Class Action Settlement Take-up Significant for Fee Approvals

Lavier v MyTravel Canada Holdings Inc

On February 14, 2013, the Ontario Court of Appeal released its decision in Lavier v MyTravel Canada Holidays Inc, which deals with the approval of class counsel fees in a settled class proceeding.¹ The decision provides some useful guidance regarding the structuring of class action settlements. Furthermore, the court's analysis indicates that where few class members participate in the settlement, the objective of incentivizing class counsel to achieve access to justice for wronged persons who would not otherwise obtain redress is diminished. Accordingly, a lesser fee award may be appropriate.

The claim in Lavier alleged that the defendant had knowingly sent travellers to resorts in the Dominican Republic that were experiencing an outbreak of norovirus. The court-approved settlement required the defendant to make a fund of $2.25 million available to compensate class members who could demonstrate they had been affected by the outbreak. However, any amount remaining in the fund after all eligible claims had been processed would revert to the defendant.

At the settlement approval hearing, the court awarded an initial class counsel fee of $600,000. When the settlement had been fully administered, class counsel requested approval of an additional $395,000. At that time, however, the actual value of the settlement achieved for the class had become apparent: only 354 class members had submitted eligible claims, for a total value of $333,306.79. If the additional requested fees were approved, the total counsel fees would be three times the benefit achieved for the class.

Class counsel argued that the requested fees were appropriate for the following reasons: (i) the total would be approximately twice the actual value of hours worked, which was at the low end of the range typically approved by the courts in class action settlements; and (ii) the quantum should be assessed in relation to the $2.25 million potential settlement that was achieved rather than the actual take-up.

While class counsel were initially successful in obtaining approval of the requested additional fee, the Court of Appeal overturned the approval order, holding that the total amount of fees would be “grossly disproportionate to the results achieved and the risks undertaken.” ²

The Court of Appeal was influenced by the speculative extent of the harm that was alleged to have been caused. It was doubtful that all class members had been affected, and possible that the 354 individuals who received compensation were the vast majority of those actually harmed. Furthermore, the court found that the reversionary interest in the settlement fund diminished the “access to justice” value achieved by class counsel, “unlike the obvious value in a settlement where the residue is distributed by way of a cy près distribution to a charity”.³ The Court of Appeal concluded as follows:

What this suggests is that when it is uncertain how many class members will make claims under a settlement, it is when the take-up rate is known that the information relevant to assessing the results achieved is present, and one can assess the connection between the efforts of counsel and what was achieved for the class. Otherwise, there is a real risk that a disproportionate fee might result.⁴

The Court of Appeal's decision is consistent with other recent cases that have emphasized the need to measure class counsel fees in relation to the practical benefit actually achieved for class members.⁵ From the perspective of defendants, the decision demonstrates the advantage, in cases where the scope of injury or the extent of individual harms are doubtful, of including in the settlement a reversionary interest in favour of the defendant after the settlement is fully administered. The reversionary interest not only provides the defendant with standing to contest a final award of class counsel fees, if the take-up from the settlement is low, it also affords the basis to argue that the “access to justice” objective of class proceedings legislation does not justify a significant fee multiplier as a means of appropriately incentivizing class counsel. As the Court of Appeal noted, “[i]f the objective is to compensate class members who have been injured, through the judicial economy of the class proceeding, courts should ensure that it is they and not class counsel who are benefitting.”⁶

Notes

1. Lavier v MyTravel Canada Holidays Inc, 2013 ONCA 92 [Lavier].
2. Ibid., at para. 38.
3. Ibid., at para. 46.
4. Ibid., at para. 49.
5. See, for example, Eidoo v Infineon Technologies AG, 2013 ONSC 853 at paras. 43-48, 61-62 (Sup Ct).
6. Lavier, supra note 1 at paras. 29, 33.