COURT FILE NO.: CV-16-544173

DATE: 20180614

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Vince Cappelli

Plaintiff

– and –

Nobilis Health Corp., Harry Joseph Fleming, Christopher H. Lloyd, Andrew Chen, Kenneth J. Klein, and Calvetti Ferguson, P.C.

Defendants

Eli Karp and Jennie Brodski for the Plaintiff

Gerry J. Gill for the Defendant Calvetti Ferguson, P.C.

Alan J. Lenczner for the Defendants Nobilis Health Corp., Harry Joseph Fleming, Christopher H. Lloyd, Andrew Chen, and Kenneth J. Klein

Proceeding under the Class Proceedings Act, 1992

HEARD: June 14, 2018

PERELL, J.

REASONS FOR DECISION

A. Introduction

[1] In a proposed class action pursuant to the Class Proceedings Act, 1992,[^1] Vince Cappelli sues Nobilis Health Corp., Harry Joseph Fleming, Christopher H. Lloyd, Andrew Chen, Kenneth J. Klein, and Calvetti Ferguson, P.C.

[2] Mr. Cappelli now moves for an order, among other things: (a) dismissing that action as against Messrs. Fleming, Lloyd, Chen, and Klein without costs; (b) certifying the action for settlement purposes as against Calvetti Ferguson, P.C.; (c) approving the settlement with Calvetti Ferguson, P.C.; and (d) approving Class Counsel’s request for payment of legal fees and disbursements from the settlement funds.

[3] The motion is on consent.

B. Facts

[4] Nobilis, which is a corporation under the laws of British Columbia, is headquartered in Houston, Texas. It is a reporting issuer under the securities statutes in all provinces and territories in Canada. Nobilis manages healthcare facilities and ambulatory surgical centers. Mr. Fleming was Nobilis’ President. Mr. Lloyd was Nobilis’ CEO. Mr. Chen was Nobilis’ CFO and then its Executive Vice President of Finance. Mr. Klein was Nobilis’ CFO after July 9, 2015.

[5] Calvetti Ferguson, P.C. was Nobilis’ independent registered public accountant.

[6] On March 31, 2015, Calvetti Ferguson, P.C. certified that Nobilis’ 2014 and 2013 consolidated audited financial statements fairly presented the company’s financial position and cash flow.

[7] On October 5 and 6, 2015, Mr. Cappelli of Vaughan, Ontario, purchased at total of 3,000 common shares of Nobilis.

[8] In January 2016, Nobilis announced that it was restating its previously published consolidated financial statements and MD&A (management discussion and analysis) for yearend 2014, and for the first and second quarter of 2015. It announced that its previously issued Registration Statement should not be relied upon by investors.

[9] In January 2016, Mr. Cappelli retained counsel to prosecute a class action. Class Counsel are now a consortium of Morganti & Co. P.C. and Strosberg Sasso Sutts LLP. The Contingency Fee Retainer Agreement permits Class Counsel to request interim fees of 30% plus HST plus reasonable disbursements.

[10] On January 8, 2016, Mr. Cappelli had issued a Statement of Claim, which was amended on July 22, 2016, and further amended on December 6, 2016.

[11] Mr. Cappelli’s proposed class action was brought on behalf of the following class:

(a) All persons, other than Excluded Persons as defined in the Amended Fresh as Amended Statement of Claim, who acquired Nobilis’ securities from and including March 23, 2015, other than on the NYSE MKT and who held some or all of those securities at the close of trading on October 8, 2015;

(b) All persons, other than Excluded Persons as defined in the Amended Fresh as Amended Statement of Claim, who acquired Nobilis’ securities from and including October 9, 2015, other than on the NYSE MKT and who held some or all of those securities at the close of trading on January 5, 2016.

[12] In his Statement of Claim, Mr. Cappelli alleges that in core documents the Defendants misrepresented the financial state of Nobilis and the adequacy of its controls and procedures with respect to disclosure and financial reporting. He alleges that the misrepresentations caused the artificial inflation of Nobilis’ stock price, which, in turn, caused the Class Members to suffer damages when the truth was disclosed. He sues the Defendants in common law negligence and pursuant to statutory causes of action under Ontario’s Securities Act[^2] and other securities statutes. The statutory action requires the leave of the court and the leave motion is scheduled for November 2018.

[13] On June 13, 2017, the parties engaged in a mediation. The mediator was Paul Pape.

[14] The mediation did not produce a settlement, but near the end of the mediation session, Calvetti Ferguson, P.C. made an offer to settle. After the mediation session, the parties continued to negotiate and a partial settlement was finalized in in February 2018.

[15] The major terms of the settlement are as follows:

• Calvetti Ferguson, P.C. shall be released in exchange for payment of $1.0 million (USD).

• Calvetti Ferguson, P.C. will produce to Class Counsel its file and working papers relating to Nobilis’ 2014 consolidated financial statements and its Q1 and Q2 2015 financial statements.

• Manish Seth of Calvetti Ferguson, P.C. will be produced for one day of examinations for discovery and he will respond to any subpoena to attend at the trial of the action.

