Target Canada Co. (Re)

CITATION: Target Canada Co. (Re), 2017 ONSC 7103

COURT FILE NO.: CV-15-10832-00CL

DATE: 2017-12-05

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C., 1985, c. C-36, AS AMENDED

AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF TARGET CANADA CO., TARGET CANADA HEALTH CO., TARGET CANADA MOBILE GP CO., TARGET CANADA PHARMACY (BC) CORP., TARGET CANADA PHARMACY (ONTARIO) CORP., TARGET CANADA PHARMACY CORP., TARGET CANADA PHARMACY (SK) CORP., and TARGET CANADA PROPERTY LLC.

BEFORE: Regional Senior Justice G.B. Morawetz

COUNSEL: William V. Sasso and Sharon Strosberg, Pharmacists Representative Counsel

Melaney Wagner and Francy Kussner, for Alvarez & Marsal Canada Inc., Monitor of the Target Canada Entities

Shawn T. Irving, for the Target Canada Entities

Daniel D. Dimovski, for the Pharmacy Franchisee Association of Canada

HEARD: October 11, 2017

ENDORSEMENT

[1] Pharmacists’ Representative Counsel (“Counsel”) brings this motion for an order approving the fees and disbursements of Counsel, including those of its experts and advisors, and taxes thereon (“Fees”) and for an order for final payment in the amount of $1,956,132.09 on account of the Fees.

[2] The motion was originally returnable on September 13, 2017 and was adjourned on that date to October 11, 2017. I felt it necessary to grant the adjournment in order to accommodate personal circumstances affecting Mr. Dimovski, who was representing the Pharmacy Franchisee Association of Canada (“PFAC”) and also to provide a number of objecting pharmacists with the opportunity to clarify their position. My endorsement of September 13, 2017 read, in part, as follows:

“With respect to the remaining objections filed by email – it seems to me that a number of pharmacists may not understand the basis of the proposed compensation that Sutts Strosberg is requesting. I am satisfied that it is clearly set out – but it is apparent that certain claimants do not understand. The Monitor is directed to prepare a report which sets out the basis of the proposed compensation. Such report to be sent to the service list by September 27, 2017. Claimants to file any supplementary responses by October 3, 2017.”

[3] Subsequently, the Monitor prepared its Thirty-Seventh Report and as well, filed a Brief of Responses from Target Pharmacist Franchisees.

[4] By way of background, on January 15, 2015, Target Canada Co. (“TCC”) and those companies listed in Appendix “A” (collectively, the “Applicants”) together with the partnerships listed in Appendix “A” (collectively, the “Partnerships”, and collectively with the Applicants, the “Target Canada Entities”), were granted protection under the Companies’ Creditors Arrangement Act (“CCAA”). Alvarez & Marsal Canada Inc. (“A&M”) was appointed monitor of the Target Canada Entities (the “Monitor”).

[5] On February 18, 2015, Sutts Strosberg LLP was appointed representative counsel for the pharmacist franchisees. PFAC was appointed representative of the pharmacy franchisees for limited purposes.

[6] Funding by the Target Canada Entities for the representational roles was limited to $100,000, available to PFAC for legal and financial advisory services of Sutts Strosberg LLP and BDO Canada.

[7] The representative appointments of February 18, 2015 were superseded by a subsequent court order dated February 12, 2016 (the “Appointment and Fee Order”), pursuant to which Sutts Strosberg LLP was appointed representative counsel for the pharmacist franchisees for the purpose of claims dispute resolution. The court ordered that the only parties entitled to participate in the claims dispute process were the pharmacist franchisees, the Monitor and the Applicants. PFAC was not listed as a party entitled to participate.

[8] The Appointment and Fee Order, among other things, that directed the reasonable fees, disbursements and taxes of counsel to be paid by the pharmacist franchisees, out of their individual distributions from the claims process, with only the fees subject to a 10% maximum of the distribution otherwise payable in respect of an individual pharmacist franchisee claim. It was also ordered that the fairness and reasonableness of the fees, disbursements and taxes were to be subject to court approval on full particulars at the conclusion of the adjudication process.

[9] The Appointment and Fee Order also provided for an opt-out process for pharmacist franchisees.

[10] The Monitor received eleven opt-out notices from pharmacist franchisees, the claims of which were deemed accepted, and in respect of which, Counsel did not act.

[11] As noted in the Monitor’s Thirty-Seventh Report, the Appointment and Fee Order was made on notice to pharmacist franchisees and was not appealed. It is a final order.

[12] In respect of Counsel’s initial fee motion, an order was made on November 28, 2016 (the “Interim Payment Order”) pursuant to which the Monitor was ordered to effect an interim payment of $750,000 to Counsel from the amount held in reserve by the Monitor. This amount was paid to Counsel on December 1, 2016 (the “Interim Payment”). The Interim Payment Order is also a final order.

[13] Following the opt-out process, eighty pharmacist franchisees were represented by Counsel. Counsel represented the interests of the pharmacist franchisees in connection with the dispute resolution process, hearings before the Claims Officer and, for certain remaining pharmacist franchisees in an appeal from the decision of the Claims Officer.

