In reasons publicly released on Thursday March 27, 2014, Chief Justice Bauman certified two classes of Canadian merchants who allege a price-fixing conspiracy related to Visa and MasterCard interchange fees. As the first contested certification decision in a price-fixing case since a series of recent Supreme Court of Canada decisions, Watson v. Bank of America Corporation provides critical insight into how courts will decide contested certification motions in complicated price-fixing class actions.
Background and Decision
Ms. Watson alleged that the defendants, Visa, MasterCard, and most of Canada's leading financial institutions, conspired to fix the price of interchange fees. Those fees form the largest part of the fees merchants pay to use the Visa and MasterCard credit card networks. Ms. Watson alleged that the higher interchange fees, along with certain network rules, cause damage to Canadian merchants who accept Visa and MasterCard. The defendants vigorously denied Ms. Watson's allegations. They joined issue on every certification criteria but one, but were largely unsuccessful.
Bauman CJ continued the trend of certifying price-fixing cases. He certified common issues related to (i) alleged breaches of the statutory price-fixing prohibition in the Competition Act, (ii) allegations of a predominant purpose conspiracy, and (iii) parasitic restitutionary remedies arising from the predominant purpose conspiracy. Noting that the defendants took issue with the plaintiffs' entire theory of the case, he dismissed the defendants' myriad of arguments over the course of a 117-page decision.
Bauman CJ noted that the defendants advanced arguments going to the merits of the underlying claim. Certification is procedural and concerned only with whether the case can proceed as a class, not whether the plaintiff will or will not succeed on the merits at trial. The defendants had argued that plaintiff must demonstrate a "genuine controversy" on the merits at the certification stage. Bauman CJ rejected the defendants' attempts to import a modified Twombly "plausibility" standard to the certification criteria. He reiterated that, at certification, the plaintiff's pleading must be taken as true and need only disclose a reasonable claim. The plaintiff need not establish a "genuine controversy".
On the other hand, Bauman CJ dismissed the Ms. Watson's claims for (i) unlawful conspiracy, (ii) intentional interference with economic relations, (iii) constructive trust, and (iv) breach of the statutory price maintenance provisions of the Competition Act.
Can't link non-statutory claims to statutory breaches
In dismissing the plaintiff's claim for an unlawful conspiracy, Bauman CJ relied on the British Columbia Court of Appeal's recent decision in Wakelum v. Wyeth Consumer Healthcare/Wyeth Coins de Santé Inc., 2014 BCCA 36. In that case, the Court of Appeal held that a breach of the Competition Act could not ground other parasitic tort and restitutionary remedies. Rather, the statutory cause of action in section 36 is the only remedy for a breach of the Competition Act. On that basis, Bauman CJ held that "the plaintiff's claims under the Competition Act cannot constitute the foundation for other causes of action. It is not open to the plaintiff to plead unjust enrichment or waiver of tort to the extent that those pleadings rely on acts that are only unlawful as a result of the Competition Act. […] Moreover, the plaintiff's unlawful means conspiracy must fail, as it is based entirely on a breach of the Competition Act."
While the court divided in certifying some but not all causes of action asserted, the practical consequences of the decision remain to be seen. Plaintiffs once used restitutionary remedies in an effort to side-step the possibility of individual loss-based inquiries. But with courts certifying statutory causes of action based on minimal scrutiny of expert evidence, plaintiffs may no longer need restitutionary remedies to establish common issues and that a class action is the preferable procedure.
Minimal scrutiny does not mean no scrutiny
Since the Supreme Court of Canada held that (i) plaintiffs' expert economic evidence at certification need only meet a "credible and plausible" standard, and (ii) certification judges must not weigh competing expert reports at certification, defendants' chance to meaningfully challenge plaintiffs'' expert economic evidence at certification seemed faint. Watson should give defendants some hope.
While Bauman CJ acknowledged that he could not weigh the competing expert reports, he did not reject the defendant's criticisms out of hand. Rather he noted their criticisms and considered whether the plaintiff's expert had addressed these criticisms such that there was "some basis in fact" for the commonality of the loss-related elements of the causes of action. Put differently, Bauman CJ examined whether a fatal flaw in the plaintiff's expert report existed and had gone unanswered. He found no such unanswered flaw.
While his scrutiny of the plaintiff's expert evidence was minimal, it was not perfunctory. That is good news for defendants. Undermining the credibility and plausibility of the plaintiff's expert may be one of defendants' last bastions to resist certification in price-fixing claims in Canada.
Watson continues a trend in which the courts appear determined to lower the bar to certification, avoid any assessment of the merits at the certification stage, and push class actions toward a determination on the merits. In many class actions the plaintiff will concoct pleadings that might disclose a cause of action, but that are likely incapable of proof on the merits. In certifying some of the causes of action pleaded, Bauman CJ candidly noted the difficulties the plaintiff will face in proving her case at trial. Especially as the threshold to summary judgment is being consciously lowered in some provinces, we may see a trend toward motions practice at the summary judgment stage, as defendants seek to dismiss some of the very tenuous claims that are capable of certification given the current state of class actions law.
Bennett Jones LLP acts for the defendant Bank of America Corporation which has reached an agreement in principle to settle the action against Bank of America only. The agreement awaits court approval.