IN THE SMALL CLAIMS COURT OF NOVA SCOTIA
Citation: Lennox v. Cantini Law Group, 2009 NSSM 8
Date: 20090407
Claim: SCCH 307249
Registry: Halifax
Between:
Lynda Lennox
Applicant
v.
Cantini Law Group
Respondent
Adjudicator: W. Augustus Richardson, QC
Heard: March 24, 2009 in Halifax, Nova Scotia.
Appearances: Lynda Lennox and David Lennox, assisting, for Applicant
David Brennan for Respondent
By the Court:
[1] This taxation, or assessment, of a legal account rendered under the terms of a contingency agreement between the applicant client, Lynda Lennox, and the respondent law firm, the Cantini Law Group, came on before me on March 24th, 2009. I heard the evidence and submissions of the applicant and her brother, David Lennox. I also heard the evidence and submissions of David Brennan, a lawyer with the Cantini Law Group and the one who provided the legal services which form the subject matter of this taxation.
[2] I commence my decision with the observation that there really was little or no real conflict in the evidence presented on behalf of the parties. That being the case I will simply present my findings of fact.
[3] Ms Lennox had been an employee with Staples. She became disabled and made a claim for disability benefits with her employer’s disability insurance plan (the “LTD insurer”). Her claim was initially accepted and disability benefits commenced.
[4] Long term disability plans commonly have two types of benefits. The first are short-term (usually for two years) and cover disability in respect of the insured’s own occupation. The second are long term, are triggered once the short term disability benefits stop, and cover disability in respect of any occupation. The transition between short-term (“STD”) and long-term disability (“LTD”) benefits is often marked by disputes between insureds (who maintain that they cannot work at all) and LTD insurers (who maintain that the insured can work at something, if not the original occupation).
[5] This is what happened in Ms Lennox’s case. In early 2007 she was advised by her LTD insurer that it believed she was able to do something and that it proposed to terminate her benefits at the end of the STD disability period. She decided she needed a lawyer to represent her. She did a web search which drew her to the respondent and, in particular, Mr Brennan. His work as an occupational therapist prior to his becoming a lawyer impressed her. He was the lawyer she wanted.
[6] Ms Lennox first spoke to Mr Brennan about this time. He advised her to pursue the LTD insurer’s internal appeal process. She did, but was unsuccessful. Her benefits were terminated.
[7] Ms Lennox came back to Mr Brennan in mid November 2007. They met to discuss her claim, and the terms upon which the Cantini Law Group was prepared to accept her retainer.
[8] I am satisfied that at this time Mr Brennan told Ms Lennox that she had a good though not perfect case. He also discussed the various possible outcomes of a claim against the LTD insurer, as follows:
a. she could lose, or
b. she could win, or
c. prior to trial the LTD insurer could offer to make a lump sum payment in full and final settlement of her entire claim.
[9] The relative merits of the second and third possibilities were also discussed. Winning at trial would provide a lump sum retroactive payment together with ongoing benefits in the future. However, a court could not order the future payments to be made indefinitely; nor could it order a lump sum in respect of the balance of all future payments. Hence a win at trial was no guarantee that the LTD insurer would continue to pay into the future. It might and could continue to keep Ms Lennox’s claim under review, demanding from time to time that she continue to substantiate her claim. And it could again terminate her benefits, forcing her to re-litigate the issue in the future. A lump sum settlement, on the other hand, had the benefit of avoiding the ongoing–and potentially stressful–need to deal with an LTD insurer. It also removed the possibility of future termination and re-litigation.
[10] Mr Brennan also explained that the respondent law firm would only accept Ms Lennox’s retainer on the basis of a contingency agreement. The contingency agreement was entered into evidence at the hearing. Clause 7 dealt with fees, and provided as follows:
“For legal services, the Client agrees to pay ... [the Respondent] 30% of any lump-sum payment obtained from the Defendant. “Lump-sum payment” refers to a single payment of money by the Defendant which may represent an combination of past benefits owed to the Client, future benefits and/or aggravated or punitive damages.”
[11] Mr Brennan provided a copy of the contingency agreement to Ms Lennox and urged her to read it. She did. She also asked her brother, David, to review it. He did as well. They then arranged a conference call with Mr Brennan to discuss the 30% contingency. There were also a number of emails between them discussing the matter, which were put into evidence.
[12] Having heard from all three of the participants to the conference call as well as having reviewed the emails I am satisfied that:
a. Mr Brennan explained that the 30% contingency applied only to a lump-sum and not to any renewal of future ongoing LTD benefits that might be ordered at trial or which might be agreed to by the LTD insurer if it agreed to re-instate Ms Lennox;
b. hence if the matter went to trial the 30% would apply only to retroactive benefits (paid in a lump sum) and not to ongoing future benefits, but
c. if the entire claim was settled by way of a lump sum payment the 30% would apply to the entire amount.
