychologist who assessed Aaron at the request of the Defendant hospital, states that Aaron will never live independently, manage his personal affairs or be employed. She states that it is her clinical opinion that he functions in the severe-profound range of intellectual disability. The defence future care costs expert, Sandra Vellone, believes Aaron needs 24/7 support. There does not appear to be much serious dispute between the experts concerning the severity of Aaron’s brain damage and the consequences of it.

[26] The experts retained by the defence indicate Aaron’s life expectancy is between 60-65 years of age.

[27] I appreciate that each case is different and must be assessed based on its own particular facts. In my view, given the severe nature of Aaron’s disabilities together with his anticipated life expectancy, the assessment of the damages at $8.8 million is on the low end of the range of damages that might be awarded at trial.

Fees Proposed to be Charged & the Contingency Fee Agreement

[28] Under the settlement proposal endorsed by Mr. Freedman, the net amount payable to Aaron would be $4,528,741. The OCL will not recommend anything less than the net sum of $5,384,690 payable to the minor Plaintiff from the settlement. The difference between these numbers is $855,949. Mr. Freedman in his second supplementary affidavit refuses to change the proposed amount to the Plaintiffs to accord with the recommendation of the OCL. The reason cited for this position is that to do so would “not adequately consider the extent of the substantial individual claims of Aaron’s parents Mercelita and Rogelio, as well as the claims of the other Family Law claimants and the claim of the Ministry of Health. As well, that figure does not give sufficient weight to the appropriateness of my account as counsel for the Plaintiffs” (at para. 12 of the affidavit sworn August 10, 2015). I do not accept the submissions of Mr. Freedman on this issue.

[29] The claims pursuant to the FLA are derivative claims arising from the injuries suffered by Aaron. Mr. Freedman has assessed the parents’ claims under this head of damages at $39,000 each after reduction for risk. These are modest amounts, as is the $38,200 for OHIP’s subrogated claim. It is unclear whether Mr. Freedman has reduced the OHIP account by 35 percent; para. 162 of his first affidavit suggests that he has not. It seems that this number is accepted on the basis that OHIP does not demand the cost of any services in the future for Aaron.

[30] I note that the figure for future out of pocket expenses of the parents as set out in para. 161 of the solicitor’s affidavit in the motion record is fairly speculative and appears to be based on Mr. Freedman’s opinion as opposed to that of a person with appropriate expertise.

[31] Clearly, it is the solicitor’s proposed fee which is the largest number affecting the net amount to Aaron. The OCL could not determine the amount sought by Mr. Freedman in the motion materials for fees. In the second supplementary affidavit, Mr. Freedman clarifies this point. As mentioned but for ease of reference, the Plaintiffs’s lawyer proposes to charge legal fees of $1,360,375 plus HST of $176,848 for a total amount of $1,537,223. In addition, he has disbursements of $69,900. He acknowledges he received a $2,000 retainer from the Plaintiffs. For clarity, the fee being sought is $1,360,375 plus HST of $176,848 for a total of $1,537,223 exclusive of disbursements.

[32] In its report, the OCL states that the CFA relied on by Mr. Freedman does not comply with the requirements of the Solicitors Act; it includes a term that the lawyer will receive 30 percent of any costs paid by the Defendants in addition to charging the Plaintiffs 30 percent of the damages and interest. While in his responding materials Mr. Freedman denies that he has charged the Plaintiffs a percentage of the costs that were paid by the Defendants, that does not accord with the evidence in his initial affidavit.

[33] Furthermore, as justification for the quantum of fees sought to be charged, in para. 175 of his initial affidavit, Mr. Freedman states that the law is “clear that a lawyer is entitled to a bonus or premium where an outstanding result has been achieved.” While he does not depose that he is charging a premium, he makes reference to the criteria that the court has found necessary for an award of costs with a premium related to risk and result. Mr. Freedman has also included cases in his materials in which the solicitor for the Plaintiff was awarded a premium on fees by the court: see Sandhu. Mr. Freedman notes that he proposes to charge a fee equal to 25 percent of the damages and interest based on $5,441,500.

