The Ontario Court of Appeal has denied a request by four law firms to boost their legal fees for settling a class action lawsuit on behalf of payday loan customers who alleged they were charged criminal rates of interest.
Class counsel at Sutts Strosberg LLP, Heenan Blaikie LLP, Koskie Minsky LLP, and Paliare Roland Rosenberg Rothstein LLP originally asked for $27.5 million, the entire cash portion of the settlement reached with the defendants National Money Mart Co. and Dollar Financial Group Inc.
That demand was reduced to $20 million on appeal, but the three-member appeal court panel upheld the original judge’s award of $14.5 million.
The award included $1 million for disbursements and $650,000 for GST. Having docketed nearly $10 million worth of time, the firms argued the $3-million premium was unreasonably low considering the risk they had taken in advancing the case and the success they had achieved.
“I’m disappointed with the result,” says Terrence O’Sullivan of Lax O’Sullivan Scott Lisus LLP. He represented the firms in the appeal.
A settlement resulted in 2009 following a mid-trial mediation. In addition to the $27.5-million cash payment, the defendants agreed to forgive $60 million in debts owed by the class.
A further $30 million of transferable credits were awarded to reduce the future costs of class members using payday loan services. As well, the defendants promised to pay $3 million to the Law Foundation of Ontario’s class proceedings fund.
Class counsel valued the settlement at $120 million, but the original judge, Superior Court Justice Paul Perell, disputed that. Describing the result as “adequate or satisfactory,” he said it was “to spin a silk purse from a sow’s ear to suggest that the result was excellent.”
Perell pointed out that class counsel themselves would be unlikely to accept payment in payday loan credits that could be viewed as “a business promotion scheme” because they’d need to repeatedly use Money Mart services in order to exhaust them. There was a cap on the credits at $5 per transaction.
Those comments formed part of his arguments that the settlement wasn’t such a great deal after all.
Writing for the appeal court in its March 28 decision, Justice Russell Juriansz said Perell was within his rights to question the valuation and make his own determination.
“The motion judge’s determination was discretionary. The appellants have not established any basis for interfering with his determination that $14.5 million was a fair and reasonable fee for class counsel in this case.”
The court also upheld Perell’s refusal to award key non-legal service providers a premium for work they did on a contingency basis.
In this case, class counsel retained PricewaterhouseCoopers, which docketed more than $800,000 in time and resources to study 400,000 financial transactions. Perell decided to treat the dockets as disbursements for that amount rather than factoring in the premium counsel had agreed to pay them in the event the plaintiffs were successful.
O’Sullivan says that aspect could have serious consequences for access to justice, a key plank of the Class Proceedings Act.
“I think it’s easy to predict that service providers will be reluctant to offer those services up on a contingency-fee basis unless there is a promise of some premium for the risk that they’re taking,” he says.
“These kinds of cases will be difficult to prosecute because very few firms have the resources to put up $1 million in cash for disbursements and carry it for a long period of time.”
But Juriansz wrote that as class counsel had mitigated their own risk by retaining the firm on a contingency basis, it was appropriate for them to absorb the extra cost rather than increasing the total fees paid to them.
“If the premium allowed to class counsel is predicated on the risk of counsel’s fees and disbursements, granting service providers a contingency premium should result in a redistribution of the premium rather than an enlargement of the premium,” he wrote.
In any case, the Class Proceedings Act doesn’t contemplate contingency-fee agreements with anyone other than class counsel, said Juriansz, who noted that allowing them in other cases would amount to a “fundamental change to the design of the act.”
He also dismissed concerns about access to justice.
“In the almost 20 years the [act] has been in effect, a great number of class actions have proceeded without the court allowing premiums to service providers,” he wrote.
But according to O’Sullivan, there’s no legal prohibition against service providers offering services on a contingency basis. He notes that issue could form a basis for his clients to apply for leave to appeal the decision.
“Since there was never any historical impediment to that, then there was no need to spell it out specifically in the act, as there was with lawyers, where there had historically been an impediment to contingency fees,” he says.
Much of the dispute in the case arose from what Juriansz called the “adversarial void” in motions to approve settlements and class counsel fees. They typically go unopposed because individual members’ stakes are too small for them to participate.
The Court of Appeal has also ruled that class members have no standing to appeal an order that approves counsel fees. That places both counsel and the judge in an awkward position, Juriansz said.
“The line between a skeptical and confrontational approach may be difficult to navigate for a court that bears the full responsibility for testing the merits of the position put forward by counsel in order to fulfil its responsibility to protect members of the class,” he wrote.
“In a case such as this, the motion judge should give serious consideration to the appointment of amicus curiae or a guardian of the settlement fund on the hearing of counsel’s application for approval of their fees.”
But Charles Wright, a partner in the class actions department at Siskinds LLP, says he wouldn’t like to see adversarial hearings over class counsel fees become the norm.
“It would be a step in the wrong direction if, after taking on a case on an entirely contingent basis, funding it, and working on it for a long time, counsel then had to essentially engage in litigation over their fee,” he says.
Juriansz suggested that appointing independent counsel to advise the representative plaintiff could reduce the awkwardness of the position lawyers can find themselves in on an unopposed motion for fees.
Wright says he would consider that when a particularly large fee was at stake or in a complicated case such as this where the value of the settlement was unclear.
Usually, there isn’t such confusion because the vast majority of class action settlements in Canada are in cash, according to Wright.
“When you have that much money at stake, it’s not necessarily unfair to plaintiff counsel to have some money and time spent on making sure the court gets the fee right and the contrary voice is heard,” he says.
Editor's note: This article has been amended to reflect that Stikeman Elliott LLP was not among class counsel denied a fee rise by the Court of Appeal, but Koskie Minsky LLP was. (April 7, 2011)