[14] For the purpose of the fee motion, the dispute resolution process in respect of the Pharmacist Franchisees, was broken into three distinct time periods as follows:

(a) First Settlement Period/the First Fee Period;

(b) The Second Settlement Period/the Second Fee Period; and

(c) Appeal Period/Third Fee Period.

[15] The claims of seventy-nine franchisees have now been fully and finally resolved, with no unresolved claims of pharmacist franchisees represented by Counsel. As noted in the Thirty-Seventh Report, this is because shortly after the First Settlement Period, one pharmacist franchisee was no longer represented by counsel.

[16] The unresolved Pharmacist Franchisee (represented by Mr. Dimovski and Mr. Gavrilidis) did not want to be represented by Counsel. I authorized Mr. Dimovski and Mr. Gavrilidis to retain their own counsel. At one point counsel was retained, but the unresolved pharmacist franchisee is now self-represented.

[17] As noted in the affidavit of Harvey T. Strosberg, Q.C., the unresolved pharmacist franchisee is not subject to the fee motion. The fees of Counsel have been reduced by an estimate of what would otherwise be the unresolved pharmacist franchisee’s proportionate share of such fees and disbursements.

[18] The aggregate value of the proven claims of the First Settlement Group, Second Settlement Group and the Appeal Group is approximately $19.8 million.

[19] Fees incurred in respect of each of the First Fee Period, the Second Fee Period and the Third Fee Period, total approximately $1.956 million.

[20] Interim distributions have been made to affected creditors of approximately 77%. The Monitor projects that after all distributions have been made, affected creditors will receive in excess of 80% of their proven claims.

[21] Although the fee payment structure for counsel has been court approved, it was subject to counsel returning to court upon final resolution of all claims for approval of the fairness and reasonableness of the fees and disbursements on full disclosure of particulars.

[22] In reviewing Counsel’s requested relief, the Monitor describes at section 5.0 of its Thirty-Seventh Report the following principles which have been applied and reflected (the “Fee Payment Principles”):

(a) A Pharmacist Franchisee is only responsible for its proportionate share of fees, disbursements and taxes from the commencement of the CCAA proceedings through to the date on which such Pharmacist Franchisees’ claim was settled or resolved;

(b) Fees (not disbursements and taxes) are subject to a 10% cap on distributions (the “Fee Cap”);

(c) A Pharmacist Franchisee’s proportionate share of fees, disbursements and taxes is based on the amount of the particular proven claim in proportion to the aggregate amount of proven claims of all Pharmacist Franchisees;

(d) Total fees, disbursements and taxes to be allocated have been reduced by an amount equal to what would have otherwise been the proportionate share of the Unresolved Pharmacist Franchisee;

(e) The fees, disbursements and taxes will be reduced by the limited engagement payment ($100,000) and the PFAC members contribution ($25,000) already paid to counsel;

(f) The amount of the fees, disbursements and taxes to be paid to counsel will be reduced by the amount of the interim payment ($750,000), which was already paid to counsel from amounts withheld from prior interim distributions; and

(g) The fees, disbursements and taxes owing by a Pharmacist Franchisee in either the First Settlement Group or the Second Settlement Group (but not the Appeal Group) will be reduced by its proportionate share of the $1 million that the Target Canada Entities offered to contribute to the fees, disbursements and taxes as part of the settlements (the “TCC Contribution”).

[23] As part of the proposed draft order, counsel is seeking approval of the incurrence of fees in the amount of $1,266,313 (the “Fee Amount”) (excluding disbursements and taxes) as being fair and reasonable. Details of the amount requested are set out in section 5.3 of the Thirty-Seventh Report.

[24] In his affidavit, Mr. Strosberg states that counsel has represented the Pharmacist Franchisees on a court appointed contingency basis and that counsel does not seek to be compensated with any premiums on time for acting under this contingent retainer. Rather, counsel requests that the court declare that their time and services, as docketed, is fair and reasonable and that the court approve and direct payment of the fees and disbursement of Counsel and the financial advisors and experts retained.

[25] Mr. Strosberg also sets out, in detail, services rendered by Counsel, which included responding to the court’s direction to implement a summary process of the resolution of each disputed claim, the identification of common issues, preparation for and attendance at three hearings before the Claims Officer, attending to all negotiations leading to offers to settle and settlement and participating in an appeal before this court, which decision is reported at Target Canada Co. (Re) 2017 ONSC 2595.

[26] Details of the services provided by counsel are contained in the exhibits to Mr. Strosberg’s affidavit and are summarized at paragraph 38 of the affidavit. Fee requests of BDO Canada LLP, MRM Consulting and Edward & Manning LLP, advisors to counsel, are set out at paragraphs 39 – 51 and are supported by affidavits of Robert R. MacDonald, Ian Manning and Charles Scerbo.

