A Tale of Two Countries: 10 Years Later, Part 2 of 2

The Evolution of the Test for Certification of Common Issues

The Supreme Court of Canada (SCC) revisited the Canadian standard for certifying common issues, though not in the antitrust context, in its 2014 decision in Vivendi Canada Inc. v. Dell’Aniello. In Vivendi, a proposed class of retired employees moved to certify a class action that would challenge a unilateral amendment to their health insurance plan. The plaintiffs sought to certify a common issue on whether the changes were valid. At certification, the court found that the proposed class would include at least 22 subgroups who had entered into different contracts respecting the insurance plan. Because resolution of this common issue would result in different answers for different subgroups, the court held that the question was not common and refused to certify this common issue.

Vivendi eventually reached the SCC. In its decision, the SCC reconsidered its two prior decisions on the certification of common issues: Rumley v. British Columbia and Western Canadian Shopping Centres Inc. v. Dutton. In Dutton, the SCC had held that a question is common if all members of the class benefit from the successful prosecution of the action, even if they do not necessarily benefit to the same extent. In elaborating on what it means for a question to advance the resolution of every class member’s claim, the SCC in Rumley had held that an issue can remain common even if the answer to the question must be nuanced to reflect individual claims. In Vivendi, the SCC considered these two previous decisions and held that the commonality requirement from Dutton should be applied flexibly, meaning only that success for one class member must not mean failure for another. Following Vivendi, an issue would be considered “common” if its resolution could help advance the resolution of every class member’s claim, even if the answer to the question would vary among class members.

That common questions need not necessarily lead to common answers in Canada represents another point of departure from the more stringent U.S. certification regime. In Wal-Mart Stores, Inc. v. Dukes, the Supreme Court of the United States (SCOTUS) affirmed its previous decision in General Telephone Co. of Southwest v. Falcon, in which it had held that commonality requires the plaintiff to show that class members have suffered the same injury. SCOTUS clarified that this standard requires not only that the plaintiff raise common questions but also that these common questions generate common answers, the likes of which are apt to drive the resolution of the litigation. As a result, questions that will generate different answers for different class members generally cannot be certified in the U.S., while in Canada these questions can be certified as long as success for one class member does not mean failure for another.

Uninjured Class Members

Following Vivendi, one issue that remained to be determined in Canada was the extent to which the existence of uninjured class members could prevent certification of the class as a whole. Put another way, could the court certify an antitrust case if the plaintiffs’ methodology did not distinguish class members who were harmed from those who were not? The SCC answered this question in a 2019 decision, Pioneer Corp v. Godfrey.

In Godfrey, the majority held that loss will be established on a class-wide basis if the plaintiff has shown a plausible methodology to establish that an overcharge reached one or more plaintiffs at the “requisite purchaser level.” Drawing on its previous holding in Vivendi, the SCC held that an answer to this question would significantly advance the litigation because it is a prerequisite for establishing liability and success for one class member would not lead to failure for another. Godfrey, however, arguably expanded Vivendi’s reach because it confirmed that the expert methodology tendered in support of certification need not show that every class member actually suffered a loss, but rather simply that the loss reached a particular level of purchaser. Consistent with the Canadian approach to class action certification more generally, the standard adopted in Godfrey sets a very low bar—and one much lower than the plaintiffs will face at trial. Indeed, the SCC recognized that only harmed class members have a cause of action. While, for certification, it did not require a methodology that distinguishes harmed class members from unharmed ones, it acknowledged that such a methodology will be required at trial, unless there are actually no unharmed class members. The result is a certification test that does not assess whether a case is justiciable on a common basis at trial and whether judicial resources should be devoted to a case that may not produce any common outcome. Rather, the test assesses whether aspects of a case are justiciable on a common basis. It largely ignores whether—assuming some questions are justiciable on a common basis—it makes sense overall to devote scarce judicial resources to them if their answer will not produce a meaningful result without a myriad of follow-on individual trials.

As in Canada, the existence of uninjured class members is not necessarily a bar to certification in the United States. Indeed, in Ruiz Torres v. Mercer Canyons, the U.S. Court of Appeals for the Ninth Circuit recognized that “fortuitous non-injury to a subset of class members does not necessarily defeat certification of the entire class.” But because the U.S. certification regime requires that questions of law or fact common to class members predominate over any questions affecting only individual members, U.S. courts have applied more scrutiny in evaluating the propriety of certification in cases involving uninjured class members.

In Olean Wholesale Grocery Coop. v. Bumble Fee Foods LLC, the U.S. Court of Appeals for the Ninth Circuit articulated a “de minimis” standard for determining whether the predominance requirement had been satisfied in a case involving uninjured class members. While the court refused to adopt a bright-line rule, it held that “if 28% of the class were uninjured, common questions of law or fact would not be shared by substantially all the class members, nor would they prevail in strength or pervasiveness over individual questions.” It also stated that the few reported decisions involving uninjured class members “suggest that 5% to 6% constitutes the outer limits of a de minimis number.” As a result, cases involving uninjured class members can be certified in the U.S., but the courts will apply more scrutiny than will be applied in Canada.

