MacKinnon v. National Money Mart Company

2010 BCSC 1008 MacKinnon v. National Money Mart Company

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: MacKinnon v. National Money Mart Company, 2010 BCSC 1008 Date: 20100719 Docket: S030527 Registry: Vancouver Between: Kurt MacKinnon and Louise Parsons Plaintiffs And National Money Mart Company and Dollar Financial Group Inc. Defendants Brought under the Class Proceedings Act, R.S.B.C. 1996, c. 50 Before: The Honourable Mr. Justice Greyell Reasons for Judgment Counsel for the Plaintiffs: R.J. Hordo, Q.C. P.R. Bennett M.W. Mounteer Counsel for the Defendants: J.P. Brown J. Yates Place and Date of Hearing: Vancouver, B.C. May 17, 2010 Place and Date of Judgment: Vancouver, B.C. July 19, 2010 [1] This is an application under s. 35 of the Class Proceedings Act R.S.B.C. 1996, c. 50 (the "Act"), for approval of a settlement agreement (the "Settlement Agreement") reached between the plaintiffs and the defendants, together with associated relief. [2] The defendant National Money Mart ("Money Mart") is a subsidiary of the defendant Dollar Financial Group Inc ("Dollar"). Orders Sought [3] The plaintiffs seek the following orders: (a) the action be settled in accordance with the terms of a Settlement Agreement dated March 31, 2010 (the "Settlement") be approved in the form of Order set out as Schedule "A" to the Settlement; (b) Grant Thornton LLP be appointed as Auditor pursuant to the Settlement and Reva Devins be appointed as Referee

pursuant to the Settlement; (c) the Retainer Agreements between Kurt MacKinnon and Hordo & Bennett dated January 29, 2003, and between Louise Parsons and Hordo & Bennett dated October 12, 2005 (the "Retainer Agreements"), and the legal fees, disbursements and taxes thereon payable to Hordo & Bennett pursuant to the Retainer Agreements as proposed in the Affidavit of Paul R. Bennett sworn May 14, 2010 (the "Bennett Affidavit"), be approved; and (d) the payment of $10,000 each to the representative plaintiffs as compensation for acting in this proceeding, to be made from the legal fees paid to Hordo & Bennett, be approved. Issues [4] The issues for determination are: 1. Whether in all the circumstances of the case the Settlement Agreement is fair and reasonable and is in the best interests of the class as a whole.

2. If so, should the Settlement Agreement be approved?

3. Should the class counsel proposed fee be approved?

4. Should the representative plaintiffs be compensated for acting as such and to what extent? Background [5] Money Mart commenced its business in B.C. in 1997 providing short-term loans called payday loans. The loans were short-term advances due the day before the customer's next payday and were usually for a term of 14 days but no more than 37 days. [6] Money Mart required the borrower to provide a cheque post-dated to the borrower's next payday in an amount equal to the total of the principal of the loan, the interest payable on the loan calculated at a rate of at least 59% per annum and an additional fee stated to be a cheque cashing fee. [7] The main allegation against Money Mart in the class action was that the cheque cashing fee it charged was "interest" for the purpose of s. 347(1) of the Criminal Code, R.S.C. 1985, c. C-46. The plaintiffs' claim asserted that the defendant therefore received a rate of interest prohibited under s. 347(2) which defines a criminal rate as an "effective annual rate of interest ... that exceeds 60% on the credit advanced". [8] The action was initially brought by the plaintiff MacKinnon on January 29, 2003 against Money Mart and 25 other defendants who operated 17 different payday loan businesses in B.C. Mr. MacKinnon had borrowed money from some but not all of the defendants but brought his action against the others in a representative

