Ottawa fighting to avoid paying $80M in First Nations child welfare legal fees

Ottawa is opposing more than $80 million in legal fees requested by class action lawyers for their work on a historic, multi-billion dollar proposed settlement for First Nations child welfare, CBC News has learned.

Five legal firms are seeking $80 million plus applicable taxes and about $600,000 in out-of-pocket expenses from the federal government, according to a motion filed in Federal Court.

The government told CBC News it's committed to reaching a fair agreement on legal bills but the proposed fees are too high. It's expected to file its response to the lawyers' billing with the court this week.

"The $80 million requested by legal counsel would result in some lawyers being paid more than $4,500 per hour," wrote Zeus Eden, press secretary to Indigenous Services Minister Patty Hajdu.

"In our view, this is excessive."

The federal government reached a $23.4 billion settlement agreement to compensate First Nations children and their families for chronically underfunding the on-reserve child welfare system and other family services after two separate class action lawsuits were combined into one.

Many of the allegations in the class action lawsuits against Ottawa were based on a 2016 Canadian Human Rights Tribunal ruling which found Ottawa discriminated against First Nations children and families by failing to provide them with the same level of child welfare services provided elsewhere.

In 2019, the tribunal ordered Canada to pay the maximum human rights penalty of $40,000 per child and family member, which became part of the class action settlement agreement. 

The deal states the federal government is supposed to pay class action counsel reasonable legal fees, plus taxes and disbursements, over and above compensation. The case is not expected to affect the Federal Court's decision to approve the settlement.

That arrangement is unlike most class actions, where fees are paid out of class members' compensation, said David Sterns, one of the lawyers involved in the settlement.

"It will be up to the court to decide on the fairness of our fees, in a public hearing, based on the factors that are considered in similar cases," Sterns told CBC News by email.

More oversight needed, Blackstock says

The lawyers argue in their Federal Court motion that the $80 million sum is justified because the deal they helped to negotiate is unprecedented.

They say they took substantial risks by handling the case and agreed to be paid only if they succeeded.

First Nations children's advocate Cindy Blackstock, who filed the ultimately successful 2007 human rights complaint that formed the basis of the settlement agreement, said the $80 million bill is unreasonable.

"That's a large amount of money," said Blackstock, executive director of the First Nations Child and Family Caring Society. 

Blackstock said the proposed legal fees create an imbalance between lawyers and the First Nations children and family members. They will receive just over $40,000 at most, she said, while the law firms stand to make tens of millions of dollars. 

"That's a major concern," she said. 

"There needs to be more conversation about the role of class action lawyers in respect to reconciliation and perhaps some more oversight."

Jasminka Kalajdzic, University of Windsor law professor, said it's unusual to see Canada arguing against the proposed legal fees of class action lawyers.

"It is a matter, ultimately, between class counsel and the class," said Kalajdzic, founding director of the Class Action Clinic at the University of Windsor. 

Kalajdzic said she expects the court to take into account the fact that class counsel agreed to a $80 million cap on billing — and could have asked for more.

"It will probably mean, if I had to guess, that the judge is going to accept the fee that's been proposed," she said.

The lawyers involved in the settlement agreement argue they could have sought up to $2.35 billion under their contingency fee retainer agreements. 

They say in their court filings they opted to impose a cap at the request of the Assembly of First Nations (AFN), in order to improve upon past experiences in class actions instituted on behalf of First Nations.

"We were reluctant to agree to a cap on legal fees as there were substantial risks and protracted litigation seemed likely," Sterns wrote in the filing.

"We did so because the AFN was a sophisticated and experienced party who had legitimate concerns based on lessons learned through previous class actions."

Incentives needed for lawyers to take on cases

Some of the Indigenous people whose experiences in the child welfare system formed the basis of the class action signed affidavits in support of the proposed legal fees. 

"I was pleased that my lawyers negotiated that their fees would not be paid out of the settlement funds for survivors," said plaintiff Zacheus Trout of the Cross Lake First Nation in northern Manitoba.

"What I do not understand or support is Canada trying to take advantage of my counsel's decision not to negotiate their fees as part of the settlement agreement, or their offer not to receive their fees from the settlement amounts, to pay them less."

Anyone covered by the class action settlement can weigh in on the proposed legal fees with the Federal Court in writing, or in-person during a hearing to decide the matter scheduled for Oct. 27 in Ottawa.

Approximately 93 partners, associates, clerks and articling students worked on the proposed settlement, Sterns said. 

The five firms applying for legal fees have several hundred equity partners that share their firm's profits, said Sterns, who added the details are confidential.

On the surface, Kalajdzic said, the proposed fees don't seem to be a case of overcompensation since the lawyers are asking for less than one per cent of the overall settlement.

"The dollar amount is historic, but it is not unusual for a court to approve a premium of four times the base fee, four times the normal hourly rate," she said. 

But she added the $18.5 million in time billed is surprising, since the case only occurred over a few years after the Canadian Human Rights Tribunal ordered Ottawa to pay compensation.

Canada's legal system encourages lawyers to take cases on a speculative basis and most class actions involve clients who can't afford to pay lawyers up front, she said. 

"The question of class action lawyers fees is a lightning rod for controversy and many people object to the idea of lawyers ... profiting off of other people's losses," Kalajdzic said.

"If we're going to have a class action system that works, we really do need to have incentives for lawyers to take on these cases. At the same time, we have to guard against overcompensation."

None of the fees will go to the First Nations Child and Family Caring Society, said Blackstock. 

"That, for us, feels like the right decision for us to have made," she said.