Superior Court of Justice – Ontario

CITATION: Leslie v. Agnico-Eagle Mines, 2016 ONSC 532

COURT FILE NO.: CV-12-448410-CP

DATE: 2016-02-12

RE: AFA LIVFÖRSÄKRINGSAKTIEBOLAG, AFA SJUKFÖRSÄKRINGSAKTIEBOLAG, AFA TRYGGHETSFÖRSÄKRINGSAKTIEBOLAG, KOLLEKTIVAVTALSSTIFTELSEN TRYGGHETSFONDEN TSL and WILLIAM LESLIE / Plaintiffs

AND: AGNICO-EAGLE MINES LIMITED, SEAN BOYD, EBERHARD SCHERKUS and AMMAR AL-JOUND / Defendants

BEFORE: Justice Edward P. Belobaba

COUNSEL: Michael G. Robb and Ronald Podolny for the Plaintiffs James Doris, Luis Sarabia and Chantelle Spagnola for the Defendants

HEARD: January 20, 2016

Proceeding under the Class Proceedings Act, 1992

Settlement and legal fees approval

[1] This securities class action, certified on consent,[^1] has settled for $17 million. The plaintiffs now seek judicial approval of the settlement agreement and class counsel’s legal fees.

[2] For the reasons set out below, both the settlement and the legal fees are approved. However, I hasten to add the following. The judicial approval of class action settlements, especially securities class action settlements, leaves much to be desired. Judges should do more to ensure that a proposed settlement is in the best interests of the class.

Approval of the settlement agreement

[3] It is widely recognized that the approval of class action settlements remains “the most difficult and problematic area of class action practice.”[^2] And it has often been said that class action settlements should be “viewed with some suspicion” and “seriously scrutinized by judges.”[^3] The problems of “sweetheart” and “blackmail” settlements are well-known and have been the subject of study in the legal literature.[^4]

[4] In Ontario, of course, the concern about “blackmail” or strike-suit settlements is lessened because of the statutory leave requirement in s. 138.8 of the OSA (which sets out a preliminary merits test). But the concern about “sweetheart” settlements, in which class members’ interests are compromised to those of class counsel, remains - especially in the area of securities class actions that are almost always settled.[^5]

[5] The core problem is that the only players at the settlement table - the defendants (or their counsel) and class counsel – have interests and incentives that can be aligned against the best interests of the class. The class action settlement is often “at the expense of the group that is not at the table: the absent class.”[^6]

[6] The potential for conflict of interest, collusion and abuse of the class action settlement procedure was recognized by the Ontario Law Reform Commission almost 35 years ago in its seminal Report on Class Actions:[^7]

There is a real possibility that, without the benefit of appropriate safeguards, parties and their counsel might be tempted to abuse the class action procedure in reaching settlement …The agreement reached could be inadequate or unfair to the class members.[^8]

[7] Hence, s. 29(2) of the CPA requires court approval of every class action settlement before it can take effect. Judges must be satisfied that the proposed settlement is fair and reasonable and in the best interests of the class.[^9]

[8] But how does a judge do this? Judges are obviously not in position to second-guess the actual amount of the proposed settlement. Nor should they do so. The most they can do, apart from making sure that the settlement was negotiated at arm’s length by competent counsel, is (1) scrutinize the actual agreement and supporting affidavit material for any so-called “structural” indicators that suggest collusion or conflict of interest[^10] and (2) satisfy themselves that the settlement amount falls within a range or zone of reasonableness.[^11]

[9] Unfortunately, class counsel rarely provides much information about why the settlement falls within a zone of reasonableness. That is, information explaining why the case settled for $17 million and not say $37 million or $57 million? Instead of providing much-needed information about why the settlement is within a zone of reasonableness, class counsel presents an unhelpful catalogue of self-serving (almost generic) reasons why the settlement should be approved: the many litigation risks; the hard-fought negotiation; the arm’s-length settlement; and class counsel’s impressive credentials and litigation experience.

[10] In the vast majority of class action settlements, the court hears “a one-sided presentation about how wonderful the settlement is and how aggressively class counsel championed the absent class’s cause.”[^12]

[11] The motivation behind what has now become a boiler-plate ‘recitation of reasons’ is undoubtedly well-intentioned but it doesn’t help the court. It doesn’t tell the judge “how you got from there to here.”[^13] In Sheridan Chevrolet v. Furakawa,[^14] an auto parts price-fixing settlement, I criticized class counsel’s use of “boiler plate” to support the settlement approval motion. I said this:

The boiler-plate for settlement approval comes down to something like this: “We’re experienced class counsel; we know what we’re doing; there were lots of litigation risks; we negotiated the best possible deal for the class members; trust us.”

