Reverse class action judgment needs to be reversed

By Tony Poland, LegalMatters Staff • The recent decision of the Federal Court of Appeal addressing certification of a defendant’s class action demonstrates a fundamental misapprehension of the essential differences between a plaintiff’s class action and a defendant’s class proceeding says Toronto class-action lawyer Margaret Waddell.  

Waddel, a partner with Waddell Phillips Professional Corporation, says the recent decision in Salna v. Voltage Pictures “isn’t the kind of case that was ever anticipated or expected to be appropriate for a reverse class action.”

“It seems as though the judges deciding this case did not have a grasp of the practicalities of class action litigation. They looked at the plain-word language of the Class Proceedings Act and then trying to reverse engineer it to fit a defendant’s class, without articulating any understanding how the defence or prosecution of class actions works in practice, and without addressing the serious impediments to what they’re proposing,” she tells LegalMattersCanada.ca. “In my opinion, the Federal Court of Appeal has made errors in principle in their analysis.”

Case of alleged peer-to-peer file sharing of copyrighted movies

The Court partly overturned an earlier decision refusing to certify a reverse class action against an indeterminate number of people in an alleged peer-to-peer file sharing of copyrighted movies.

Voltage Pictures is seeking certification of a class of defendants with Robert Salna as the representative defendant.

Waddell explains that reverse class actions are unusual, but can be used to sue a group of defendants collectively instead of pursuing them individually. She says those instances are usually reserved for cases such as The Chippewas of Sarnia Band v. Canada (Attorney General), which was a large land claims dispute, where all the defendants were landowners with a vested interest in defending the claim to protect their ownership interests.

“A reverse class action works if you have corporate defendants who are commonly placed in that there is the same conduct that is at issue and there’s a financial incentive for all the defendants to defend the case,” says Waddell. “In the case of the Chippewas and Sarnia Band that was certified as a defendant class action, all the landowners were motivated to protect their ownership interests, and the representative defendants that were chosen were major corporations and government entities who owned the land, and had the resources to defend the action for all the other landowners.”

However, she says the representative defendant selected in the Voltage case is an average person and would have no reason to take on the crushing financial responsibility of representing the other putative defendant class members.

‘No motivation to defend this case on behalf of everybody’

“Leaving aside some of the more technical issues, a defendant class action is meant to be used in a case where the person who has been chosen as a representative defendant has a vested interest in pursuing and defending the litigation and does not have any issues in conflict with the other proposed defendants. That is not Joe Homeowner,” Waddell says. “The Court seems to gloss over the fact that Mr. Salna has no motivation to defend this case on behalf of everybody else who may have been a potential illegal downloader or uploader, nor would he be expending the same amount to defend the claim against himself versus all the other defendants.”

She says it doesn’t make sense to name Salna as the representative defendant because he can simply refuse to defend the lawsuit.

“Is he going to spend a million dollars to defend Voltage’s claim on behalf of all of the illegal uploaders? Of course not,” says Waddell. “Why would some average person commit to defend an action on behalf of thousands of others when those other average folks have no liability to pay for the legal defence, and Salna has no ability to compel them to fund the defence?

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“Mr. Salna cannot go around with his hat out and ask the other defendants to chip in,” she adds. “He doesn’t know who those people are, he’s got no way of identifying them and they all have the right to opt-out of the class action or say they cannot be forced to take part in it.”

Waddell says if Salna walks away from the case Voltage could get a judgment against him for $5,000. There is no economic incentive for him to remain as a representative defendant.

‘Wholesale failure of natural justice’

Waddell says the “fundamentals of providing natural justice require that there be adequate representation of the absentee class members, whether they’re class individual claimants or defendants. There would be a wholesale failure of natural justice to force a defence on an unwilling defendant, who can settle their case for $5,000, or simply walk away, and risk no more than a $5,000 judgment.”

“The Court specifically said that they couldn’t deal with the issue of whether proceeding as a class action is preferable and if Mr. Salna is the appropriate representative plaintiff. These issues were sent back to the lower court,” she says. “But even as far as they went, I believe that they made some serious errors in suggesting a reverse class action would work at all.”

Waddell says part of the challenge in analyzing the decision is how it was written. In the ruling, the Court does not “talk about what the actual class definitions are or what they would be.”

“It looks as though the class definitions are being driven by the merits of the case,” she says.  “That is not permitted when defining a class.”

Another problem with the case is the indeterminate nature of the class, Waddell says.

“There is more than one person in the class, but there is not any actual evidence before the Court on who the members of the class are,” she notes. “The Court says without some evidence as to how membership is to be determined and preserved and the scale of membership, it is impossible to determine whether a class proceeding would be preferable over other reasonably available options. 

“They say they are able to infer there is more than one person in the class. But they also say there is not an identifiable class because they are not able to figure out who’s in it and who would be included. There is a fundamental problem here in that they haven’t articulated how the class is identified and identifiable on an objective basis,” Waddell adds.

Can make sense to bring defendants together in some cases

She says in cases where many people have suffered small monetary losses, it can make sense to bring them together in one lawsuit. 

“However, it actually doesn’t make sense to have a defendant class action where the amount at issue is low because there is no incentive on the part of the defendants to defend it,” Waddell says. 

She says a reverse class action “makes sense at a very high level.”

“You can corral everybody who has misbehaved and sue them in one action,” Waddell says. “However, you first must identify everybody you are suing and they don’t seem to have been able to do that here.”

She says she suspects there is little chance the case ultimately will be certified.

“At the end of the day it will collapse on itself when the Federal Court deals with the issue of preferable procedure,” says Waddell. “The Court is very likely to find there is no workable litigation plan that the plaintiffs can come up with that can be imposed on Salna to prosecute this. 

“A representative must be found who is able and willing to advocate on behalf of the entire class and put up a meaningful defence. That is not the case here.”

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