COURT FILE NO.: 06-CV-306061-CP
DATE: 20231212
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JOSEPH FANTL
Plaintiff
- and -
IVARI
Defendant
Proceeding under the Class Proceedings Act, 1992
Peter L. Roy, David F. O’Connor, and J. Adam Dewar for the Plaintiff
Jeff Galway, Doug McLeod, and Eric Leinveer for the Defendant
HEARD: December 11, 2023
PERELL, J.
REASONS FOR DECISION
A. Introduction
[1] This certified class proceeding under the Class Proceedings Act, 1992 will shortly celebrate its twentieth anniversary.
[2] On this motion, the Plaintiff Joseph Fantl seeks approval of a settlement, and Class Counsel seeks approval of Class Counsel’s fee.
[3] For the reasons that follow, the motions are granted.
B. Facts
[4] Twenty years ago, on December 29, 2003, this action was commenced. It was originally styled Millman v. Transamerica Life Canada, with Sutts, Strosberg acting as plaintiff’s counsel. The Millman claim was based solely on breach of contract against Transamerica Life, which is the predecessor of the Defendant ivari.
[5] In the Fall of 2005, Roy Elliott Kim O’Connor LLP, a predecessor of present Class Counsel, Roy O’Connor LLP, took carriage of this matter. Mr. Millman was replaced by the representative plaintiff, Joseph Fantl, in 2006. Mr. Fantl is a retired civil litigation lawyer and former member of the Ontario bar.
[6] Mr. Fantl’s Statement of Claim was subsequently amended to advance a two-branched cause of action about the performance of insurance contracts that incorporate an investment scheme. One branch alleged that the Defendant breached its insurance contracts in respect of 28 segregated funds by charging class members more than the contractually stipulated for management fees, a management fee overcharge claim.
[7] The second branch was about the Can-Am Fund. The Can-Am Fund offered an investment option for policyholders by NN Life Insurance Company of Canada from October 1, 1992. The Defendant ivari (formerly Transamerica Life Canada) is the ultimate successor corporation of NN Life.
[8] The second branch of Mr. Fantl’s action, which is the subject of the proposed settlement now before the court, alleged that: (a) the Defendant failed to make “best efforts” to replicate the S&P 500 Total Return Index in its management of the Can-Am Fund, and (b) in so failing breached its contract and also misrepresented the performance of the investment. The breach and misrepresentation were based on the best efforts statements contained in its folders called “Summary Information Folders” that were part of the marketing of the insurance product. In other words, the second branch advanced a concurrent breach of contract and negligence misrepresentation claim about the performance of the Can-Am Fund.
[9] Throughout this litigation, Class Counsel were aware that a claim for damages for negligent misrepresentation would be much harder to certify and prosecute successfully than a similar claim for damages for breach of contract. There was also the problem that as a claim in contract it was not clear that the statements in the Summary Information Folders were part of the investment contract. There was also a contentious issue about when, if at all, the Can-Am Fund was underperforming the S&P Total Return Index. The Can-Am Fund was both a “segregated” fund and an “index” fund. Segregated funds are investment funds offered under insurance contracts, somewhat similar to mutual funds. The Can-Am Fund was also an “index fund” in that its performance was intended to replicate or “track” the return performance of the S&P 500 in Canadian dollars. The deviation of the returns of an index fund from its target index over a period of time is commonly referred to as the “tracking error” of the fund.
[10] In other words, from the outset the concurrent breach of contract and misrepresentation case had very high litigation risk substantively and also procedurally.
[11] The management fee overcharge claim settled in 2009.[^1] The right and ability of Mr. Fantl and the class to pursue the concurrent claims about the performance of the Can-Am Fund was preserved as part of that settlement.
[12] After the settlement of the first branch of the claim, the parties engaged in intensive, good-faith efforts to settle the concurrent liability claim starting in or about September of 2012. Each side retained experts and invested significant time exploring the relevant issues over a series of meetings and exchanges of correspondence. Those efforts proved unsuccessful. The Defendant, among other things, argued through its experts that there was no potential liability and, in particular, no material and statistically significant tracking error, no mismanagement and no damages.
[13] The Parties ceased negotiations in or about March 2013 and Mr. Fantl moved forward with his certification motion.
