Companies doing business in Canada, and especially franchisors, should review two recent decisions of the Ontario Superior Court of Justice (Court) that considered the risks of communications to members of a proposed or certified class: if such communications persuade people not to participate in the lawsuit, courts have to consider whether to step in to protect the class size and cohesion, so that defendants do not weaken the economic viability of, and possibly "dismember," the class action.
While the underlying principles of the decisions are similar — protecting class members from misinformation about the class action (whether from the defendant or otherwise) — the fact situations and outcomes are different in the two cases.
In VIA Rail Canada1, the defendants had written prior to certification to some of the proposed class of passengers involved in a derailment, and three passengers agreed to settle. The plaintiffs asked the Court to set aside those settlements.
The Court found the defendants’ letters to be acceptable. While it could issue an "extraordinary" order to protect the putative class members (persons not in a direct relationship, prior to certification, with class counsel), it concluded that the settlement offers did not threaten the integrity of the class proceeding, as the letters referenced the lawsuit and the individual’s right to independent legal advice, provided contact information for class counsel and were also sent to class counsel. In the absence of evidence of coercion or other improper behaviour, the settlements made by the defendants were respected.
In Pet Valu Canada2, however, the Court concluded that an "extraordinary" measure of judicial intervention was required. There, the defendant franchisor, after certification, had benefited from the successful efforts of a group of franchisees who were opposed to the lawsuit to convince other franchisees to opt-out of the class action. The plaintiff objected, and the Court agreed to set aside certain opt-out notices because the process had been "irreparably impaired" by those communications.
The objecting franchisees, acting independently of the defendant, had used a telephone blitz and a website to create a noticeable spike in the delivery of opt-out forms. The Court found the website to be exaggerated and misleading, and part of an "unabashed attempt to destroy the class action." The Court concluded that the campaign made no attempt to outline the potential financial benefits of the lawsuit and that it exploited the vulnerable position of the franchisees "by asking for an electronic show of hands" on the website to put pressure on the class members to opt-out. The Court concluded that the opt-out process was subverted and declared certain of the opt-out forms to be invalid.
The Bottom Line
Accordingly, any plan by a defendant or any third party to reach out to class members before or after certification requires careful consideration. The court is ready to step in to ensure that class actions unfold in a fair manner, and while defendants have the right in some circumstances to communicate with class members, the court will act decisively to protect those persons from coercive and misleading communications that threaten the integrity of class proceedings in Canada.