An Ontario court has approved a $125-million class action settlement in a “David vs. Goliath” case against CIBC over the bank’s alleged failure to disclose its exposure to the U.S. subprime mortgage market during the global financial crisis.
Concluding a case that dragged on for 14 years, the Ontario Superior Court of Justice approved a motion to settle the shareholder class action for $125 million, including $37.5 million in legal fees and disbursements to the plaintiffs’ lawyers.
The court noted that after those legal fees and other costs associated with bringing the landmark case there will be about $68 million available to shareholders from the settlement.
The plaintiffs in the case alleged that CIBC failed to properly disclose its exposure to the U.S. subprime mortgage market through residential mortgage-backed securities in 2007, at the height of the global financial crisis, and that the bank’s share price dropped 20% when its exposure was ultimately disclosed.
“The plaintiffs claim that due to CIBC’s failure to make proper disclosure of its risk on its sub-prime investments, they bought CIBC shares at a time when the price was inflated and they suffered commensurate losses when the truth was revealed,” the court noted in its decision.
CIBC agreed to settle the case last month without admitting any wrongdoing.
“While we believe CIBC’s disclosure was appropriate and met all applicable requirements, we have reached an agreement to avoid further legal costs and put the matter behind us,” spokesperson Nima Ranawana said at the time.
In approving the settlement, Justice Fred Myers said he had “no hesitation in finding the settlement agreement” to be “fair and reasonable” to both sides.
While the legal fees represented 30% of the settlement, he said they were earned given that the case that involved shareholders taking on a massive bank and fighting all the way to the Supreme Court of Canada.
“This was a David v. Goliath situation and the little guy survived by hard work, perseverance, and impressive tolerance of risk,” he said in his decision.
Additionally, the action represented a “bet the firm” case to the lawyers involved from Rochon Genova LLP, as they had agreed to indemnify the plaintiffs if they lost the case and costs were awarded to the bank. That bill would have amounted to several million dollars, the court noted.
The firm also spent $7.5 million on expert evidence in bringing their case, it said.
“By any standard, the partners of class counsel’s law firm incurred personal risk that was significant both in the likelihood of an adverse event and in the high quantum of liability to be incurred if a negative event came to pass,” the court said.
While the judge noted that he was “troubled” by the fact that shareholders are only getting about 55% of the settlement total, with 30% going to the lawyers and about 15% to other costs associated with bringing the case, he ultimately had no issue approving the lawyers’ fees.
“In all, considering fully the interests of the class members, the importance of counsel being rewarded for their efforts but the need to strictly protect against unreasonable fees or fees that would impact negatively on the integrity of the profession, I see nothing unreasonable or untoward about the fee request advanced by counsel,” Myers said.
“This is a ‘bet the firm’ case which went on for 14 years, with very significant risks, and very satisfactory results. On the facts, this may be the poster child for a mega-case in which full fees ought to be maintained,” he added.