McDonald v. Home Capital Group, 2017 ONSC 5195

CITATION: McDonald v. Home Capital Group, 2017 ONSC 5195

COURT FILE NO.: 349/17 CP

DATE: 20170831

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Claire R. McDonald (Plaintiff)

AND:

Home Capital Group Inc., Gerald M. Soloway, Robert Morton and Robert J Blowes (Defendants)

BEFORE: Justice R. Raikes

COUNSEL: Michael Robb and Douglas Worndl, for the plaintiffs Peter Howard and Samaneh Hosseini, for the defendant, Home Capital Group Inc. James Douglas, for the defendants, Morton and Blowes Niklas Holmberg, for the defendant, Soloway

HEARD: August 21, 2017

ENDORSEMENT- CLASS COUNSEL FEES

[1] Class counsel moves for approval of their proposed legal fees and disbursements in this action. The motion was heard immediately following the motion to approve, inter alia, the terms of the settlement of this securities class proceeding.

[2] Class counsel seek an order approving their retainer agreements with the representative plaintiff, Claire McDonald, dated September 29, 2015 and with Trevor Textor dated May 1, 2017 in accordance with s. 32 Class Proceedings Act, 1992, S.O. 1992, c. 6 ("CPA"). They ask that fees be approved in the amount of $5.9 million plus applicable taxes of $767,000. They also seek approval of disbursements of $176,841.90 which includes applicable taxes thereon and ask for interest under s. 33(7)(c) of the CPA on the disbursements.

Retainer Agreements

[3] The retainer agreements with Ms. McDonald and Mr. Textor meet the requirements set out in ss. 32(1)(a), (b) and (c) of the CPA for contingency agreements. These retainer agreements contemplate the following arrangement:

a. Fees and disbursements are payable only in the event of "success", which is a defined term that includes a settlement that provides a benefit to class members as the settlement herein clearly does;

b. Legal fees are chargeable on a percentage basis;

c. Siskinds may seek court approval of a legal fee at the applicable percentage rates specified in the agreement;

d. The applicable percentage is 28% of the "amount recovered", another defined term;

e. Siskinds agreed to indemnify the representative plaintiffs against any adverse costs awards while they were counsel of record and, in return, the applicable percentage rate increased by 5% to 33% of the amount recovered;

f. Siskinds was entitled to seek third party indemnification in which case, it would not be entitled to the additional 5%. Siskinds did not seek third party indemnification.

Settlement Agreement

[4] Pursuant to the settlement agreement, settlement administration costs and legal costs are deducted from the settlement fund. The settlement agreement also specifies that only the amount directly attributable to the class action settlement is to be used for the purpose of determining class counsel fees. In this case, the total benefit to the class is $29.5 million of which $11 million is contributed from the settlement of related OSC proceedings. Thus, the net amount on which fees are calculable under the settlement agreement is $18.5 million.

[5] I addressed the merits of the settlement of the action including the risks entailed and the process by which that settlement occurred in my decision approving the settlement terms. I adopt what I wrote and will not repeat it here.

[6] Counsel opened their file in July 2015, roughly two years before the settlement approval hearing. The action was commenced by Notice of Action on February 13, 2017. The Statement of Claim was issued February 24, 2017. It was class counsel's idea to undertake early global negotiations aimed at resolving both the OSC and class proceedings. That proposal was taken up by the defendants, OSC staff and insurers. Class counsel was present for three of the six days of mediation, and was available by telephone for the other three days, if needed.

[7] Prior to the mediated settlement discussions, class counsel prepared and served a certification motion record and a motion for leave to proceed under the Securities Act, R.S.O. 1990, c. S.5. Neither motion was heard on a contested basis in light of the outcome of the negotiations.

[8] Thus, the settlement negotiations took place within four months of the start of the action, and the settlement approval hearing took place six months to the day from the issuance of the Statement of Claim.

Time Expended and Hourly Rates

[9] There is no issue as to the amount of time expended. The stated value of that time to the date of the settlement approval hearing was slightly more than $600,000. The hourly rates used to calculate that aggregate figure are of concern, most especially those of a six year associate ($375) and law clerk ($210). That is not to say that I have no concern with the rates attributed to senior counsel; rather, my concerns pale when compared to the rates just mentioned.

[10] Class counsel have a track record of successful securities claims and have a demonstrated expertise in this area. It is indeed a specialized area. Nevertheless, some of the hourly rates strike me as excessive. The use of these rates yields a higher aggregate value of time as at the date of the settlement approval hearing.

[11] Why is this a concern when the legal fees are sought on a percentage-based contingency fee? The retainer agreement expressly provides that the amount recoverable for legal fees is subject to court approval. This court is not a mere rubber stamp for whatever counsel can negotiate with the representative plaintiff. The fee ultimately allowed should take into account a variety of factors, including time spent and the value of that docketed time as part of the assessment of the risk taken.

Percentage-Based Fees

[12] I am mindful of the sage dicta of Justice Cumming in Vitapharm Canada Ltd. v. F. Hoffman-La Roche Ltd., 2005 CanLII 8689 (Ont. S.C.) at para. 107 where he wrote the following about the benefits of percentage based fee arrangements:

Using a percentage-based calculation in determining class counsel fees "properly places the emphasis on the quality of representation, and the benefit conferred to the class. A percentage-based fee rewards "one imaginative, brilliant hour" rather than "one thousand plodding hours".

