Canada: Court Approves Settlement In Novel Question Of Law under Solicitor's Act

Last Updated: April 26 2019
Article by Samantha Bonanno

Most Read Contributor in Canada, July 2019

​On January 16, 2019, Justice Perell of the Ontario Superior Court of Justice approved a Settlement Agreement in Hodge v. Neinstein, a complex class action involving novel questions of law, including whether or not breaches of the Solicitors Act could be pursued by way of a class action and whether disgorgement of overcharged legal fees and disbursements was a viable remedy.

Facts

In 2012, the Applicant, Ms. Cassie Hodge commenced a class proceeding against Gary Neinstein and Neinstein & Associations LLP seeking repayment of legal fees and disbursements paid by her and other Class Members upon the settlement of their motor vehicle personal injury claims. She alleged that the Neinstein firm breached the Solicitors Act and their fiduciary duties because they charged an amount for costs, in addition to a percentage fee pursuant to a contingency fee retainer agreement. She also alleged that the firm charged excessive disbursements and interest on those disbursements.

The Neinstein firm opposed the certification of the action, maintaining that the question of whether or not fees charged in each particular client's case was improper and could be determined only on an individual basis following a review of solicitor-client privileged information, which would make a class action unmanageable.

In 2014, Justice Perell refused to certify the proceeding. Justice Perell's decision was reversed by the Divisional Court and the Court of Appeal subsequently affirmed the Divisional Court's decision. The Supreme Court dismissed a motion for leave to appeal.

By March 2, 2018, the Neinstein firm served a Statement of Defence and after the close of pleadings, intensive settlement negotiations began.

By September 2018, the parties were able to reach an agreement and signed a Settlement Agreement, after several months of negotiations. A motion was brought before Justice Perell for Court approval of the settlement, approval for Class Counsel's request for legal fees, and approval for a $20,000 honorarium for Ms. Hodge.

The Settlement Agreement

The Settlement Agreement provided compensation to each Class Member who submitted a Claim Form that satisfied the eligibility criteria stipulated in the Settlement Agreement. Among other things, the eligibility criteria required that the Class Member have a tort claim which settled for at least $40,000 and that the Class Member paid the firm at least $15,000 for legal fees (excluding disbursements and taxes).

With respect to Class Counsel's fees, the Settlement Agreement provided that Neinstein pay Class Counsel's fees and disbursements in the amount of $1.0 million, in addition to any costs awards already paid in the course of the proceeding.

Settlement Approval

Justice Perell approved the Settlement Agreement. His Honour emphasized that a Settlement Agreement must be within a "zone of reasonableness", but "does not have to be perfect, nor is it necessary for a settlement to treat everybody equally". In that regard, Justice Perell emphasized the two analytical exercises a Court must undertake to determine the fairness and reasonableness of a proposed settlement: first, the Court must undertake a risk assessment and compare and contrast the settlement with what would likely be achieved at trial; and second, the Court must examine the fairness and reasonableness of the terms and the scheme of distribution under the proposed settlement.

In this case, Justice Perell was satisfied that the proposed settlement was a good result for the class, particularly having regard to the litigation risks and long litigation road ahead. Justice Perell also approved Class Counsel's fee request, and commented that Class Counsel brought the action to a successful conclusion with their fee well below what they would be entitled to under the contingency fee agreement.

With respect to Ms. Hodge's honorarium, His Honour noted that although a representative plaintiff may be compensated where he or she has rendered "active and necessary assistance" in preparation or presentation of the case, the court should only "rarely approve" this award of compensation. Justice Perell emphasized that there are several reasons why compensation to a representative plaintiff should not be routine, including the fact that plaintiffs or defendants in regular litigation do not receive compensation for the work they do as a litigant or how they assist their lawyers. Additionally, a representative plaintiff is a Class Member and the primary role and responsibility of a representative plaintiff is to protect the interest of the Class Members. If compensation is awarded, there may be a risk of an appearance of self-dealing and a conflict of interest if the representative plaintiff is in a privileged or superior position to his or her fellow Class Members.

In this case, however, Justice Perell was satisfied that an honorarium was appropriate and ought to be awarded to Ms. Hodge, but reduced the amount to $10,000.

Takeaway

Justice Perell's decision serves as guidance and insight into the Court's view on a variety of issues with respect to Settlement Agreements, including striking the appropriate balance between the interests of Class Members and Class Counsel; the factors considered in determining the fairness and reasonableness of Class Counsel's fees; and the hesitation in awarding honorariums to a representative plaintiff.

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