In a decision released Thursday, the court upheld almost every part of a Divisional Court ruling certifying the suit, which alleged the firm’s contingency fee agreement with clients did not comply with the Solicitors Act.
The plaintiff, Cassie Hodge, retained Gary Neinstein and his personal injury firm after she suffered injuries in a car accident in 2002. After her claims were settled she brought her application alleging the contingency fee agreement she signed was improper and that the firm took unauthorized fees without the permission of a judge.
From a $150,000 settlement that was reached in 2010, Hodge received just $41,906. The firm took $20,325 in legal fees, $30,000 for a “party-and-party costs portion” and $48,924 for disbursements.
Hodge contended that the agreement was in violation of Section 28.1(8) of the Solicitors Act, which holds that lawyers cannot take fees from costs
In addition to the percentage identified in contingency fee agreements unless they receive the approval of a judge.
While the firm argued that the application fails to disclose a cause of action the Court of Appeal found that “it is not plain and obvious that a cause of action relying on s. 28.1 has no reasonable prospect of success.”
Hodge also alleged that the firm breached its fiduciary duty to its contracts with clients.
Allowing the class action lawsuit to go forward could have significant implications for many of the province’s personal injury lawyers, as the court found there appears to be “widespread” non-compliance with the act’s restrictions on lawyers taking fees from costs.
Peter Waldmann, one of the lawyers representing the plaintiffs, said the decision means personal injury lawyers will have to make sure their contingency fee arrangements are compliant with the Solicitors Act.
“If they’re seeking to take any portion of the costs, they have to first go in front of a judge and get approval,” he says.
The Ontario Trial Lawyers Association intervened in the case and submitted that the restriction on lawyers double dipping on costs awarded is “unworkable in practice.”
Claire Wilkinson, the president of OTLA, says the organization did not take a side in the matter, but found the case was important to intervene in as without contingency fee agreements, access to justice would be out of reach for many poor victims.
She says that OTLA’s position is that despite the complexity of the Solicitors Act, fees lawyers charge must be fair and reasonable.
“As this decision makes apparent, the poor drafting of the Solicitors Act has created unnecessary uncertainty for lawyers, clients, and the court,” she says.
“We are hopeful that this decision will motivate further discussion and action in amending the Solicitors Act to be more consumer friendly. Many provisions of the act require cumbersome and confusing language that does not serve the public interest.”
In a 2015 decision, the Divisional Court certified 19 common issues in the application.
The Court of Appeal upheld almost all of them, but rejected one, which was whether the firm took amounts arising from costs in an award or settlement from class members contrary to the Solicitors Act.
It also certified two additional common issues, which were whether the firm was in breach of fiduciary duties and whether the firm’s conduct warrants the award of punitive damages to class members.
The firm argued that Hodge’s application lacks commonality and should not proceed as sections 23 to 25 of the Solicitors Act are a “complete code” that would require individual assessments of client accounts.
The firm also contended that solicitor-client privilege would shield it from class proceedings that are intended to benefit clients who signed a contingency fee agreement.
The Court of Appeal ultimately rejected these arguments and said solicitor-client privilege is not a basis for refusing to certify an application.
“The court said quite clearly that that concept was unacceptable,” Waldmann says. “It doesn’t make sense that the lawyer could commit some kind of misconduct and then use the privilege in order to protect himself from it.”
Greg Paliare, one of the lawyers representing Neinstein LLP, did not immediately respond to a request for comment.