As noted above, Ontario recently introduced a predominance requirement into its class action certification regime. We do not know yet what effect this will have on the certification of class actions that include uninjured class members. That said, in line with the more flexible approach to class action certification in Canada, it may be that this new requirement will be applied less stringently than in the U.S.

Umbrella Purchasers

The SCC’s recent decision in Godfrey is also significant because it recognized for the first time that umbrella purchasers have a cause of action under Canada’s Competition Act. Among the class members in Godfrey were plaintiffs who had purchased optical disk drives (ODDs) from the defendants’ competitors but who argued that the defendants’ anticompetitive conduct raised the market price of all ODDs, not just those that the defendants sold, causing all ODD purchasers to suffer a loss. Because section 36(1) of the Competition Act creates a cause of action for “any person who has suffered loss or damage as a result of conduct contrary to s. 45,” the court held that the umbrella purchaser plaintiffs may have paid more than they would have but for the defendants’ anticompetitive conduct and thus may have suffered a compensable loss under the Competition Act.

SCOTUS has not yet addressed whether umbrella purchasers have a cause of action in the U.S., and treatment of umbrella purchaser actions has varied across different circuit courts. When standing has been denied to umbrella purchasers in the U.S., courts have emphasized the tenuous nature of the causal relationship between the alleged anticompetitive behavior and the plaintiff’s loss.

The SCC addressed the issue of causation in Godfrey, stating that while demonstrating causation in umbrella purchaser actions will be difficult, it is for the trial judge to determine whether, in the circumstances of the case and in the relevant market, the defendant caused the umbrella pricing. Holding that umbrella purchasers have a cause of action, thus, only gives umbrella purchasers a chance to make their case. The SCC’s unwillingness to engage with arguments going to the merits of the plaintiffs’ underlying claims offers a significant (although only partial) explanation for the divergence between the Canadian and U.S. approaches to certifying umbrella purchaser actions.

U.S. decisions that have granted standing to umbrella purchasers have generally done so by distinguishing or carving out an exception to the rule against indirect purchaser actions from Illinois Brick. For example, in United States Gypsum Co. v. Indiana Gas Co., the U.S. Court of Appeals for the Seventh Circuit held that Illinois Brick did not apply in umbrella purchaser actions because no direct purchaser could obtain damages in these actions, so there was no risk of double recovery or need to apportion damages among multiple tiers of purchasers. In In re Modafinil Antitrust Litigation, the U.S. Court of Appeals for the Third Circuit held that Illinois Brick did not apply in a case about market exclusion, where the impugned conduct prevented a competitive market from forming at all. In such a case, the court held, “all market customers should have antitrust standing to sue those engaged in the allegedly anticompetitive conduct because all suffer equally from the foreclosure of choice.”

SCOTUS itself recently carved out an exception to the Illinois Brick rule, though admittedly not in an umbrella purchaser action. In Apple Inc. v. Pepper, a slim (5–4) majority held that the Illinois Brick rule did not prevent iPhone owners who bought apps through Apple’s App Store from starting claims against Apple for an alleged monopolistic overcharge. The majority held that none of the three rationales for barring indirect purchaser actions applied to a monopolistic retailer that employed commissions rather than markups. It remains to be seen whether SCOTUS’s decision in Apple will usher in new exceptions to the Illinois Brick rule , including whether an exception might apply for umbrella purchasers.

Conclusion

Over the past decade, the SCC has continued to facilitate easier access to class action proceedings in Canada, including antitrust class actions. Claims involving indirect purchasers, umbrella purchasers, and uninjured class members have now been certified, and the SCC has adopted more flexible standards for evaluating the common issues raised by class members and for assessing the expert evidence tendered in support of certification. Motivating the Canadian approach is a staunch belief in the class action as a key facilitator of access to justice. Over this same period, SCOTUS has continued to emphasize the exceptional nature of the class action and the necessity for courts to rigorously scrutinize evidence at certification to ensure affirmative compliance with Rule 23. The result is a U.S. class action certification regime that is increasingly less permissive and plaintiff-friendly than that adopted north of the border.

Ten years ago, we predicted that the permissive Canadian certification regime would produce more post-certification litigation, including motions for summary judgment. That has not happened yet in antitrust class actions, mainly because defendants have continued to litigate the aspects of the certification regime described above. Godfrey, Vivendi, and Pro-Sys Consultants Ltd. v Microsoft (discussed in Part I) have largely settled these issues in the plaintiffs’ favor. Because of that, defendants are focusing more attention on frailties in the plaintiffs’ pleading or a lack of evidence in support of the alleged anticompetitive agreement. One result of a plaintiff-friendly certification test appears to have been the emergence of more suspect antitrust cases grounded in novel interpretations of the Competition Act. Some early results favor defendants as they move to strike these claims and resist certification. Whether this trend continues remains to be seen but will likely provide the topic for another article a decade from now.