Speak Your Mind: Third Party Communications in Class Actions Clarified by Appellate Court

By Carole Piovesan – McCarthy Tetrault

For those choosing not to participate in a class action, the Court of Appeal in Pet Valu Canada Inc., has now clarified their right to communicate freely with fellow class members still considering their decision.

Background

The plaintiff represents a class of franchisees claiming that Pet Valu Canada Inc. had a duty to pass on volume discounts and rebates received from suppliers.

After certification and during the opt-out period, several franchisees opposing the lawsuit formed a group known as “Concerned Pet Valu Franchisees” (CPVF) aimed at encouraging other franchise owners to opt-out of the action. CPVF launched a telephone and web campaign that included direct calls to franchisees to persuade them to opt-out, and the online publication of the names of franchisees that had opted-out of the class action.

The results of the campaign were dramatic. By the end of the opt-out period – 11 days after the start of the campaign – the number of opt-out forms received jumped from 37 to 140. This amounted to 65% of current and 10% of former franchisees, thereby drastically reducing the size of the class.

The Lower Court Decision

The plaintiff brought a motion to set aside those opt-out notices. The motion was granted by Justice Strathy, who concluded that CPVF’s actions established a “reasonable probability…that many franchisees decided to opt out as a result of misleading information and unfair pressure amounting to intimidation.”

Concerned that franchisees were not making a voluntary and informed decision to opt-out of the class action, Justice Strathy invoked his discretion under s. 12 of the Class Proceedings Act, 1992 to nullify all opt-out notices received after the commencement of CPVF’s campaign. He also extended the opt-out period to a date after final disposition of the action.

The Court of Appeal Overturns Strathy J.’s Order

The Court of Appeal concluded that Justice Strathy’s analysis erred in two material respects. First, His Honour erred by drawing an inference of undue influence and coercion in the absence of direct evidence. Unlike the earlier A&P decision (2002 CanLII 6199 (ON SC)) where the court had direct evidence of coercive tactics, Justice Strathy had drawn an inference of coercion from the content of the statements on CPVF’s website and the perception that the disclosure of names and store locations of opt-outs on the website had a coercive effect. On the evidence, the Court of Appeal set aside that inference.

Second, the Court of Appeal disagreed with Strathy J.’s finding that CPVF’s campaign was unfair because it failed “to provide any form of informational balance or to discuss the issues in the class”. The finding incorrectly set a standard of objectivity for a third party to the action and misapplied the informed and voluntary test.

Importantly, the Court determined that the information presented by CPVF in favour of opting-out of the action amounted to a business perspective. CPVF did not purport to discuss the legal merits of the action and, in any event, class members had access to the court-approved certification notice and class counsels’ website with full particulars of the action. The Court concluded that CPVF’s communications were “simply acceptable intra-class debate” and did not undermine the class members’ ability to make an informed and voluntary decision about opting-out.

Conclusion

The Court of Appeal has now recalibrated the standard for communication by non-parties to class members during the sensitive opt-out period.

As is often the case, however, the limits of judicial guidance remain to be tested. Were the campaign’s tactics subliminally coercive or was it the campaign’s direct communication with class members that drove up opt-outs (as opposed to passively posting information online for members to access and understand on their own)? Where neutral information about the lawsuit is available to class members, is any communication that is not expressly coercive acceptable? For now, third parties may present subjective positions and perspectives to class members without judicial supervision or intervention.