Court File and Parties

COURT FILE NO.: CV-12-452614-00CP DATE: 2019/01/16 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

CASSIE HODGE Applicant – and – GARY NEINSTEIN and NEINSTEIN & ASSOCIATES LLP Respondent

Counsel: Peter I. Waldmann and Andrew Stein for the Applicant Chris G. Paliare; Odette Soriano and Paul Davis for the Respondents

Proceeding under the Class Proceedings Act, 1992

HEARD: January 16, 2019

PERELL, J.

REASONS FOR DECISION

A. Introduction

[1] In 2012, Ms. Hodge commenced a class proceeding pursuant to the Class Proceedings Act, 1992 against Gary Neinstein and Neinstein & Associates LLP seeking repayment to Class Members of legal fees and disbursements paid by the Class Members upon the settlement of their motor vehicle personal injury claims. She alleged that Mr. Neinstein and the law firm had breached the Solicitors Act and their fiduciary duties because they charged an amount for costs in addition to a percentage fee under a contingency fee retainer agreement. She further alleged that the lawyers charged excessive or inappropriate disbursements and interest on the disbursements. In September 2018, after six years of litigation and after nine months of negotiations, including three days of mediation before the Honourable Warren K. Winkler, Q.C., the parties reached a settlement. This is a motion for court approval of the settlement and also for court approval of Class Counsel’s request for legal fees and for an honorarium for Ms. Hodge.

B. Facts

1. The Class Action Proceedings

[2] In 2012, Ms. Hodge commenced a class proceeding against Gary Neinstein and Neinstein & Associates LLP seeking repayment to Class Members of legal fees and disbursements paid by the Class Members upon the settlement of their motor vehicle personal injury claims. She alleged that Mr. Neinstein and the law firm had breached the Solicitors Act and their fiduciary duties because they charged an amount for costs in addition to a percentage fee pursuant to a contingency fee retainer agreement. She further alleged that the lawyers had charged excessive or inappropriate disbursements and interest on the disbursements.

[3] To pursue the proposed class proceeding, Ms. Hodge retained Class Counsel pursuant to a Contingency Fee Retainer Agreement that provided a contingency fee percentage of 33.3% of all amounts recovered for the Class Members or in the alternative at Class Counsel’s option, a multiple of up to 9 of the lawyers' hourly rates expended on the case.

[4] Mr. Neinstein and the lawyers of the law firm denied the allegations and opposed the certification of the action. They maintained that the question of whether or not fees charged in each particular client’s case was improper could be determined only on an individual basis following a review of solicitor-client privileged information, which would make a class action unmanageable.

[5] There were three contested motions prior to certification: an abandoned third-party funding motion, an omnibus motion by the Applicant addressing a number of discovery-related and other matters, Hodge v. Neinstein, 2014 ONSC 706, and an extensive refusals motion.

[6] In July 2014, I heard the certification motion. I refused to certify the proceeding. I concluded that it failed to satisfy the commonality and preferable procedure criteria for certification. Hodge v. Neinstein, 2014 ONSC 4503 I concluded that the critical question raised in the case of whether the fees charged to a particular client contravened the Solicitors Act required an investigation from beginning to end of a lawyer and client relationship, between the individuals that formed that relationship and that assessments under the Solicitors Act were available and a preferable way to determine whether the fees in each case were fair and reasonable.

[7] My decision was reversed by the Divisional Court, and it certified the proceeding. Hodge v. Neinstein, 2015 ONSC 7345 (Div. Ct.) Subject to deleting one common issue, the Court of Appeal affirmed the Divisional Court’s decision. Hodge v. Neinstein, 2017 ONCA 494 The Supreme Court of Canada dismissed a motion for leave to appeal from the Court of Appeal’s decision on December 7, 2017. Hodge v. Neinstein, [2017] S.C.C.A. No. 341

[8] The certified class includes clients of the law firm dating back almost 15 years. The class definition is as follows:

A client of Neinstein & Associates LLP or Gary Neinstein Q.C. that:

(a) signed or amended a contingency fee agreement or arrangement after October 1, 2004, and

(b) who has paid before December 9, 2015, being the date of certification, the respondents for their legal services on the completion of the matter in respect for which services were provided,

(c) except a client:

(i) for whom the court has approved the respondents’ fee;

(ii) for whom the court has assessed the respondents’ account; or

(iii) that have signed a release or settled any claim with respect to his or her contingency fee agreement or arrangement.