[14] The motion to certify the concurrent claims was heard over two days in April 2013. I certified the breach of contract claim and associated common issues on behalf of Class Members who had one of the five policy iterations that contained express “best efforts” replication language. I declined to certify the remainder of the proposed contract claims based on the “best efforts” replication statements holding that it was plain and obvious that the statements in the folders were non-contractual. I also declined to certify Mr. Fantl’s negligent misrepresentation claims, finding that although the claim raised common issues regarding the accuracy of the alleged representations, it did not satisfy the preferable procedure requirement because of the presence of individual issues of causation, reliance, and damages for each affected Class Member.[^2]
[15] The certification decision resulted in two separate appeal routes.
[16] The narrowing of the class definition and common issues fell under the jurisdiction of the Divisional Court. In 2015, the Divisional Court reversed my decision and allowed the negligent misrepresentation claim to proceed. The effort by the Defendant to restrict the negligent misrepresentation claims to those who received the English version of the Folder was rejected by the Divisional Court.[^3]
[17] The appeal from the dismissal of the contract claims based on the content of the folders went directly to the Court of Appeal. In 2016, that appeal was unsuccessful.[^4] Leave to appeal to the Supreme Court of Canada was refused in 2017.[^5]
[18] Approximately 72,000 Class Members received a notice of certification and 160 individuals elected to opt-out of the proceeding.
[19] The Defendant advanced many defences, including denying any misrepresentation, mismanagement, poor fund performance, reliance, causation, and damages. The Defendant took the position that because the Class Members were regularly updated on the performance of the Can-Am Fund, they were always in a position to determine whether they thought the fund was underperforming, and if they did, they had the option to move their monies out of the Fund.
[20] In the summer and autumn of 2018, the parties negotiated the scope of the Defendant’s search for and production of potentially relevant paper records and electronic documents. The Defendant ultimately produced more than 80,000 documents in electronic form.
[21] The parties completed two rounds of written examination for discovery questions and answers commencing in November 2020 and concluding in May 2022.
[22] With the completion of discovery, the parties again attempted to settle the litigation. And, after two days of mediation led by former Associate Chief Justice of Ontario Dennis O’Connor on May 2nd and 3rd, 2023, the parties reached a settlement.
[23] As might be expected by the extraordinarily high substantive litigation risk, the prospects and the risks of establishing liability and of calculating damages, if any, were strenuously debated during the mediation.
[24] At the end of the second day of the mediation, the parties reached an agreement in principle to settle the dispute for the all-inclusive and non-reversionary sum of $7 million dollars. It was Class Counsel’s opinion that this was a reasonable and fair outcome for the class. The mediator indicated that he thought that the settlement was reasonable and fair.
[25] Major features of the settlement are:
a. It is a $7.0 million non-residual settlement.
b. Automatic Settlement Entitlement Determination and Payment – No Class Member is required to make an individual application or provide evidence to establish their entitlement to a portion of the settlement fund. Instead, settlement entitlements are determined and cheques cut on the basis of the Defendant’s detailed, individualized data regarding each Class Member’s investments in the Can-Am Fund.
c. $50 De Minimus Threshold – To minimize the administration expense-to-payout ratio, the proposed distribution protocol limits the subset of Class Members who qualify for payment under the settlement to those with a calculated initial entitlement of $50 or more.
d. The total net payout to the Qualifying Class Members is estimated at approximately $3.4 million after deduction of disbursements, Class Counsel Fees, expenses covered by the Class Proceedings Fund, the Fund’s 10% levy and administrative expenses, which are relatively high in this case given the number of Class Members (approximately 72,000, of which 58,669 have a non-zero initial entitlement calculation before application of a $50 threshold).
e. 14,985 Class Members will be entitled to $50 or more; the average payout to those Qualifying Class Members will be approximately $227. The number of Class Members whose entitlement would fall below the $50 threshold is 43,684. If the $50 threshold was not applied, these 43,684 Class Members would receive an average payout of $13.64.
f. A Two-Stage Distribution – There is a two-stage distribution. Letters to Qualifying Class Members will be accompanied by a cheque. Any returned cheques will be subject to a “bad address resolution process”. Uncashed cheques form a “Residue” from which second stage payments may be made on a proportionate basis. If any Residue monies remain after the second stage distribution, the Plaintiff will seek court approval to donate the remaining balance to a charity chosen by the Parties. In no event will any settlement monies revert to the Defendant.
g. There are no appeals available from the calculation of the Relative Shares in either the First or Second Distribution.
