Former Client Pursues Class Action Against Law Firm’s Contingency Fee Bonanza

Yamri Tadesse for Law Times reports on a proposed class action targeting a  law firm’s fees:

Cassie Hodge of Brooklin, Ont., is taking Gary Neinstein and his firm, Neinstein & Associates LLP, to court with a claim that the lawyer unlawfully included costs in a contingency agreement and charged her fees she didn’t understand. She’s seeking $1 million in punitive damages. None of the allegations have been proven in court and Neinstein has yet to file a statement of defence. His lawyer, however, argues the matter is an inappropriate one for a class action.

According to her notice of application, Hodge, a mother of two, was in a car accident in 2002 that left her with serious physical injuries. She retained Neinstein as a lawyer and signed an agreement that said she’d pay him 25 per cent of the damages recovered in addition to partial indemnity costs and disbursements.

But she didn’t receive a copy of the agreement, her counsel Peter Waldmann says.

Here’s the math:

Settlement amount: $150,000.00
Law Firm’s Cut: (Legal fees and party and party costs) $ 60,000.00 (-)
Disbursements: $ 50,000.00 (-)
Third Party Litigation Loan:

-Principal of $19,500 @ 26% per annum interest

$ 32,000.00 (-)
Plaintiff’s Recovery: $ 8,000.00

Still, Neinstein’s counsel, Chris Palaire has a point:

The complainants may pursue other remedies for their claims, but they don’t include a class action, says Paliare.

“That’s the position we’ve had since the outset. That’s not to say that [Waldmann’s] client or clients, if they have more, don’t have an alternative remedy.”

This lawyer-client dispute puts into contrast two access to justice paradigms: Contingency fee retainer agreements regulated under the Solicitors Act, R.S.O. 1990, c S.15,  and class actions governed by the Class Proceedings Act, 1992, S.O. 1992, c 6 and Rule 12 of the Ontario Rules of Civil Procedure, R.R.O. 1990, Reg 194.

Whether this dispute is certified as a class action will depend on a number of factors, most notably, whether the class is identifiable.  However, the Solicitor’s Act is unequivocal that any additional recovery of costs from the proceeding may not be paid to the lawyer unless section 28(8) of the Solicitor’s Act is complied with:

Agreement not to include costs except with leave

(8)  A contingency fee agreement shall not include in the fee payable to the solicitor, in addition to the fee payable under the agreement, any amount arising as a result of an award of costs or costs obtained as part of a settlement, unless,

(a) the solicitor and client jointly apply to a judge of the Superior Court of Justice for approval to include the costs or a proportion of the costs in the contingency fee agreement because of exceptional circumstances; and

(b) the judge is satisfied that exceptional circumstances apply and approves the inclusion of the costs or a proportion of them. 2002, c. 24, Sched. A, s. 4.

Enforceability of greater maximum amount of contingency fee

(9)  A contingency fee agreement that is subject to approval under subsection (6) or (8) is not enforceable unless it is so approved. 2002, c. 24, Sched. A, s. 4.

Stay tuned.

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