Appellate, Class Action

OCA decision finds judge altered class-settlement provision

By Kirsten McMahon, AdvocateDaily.com Managing Editor

An Ontario Court of Appeal decision that found a motion judge erred by ordering plaintiffs’ counsel to donate $1.5 million of their fees to charity highlights the perils of being a plaintiff-side class-action lawyer, Toronto commercial litigator and appellate counsel Brian Radnoff tells AdvocateDaily.com.

“There is so much in this province written about the compensation of class counsel, and a fair amount of it is somewhat negative,” says Radnoff, partner and commercial litigator with Dickinson Wright LLP. “You have to remember that bringing a class action is entrepreneurial — but it’s also risky.”

The matter involved a class-action settlement where counsel requested that the motion judge approve fees of $3.75 million, which represented 25 per cent of the $15 million settlement fund.

“The motion judge expressed serious concerns about the merits of the settlement achieved because, under its terms, only about 10 per cent of the class members would receive compensation while the remaining 90 per cent would be required to forego their claims without any payment or other benefit,” the appeal court decision states.

“Notwithstanding his concerns, the motion judge approved the settlement, finding it was ‘within the range of reasonableness’ because ‘the settlement agreement was better than the alternative of proceeding to a trial.’"

The motion judge found that the $3.75 million fees were “not fair and reasonable” to all the class members because “the results achieved for the whole of the class was disappointing,” the decision states.

As a result, the judge approved the fees on the condition that class counsel donate $1.5 million to a court-approved charity.

In setting aside the order, the unanimous panel of the Court of Appeal found that by requiring class counsel — without the parties’ input or consent — to donate part of its fees to a designated charity, the motion judge inserted into the settlement agreement a material condition not agreed to by the parties.

“This altered the settlement provision that surplus settlement funds would revert to the respondent. That this was the intended outcome of the motion judge’s order is evidenced in para. 105 of his reasons when the motion judge states that ‘it is not appropriate to make Ontario the beneficiary of a reduction of Class Counsel’s fee,’” the decision states.

Radnoff, who was not involved in the matter and comments generally, says from a technical perspective this case is straightforward in that the appeal court determined that the judge basically rewrote the settlement agreement without calling for further submissions.

“It creates a difficult situation because the settlement was approved. The Court of Appeal ruled that if you want to propose a condition like this, you have to invite submissions and give the parties an opportunity to respond. If the judge had asked for submissions on his idea, I expect that both the government and class counsel would have opposed it but who knows what would have happened?"

He says the more substantive takeaway is this emphasizes again the perils of being class counsel and the risks involved.

“From their perspective, they have to decide if they are going to recommend taking on the risk and cost of a trial when there’s a settlement offer that seems reasonable. It's a difficult decision to make, and then you have to go in front of a judge and justify what you did, which is inherently a subjective thing,” Radnoff says.

“I’m not necessarily saying that the judge was wrong, but I have some understanding toward class counsel, and I can see how that perspective from which to approach this can result in very different answers."

He says to require class counsel to donate a portion of their fees to charity after a settlement has been approved is a “rather unique situation.”

“There have been instances where a judge raised issues and asked the parties to come back and make further submissions or where the court wouldn't approve certain elements such as payments to particular parties,” Radnoff says. “But I’ve never seen anything quite like this.”

The appeal court remitted the matter for a new hearing before a different judge.

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