I am not denigrating class counsel … I am criticizing the boiler-plate that is found in too many of the settlement approval facta and the judges who succumb to the “we’re experienced class counsel - we know what we’re doing – trust us” kind of argumentation.

If class action judges are to do their job (and be more than rubber-stamps) in the settlement approval process, and ensure that the settlement amount is indeed fair and reasonable and in the best interests of the class (and not just class counsel) then at the very least class counsel should provide affidavit evidence explaining why the actual settlement amount is fair and reasonable or more specifically, clear reasons why the settlement amount is in the “zone of reasonableness.”[^15]

[12] I agree with American jurist Richard Posner that “a high degree of precision cannot be expected in valuing a litigation, especially regarding the estimation of the probability of particular outcomes.”[^16] However, as Posner goes on to explain, a “ball park valuation” is nonetheless achievable and he urges the settlement approval judge to make every effort to “translate his intuitions about the strength of the plaintiff’s case and the range of possible damages … into numbers that would permit a responsible evaluation of the reasonableness of the settlement.”^17

[13] In Sheridan Chevrolet,[^18] I was not persuaded by the boiler-plate and I asked class counsel to file further information estimating the amount of the “over-charge” and explaining why the $10.4 million settlement amount fell within a zone of reasonableness. To their credit, they understood my concern and filed a supplementary affidavit within a few days. With this additional information about sales volume and estimated over-charge, I was satisfied that the settlement was fair and reasonable and in the best interests of the class and I approved the settlement.[^19]

[14] Here I voiced the same concern. I knew that counsel had engaged in a one-day mediation that helped frame the eventual settlement. I asked to see the mediation briefs but counsel were reluctant to file confidential documents. So instead I pressed for more information. Boiler-plate aside, I needed to know why class counsel believed that the $17 million settlement amount fell within a range or zone of reasonableness. And, here again, as in Sheridan Chevrolet, class counsel agreed to file a supplementary affidavit

[15] The additional affidavit material filed herein described in more detail certain recently discovered risks and the range of possible damage recoveries. The additional affidavit explained how the “high end” of the damages range had dropped from some $300 million to only $30 million and why the $17 million settlement was therefore within the range of reasonableness.

[16] I am persuaded by this additional information and I am satisfied that the $17 million settlement is in the best interests of the class. The settlement is approved.

[17] A final comment. Judicial approval of class action settlements, especially securities class action settlements, needs more rigour. Some American courts have gone so far as to describe the settlement approval judge as a “fiduciary of the class” and thus “subject to the high duty of care that the law requires of fiduciaries.”[^20] In Canada, some commentators are saying the time has come for settlement approval judges to appoint independent counsel that can review and oppose the settlement if it is not in the best interests of the class.[^21] The shared concern is obvious: class action judges must do more than acquiesce to the self-serving submissions of class counsel that often amount to nothing more than - “we’re experienced class counsel - we know what we’re doing – trust us.”

[18] I don’t know what the future holds. Perhaps the time has indeed come for judges in appropriate cases to appoint independent counsel (with his or her legal fees paid by the parties) in order to add a much-needed adversarial dimension to the settlement approval hearing. One thing, however, is clear: class counsel can no longer rely on boiler-plate “reasons” that do nothing more than describe generic litigation risks or class counsel’s so-called “experience”[^22] – class counsel must at the very least provide the court with information why the settlement amount falls within a range or zone of reasonableness.

Approval of the legal fees

[19] Based on the retainer agreement, class counsel is seeking a 29.5 per cent contingency recovery which amounts to $4,094,000, plus disbursements and taxes. As I explained in Cannon[^23] such a contingent fee arrangement is presumptively valid and readily recoverable. I therefore have no difficulty approving $4,094,000 in legal fees plus disbursements and taxes. I only ask that class counsel reduce the disbursements by $3828 for the “legal research” charge that, in my view, should not be billed as a disbursement.[^24] I also approve the payment of $700,000 to American law firm, Kessler, Topaz, Meltzer and Check for legal assistance provided to class counsel, such payment to come out of class counsel’s legal fees award.

