Court States “Docket-padding” Pervasive, Approves 33% Contingency Class Counsel Fee

The nature of class actions means that class counsel usually needs to work on a contingency fee arrangement. But how large can those contingency fees be, and how should they be determined?

In Cannon v. Funds for Canada Foundation, a December 2013 decision, Justice Belobaba of the Ontario Superior Court approved a contingency fee arrangement of one-third of the settlement amount. The decision attempts to encourage efficiency and predictability in class action practice.

The decision is notable for its plain-spoken reasoning. Belobaba J. stated that “docket-padding” and “overlawyering” were “pervasive problems in class action litigation”. He stated that these problems are encouraged by looking to docketed hours to set counsel fees.

The decision is also an interesting complement to the same judge’s recent decisions on costs in class actions (previously discussed on the blog here).

The Problem With Fees Based On Dockets

In October 2013, Belobaba J. had approved a settlement among certain defendants. In his decision, the judge states he initially refused to approve class counsel fees of one-third of the settlement because he felt that Ontario courts had tended to cap class counsel’s fees at 20-25% of the settlement. He nonetheless invited further submissions to persuade him to approve the amount of one-third. And persuaded he was.

He said previous Ontario decisions – which had tended to cap the fee approvals at lower amounts – were “well-intentioned judicial efforts to rationalize legal fee approvals by discussing arguably irrelevant or immeasurable metrics such as docketed time (irrelevant) or risks incurred (immeasurable.)”

He noted that “one brilliant hour” can produce a better settlement than “one thousand plodding hours”. He held that considering docketed time “only encourages docket-padding and over-lawyering, both of which are already pervasive problems in class action litigation.”

With respect to risks incurred, he felt that judges, in hindsight, are ill-suited to come to determinations in this respect.

Rebuttable Presumption That Contingency Fee Arrangements Are Enforceable

Instead, he held “contingency fee arrangements that are fully understood and accepted by the representative plaintiffs should be presumptively valid and enforceable, whatever the amounts involved.” Only in a clear case could this presumption be rebutted. He noted three potential ways such a “clear case” could arise:

  1. Where there is a lack of full understanding or true acceptance on the part of the representative plaintiff;
  2. Where the agreed to amount is excessive (e.g.. 40-50% of the settlement or judgment); and
  3. Where the actual amount is so large as to be unseemly (the judge expressed uncertainty about what would happen if one-third of a settlement was in the range of $50-100 Million).

Advantages Of A Presumption Of Validity

Belobaba J. stated there were several advantages to his proposed approach:

  • Class counsel’s legal fees would be more easily understood, more principled and more “reasonable” than under the “multiplier” approach (which considers hourly rates).
  • It would increase predictability in class counsel’s compensation, in turn encouraging greater use of the class action vehicle, enhancing access to justice.
  • It would take the pressure off certification-motion costs awards as a method for forward-financing the class action lawsuit.

Given Justice Belobaba’s reluctance to award large costs awards in the class actions context, approval of a large percentage fee amount may, on a certain level, appear surprising. When one looks behind his reasoning, however, it is clear that his concern is not so much with lawyers being overcompensated as it is with encouraging access to justice and predictability, and discouraging inefficiencies related to perceived docket-padding and excessive motions. In this sense, the decision is part of a broader trend of Judges experimenting with techniques to improve efficiency and access to justice.