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Class Counsel Fees Reduced
Published in the October 2009 issue of Litigation Notes - View Article
The Ontario Court of Appeal reduces the $12 million fee charged by class counsel to $6.3 million. The time docketed was not justified and the multiplier claimed was excessive in light of the risks assumed and the result obtained.
The Ontario Court of Appeal recently considered an appeal by class counsel from a decision reducing the amount of fees that they were awarded in class action litigation.
Three well-known Toronto law firms combined to represent the unit holders of Atlas Cold Storage Holdings Inc. (“Atlas”). Atlas was required to re-state its financial statements for the fiscal years 2001 and 2002, resulting in a class action against Atlas, several of its former officers and directors, its auditors and the underwriter of two offerings of trust units.
The action was settled by some of the Defendants for $40 million, with each unit holder receiving their actual net loss up to a maximum of $4.50 per eligible trust unit. Class counsel claimed fees of $12 million. Pursuant to Ontario’s Class Proceedings Act an agreement respecting fees and disbursements between class counsel and a representative plaintiff must be approved by a judge. In this case Justice Lax of the Ontario Superior Court of Justice considered that the $12 million fee was too high.
The Class Proceedings Act allows lawyers to apply to the Court for the approval of a multiplier on their base fee, in circumstances where they have taken a matter on a contingency fee basis. This serves as an incentive for lawyers to take on risky and complex cases. In this case, however, Justice Lax found that both the base fee and the multiplier claimed by class counsel were excessive.
The base fee claimed was $3.25 million based on 7,400 docketed hours. Justice Lax found that 7,400 docketed hours for a three day pleadings motion, preparation for a certification motion that was never argued, 12 days of cross examination, and a 3 day mediation was not justified. She reduced the base fee by 25%.
She went on to consider the reasonableness of the fee as a whole, based on the following considerations:
(a) the time expended;
(b) the factual and legal complexities of the matters to be dealt with;
(c) the degree of responsibility assumed by the lawyer;
(d) the monetary value of the matters in issue;
(e) the importance of the matter to the client;
(f) the degree of skill and competence demonstrated by the lawyer;
(g) the results achieved;
(h) the ability of the client to pay; and
(i) the expectations of the client as to the amount of the fee.
Her conclusion was summarized as follows:
“I believe that it is important to encourage experienced counsel to take on meritorious cases that are tough and this is particularly so in shareholder class actions, which are really in their infancy in Canada. I accept that the result achieved was probably the best that could be achieved in the circumstances. I accept that the risks were great, although perhaps not as great as counsel contend. I do not, for example, accept that this was a “bet your firm” litigation referred to in Endean v. Canadian Red Cross Society.... The risks were spread across three firms and support was obtained from the Class Proceedings Fund. The members of the class counsel team are very experienced, very creative and they did a thorough and diligent job. They are deserving of being fairly compensated at a level significantly above an amount that might be considered a reasonable base fee given the risks involved. However, I do not believe that the base fee of $3.25 million is reasonable or that the requested fee of $12 million, representing 30% of the gross recovery and a much greater percentage of the net recovery is fair and reasonable. In my opinion, it is excessive in relation to the recovery for the class.”
She reviewed previous cases and concluded that only in rare cases was a multiplier of 3.7 or 4 awarded.
After reducing the base fee by 25% she applied a multiplier of 2.6, resulting in a fee of $6.3 million, which represented roughly 16% of the gross recovery.
The class counsel appealed to the Ontario Court of Appeal arguing, among other things, that the percentage recovery for the class that they obtained was more than 6 times greater than the average recovery of $5 million in US securities class actions settlements. The Court of Appeal considered that this line of argument was irrelevant and that the obligation of the motions judge was to determine what was a fair and reasonable fee on the specific facts of the case before her. Averages from another jurisdiction did not assist in that determination.
The Court of Appeal was not impressed with class counsels’ submission that this was the “third largest securities class action settlement in Canadian history”, agreeing with the motions judge’s comment to the effect that if it was the third largest, then “…it was quite a distant third”.
Furthermore, the risks and complexities were not as great as class counsel contended. Had it been necessary to collect from Atlas, the risks would have been greater, but the settlement was funded by the insurers of Atlas’ directors and officers.
The Court of Appeal considered that Justice Lax’s multiplier of 2.6 was consistent with the authorities, citing Vitapharm Canada Ltd. v. F. Hoffmann-La Roche Ltd., where the Court said:
“It was argued in the course of submissions that the implicit multiplier of about 2.26 upon the base fee is modest and a higher multiple would be supportable.In my view, the implicit multiplier applied to the base fee is one standard to measure whether the fees sought are fair and reasonable. The $15 million sought for fees is reasonable if the actual recovery is $100 million … The results achieved, i.e. the actual recovery, is a seminal factor in determining fair and reasonable fees in any class action settlement.”
The Court observed that even after the 25% reduction, the approved fee represented nearly twice the full docketed fee and that a fee in that range was “...more than adequate incentive to solicitors to take on and prosecute an action of this nature.”
The appeal was dismissed.
Sutts, Strosberg LLP v. Atlas Cold Storage Holdings Inc, 2009 ONCA 690 (CanLII)