Archive for the ‘costs’ Category

What’s The Difference Between Partial Indemnity and Substantial Indemnity Costs?

August 19, 2013

Image via stephensockett.com

Newbould J. in Stetson Oil & Gas Ltd. v. Stifel Nicolaus Canada Inc , 2013 ONSC 5213 has done many Ontario litigators a great service by making the calculation of costs less of an art and more of a science.

Rule 57.01(1) of the Rules of Civil Procedure, RRO 1990, Reg 194, (as am.) [the "RCP"] sets out the general principles and factors for the court to consider when exercising its discretion to award costs under section 131 of the Courts of Justice Act.

Sub-rule 57.01(5) of the RCP requires a party who is awarded costs to serve a bill of costs (Form 57A) on the other parties and file it with proof of service.

Pursuant to sub-rule 57.01(6) of the RCP, unless there is prior agreement on costs, each party intending to seek costs for any step in the proceeding must bring to the hearing a costs outline (Form 57B) not exceeding three pages.

The common approach is to set out the lawyer’s name, year of call and hourly rate and provide a table with three columns: Actual Rate, Partial Indemnity Rate and Substantial Indemnity Rate. The degree of variation of what comprises the partial indemnity or substantial indemnity rate is well-known. Some lawyers specify 50% for partial indemnity, while others set out 60%, or more. As far as substantial indemnity rates are concerned, I have seen some lawyers claim between 75% to over 90%, approaching Full Indemnity Rate.

Fortunately, Justice Newbould has provided a straightforward calculation as follows:

[25]           I think it appropriate to award costs at 60% of the time charged for partial indemnity costs and 90% for substantial indemnity costs for the work after the offer to settle. The rates charged, however, must be reduced because the rates have been claimed throughout at the 2013 rates.

No Harm, No Foul?

March 14, 2013

Here’s something that made me do a double-take:

[6]          First, the appellant contends that the trial judge erred in relying on evidence given by counsel (Mr. Callahan) during his submissions.

[7]          We do not accept this submission.  Although Mr. Callahan was a named respondent in the application, the appellant consented to his appearance as counsel.  Moreover, on our review of the record, to the extent that Mr. Callahan’s submissions went beyond the record on factual issues, they were not relied on by the application judge.

[12] This is not a case for costs. Although we appreciate that the respondent did not object to Mr. Callahan appearing as counsel either here or below, the reality is that he was a named respondent and that his conduct was central to the factual circumstances giving rise to both the application and this appeal. He should not have appeared as counsel in either forum.

Huh? Did I read that excerpt correctly?

The respondent, a lawyer, appearing as counsel below and before the appeal panel does not constitute a palpable and overriding error?

The reason?

The appellant’s consent?

What about procedural fairness and the court’s inherent jurisdiction in controlling its own process and avoiding bringing the administration of justice into disrepute?

How about the fact that the lawyer is an officer of the court and under the Rules of Professional Conduct owes a duty to uphold the integrity of the legal profession and the public administration of justice by avoiding real or apprehended conflicts of interest?

What about the prohibition against appearing as counsel in one’s own cause?

Ricciuto v. Somers2013 ONCA 153 (Ont. C.A.) per curiam: Doherty, MacPherson and Watt JJ.A.

The Adverse Costs Consequences of Class Actions

January 8, 2013

Costs Stack Up (Image via Forbes.com)

[113]      Based on anecdotal evidence available to me as a class actions judge, it is my opinion that the large costs awards that have been awarded in recent years are having adverse consequences. One apparent adverse consequence of the potential for these large costs awards is that many parties to class actions through their lawyers show no restraint in their approach to prosecuting or defending the certification motion. The parties roll the dice that they will be the successful party, show no restraint in running up costs, but hope to recover an enormous award of costs. Another consequence of the potential for these large costs awards is that in order to avoid the sting of the enormous adverse costs awards, the unsuccessful parties make disingenuous or ironical arguments that their claim or defence raised a novel issue or was in the public interest. Another adverse consequence is that the court’s response to arguments about costs has been inconsistent, and the outcome of costs determinations is uncertain and unpredictable.  Another very serious consequence is that the number of new class actions appears to be declining, and small but possibly meritorious class actions are disappearing as class counsel warily select the cases that they will prosecute. The risk of grotesque adverse costs awards is a serious disincentive to law firms being prepared to take on class actions and serve the public’s demand for access to justice.