• The action shall be dismissed as against Messrs. Fleming, Lloyd, Chen, and Klein with prejudice and without costs.

• An additional $1.0 million (USD) shall be paid in trust to Lenczner Slaght, counsel to Nobilis, in exchange for which Nobilis agrees to discontinue all its actions against Calvetti Ferguson, P.C. and in particular its action in the State of Texas.

[16] In assessing the value of the settlement, it should be noted that s. 138.1 of Ontario’s Securities Act, sets a liability limit that in the case of an expert is the greater of $1 million, and the revenue that the expert earned from the responsible issuer and its affiliates during the 12 months preceding the misrepresentation. In the case at bar, during 2014 and 2013, respectively, Calvetti Ferguson P.C. earned $512,000 and $230,000 from Nobilis. The settlement is thus at the statutory maximum against Calvetti Ferguson, P.C.

[17] Class Counsel recommends the settlement as in the best interests of the putative class members.

[18] Class Counsel proposes to retain the balance of the settlement funds after paying fees and disbursements to fund ongoing disbursements in connection with the action.

[19] Class Counsel has incurred work-in-progress of approximately $450,000 and incurred disbursements of $158,568.27.

[20] Class Counsel is requesting a counsel fee of 30% of the $1 million recovered; i.e. $300,000 plus HST.

[21] Class Counsel also requests that it be reimbursed $158,568.27 for disbursements, the bulk of which were incurred to pay expert witnesses retained for the leave motion as against Nobilis. The Class Proceedings Fund has reimbursed Class Counsel for a portion of these disbursements and that portion will be repaid to the Class Proceedings Fund.

[22] Notice of the settlement approval motion was provided in accordance with the Order of the Court dated March 19, 2018. There was one objector to the settlement.

C. Discussion

1. Certification

[23] Pursuant to s. 5(1) of the Class Proceedings Act, 1992, the court shall certify a proceeding as a class proceeding if: (1) the pleadings disclose a cause of action; (2) there is an identifiable class; (3) the claims or defences of the class members raise common issues of fact or law; (4) a class proceeding would be the preferable procedure; and (5) there is a representative plaintiff or defendant who would adequately represent the interests of the class without conflict of interest and there is a workable litigation plan.

[24] Where certification is sought for the purposes of settlement, all the criteria for certification must still be met.[^3] However, compliance with the certification criteria is not as strictly required because of the different circumstances associated with settlements.[^4]

[25] For the purposes of certification for settlement approval, Mr. Cappelli proposes the following common issue: “Was Calvetti Ferguson, P.C. negligent with respect to its audit opinion?”

[26] I am satisfied that in the context of the proposed settlement that all the criterion for certification have now been satisfied and I, therefore, conclude that this action should be certified for settlement purposes.

2. Settlement Approval

[27] Section 29 of the Class Proceedings Act, 1992 requires court approval for the discontinuance, abandonment, or settlement of a class action. Section 29 states:

Discontinuance, abandonment and settlement

29. (1) A proceeding commenced under this Act and a proceeding certified as a class proceeding under this Act may be discontinued or abandoned only with the approval of the court, on such terms as the court considers appropriate.

Settlement without court approval not binding

(2) A settlement of a class proceeding is not binding unless approved by the court.

Effect of settlement

(3) A settlement of a class proceeding that is approved by the court binds all class members.

Notice: dismissal, discontinuance, abandonment or settlement

(4) In dismissing a proceeding for delay or in approving a discontinuance, abandonment or settlement, the court shall consider whether notice should be given under section 19 and whether any notice should include,

(a) an account of the conduct of the proceeding;

(b) a statement of the result of the proceeding; and

(c) a description of any plan for distributing settlement funds.

[28] Before giving approval of discontinuance - or as in the immediate case before approving what is in effect a discontinuance with prejudice - the court must be satisfied that the interests of the class will not be prejudiced.[^5] A motion for discontinuance should be carefully scrutinized, and the court should consider, among other things: whether the proceeding was commenced for an improper purpose, whether there is a viable replacement party so that putative class members are not prejudiced or whether the defendant will be prejudiced.[^6]

[29] I conclude that in the circumstances of the immediate case including the settlement reached with Calvetti Ferguson, P.C., which I shall approve, and the continuation of the action as against Nobilis, the class will not be prejudiced by the dismissal of the action as against Messrs. Fleming, Lloyd, Chen, and Klein with prejudice and without costs. I, therefore, approve the discontinuance.

[30] 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.[^7]

[31] 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.[^8]

[32] In determining whether to approve a settlement, the court, without making findings of fact about the merits of the litigation, examines the fairness and reasonableness of the proposed settlement and whether it is in the best interests of the class as a whole having regard to the claims and defences in the litigation and any objections raised to the settlement.[^9] An objective and rational assessment of the pros and cons of the settlement is required.[^10]

[33] The case law establishes that a settlement must fall within a zone of reasonableness. Reasonableness allows for a range of possible resolutions and is an objective standard that allows for variation depending upon the subject-matter of the litigation and the nature of the damages for which the settlement is to provide compensation.[^11] A settlement does not have to be perfect, nor is it necessary for a settlement to treat everybody equally.[^12]

[34] In my opinion, having regard to the various factors used to determine whether to approve a settlement, the settlement in the immediate case should be approved.