capacity. He sought restitution and damages for certain cheque cashing fees collected on short-term loans made by the defendants to Mr. MacKinnon. [9] Mr. MacKinnon alleged such fees were "interest" and, when added to the interest rate charged by the defendants on the principal amount of the loans, were in excess of that permitted to be charged and hence were contrary to s. 347(1) of the Criminal Code. [10] After a considerable amount of skirmishing in legal proceedings which saw the parties before a case management judge on a number of occasions and several times in the Court of Appeal, the action was certified as a proceeding under the Act on March 14, 2007 following a three-day certification hearing in November 2006 (see 2007 BCSC 348). [11] While it is not necessary to review those "skirmishes" in detail in these reasons it is necessary to provide a brief review of them to understand the nature and course of the litigation which was necessary for the plaintiffs to pursue in order to bring this action to a successful conclusion. It is clear the defendants took a hard-line defence throughout. [12] Money Mart sought to stay the action on the ground some of the standard loan agreements entered into by Mr. MacKinnon contained arbitration clauses. The other defendants brought applications to strike Mr. MacKinnon's claim arguing the claim disclosed no reasonable cause of action

against them. The case management judge dismissed the defendants' motions to both stay and strike out the claim. [13] Money Mart and the other defendants sought leave to appeal which was granted. Following argument before a panel of five judges on April 15, 2004 Reasons for Judgment were issued September 24, 2004 in which the Court upheld the chambers judge. The Court, however, held the case management judge was premature in dismissing the applications for stay as it had not yet been determined whether the requirements for certification had been met (2004 BCCA 473). [14] When the Court of Appeal decision was issued, the certification hearing was ongoing before the case management judge. It was heard over seven days in September and October 2004. [15] On March 1, 2005 the case management judge dismissed the application to certify, concluding she was not satisfied there were common issues arising from the manner in which the payday loan defendants carried on their businesses. [16] Money Mart then sought to stay the MacKinnon action under the Commercial Arbitration Act, R.S.B.C. 1996, c. 55, and MacKinnon applied for an order his action be continued in four separate actions against the defendants from whom he had borrowed money. Both applications were opposed. [17] The plaintiff Parsons then commenced her action raising the same issues as those raised in the MacKinnon action. Ms.

Parsons had borrowed money from Money Mart before it introduced a standard arbitration clause in its loan contracts. [18] The case management judge granted Mr. Mackinnon the right to continue his action against Money Mart alone and to apply to certify the reconfigured action. Money Mart applied for leave to appeal. Leave was granted and the action was stayed. Mr. MacKinnon cross-appealed part of the judge's order. [19] The Court of Appeal allowed both Money Mart's appeal and the cross appeal. The case returned to the case management judge who severed the action into four separate proceedings against Money Mart. Money Mart sought leave to appeal that decision. Leave was refused. [20] On August 26, 2006 Mr. MacKinnon applied to consolidate his action with that of Parsons and to certify the consolidated class action. Money Mart opposed and after a three-day hearing in November 2006 the case management judge granted an order consolidating the actions and certifying the consolidated action as a class proceeding: 2007 BCSC 348. [21] Money Mart appealed the certification order and several other orders which had been made by the case management judge including an order adding Dollar as a defendant. The Court of Appeal dismissed the defendants' appeals March 13, 2009: 2009 BCCA 103 [22] The class was certified to consist of all persons who borrowed from the defendant Money Mart from the

commencement of its payday loan business in British Columbia up to July 11, 2009. [23] The parties then agreed to a litigation schedule and the trial was set for four weeks commencing March 15, 2010. [24] A similar action against Money Mart had been commenced in Ontario. The trial in that action had commenced in April 2009 and had proceeded for 17 days before the action was settled. In the B.C. action, counsel had access to transcripts of the examinations for discovery and affidavits filed in the Ontario action as well as the transcripts of evidence given at trial. [25] The documents produced in this action exceeded 19,000 pages, in addition to extensive computer data files concerning the loans which were the subject matter of the action. Examinations for discovery were held of each representative plaintiff and of each of the defendants. A representative of Money Mart was examined for two days and a representative of Dollar for one day. Both interrogatories and notices to admit were issued by the plaintiffs. [26] In October 2009 the plaintiffs delivered a notice of motion for summary trial of the common issues. The application relied upon affidavits delivered in support of the certification motion and other material. The defendants responded with material including 11 affidavits, two of which contained opinion evidence on the nature of their corporate relationship as well as on