[26] The parties have retained Epiq to act as the third-party administrator of this settlement. Epiq’s fees will be paid out of the $7 million settlement fund. Epiq estimates that their fees will be approximately $425,000, inclusive of HST. Class Counsel has proposed to reserve from the $7 million fund the sum of $425,000 plus a buffer of $100,000 to cover any unanticipated additional administrative costs[^6]
[27] The Plaintiff was approved for funding by the Class Proceedings Fund. Pursuant to s. 10 of O. Reg. 771/92, as this action resulted in a settlement in favour of the Class, the Class Proceedings Fund is entitled to a levy. That levy is the total of its funded disbursements plus 10% of the amount of the award or settlement funds payable to the Class Members. The Class Proceedings Fund covered $349,877.10 of the Plaintiff’s litigation expenses, inclusive of HST, the great majority of which comprised expert fees.
[28] On September 11, 2023, I approved the notice of the settlement approval hearing to the class members.
[29] There were no objections to the settlement. Eighteen Class Members communicated with Class Counsel to support the settlement.
[30] Class Counsel expended a great deal of time and effort and expertise over two decades in prosecuting this action.
[31] The Retainer Agreement provides that if this action results in a court-approved settlement benefitting the Class, Class Counsel shall be entitled to a 30% contingency fee, plus disbursements and taxes, in addition to retaining the fee component of previous costs awards.
[32] Class Counsel’s requested 30% contingency fee plus the retained fee portion of previous costs awards will result in Class Counsel and previous plaintiff counsel (whose time Class Counsel agreed to protect) recouping well less than their straight time of approximately $3.4 million to date.
[33] More specifically, 30% of $6,817,106.36 ($7 million minus unrecouped disbursements of $182,893.64) is $2,045,131.91. If I approve the request for Class Counsel to retain the fee portions of previous costs awards in respect of the best efforts claims (which total $198,249.05 before taxes), which I do approve, then Class Counsel’s effective total fees will be $2,243,380.96 – which is approximately 66% of Counsel’s base time.
[34] If Counsel’s estimated additional $200,000 in time to see the settlement through final implementation is also taken into account, the percentage return on base time reduces to approximately 60%.
[35] Starting in 2011, before the first failed attempt at a mediated resolution, through the second and successful May 2023 mediation, the Plaintiff received and relied upon the assistance of Gerry Rocchi. Mr. Rocchi is an expert in the area of index fund design and management. Mr. Rocchi devoted 680 hours to this case in return for total professional fees of $258,415, exclusive of HST, for an average hourly rate of $380. Mr. Rocchi provided invaluable service to the Class Members and his fee is very reasonable.
[36] Class Counsel and Mr. Fantl recommend the settlement as fair, reasonable and in the best interests of the Class Members. There is no opposition to the fee request.
C. Analysis: Settlement Approval
[37] Section 27.1(1) 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]
[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.[^8]
[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.[^9] An objective and rational assessment of the pros and cons of the settlement is required.[^10]
[40] 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]
[41] 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 scheme of distribution under the proposed settlement.
[42] The settlement in the immediate case is undoubtedly fair, reasonable and in the best interests of the Class Members. An analysis of all of the settlement criteria point to approving the settlement. Mr. Fantl reached a fair and reasonable settlement in hard fought litigation and hard fought settlement negotiations in a case that from the outset had a very high procedural risk and an even higher substantive legal risk where both liability and damages were in doubt.
[43] I, therefore, approve the settlement and the requests for ancillary relief.
D. Analysis: Fee Approval
[44] Section 32(2) of the Class Proceedings Act, 1992 stipulates that an agreement respecting fees and disbursements between class counsel and a representative plaintiff is not enforceable unless approved by the court.
[45] 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] The actual take-up rate as a measure of the success of the settlement is a relevant factor in determining an appropriate counsel fee.[^14]
[46] 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.[^15]
[47] The risks of a class proceeding include all of liability risk, recovery risk, and the risk that the action will not be certified as a class proceeding.[^16]
[48] Fair and reasonable compensation must be sufficient to provide a real economic incentive to lawyers to take on a class proceeding and to do it well.[^17]
[49] Accepting that Class Counsel should be rewarded for taking on the risk of achieving access to justice for the Class Members, they are not to be rewarded simply for taking on risk divorced of what they actually achieved.[^18] Placing importance on providing fair and reasonable compensation to Class Counsel and providing incentives to lawyers to undertake class actions does not mean that the court should ignore the other factors that are relevant to the determination of a reasonable fee.[^19] 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.[^20]
[50] I am satisfied that in all of the circumstances of the immediate case Class Counsel’s fee should be approved. Put simply, Class Counsel confronted very high litigation risks and achieved a good result for the Class Members.
[51] Class Counsel earned their fee.
