March 24, 2008
Quiznos franchisees denied certification - evidence found lacking
2038724 Ontario Ltd. v. Quizno's Canada Restaurant Corporation et al. (Ontario Superior Court of Justice)
Mark Walli
In 2038724 Ontario Ltd. v. Quizno's Canada Restaurant Corporation et al., Justice Perell dismissed a motion for certification in a proposed class proceeding brought by two Ontario franchisees of the Quiznos restaurant chain against their Quiznos franchisors and the primary food distributors to the Quiznos franchise system, Gordon Food Service, Inc. and GFS Company Inc. ("GFS"). The plaintiffs, who sought to represent a class of all Canadian franchisees, have brought claims for civil conspiracy against GFS and Quiznos, together with claims for breach of section 61 of the Competition Act and breach of contract against Quiznos. They allege that the Quiznos franchisors, GFS, and unnamed food manufacturers or suppliers entered into "price maintenance agreements" to artificially "maintain" the prices franchisees paid for food and other supplies at inflated levels.
Justice Perell recognized "the collective aspiration of the class members to band together to have their day in court to obtain justice for their perceived grievances", but found that the franchisees' claims on the record before it in the case "are a large square peg of law and facts that cannot fit into the large round whole of procedure that is a class proceeding."
In particular, the court held that the plaintiffs failed to demonstrate they could prove loss (that they paid higher food prices) from the alleged conduct on a class-wide basis, which they had to do to establish liability as a common issue for the class on the civil conspiracy claim. Justice Perell agreed with the defendants that the expert economic evidence offered by the plaintiffs on this issue was based on a host of unfounded assumptions, which rendered the expert's opinion "speculative" and "unreliable", and his proposed common methodologies for proving harm on a class-wide basis "conceptually unsound" and "not feasible".
Absent proof of harm on a class-wide basis, what remains as a proposed class proceeding results in "an avalanche that buries the proposed common issues with an absence of commonality and a proliferation of individual issues." Accordingly, the resolution of any common issues would not meaningfully advance the litigation and a class proceeding would not be the "preferable procedure" for resolving the franchisees' claims.
Although technically moot, Justice Perell also ruled on a motion to stay based on class action waiver provisions in the franchise agreements. The court found that, "on public policy grounds associated with the administration of justice", such an agreement should be read down "so that it is just a strong factor in determining whether a class proceeding is the preferable procedure for the resolution of common issues". As such, it is neither categorically enforceable nor unenforceable, but will be determined "in the context of a certification motion". The court noted its analysis on this point was "similar to the law about the effect of arbitration provisions."
Stikeman Elliott represents GFS in the proceeding.
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