issues of cost accounting and accounting disclosure. The plaintiffs then issued further interrogatories and delivered an expert report on accounting disclosure issues. [27] On January 22, 2010 the plaintiffs delivered their 112-page memorandum of argument to which the defendants responded with three further affidavits including further expert opinion evidence on accounting disclosure. On February 23, 2010 Money Mart and Dollar delivered their memorandums of argument which were 107 and 75 pages in length respectively. [28] The summary trial was scheduled to commence March 22, 2010 for three weeks. [29] On March 3, 2010 a mediation was held in Toronto before Mr. Donald Brenner, Q.C., former Chief Justice of the British Columbia Supreme Court. After a full day of mediation the parties reached an agreement in principle as to the settlement of the action and agreed to defer further steps in the litigation pending completion of a formal written settlement agreement. [30] The parties had engaged in settlement discussions throughout the course of the litigation but Mr. Bennett, one of the counsel for the plaintiffs, says offers made by Money Mart were "nowhere near" what counsel would recommend or what the plaintiffs would be prepared to accept. [31] In the spring of 2009 two developments occurred which were significant to the successful mediation of the settlement in this matter. The

first was the settlement of the Ontario class actions. The second was the settlement in British Columbia of two class action proceedings against Money Mart's main competitors in Bodnar v. Cash Store Inc., 2010 BCSC 145 and Casavant v. Cash Money Cheque Cashing Inc., 2010 BCSC 148. The settlements in Bodnar and Casavant were approved by Madam Justice Dickson on February 2, 2010. Counsel in this case was class counsel representing the plaintiffs on the latter two proceedings. [32] The Settlement Agreement reached at the mediation was patterned after the two B.C. court approvals granted by Dickson J. [33] The principal terms of the Settlement Agreement provide: (a) for the creation of a settlement fund in the amount of $24.75 million which represents approximately 19% of the estimated $130 million in cheque cashing fees collected by Money Mart in relation to its payday loan operations in B.C.; (b) each class member is entitled to receive the full amount of their claim for cheque cashing fees paid if the fund is large enough to pay all the claims and on a pro rata basis if it is not; (c) the settlement fund and the payment of benefits from it is to consist of 50% cash and 50 transaction credits which are fully redeemable for cash three years from their issuance to claiming class members; (d) all class members are released from any obligation to pay outstanding fees in relation to

any outstanding loans and their obligation to pay outstanding loans is reduced by the amount of fees they have paid; (e) a simple claims process administered by an independent claims process reviewer is to be established with a right to appeal and arbitration in the event of a dispute; (f) wide-spread notice is to be given to the class; (g) legal fees equal to 30% of the Settlement Fund together with disbursements and taxes will be paid from the Fund; and (h) the representative plaintiffs Kurt MacKinnon and Louise Parsons will be paid $10,000 each as compensation from the approved legal fees. Discussion of legal principles [34] Sections 35(1) and (3) of the Act provide the settlement of a class proceeding must be approved by the court. Section 35(1)(b) provides that such settlement must be on "such terms the court considers appropriate." [35] In Bodnar Dickson J. reviewed the standard of review at paras. 17-21: [17] The standard for approval of a settlement is whether, in all of the circumstances, the settlement is fair, reasonable and in the best interest of the class as a whole. The court need not dissect the proposed settlement with an eye to perfection. Rather, the settlement must fall within a range or zone of reasonableness to be approved: Haney Iron Works Ltd., supra at paras. 27 and 44; Cardozo, supra, at para 16; Knudsen v. Consolidated Food Brands Inc., [2001] B.C.J.

No. 2902 (S.C.) at paras. 21 and 24; Reid v. Ford Motor Corp., 2006 BCSC 1454 at paras. 9 and 10; Jeffrey v. Nortel Networks Corp., 2007 BCSC 69 at para. 17; Burnett v. St. Jude Medical Inc., 2009 BCSC 82 at paras. 124 and 135, 130; McKay v. Air Canada, 2009 BCSC 293. [18] The court must consider the risks and benefits associated with continuing the litigation in deciding whether to approve the settlement. The question for determination is whether there are any disadvantages to the settlement that justify its rejection: Haney Iron Works Ltd., supra, at para. 27; Fakhri v. Alfalfa's Canada Inc. (c.o.b. Capers Community Market), 2005 BCSC 1123 at para. 10. [19] The court is not entitled to modify the terms of a negotiated settlement. Its power is limited to approving or disapproving the settlement reached by the parties: Knudsen, supra, at para. 23; Cardozo, supra, at para. 16; Fakhri, supra, at para. 9. [20] The recommendation and experience of counsel are significant factors for consideration on an approval application. There is a presumption of fairness when a proposed settlement is negotiated at arm's length by class counsel and presented to the court for approval: Knudsen, supra at para. 26; Burnett, supra, at para. 134; McKay, supra, at para. 16; Fakhri, supra, at para. 8. [21] The court may take into account evidence of expected participation in the settlement by class

