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Focus: Appeal court disallows fee to stay rival class action

Focus on: Class Actions
Inflexible disputes over cross-jurisdictional carriage issues have seen firms resort to paying fees to competing firms in order to stay rival class actions to avoid litigation.

With this practice now earning the ire of the courts, lawyers are looking for other ways to move their class proceedings forward.

One thing is clear to the class actions bar — if courts want lawyers to change their practices, they need to be prepared to back them up, say lawyers.

“A true copycat case is filed not for the benefit of the class but rather so a lawyer can get a fee by creating chaos,” explains Reidar Mogerman of Camp Fiorante Matthews Mogerman in Vancouver, who was involved in the recent case of Bancroft-Snell v. Visa Canada Corporation 2016 ONCA 896, acting for the appellants.

“If class counsel move aggressively to stay anything that looks like a ‘ransom’ case, then courts should aggressively back up any counsel fighting something that looks like a ransom case,” says Mogerman.

In Bancroft-Snell v. Visa Canada Corporation, released in late 2016, the Ontario Court of Appeal prohibited class counsel from making a payment from settlement funds to another class action firm for the purpose of staying a rival action.

The Court of Appeal found that the agreement in question was not in the best interests of class members.

“If class counsel see it in their best interests to resolve carriage disputes by agreeing privately, amongst themselves, to remunerate one set of class counsel for leaving the scene, that is a matter for their private business determination.  But they should bear the cost of that business decision as well, in my view,” said the ruling by Justice Robert Blair, with two other judges agreeing.

“The class members ought not to be exposed — either directly or through some form of ‘potential carriage dispute mark-up’ built into the contingency fee negotiated with the class members — to having to pay for what is essentially a general business expense of the firm associated with the litigation and not an expense providing any added value to the class action itself.”

The case arose when a group of merchants challenged the competitiveness of the Visa and MasterCard credit card networks in Canada.

Three law firms formed a consortium to litigate a national class action. Some time later, Merchant Law Group LLP filed its own class actions in Alberta and Saskatchewan.

“We actually argued the carriage motion in Alberta,” recalls Mogerman.

“We argued that it was a true copycat case and asked for an order staying Merchant’s case.

“We tried to litigate it, but we were sent to judicial mediation.”

The mediation resulted in a fee-sharing agreement that provided that the Merchant Law Group would receive $800,000 (plus disbursements) out of the fees awarded to the consortium in future settlements in exchange for staying its rival class actions.

“We had to stay through contract, which meant money had to change hands,” says Mogerman. This agreement was approved by the judge in Alberta and accepted in Saskatchewan, but it fell foul of the Ontario courts.

“The courts have made it clear that they really don’t like it when financial arrangements between rival counsel benefit themselves and not class members,” says Wendy Sun of Affleck Greene McMurtry LLP, who did not act in the case. “The settlement approval process is set up to protect class members who are ultimately going to receive the settlement.”

Sun saw this played out in the Visa/Mastercard case.

“The court really didn’t find class counsel had any bad faith. They were looking out for the class, but the result was not in the best interests of the class,” says Sun.

Brian Radnoff of Lerners LLP says this ruling was “a clear decision on what is and is not appropriate. It adds clarity to deal with these carriage agreements.

“It’s helpful in that respect, but it puts plaintiff’s counsel in a difficult position,” he says.

“It doesn’t help with the underlying problem of multijurisdictional class actions.”

Radnoff disagrees that these fee payments are of no benefit.

“The Court of Appeal said the agreement doesn’t help the class at all, which I find a bit narrow,” he says.

“Anything that resolves the dispute more quickly may be of enormous assistance to the class.”

Sun points out that fee-­sharing arrangements for staying competing claims are still possible.

“Class counsel can still enter into them,” she says. “They are not stopped from doing so, but if it is to be paid out of the settlement, the court will not hesitate to intervene.”

Linda Visser, a partner with Siskinds LLP’s class action department, who did not act in case, considers the question of payment an artificial distinction.

“It still comes out of the firm’s resources. They are paying out of their right pocket or out of their left pocket,” she says.

However, she feels that firms will be more reluctant to pay in light of Bancroft-Snell.

“They could point to the case to say, ‘I properly should not be doing it,’” she says.

Class action counsel must now ask themselves if they are willing to pay out of their own pockets to stay a rival case.

“It might be worth it. It might happen,” says Mogerman.

“In this particular case, we are still considering the implications of paying it ourselves. We will respect the decision.”

More generally, Mogerman says, the decision whether to pick up the tab for a fee agreement will depend on each individual case.

“On a sliding scale, some competing cases truly are copycat cases. Our firm would not pay a fee in that circumstance, particularly after this decision. There are circumstances that are more grey,” he says.

“There may be two lawsuits, both striving for leadership. We would pay in that case and I would ask the court to approve payment through a class counsel fee request. That’s the easiest end of the spectrum.”

Visser says fee payment by class counsel depends on the circumstances, “such as who’s bringing the case and how much they have developed it,” says Visser about her firm’s potential approach.

“If the rival case started one week before, and they want to contribute and work together, perhaps we would enter into a fee-sharing agreement,” she says.

“If it’s two years later, just before settlement, and they now conveniently commence an action of their own, the class counsel who are legitimately pushing the case will be more reluctant to work with those who aren’t and more reluctant to cut a deal.”

Visser says what she expects is that there will be “fewer firms bringing other firms into the fold, and only firms that provide a meaningful contribution.” That, she says, is a “good thing.”

“Hopefully, we will have a result that only people who are serious about the case will proceed. That serves access to justice and avoids unnecessary costs,” she says.

Radnoff, who did not act in the case, says the alternative to a fee arrangement, namely fighting a lot of carriage motions, is difficult.

“First, litigation is uncertain, second, it’s expensive and third, it will normally delay the class action until the issue is resolved,” he says.

Visser says that, “generally, a carriage motion is not a great thing to have.

“It distracts from trying the actual case and it gives defendants a chance to watch plaintiff lawyers poke holes in each other’s cases, which is not an ideal thing,” she says.

Mogerman stresses that if lawyers change their practices, then judges must as well.

“The courts repeatedly tell us settlement is better,” he says.

This reluctance on the part of judges to rule that an application is a ransom case is at odds with the judicial admonishment to litigate rival claims, he says.

“Judges avoid even finding whether it’s a ransom fee,” says Visser.

“They are reluctant to make a determination because it’s a reputational issue. They don’t want to tarnish anyone without full facts.”

Radnoff says these types of agreements are “now off the table.”

“So, if courts tell counsel they prefer you resolve it other than through a judicial decision, tell the judge it’s difficult to do that now,” he says. Mogerman says he agrees with “the sentiment of the decision.”

“One does not want copycat cases. One does not want ransom fees. I hope the decision will encourage firms to fight true copycat cases and courts to back firms up,” he says.

Tony Merchant of Merchant Law LLP indicated he did not want to provide comment on the matter.

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