Sixties Scoop settlement sheds light on class action fee calculations

A landmark settlement involving Indigenous Canadians removed from their families has turned to a battle over legal fees, and the outcome could clarify how class action settlements are negotiated and approved, lawyers say.

Sixties Scoop settlement sheds light on class action fee calculations
Morris Cooper says calculating legal fees based on a percentage of a total class action settlement better incentivizes lawyers to get the best results for their clients.

A landmark settlement involving Indigenous Canadians removed from their families has turned to a battle over legal fees, and the outcome could clarify how class action settlements are negotiated and approved, lawyers say.

An Ontario judge has approved the settlement agreement in Brown v. Canada (Attorney General) 2018 ONSC 3429, minus the $75-million legal fees provision, which Justice Edward Belobaba said was “excessive and unreasonable.”

The cases in the settlement involve an estimated 22,400 Indigenous children who, over four decades, were taken from their homes and placed with caregivers without Indigenous backgrounds.

William McDowell, partner at Lenczner Slaght Royce Smith Griffin LLP and former federal associate deputy minister of Justice, says there are several important implications of Belobaba’s decision.

“The court has made it clear, at least in the mind of Justice Belobaba, that there is a ceiling to how much will be paid out in legal fees, even in a settlement with enormous value. That’s interesting because I don’t think we have had a case that has said it as emphatically as he has said it,” says McDowell, who was not involved in the case.

At the crux of Belobaba’s decision in Brown was how a reasonable legal fee is determined and whether approval of the overall settlement should hinge on the successful approval of legal fees.

Belobaba is setting out a new combined model of fee analysis for mega-fund cases, says Morris Cooper, one of the lawyers that represented Marcia Brown, the representative plaintiff.

Also representing the plaintiff in the Brown case was Jeffery Wilson, partner at Wilson Christen LLP, in the case against the federal government.

The total payout to class members in Brown would be not less than $550 million and up to $800 million, depending on how many claimants come forward, Morris says.

Some of those funds will also go to the establishment of a national foundation devoted to memorializing the stories of the Sixties Scoop survivors.

The Brown case, the most advanced Sixties Scoop action, applied to Ontario claimants.

The resolution of the case stands to be high-profile, given how the case has already set the tone for how many issues in Indigenous law are handled.

The central issue — damages for loss of cultural identity — is a “novel claim in Canadian law,” Belobaba said in the ruling. The Sixties Scoop issue has generated 23 Superior Court and Federal Court actions, Belobaba also said, which are in different stages across Canada.

Cooper says that, for many of the victims, the removal from their birth homes resulted in the survivors fitting neither into mainstream society nor their Indigenous cultures.

“For this generation of children, there was tremendous loss and psychological harm, and very compelling stories in court, which were horrific,” Cooper says.

Federal Court of Canada Justice Michel Shore performed a single mediation with the Brown case and the other consolidated Sixties Scoop cases. Wendy Lee White v The Attorney General of Canada, Jessica Riddle v Her Majesty the Queen and Catriona Charlie v Her Majesty the Queen were consolidated in January, in order to allow for one settlement with the government of Canada. The national settlement agreement achieved a much broader national settlement claimant class than the narrower class that was certified in Brown.

The class in these cases differed from the Brown case in Ontario, based on factors such as their residence, the years of their relocation and whether or not they lived on a reservation. Because this is a national settlement in two court jurisdictions, the Federal Court and Ontario Superior Court, the approval of both courts was required for the settlement to be effective.

In Riddle v. Canada, 2018 FC 641, Shore said, the requested fees agreed upon by the lawyers were “fair and reasonable,” since they are less than 10 per cent of the overall payment headed to claimants and the associated foundation.

In Brown, Belobaba looked at the fees differently than Riddle, using an approach that focuses on multiplying the base legal rates by a multiplier to determine the premium, based in part on the risk undertaken by the lawyers.

There are two potential methods presented in the Brown case for calculating legal fees.

One, as Shore suggests, looks at the fees as a percentage of the total settlement.