members when determining the sufficiency of available settlement funds: Reid, supra, at para. 15. [36] I would only add to the above that the Court can have regard to court-approved settlements of other class action suits which have occurred in the same industry relating to similar issues. Should the Settlement Agreement be approved? [37] The Settlement Agreement achieved in this case was patterned after the settlements achieved and ultimately approved by the court in both Bodnar and Casavant. [38] As in those cases, the Settlement Agreement has the same clear advantages set out by Dickson J. in para. 35 of Bodnar: [35] The Settlement has several clear advantages. They include: (a) There is no discount for litigation risk in the amount of each class member's entitlement if the Settlement Fund is sufficient to pay the claims; (b) Given likely participation rates, the Settlement Fund will probably be sufficient to pay each class member their full claim or a substantial portion thereof; (c) The Settlement avoids the further delay and uncertainty in recovery that would be involved in pursuing a claim through to litigation; (d) Class members will be able to receive all of their Settlement Benefit in cash should they choose to redeem their vouchers; (e) All class members, whether they make a claim or not, will be released from any obligation to pay fees in respect of defaulted loans,

and their obligation in respect of any defaulted loan is extinguished up to the amount of the broker fees paid; (f) The creation of the Settlement Fund will likely disgorge any profit from the defendants' payday loan operations in British Columbia up to the implementation of the new regulatory regime; (g) There is provision for extensive notice, a straightforward claims process and opting out. [39] In the present case the Settlement Fund is to be 19% of the cheque cashing fees collected by the defendants whereas in the Bodnar and Casavant settlements the amount was 20%. However, in those cases the settlement fund was less, totalling $18.75 million and $1.265 million respectively. [40] The Settlement Agreement in the present case also has enhanced benefits to those negotiated in the settlements approved in Bodnar and Casavant in that the vouchers or transaction credits are to be treated differently. Class members receive one-half of their settlement in cash and one-half in transaction credits or vouchers. The vouchers are fully redeemable at their full face value in cash three years from their issuance if the application to redeem is made within six months. In Bodnar and Casavant the vouchers were only redeemable for services and had no cash value. [41] The Settlement Agreement was negotiated by experienced counsel with the assistance of an experienced mediator. [42] I am

satisfied the Settlement Agreement is fair and reasonable and in the best interests of those affected by it and I accordingly approve it. Approval of Legal Fees [43] Section 38(2) of the Act requires an agreement respecting fees and disbursements is not enforceable unless approved by the court on application by the solicitor. [44] As stated by Dickson J. in Bodnar: [23] The object of the fee approval requirement is to ensure that the fee charged is fair and reasonable and class counsel is appropriately compensated: Endean v. Canadian Red Cross Society, [2000] B.C.J. No. 1254 (S.C.) at paras. 21, 31-38; Reid, supra, at para. 2. [24] In British Columbia, the Law Society Rules set up a standard of fairness and reasonableness for contingency fee agreements. Pursuant to Rule 8-1(1), a lawyer who enters into a contingency fee agreement must ensure that the agreement is fair under the circumstances that exist when it is entered into and the remuneration provided for is reasonable. Pursuant to Rule 8-1(2), a bill prepared under a contingency fee agreement must be reasonable under the circumstances that exist when it is prepared. [25] Given the objective of the Act, the court should ensure that class counsel who take on risky actions on a contingency fee basis are adequately rewarded for their efforts. If proposed fees are to be reduced, a principled basis for the reduction must be