[9] On March 2, 2018, Mr. Neinstein and the law firm served a Statement of Defence and Counterclaim to the Amended Amended Notice of Application. They advanced several substantive defences including:

a. that the Solicitors Act provides a complete code which bars the claims;

b. that Class Members cannot bring an independent cause of action for statutory breach;

c. that the Limitations Act, 2002 bars a majority of claims;

d. that in the alternative, there is no breach of the Solicitors Act as the fees charged were fair and reasonable;

e. that the aggregate fees charged between tort and accident benefits typically do not exceed the percentage fee in the Retainer Agreement and therefore there was no breach; and,

f. that disgorgement of fees is not an appropriate or available remedy on a class wide basis.

[10] Mr. Neinstein and the law firm advanced a counterclaim that included a claim for payment of fees on a quantum meruit basis.

[11] The merits of the Class Members’ claims remain to be resolved. A significant risk factor for Class Members is that if the litigation proceeds, the need for individual assessments will substantially delay recovery. Neinstein and his law firm submitted that the ultimate issue is whether the amount of compensation they received was fair and reasonable in light of the work they performed for each client in the circumstances of each individual.

[12] The litigation was complex and it involved novel points of law, including the unresolved issues of whether breaches of sections 28.1(8), 28.1(9) and 33 of the Solicitors Act could be pursued by way of a class action and whether disgorgement of overcharged legal fees and disbursements was a viable remedy. There was considerable litigation risk.

[13] For fees, Class Counsel has expended approximately $1.3 million in lawyers’ time inclusive of HST but exclusive of time for preparation of the approval of the settlement motion and exclusive of the anticipated time to implement the settlement. To date, Class Counsel has received $361,702.98 inclusive of HST in partial indemnity costs from the interlocutory orders and appeals.

[14] Ms. Hodge has been active participant throughout these proceedings. She attended most hearings at each level of court, reviewed most of the court filings with Class Counsel and attended the two-day mediation. She has been cross-examined at length during the proceedings. Ms. Hodge's participation in the proceeding has involved extensive travel. Over the course of the proceeding, Ms. Hodge made many trips from her home in Brooklin, Ontario to meet with Class Counsel in Toronto. Each round-trip commute was over 135 km and took 3 hours or more.

2. Settlement Negotiations

[15] In early 2018, after the close of pleadings, the parties began intensive settlement negotiations.

[16] On April 3 and 4, 2018, the Honourable Warren K. Winkler, Q.C. presided at a mediation session. The negotiations culminated with signed written principles for a settlement. The settlement was subject to the parties signing Minutes of Settlement.

[17] In the following weeks, the parties unsuccessfully attempted to negotiate a comprehensive settlement agreement based upon the principles of settlement. On June 14, 2018, they re-attended before Mr. Winkler, but they were unable to resolve the impasse.

[18] In the late summer of 2018, the parties brought competing motions to enforce a settlement. The motions were returnable on September 13, 2018. The motions, however, were adjourned on consent after prolonged oral argument to permit the parties to negotiate further.

[19] On September 24, 2018, the parties held a full day of intense negotiations and in the evening, the parties signed the Settlement Agreement.

[20] On September 25, 2018, the parties consented to an order approving a notice plan advising the Class Members of the proposed settlement and appointing Charles Harnick, Q.C., as Claims Administrator, pending the settlement approval hearing.

