Hodge v. Neinstein et al., 2015 ONSC 7345

• Judge: Then, Molloy and Lederer, JJ.
• Court: Superior Court of Justice of Ontario (Canada)
• Case Date: May 21, 2015
• Jurisdiction: Ontario
• Citations: 2015 ONSC 7345;(2015), 342 O.A.C. 306 (DC)

Hodge v. Neinstein (2015), 342 O.A.C. 306 (DC)

MLB headnote and full text

Temp. Cite: [2015] O.A.C. TBEd. DE.017

Cassie Hodge (applicant/appellant) v. Gary Neinstein and Neinstein & Associates LLP (respondents) and Law Foundation of Ontario (intervenor on the issue of costs)

(384/14; 2015 ONSC 7345)

Indexed As: Hodge v. Neinstein et al.

Court of Ontario

Superior Court of Justice

Divisional Court

Then, Molloy and Lederer, JJ.

December 9, 2015.

Summary:

Hodge applied to certify a class action against her former lawyer, Gary Neinstein, and his law firm, Neinstein & Associates (defendants). She alleged that the Neinstein firm, while acting under improper contingency fee agreements with her and other clients, took unauthorized fees, failed to obtain court approval when required by law, and charged illegal interest rates on disbursements. The allegations arose from the fact that the firm used standard contingency fee retainer agreements which provided for the firm to receive any costs awarded plus a percentage of the damages as fees without having the agreement approved by a judge as required by the Solicitors Act (ss. 28.1(8) and 28.1(9)).

The Ontario Superior Court, dismissed the application (2014 ONSC 4503), and ordered Hodge to pay costs to the defendants (2014 ONSC 6366). Hodge appealed.

The Ontario Divisional Court allowed the appeal. The motions judge erred in dismissing the certification application. The action should have been certified.

Barristers and Solicitors - Topic 3126

Compensation - Agreements - Contingent fees - General - The Ontario Divisional Court discussed the nature of contingency fees and how they were regulated in Ontario - The court reviewed the provisions in the Solicitors Act respecting contingency fees, and, in particular, discussed the provision which prohibited law firms from receiving costs plus a percentage of damages as fees without court approval of such an arrangement (s. 28.1(8)) - The court held further that it was at least arguable that, on a proper interpretation of the legislative scheme, ss. 23 to 25 (i.e., the provisions respecting determination of disputes, enforcement, or reopening of agreements between a lawyer and client), did not apply to contingency agreements that were not compliant with s. 28.1 - See paragraphs 13 to 25 and 38 to 53.

Barristers and Solicitors - Topic 3126

Compensation - Agreements - Contingent fees - General - A law firm used standard contingency fee retainer agreements which provided for the firm to receive any costs award plus a percentage of the damages as fees - None of them contained a clause advising the client that a judge's order was required before the solicitor was entitled to take the costs portion of the monies recovered for the client (Solicitors Act, ss. 28.1(8) and (9)) - It was not the firm's practice to obtain court approval for taking a percentage fee plus costs as a fee under a contingency fee agreement - A client applied to certify a class action against the law firm, alleging that while acting under improper contingency fee agreements with her and other clients the firm took unauthorized fees, failed to obtain court approval when required by law, and charged illegal interest rates on disbursements - The Ontario Divisional Court held that the action should be certified - The statement of claim disclosed a cause of action (i.e., for breaches of contract and fiduciary duty and arguably for a breach of s. 28.1 or a declaration that the agreements were unenforceable) - There were a number of common issues and a class action was the preferable procedure - See paragraphs 33 to 109.

Barristers and Solicitors - Topic 3133

Compensation - Agreements - Contingent fees - Invalid or unenforceable agreements - [See second Barristers and Solicitors - Topic 3126 and first, second, third and fourth Practice - Topic 209.3 ].

Barristers and Solicitors - Topic 3143

Compensation - Agreements - Contingent fees - Agreements re costs awards - [See second Barristers and Solicitors - Topic 3126 and first, second, third and fourth Practice - Topic 209.3 ].

Practice - Topic 209.3

Persons who can sue and be sued - Individuals and corporations - Status or standing - Class or representative actions - Certification - Considerations (incl. when class action appropriate) - A law firm, without court approval, used standard contingency fee retainer agreements which provided for the firm to receive any costs award plus a percentage of the damages as fees - Section 28.1(8) of the Solicitors Act prohibited such agreements without court approval - Without approval such agreements were unenforceable (s. 28.1(9)) - A client sought to certify a class action against the law firm respecting the agreements - The motions judge held that the statement of claim disclosed a cause of action for breaches of contract and fiduciary duty, but there was no cause of action with respect to the s. 28.1(8) breach - The client appealed - The Ontario Divisional Court agreed that there were causes of action established for breaches of fiduciary duty and contract - However, the motions judge erred in holding that the client had to apply under ss. 23-25 of the Solicitors Act (the provisions governing disputes, enforcement and reopening of lawyer-client agreements) - Rather, it was arguable that those sections did not apply where there was a breach that brought s. 28.1(9) into play, rendering the agreement unenforceable - Further, the court opined that there was no obstacle to the client applying for a declaration that the contingency agreement she signed was unenforceable - See paragraphs 33 to 72.

