Intra-class Debate Permissible During Opt-Out Period: 1250264 Ontario Inc v Pet Valu Canada Inc

by Bennett Jones LLP
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On May 3, 2013, the Ontario Court of Appeal released its decision in 1250264 Ontario Inc v Pet Valu Canada Inc, which addresses the propriety of communications among class members during the “opt-out” period when class members may remove themselves from a class proceeding.1 The Court of Appeal held that the communications at issue “amounted to the type of intra-class debate that is acceptable during the opt-out period”, notwithstanding that the purpose of the communications was explicitly to persuade class members to opt out.2

The case involved allegations that Pet Valu, as franchisor, had breached its contractual obligations to its franchisees by failing to share certain volume discounts and rebates it had received from suppliers and manufacturers. The proceeding was certified in 2011, with a class consisting of 256 current and former Pet Valu franchisees from Ontario and Manitoba.

After notice of certification was provided to the class, a group of franchisees initiated a concerted campaign to try to persuade other class members to opt out of the proceeding on the grounds that the lawsuit was inimical to the franchisees’ business interests. The group conducted a “telephone blitz” encouraging franchisees to opt out, and hosted a website voicing opposition to the class action and which posted a tally of opt-outs. In cases where permission was given, the website also named the class members that had opted out and provided their store locations.

The opposition group’s efforts appear to have succeeded. By the opt-out deadline, about 65 percent of current franchisees and 10 percent of former franchisees had removed themselves from the action.

The motion judge held that these facts were sufficient to set aside the opt-out notices received after the commencement of the campaign on the grounds that the class members’ ability to “exercise their right to participate in or abstain from the class action on an informed, voluntary basis, free from undue influence” had potentially been undermined.3

However, the Court of Appeal reversed. On behalf of the court, Chief Justice Winkler held that the “fully informed and voluntary” standard had not been breached, although there was a real risk that the type of tactics employed could “cross the line”. In the absence of evidence that the opposition group had been controlled by Pet Valu, or that class members had been misinformed, threatened, intimidated or coerced, the Court of Appeal held that “[t]hese former class members had an unassailable right to speak out in opposition to the class proceeding in an attempt to convince other class members to opt out”.4

Notably, the Court of Appeal also held that the motion judge had erred in applying a standard of objectivity to the communications by the opposition group. Unlike communications from counsel or parties to the litigation, intra-class communications during the opt-out period are not required to be fair and balanced. Post-certification, class members will have other sources to round out the picture. Moreover, class members are entitled to take a position on the wisdom of participating in the proceeding:

The [opposition group’s] website to which the motion judge took exception… contains assertions of belief that the class action is not in the best interests of franchisees and that it is driven by lawyers with a large financial state in the outcome. The comments amount to no more than the … members expressing their opinion on the undesirability from a business perspective of pursuing the lawsuit, as opposed to denigrating the technical merits of the action. The opt-out provision is the appropriate mechanism for class members to voice these types of objections to the wisdom of a class action[.]5 

While the result in Pet Valu is of interest to class proceeding litigants, it does not affect their obligations or those owed by their counsel. Communications with class members by parties to a proceeding or their counsel will be subjected to greater scrutiny, and will be held to an objectivity standard that did not apply to the communications in Pet Valu.6

However, the Court of Appeal’s decision is of practical significance to litigants in respect of the timing and the proper parties to any challenge in respect of opt-out period communications. The Court of Appeal was critical of the plaintiff in Pet Valu’s failure to bring the impugned communications to the attention of the case management judge promptly, and held that the franchisees that waged the opposition campaign (and had opted out of the proceeding) were not proper parties to the motion to challenge the validity of the affected opt-out notices.


Notes

  1. 1250264 Ontario Inc v Pet Valu Canada Inc, 2013 ONCA 279.
  2. Ibid., at para. 75.
  3. Ibid., at para. 41.
  4. Ibid., at para. 73.
  5. Ibid., at para. 74.
  6. See for example, Lundy v VIA Rail Canada Inc, 2012 ONSC 4152, 111 OR (3d) 628 (Sup Ct).

 

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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