[34] In his second supplementary affidavit, Mr. Freedman states that he disagrees with the views expressed by the OCL concerning the fees he proposes to charge the Plaintiffs. He bases this, at least in part, on the results he achieved by securing the settlement offer that he did. He states in para. 16 of his second supplementary affidavit: “In my view, these considerations [the causation expert opinions] make the result remarkable and not merely ‘satisfactory’. Accordingly, the positive result should be reflected in an increased amount of my fees.” He compares this case with Giusti v. Scarborough Hospital, 2008 CanLII 22555 (ON SC), noting that the fees approved in that case were more although the damages were settled for less.

[35] I do not share Mr. Freedman’s views on the results achieved. I do not agree that the proposed settlement is a “remarkable” result based on the facts of this particular case. Aaron is severely compromised with a life expectancy of another 45 years, according to both the Plaintiff and Defence experts; the damages would assess in the upper end of the range for cases involving compromised babies. I disagree with Mr. Freedman’s assessment of the likely range of damages at $5.5-$6.5 million as set out in his initial affidavit at para. 174. In my opinion, a reasonable assessment of the damages is in the $10-$12 million range without discount for liability or causation issues; an assessment of the damages at $8.8 million is, as I have noted, on the low end of the probable assessment of damages.

[36] While I have stated that the 35 percent reduction to account for the uncertainty of the outcome on the causation issue is a reasonable approach, the damages assessment that Mr. Freedman is recommending is low and that affects the net amount that ends up being paid to Aaron after the reduction for risk. In addition, the fees that are proposed to be charged in my view are excessive based on the facts of this case. There are certain cases where the court has found it appropriate to award a premium on the fees to be charged, as in Sandhu. The facts of that case which led to an award of a premium on the fee to be charged are quite different and the case can be easily distinguished. There is no basis, in my opinion, for a premium to be charged in this case.

[37] Sandhu was a case where an infant sustained devastating injuries from a fall out of a window in an apartment building. It proceeded to trial before a jury and the Plaintiff was awarded in excess of $10 million from the jury in a case that was decided ten years ago. The solicitor for the Plaintiff requested a premium on the substantial indemnity fees that the defence agreed to pay after an arduous and hard-fought trial. In reviewing the law on the issue of premiums on fees, the court noted, at para. 11:

From these appellate decisions the following requirements emerge, that are articulated in Walker:

(1) A costs premium is reserved for consideration in those cases where the plaintiff has been awarded substantial indemnity costs. To “award a premium in addition to partial indemnity costs would offend the principles that govern costs awards.” (See Walker at para. 114.)

(2) A cost premium is rare.

(3) Both the risk and result criteria must be satisfied. Neither alone will justify a premium.

(4) Counsel must achieve an outstanding result.

(5) The risk criterion requires four factors to be proven:

(a) the plaintiffs lacked financial resources to fund lengthy and complex litigation;

(b) plaintiffs’ counsel financed the litigation;

(c) the defendants contested liability; and

(d) plaintiffs’ counsel assumed the risk of not only delayed but possible non-payment of fees.

[38] The case before me does not meet the requirements for an award of a premium on either the risk or the result criterion.

[39] In his affidavits filed in support of this motion for court approval, counsel for the Plaintiffs makes extensive reference to the fees allowed by the court in Giusti and compares the case at hand with that case, arguing the cases were very similar. Mr. Freedman makes the point that the court allowed fees of $1,348,050 plus taxes in Giusti and he is only requesting $12,325 more in this case.

[40] I do not find the Giusti decision is support for the quantum of fees sought to be charged in this case. As the OCL pointed out, there are significant differences between the two cases. Each case that is presented to the court for approval under Rule 7 is different, with its own peculiar set of facts and evidence. The fee proposed to be charged must be assessed based on the facts and evidence of a particular case.

