The Dark Side of Class Action Settlements
Residential Schools Ordeal Reveals That the Process Is Only As Good As the Lawyers Involved

By Jacquie McNish
Globe and Mail
June 18, 2008

The social healing began almost immediately after Stephen Harper made his historic apology last week for abuses suffered by former students of residential schools.

It will take more than words, however, to mend the cracks revealed in Canada's class action system after some of the country's smartest and most devoted legal champions struck a legal settlement last year to compensate aboriginals for cruelties endured in isolated boarding schools.

Late last year, provincial and territorial judges approved Canada's largest and most intricate class action settlement by agreeing to a plan that would give lump sums of cash to every surviving native relocated to residential schools.

An estimated 90,000 people have applied for claims and so far more than $1.3-billion has been paid. Over the next few years, the governments' bill could swell by another billion or two.

The problem with directing such a large river of money to Canada's most remote corners is that few of the beneficiaries have the financial or legal expertise to shield windfall payments, averaging about $25,000 a person, from abuse by individuals and organizations.

Recognizing this risk, two of Canada's leading judges, Ontario Chief Justice Warren Winkler and his British Columbia counterpart Donald Brenner, imposed tight case rules. Lawyers were allowed to charge only set fees for counselling clients how to file claims. As a further precaution, governments would only issue settlement cheques to aboriginals who could document their attendance at one of the schools. And in case anyone wanted to hijack the lucrative individual payments, no lawyer, professional, financial player or even family member could cash the cheques themselves or pledge any claim or contractual rights to the cheques.

Despite all the precautions, advantage was taken of a number of people. Some aboriginal claimants with little banking or legal experience agreed to expensive fees and terms from local stores and other intermediaries that agreed to cash cheques in remote communities that banks and credit unions don't serve. Other, mostly elderly, recipients, yielded to family pressure to distribute most of their cash to family members, according to legal aid workers. One lawyer was pulled into court after allegedly arranging loans for aboriginal clients at interest rates of more 30 per cent.

These experiences cast in stark relief the ethical conundrum that bedevils class action lawsuits. Victims who seek relief from wrongs through class actions are often vulnerable and poorly informed claimants who can be exposed to further abuses when they win legal settlements. Against this backdrop, it could be said that a class action settlement can only be as good as the lawyers representing their clients.

Illustrating this point are the stories of two lawyers who spent much of the past year asserting claims in the residential school class action. They live a world apart in two remote Canadian communities and their approaches couldn't be more different.

Claudia Belda spent most of the past six months dodging bad weather in small airplanes as she and a team of a dozen legal aid lawyers went deep into Ontario's north to teach native residents how to file their residential school claims.

As counsel with Nishnawbe-Aski Legal Services Corp., Ms. Belda taught clients how to obtain birth and marriage certificates and other documents so they would be able to file claims for the schools settlement. Her salary was funded largely by government grants and she received no contingency or other fees for her work.

When the cheques started coming in last year, Ms. Belda said the clinic's phones began to ring with complaints that retailers were charging fees and limiting access to cash deposited. With no banks in most First Nation communities, retail outlets are for many people the closest thing to a bank for hundreds of kilometres.

"Our clients hoped these settlement cheques would help improve their lives; it hasn't always been the case," she said. One retailer has denied in public statements that it charges unfair fees or terms on the settlement cheques, but Ms. Belda said one of her case workers witnessed an attempted fee grab when he accompanied a client to a store.

Across the country in Prince George, B.C., lawyer Jacqueline Levesque also paid close attention to the financial terms of cashing in on settlement cheques. According to an affidavit filed in a B.C. court by mortgage broker Curtis Cannon, Ms. Levesque arranged advance loans for her clients so they could obtain money before their cheques arrived.

Mr. Cannon said Ms. Levesque told him that some so-called settlement lawyers were charging interest rates of 52 per cent to lend former residential students money before they received cheques. According to Mr. Cannon's affidavit, Ms. Levesque arranged for him and another mortgage lender to advance more than $500,000 to about two dozen clients. The interest rate on these loans? About 34 per cent.

Unfortunately for the lenders, the loans were never repaid because Judge Brenner ruled in December that Ms. Levesque's arrangement contravened rules prohibiting lenders and others from making any claims on the government cheques. Ms. Levesque is appealing the decision and she declined to comment on the case. One of the mortgage lenders has launched a lawsuit against her to claim the unpaid loans.

If there is any good coming from the alleged financial abuses, it is that the that Law Commission of Ontario is studying cheque-cashing fees to determine whether limits should be placed on often double-digit interest rates and fees charged by paycheque loan stores and other intermediaries for cashing government cheques. The idea of exploring fee caps came from Madam Justice Karen Weiler of the Ontario Court of Appeal, who heard about the fee complaints when she visited Thunder Bay last fall as part of a legal outreach program.

"I was very disturbed when I heard these stories. This shouldn't have happened to people who have already suffered," she said.


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