3. The Settlement Agreement

[21] The Settlement, if approved, will provide compensation to each Class Member who submits a Claim Form that satisfies the eligibility criteria stipulated in the Settlement Agreement. It is designed to provide an efficient, objective, paper-based process for Class Members to obtain recovery if they have eligible claims. The key terms of the Settlement addressing claims and compensation for Class Members may be summarized as follows:

a. For each Eligible Claim, the law firm will pay 30% of the amount referenced on the face of the account as being for “Party-and-Party Costs” or “Partial Indemnity Costs” or equivalent language specifically referencing costs. Under the Settlement, this amount is payable regardless of any discounts given to the Class Member at the time the account was rendered and regardless of any of the circumstances of the underlying representation of the Class Member.

b. The Settlement is based on claims made; there is no cap on the total amount to be paid by the Firm to the Class Members.

c. The Claims Administrator will determine a Class Member’s entitlement to compensation under the Settlement based on a straightforward, mechanical review of the face of the Client Documents alone.

d. The Claims Administrator, on a paper-based review of documents in the Class Member’s file, will determine whether a claim is an Eligible Claim, based exclusively on the following criteria in the Settlement Agreement:

i. The Class Member is not an Opt Out and has submitted a Claim Form by the Claims Deadline, including the waiver of solicitor-client privilege indicated on the Claim Form (Article 8);

ii. Subject to the Claims Administrator’s sole discretion to correct any omissions or clerical errors on a Claim Form, the Claim Form contains the requisite information (Articles 23 and 24);

iii. The Firm’s representation of the Claimant must have included:

1. a tort claim, which settled for at least $40,000 (Article 27(a)(i));

2. payment by the Claimant to the Firm for legal fees and/or costs (excluding disbursements and taxes) in respect of the settlement of the tort claim of at least $15,000 (Article 27(a)(ii)); and

3. the account the Firm rendered to the Claimant upon settlement of the tort claim references an amount for “party and party costs” or “partial indemnity costs” (or equivalent language specifically referencing costs), in addition to an amount taken for legal fees (Article 27(b)).

e. The settlement does not provide compensation in respect of disbursements and interest charges. The law firm disputed this claim on a variety of grounds, including the fact that the defendants in the personal injury action typically paid the disbursements rather than the Class Members. In any event, as a result of the class proceeding, the law firm changed its practices, and it no longer charges interest on out-of-pocket disbursements and it has discontinued several disbursement charges impugned by Ms. Hodge.

f. The settlement designates three lawyers to provide independent legal advice to Class Members who have received the notice and who have questions.

[22] The key terms of the Settlement Agreement addressing Class Counsel’s fees may be summarized as follows:

a. Subject to court approval, Mr. Neinstein and the law firm will pay Class Counsel fees and disbursements in the amount of $1.0 million plus applicable HST in addition to any costs awards already paid in the course of the proceeding.

b. The Class Counsel fees will not reduce any recovery by the Class and the Settlement Agreement is not conditional on the approval of the fees.

[23] Based on the eligible claims criteria and the sample of accounts analyzed by Class Counsel, post-April 5, 2012 Class Members who became clients post-April 5, 2012 are unlikely to receive a repayment of costs because after Ms. Hodge commenced the proceeding, the law firm changed its billing practices.

[24] The parties used sampling of the firm’s files to make an estimate of the value of the settlement. Based on the sample, it is estimated that there were will be 468 eligible claimants (26.67% of the estimated class of 1755 Class Members) with an average claim value of $8,656.39 Thus, it is estimated that the value of the settlement is approximately $4.05 million.

[25] Also based on sampling, Class Counsel estimates that the Class was entirely successful, the recovery would be approximately $21.8 million in costs and $5.3 million in estimated disbursement overcharges.

[26] Out of the fee, Class Counsel will repay to the Law Foundation of Ontario $16,356.75 for Class Counsel's share of mediation fees that the Law Foundation funded on behalf of the Class.

[27] Class Counsel proposes that Ms. Hodge be paid an honorarium in the amount of $20,000.00. The honorarium would be paid from Class Counsel's fees.

[28] Pursuant to the Settlement Agreement, Class Counsel will pay 25% of the incurred fees, disbursements and taxes for independent legal advice provided to the Class Members.

[29] It is Class Counsel's opinion that the settlement is fair and reasonable and in the best interests of the Class, given the potential risks of further litigation including the risk of no recovery for Class Members, the scope and quantum of claims distribution established by the eligibility criteria, and the behaviour modification of the firm and the profession that has resulted from the proceeding.

