COURT FILE NO.: CV-16-544173
DATE: 2019/07/29
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
Hadi Davarinia for the Plaintiff
Alan Lenczner for the Defendant Nobilis Health Corp.
Proceeding pursuant to the Class Proceedings Act, 1992
HEARD: July 29, 2019
PERELL, J.
REASONS FOR DECISION
A. Introduction
[1] In January 2016, Mr. Cappelli retained counsel to prosecute a class action. Class Counsel is a consortium of Strosberg Sasso Sutts LLP and Morganti & Co. P.C. The Retainer Agreement provides that Class Counsel’s fees are to be calculated on the basis of 30% of the amount recovered or a 4x multiplier on counsel’s time, whichever is higher.
[2] Pursuant to the Class Proceedings Act, 1992[^1] and s. 138.3 of the Ontario Securities Act and the comparable statutes across Canada,[^2] Vince Cappelli sued Nobilis Health Corp., Harry Joseph Fleming, Christopher H. Lloyd, Andrew Chen, Kenneth J. Klein, and Calvetti Ferguson, P.C. for misrepresentation in the secondary market for corporate securities. Mr. Cappelli claimed damages of $24 million.
[3] In 2018, the action settled as against all of the defendants with the exception of Nobilis. On June 14, 2018, I granted a consent or unopposed motion, 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]
[4] Under the settlement, Calvetti Ferguson, P.C. paid $1.0 million (USD) for the benefit of the class. Because of the damages cap under the Ontario Securities Act, the settlement was at the statutory maximum against Calvetti Ferguson, P.C. Under the settlement, Messrs. Fleming, Lloyd, Chen, and Klein paid nothing and, in effect, the action was discontinued as against them with prejudice.
[5] At the time of the settlement, Class Counsel has incurred work-in-progress of approximately $450,000 and incurred disbursements of $158,568.27. I awarded Class Counsel interim fees of $300,000 (USD) (approximately $400,000 (Cdn) plus reimbursement of $158,568.27 for disbursements, the bulk of which were incurred to pay expert witnesses retained for the pending leave motion as against Nobilis. The Class Proceedings Fund had reimbursed Class Counsel for a portion of those disbursements and that portion was repaid to the Class Proceedings Fund.
[6] With the action having been resolved against the co-defendants, what was left was a proposed class action just against Nobilis for common law negligence and for a statutory misrepresentation claim pursuant to the securities law statutes across the country.
[7] Subsequently, Mr. Cappelli abandoned his common law misrepresentation claims, and he pursued a statutory secondary market misrepresentation cause of action against Nobilis for which leave is required under the Ontario Securities Act.
[8] Mr. Cappelli sought certification of a class action and leave to pursue his statutory claim for secondary market misrepresentations as against Nobilis. I, however, declined to grant leave, and I dismissed the certification motion.[^4] I decided Nobilis’ claim for costs.[^5] I awarded it costs of $200,000 on a partial indemnity basis plus disbursements of $311,696.39 for an all-inclusive award of $537,696.39.
[9] Mr. Cappelli appealed; however, the parties have now settled the litigation.
[10] Mr. Cappelli now moves for: (a) leave to amend the Statement of Claim; (b) certification of the action for settlement purposes; (c) leave pursuant to s. 138.3 of the Ontario Securities Act; (d) approval of the settlement; (e) approval of Class Counsel’s additional fee request of $100,000; (f) an honorarium in the amount of $5,000 to be paid to Mr. Cappelli and $5,000 to Joey Walmsley, who was prepared to act as a Representative Plaintiff in the amended claim; (f) approval of a cy près distribution of residual funds held in trust by Class Counsel to be paid to the Class Proceedings Fund; and (g) and ancillary relief to implement the settlement.
[11] The main terms of the proposed settlement are: (a) Mr. Cappelli abandons his appeal; (b) Nobilis agrees to $250,000 in costs of the failed leave and certification motion rather than the $537,696.391 ordered; and (c) Nobilis will consent to leave under the Ontario Securities Act and to the certification of the new claim, on the condition that the court approves the dismissal of the action.
[12] The motion is brought with the consent of Nobilis.
B. Factual Background
[13] Mr. Cappelli resides in Vaughan, Ontario. On October 5 and 6, 2015, he purchased 3,000 Nobilis common shares, and he held all of those shares at the close of the Class Period.
