Publications

February 20, 2013

Keepin’ It Class-y: The Ontario Superior Court of Justice takes extraordinary measures to protect the class action process

In 1250264 Ontario Inc. v. Pet Valu Canada Inc.[1] (“1250”), Justice Strathy of the Ontario Superior Court of Justice took the extraordinary step of invalidating the majority of opt-out notices obtained from potential class members in a certified class proceeding due to the irreparable damage caused to the process by the aggressive conduct of a third party. Given the exceptional circumstances of the case, however, it is unclear where courts will draw the line with respect to the communications and conduct of parties in more ‘grey area’ cases.

Background Facts

The plaintiff represents the franchisees of the defendant company, Pet Valu Canada Inc. (“Pet Valu”), and alleges that Pet Valu abdicated its duty to share a portion of the volume rebates that it receives from suppliers when buying for the whole chain. The plaintiff seeks a share of those discounts.

Following an acrimonious certification process, the action was certified in January 2011. The court imposed a Plan of Proceeding (the “Plan”), stating that all communications between Pet Valu and potential class members were subject to court approval until the end of the opt-out process. This aspect of the Plan reflected a particular concern “that the integrity of the opt-out process would be impaired if class members were subjected to unfair, misleading or oppressive communications by either party.”[2] While the Plan made allowances for the parties to communicate with respect to their commercial relationship, it was silent as to the rights of third parties to discuss the class action.

Notices went out to all potential class members in June 2011. The Concerned Pet Value Franchisees (the “CPVF”) was then created and became involved. The CPVF is a lobby group comprised of certain Pet Valu franchisees who were also members of the Canadian Franchise Council (the “CPC”), a franchise association established by Pet Valu. The stated purpose of the CPVF was to encourage their colleagues to opt-out,[3] and the CPVF engaged in an active campaign in order to achieve this end.

The campaign was two-fold. First, CPVF members conducted a “telephone blitz” whereby all of Pet Valu’s franchisees were called and encouraged to opt-out. Second, the group created a webpage which featured, amongst other things,[4] (i) the number and identity of franchisees who had opted out; (ii) CPVF’s opinion that the proposed class action is inadvisable; and (iii) statements to the effect that class members who opted out would “still have the right to individually or collectively pursue [their] rights.”

The opt-out period ran from July 15, 2011 until September 15, 2011. By September 5, 37 opt-out forms had been received from class members. By September 15, that number had “spiked” to 140 forms, representing 65% of current franchisees and 10% of former franchisees.[5] Justice Strathy attributed this spike to the CPVF’s efforts, which he characterized as so partisan, misleading and tainted by intimidation tactics[6] that franchisees’ fundamental right to access to justice under the opt-out process was called into question.

The major issue for Justice Strathy to decide was whether the campaign that the CPVF undertook to convince franchisees to opt-out of the class action had a sufficiently deleterious effect on the opt-out process to justify judicial intervention.

Justice Strathy had several concerns with the CPVF’s campaign. With respect to their telephone campaign, the CPVF asked the franchisees they called “to state publicly whether they agreed with the position taken by the [CFC Executive] and whether they would support that position by opting out of the class action.”[7] As Justice Strathy noted, this question was typically being asked by a member of the CFC Executive, albeit on behalf of the CPVF.[8]

With respect to their website campaign, Justice Strathy’s concerns included the following:[9]

  • those who had opted-out were named on the website and therefore, those who chose not to opt-out could be identified by process of elimination, stripping them of their right to anonymity;[10]
  • it promoted the message that the class action was bad for the franchisees and that not opting-out would damage their ongoing business relationship with the franchisor;[11]
  • it “painted an exaggerated and misleading picture of the dire consequences of the class action...” and “[i]t made no attempt to identify, or to discuss the potential financial benefits of the class action”;[12]
  • it disparaged class counsel as solely interested in obtaining their fees;[13]
  • it stated that the class was motivated by a desire to “punish” Pet Valu’s former owners;
  • it presented misleading information about the legal rights of franchisees who opted out;[14] and
  • it made exaggerated claims regarding the effect that the class action would have on franchisee profitability and the Pet Valu brand that “[lacked] any factual or evidentiary foundation.”[15]

Analysis and Decision

Justice Strathy held that “the CPVF telephone campaign and website were an attempt to destroy the class action,”[16] and concluded that:

There is a reasonable probability... that many franchisees decided to opt out as a result of misleading information and unfair pressure amounting to intimidation.[17]

While accepting that the opt-out process can be a mechanism for parties to express disapproval of the class action or to pursue other methods of problem-solving,[18] Justice Strathy emphasized that the opt-out process in a class proceeding must be fair and free of coercion. He noted that the Class Proceedings Act “contemplates that important notices to class members was to be approved by the court.”[19] Further, he held that the court must intervene where the integrity of the class members’ right to an informed, voluntary and non-coercive process is threatened.[20]

Justice Strathy concluded that the pressure and misinformation propagated by the CPVF had poisoned the opt-out process and therefore, he declared any opt-out submitted on or after the “spike” of September 5, 2012 to be invalid. Any opt-out prior to that date was to be presumed valid. The opt-out process was postponed until the release of the court’s decision in an upcoming summary judgment motion or other final disposition of the matter. At that point, the class members whose opt-outs were declared invalid would be given a further opportunity to opt-out.[21]

Justice Strathy acknowledged that the ordered relief was “extraordinary”, but noted that the circumstances were extraordinary; circumstances which engaged his overriding responsibility to protect the integrity of the court’s process as well as the rights of all class members.[22]

Conclusion

The decision in 1250 was driven by its own unique facts: an acrimonious certification process resulting in a court-imposed Plan that limited communication, an aggressive telephone and internet campaign by a third party group, and the dissemination of misleading and biased information. However, the broader lesson to be drawn from the decision is that our courts will not hesitate to use the powers set out in the Class Proceedings Act with respect to notice, in order to protect the integrity of the opt-out process and the rights of absent class members, whether or not the impugned conduct involves a party to the proceeding.



[1] 2012 ONSC 4317, 218 A.C.W.S. (3d) 762 [1250].

[2] 1250 at para 15.

[3] Ibid. at para 37.

[4] 1250 at para. 55.

[5] Ibid. at para. 21.

[6] 1250 at paras. 55, 71.

[7] Ibid. at para 51.

[8] Ibid.

[9] 1250 at para. 54.

[10] 1250 at paras. 68-70.

[11] 1250 at para. 54.

[12] 1250 at para. 71.

[13] 1250 at paras. 73-74.

[14] 1250 at para. 72.

[15] 1250 at para. 54.

[16] 1250 at para. 55.

[17] 1250 at para 75.

[18] 1250 at para. 63.

[19] 1250 at para. 57

[20] 1250 at paras. 59-63.

[21] 1250 at para. 83.

[22] 1250 at para. 80.