4. The Notice Program

[30] In accordance with the Settlement Agreement, the law firm identified 1,799 clients who appeared to fall within the Class definition. On November 2, 2018 notices were sent to the Class Members by regular mail.

[31] In addition, the law firm placed an advertisement in the legal notices section of the Toronto Star published on November 6, 2018.

[32] A settlement website was established in November 2018. The website directs Class Members to contact Mr. Harnick if they have questions or wish to object or opt out of the proceeding.

[33] Mr. Harnick has had over 350 telephone calls with Class Members or their family members or friends (if the Class Member was elderly or had a language barrier) and he has responded to numerous email inquiries.

[34] As provided in the Settlement Agreement, the notice and website advised Class Members that they have the right to obtain documents from their solicitor-client file if they so choose. Since notice was provided to Class Members, the law firm has received 120 requests from clients for documents, either from Mr. Harnick or directly from the clients.

[35] No Class Members have advised the Claims Administrator that they object to the Settlement or that they intend to appear at the hearing to object to the settlement.

C. Discussion

1. Settlement Approval

[36] 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.

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

[38] 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 the 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. Fakhri v. Alfalfa's Canada, Inc., 2005 BCSC 1123; Jeffery v. Nortel Networks Corp., 2007 BCSC 69; Corless v. KPMG LLP, [2008] O.J. No. 3092 at para. 38; Fantl v. Transamerica Life Canada, [2009] O.J. No. 3366 at para. 59; Farkas v. Sunnybrook and Women’s Health Sciences Centre, [2009] O.J. No. 3533 at para. 45; Kidd v. Canada Life Assurance Company, 2013 ONSC 1868.

[39] In determining whether to approve a settlement, the court, without making findings of fact on 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. Baxter v. Canada (Attorney General) (2006), 83 O.R. (3d) 481 at para. 10. An objective and rational assessment of the pros and cons of the settlement is required. Al-Harazi v. Quizno’s Canada Restaurant Corp. (2007), 49 C.P.C. (6th) 191 at para. 23.

[40] In mandating that settlements are subject to court approval, the class action statutes place an onerous responsibility to ensure that the class members interests are not being sacrificed to the interests of Class Counsel who have typically taken on an enormous risk and who have a great deal to gain not only in removing that risk but in recovering an enormous reward from their contingency fee. The incentives and the interests of class counsel may not align with the best interests of the class members, and, thus, it falls on the court to seriously scrutinize the proposed settlement both in its making and in its substance. Dabbs v. Sun Life Assurance Company of Canada (1998), 40 O.R. (3d) 429 at para. 30; L. (T.) v. Alberta (Director of Child Welfare), 2015 ABQB 815 at para. 11; AFA Livforsakringsaktiebolag v. Agnico-Eagle Mines Ltd., 2016 ONSC 532 at paras. 3-17; Sheridan Chevrolet Ltd. v Furukawa Electric Co., 2016 ONSC 729; McIntyre v. Ontario, 2016 ONSC 2662 at para. 26; Welsh v. Ontario, 2018 ONSC 3217; Perdikaris v. Purdue Pharma, 2018 SKQB 86.

[41] 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. Parsons v. Canadian Red Cross Society, [1999] O.J. No. 3572 at para. 70; Dabbs v. Sun Life Assurance Company of Canada (1998), 40 O.R. (3d) 429. A settlement does not have to be perfect, nor is it necessary for a settlement to treat everybody equally. Fraser v. Falconbridge Ltd., [2002] O.J. No. 2383 at para. 13; McCarthy v. Canadian Red Cross Society (2007), 158 ACWS (3d) 12 at para. 17.

[42] Generally speaking, the exercise of determining the fairness and reasonableness of a proposed settlement involves two analytical exercises. The first exercise is to use the factors and compare and contrast the settlement with what would likely be achieved at trial. The court obviously cannot make findings about the actual merits of the Class Members’ claims. Rather, the court makes an analysis of the desirability of the certainty and immediate availability of a settlement over the probabilities of failure or of a whole or partial success later at a trial. The court undertakes a risk analysis of the advantages and disadvantages of the settlement over a determination of the merits. The second exercise, which depends on the structure of the settlement, is to use the various factors to examine the fairness and reasonableness of the terms and the scheme of distribution under the proposed settlement. Welsh v. Ontario, 2018 ONSC 3217.