[14] Nobilis is a company that acquires and manages ambulatory surgical centers and related healthcare facilities. Nobilis was incorporated pursuant to the laws of British Columbia, and is a reporting issuer in all provinces and territories of Canada.
[15] On January 8, 2016, Mr. Cappelli issued a Statement of Claim. The pleading was amended on July 22, 2016, and further amended on December 6, 2016. The present motion seeks to approve an amendment to the pleading for settlement purposes. With the consent of Nobilis, I grant leave to Mr. Cappelli to deliver an amended Statement of Claim.
[16] The Statement of Claim alleges that the Defendants made misrepresentations about the financial state of Nobilis and about the adequacy of its controls and procedures with respect to disclosure and financial reporting during the Class Period. The Claim further alleges that these misrepresentations resulted in the artificial inflation of Nobilis’ stock price during the Class Period, thereby causing damage to Class Members once the truth was revealed. The Statement of Claim alleges that the misrepresentations of Nobilis give rise to liability to the Class Members under the Ontario Securities Act and at common law.
[17] On April 10, 2019, I denied Mr. Cappelli’s motion for leave to proceed with his a claim for secondary securities market misrepresentation. He appealed. While the appeal was pending, the parties agreed to a settlement. Mr. Cappelli had abandoned the appeal. Under the settlement, the action against Nobilis is to be dismissed.
[18] In assessing the wisdom of abandoning the pursuit of some recovery from Nobilis, it should be noted that: (a) its liability insurer, Great American Insurance Company, has denied coverage to Nobilis in respect of Mr. Cappelli’s claims; (b) it is being delisted from the New York Stock; (c) it was delisted from the Toronto Stock Exchange on December 2016; (d) it is in default of various debt agreements with its lenders; and (e) it has not filed quarterly financial records since the second quarter of 2018.
C. Certification for Settlement Purposes
[19] Nobilis has consented to certification for the purposes of settlement. While this is not an admission of liability, it is an acknowledgment that the action can be appropriately pursued (and settled) as a class action.[^6] Nobilis has also consented to leave being granted under Part XXIII.1 of the Ontario Securities Act.
[20] Mr. Cappelli proposes the following class definition:
All persons, other than Excluded Persons as defined in the Second Fresh as Amended Statement of Claim, who acquired Nobilis’ common shares listed on the TSX between March 23, 2015 and January 12, 2016, and who held some or all such securities after any of the following dates: October 8, 2015, November 11, 2015, January 5, 2016 and/or January 12, 2016.
[21] He proposes the following common issues:
a. Did Nobilis or any of the former defendants misrepresent the accuracy of the Nobilis financial statements and its compliance with U.S. generally accepted accounting principles (“GAAP”)? If so, who made the misrepresentation, when, where and how?
b. Did Nobilis or any of the former defendants misrepresent the adequacy of Nobilis’ internal controls over financial reporting and/or its disclosure controls and procedures, and if so when, where and how?
c. Did the misrepresentation in (1) and/or (2) constitute a misrepresentation within the meaning of the OSA and, if necessary, the analogous provisions of the Equivalent Securities Acts of the other provinces?
d. Were the misrepresentations in (1) and (2) above publicly corrected? If so, when, how and by whom?
e. Is Nobilis vicariously liable, or otherwise responsible, for the acts of the former Individual Defendants and its other officers, directors and employees during the Class Period?
[22] 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.
[23] Where certification is sought for the purposes of settlement, all the criteria for certification must still be met.[^7] However, compliance with the certification criteria is not as strictly required because of the different circumstances associated with settlements.[^8]
[24] I am satisfied that the criterion for certification for settlement purposes are satisfied in the immediate case.
D. Settlement Approval
[25] 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
- (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.
[26] 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.[^9]
[27] 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.[^10]
[28] 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.[^11] An objective and rational assessment of the pros and cons of the settlement is required.[^12]
[29] 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.[^13] A settlement does not have to be perfect, nor is it necessary for a settlement to treat everybody equally.[^14]
[30] 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. Given that Mr. Cappelli has already had his leave motion and his motion for certification dismissed, the settlement is in effect an abandonment of an action that has already failed. This abandonment of the action is favourable to the class and its financial underwriter, the Class Proceedings Fund, because it is relieved of its obligation to pay costs for the failed certification attempt. Moreover, assuming that there was chance that an appeal or that a reconstituted action had some merit, the reality is that Nobilis is judgment proof. Putting a permanent end to this litigation is in the best interests of the class.