[41] In considering the propriety of a proposed settlement, the court is concerned about whether the sums suggested will adequately cover the needs of the party under a disability. In C.T. v. K.J., 2013 ONSC 7563, Justice Grace wrote about the role of the court in a Rule 7 motion, at paras. 23-26:

The rationale for judicial involvement in the process was explained by the Court of Appeal in Wu Estate v. Zurich Insurance Co. (“Wu Estate”) in these terms:

The requirement for court approval of settlements made on behalf of parties under disability is derived from the court’s parens patriae jurisdiction. The parens patriae jurisdiction is of ancient origin and is “founded on necessity, namely the need to act for the protection of those who cannot care for themselves ... to be exercised in the ‘best interest’ of the protected person ... for his or her ‘benefit or ‘welfare’”: Re Eve, 1986 CanLII 36 (SCC), [1986] 2 S.C.R. 388 at para. 73. The jurisdiction is “essentially protective” and “neither creates substantive rights nor changes the means by which claims are determined”: Tsaoussis (Litigation Guardian of) v. Baetz (1998), 1998 CanLII 5454 (ON CA), 41 O.R. (3d) 257 at 268 (C.A.). The duty of the court is to examine the settlement and ensure that it is in the best interests of the party under disability: Poulin v. Nadon, 1950 CanLII 121 (ON CA), [1950] O.R. 219 (C.A.). The purpose of court approval is plainly to protect the party under disability and to ensure that his or her legal rights are not compromised or surrendered without proper compensation.

The court’s obligation exists even where, as here, [redacted] parents have had direct, continuing and meaningful involvement in the proceedings. In fact, rule 7.08 “is designed to protect the party under disability from mistakes of the litigation guardian.”

That does not mean that the views of a litigation guardian are to be ignored. To the contrary. An affidavit of the litigation guardian “setting out the material facts and the reasons supporting the proposed settlement and the position of the litigation guardian on the settlement” is one of the items that must be filed when approval is sought.

The role of the court is not limited to the terms of the settlement entered into by the parties. It extends to the fees the lawyer retained on behalf of a minor proposes to charge. [Citations omitted].

[42] I concur with the views expressed by Grace J.

[43] In examining the overall appropriateness of the proposed settlement, the structure payouts and the life expectancy opinions must be taken into account. The structure obtained in Giusti paid significantly more to the Plaintiff than does the structure in this case. I say this not to be critical of Mr. Freedman, but simply as a matter of fact recognizing what current interest rates are. In addition, Aaron’s life expectancy is longer than that of the infant in Giusti. In distinguishing the two cases, the OCL stated, “To obtain a comparable result to the one in Giusti, Mr. Freedman would have had to negotiate a larger settlement to take into account Aaron’s longer life expectancy as well as the change in global interest rates since 2007 when the structured annuity in Giusti was purchased. As such, I do not consider the results achieved in the two cases to be similar and I recommend that the fees be distinguished accordingly.” I agree.

[44] I turn now to the appropriateness of the fees sought to be approved pursuant to the CFA. Counsel seeks to have a fee approved of $1,537,223 inclusive of taxes, not including disbursements. According to the evidence, the docketed time inclusive of taxes is $101,837. The mere fact that the Plaintiffs signed a CFA does not equate with an entitlement to charge a fee according to the terms of such an agreement. As was pointed out in the report of the OCL, “A fee agreement is not binding on a party under a disability until it receives the approval of this Honourable Court.”

[45] Section 24 of the Solicitors Act reads as follows:

Upon any such application, if it appears to the court that the agreement is in all respects fair and reasonable between the parties, it may be enforced by the court by order in such manner and subject to such conditions as to the costs of the application as the court thinks fit…

[46] The Ontario Court of Appeal has made it clear that a CFA must be both fair and reasonable: see Raphael Partners v. Lam (2002), 2002 CanLII 45078 (ON CA), 61 O.R. (3d) 417 (C.A.).