identified: Endean, supra, at para. 85-88. [26] When the court assesses the reasonableness of a proposed fee, the amount payable pursuant to the retainer agreement is the starting point for analysis. The issue for determination is whether the agreement operates reasonably in the context, given the fee proposed. Contingency fees approved in class actions in British Columbia have typically ranged from 15% to 33%: Endean, supra, at paras. 77-79; Knudsen, supra, at para. 39; White v. Canada (Attorney General), 2006 BCSC 561 at para. 36; Parsons v. Coast Capital Savings Credit Union, 2009 BCSC 330, at paras. 9-10; Commonwealth Investor Syndicate Ltd. v. Laxton, [1994] B.C.J. No. 1690 (C.A.) at para. 47. [45] In this case the representative plaintiffs entered into agreements that counsel would conduct the case on the basis of a contingency fee: "the solicitor's legal fees shall be thirty-five per cent (35%) of the total amounts recovered by the class under any judgements, orders or settlement". [46] The fees proposed in this case of 30% are below the amount set out in the contingency agreement, indicating recognition by class counsel the case was settled immediately prior to the trial of the common issues. [47] Mr. MacKinnon's claim was at the vanguard of the several payday loan cases that followed. It was, as stated above, and as demonstrated by the brief outline of the course of

the litigation, complex, protracted and hard fought. [48] The success achieved by class action counsel was excellent. There is every prospect the members of the class who apply will be fully compensated for the amount of their claims should the take-up rate among the class be as expected by counsel. [49] Plaintiffs' counsel have agreed that any further work required in perfecting the implementation of the Settlement Agreement will be included in their proposed fee. I am also advised the plaintiffs have been informed of the proposed fee and approve it. [50] The proposed fee is consistent with fees approved by the Court in Bodnar and Casavant and I accept it as a fair and reasonable fee in the present case based on the criteria outlined above. Compensation to the Representative Plaintiffs [51] Counsel for the plaintiffs drew the Court's attention to the recent decision of the Court of Appeal in Parsons v. Coast Capital Savings Credit Union, 2010 BCCA 311 issued June 18, 2010, following completion of argument on this application. [52] Madam Justice Saunders reviewed the jurisprudence which she found pitted two principles against one another: "the restitutionary principle that service on behalf of others is compensable and the principle eschewing potential conflict of interest situations". She said at para. 20: With these cautions, however, and with respect, I consider it is too

narrow to say, as the judge did here, that services of special significance beyond the usual responsibilities under the Act are required for a separate award to the representative plaintiff. Where the representative plaintiff has fulfilled his or her duties, which will include attendance for examination in discovery, providing instructions on all steps taken in the litigation and on the settlement (which necessarily requires immersion in the substance of the case), and where a monetary settlement in favour of the class members is achieved, a modest award in recognition of the effort expended on behalf of the class members is consistent with restitutionary principles and recognition of the principle of quantum meruit. This expectation is further justified by the exposure to costs assumed by the representative plaintiff in commencing the action. While that risk is mitigated upon certification, there is a real exposure to costs assumed on commencing the action. Other intangible costs also are borne by such a plaintiff, including the sometimes not inconsiderable weight of being the leader of the claimants. [53] In Parsons the representative plaintiff sought $10,000 in compensation. The judge who approved the settlement disallowed any compensatory payment to the plaintiff on the basis there was no evidence before her the plaintiff's contributions were of special significance to the

class which would entitle her to compensatory quantum meruit payment. The Court of Appeal allowed the plaintiff's appeal and approved a payment of $3,500. In doing so the Court observed two factors which are significant to this case. The first was that the highest award thus far awarded to a representative plaintiff in this Province to date was $5,000 and the second that there was no affidavit evidence before the Court from the plaintiff which showed the amount of time or money she spent acting as representative plaintiff. [54] Counsel in the present application was counsel for the representative plaintiff in Parsons. I was advised the decisions of Dickson J. in Bodnar and Casavant were before the Court (they are not mentioned in the Reasons for Judgment and were not referred to in the appellant's factum as the two decision were handed down after the factums were filed). In this case I do have affidavits from both Mr. MacKinnon and Ms. Parsons, who was the representative plaintiff in Parsons, setting out the involvement of both plaintiffs in the case. [55] The affidavit of Mr. MacKinnon discloses: · he agreed to become involved in commencing the action to help others who, like himself, had become in a "cycle of borrowing" to collect back some of the fees they had paid to payday loan companies; · he was very concerned that he would become personally liable for costs to the

