Ontario Court of Appeal Overturns Decision to Invalidate Opt-Out Notices

In a decision in 1250264 Ontario Inc. v. Pet Valu, dated May 3, 2013, the Ontario Court of Appeal overturned an Ontario Superior Court of Justice decision to invalidate certain opt-out notices delivered in a class proceeding between Pet Valu Canada Inc. (“Pet Valu”) and its franchisees.

The Court 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,” as long as any class members who opt out do so on an informed and voluntary basis.

The class action was certified in January 2011. The certification order approved the notice of certification and provided for a sixty day opt-out period, which commenced on July 15, 2011.

It also required that the parties' communications with class members – which had become a contentious issue – be subject to the court's direction until the expiry of the opt-out period.

Importantly, the order did not restrict the right of the other franchisees (aside from the representative plaintiff) to communicate about the class action.

Toward the end of the opt-out period, a group of franchisees calling themselves the Concerned Pet Valu Franchisees (“CPVF”) commenced a campaign to encourage other franchisees to opt out of the class action.

The campaign involved telephone calls to all franchisees and the launch of a website that, among other things, kept a tally of all class members who had indicated an intention to opt out.

The CPVF's central message was that class members should give Pet Valu's new management team a chance to address the dispute and that the class action would harm Pet Valu's business.

A significant number of class members opted out after the start of the campaign.

In February 2012, the representative plaintiff delivered their motion record for an order setting aside all of the opt-out forms.

The motion was heard in July 2012. The motion judge held that the CPVF's actions had impaired the opt-out process to an extent requiring judicial intervention.

He granted an order setting aside all of the opt-outs received on or after the start of the CPFV's campaign and directed that a new opt-out period be held following a determination of the class action on its merits. Notably, the motion judge found that Pet Valu was not involved in the CPVF's campaign.

Pet Valu and the individual members of the CPVF appealed the decision.

On May 3, 2013, the Court of Appeal overturned the motion judge's order and upheld the validity of the opt-outs.

The Court held that there was “no evidence to support a finding that the opt-outs by individual class members were not voluntary or fully informed.”

For example, there was no direct evidence to establish that a class member had been misled or intimidated.

Conversely, class members who had opted out provided evidence confirming they had done so voluntarily.

Further, as Pet Valu was not implicated in the CPVF's conduct and had not exerted pressure on the franchisees, there was no basis for the motion judge to have considered the vulnerability inherent in the franchisor/ franchisee relationship.

The Court of Appeal also found that the motion judge erred by holding the CPVF's communications to a standard of objectivity. It stated that the CPVF had merely voiced its opinion on the undesirability of the class action from a business perspective.

The class members were able to consider these opinions in the context of the objective information provided in the notice of certification and on class counsel's website. On that basis, the Court of Appeal described the CPVF's communications as the “type of intra-class debate that is acceptable during the opt-out period.”

In addition, the decision provides guidance for parties to a class action who learn that class members may be engaging in questionable conduct during the opt-out period.

It states that the representative plaintiff should promptly notify the supervising judge, and that the defendant should also take proactive steps to reduce the risk that any opt-outs will be set aside.

Pet Valu was represented by Cassels Brock and Blackwell LLP with a team that included Geoffrey Shaw, Derek Ronde, Eric Mayzel, and Rob Kligman.

The representative plaintiff was represented by Sotos LLP with a team that included David Sterns and Jean-Marc Leclerc.

The individual members of the CPVF were represented by Lawrence Theall, James Norton and Bevan Brooksbank of Theall Group LLP.

Lawyer(s)

James G. Norton Robert Kligman Jean-Marc Leclerc Lawrence G. Theall David L. Sterns Geoffrey B. Shaw Derek Ronde Bevan Brooksbank Eric Mayzel

Firm(s)

Cassels Brock & Blackwell LLP Sotos LLP Theall Group LLP