The Fairness Issue

[47] In Raphael Partners, Cronk J.A. described the scope of the fairness inquiry in these terms, at para. 37:

The fairness requirement of s. 24 of the Solicitors Act is concerned with the circumstances surrounding the making of the agreement and whether the client fully understands and appreciates the nature of the agreement that he or she executed: Best v. Yegendorf, Brazeau, Seller, Prehogan & Wyllie (1998), 1998 CanLII 14646 (ON SC), 37 O.R. (3d) 633 (Gen. Div.).

[48] In the case before me, the CFA was executed by Mr. and Mrs. Batalla on September 4, 2010. In Henricks-Hunter v. 814888 Ontario Inc. (Phoenix Concert Theatre), 2012 ONCA 496, 294 O.A.C. 333, the court noted, at para. 20:

In addressing the issue of fairness, Raphael provides, at para. 37, that “the solicitor bears the onus of satisfying the court that the way in which the agreement was obtained was fair”. The fairness requirement “is concerned with the circumstances surrounding the making of the agreement and whether the client fully understands and appreciates the nature of the agreement that he or she executed” (Raphael, at para. 37). As noted above, the fairness of the agreement is determined as of the date the agreement was entered into.

[49] There is an absence of information surrounding the signing of this agreement on which the court can assess the fairness of the contingency fee agreement. In C.T., Grace J. noted, at paras. 42-43, that when dealing with contingency fee agreements:

Unless approved by the court before finalization, the affidavits required by rule 7.08 (4) should address the fairness issue. The circumstances surrounding the creation and execution of the contingency fee agreement should be outlined in detail with documentary support. They should also address the reasonableness of the contingency fee agreement…

[W]hen addressing fees, the question is whether the contingency fee agreement, as opposed to the proposed settlement, is fair and reasonable. The focus of the inquiry is different and the presiding justice should not have to wonder whether the required level of factual, procedural and legal disclosure has been made.

[50] I agree with these comments. Despite the report of the OCL and the supplementary affidavit filed by the litigation guardian, there is no information surrounding the execution of the contingency fee agreement and nothing to indicate what, if any, disclosure was made at the time the agreement was signed. The court is left to speculate and to make assumptions based on the evidence that was provided; this is not a desirable situation, nor is it necessary. It should have been addressed in the original materials or at the very least, following receipt of the report of the OCL.

[51] Mr. Freedman deposes that he was verbally retained by Mercelita Batalla on June 1, 2004, and that he was “formally retained” by Mrs. Batalla on September 4, 2010. There is no information as to what the nature of the verbal retainer was. Mrs. Batalla paid a retainer of $2,000 which presumably was to cover the cost of an expert report. That is entirely speculation on my part as there is absolutely no information in the affidavit material from the solicitor about the nature of the initial retainer.

[52] The CFA does not comply with the requirements of the Solicitors Act, as pointed out by the OCL. I have no information as to what discussion took place surrounding the signing of the CFA.

[53] I accept that Mrs. Batalla is an intelligent woman, capable of understanding financial affairs. It is impossible to determine, in the absence of any evidence, whether Mrs. Batalla as litigation guardian understood the nature of the CFA and what it obligated her to pay upon resolution of the case. The OCL identified the clause that requires the Plaintiffs to pay interest on the disbursements incurred as being unfair. I agree. Mr. Freedman, in response, stated that he borrowed money to pay for the disbursements and the interest on those funds is $4,480. He states, “The Plaintiffs should pay the interest because it is enough of a financial burden on me to pay large disbursements. I should not be expected to also be responsible for paying interest to the bank.” I do not share this view.

[54] CFA’s provide important access to justice for people such as the Batallas who have a meritorious claim but do not have the financial resources to pay the costs of litigation on an ongoing basis. I can think of no better example than a medical negligence case, which requires the retainer and payment of expensive experts in order to determine whether the case has a chance of success at trial. Counsel who undertake medical negligence cases must be prepared to retain and pay these experts in order to proceed with the case; in most cases, counsel cannot look to the clients for payment of disbursements because it would be a rare case where the Plaintiff could afford to pay the costs of the experts during the course of the lawsuit. I do not think it is fair for counsel to look to the clients for payment of interest charged by the bank for money borrowed to pay the disbursements. In this case, that amount is $4,480, which is a very small amount in light of the fee proposed to be charged.

