A recent decision denying certification of a proposed class action includes some noteworthy comments regarding the preferable procedure requirement. In Excalibur Special Opportunities LP v. Schwartz Levitsky Feldman LLP, Perell J. found that joinder of claims was preferable to a class action where there were no significant economic, psychological or social barriers to individual actions. In reaching that conclusion, Perell J. made specific reference to the fact that the moving party did not demonstrate a “genuine need” for the common issues to be resolved on a class-wide basis, and implied that certification will not be granted simply because certification would result in “intense pressure” on the defendant to settle.
The proposed representative plaintiff was a Canadian investment fund that purchased privately-placed shares of a Chinese hog producer. The Private Placement Memorandum given to potential investors included a clean audit report prepared by the defendant, a Canadian accounting firm. When the company went bankrupt shortly thereafter, the plaintiff sued the defendant for negligence and negligent misrepresentation and sought to certify the action as a class proceeding on behalf of all those who invested in the private placement.
Perell J. refused certification, as the proposed class action failed to meet the identifiable class and preferable procedure requirements. This post focuses in particular on Perell J.’s comments with respect to the preferable procedure analysis.
Preferable Procedure: Not an Automatic Pass
The question of whether a class action is a preferable procedure is analysed through the lens of the purposes of class proceeding: judicial economy, behaviour modification and access to justice. InExcalibur, Perell J. noted that, in considering the preferable procedure criterion, the court should consider:
- The type or genre of class action (e.g. franchise, personal injury, economic loss, etc.), as plaintiffs in different types of class actions will have different access to justice concerns;
- Whether the type of remedy being sought is declaratory, compensatory, or restitutionary, since access to justice cannot be divorced from ensuring that the ultimate remedy provides substantive justice where warranted; and
- Proportionality in civil procedures and its relationship to access to justice.
Considering all of these factors, Justice Perell found that the alternative of a joinder of claims was preferable to the proposed class action as it would provide effective redress for the plaintiff and any other investors who could join the action as co-plaintiffs while protecting their procedural rights. Perell J. based this finding on several facts, including the following:
- The proposed representative plaintiff had an almost $1 million claim that would justify taking on the litigation risk – it did not genuinely need a class action to obtain access to justice.
- The class members were all known and were all “accredited investors” (had a net worth of at least $1 million or two years of $200,000 plus income) so were not without resources to litigate.
- There was enough money at stake to warrant a contingency fee arrangement even without a class action.
- A class action would achieve only modest judicial economy over individual actions or the joinder of claims, especially since (i) it required the additional formality and expense of a certification motion, and (ii) individual issue trials would be required in any event.
- There were no psychological or social barriers to bring individual claims, such as might be present in an employment or franchise class action where the class members may be intimidated or reluctant to sue their boss or franchisor.
- While a class action would be manageable, it would also be more procedurally cumbersome and protracted than a regular action.
- Behaviour modification was not needed beyond the behaviour modification that comes from a regular tort action.
Excalibur contained some fairly pointed comments which suggest that, at least in the particular circumstances of the case, the Court required some meat, in the form of a demonstrated genuine need, on the bones of an argument regarding preferable procedure. The Court noted that all the representative plaintiff had done was demonstrate that there was “a group of claimants with manageable common issues”. That was, in the Court’s view, not enough to satisfy the preferable procedure requirement notwithstanding that it is an “easy to satisfy standard”. The Court’s comments regarding the use of certification as a way put pressure on defendants to settle were also noteworthy. It will be interesting to see whether future cases will pick up on these comments.