On Thursday, May 28, 2009, the Superior Court of the District of Montréal rendered a significant decision in the matters of Association de protection des épargnants et investisseurs du Québec (APEIQ) and André Dussault v. Corporation Nortel Networks, Belleau Lapointe S.A. and Unterberg, Labelle, Lebeau SENC, Ontario Public Service Employees’ Union Pension Plan Trust Fund and Fonds d’aide aux recours collectifs ("Nortel I") as well as in Clifford W. Skarstedt v. Corporation Nortel Networks, Ontario Teacher’s Pension Plan Board, Department of the Treasury of the State of New Jersey and its Division of Investment and Fonds d’aide au recours collectifs ("Nortel II"). This judgment addresses the criteria for assessing and approving Class Counsel fees in the context of a class action settlement.

Class actions had also been instituted against Nortel in the United States, in Ontario and in British Columbia. The recourses instituted in the United States were consolidated and Lead Plaintiffs were designated. The proceedings in the United States progressed more rapidly than those instituted in Canada for various reasons. On February 8, 2006, a historic and global settlement of $2.2 billion was announced.  

In the fall of 2006, the settlement was approved by the applicable courts in the United States, Ontario, British Columbia and Quebec. Class Counsel filed applications in each of their respective jurisdictions, for the approval of their fees from the Global Settlement Fund. Quebec Class Counsel’s Fee Application in Nortel I initially totalled $5.1 million plus disbursements, while Nortel II Class Counsel requested approval for a fee payment totalling $4.8 million. These sums were to be paid both in cash and with settlement shares in Nortel.

The Ontario Public Service Employees’ Union Pension Plan Trust Fund and the Department of the Treasury of the State of New Jersey and its Division of Investment, the Lead Plaintiffs in the Nortel I and Nortel II actions instituted in the United States, were authorized by the Quebec Superior Court to intervene in the Quebec proceedings in order to contest the fees claimed by Quebec Class Counsel, given their interest in the global settlement fund, from which all class counsel fees were to be paid.

Class Counsel in Nortel I and II were ordered to file their time dockets following a failed appeal based on the solicitor-client privilege. Class Counsel in Nortel II provided estimates of its time charges since it maintained no recorded dockets.

The hearing of the fee applications took place on September 4, 2008. At the hearing, Class Counsels’ fee requests were automatically reduced to CDN$3,491,000 for Nortel I and to CDN$3,207,886 for Nortel II, given the drop in price of Nortel Shares.

  1. The judgment  

The Superior Court arrived at the following conclusions:

  1. The principles
  • Quebec Courts have the discretionary power to determine the fees and costs claimed by Class Counsel and to approve any agreement on such fees and costs. When exercising this discretion, the Superior Court must determine the reasonableness of the fees and costs sought by Class Counsel.
  • Contingency fee agreements ranging from 15% to 25% have often been recognized in Québec, subject to the reasonableness of the applicable percentage. Such contingency fee agreements are justifiable given the risks assumed by counsel. Such arrangements also promote access to justice.  
  • Contingency fees can be paid with the sums awarded to class members or from a global settlement fund. However, such contingency fee contracts have no binding effect on third parties, including the class defendant, unless the latter consents to it in the context of a settlement. The courts are not bound by such contingency fee arrangements, even if consented to by the defendant. The courts must still examine whether such fee agreements are just and reasonable. They should however be flexible in such cases and consider these agreements seriously since they reflect the will of the parties to a class action.
  • If no such fee agreement has been entered into or if the fees sought by Class Counsel differ from those set forth in a contingency contract, the Court must verify if the remuneration is reasonable based on the circumstances of the case.
  • In all cases, the Court must examine the proportionality of the fees sought based on the importance of the matter and the usefulness of services rendered. The courts will also consider the experience of Class Counsel, the difficulty of the issues, the quality of the services rendered and the results obtained. This global approach enables the courts to assess the importance and value of the services provided.
  • The use of a multiplier (or loadstar) method can be a useful indicator in verifying or corroborating the results obtained following an analysis of the criteria identified above.  
  1. Application to the facts

The Court set aside the Contingency Fee Agreements of 25% and 20% entered into by the representative Plaintiffs and Class Counsel in the Nortel I and Nortel II actions. The Court held that Quebec Class Counsel had waived their rights to invoke these contingency fee agreements when they had instead agreed, in the Settlement Stipulation, to limit their fee applications to a maximum of 0.45% of the Global Settlement Fund.

  1. Nortel I  

The total hours worked by Class Counsel represented an investment of CDN$881,135.75. Class Counsel in Nortel I requested total fees of CDN$3,491,001 at the hearing, which equated to roughly four times the recorded hours docketed by Class Counsel. The Intervenors argued this sum was unreasonable

The Court expressly ruled that the fees sought by Class Counsel in Nortel I were exaggerated. It awarded total fees of CDN$1,750,000 to Nortel I Class Counsel, which reflected a multiplier of 2. The Court arrived at this sum based on the following considerations:

  • the very limited activity in the file from 2001 to 2006;
  • the fact that the certification motion had not yet been heard when the settlement was reached in principle in the U.S.;
  • Class Counsel’s lack of participation in the mediation and negotiations leading to the February 8, 2006 settlement announcement;
  • the fact that Quebec class members were already part of the Global Class certified in the U.S. proceedings;
  • Class Counsel nevertheless hired experts and reviewed the merits of the Settlement Agreement and ensured its conformity with Quebec law;
  • the considerable risks taken by Class Counsel at the outset of the proceedings;
  • the complexity of the legal issues;
  • the risk that Nortel would be unable to pay any judgment;
  • Class Counsel’s participation in the approval process in Quebec and translation of proceedings; and
  • the fact that an estimated $101 million of the Global Settlement Fund was destined for Quebec class members.  
  1. Nortel II  

Class Counsel estimated having worked a total of 2,390 hours. These total hours represented an investment of CDN$885,970. Nevertheless, Class Counsel requested a fee of CDN$3,207,886, roughly four times their investment.

The Court awarded CDN$1,250,000 which represents a multiplier of 1.41, based on the following factors:

  • the total time estimated by Class Counsel was abnormally high given the Nortel II proceedings only started in 2005;
  • it noted the Intervenors' contention that class counsel's omission to record contemporaneous time dockets deprived class members of the means to assess the nature and value of these services and negatively affected the quality of the evidence adduced on this important issue;
  • hence, the Intervenors’ proposal to reduce these estimated hours by 25% before applying any multiplier was reasonable in the circumstances;
  • numerous hours were spent preparing the Fee Application and contesting the Intervenors’ right to make submissions on this Application. The class members derived no benefit from this work;
  • proceedings were already underway in the U.S. and Ontario when the Nortel II class action petition was filed in Quebec. While a risk existed for Class Counsel in Nortel II, it was attenuated by this fact. The Court also invoked the other considerations listed above in respect of Class Counsel in Nortel I.  

The decision is subject to a possible appeal. If maintained, the case sets an important precedent for assessing Quebec class actions which mirror and piggy back on prior or parallel U.S. endeavours.