[13] I am also satisfied that Ms Lennox understood that this was the effect of the agreement. She accepted the “fairness” of the contingency in theory, but both she and her brother were concerned about its application in practice. In particular, while they accepted the 30% in respect of a lump-sum settlement that happened at the eve of trial (and all the work required to get the matter to trial), they had difficulty with the concept of applying the same percentage to a lump-sum settlement that happened, for example, a few months after the action was commenced.
[14] Mr Brennan advised Ms Lennox two things. First, he was of the view that the 30% would probably not apply in a case where the matter settled as quickly as a day or a month after the action was commenced. Second, Ms Lennox would always have the right to challenge the 30% by way of a taxation in the event that the contingency agreement was signed and she later objected to the 30%.
[15] On the basis of this discussion and the emails Ms Lennox decided to agree to the contingency agreement. She did so on the understanding that a lump-sum settlement that occurred early in the proceedings would not automatically–or at least not necessarily–attract the 30% fee provided for in the agreement. She signed the agreement, as did the Respondent. It was duly filed with the court, as required under the old Civil Procedure Rules.
[16] Mr Brennan then set about handling the claim. He performed research. He read the LTD policy. He issued a statement of claim. He prepared his client’s List of Documents. He received and reviewed the Defendant LTD insurer’s List of Documents. He sent and received various correspondence. All of this took place in the first half of 2008.
[17] In or about September 2008 the defendant’s solicitor delivered to Mr Brennan a copy of a defence medical that had been conducted on Ms Lennox. The report, as Mr Brennan described it, “was not entirely favourable to the defendant’s case.” Defence counsel must have concurred with Mr Brennan’s assessment, inasmuch as a lump sum settlement offer of $70,000.00 plus $3,000.00 for costs (for a total of $73,000.00) arrived on his desk shortly thereafter.
[18] Mr Brennan considered this to be a very good offer for two reasons.
[19] First, the lump sum was not far off the present value of the future benefits payable under the LTD contract. Ms Lennox’s benefits under the plan were meager at best in any event, totally roughly $5,000.00 a year. Mr Brennan had an actuary calculate the present value of the future benefits payable under the policy and received a figure of roughly $91,000.00.
[20] Second, in his view the defendant in making its offer had appeared to overlook the fact that Ms Lennox had been successful in her claim for disability benefits under the Canada Pension Plan. Such benefits would be deducted from benefits otherwise payable under the LTD policy. Mr Brennan concluded that the size of the offer could only mean that the defendant had not taken the CPP benefits into account.
[21] Mr Brennan discussed the offer with Ms Lennox. She expressed some concern about taking a lump sum as opposed to a reinstatement of benefits. Mr Brennan discussed the down side of such a result–that the defendant could always terminate any such benefits in the future, and that neither they nor the court could force the defendant to continue any such reinstated benefits. He also mentioned his impression that the defendant had not taken the CPP benefits into account. He was concerned that if the defendant realized its “mistake” it might withdraw the offer.
[22] The upshot of these discussions was that Ms Lennox agreed to accept the settlement offer on or about December 5, 2008.
[23] I pause here to note that what was unfortunately not discussed prior to Ms Lennox’s acceptance of the settlement was just what she would be required to pay the Respondent by way of legal fees under the contingency agreement. She says (and I accept) that she proceeded on the assumption that because the matter was being settled early in the proceedings that the 30% would not in fact be charged, and that it would be some lesser–though unspecified in her mind–percentage.
[24] The issue was joined when the Respondent sent Ms Lennox its statement of account. At that point she learned that she would be charged the 30% specified under the contingency agreement. After disbursements, fees of $21,000.00 (being 30% of the and taxes were deducted she was left with $46,270.00.
[25] Ms Lennox and her brother made a number of efforts to get Mr Brennan to reduce the percentage. The matter was taken up with Mr Cantini, the lead partner of the Respondent, but the result was the same: 30%. Ms Lennox then filed her notice of taxation.
[26] The issue now before me is simple: is 30% a reasonable percentage in light of all the circumstances? In saying this I take into account the following:
a. a lawyer may only charge a “reasonable” fee for his or her services;
b. what is “reasonable” depends upon the circumstances of the case, including those now set out in Rule 77.13(2) of the new Civil Procedure Rules (the equivalent of which existed under the former Rules as well); and
c. a contingency fee agreement, while something not lightly to be ignored, is nevertheless neither binding nor determinative of the issue of the “reasonableness” of the lawyer’s account.
[27] In seeking to justify the 30% Mr Brennan conceded, in my view quite properly, that the 30% could not necessarily have been appropriate in any circumstance. He acknowledged, by way of a hypothetical, that a lump sum settlement that occurred a day or two after the action commenced would not always support a 30% figure, and that some lesser amount might have to apply. He strongly submitted, however, that the case before me was not such a case. A statement of claim had been issued. Much research had been done. Lists of Documents had been exchanged. As well, Ms Lennox had had the benefit of his experience with these types of claims and with the insurance industry as a whole (the latter gained in part from his years as an occupational therapist).