[55] In Mishan v. York Central Hospital et al, 2015 ONSC 6369, I wrote, at paras. 8-11:

Generally, it is recognized that in order to succeed on a medical negligence claim a Plaintiff must secure the opinion of a qualified expert to speak to the issues of standard of care, causation and damages. Lawyers who act for Plaintiffs in personal injury and medical negligence claims usually do so on the basis of a contingency fee agreement (CFA). The understanding between the lawyer and the client in a professional negligence claim is that because these types of actions are usually difficult to prove and therefore fraught with risk, the CFA is a fair way to proceed. It is accepted that often the use of a CFA is the only way an injured party can access the judicial system-see Hunter v. 8184888 Ontario Inc. 2013 ONSC, 5245, paragraph 26.

Lawyers who take on these types of cases may have to fund the expert opinions that are necessary to determine if the Plaintiff has a case that could succeed at trial. Sometimes, the expert retained will offer an opinion that there is no breach of the standard of care or that the causation issue cannot succeed. In such cases, counsel must provide his or her recommendation to the client about the wisdom of pursuing litigation.

Sometimes the “bad news” is received further down the road of litigation when significant legal fees and expert disbursements have been incurred. Lawyers who are retained on these files know at the outset that there is a possibility the action may not be successful and counsel will not be paid for time expended and disbursements incurred. This is an unfortunate reality of doing this type of work.

In my view, if lawyers are not prepared to take these difficult professional negligence cases on a CFA basis, recognizing they may have to absorb the legal fees and disbursements if no supportive expert opinion can be secured, the Plaintiff ought to be referred out to counsel who will take the case on such a basis.

[56] Despite the scant evidence before me, I find that the CFA was fair at the time it was signed in 2010. In the case before me, I appreciate that counsel had to fund the disbursements; that is the usual practice pursuant to a CFA. As I have indicated, the paragraph requiring the Plaintiffs to pay interest on the disbursements incurred was not fair.

The Reasonableness Issue

[57] In Raphael Partners, the court noted the factors that are relevant to a consideration of the reasonableness of a CFA are: the legal complexity of the matter; the results achieved; the risk assumed by the solicitor; and the time expended by the lawyer.

Complexity

[58] Most lawsuits arising from a birth where the child has a compromised outcome are complex. They involve the issues of negligence, standard of care, causation and damages. While it does not appear in this case the issue of standard of care was being seriously disputed, I am satisfied it was a complex action.

Results Achieved

[59] For the reasons that I have expressed earlier, I am of the view that the results achieved were not remarkable but rather satisfactory or to use the language of the OCL, “acceptable”.

Risk Assumed

[60] As I have previously noted, medical negligence cases are usually risky cases because of the need for solid expert opinions and the evidence that must be garnered to prove a breach of the standard of care as well as to establish causation. Counsel must be prepared to invest significant sums of his/her own money in the case to move it forward, without any guarantee of success or recouping monies laid out for expert reports and time expended. While I accept that this was a case that was risky for Mr. Freedman as well as for his clients based on the diverse expert opinions on the issue of causation, it was less risky than many compromised baby cases where the issue of standard of care is hotly contested, along with the damages sustained as well as causation.

Time Expended

[61] According to the evidence, the docketed time inclusive of taxes is $101,837. It is difficult to determine what work was done on this file. The Statement of Claim was issued in December 2010; discoveries were completed over the course of three days; a trial dated was fixed for April 7, 2015; and the case settled at mediation on April 4, 2014. Counsel deposes he was retained verbally in 2004, yet a CFA was not signed until six years later. One wonders what the terms of the verbal retainer were and what work was done on the strength of the verbal retainer. The affidavit is silent on this. A view of the dockets, which are sparse, suggests that in the years 2004 up to 2010, Mr. Freedman interviewed the Plaintiffs, retained the expert Dr. Levin, received and reviewed his report. A total of 3 hours and 45 minutes is docketed for these six years.

