(416) 916-1387
Appellate Litigation

We have previously written about court decisions that related to settlement of class actions, but the recent case of Dufault v. The Toronto-Dominion Bank provides additional guidance on when a court is likely to approve a proposed settlement.

Class Action Relates to NSF Fees Allegedly Charged By TD Bank

The class action in Dufault related to NSF fees allegedly charged by the defendant bank on accounts subject to “pre-authorized debits” or “PADs.”  Specifically, the plaintiff alleged that where an account did not have sufficient funds in it to pay a PAD, the defendant bank would decline the payment and charge the class member an NSF fee, only to charge them a second NSF fee when the payee tried to re-present the PAD for payment a second time, and it was again declined.  The plaintiff alleged that the defendant bank’s charge of the second NSF fee for the same PAD breached the terms of its contract with class members and violated consumer protection legislation.

Parties Signed a Settlement Agreement of $15.9 Million

The parties signed a settlement agreement by November 2023, and a motion was brought before the Superior Court of Justice to approve the settlement.  The agreement in question provided for payment of a total of $15.9 million, comprised of an estimated $88 to class members that were eligible, a cy-pres donation (in the event there were residual funds), payment of lawyers’ fees and disbursements, payment of “third-party funder litigation fees” and a $10,000 honoraria payment to the representative plaintiff.

Proposed Settlement Must Be “Fair, Reasonable and in the Best Interests of the Class”

The Court referenced section 27.1(1) of the Class Proceedings Act, which stipulates that settlement of a class proceeding governed by such legislation requires court approval.  Section 27.1(5) of that statute provides that a court shall not approve any such settlement unless the court determines that the settlement is “fair, reasonable and in the best interests of the class.”

The Court went on to review the legal principles applicable to a determination of whether or not to approve such a settlement.  It noted that when a proposed settlement is brought before a Court for approval, is recommended by “experienced Class Counsel,” and is negotiated at arm’s length, it is strongly presumed to be fair.  Further, in such circumstances, a Court can assume that the settlement is “the best reasonably achievable settlement,” barring evidence otherwise.  In this context, for a Court to find that a proposed settlement is not fair and reasonable, that settlement must not fall within the “range of reasonable outcomes.”

The job of a Court in making its determination is not to try to renegotiate the proposed settlement or put its judgment in place of that of the parties.  Instead, an objective consideration of the “pros and cons” of the proposed settlement is needed.

The Court in Dufault then referenced the various factors that may be assessed in considering whether or not a proposed settlement is “reasonable and in the best interests of the class.”  These factors were outlined in the earlier case of Doucet v. The Royal Winnipeg Ballet and include:

  1. the probability of the claim’s success;
  2. “the amount and nature of discovery, evidence or investigation;”
  3. the terms of the proposed settlement;
  4. the recommendation of class counsel;
  5. the likely duration of and expense involved with the class litigation; and
  6. objections raised in relation to the proposed settlement.

A Court may also consider whether the negotiation of the proposed settlement occurred in good faith and in an arm’s length manner, information relating to the conduct and positions of the parties during negotiations, and communications between lawyers and class members during the litigation.

Court Concludes Parties Were In a Good Position to Assess the Risks of the Litigation

The Court in Dufault went on to examine these factors in relation to the facts of the particular class action before it.  It concluded that the action “had been very well developed” as a settlement was reached, thus affording counsel a good opportunity to consider the risks inherent in the litigation. Further, the defendant bank had provided significant information in relation to the litigation, such that the parties’ theories on damages and liability were “well-understood.”  The Court also observed that, without a settlement, a great deal of litigation would remain, adding to “cost, complexity and delay.”

Court Finds that the Terms of the Settlement Are “Excellent”

According to the Court, the terms of the proposed settlement were “excellent” insofar as it would have “an almost-unheard-of take-up rate” of “almost 90% of living class members.”  In addition, the amount each eligible class member would receive would be equal to nearly twice the amount of an NSF fee.  The defendant bank had borne most of the costs related to notifying class members, and the proposed settlement amount would not be diminished by costs relating to its administration since settlement would be “effected by direct distribution.”

The Court concluded that, based on the evidence, the proposed settlement had been conducted in good faith and at arm’s length and that, given the experience of the plaintiff’s counsel, their support of the proposed settlement was a factor lending support to its approval.

Objection Raised to Proposed Settlement Was Not Without Merit

Regarding those who objected to the proposed settlement, the Court noted that only three were class members, representing significantly less than 1% of the class members.  As the Court observed, one such objection related to the amount to be received by class members.  That particular objector argued that class members should receive an amount equal to three NSF fees; however, the Court noted that the proposed settlement provided for an amount near this on a “gross basis.”  A further objection was given credence by the Court, specifically that the proposed settlement excluded those who had closed their accounts with the defendant bank from its class.  The Court agreed this was “not ideal” but concluded that the objection could only be addressed by establishing a process for claims that ran in addition to or in place of “direct distribution” to class members, thus increasing the cost to class members.

Based on the above, the Court concluded that the proposed settlement was “in the best interests of the class” and approved it.

Contact Toronto Class Action Lawyers For Complex Class Action Claims And Defence

The team at Milosevic & Associates in Toronto is available to provide strategic and practical advice in class action defence.  David Milosevic, our co-founder, received his Master of Laws in Civil Litigation with a focus on class action litigation. Milosevic & Associates also recently acted as class action defence counsel for one of Canada’s largest credit and collection companies. You can count on us to defend even the most complicated class action lawsuits with the necessary skill and experience. Contact us online or by phone at (416) 916-1387 for a consultation.