The "McCracken Filler": Another Legal Fiction Exposed

“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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