[62] There is no breakdown in the settlement offer of the amount that the Defendants are paying towards the party and party costs. In his second supplementary affidavit, Mr. Freedman estimates that the defence offer includes costs of approximately $720,000 plus HST and the disbursements. I do not agree with this estimation. It does not accord with the usual practice of determining costs on a case that is resolving far short of trial. In my view, this settlement offer includes a component for costs which is likely in the $500,000 range plus HST and the disbursements.

[63] I appreciate the number of hours docketed is not determinative of the fee to be charged. Mr. Freedman, in his initial affidavit, deposed that he spent about 155 hours on the file for a fee of $85,205 plus HST. Clerk time of $5,537 was also incurred. The case was resolved at mediation long before any trial preparation was required to be done. Given a consideration of the four factors set forth by the Court of Appeal in Raphael Partners, in particular the time spent by counsel, the and the results achieved, I am not persuaded that the requested fee is reasonable. I decline to approve the fee proposed to be charged.

[64] In my view, if Mr. Freedman charges the fees he wishes to, the amount payable to Aaron after payment of the legal fees and disbursements will not be adequate. I share the concerns of the OCL in this regard. A settlement based on an all-inclusive amount of $6,625,000 which pays fees of $1,537,223 to the solicitor would not be in Aaron’s best interests. While I appreciate the affidavit of the litigation guardian indicates that she does not oppose payment of these fees, that is but one factor in my consideration of the overall reasonableness of the proposed settlement and fee.

[65] In my opinion, after giving consideration to the facts of this specific case and the terms of the CFA, fees of $1,000,000 are reasonable and fairly compensate Mr. Freedman for the work done on this file.

[66] Furthermore, in my view, the amounts proposed to be allocated to the parents of Aaron are excessive given the limited funds available and the concerns expressed by the OCL about the net amount payable to Aaron. Mr. Freedman proposes each parent receive the sum of $202,310 for their FLA claim and the cost of past care for their son. As I have indicated, the sums suggested for the care provided by the parents appear to be arbitrary based on the solicitor’s opinion of the value of past attendant care in another case. There was no evidence concerning the number of hours spent on extraordinary care for Aaron as compared the usual time commitments by parents for children during their lives. The assessment of the value of the past attendant care claims of the parents is less than satisfactory or persuasive on the issue of quantum. I find the proposed allocation of funds for the claims of the parents excessive and not in the best interests of Aaron. I prefer that some of the funds proposed to be paid to the parents for their claims instead be allocated to Aaron for his use. Payment to each parent the sum of $50,000 for their claims is just and fair in the circumstances of the proposed settlement.

CONCLUSION

[67] I will approve settlement of this action for the all-inclusive sum of $6,625,000 with the following distribution of funds:

(a) Aaron--$5,275,530, of which no more than the sum of $500,000 is to be paid to the litigation guardian as a lump sum to be held in trust in an interest bearing account pending the outcome of the guardianship application, with the balance being structured through McKellar Structured Settlements;

(b) Ministry of Health for its subrogated interest $38,200;

(c) Primo Eroles, FLA claim--$3,000;

(d) Cilixta Eroles, FLA claim--$3,000;

(e) Marcela Batalla, FLA claim--$5,370;

(f) Mercelita Batalla, all claims--$50,000;

(g) Rogelio Batalla, all claims--$50,000; and

(h) Joel Freedman--fees: $1,000,000; HST $130,000; disbursements $69,900.

[68] While I appreciate the amount payable to Aaron is approximately $100,000 less than the amount that the OCL recommended be paid to him, I am satisfied that with the use of a structure it will adequately provide for Aaron for his needs over the course of his lifetime.

[69] The draft Judgment incorporating the structure printout and my conclusions is to be sent to me for signature.

D.A. Wilson J.

Date: March 9, 2016