Another method looks at the base rate of time spent on a case and multiplies that figure by a variable to reflect the appropriate premium for the lawyers’ work.

In Brown, Belobaba also ruled that it would be possible to “de-link” the implementation of the settlement from the negotiation of legal fees. In other words, “de-linking” would allow the claimants to move forward and claim their awards while the legal fees are worked out.

The counsel in the Brown case has consented to the de-linking, while the Riddle lawyers asserted that “settlement approval and the approval of legal fees were never linked to begin with,” according to Belobaba.

Lauren Harper, associate at Osler Hoskin & Harcourt LLP, says that from a defence perspective, the case may influence how legal fees are negotiated in future “mega” settlements, where the settlement is more than $100 million.

Specifically, Harper says, when a small percentage of the settlement represents a very large payment or “windfall” to counsel, courts may come to favour looking at multiples instead.

Harper says the ruling also suggests de-linking “may be an important negotiating point for defendants because it provides them finality, and it may decrease their costs because it allows the court to bifurcate [and] approve the claims at issue, even if there is a dispute over fees.”

Jasminka Kalajdzic, associate professor at the University of Windsor Faculty of Law, says Belobaba’s ruling concerning de-linking is “absolutely correct on the law.”

“There are precedents where judges in other cases have specifically said that it is a clear conflict of interest for lawyers to make approval of a settlement conditional upon approval of their fee,” says Kalajdzic. “[I] found the plaintiff’s lawyers’ arguments quite surprising given other precedents and basic principles around conflict of interest.”

Wilson took on “enormous” risk in the Brown case, Belobaba said, essentially betting his small family firm on the case.
But Belobaba said even Wilson’s effort justified a premium capped at four times the base amount, or around $25 million. That’s well below the $37.5 million in the agreement.

Kalajdzic says that Belobaba’s reasoning follows the best practices of class action law.

While Belobaba’s decision doesn’t prevent lawyers from ever seeking a percentage of a mega-fund, the decision cautions against only looking at the percentage, without regard to the sum of money claimed or work performed, says Kalajdzic, whose work was referenced in Belobaba’s decision.
From Kalajdzic’s perspective, the best practice for a judge is to do a cross-check: to look at both a “multiplier” calculation and a “percentage” calculation of the settlement represented by the requested fee.

Cooper told Law Times that there are elements of the settlement, including the fees, that are inextricable. Separating the fees from the overall settlement oversimplifies a complex matter, Cooper says, where the lawyers are required to do future work for no charge as a condition of settlement.

“It’s the total [that Belobaba] found unacceptable. He recited his principles on mega-fund cases, defined as over $100 million. And from a legal standpoint, that’s a really interesting development. When you’re into that category of cases, the percentages don’t work, they generate too much money [for counsel], in his perspective. He went to an analysis of time and applied an appropriate multiple,” Cooper says.

“In recent years, the class action cases have really gone away from applying the multiple in that it rewards churning, over-lawyering, everyone docketing time and rewarding the law firm that doesn’t get to the finish line quickly. The whole idea of the percentage award is to reward the lawyer that accomplishes the result.”
Cooper says that using a percentage approach better incentivizes lawyers to cross the finish line and get the best results, as opposed to dragging out cases and “over-lawyering” to build up billable hours to claim a multiple.

The Sixties Scoop settlement isn’t like most class actions because the fees are not coming out of the ’ pockets, Cooper says.

“The legal fees were negotiated after the settlement and were agreed — for very good reasons — to be paid by Canada so the claimants wouldn’t have their amounts reduced by legal fees,” Cooper says, adding that claimants who come forward would not need a lawyer to file a claim.

Koskie Minsky declined to comment on what options were being considered and whether an agreement in the combined Brown and Riddle actions was imminent.

“Since the Ontario Superior Court of Justice did not approve the national Sixties Scoop settlement agreement in all respects, the settlement agreement is not yet effective,” Kirk Baert, partner at Koskie Minsky LLP, said in a statement. “The parties to the settlement agreement are considering their respective options. All options are on the table.”

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