This month, the Ontario Court of Appeal upheld the validity of a class action opt-out process in which a group of class members engaged in a concerted attempt to pressure other class members to opt out of the action through the use of misinformation and pressure.
Section 9 of the Class Proceedings Act, 1992 permits class members to opt out of a class proceeding during a finite period after certification of an action in a manner specifically set out in the court-approved notice. It is left to the courts to police the conduct of the class during the opt-out period in order to ensure class members are free to exercise their right to participate in or abstain from the class action on an informed, voluntary basis, free from undue influence. Judicial intervention in the opt-out process is necessary where defendants, class members, or other persons engage in misinformation, threats, intimidation, or coercion and the integrity of the process becomes compromised.
1250264 Ontario Inc. v. Pet Valu Canada Inc. concerned an appeal from an order made by the court addressing the validity of the opt-out process in a certified class proceeding. The action was brought on behalf of franchisees of the Pet Valu chain who claimed Pet Valu had a duty to share with its franchisees the volume discounts and rebates it received from suppliers. Communication with class members became an extremely contentious subject in this action and by order of the court, neither side was permitted to communicate with the class without court approval.
Following the certification of the action, a group of franchisees who did not want to participate in the class action began to wage a concerted campaign to convince other franchisees to opt out. The franchisees waging the opt-out campaign conducted a telephone blitz, calling every franchisee to encourage them to opt out, and launching a web site voicing strong opposition to the class action. The result of this campaign was dramatic: 65 per cent of current franchisees and 10 per cent of former franchisees opted out of the class action, drastically reducing the size of the class but not gutting it.
In response to the opt-out war waged by the dissident franchisees, the representative plaintiff moved to set aside certain opt-out notices. The motions judge identified many specific concerns with the information published on a web site, finding it both misleading and intimidating. Given the representative plaintiff was not permitted to communicate with other class members to correct this misleading information, it was reasonable to seek the court’s directions.
The motion judge found this behaviour constituted a well-organized, systematic, and highly effective campaign to deal a “death blow” to the class action. Recognizing the impropriety of this conduct, the motion judge granted the motion in part by invalidating any opt-out notices received following the campaign and provided for a new opt-out period to take place following the final disposition of the action.
On appeal, the court allowed the appeal and set aside the order invalidating the opt-out notices. The Court of Appeal recognized that class members ought to participate in or abstain from a class action on an informed, voluntary basis, free from undue influence. In this case, the court found this particular opt-out campaign did not cross the line. The court made that other cases, arising on different facts, and on a different record, may raise different considerations.
For example, in 1176560 Ontario Ltd. v. Great Atlantic & Pacific Co. of Canada Ltd., the court held that an opt-out war has the potential to frustrate an important goal of the Class Proceedings Act, namely, access to justice. In that case, the defendant franchisor used various techniques to attempt to scare off class members. The court recognized in Great Atlantic & Pacific Co. that class actions, by their nature, can overcome economic barriers to redress by aggregating individual claims.
Given the high cost of class action litigation, where the size of a class is dramatically reduced through defence coercion and intimidation, the entire calculus of the viability of the action comes into question. Moreover, significant time and expense will be required to combat the tactics used in the opt- out campaign maintained by a well-financed defendant.
In Great Atlantic & Pacific Co., the court used s. 12 of the act to nullify the inappropriate steps the defendant had taken to “gut” the class action. In Pet Valu, the Court of Appeal confirmed that case-management judges do indeed have such powers and that they should exercise those powers in clear cases and on a clear record.
More importantly, in Pet Valu, the Court of Appeal also confirmed that certification is not, and should not, be turned into a poll on the class actions. Accordingly, evidence going to whether class members do or do not favour the class action will almost always be irrelevant at the certification stage.