Hodge v. Neinstein is an interesting case that we have written about a number of times over the past few years. The action involves a representative plaintiff, Cassie Hodge, who was a client of the law firm Neinstein & Associates LLP, and commenced a class proceeding against her lawyer, Gary Neinstein, and the firm. The Ontario Court of Appeal recently released its decision in respect of certification of this matter, which has wended its way through Ontario’s courts over several years.
Basis of the claim
The claim alleges (among other things) that the Neinstein firm entered into a number of unlawful contingency fee arrangements with clients. While there were many, Ms. Hodge’s major complaint was that the contingency fee arrangements breached certain sections of the Solicitors Act. Those sections prohibit, absent approval of the court, contingency fee arrangements where a party must pay to its solicitor any amount arising from an award of costs recovered by the client.
In a December 2013 post regarding third party funding motions, we reported on Ms. Hodge’s abandoned motion for approval of a third-party funding arrangement. In September 2014, we then reported on Justice Perell’s widely discussed decision rejecting certification, and in December of that year, on Justice Perell’s refusal to order substantial indemnity costs in respect of the certification motion.
While Justice Perell’s refusal to certify the proceeding was in part because, in his view, Ms. Hodge had failed to satisfy the preferable procedure criterion, Justice Perell was most critical in respect of what he perceived to be a lack of commonality amongst the proposed class, stating “the common issues criterion, the most fundamental of the criteria, is not remotely satisfied.” As we commented in our September 2014 post, “According to Justice Perell, the only commonality between the proposed class members was the allegation that they were harmed by the same villain.”
Of note, since that time both the Divisional Court, in 2015, and now the Ontario Court of Appeal, in 2017, came to a contradictory conclusion on common issues and on certification. Given Justice Perell had found a “total failure of the common issues criterion,” how, then, did the two appeals courts reach the opposite conclusion?
The courts’ disagreement
In considering the degree of commonality required to certify a proceeding, the Court of Appeal acknowledged that an appellate court owes “considerable deference to a certification judge’s commonality analysis,” although the Court also acknowledged that at the certification stage “Even a significant level of difference among the class members does not preclude a finding of commonality.”
While Justice Perell had concluded that none of the proposed 37 common issues satisfied the common issues criterion, the Divisional Court noted that he did not deal with each proposed issue individually, but instead found that each was deficient for “one or more or all” of five different reasons. Justice Perell arrived at that conclusion notwithstanding that the affidavit in support of certification included 42 contingency agreements and templates, all of which provided for the Neinstein firm to receive any costs award plus a percentage of the damages as fees (Ms. Hodge’s primary allegation).
Ultimately, the Divisional Court concluded that Justice Perell’s focus on each putative class member’s potential bill, rather than the fee agreement itself, lead to the erroneous conclusions regarding commonality. The Court of Appeal’s analysis also focused on the fee agreement, the relevant portions of which were common to the putative class members. As such, where Justice Perell rejected certification of 37 proposed common issues, the Divisional Court certified 19 of them, while the Court of Appeal certified 20 in aggregate.
In our 2014 post regarding the certification decision, we commented that “It is not clear whether a class action against former counsel may be certified in the future.” Since then, the Divisional Court and Court of Appeal have clearly responded that such actions can be certified. It remains to be seen whether the appellate courts’ decisions on certification will result in any loosening of the commonality threshold in future cases, but the markedly differing conclusions on commonality reached by respected judges evidences the critical importance of how the common issues are characterized.