Victory for Consumers in Recent Supreme Court Class Action Certification Trilogy
On October 31st, the Supreme Court decided three appeals concerned with certification of class action lawsuits. All three cases involved claims related to overcharging and price-fixing. In two cases, the class action was allowed to proceed, and in one, the application for certification was dismissed. Not only do the lawsuits represent millions of dollars in potential claims, the outcome of the recent decisions makes it easier to hold companies accountable for undesirable conduct and is highly relevant to at least a dozen other price-fixing cases currently pending in Canada.
The Supreme Court Decisions
Pro-Sys Consultants Ltd. v Microsoft Corporation 2013 SCC 57 was a class action from B.C. alleging that beginning in 1988, Microsoft unlawfully overcharged its customers for its Intel-compatible PC operating systems and Intel-compatible PC applications software. The B.C. Supreme Court had certified the action but was overturned by the majority of the Court of Appeal. The Supreme Court of Canada upheld the B.C. Supreme Court’s decision to certify. The pleadings disclosed a cause of action under the Competition Act, the torts of predominant purpose conspiracy, unlawful means conspiracy, intentional interference with economic interests and a restitutionary claim in unjust enrichment. It was not plain and obvious that these claims would fail. There was an identifiable class with common issues and a class action was the preferable procedure to address the issues.
Sun-Rype Products Ltd. v. Archer Daniels Midland Company 2013 SCC 58 was also a class action from B.C. alleging that the defendants engaged in an illegal conspiracy to fix the price of high fructose corn syrup resulting in harm to manufacturers, wholesalers, retailers and consumers. The action was certified at trial but the Court of appeal partially overturned the trial judge’s decision. The Supreme Court went further and dismissed the entire suit. One claim failed because there was no identifiable class and the other because it was plain and obvious that the cause of action in constructive trust would fail.
Infineon Technologies AG v. Option consommateurs 2013 SCC 59 was a class action from Quebec concerning the acknowledged participation of manufacturers of DRAM microchips in an international conspiracy to suppress and eliminate competition by fixing prices. The motion judge found that they did not have territorial jurisdiction to hear the claim. The Court of Appeal set aside the decision and granted the motion for authorization to institute a class action. The Supreme Court upheld the Court of Appeal’s decision, finding that material damage was suffered in Quebec giving the court jurisdiction to authorize the class action. There were sufficient common questions, there were no differences between class members that would adversely effect the unity of the group and the plaintiff had made out an arguable case in support of the claim.
Indirect Purchasers are a Certifiable Class in Price-fixing Cases
All three cases dealt with the issue of whether an indirect purchaser, that is a customer who is overcharged because they purchased a product from a middleman in the supply chain who in turn was overcharged by the manufacturer, could sue the party who originally caused the overcharge. The Supreme Court had previously ruled that an overcharging manufacturer could not raise the fact that a direct purchaser (the middleman) had passed the overcharge on to their customers as a defense against the direct purchaser. On this basis, it was argued that the indirect purchaser should not be able to sue the overcharging manufacturer directly. The Supreme Court rejected this argument, deciding that allowing the actions to proceed was in accordance with the objectives of deterrence and remediation and the risk of double or multiple recovery could be adequately managed by the court.
Class Actions May Be Justified on the Basis of Deterrence Alone
In Sun-Rype, the defendants argued that because the award per indirect purchaser would be so small, that it would be impractical to identify and distribute the award to each member of the class, and any award made to the plaintiff would have to be issued in the form of cy-près payments (basically a charitable donation), frustrating the goal of compensation. The Supreme Court decided that while the compensation objective may not be furthered by such an award, the objective of deterrence is. Indirect purchasers will not be precluded from bringing an action or being included in a class simply because the action would serve the objective of deterrence but would not achieve compensation.
The ruling that indirect purchasers can sue an overcharging party directly and the ruling that class actions may be justifiable for deterrence purposes alone are both positive developments from the perspective of consumers. Both rulings make it easier to hold companies accountable when they cause small amounts of damage to large groups of people, as is often the case when companies conspire to fix prices or engage in other forms of anti-competitive behavior. The rulings may also serve as a deterrent against persons who consider engaging in this type of unlawful conduct in the future.