[43] In my opinion, the proposed settlement in the immediate case is a good result for the class particularly having regard to the litigation risks and the long litigation road that would await them.

2. Fee Approval

[44] 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. Parsons v. Canadian Red Cross Society, [2000] O.J. No. 2374 at para. 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 at para. 25.

[45] 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. Smith v. National Money Mart, 2010 ONSC 1334, varied 2011 ONCA 233; Fischer v. I.G. Investment Management Ltd., [2010] O.J. No. 5649 at para. 28.

[46] The court must consider all the factors and then ask, as a matter of judgment, whether the fee fixed by the agreement is reasonable and maintains the integrity of the profession. Commonwealth Investors Syndicate Ltd. v. Laxton, [1994] B.C.J. No. 1690 at para. 47.

[47] In my opinion, having regard to the various factors used to determine whether to approve Class Counsel’s fee request, Class Counsel’s fee request in the immediate case should be approved. Class Counsel has brought the action to a successful conclusion and their fee is well below what they would be entitled to under the contingency fee agreement.

D. Honorarium

[48] Where a representative plaintiff can show that he or she rendered active and necessary assistance in the preparation or presentation of the case and that such assistance resulted in monetary success for the class, the representative plaintiff may be compensated by an honorarium. Windisman v. Toronto College Park Ltd., [1996] O.J. No. 2897 at para. 28. However, the court should only rarely approve this award of compensation to the representative plaintiff. McCarthy v. Canadian Red Cross Society, [2007] O.J. No. 2314; Bellaire v. Daya, [2007] O.J. No. 4819 at para. 71.

[49] Compensation for a representative plaintiff may only be awarded if he or she has made an exceptional contribution that has resulted in success for the class. Markson v. MBNA Canada Bank, 2012 ONSC 5891 at paras. 55-71; Toronto Community Housing Corp. v. Thyssen Krupp Elevator (Canada) Ltd., 2012 ONSC 6626.

[50] Compensation to the representative plaintiff should not be routine, and an honorarium should be awarded only in exceptional cases. In determining whether the circumstances are exceptional, the court may consider among other things: (a) active involvement in the initiation of the litigation and retainer of counsel; (b) exposure to a real risk of costs; (c) significant personal hardship or inconvenience in connection with the prosecution of the litigation; (d) time spent and activities undertaken in advancing the litigation; (e) communication and interaction with other class members; and (f) participation at various stages in the litigation, including discovery, settlement negotiations and trial. Robinson v. Rochester Financial Ltd., 2012 ONSC 911 at paras. 26-44.

[51] There are several reasons why compensation to the representative plaintiff should not be routine. Plaintiffs or defendants in regular litigation do not receive compensation for the work that they do as a litigant nor for the work that they do to assist their lawyers. In regular litigation, self-represented litigants do not receive payment for their own legal workmanship in successfully advancing their cases. Generally speaking, representative plaintiffs should be treated in the same way as plaintiffs in regular litigation and therefore, honorariums should be a rare occurrence.

[52] But there is more reason to make honorariums rare; a representative plaintiff is a Class Member and the primary role and responsibility of a representative plaintiff is to protect the interests of the Class Members and there is an appearance of self-dealing and a conflict of interest if the representative plaintiff is in a privileged or superior position to his or her fellow Class Members. Thus, it is only in exceptional circumstances that honorarium should be awarded.

[53] This said, in the immediate case, in my opinion, having regard to the various factors described above, it would be appropriate to award Ms. Hodge an honorarium of $10,000 to reimburse her for her personal expenses and to acknowledge her extraordinary contribution.

E. Conclusion

[54] For the above reasons, the settlement, Class Counsel’s fee request, and an honorarium of $10,000 for Ms. Hodge are approved.

Perell, J.

Released: January 16, 2019