On January 23, 2017 Justice Claudine Roy of the Quebec Superior Court rendered an important decision whereby she refused to approve settlement agreements reached in parallel class actions against financial institutions on the basis that the fees claimed by class counsel, as part of the settlement agreements, were exaggerated. It provides a useful reminder that settlement agreements in class action contexts are not rubber stamped and Courts in Quebec will look carefully at the proportionality of class counsel fees before approving settlements.
This decision was rendered in the context of four parallel class actions, each instituted by Option Consommateurs, against a combination of all major financial institutions in Canada. All four class actions related to alleged infractions to the Consumer Protection Act related to the disclosure and notice of various credit fees, instituted at the same time as the Marcotte and Adams class actions. The class actions were authorized between 2006 and 2007 and different settlement agreements were reached between the parties and already approved by the Court. In this particular situation, five separate agreements were entered into between Options Consommateurs and some of the remaining financial institutions. The parties sought approval from the Court of these settlement agreements.
Justice Claudine Roy reiterated the criteria guiding the Court in determining whether a settlement agreement is fair and reasonable for the members. She concluded that all but one criterion, the reasonableness of class counsel fees, were met.
Justice Roy also attached, along with her judgment, a useful table summarizing class counsel fees approved by the Court in all recent class actions in Quebec. As appears from the table, one can conclude that class counsel fees are generally claimed as percentages of the settlement. Percentages deemed reasonable are generally found in the range of 20% to 25%, while fees in excess of 30% are very rare and usually reserved for long-lasting class actions that involve multiple appeals or a judgment on the merits. The most relevant case in that regard is Adams v. Amex Bank of Canada, which went all the way to the Supreme Court and lasted 9 years. The Court approved class counsel fees of 33,3% ($8,4 million).
Courts generally do not intervene in the fees claimed by class counsel, except where the fees claimed are manifestly disproportionate to the work performed, which includes cases where the settlement was reached prior to the authorization.
In the case at hand, Justice Roy refused to approve the fees claimed by class counsel in the various settlement agreements for the following reasons:
- Justice Roy noted that class counsel, the firm Sylvestre Fafard Painchaud, claimed fees of 25% pursuant to a fee arrangement signed with Option consommateurs signed in 2014, although the earliest class actions had been launched in 2003. She wondered what the fee arrangement might have been at that time.
- The only evidence adduced by class counsel of the work they had performed was a two-page document showing that 10 lawyers, a paralegal and a student had worked a total of 7,744 hours, without providing details as to the nature of the work by each of these persons, as well as their hourly rates. In addition, this total of 7,774 hours was not divided by file but was presented as a global amount.
- Should these settlement agreements be approved, Justice Roy underlined that the firm Sylvestre Fafard Painchaud would be paid twice as much as class counsel in the Marcotte and Adams class actions, which went all the way to the Supreme Court, while having worked half of the hours.
- Justice Roy also noted that pursuant to the settlement agreements in the other parallel class actions that had been previously approved by the Superior Court, the firm Sylvestre Fafard Painchaud had already been paid in excess of $13 million.
- Justice Roy therefore refused to enforce the fee arrangement with Option consommateurs and concluded that all things considered, fees of 5% of the settlement amount would be more appropriate in the circumstances.
It is also worth mentioning that Justice Roy mentioned that if the settlement agreements were approved, close to $1 million would be paid to non-profit organizations, which was exaggerated considering the nominal amounts paid back to the class members.
Finally, Justice Roy also refused to approve any fees being paid to BGA, a firm which allegedly had helped the firm Sylvestre Fafard Painchaud negotiating the various settlement agreements. Justice Roy concluded that there was no evidence that they had performed any work and she was not bound by any agreement reached between them and the firm Sylvestre Fafard Painchaud.
In light of the above, Justice Roy did not have the power to change the settlement agreements and thus refused to approve them. She invited the parties to submit settlement agreements reflecting her decision.