“Disturbing,” “deplorable,” “the very antithesis of what is in the best interests of the class” – these are just a few of the choice words an Ontario Superior Court judge used to describe the billing practices of the class counsel involved in a recent product liability class action.

McCallum-Boxe v. Sony, 2015 ONSC 6896 was commenced as a proposed class action on behalf of Sony Playstation 4 owners with respect to an alleged defect in the console’s controller grips which caused them to deteriorate prematurely. Disgruntled gamers were required to pay a shipping fee for the repair and replacement of the controllers, which was alleged to be contrary to law. Apparently, class counsel overestimated the size of the class. While initially thought to be as high as several hundred thousand, only a few hundred Playstation owners were actually affected. Sony agreed to reimburse all class members $20 each to compensate for shipping costs incurred to return the console for repair and replacement, for a total settlement value of $8,000.

As part of the settlement, Sony also agreed to pay the representative plaintiffs’ legal fees “in an amount to be determined by the Ontario Court.” Under Ontario’s Class Proceedings Act, the Court must approve all settlements as being fair and reasonable for the class.1  In its motion for approval of the settlement, class counsel sought an award of up to $225,000 in legal fees for having negotiated the $8,000 class settlement.

In assessing the fairness and reasonableness of class counsel’s fees, the Court was “shocked” to discover that class counsel had no written retainer agreement or contingency fee arrangement with the representative plaintiffs and that they expected only to recover their legal fees “directly” as part of an eventual settlement. The Court found this arrangement to be “profoundly unacceptable” as it “encourages only a minimal commitment of class counsel on behalf of the class leading to sub-optimal settlements negotiated by class counsel who are primarily interested in recovering a generous legal fees payment.” Although noting that the Court was not tasked with approving class counsel’s legal fees arrangement, it stated that class counsel would be wise to abandon such “one-sided” and “settlement-driven” legal fee arrangements.

Ultimately, the Court approved the settlement as being in the best interests of the class. In assessing the legal fees portion of the settlement, the Court affirmed that the degree of assumption of risk by class counsel and proportionality to the results achieved for the class are relevant considerations. Taking these factors into account, the Court awarded class counsel $30,000 for legal fees.

McCallum-Boxe provides a rare “behind the scenes” look at the economics of class action litigation. The decision serves as a warning to class action plaintiffs’ counsel that courts will not condone settlements or fee arrangements which provide a disproportionate benefit to class counsel over class members.