Class Actions: Damages to the Class or the Community?

Cathay Pacific settles data breach lawsuit.

Class actions result when a party’s (company, government, institution, or otherwise) actions or inactions impact a large class of individuals, rather than one individual plaintiff.

Two well-known cases, turned-Hollywood movies, of class actions include those represented in “Erin Brockovich”, starring Julia Roberts and “A Civil Action”, starring John Travolta.

Throughout Canada, like the US, class action litigation has increased in the recent years. Many of these actions arise due to “data breaches” (aka privacy and security breaches) on mass scales. This includes breaches of Yahoo, LifeLabs, and Simon Fraser University, among many others.

The more recent decision of McLean v Cathay Pacific Airways Limited, 2021 BCSC 1456, pertained to major data breach affecting up to 9.4 million passengers, including some in Canada. One of the affected Canadian passengers, Mr. James Rodney McLean, issued this class-action against Cathay Pacific seeking damages and other relief arising from the data incident (disclosed by Cathay Pacific on April 24, 2018). The parties subsequently reached a settlement agreement conditional upon certification of the action as a class proceeding and Court approval of the settlement. As Justice Kent summarized:

[3] On February 12, 2021, I issued an order certifying the action as a class proceeding for settlement purposes only, pursuant to the Class Proceedings Act, R.S.B.C. 1996, C. 50 ("CPA"). The parties now appear before me for approval of the settlement agreement and an order approving the legal fees and disbursements of Class Counsel and a small honorarium payable to Mr. McLean.

[4] There are approximately 230,000 Class Members. The appropriate notices were distributed to Class Members by way of direct email (for members whose email address was known) and by newspaper publications across Canada. Only five persons objected to the settlement and 160 persons elected to opt-out of the proceeding (a total of 0.07% of the Class Members).

[5] None of the five objectors attended the application for settlement approval. Having read all of the application materials before the hearing, and after hearing submissions from counsel, I granted the approval orders sought. I stated that written reasons for judgment would follow for the benefit of the class members. These are the reasons; I have essentially adopted the submissions in the Notice of Application, with some minor modifications, because I entirely agree with them…

In this case, the COVID-19 Pandemic played a large role as it may have resulted in the defendant, Cathay Pacific Airways, going bankrupt and therefore no damages being awarded to the plaintiffs.

As such, the parties sought and agreed to settle. The proposed settlement was not a direct cy-pres award situation where the funds were directly donated to charity and class members would receive no recovery. Instead and after deduction of fees, disbursements, and honorarium, the remaining settlement funds in this case would be open for Class Members to submit claims pursuant to the distribution protocol (the same protocol approved in Sipos v. Netlink Computer Inc., 2021 BCSC 183). If all funds are distributed to the Class Members, there will be no remittance to the Law Foundation of BC.

As the Court expounded:

[39] …Direct cy-pres awards are frequently used when distribution to class members may be too costly, or if the settlement funds are too small for distribution. To be clear, this is a compensation fund settlement.

…[41] If, and only if, any funds remain after distribution to Class Members, the plaintiff proposes that the remaining funds be remitted to the Law Foundation of British Columbia. Sections 36.1 and 36.2 of the Class Proceedings Act mandates that 50% of any remaining settlement funds must be donated to the Law Foundation of British Columbia.

[42] By way of the Settlement Agreement, the parties agreed that the remaining 50% also be remitted to the Law Foundation for two reasons: (1) there is uncertainty in the amount of funds that may remain, and the costs of choosing another charity may outweigh the benefits; (2) the Law Foundation of British Columbia has significant experience in allocating funds for the public interest.

[43]  The factors described above strongly militate in favour of Court approval of the Settlement Agreement.

With respect to the law, the Court stated:

CLASS ACTION SETTLEMENT APPROVAL PRINCIPLES

[25] Under the Class Proceedings Act, s 35, “[a] class proceeding may be settled only with the approval of a judge” and, once approved, binds every class member “who has not opted out of or been excluded from the class proceeding”.

[26] The Class Proceeding Act does not set out the test for settlement approval. However, the jurisprudence is that the court looks to whether the settlement is “fair and reasonable and in the best interests of the class as a whole”. A class action settlement is not required to be perfect; rather, the settlement must “fall within a range or zone of reasonableness to be approved”: Cardozo v. Becton, Dickinson and Company, 2005 BCSC 1612 at para. 16; Bodnar v. The Cash Store Inc., 2010 BCSC 145 at para. 17.

[27] Public policy favors the settlement of complex disputes. There is a strong presumption of fairness where a settlement has been negotiated at arm’s length. Experienced Class Counsel is in a unique position to assess the risks and rewards of the litigation and her/his recommendation is given considerable weight by the reviewing Court: Jones v. Zimmer GMBH, 2016 BCSC 1847 at para. 36

[28] The Court cannot modify the terms of a negotiated settlement. All it can do is approve or reject the settlement: Jones v. Zimmer GMBH, 2016 BCSC 1847 at para. 37.