McCracken v. Canadian National Railway Company2012 ONSC 6838 (Ont SCJ)- Costs Endorsement per Perell J.

Fox v. Vice: SCOTUS rules plaintiff must pay fees for frivolous claims only

June 6, 2011

I’ve written about the Anglo-Canadian “Loser Pays” Rule for costs indemnification here and here.

The American Rule is considered by Maureen Cosgrove at Jurist-Paper Chase who reports on “Supreme Court rules party must pay fees for frivolous claims alone”  discussing today’s decision in Fox v. Vice  , 563 U. S. ____ (2011) (U.S.S.C.).

Fox claimed that he was the victim of dirty tricks during his successful campaign to become the police chief of Vinton, La., and filed a state-court suit against Vice, the incumbent chief, and the town.  Fox’s suit asserted both state-law claims, including defamation, and federal civil rights claims under 42 U. S. C.§1983, including interference with Fox’s right to seek public office. Vice removed the case to federal court based on the §1983 claims. Following discovery, Vice moved for summary judgment on the federal claims, which Fox conceded were invalid.

The District Court dismissed the frivolous claims with prejudice and remanded the remaining claims to state court, noting that Vice’s attorneys’ work could be useful in the state-court proceedings. Vice then asked the federal court for attorney’s fees under §1988, submitting attorney billing records (dockets) estimating time spent on the entire suit, without distinguishing time spent between the dismissed federal claims and the remnant state claims. The court granted the motion on the ground that Fox’s federal claims were frivolous, awarding Fox all of his attorneys’ fees in the suit. Although the state-law allegations had not been found frivolous, the court did not require Vice to parse out the work the attorneys had done on both sets of claims and declined to reduce the fee award to account for the remaining state-law claims, noting that both sides had focused on the deemed frivolous §1983 claims.

The Fifth Circuit affirmed, rejecting Fox’s argument that each individual claim in a suit must be held to be frivolous for the defendant to recover any fees, and agreeing with the District Court that the litigation had focused on the frivolous federal claims.

Writing for the unanimous Court, Kagan, J.  notes,

Our legal system generally requires each party to bearhis own litigation expenses, including attorney’s fees, re-gardless whether he wins or loses. Indeed, this principle is so firmly entrenched that it is known as the “American Rule.” See Alyeska Pipeline Service Co. v. Wilderness Society, 421 U. S. 240, 247 (1975). But Congress hasauthorized courts to deviate from this background rule incertain types of cases by shifting fees from one party toanother. See Burlington v. Dague, 505 U. S. 557, 562 (1992) (listing federal fee-shifting provisions). (at 5)

Justice Kagan adds,

” But the presence of these unsuccessful claims does not immunize a defendant against paying for the attorney’s fees that the plaintiff reasonably incurred in remedying a breach of his civil rights.

Analogous principles indicate that a defendant may deserve fees even if not all the plaintiff’s claims were frivolous. In this context, §1988 serves to relieve a defendant of expenses attributable to frivolous charges. The plaintiff acted wrongly in leveling such allegations, and the court may shift to him the reasonable costs that thoseclaims imposed on his adversary. See Christiansburg, 434 U. S., at 420–421. That remains true when the plaintiff’s suit also includes non-frivolous claims. The defendant, of course, is not entitled to any fees arising from these non-frivolous charges. See ibid. But the presence of reasonable allegations in a suit does not immunize the plaintiff against paying for the fees that his frivolous claims imposed. (at 7)

The District Court and Fifth Circuit decisions were reversed and remanded to the District court to apply the “but for” rule for fee-shifting.