[31] As already noted, practically speaking, the settlement is a discontinuance or abandonment of the action. I shall treat it as an abandonment, and I see no need for a further settlement approval hearing. In the circumstances of this case, the Class Members are not prejudiced by the discontinuance, and I direct that the only notice required of the dismissal of the action is that a notice be posted on the webpage of Class Counsel.
E. Fee Approval
[32] As noted above, in the settlement with the co-defendants, I approved counsel fees in the amount of $300,000 (USD) (approximately $400,000) plus disbursements of $158,568.27. These fees were calculated on the basis of 30% of the $1 million (USD) recovered from Calvetti Ferguson. Class Counsel is now asking for additional fees of $100,000 with respect to its prosecution of the claim against Nobilis.
[33] Overall, Class Counsel has committed time to this action with a value of approximately $700,000. It expended approximately $200,000 in disbursements, largely for experts and received only $95,000 in funding approval from the Class Proceedings Fund.
[34] 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.[^15]
[35] 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.[^16]
[36] Class Counsel took on the considerable risk of what, relatively speaking, was a small value class action. This assumption of risk for access to justice for class members with smaller value claims should not be discouraged. From the class members’ perspective, although the success achieved by this class action is negligible, I am satisfied that Class Counsel has earned its additional fee of $100,000 in attempting to obtain access to justice for them. I approve Class Counsel’s fee.
F. Honourarium
[37] Class Counsel deposed that Mr. Cappelli has been intimately involved with the prosecution of this action and that he himself available for examination on his affidavit in support of leave, regularly met with counsel, and has attended meetings with the Defendants to discuss developments when necessary. There was no evidence of Mr. Walmsley’s contribution to the class proceeding.
[38] Because in normal litigation a plaintiff is typically not compensated for his or her own work in instructing counsel and because it is unseemly, unfair, and a conflict of interest for the representative plaintiff the class to receive more than the other members of the class that he or she represents, the payment of honorarium to representative plaintiffs for class actions is exceptional and rarely done unless the representative plaintiff can show that he or she rendered necessary assistance in the preparation or presentation of the case and such assistance resulted in monetary success for the class.[^17] An honourarium should not be awarded simply because the representative plaintiff has done what is expected of him or her.[^18]
[39] The exceptional nature of an honorarium is even more circumscribed in a cy-près settlement where there is no monetary success for the class.[^19]
[40] I decline to award any honourarium in the circumstances of the immediate case.
G. Cy-près Distribution
[41] Class Counsel is holding approximately $608,000 from the prior settlement with Calvetti Ferguson. Deducting the $100,000 for additional fees and the costs liability to Nobilis of $250,000 leaves approximately $258,000 being held in trust.
[42] A distribution of this sum to the class is not economically viable. The costs of the notice program and the distribution scheme would wipe out any recovery to the class, which, in any event, would be about $0.01 on the dollar.
[43] Where a cy-près award is an aspect of a settlement, the principles that underlie the approval of a settlement apply.[^20] From a policy perspective, cy-près awards fulfill the compensatory and access to justice purposes of the Class Proceedings Act, 1992, and they also fulfill the behaviour modification policy goals of the Act.[^21]
[44] A cy-près distribution should be justified within the context of the particular class action for which settlement approval is being sought, and there should be some rational connection between the subject matter of a particular case, the interests of class members, and the recipient or recipients of the cy-près distribution.[^22]
[45] Where the expense of any distribution among the class members individually would be prohibitive in view of the limited funds available and the problems of identifying them and verifying their status as members, a cy près distribution of the settlement proceeds is appropriate.[^23] Where in all the circumstances an aggregate settlement recovery cannot be economically distributed to individual class members the court will approve a cy près distribution to recognized organizations or institutions that will benefit class members.[^24]
[46] The factual circumstances of the immediate justify a cy près distribution to the Class Proceedings Fund, which accepted the risk of this class action and without whose support, the class proceeding would not have been viable at all. I, therefore, approve the proposed cy près distribution.
H. Conclusion
[47] For the above reasons, the motion is granted, and an order should be made accordingly.
Perell, J.
Released: July 29, 2019
COURT FILE NO.: CV-16-544173
DATE: 2019/07/29
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: July 29 , 2019
[^1]: S.O. 1992, c. 6.