[20] Order to go accordingly.

Belobaba J.

Date: February 12, 2016

[^1]: Leslie v. Agnico Mines, 2013 ONSC 2290. The plaintiffs allege that the defendant gold miner, with producing properties in Canada, Finland and Mexico, misrepresented the scope and effect of certain “water inflow” problems at one of its gold mining properties in Quebec causing share purchasers to sustain losses. The defendant consented to leave under s. 138.8 of the Securities Act, R.S.O. 1990, c. S.5 (“OSA”) and certification under s. 5(1) of the Class Proceedings Act, 1992, S.O. 1992, c. 6 (“CPA”).

[^2]: Watson, “Settlement Approval – The Most Difficult and Problematic Area of Class Action Practice,” (Unpublished paper presented at the National Judicial Institute’s Conference on Class Actions, Toronto, April 9, 2008).

[^3]: Dobbs v. Sun Life Assurance, (1998) 1998 CanLII 14855 (ON SC), 40 O.R. (3d) 429 (Gen. Div.) at para. 30.

[^4]: See, for example, Hay and Rosenberg, “Sweetheart and Blackmail Settlements in Class Actions: Reality and Remedy” (2000) 75 Notre Dame L.Rev. 1377; Erichson,“The Problem of Settlement Class Actions” (2014) 82 Geo.Wash. L.Rev. 951; and Koniak,“How like a Winter – The Plight of Absent Class Members Denied Adequate Representation” (2004) 79 Notre Dame L. Rev. 1787.

[^5]: According to class counsel, whose law firm is the leader in securities class action litigation in Canada, only one securities class action has actually gone to trial – Kerr v. Danier Leather Inc, 2004 CanLII 8186 (ON SC), [2004] O.J. No 1916 (S.C.J.), rev’d (2005) 2005 CanLII 46630 (ON CA), 77 O.R. (3d) 321 (C.A.), aff’d 2007 SCC 44. Class counsel advises that his firm has commenced some 29 securities class actions, all of which were settled well before the common issues trial in amounts ranging from $1.3 million to $139 million. American data cited by class counsel describes a similar story: more than 99.6 per cent of the securities class actions filed in the U.S. have settled before or just after certification. Only 21 of the 4300 cases that have been filed since 1995 have gone to trial.

[^6]: Koniak, supra, note 4, at 1797.

[^7]: Ontario Law Reform Commission, Report on Class Actions (Toronto: Queen’s Printer, 1982).

[^8]: Ibid., at 806.

[^9]: Dobbs v. Sun Life Assurance, (1998) 1998 CanLII 14855 (ON SC), 40 O.R. (3d) 429 (Gen. Div.), aff’d (1998) 1998 CanLII 7165 (ON CA), 41 O.R. (3d) 97 (C.A.), leave to appeal to S.C.C. refused Oct. 22, 1998.

[^10]: For example: legal fees that are paid by the defendant directly to class counsel separate and apart from the monies that are paid to the class; non-monetary settlement features such as “coupons” that are then monetized to enlarge the amount of the so-called “recovery” by class counsel; or reversionary rights that require the return to the defendant of any monies not taken up by class members.

[^11]: Dobbs, supra, note 9, at para. 30 (Gen. Div.)

[^12]: Koniak, supra, note 4, at 1798.

[^13]: Watson, supra, note 2, at 9.

[^14]: Sheridan Chevrolet v. Furakawa Electric, 2016 ONSC 729.

[^15]: Ibid., at paras. 10-12.

[^16]: Reynolds v. Beneficial National Bank, (2002) 288 F. 3d. 277 (7th Circ.) at 284.

[^18]: Sheridan Chevrolet, supra, note 14.

[^19]: Ibid., at para. 15.

[^20]: Reynolds, supra, note 16 at 280, and case law cited therein.

[^21]: Watson, supra note 2, at 6 and 10.

[^22]: Given that almost every class action is settled well before trial, class counsel’s “litigation experience” is actually limited to motions work – mainly certifications and summary judgment motions. If some securities class actions were actually taken to trial, the boast about “litigation experience” would carry more weight.

[^23]: Cannon v. Funds for Canada Foundation, 2013 ONSC 7686.

[^24]: As discussed in Sheridan Chevrolet, supra, note 14, at footnote 3.