Speaking of frivolous lawsuits, (albeit only involving state-law defamation, intentional infliction of emotional harm and intentional interference with contractual relations claims), Eric Turkewitz in his Affidavit  in the Rakofsky v. The Internet litigation has deposed that:

The "McCracken Filler": Another Legal Fiction Exposed

November 8, 2010
“Fictions are often the hostages that the forces of movement give to the forces of retreat.” Justice Robert H. Jackson, The Struggle for Judicial Supremacy (via Concurring Opinions).
Legal fiction is not the exclusive bailiwick of those aspiring to become the next John Grisham or Erle Stanley Gardner. After all, within the common law, reside some fanciful legal fiction(s).
Exhibit “A”: The Corporation: it is a person with a legal personality, which can sue and be sued, and whose First Amendment rights are constitutionally protected commercial free speech (See, Susanna Kim Ripken, Corporate First Amendment Rights after Citizens United: An Analysis of the Popular Movement to End the Constitutional Personhood of Corporations. [SSRN]. I leave it to the psychiatrists to argue over the analogy between corporations and sociopathy:
  .
Exhibit “B”: The “Reasonable Person”: If the common law had a reality tv show, it would star this guy’s abs, based upon situational or objectivist legal philosophy. Instead, most judges haven’t ‘friended’ Mike “The Situation” Sorrentino, and likely have also shrugged off reading Ayn Rand. What’s left for the common law is to continue to employ ex post facto reasoning to impose an objective standard of conduct based upon “common-sense” (“The man on the Clapham omnibus” per Greer LJ in Hall v. Brooklands Auto-Racing Club (1933) 1 KB 205)
There are a few other legal fictions of note, including: “age of consent”, “age of majority”, and the “Crown”. Just when you didn’t think there was a “Top Legal Fictions List”, there’s this one.  I’m surprised two of my favourites didn’t make the list: “constructive notice” and “constructive fraud” (when real notice or fraud just doesn’t cut it).
One particular legal fiction has remained both sotto voce and incognito until the release of Mr. Justice Paul Perell’s decision in  McCracken v. Canadian National Railway Company, 2010 ONSC 6026 (CanLII) ["McCracken"], which shines the judicial spotlight on the legal fiction of “plaintiff counsel costs indemnification” in class action litigation. Admittedly, it’s not too catchy a phrase, but it does address the issue of access to justice, a principle upon which class action proceedings are founded.
The McCracken decision deals with the costs of a certification motion under the Class Proceedings Act, 1992, S.O. 1992, c.6 brought by the plaintiff  and the costs of a cross-motion under Rule 21 of the Rules of Civil Procedure brought by the defendant, both of which were argued contemporaneously. Perell, J.’s reasons are cited at 2010 ONSC 4520 (CanLII), 2010 ONSC 4520. 
Referring to the victory of the Jackson Democrats in the election of 1828, New York Senator William L. Marcy remarked, “‘to the victor belong the spoils”.  Amusingly, both sides claimed victory on the certification motion:
“Both parties claim to be the winner and both parties claim the winner’s prize of costs. Mr. McCracken seeks costs of $740,650.55 on a partial indemnity scale, of which the counsel fee is $550,000.00, disbursements are $150,369.90, and taxes are $40,280.65. CN seeks costs on a partial indemnity scale of $400,000, all inclusive of counsel fee, disbursements, and taxes.”