[^2]: Securities Act, R.S.A. 2000, c. S-4; Securities Act, R.S.B.C. 1996, c 418; Securities Act, C.C.S.M. c. S50; Securities Act, S.N.B. 2004, c. S-5.5; Securities Act, R.S.N.L. 1990, c S-13; Securities Act, S.N.W.T. 2008, c. 10; Securities Act, R.S.N.S. 1989, c. 418; Securities Act, S.Nu. 2008, c. 12; Securities Act, R.S.P.E.I. 1988, c S-3.1; Securities Act, R.S.Q. c V-1.1; Securities Act, 1988, S.S. 1988-89, c. S-42.2; and Securities Act, S.Y. 2007, c. 16.
[^3]: Cappelli v. Nobilis Health Corp., 2018 ONSC 3698.
[^4]: Cappelli v. Nobilis Health Corp. 2019 ONSC 2266.
[^5]: Cappelli v. Nobilis Health Corp. 2019 ONSC 3376.
[^6]: Sherman v University Health Network, [2011] O.J. No 5267 (S.C.J.)
[^7]: Baxter v. Canada (Attorney General) (2006), 2006 CanLII 41673 (ON SC), 83 O.R. (3d) 481 at para. 22 (S.C.J.).
[^8]: 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 at para. 8 (S.C.J.).
[^9]: 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.
[^10]: 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.).
[^11]: Baxter v. Canada (Attorney General) (2006), 2006 CanLII 41673 (ON SC), 83 O.R. (3d) 481 at para. 10 (S.C.J.).
[^12]: Al-Harazi v. Quizno’s Canada Restaurant Corp. (2007), 49 C.P.C. (6th) 191 at para. 23. (Ont. S.C.J.).
[^13]: 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.).
[^14]: 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.
[^15]: 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.
[^16]: 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.
[^17]: Park v. Nongshim Co., 2019 ONSC 1997; Robinson v. Rochester Financial Ltd., 2012 ONSC 911; Baker Estate v, Sony BMG Music (Canada) Inc., 2011 ONSC 7105 at paras. 93-95; McCutcheon v. Cash Store Inc. [2008] O.J. No. 5241 at para. 12 (S.C.J.); Bellaire v. Daya, [2007] O.J. No. 4819 at para. 71 (S.C.J.); McCarthy v. Canadian Red Cross Society, [2007] O.J. No. 2314 at para. 20 (S.C.J.); Sutherland v. Boots Pharmaceutical plc, [2002] O.J. No. 1361 (S.C.J.); Windisman v. Toronto College Park Ltd., [1996] O.J. No. 2897 at para. 28 (Gen. Div.).
[^18]: Park v. Nongshim Co., 2019 ONSC 1997 at para. 84; Bellaire v. Daya [2007] O.J. No. 4819 at para. 71 (S.C.J.).
[^19]: Park v. Nongshim Co., 2019 ONSC 1997 at para. 86; Sutherland v. Boots Pharmaceutical PLC, [2002] O.J. No. 1361 at para. 22 (S.C.J.).
[^20]: Carom v. Bre-X Minerals Ltd., at para. 141.
[^21]: Domage v. Ontario, 2017 ONSC 4178; Carom v. Bre-X Minerals Ltd., 2014 ONSC 2507 at para. 123; Alfresh Beverages Canada Corp. v. Hoescht AG, [2002] O.J. No. 79 at para. 16 (S.C.J.).
[^22]: O'Neil v. Sunopta, Inc., 2015 ONSC 6213 at para. 16; Sorenson v. Easyhome Ltd., 2013 ONSC 4017; Markson v. MBNA Canada Bank, 2012 ONSC 5891 at para. 43; Serhan Estate v. Johnson & Johnson, 2011 ONSC 128 at para. 59.
[^23]: Park v. Nongshim Co., 2019 ONSC 1997; Ali Holdco Inc. v. Archer Daniels Midland Co., 2019 ONSC 131; Domage v. Ontario, 2017 ONSC 4178; Serhan v. Johnson & Johnson, 2011 ONSC 128 at paras. 57-59; Elliott v. Boliden Ltd., [2006] O.J. No. 4116 (S.C.J.).
[^24]: Sutherland v. Boots Pharmaceutical PLC, [2002] O.J. No. 1361 at para. 16 (S.C.J.); Alfresh Beverages Canada Corp. v. Hoechst AG, [2002] O.J. No. 79 (S.C.J.).