Court of Appeal Overturns Pet Valu Decision: Class Members Can Openly Debate Opting Out Without Invalidating Opt-Out Period

The Ontario Court of Appeal, in reversing a controversial decision that re-opened the opt-out period in a certified class action, has confirmed that class members have “an unassailable right to speak out in opposition to the class proceeding in an attempt to convince other class members to opt out” of the class action, as long as the individual decisions to opt out are not coerced and remain voluntary and informed.

The Lower Court Decision Invalidates the Opt-Outs

On January 14, 2011, Justice Strathy certified a class action against franchisor Pet Valu for a narrow set of claims relating to allegations that Pet Valu had failed to pass on to its franchisees the benefits of volume rebates granted by the franchisor’s suppliers. The certification order approved notice to all class members and advised that they had from July 15, 2011 to September 15, 2011 to opt out of the class action.

The relationship between the parties to the class action was acrimonious, and both sides were concerned that potential class members could be exposed to unfair or misleading communications from their opponents throughout the opt-out process. The certification order therefore incorporated a Plan of Proceeding that required court approval of the parties’ communications with class members during the opt-out period.

Near the end of the opt-out period, a group of Pet Valu franchisees – calling themselves the Concerned Pet Valu Franchisees (CPVF) – started a campaign to persuade franchisees to opt out of the class action. The CPVF’s central tenet was that franchisees should give the franchisor’s new management team a chance to deal with the volume rebates issue, and that a class action would be harmful to Pet Valu’s business. A substantial number of class members opted out during and following the CPVF’s campaign. Following the opt-out period, the representative plaintiff sought a court order invalidating these opt-outs, alleging that they were the result of the CPVF’s campaign and that the CPVF had provided misleading information about the class action and had coerced franchisees to opt out. Justice Strathy granted the order and invalidated the opt-outs.

For more information about Justice Strathy’s decision, see the Osler Update 1250264 Ontario Inc. v. Pet Valu Canada Inc.: In or Out? A Bold Re-Opening of the Opt-Out Period in a Franchise Class Action.

The Court of Appeal Overturns the Decision and Validates the Opt-Outs

On May 3, 2013, in 1250264 Ontario Inc. v. Pet Valu Canada Inc., the Ontario Court of Appeal overturned Justice Strathy’s decision and held that the opt-out notices from former class members were not coerced and were valid.

Both the Court of Appeal and Justice Strathy stated that class members must be permitted to make informed and voluntary decisions about participation in class actions. Both agreed that it was appropriate to scrutinize the CPVF’s conduct using the fully informed and voluntary test from the A&P decision.1 However, the Court of Appeal held that the evidence did not support a conclusion of coercion, noting the following:

  • There was no direct evidence that any class member had been coerced, felt misled or felt intimidated.
  • There was evidence from class members who opted out that they did not experience such pressure or coercion.
  • Class members had access to neutral information about the class action through the court-ordered notices and class counsel’s website.
  • The evidence established that Pet Valu was not linked to the CPVF or its communications and that Pet Valu had not exerted any sort of pressure on class members.
  • Because Pet Valu was not implicated in the conduct, any vulnerability inherent in the franchise relationship should not have been considered.
  • The CPVF had voiced its opinion about the advisability of the class action from a business perspective, not from a legal perspective.
  • The CPVF was permitted to communicate persuasively (but not coercively), and there were no grounds to hold them to a standard of objective neutrality in their communications.

The Court of Appeal’s decision makes it clear that class members can express their opinions about whether or not class members should opt out of the class action as long as there is no coercion.

In addition, the Court of Appeal commented that the representative plaintiff had delayed in bringing the motion and ought to have raised his concern about the CPVF’s communications with the supervising judge during the opt-out period. Had the representative plaintiff done so, the supervising judge could have arranged for alternative measures to increase the representative plaintiff’s participation in the debate.

Finally, the Court of Appeal stated that the number of opt-outs does not affect the viability of the class action except in extreme cases, noting that certification is not determined by a referendum of class members. A class action whose class size is reduced through opt-outs can still proceed.

Implications

This landmark decision highlights class members’ rights to debate whether or not to opt out of a class action and provides further clarity on the line between persuasive debate and coercive communication.


176560 Ontario Ltd. v. Great Atlantic & Pacific Co. of Canada Ltd., 62 O.R. (3d) 535 (S.C.J.), affirmed 70 O.R. (3d) 182 (Div. Ct.) leave to appeal refused.

 

Topics:  Canada, Class Action, Class Certification, Opt-Outs

Published In: Civil Procedure Updates, Franchise Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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