Practice - Topic 209.3

Persons who can sue and be sued - Individuals and corporations - Status or standing - Class or representative actions - Certification - Considerations (incl. when class action appropriate) - A law firm, without court approval, used standard contingency fee retainer agreements which provided for the firm to receive any costs award plus a percentage of the damages as fees - Section 28.1(8) of the Solicitors Act prohibited such agreements without court approval - Without approval, such agreements were unenforceable (s. 28.1(9)) - A client sought to certify a class action against the law firm respecting the agreements - The motions judge held that none of the 37 proposed common issues met the criterion for certification primarily because of the individualistic nature of the claims - The client appealed - The Ontario Divisional Court allowed the appeal and listed a number of common issues including, inter alia, the enforceability of the agreements, whether the law firm should be ordered to disgorge all fees collected under any agreements, interest recovery charges, referral fees and other allegedly improper charges - See paragraphs 73 to 90.

Practice - Topic 209.3

Persons who can sue and be sued - Individuals and corporations - Status or standing - Class or representative actions - Certification - Considerations (incl. when class action appropriate) - A law firm, without court approval, used standard contingency fee retainer agreements which provided for the firm to receive any costs award plus a percentage of the damages as fees - Section 28.1(8) of the Solicitors Act prohibited such agreements without court approval - Without approval, such agreements were unenforceable (s. 28.1(9)) - A client sought to certify a class action against the law firm respecting the agreements - The motions judge held that a class proceeding was not the preferable procedure because: (1) individual applications under ss. 23 and 24 of the Solicitors Act or by way of assessment was the preferable procedure; (2) the individualistic nature of the claims, and (3) a class proceeding would be unmanageable and inefficient - The client appealed - The Ontario Divisional Court allowed the appeal - The motions judge erred in law and in principle in finding that the grounds stated supported a conclusion that there was a preferable procedure to a class proceeding - See paragraphs 92 to 109.

Practice - Topic 209.3

Persons who can sue and be sued - Individuals and corporations - Status or standing - Class or representative actions - Certification - Considerations (incl. when class action appropriate) - A law firm, without court approval, used standard contingency fee retainer agreements which provided for the firm to receive any costs award plus a percentage of the damages as fees - Section 28.1(8) of the Solicitors Act prohibited such agreements without court approval - Without approval, such agreements were unenforceable (s. 28.1(9)) - A client sought to certify a class action against the law firm respecting the agreements - The law firm argued that to proceed with a class action would result in a breach of solicitor-client privilege held by thousands of clients and former clients of the firm - The motions judge rejected that argument, holding that breach of solicitor and client privilege could be avoided by serving each class member personally with the notice of certification and advising those individuals that a failure to opt out would be deemed to be a waiver of solicitor and client privilege - The Ontario Divisional Court agreed that the solicitor and client privilege issue was not an obstacle to the class action procedure - The court stated that the suggested procedure was one way to avoid the problem and there could be others - See paragraphs 92 and 93.

Practice - Topic 209.3

Persons who can sue and be sued - Individuals and corporations - Status or standing - Class or representative actions - Certification - Considerations (incl. when class action appropriate) - [See second Barristers and Solicitors - Topic 3126 ].

Cases Noticed:

Anderson et al. v. Wilson et al. (1999), 122 O.A.C. 69; 44 O.R.(3d) 673; 175 D.L.R.(4th) 409 (C.A.), leave to appeal denied (2000), 258 N.R. 194; 138 O.A.C. 200 (S.C.C.), refd to. [para. 12, footnote 6].

Hickey-Button v. Loyalist College of Applied Arts & Technology (2006), 211 O.A.C. 301; 267 D.L.R.(4th) 601 (C.A.), refd to. [para. 12, footnote 6].

Cloud et al. v. Canada (Attorney General) et al. (2004), 192 O.A.C. 239; 73 O.R.(3d) 401 (C.A.), leave to appeal refused, [2005] 1 S.C.R. vi; 344 N.R. 192; 207 O.A.C. 400, refd to. [para. 12, footnote 6].

Fresco v. Canadian Imperial Bank of Commerce (2012), 293 O.A.C. 248; 111 O.R.(3d) 501; 2012 ONCA 444, refd to. [para. 12, footnote 8].

Hollick v. Metropolitan Toronto (Municipality) et al., [2001] 3 S.C.R. 158; 277 N.R. 51; 153 O.A.C. 279; 2001 SCC 68, refd to. [para. 33, footnote 11].

Hunt v. T & N plc et al., [1990] 2 S.C.R. 959; 117 N.R. 321, refd to. [para. 33, footnote 11].

Hunt v. Carey Canada Inc. - see Hunt v. T & N plc. et al.

