Ontario Judge Rejects $75 Million Fee for Class Counsel

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In Brown v Canada (Attorney General), 2018 ONSC 3429, Ontario judge Justice Belobaba rejected the proposed Sixties Scoop Canadian national settlement agreement because the $75 million proposed fee for class counsel was not “anywhere close to reasonable.” A Canadian federal court judge had earlier approved the proposed settlement, including the proposed fee. Justice Belobaba lauded the other aspects of the proposed settlement, including the benefits offered to the class. However, he found that the risks born by class counsel and the results (a $550-800 million class settlement) did not justify the fees sought.

Background

The class members were Indigenous people taken from their families and placed in non-Indigenous foster homes, known as the “Sixties Scoop”, which has generated multiple actions across Canada. Brown v. Canada is the most advanced of these actions.

On November 20, 2017, a nation-wide settlement agreement, including the other actions, was executed (the “Settlement Agreement”). As part of this national settlement, the other actions were consolidated into one Federal Court action (the “Riddle Action”).  Pursuant to the Settlement Agreement, Canada agreed to pay between $500 million and $750 million to cover payments to the class, with individual payments capped at $50,000 per person, plus $50 million to a foundation dedicated to reconciliation initiatives and $75 million in legal fees to class counsel.

The Settlement Agreement required the approval of both the Federal Court and the Ontario Superior Court of Justice. In May 2018, Justice Shore of the Federal Court approved the Settlement Agreement for the purposes of the Riddle Action (see Riddle et al. v. The Queen, 2018 FC 641). However, on June 20, 2018, Justice Belobaba of the Ontario Superior Court of Justice rejected the Settlement Agreement.

$75 Million for legal fees was found to be unreasonable

Under the proposed Settlement Agreement, Canada agreed to pay $75 million in legal fees to class counsel. Justice Belobaba held that, on the facts of this “mega-fund” settlement, $75 million in legal fees was “excessive” and could not be approved.

The applicable test

When assessing whether legal fees are fair and reasonable, judges may consider a wide-range of factors. The two most important are: (1) the risk undertaken by class counsel; and (2) the results achieved.

In both Canada and the U.S. fees are generally determined by either a percentage of the fund approach or a multiplier approach. Under the multiplier approach, the court determines a reasonable base legal fee which is increased by an appropriate multiplier. Citing the Court of Appeal’s direction in Gagne v. Silcorp, Belobaba J. noted that in “the most deserving case,” the multiplier can be up to four-times the base fee.

Justice Belobaba found that the percentage approach results in a windfall to class counsel in “mega-fund” settlements

Justice Belobaba considered both approaches. Ultimately, he observed that in “mega-fund” settlements, a percentage of the fund of 10-30%, or even 1% in some cases, would be unreasonable. He noted that mega-fund cases almost always settle. Further, he found that fees determined by a percentage of the fund bear no relation to the risk incurred and will always or almost always result in a windfall to class counsel. While Belobaba J. noted that the percentage of fund approach may be appropriate for common-place settlements i.e. settlements under $50 million, he held that they should not be used in settlements over $100 million.

The proper approach for calculating fees in a “mega-fund” settlement

Justice Belobaba declined to fix a reasonable amount for fees for class counsel. However, he stated that the appropriate framework would consider the base amount, i.e. the actual legal fees incurred, create a “reasonably adjusted base amount,” taking into consideration various factors, e.g., the appropriateness of hourly rates. Next Justice Belobaba would have assessed the risks incurred by counsel and applied the appropriate multiplier.

Justice Belobaba described Brown as a case deserving of a four-times multiplier, the upper limit, due to what he found was the enormous risk undertaken by counsel who “bet the firm” on the case. In contrast, the Riddle actions which followed Brown were all in the earlier stages at the time of settlement and none had been certified. Given what he found was a modest risk in the Riddle Action, Justice Belobaba noted that a 1.4 to 1.5 multiplier would be appropriate.

By Justice Belobaba’s calculations, applying a four-times multiplier in Brown and a “generous” two-times multiplier in Riddle would total at most $37.5 million, less than half of the proposed $75 million. As such, he concluded the proposed amount was unreasonable and he rejected the proposal.

Delinking of Legal Fees

Because the Court rejected the $75 million legal fees provision, Justice Belobaba found that the rest of the Settlement Agreement would necessarily fail, unless the legal fees provision were “de-linked” from the rest of the Settlement Agreement.

Class counsel for Brown consented to de-linking the legal fee provisions, however, class counsel for Riddle had not.

Future Implications

This decision demonstrates the Ontario court’s critical consideration of class counsel’s fees, particularly in the context of “mega-fund” settlements. Specifically, it suggests that where a percentage of funds approach will result in a very large fee to counsel, the courts may favour a multiplier approach.

Moreover, this decision highlights the potential significance of de-linking legal fees from the rest of a settlement agreement. In cases where legal fees may be contentious, this may continue to be an important point of negotiation in future class action settlement agreements.

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Editors

Deborah Glendinning

Partner, Litigation

Sonia Bjorkquist

Partner, National Chair, Litigation

Éric Préfontaine

Partner, Litigation

Christopher Naudie

Partner, Litigation

Craig Lockwood

Partner, Litigation

Tristram Mallett

Partner, Litigation

Karin Sachar

Associate, Litigation