[29] Canadian courts have identified 10 factors to consider when assessing the reasonableness of a settlement:

a.   the likelihood of recovery, or the likelihood of success;

b.   the amount and nature of discovery evidence;

c.   settlement terms and conditions;

d.   recommendations and experience of counsel;

e.   future expense and likely duration of litigation;

f.     recommendations of neutral parties, if any;

g.   number of objectors and nature of objections;

h.   presence of good faith and absence of collusion;

i.      degree and nature of communications by counsel and the representative plaintiffs with class members during litigation;

j.      information conveying to the court the dynamics of, and the positions taken by the parties during the negotiation.

Cardozo v. Becton, Dickinson and Company, 2005 BCSC 1612 at para. 17; Jones v. Zimmer GMBH, 2016 BCSC 1847 at para. 42

Approval of Fees, Disbursements and Honouraria

…[44] Under the Class Proceedings Act, s. 38, “[a]n agreement respecting fees and disbursements between a solicitor and a representative plaintiff is not enforceable unless approved by the court”.

…[46] In Pro-Sys Consultants Ltd. v. Infineon Technologies AG, 2014 BSCS 1936 at para. 54, Justice Masuhara wrote:

The considerations in approving fees should recognize not only meritorious effort in achieving a positive result but also encourage counsel to take on difficult and risky class action litigation.

[47] In White v. Attorney General of Canada, 2006 BCSC 561 at para. 31, Justice Cullen wrote:

In the circumstances, counsel, in taking on the case involving a significant commitment of time and the ongoing payment of disbursements incurred a significant risk to their own economic interests, which if not adequately compensated for, would discourage similar willingness in the bar to take on difficult cases on such a basis in the future. In such circumstances, there is clearly the expectation of a higher fee than in a non-contingency fee basis.

[48] The factors considered in assessing whether a fee is fair and reasonable are:

a.   the results achieved;

b.   the risks undertaken;

c.   the time expended;

d.   the complexity of the matter;

e.   the degree of responsibility assumed by counsel;

f.     the importance of the matter to the client;

g.   the quality and skill of counsel;

h.   the ability of the class to pay;

i.      the client and the class' expectation; and,

j.      fees in similar cases.          

(see, Cardozo v. Becton, Dickinson and Company, 2005 BCSC 1612 at para. 25, see also Green v. Tecumseh Products of Canada Limited, 2016 BCSC 217 at para. 57)

[49] Class counsel successfully navigated this case to the certification stage and conducted settlement negotiations with the defendant at the appropriate time, when it became apparent that COVID-19 may have a profound impact on the potential recovery for the Class. Class Counsel devoted considerable monetary and internal resources to the prosecution of the actions prior to entering into the settlement, including procuring multiple expert reports, and in-depth investigation into the defendant’s data incident.

[50] This was complicated litigation. It involved 1) the procedural complexity of class actions, 2) the cross-border nature of this class action, which involved a non-resident defendant and foreign law, 3) substantive legal complexity given the nature of the litigation and the novel cause of action being alleged (i.e., intrusion upon seclusion is a novel cause of action that has not yet been recognized under BC law, although the BC Court of Appeal has left that door open), 4) potential causation concerns in relation to the Class Members’ claims, or individual claims.

[51] Class counsel is experienced in the specialized field of class actions, particularly class actions involving airlines. Along with Justice Ward Branch of this Court, Mathew Good is co-author of the leading text Class Actions in Canada, 2d ed.

[52] Given the expense and complexity of this litigation, there was no feasible way that Class Members could have retained Class Counsel on a fee for service basis. The representative plaintiff has approved the fees sought.

…[55] A contingency fee of 33.33% in a class action has frequently been held to be presumptively valid. That is the fee that Class Counsel are seeking here; Pro-Sys Consultants Ltd. v. Infineon Technologies AG, 2014 BCSC 1936 at paras. 53, 56; Denluck v. The Board of Trustees for the Boilermakers ’ Lodge 359 Pension Plan, 2021 BCSC 242 at para. 42.

[56] Class Counsel invested hundreds of hours in the prosecution of this case, and is expected to spend many more hours in reviewing and adjudicating each Class Members’ claims.

[57] Courts in British Columbia have long awarded honouraria to representative plaintiffs “in recognition of the effort expended on behalf of the class members”. Honouraria at this stage of proceedings have typically been in the range of $3,000 to $4,000. The amount sought here is $1,500 to recognize the representative plaintiff’s contributions to the successful result: Parsons v. Coast Capital Savings Credit Union, 2010 BCCA 311, Steele v. Toyota Canada Inc, 2015 BCSC 1040, paras 37-39 Cantlie v. Canadian Heating Products Inc, 2015 BCSC 1225, paras 49-53