[28] Mr Brennan also pointed out that his firm never accepted retainers on the basis of an hourly fee. It only accepted contingency agreement retainers. He also emphasized the fairness of the arrangement as well as the substantial risk to his firm entailed by the agreement, inasmuch as it applied only to lump sums. If, for example, the matter had gone to trial and Ms Lennox received:
a. a lump sum award for past benefits, and
b. an order that ongoing benefits be reinstated,
the Respondent would have received 30% on only the lump sum, not the reinstated benefits. Indeed, the Respondent’s agreement had been written that way on purpose, following the decision in Lacelles v. Rizzetto (1996), 158 NSR (2d) 336 (TD), where a lawyer in a similar case had sought (unsuccessfully) to justify the application of his contingency fee to ongoing benefits.
[29] Mr Lennox on behalf of his sister emphasized two things in his submissions. First, it was not fair to charge the same percentage regardless of how little (or much) time was spent on the file. Second, Mr Brennan’s communications with Ms Lennox prior to her execution of the agreement had led her to believe that the 30% was not in fact fixed, and that it would be adjusted downward if the matter was resolved relatively quickly.
[30] Mr Brennan in response acknowledged that some firms used a “sliding” contingency scale. So, for example, the contingency might be 20% if it settled prior to discoveries, and 25% if it settled after discoveries, and 30% if it settled just before trial, and so on. Indeed, the Respondent had used such a system in the past. However, the Respondent’s experience was that such sliding scales made clients suspicious if an offer was received early in the proceedings which the lawyer thought was too low. Clients sometimes thought that the lawyer was recommending rejection of an early offer (which he or she thought too low) solely to drag the matter out until a higher percentage was triggered. Such suspicion was in Mr Brennan’s view understandable but misguided, inasmuch as his experience led him to believe that the highest offers invariably came after discovery and close to trial. As a result the Respondent opted to jettison the “sliding” scale approach and instead use one fixed rate that did not change, regardless of when the matter settled. This approach spread the risk for both the client and the Respondent equally over the entire conduct of the file and was, he urged, a fair approach.
[31] There is in my mind merit to the Respondent’s explanation for its abandonment of a sliding scale and its use of one fixed percentage. The use of a single figure would appear to make possible reasoned, open discussions between the client and the lawyer of the merits of settlement offers. The difficulty, however, is the abandonment of the sliding scale addresses only the issue of free communication between lawyers and their clients. It does not address the other issue: is it reasonable, for example, to charge the same percentage in respect of a matter that settles after one week of work as would be charged for one that settles after two years and days of discovery?
[32] In some cases it might be reasonable to charge the same percentage regardless of when the matter settled. But in ordinary course one would expect the opposite. In ordinary course the risk of loss (that is, the risk that the client has of losing the case) is often the same throughout the case. But the amount of time spent by a lawyer on a file (and hence the risk to him or her in the event of a loss) increases over time. That being the case one would in ordinary course expect the contingency percentage to increase over time. And there is nothing in this case that appears to take it out of the ordinary course. The matter settled before discoveries. It settled primarily because of a defence medical report that failed to support the defendant’s case. It was, in other words, the defendant’s own work rather than Mr Brennan’s that led to the initial offer to settle.
[33] This is not to denigrate Mr Brennan’s work in any way. He is clearly knowledgeable in the area. He drafted a careful statement of claim that focused on the appropriate issues. He was fair and open with Ms Lennox at all times. He also had the ability to assess the offer in context, and to recognize some salient features (for example the failure to deduct CPP benefits) that were extremely valuable to the client’s ability to assess the offer. (In saying this I only repeat Ms Lennox’s and her brother’s high praise and respect for his work.) It remains the case however that the matter settled reasonably early on in the proceedings. And in the overall scheme of things, and taking all the factors of CPR 77.13(2) into account, I am not satisfied that 30% was a reasonable fee at that point in the proceedings.
[34] In my view and in ordinary course a contingency matter that settled before discoveries would generally support a fee equal to roughly 20% of the settlement (depending of course on all the circumstances of the case). However, Mr Brennan’s recognition of the CPP issue meant that Ms Lennox (quite properly) persuaded herself to accept the offer when she did, and to her real benefit. That in my opinion justifies a premium of sorts and in my opinion a fee equal to 25% of the settlement recourse represents a “reasonable” account for his services.
[35] I am accordingly of the view that the reasonable fee in this case should have been $17,500 (that is, 25% of $70,000.00) rather than the $21,000.00 that was charged. The Respondent is accordingly directed to pay to Ms Lennox:
a. $3,500.00, being the difference between the fee charged and what should have been charged,
b. the difference between HST charged on $21,000.00 and HST on $17,500.00, and
c. the filing fee in respect of this taxation.
[36] If there is any difficulty with respect to the amount of HST to be paid under [35]b I may be spoken to.
Dated at Halifax, this 7th day of April, 2009
Original: Court File )
Copy: Applicant ) ______________________________
Copy: Respondent ) W. Augustus Richardson, QC
ADJUDICATOR