[27] PFAC has filed a notice to contest the fee requests of Counsel on the following grounds:

1. Counsel has not provided PFAC the legal service as outlined in the agreement and understanding between Counsel and PFAC. PFAC references payment of a retainer to Counsel and also takes the position that the Retainer Agreement has been broken.

[28] This is not an issue that I have to consider. It is an issue relating to the retainer, if any, as between PFAC and Counsel. PFAC is not a party entitled to participate on matters arising from the Appointment and Fee Order.

2. In its Notice to Contest, PFAC states the following:

“An understanding of an “Amiable Action” between the Pharmacist Representative, PFAC and the Pharmacist Representative Counsel, Sutts Strosberg LLP. An action commenced and maintained by the mutual consent and arrangement of the parties to obtain a favourable judgment of the CCAA court based on the Pharmacist facts that both parties accepted as correct and complete. This matter needs to be dealt with by the court before a judgment of any motion of fee payment can be made.”

[29] I do not give effect to this ground of objection. Counsel do not represent PFAC and the claims of all Pharmacist Franchisees represented by Counsel have been resolved.

3. PFAC takes the position that an understanding between Counsel and PFAC was that PFAC would be financially compensated and made whole to cover its expenses by Counsel as it relates to any and all services and recourses provided by PFAC to Counsel.

[30] I decline to give effect to this objection. The motion before the court is to approve the fees of Counsel. This particular objection relates to the agreement as between PFAC and Counsel, which issue is not before me.

4. PFAC takes the position that it officially represents the Pharmacist Franchisees and is to provide direction to counsel.

[31] This argument was addressed in the Appointment and Fee Order, pursuant to which Sutts Strosberg LLP was appointed representative counsel for the Pharmacist Franchisees for the purpose of claims dispute resolution. The only parties entitled to participate in the claims dispute are the Pharmacist Franchisees, the Monitor and the Applicants. PFAC is not listed as a party entitled to participate. Accordingly, it is not necessary to address this ground of objection.

5. PFAC takes the position that in order for Counsel to submit the motion for payment, Counsel must have had to acknowledge receiving legal direction by PFAC on behalf of all members.

[32] This ground of objection was also addressed in the Appointment and Fee Order. PFAC is not listed as a party entitled to participate or to raise this objection.

6. PFAC takes the position that on behalf of all PFAC membership, PFAC can contest any fees charged by counsel where an individual Pharmacist Franchisee did not receive those services consistent or did not receive a settlement greater than the investment made into the individual Pharmacist Franchisee and where Counsel cannot show proof of individual retainer for their services.

[33] This issue was addressed in the Appointment and Fee Order. PFAC is not listed as a party entitled to participate.

7. PFAC takes the position that Counsel is not following past practice for legal fees it is billing directly related to the representation of the collective Pharmacist Franchisees in the CCAA process.

[34] This issue has been addressed in the Appointment and Fee Order. PFAC is not listed as a party entitled to participate. I need not give any consideration to this objection.

[35] A number of other responses have been received from Target Pharmacist Franchisees which are set out in the Brief of Responses filed with the court.

[36] Some of the responses received from Pharmacist Franchisees raise the issue that Franchisees should not be charged for work done on behalf of Franchisees who chose not to settle at various stages of the proceedings.

[37] I am satisfied, from a review of the record, and specifically the section that details the basis on which the fees have been allocated as between various Pharmacist Franchisees, that this objection has been addressed by Counsel. The fees have been allocated among various Pharmacist Franchisees taking into account the time period at which their respective claims were resolved. Specifically, those who settled earlier paid proportionately less than those who settled later. This issue is addressed in the Thirty-Seventh Report of the Monitor at section 3.11.

[38] The other Pharmacist Franchisees who objected, did so on the basis that the fees were too high. This type of complaint has to be taken in context. The Thirty-Seventh Report and the affidavit of Mr. Strosberg outlined, in considerable detail, the scope of the work done by counsel. Counsel did represent approximately eighty claimants in the CCAA proceedings. They prepared for and participated in three hearings before the Claims Officer as well an appeal before me. I reviewed, in detail, the three rulings of the Claims Officer and as well, I heard argument on a number of the issues.

[39] The fairness and reasonableness of the fee can be assessed by taking into account a number of factors including the result achieved, the complexity of the matter, the time expended as well as the other factors set out in Rule 57. In my view, the result achieved was reasonable in the circumstances. The matter was complex and required significant legal input and support from various professionals. On balance, I am satisfied that the fees in this case are both fair and reasonable and have been properly incurred on behalf of all of the Pharmacist Franchisees.

[40] The fees are accordingly approved in the total amount of $1,956,132.09. The Monitor is to make the necessary adjustments and to effect payment of the appropriate amount to Counsel. The fees are to be reduced by an amount to be determined by the Monitor as a reserve in respect of fees, disbursements and taxes that may be owing by T. Pharmacy Ltd. in connection with its claim. The Monitor is directed to effect payment to Counsel on the basis set out in the draft order presented to court.

[41] An order shall issue in the form of the draft presented to court on October 11, 2017.

Regional Senior Justice Morawetz

Date: December 5, 2017