Séguin v. Van Dyke, [2013] O.T.C. Uned. 6576; 233 A.W.C.S.(3d) 1015; 2013 ONSC 6576, refd to. [para. 37, footnote 14].

Rizzo & Rizzo Shoes Ltd. (Bankrupt), Re, [1998] 1 S.C.R. 27; 221 N.R. 241; 106 O.A.C. 1; 36 O.R.(3d) 418, refd to. [para. 40, footnote 16].

Bhadauria v. Seneca College, [1981] 2 S.C.R. 181; 37 N.R. 455; 124 D.L.R.(3d) 193, refd to. [para. 57, footnote 22].

Saskatchewan Wheat Pool v. Canada, [1983] 1 S.C.R. 205; 45 N.R. 425, refd to. [para. 57, footnote 23].

Frame v. Smith and Smith, [1987] 2 S.C.R. 99; 78 N.R. 40; 23 O.A.C. 84, dist. [para. 57, footnote 24].

Canadian Alliance of Pipeline Landowners' Associations et al. v. Enbridge Pipelines Inc. et al. (2008), 237 O.A.C. 200; 291 D.L.R.(4th) 487; 2008 ONCA 227, dist. [para. 57, footnote 25].

Seguin v. Van Dyke, [2010] O.T.C. Uned. 6636; 197 A.C.W.S.(3d) 53; 2010 ONSC 6636, appld. [para. 60, footnote 26].

Seguin v. Van Dyke, [2011] O.T.C. Uned. 843; 198 A.C.W.S.(3d) 45; 2011 ONSC 843, refd to. [para. 60, footnote 27].

Raphael Partners v. Lam (2002), 164 O.A.C. 129; 61 O.R.(3d) 417, refd to. [para. 64, footnote 28].

Henricks-Hunter et al. v. 814888 Ontario Inc. et al. (2012), 294 O.A.C. 333; 2012 ONCA 496, refd to. [para. 65, footnote 29].

Cookish v. Lee (Paul) Associates Professional Corp. (2013), 305 O.A.C. 359; 2013 ONCA 278, refd to. [para. 66, footnote 30].

Chrusz et al. v. Cheadle Johnson Shanks MacIvor et al. (2010), 272 O.A.C. 1; 2010 ONCA 553, refd to. [para. 67, footnote 31].

Laushway Law Office et al. v. Simpson, [2011] O.T.C. Uned. 4155; 336 D.L.R.(4th) 632; 2011 ONSC 4155, refd to. [para. 70, footnote 32].

Du Vernet, Stewart v. 1017682 Ontario Ltd. et al., [2009] O.T.C. Uned. D71; 177 A.C.W.S.(3d) 1100 (Sup. Ct.), refd to. [para. 70, footnote 33].

Markson v. MBNA Canada Bank (2007), 224 O.A.C. 71; 85 O.R.(3d) 321; 2007 ONCA 334, refd to. [para. 79, footnote 36].

Oldfield v. Transamerica Life Insurance Co. of Canada et al., [2002] 1 S.C.R. 742; 284 N.R. 104; 156 O.A.C. 310; 2002 SCC 22, refd to. [para. 79, footnote 38].

Fischer et al. v. IG Investment Management Ltd. et al., [2013] 3 S.C.R. 949; 452 N.R. 80; 312 O.A.C. 128; 2013 SCC 69, refd to. [para. 99, foofnote 45].

Menow v. Honsberger, [1970] 1 O.R. 45, affd. [1971] 1 O.R. 129 (C.A.), affd. [1974] S.C.R. 239, refd to. [para. 119, footnote 52].

McIntyre v. Grigg et al. (2006), 217 O.A.C. 217; 274 D.L.R.(4th) 28 (C.A.), refd to. [para. 119, footnote 52].

Statutes Noticed:

Class Proceedings Act, S.O. 1992, c. 6, sect. 5(1) [para. 31].

Solicitors Act, R.S.O. 1990, c. S-15, sect. 15 [para. 19]; sect. 23, sect. 24, sect. 25 [para. 16]; sect. 28.1 [para. 20]; sect. 28.1(8) [para. 23]; sect. 28.1(9) [para. 29].

Solicitors Act Regulations (Ont), Contingency Fee Agreements, Ont. Reg. 195/04, sect. 3, sect. 6, sect. 7, sect. 10 [para. 21].

Counsel:

Peter Waldmann and Andrew Stein, for the appellant;

Chris G. Paliare, Odette Soriano and Denise Cooney, for the respondents;

Scott C. Hutchinson and Sherif Foda, for the intervenor, Law Foundation of Ontario.

This appeal was heard on May 21, 2015, before Then, Molloy and Lederer, JJ., of the Ontario Superior Court of Justice, Divisional Court. The decision of the court was released on December 9, 2015, when the following opinions were filed:

Molloy, J. (Then, J., concurring) - see paragraphs 1 to 116;

Lederer, J., concurring - see paragraphs 117 to 130.