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Unpacking the risk of class action

Industry Spotlight
|Written By Vawn Himmelsbach
Unpacking the risk of class action

The travel and hospitality industry is going through immense changes — instead of booking a trip at a travel agency, many consumers and businesses are searching deal sites, making comparisons, and booking their own travel online.

While some may argue this has led to a more competitive environment for consumers and businesses, others are challenging certain arrangements between online booking agencies and hotel chains, alleging price fixing and other competition breaches.

In 2012, two major travel-related class actions were filed in the U.S. The first, Turik v. Expedia Inc. (including Marriott International Inc., Starwood Hotels & Resorts Worldwide Inc., and Hilton Worldwide Inc., among others), was filed in the Northern District of California. That was quickly followed by a class action filed by James Smith against the same group of defendants in the Northern District of Texas.

In April, a US$55 million settlement was reached in the unfair business practices pending class action in Texas. Expedia is appealing the charges, claiming faulty evidence and an incorrect interpretation of the law.

The tourism and hospitality industry is increasingly being targeted in the U.S. and there are some signs that trend is creeping up into Canada, says Christopher Naudie, who practices corporate and commercial litigation with Osler, with a strong focus on class action defence and cross-border litigation. High-profile class actions in the U.S. tend to open the door for copycat class actions in Canada.

So why are plaintiffs casting an eye on this industry? Travel and hospitality is a high-profile industry, but it’s also going through major changes, thanks to the explosion of options for online bookings. So class action plaintiffs may want to roll the dice.

Here in Canada, Juroviesky and Ricci LLP filed a class action in July 2009 against Expedia Canada Corp. and Expedia.ca in the Ontario Superior Court of Justice. The suit alleges widespread violations of consumer protection legislation, including an allegation that consumers were sold lodging accommodations and charged a non-itemized taxes and services fee charge in violation of the Consumer Protection Act and the Competition Act.

“It is ironic because most people say this industry is one of the most competitive in the world, particularly because of options for booking through the Internet,” says Naudie. “From the perspective of the consumer, relative to the world that existed 10 years ago, one would be hard pressed to say there’s not vigorous price competition in this industry.”

Despite this, we’re seeing challenges in the courts to certain vertical arrangements between online booking agencies and hotel chains.

While we’re seeing class action litigation related to consumer protection legislation, there are others, such as a pending class action in Vancouver against hotel chains relating to the disclosure of fees on hotel invoices and whether there’s been applicable consumer disclosure and consent to those fees.

There has also been pending class action litigation in Canada against the airlines (which has been going on for years), which relates to surcharges on certain travel arrangements.

Then there’s an allegation against Aeroplan related to unilateral changes to loyalty plans, and whether or not those changes can be made in light of consumer protection statutes.

“In light of the Aeroplan case, one may question whether hotels may be a target as well,” says Naudie, adding that most hotel chains offer a loyalty program to their customers. “Whenever you’re changing a contract or changing a fee, get advice from counsel to make sure the appropriate disclosure is made.”

Typically plaintiff lawyers see something in the media that they find interesting, such as a regulatory finding or price fixing allegation. Then they look at whether it’s something that could be pursued in Canada. If it is, they look for plaintiffs, says Jill Yates, a partner in the litigation group with McCarthy Tétrault LLP.

In some cases, Canadian plaintiff lawyers might form a coalition with U.S. plaintiff lawyers, who would potentially receive some sort of remuneration in exchange for strategic advice. Or, there might be an industry, lobby, or consumer group that operates both north and south of the border.

“Does that mean a case like the Marriott case from the U.S. could happen here? Absolutely it could,” says Yates. “That’s where most Canadian class actions come from — (we) see it happening in another jurisdiction.”

There are differences in the law, however. Antitrust law in the U.S. is different from Canada, so there have to be some adjustments.

Also, in the U.S., all class actions are grouped together and the courts decide which will go ahead in which jurisdiction. That means there’s a single proceeding for all class actions.

We don’t have that in Canada, says Yates. Class actions are determined in the superior courts of each province, not in federal court, so there are complicated legal issues associated with trying to bundle together a case into one province. This occasionally does happen, though it’s usually informal and by consent.