companies from whom he had not borrowed; · he had sworn two affidavits during the course of the lawsuit and produced copies of his personal bank statements and cancelled cheques; · he had remained in contact with his counsel over seven years and had provided instructions from time to time concerning the steps to be taken in the action; · he gave specific instructions to counsel he was not interested in a settlement which provided for discounted services at Money Mart in the future; · in August 2009 he took time off work to meet with his counsel to prepare for and then to attend at an examination for discovery; · he met with an investigator from the Financial Institutions Commission; · he made himself available during work hours while the mediation was occurring to and did consult with counsel concerning the content of the form of settlement giving instructions to accept the final terms; and · he met with counsel to review in detail the final version of the Settlement Agreement, took a copy home over the weekend and gave final instructions the form of the Settlement Agreement was acceptable. [56] Ms. Parsons discloses she began borrowing from Money Mart in 1997 and did so for about a year and a half. She then began borrowing from other companies and by 2002 had reached a stage where she was borrowing from one to pay another. She said she agreed to become a representative

plaintiff because she thought the fees charges by the payday loan companies were unfair and she wanted to help others "who like me had become trapped in a cycle of borrowing from these payday loan companies because of the high cost of the loans." Her affidavit discloses: · she agreed to become a representative plaintiff because she thought it important the claims against the payday loan companies proceed; · she provided an affidavit used in the certification proceedings and produced her personal bank statements and copies of personal cheques; · she took two days of her vacation time to travel to Vancouver to meet with counsel and to attend at an examination for discovery; · she has remained in contact with counsel and has provided instructions from time to time concerning the steps to be taken in the litigation; · she was in contact with counsel during the course of the mediation and gave the same instructions as did Mr. MacKinnon concerning the settlement and the use of vouchers; and · finally, Ms. Parsons reviewed the Settlement Agreement and gave instructions the accept the form of the Settlement Agreement. [57] Counsel for the representative plaintiffs submit the representative plaintiffs in this case have helped shape the Settlement Agreement "in a significant way" and have assumed burdens throughout the conduct of the litigation beyond that necessary to pursue their

individual actions. Counsel submits that the contributions of Mr. MacKinnon and Ms. Parsons were of "the very same nature" as the contributions made by the representative plaintiffs in Bodnar and Casavant and that "fairness and consistency" require at least the same level of compensation. [58] As stated, Bodnar and Casavant were decided prior to the Court of Appeal's decision in Parsons. In Parsons, Saunders J.A. noted at para. 23: The question then arises as to the appropriate amount. Ms. Parsons seeks an award of $10,000. That amount is double the highest amount awarded in British Columbia of which I am aware, and is unsupported by any detailed evidence from Ms. Parsons as to the amount of time or money she spent acting as the representative plaintiff. Her share of the award was around $1,000, which one may expect is representative of the amounts that may be owing to other class members under the award. In my view in the circumstances of this case it could create an appearance of a conflict of interest to award such a significant sum as $10,000. [59] In my view, taking into account the efforts set out by each of the representative plaintiffs in their affidavits in this case, the fact this litigation was the vanguard of the class action payday loan litigation and was pursued vigorously for over seven years, the comments of the Court of Appeal above and the submission by

counsel to the effect both plaintiffs assisted in shaping the terms of the Settlement Agreement, I conclude, based on the facts of this case that an award of $7,500 is an appropriate amount to pay the representative plaintiffs for the services they have provided. [60] The amount is to be paid as a disbursement: Parsons at para. 26. [61] The defendants do not oppose the relief sought by the plaintiffs on this motion. Accordingly, Grant Thornton LLP is appointed auditor pursuant to s. 6.13 or the Settlement and Reva Devins is appointed as referee pursuant to s. 6.11 of the Settlement. "GREYELL J."