[13] Similarly, Justice Strathy wrote more recently in Helm v. Toronto Hydro-Electric System Limited, 2012 ONSC 2602 at para. 25:

The proposed fee represents a significant premium over what the fee would be based on time multiplied by standard hourly rates. Is that a reason to disallow it? If the settlement had only been achieved four years later, on the eve of trial, when over $1 million in time have been expended, with the fee be any more or less appropriate? Should counsel not be rewarded for bringing this litigation to a timely and meritorious conclusion?

[14] There is no doubt that percentage based contingency fees are appropriate in a class-action context. That approach marries the interests of the class and counsel. The better the class does, the better counsel does. It also rewards counsel who work efficiently.

[15] The plaintiff class action Bar in Ontario is a relatively modest-sized group. For those doing securities class proceedings, the cadre is even smaller. Many firms who do plaintiffs' work eschew the significant risks and costs that can be inherent in this litigation. Depending on the case, the litigation can last for years with significant cash outlay for disbursements to say nothing of the ongoing cost of operating the firm.

[16] Class actions are essential to access to justice. It is critical to the success of the class action regime that there is a strong and dedicated class action Bar. Absent adequate reward for the risk taken, few lawyers could afford to or would take on these cases. The financial incentive must be commensurate with the risk taken, the benefit obtained for the class and the objectives of the class proceedings regime. The court has nevertheless a role to play to ensure that the compensation paid to class counsel is fair and reasonable in this context.

Factors

[17] In Smith Estate v. National Money Mart Co., 2011 ONCA 233 at paras. 80-81, the Court of Appeal confirmed the following factors to be considered in determining class counsel fees:

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 fees; and

j. The opportunity cost to class counsel in the expenditure of time in pursuit of the litigation and settlement.

Analysis

[18] Having regard to the above factors, I find as follows:

a. This was a securities class action of moderate complexity. The related OSC proceeding would have been helpful to the motion to seek leave under the Securities Act and the certification motion.

b. The risk that this would not be certified was low. As detailed in my reasons concerning settlement approval, there was risk of protracted litigation on two fronts with an ever shrinking insurance pool which would make ultimate recovery riskier.

c. Class counsel assumed significant responsibility in pursuing this claim.

d. The amount of money at stake in the proceeding was significant. Early damage estimates were obtained that are referred to in the settlement approval reasons.

e. The matters in issue were unquestionably important to the members of the class.

f. Class counsel demonstrated a high degree of skill and competence.

g. The settlement of the class proceeding is adequate to pay class counsel's fees. The OSC settlement provides an additional contribution for the benefit of class members.

h. The signed retainer agreements contemplate payment of counsel on a percentage basis. Many of the class members are institutional investors or individuals who have invested through mutual funds for example. Such sophisticated investors would reasonably expect that class counsel would be paid for their service and would receive a premium for the risk taken and skill utilized; and

i. As noted above, the time spent by counsel on this matter is of relatively short duration. The early settlement benefits both the class and class counsel who are now free to pursue other opportunities.

[19] Class counsel took on an additional risk in this case: the firm agreed to indemnify the representative plaintiff against any adverse costs awards while they were counsel of record. Fortunately for both the representative plaintiff and class counsel, that indemnity was never tested. Nevertheless, the firm demonstrated a willingness to take on more than the ordinary risks of success or failure.

[20] Class counsel agreed in the settlement agreement that their fees would be calculable by reference only to the $18.5 million attributed to the class proceeding settlement. In other words, class counsel agreed that for the purposes of determining their fees, the $11 million contributed by the OSC should be ignored. I note that, in their factum, class counsel repeatedly refer to a benefit to the class of $29.5 million.

[21] The fee requested is $5.9 million. That is slightly less than 32 percent of $18.5 million. That figure is 20 percent of $29.5 million.

[22] In my view, the appropriate fee is $2.775 million plus HST which is 15 percent of $18.5 million. That amount provides a premium in excess of $2 million on the stated value of docketed time which, for reasons indicated above, seems to me to be overstated. This amount adequately rewards counsel for the effort taken, the risks assumed and the benefits accrued to the class. It recognizes that counsel in this case it did an excellent job representing the class. They achieved a significant benefit at an early stage in the proceeding.

[23] With respect to disbursements, class counsel incurred $155,213.07 and disbursements. Tax on the disbursements is $20,051.69. I find that the disbursements incurred were reasonable and should be paid in addition to the class counsel fees above.

[24] Section 33(7) of the CPA requires the court to determine the amount of disbursements to which the lawyer is entitled including interest calculated on the disbursements incurred, as totalled at the end of each six-month period following the date of the agreement. Counsel have calculated the amount of interest on disbursements as $1577.14. That amount is allowed

Conclusion

[25] I conclude as follows:

a. The retainer agreements dated September 29, 2017 and May 1, 2017 are approved.

b. Class counsel fee in the amount of $2.775 million plus HST is approved.

c. Class counsel are entitled to recover and be paid disbursements incurred in the amount of $176,841.90 inclusive of HST and interest.

Justice R. Raikes

Justice R. Raikes

Date: August 31, 2017