Case to target judge’s limit on fee-sharing deal

A Superior Court judge in Toronto improperly second-guessed experienced class action counsel and interfered with a settlement negotiated in another province, state two Vancouver-based law firms in arguments filed with the Ontario Court of Appeal.

Justice Paul Perell “erred in law and principle and made palpable and overriding errors of fact” in his findings about a fee-sharing agreement, write lawyers for Camp Fiorante Matthews Mogerman LLP and Branch MacMaster LLP.

The firms are appealing a decision issued last fall by Perell in Bancroft-Snell v. Visa Canada Corporation, a multi-jurisdictional class action proceeding over credit card charges imposed on retailers.

The Ontario Court of Appeal is scheduled to hear the case on May 25.

It will be asked to determine the scope of a judge’s powers to limit fee-sharing deals between competing law firms to avoid litigation over who has carriage of a class action.

These types of agreements are on the rise, says David Sterns, a partner at Sotos LLP in Toronto who specializes in plaintiff-side class actions.

“Justice Perell has taken on a clearly vexing issue,” says Sterns, who adds that more judicial guidance at the appellate level would be helpful for class action lawyers.

In his ruling last fall, Perell reduced total class counsel fees of $3.4 million for three settlements with financial institutions by 10 per cent because of an agreement with the Regina-based Merchant Law Group. Class actions led by the two Vancouver firms were commenced in five provinces.

About 15 months later, competing litigation was initiated in Alberta and Saskatchewan by Merchant.
However, that firm agreed to stay its actions, in exchange for an $800,000 payment from the firms leading the national class action, including Camp Fiorante and Branch MacMaster.

The fee-sharing deal was reached through mediation with a Court of Queen’s Bench judge in Alberta.

Even still, Perell concluded that the deal must comply with class action legislation in Ontario to be approved in this province.

“The Merchant Law Group did not make a contribution to the achievement of the settlement agreement and the firm should not share in the recovery,” wrote Perell. 

The Vancouver-based firms, in their written submissions, take issue with Perell’s suggestion that resolving competing class actions can take place in a single province with national “opt-in” rules.

“This statement which amounts to second-guessing class counsel who “live and breathe” complex national litigation is not in accordance with the reality of the extremely challenging situation presently facing all class litigants in Canada,” writes Ward Branch, a partner at Branch MacMaster.

The appellants also point out that courts in four other provinces took no issue with the fee-sharing deal and the money comes from approved funds for class counsel and not the portion of the settlement for class members.

Jasminka Kalajdzic, a law professor at the University of Windsor and a co-author of a text on class action law, says Bancroft-Snell is another example of the difficulties that can arise in national class actions with competing firms.

“Merchant Law Group has been known to initiate competing class actions and then not advance them.

Plaintiffs and defence lawyers have themselves complained about this pattern of behaviour and have gone to court in the past arguing delay and abuse of process.

It is therefore understandable why Justice Perell would be concerned about payments to make competing law firms go away,” says Kalajdzic.

“While agreeing to pay a firm to stay its class action may be cheaper than a contested carriage fight, it creates no disincentive for repeating that same conduct,” she adds.

The Merchant Law Group has been granted intervener status by the Court of Appeal. In its written submissions, it states there was “a denial of natural justice” because Perell issued his ruling without hearing from the firm.

As well, it argues that the judge had “no factual or legal basis” to order class counsel not to comply with the terms of the fee-sharing agreement with Merchant.

The defendants in Bancroft-Snell are not participating in the appeal, so the court appointed Brendan van Niejenhuis, a partner at Stockwoods LLP, as amicus curiae to bring an adversarial context to the issues that need to be decided.

There are strong policy reasons to uphold Perell’s findings about the fee-sharing deal, states van Niejenhuis in his written submissions.

“Permitting such agreements would encourage lawyers to commence class actions with the sole intention of using the proceeding as leverage to extract a share of the contingency fee,” he writes.

“In its essence, his decision is about the incentives that the court should seek to foster within the class proceedings regime,” writes van Niejenhuis.

Given the unique role of a court in determining whether counsel fees are “fair and reasonable” after a class action settlement, the analysis “cannot be limited to a set list of factors,” and appellate courts should show deference to the ultimate decision of the motions judge,” he adds.

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