 Following the “loser pays” costs indemnification model, the motion judge decided to “lift the judicial veil” on the “entrepreneurial” plaintiff class action counsel bar and the risks inherent in this form of high stakes litigation:
[5]               For the reasons that follow, it is my conclusion that the appropriate award is to dismiss CN’s claim for costs and to grant Mr. McCracken’s claim for costs, which I will treat as a claim for payment of legal fees and disbursements by the class counsel consortium of Roy Elliott O’Connor LLP and Sack Goldblatt Mitchell LLP as its reward for assuming the risk of losing the certification motion. 
[6]               I begin my explanation of this costs award by explaining why I am not going to pretend that the principle of indemnification is applicable in the normal way. 
[7]               It is well known that in class actions, the plaintiff will retain class counsel pursuant to a contingency fee agreement under which class counsel may keep any costs that are recovered in addition to receiving some proportion of the class’ recovery, if any, of any settlement or judgment. It is also well known that in a class proceeding, the plaintiff almost never actually pays his or her lawyer, and, thus, indemnification is a fiction used to calculate what class counsel should fairly be paid for taking the risk of assuming carriage of the proposed or certified class action or what class counsel or the Law Foundation of Ontario (if funding has been granted) should pay for costs if the action is not certified or if the class action is unsuccessful and the plaintiff is ordered to pay costs. And it is well known that if the plaintiff is unsuccessful in obtaining certification or if the class is ultimately unsuccessful, the plaintiff will be insulated from costs liability by having obtained funding from the Class Proceedings Fund of the Law Foundation of Ontario or by having obtained an indemnity agreement from class counsel. (The existence of these indemnity agreements is also well known, but their disclosure is often resisted).
[8]               In the case at bar, because of CN’s claim for costs, the involvement of the Class Proceedings Fund has been disclosed, and, as it is right to do so, the Law Foundation made submissions that costs should not be awarded against the representative plaintiff, which costs the Law Foundation would have to pay. 
[9]               In my opinion, pretending that plaintiffs in class proceedings actually pay their lawyers or that plaintiffs are actually exposed to the risks of paying costs is unnecessary and actually gets in the way of the court using costs awards for their multifarious purposes. Practically speaking, in class actions, the influence of costs awards is visited on class counsel and on defendants but not on the plaintiffs who are only fictionally affected by costs awards. 
[11]           The jurisprudence about awarding costs should be applied to the reality, not to the pretend of class proceedings. Provided that the plaintiff is a genuine plaintiff with a genuine claim on behalf of the class and that the plaintiff has the duties and responsibilities of a genuine plaintiff, including giving instructions, participating in the litigation, and representing the class members, and provided that it is recognized that the Legislature has purposely designed a system for class actions that anticipates that entrepreneurial lawyers will be the vehicle for access to justice, there is no reason to pretend and make costs awards as if class counsel was actually billing the plaintiff, when manifestly they are not, or to make costs awards as if plaintiffs will pay the costs when manifestly they will not. Ending the fictions will just reduce opaque arguments and opaque reasons for judgment and allow courts transparently to use costs: to pay for the expense of litigation; to facilitate access to justice; to discourage frivolous claims and defences; to discourage and to sanction inappropriate behaviour in the conduct of the lawyer-driven proceedings; and to encourage settlements.
[12]           Ending the fictions associated with the awarding of costs in class proceedings will  facilitate the court’s ability to do justice when awarding costs in the context of class proceedings where: (a) the certification motion is mandatory; (b) the test for certification is complex; (c) the evidentiary burden is asymmetrical; (d) the stakes are high for the parties; (e) the stakes and risk are high for the entrepreneurial class counsel; (f) the ruling on the merits is usually way off in the future; (g) the parties cannot resist providing evidence about the merits, notwithstanding the case law that holds that certification is not intended to be a ruling on the merits; and (h) the strategy of the parties is often of the take-no-prisoners variety.
[13]           Ending the fictions associated with discussing and explaining the awarding of costs for or against representative plaintiffs in class proceedings will not change the developed case law, and it will not mark a departure from principle. Thus, judges can  continue to follow the principles established by, among other authorities…” [emphases added, citations omitted]

Perell, J. concludes:

[33]           For the above reasons, I award Mr. McCracken – really class counsel - costs of $740,650.55 all inclusive of counsel fee, disbursements and taxes. Class counsel won, and the normal rule that costs at a partial indemnity scale follow the event applies.
[34]           The costs of this determination of costs are costs payable to Mr. McCracken – really class counsel – in any event of the cause.”

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