One of the challenges with the tourism and hospitality industry is the online booking model, where travel and hotel bookings occur across borders. Any travel-related business must be mindful of local legislation that may apply to distribution arrangements. “Just because your distribution, pricing, or online model may be compliant in the U.S. doesn’t mean it will be compliant in Canada,” says Naudie.

While there’s latitude in the industry to explore creative pricing agreements, it’s always wise to get advice from external counsel, he said. The same goes for making changes to contracts with consumers.

“There’s no way to immunize yourself in any industry from any class action,” says Naudie. “However, you can take prudent steps to make sure your procedures are compliant, which will diminish the potential risk.”

If you’re hit with a class action, it’s important to get representation quickly and coordinate your defense, he says, because the certification process can move quickly.

In terms of avoiding a class action altogether, there isn’t a lot that can be done, says Yates. Consumer protection legislation makes Canadian companies vulnerable to this, “so you’re better to try to protect yourself on the merits than the class action.”

“The legislation is deliberately encouraging of class actions in the interest of access to justice,” says Yates. That means the chips are stacked against defendants, she added. It’s not about having a dead-winner case; the plaintiff just has to plead reasonable cause, enough that a judge will let the case continue.

“You should assume you’re going to be a target and get advice about the merits,” says Yates. “If you are vulnerable on merits, then you’re vulnerable.” Be prepared, such as having appropriate document preservation measures.

The fact that a class action has been filed doesn’t mean there’s any merit to the underlying allegations, but there are reputational consequences and this can lead to customer and supplier inquiries. So it’s also important to ensure you have the right messaging, says Naudie, to underscore your confidence in your business model.

But this puts the defendant in a tough position — if they’re not doing anything wrong. While your company may not want to engage with the plaintiff lawyers, says Yates, you also don’t want those lawyers to have a mouthpiece to talk about your client in the media. That means some sort of response is usually necessary.

In-house counsel in the travel and hospitality industry should recognize they are vulnerable, says Yates, and that increases the chances they’re going to be targeted by a class action. They should understand their exposure under Canadian law, make sure their house is in order, and have a team ready to be deployed if needed.

“Take any preventative measures — not class action preventative measures, but subject matter prevention measures. Talk to competition lawyers, make sure the way you’re doing it is okay,” says Yates.

Often this isn’t part of the daily business of in-house counsel, so it’s important to periodically look around and see if the landscape has changed, she says. You may never face a class action, but it’s worth the investment to have a conversation about it — particularly if you’re exploring new pricing practices.

The travel and hospitality industry in particular is ripe for legal action, considering what’s going on in the U.S.

For any industry in Canada — especially one where you’re dealing with consumers, and where price is an issue — it’s always important to watch the trends, particularly if there’s parallel litigation going on in the U.S., says Naudie. “Be mindful that the risk is out there.”

Expedia class action to move forward in Canada

While Expedia has been making headlines south of the border, the class action filed in July 2009 against its Canadian counterpart (Expedia Canada Corp. and Expedia.ca) is moving ahead after being certified earlier this year on Feb. 1.

The class action, filed by Juroviesky and Ricci LLP in the Ontario Superior Court of Justice, is based on alleged violations of the Consumer Protection Act and Competition Act.

The plaintiff alleges that Expedia, which serves as a broker or middleman for hotels, didn’t remit the full sales tax to the hotels, but instead remitted the sales tax on the wholesale rate — and then pocketed the difference.

“This is a rare class action because the vast majority settle after certification,” says Henry Juroviesky, managing partner at Juroviesky and Ricci. “Here they are moving

it forward past certification. We’re really in a territory that’s quite new.”

The class action is asking for $50 million, “but we just want a refund of any fees that were unlawfully charged and better disclosure on the web site,” says Juroviesky.

Each online travel company has a different set of terms and conditions in its contract. If they bury something in the contract that says they can do what they’re doing, it’s hard to sue them. In this case, the allegation is that Expedia is prohibited by contract from having a services fee — but other online travel companies may have a contract that permits it.

There were two recent wins against Expedia in the U.S., in Texas and Hawaii, “so that’s a step in the right direction,” says Juroviesky.

That being said, the laws are different in Canada and the U.S.

“I wouldn’t say U.S. law will have no effect (on what happens in Canada),” says Juroviesky. “What a U.S. judge has to say is closely analyzed and listened to in Canada.”

But whether it has any practical ramifications in Canada is yet to be decided in the courts. — VH

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