[52] The motion for approval of Class Counsel’s fee is approved.
E. Conclusion
[53] For the above reasons, the motions before the court are granted.
Perell, J.
Released: December 12, 2023
COURT FILE NO.: 06-CV-306061-CP
DATE: 20231212
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JOSEPH FANTL
Plaintiff
- and -
IVARI
Defendant
REASONS FOR DECISION
Released: December 12, 2023
[^1]: Fantl v. Transamerica Life Canada, [2009] O.J. No. 3366 (S.C.J.). [^2]: Fantl v. Transamerica Life Canada, 2013 ONSC 2298. [^3]: Fantl v. Transamerica Life Canada, 2015 ONSC 1367 (Div. Ct.) and Fantl v Transamerica Life Canada, 2015 ONSC 4977. [^4]: Fantl v. Transamerica Life Canada, 2016 ONCA 633. [^5]: Transamerica Life Canada v. Joseph Fantl, 2017 8570 (SCC). [^6]: McKay Affidavit at para. 111. [^7]: Kidd v. Canada Life Assurance Company, 2013 ONSC 1868; Farkas v. Sunnybrook and Women’s Health Sciences Centre, [2009] O.J. No. 3533 at para. 43 (S.C.J.); Fantl v. Transamerica Life Canada, [2009] O.J. No. 3366 at para. 57 (S.C.J.). [^8]: Kidd v. Canada Life Assurance Company, 2013 ONSC 1868; Farkas v. Sunnybrook and Women’s Health Sciences Centre, [2009] O.J. No. 3533 at para. 45 (S.C.J.); Fantl v. Transamerica Life Canada, [2009] O.J. No. 3366 at para. 59 (S.C.J.); Corless v. KPMG LLP, [2008] O.J. No. 3092 at para. 38 (S.C.J.). [^9]: Baxter v. Canada (Attorney General) (2006), 2006 41673 (ON SC), 83 O.R. (3d) 481 at para. 10 (S.C.J.). [^10]: Al-Harazi v. Quizno’s Canada Restaurant Corp. (2007), 49 C.P.C. (6th) 191 at para. 23 (Ont. S.C.J.). [^11]: Dabbs v. Sun Life Assurance Company of Canada (1998), 1998 14855 (ON SC), 40 O.R. (3d) 429 (Gen. Div.); Parsons v. Canadian Red Cross Society, [1999] O.J. No. 3572 at para. 70 (S.C.J.). [^12]: McCarthy v. Canadian Red Cross Society (2007), 158 ACWS (3d) 12 at para. 17 (Ont. S.C.J.); Fraser v. Falconbridge Ltd., [2002] O.J. No. 2383 at para. 13 (S.C.J.). [^13]: Smith v. National Money Mart, 2010 ONSC 1334 at paras. 19-20, var’d 2011 ONCA 233; Fischer v. I.G. Investment Management Ltd., [2010] O.J. No. 5649 at para. 25 (S.C.J.); Parsons v. Canadian Red Cross Society, 2000 22386 (ON SC), [2000] O.J. No. 2374 at para. 13 (S.C.J.). [^14]: Lavier v. MyTravel Canada Holidays Inc., 2013 ONCA 92. [^15]: Smith v. National Money Mart, 2010 ONSC 1334, var’d 2011 ONCA 233; Fischer v. I.G. Investment Management Ltd., [2010] O.J. No. 5649 at para. 28 (S.C.J.). [^16]: Endean v. Canadian Red Cross Society, 2000 BCSC 971 at paras. 28 and 35; Gagne v. Silcorp Ltd., 1998 1584 (ON CA), [1998] O.J. No. 4182 t para. 17 (C.A.). [^17]: Sayers v. Shaw Cablesystems Ltd., 2011 ONSC 962 at para. 37; Vitapharm Canada Ltd. v. F. Hoffmann-La Roche Ltd., [2005] O.J. No. 1117 at paras. 59-61(S.C.J.); Parsons v. Canadian Red Cross Society (2000), 2000 22386 (ON SC), 49 O.R. (3d) 281 (S.C.J.); Gagne v. Silcorp Ltd. (1998), 1998 1584 (ON CA), 41 O.R. (3d) 417 (C.A.). [^18]: Welsh v. Ontario, 2018 ONSC 3217 at para. 103. [^19]: Smith Estate v. National Money Mart Co., 2011 ONCA 233 at para. 92. [^20]: Commonwealth Investors Syndicate Ltd. v. Laxton, [1994] B.C.J. No. 1690 at para. 47 (C.A.).