3. Fee Approval

[35] 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.[^13]

[36] 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; and (j) the opportunity cost to class counsel in the expenditure of time in pursuit of the litigation and settlement.[^14]

[37] In my opinion, having regard to the various factors used to determine whether to approve Class Counsel’s fee request, the request in the immediate case should be approved.

D. Conclusion

[38] For the above reasons, the motion is granted.

Perell, J.

Released: June 14, 2018

COURT FILE NO.: CV-16-544173

DATE: 20180614

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Vince Cappelli

Plaintiff

– and –

Nobilis Health Corp., Harry Joseph Fleming, Christopher H. Lloyd, Andrew Chen, Kenneth J. Klein, and Calvetti Ferguson, P.C.

Defendants

REASONS FOR DECISION

PERELL J.

Released: June 14, 2018

[^1]: S.O. 1992, c. 6.

[^2]: R.S.O. 1990, c. S.5.

[^3]: Baxter v. Canada (Attorney General) (2006), 2006 CanLII 41673 (ON SC), 83 O.R. (3d) 481 (S.C.J.) at para. 22.

[^4]: Nutech Brands Inc. v. Air Canada, [2008] O.J. No. 1065 (S.C.J.) at para. 9; Bellaire v. Daya, [2007] O.J. No. 4819 at para. 16 (S.C.J.); National Trust Co. v. Smallhorn, [2007] O.J. No. 3825 (S.C.J.) at para. 8.

[^5]: Frank v. Farlie, Turner & Co., LLC, 2011ONSC 7137; Durling v. Sunrise Propane Energy Group Inc., [2009] O.J. No. 5969 (S.C.J.) at paras. 14-29; Sollen v. Pfizer, 2008 ONCA 803, [2008] O.J. No. 4787 (C.A.), aff’g 2008 CanLII 8618 (ON SC), [2008] O.J. No. 866 (S.C.J.); Coleman v. Bayer Inc., [2004] O.J. No. 1974 (S.C.J.) at paras. 30-39 and [2004] O.J. No. 2775 (S.C.J.).

[^6]: Logan v. Canada (Minister of Health), [2003] O.J. No. 418 (S.C.J.), aff’d (2004), 2004 CanLII 184 (ON CA), 71 O.R. (3d) 451 (C.A.).

[^7]: Kidd v. Canada Life Assurance Company, 2013 ONSC 1868; Farkas v. Sunnybrook and Women’s Health Sciences Centre, [2009] O.J. No. 3533 (S.C.J.) at para. 43; Fantl v. Transamerica Life Canada, [2009] O.J. No. 3366 (S.C.J.) at para. 57.

[^8]: Kidd v. Canada Life Assurance Company, 2013 ONSC 1868; Farkas v. Sunnybrook and Women’s Health Sciences Centre, [2009] O.J. No. 3533 (S.C.J.) at para. 45; Fantl v. Transamerica Life Canada, [2009] O.J. No. 3366 (S.C.J.) at para. 59; Corless v. KPMG LLP, [2008] O.J. No. 3092 (S.C.J.) at para. 58; Dabbs v. Sun Life Assurance Co. of Canada, 1998 CanLII 14855 (ON SC), [1998] O.J. No. 2811 (Gen. Div.).

[^9]: Baxter v. Canada (Attorney General) (2006), 2006 CanLII 41673 (ON SC), 83 O.R. (3d) 481 (S.C.J.) at para. 10.

[^10]: Al-Harazi v. Quizno’s Canada Restaurant Corp. (2007), 49 C.P.C. (6th) 191 (Ont. S.C.J.) at para. 23.

[^11]: Parsons v. Canadian Red Cross Society, [1999] O.J. No. 3572 (S.C.J.) at para. 70; Dabbs v. Sun Life Assurance Company of Canada (1998), 1998 CanLII 14855 (ON SC), 40 O.R. (3d) 429 (Gen. Div.).

[^12]: Fraser v. Falconbridge Ltd., [2002] O.J. No. 2383 (S.C.J.) at para. 13; McCarthy v. Canadian Red Cross Society (2007), 158 ACWS (3d) 12 (Ont. S.C.J.) at para. 17.

[^13]: Smith v. National Money Mart, 2010 ONSC 1334 at paras. 19-20, varied 2011 ONCA 233; Fischer v. I.G. Investment Management Ltd., [2010] O.J. No. 5649 (S.C.J.) at para. 25; Parsons v. Canadian Red Cross Society, 2000 CanLII 22386 (ON SC), [2000] O.J. No. 2374 (S.C.J.) at para. 13.

[^14]: Smith v. National Money Mart, 2010 ONSC 1334 at paras. 19-20, varied 2011 ONCA 233; Fischer v. I.G. Investment Management Ltd., [2010] O.J. No. 5649 (S.C.J.) at para. 28.```