Download Class Counsel Fees are not Dirty Words

Class Counsel Fees are not Dirty Words
Greed. Economic opportunism. Conflict of interest. Potential for abuse. I’ve
heard all the negative epithets that have been directed at class counsel seeking court
approval of the fees that they have earned following the successful prosecution or
settlement of a class action. The not so subtle message conveyed by comments such as
these, is that class counsel are considered to be a particularly unethical and avaricious
breed of lawyers who prey on their own clients for personal profit. This attitude towards
class counsel is both unwarranted and unfair. Yet it seems to have become pervasive,
and generally acceptable to take cheap shots at class counsel when they ask to be paid for
their work.
Rarely do you hear class counsel being praised for their dogged perseverance in
the face of an avalanche of defence tactics aimed at delaying or defeating the claim, or
just plain wearing down the plaintiff’s team through multiple motions, appeals and leaves
to appeal, and responding to 160 page-long facta. No comparison is made to the fees
charged by the battalions of defence lawyers and received by them on a regular and
ongoing basis, regardless of the outcome of the case. Class counsels’ critics also do not
give consideration to the fact that the subject of their disparagement work without
remuneration, oftentimes for many years. Many carry the costs of the litigation, which
can run into the hundreds of thousands of dollars, as well as assuming the risks of adverse
costs awards if an indemnification has been given to the representative plaintiff.
When the Ontario legislature saw fit to pass the Class Proceedings Act, 1992, it
expressly included the ability for class counsel to enter into contingency agreements with
their clients. Unlike some other provinces, where contingency agreements were already
2
permissible, prior to 1993, that was not the case in Ontario. Permitting counsel to act on
a contingency basis was recognized as being the only realistic method by which the vast
majority of class actions would ever see the light of day. Class actions were meant to be,
and are in fact a powerful mechanism for the private policing of widespread institutional
or corporate wrong-doing. They serve important societal functions in providing not only
access to justice for the victims of mass wrongs, but a class action can also achieve
behaviour modification on the part of the wrong-doer. However, for class actions to have
these salutary effects there need to be lawyers willing to act for the aggrieved class.
Last time I checked, the private practice of law was a business, not a charity.
Lawyers expect to and are entitled to get paid for their work. They expect to get paid by
their clients. In the class action context, class counsel agree to and expect to get paid by
the class. Their fees are paid from whatever recovery is achieved in the case, either by
settlement or judgment.
The fees paid to class counsel under their contingency
agreements are in this respect no different than those received by any other lawyer
working on a contingency basis.
In the case of a contingency retainer, the lawyer agrees to defer getting paid until
the end of the case. He or she assumes the risk of not getting paid at all if the case is not
won, or the risk of getting paid less than they might on an hourly basis if the results are
not substantial, but the time expended is. In exchange for the assumption of that risk, and
the lengthy deferral of payment, the lawyer and client will typically agree that the
lawyer’s fee will be a percentage of whatever recovery is achieved in the action. This
may well result in the lawyer receiving a payment that is greater than the amount they
would have received if the client had paid on an hourly basis. There is absolutely nothing
3
wrong with this arrangement. It is not predatory, abusive or unreasonable. It happens
every day without concern or comment in personal injury cases. The upside potential of
a contingency retainer is the primary reason, and quite frankly the only economic
rationale for a lawyer to enter into the arrangement. So why is it that so many people
think that class counsel are engaging in an unconscionable practice when they seek court
approval of their fee arrangements?
I believe that part of the problem lies in the misconception that by seeking
payment for their work, class counsel is taking money that rightfully belongs only to the
class. Therein lies the problem. But for the fee agreement made between the class’s
court approved representative (the representative plaintiff) and class counsel, the class
action would not have been prosecuted and the class would receive nothing. The lawyers
who have agreed to perform the work on behalf of the class did so pursuant to an express
agreement that they would be compensated for that work out of the proceeds of the case.
The function of the court is to ensure that the quantum of the remuneration is ultimately
fair and reasonable given the complexity of the case, the risks assumed by the lawyers,
the results achieved, and the other factors typically applied on a fee approval motion.
I agree with the general proposition that it makes more sense to consider the
reasonableness of the amount to be paid on a percentage of recovery basis, rather than
based upon an examination of the hours expended by counsel and then applying some
form of multiplier. A percentage-based fee is a concept that most people understand,
including the class members, and it encourages efficiency in class counsel. Regardless of
the actual time and expense incurred by the lawyers, if they have achieved a reasonable
result, then they should be fairly compensated for their efforts. A percentage of the
4
recovery is an easy and comprehensible means of assessing fair compensation. If, in
some cases, that means that class counsel might be paid more than they otherwise would
on a rates times hours approach, then the system is not flawed, it is working. Absent the
potential up side, there would be no incentive for lawyers to act as class counsel. Class
actions are expensive, high-stakes cases. They cost a fortune to prosecute. Many are
unsuccessful, in which case class counsel get paid nothing, despite their substantial
investment of time and money. Since, as a society we have concluded that class actions
are to be encouraged and that they achieve commendable results from a policy
perspective, we need to stop vilifying class counsel when they ask to get paid for their
work.