Quiznos's Class Action Fails
Over at Blue Mau Mau, Don has an article about the Quiznos rebate class action lawsuit certification.
This case is the first Canadian case to deal with the troublesome problem of franchisor rebates, and who is entitled to them, and whether a franchisor's scheme for keeping rebates violates Canadian Anti-Trust Law or the Arthur Wishart (Franchise Disclosure) Act.
Except for one case in the United States, the prevailing view is that the franchisees have no automatic right to participate in rebates because of collective purchasing power and such arrangements are not Anti-Trust violations.
This is issue has not been decided in Canada. But if this ruling is upheld on appeal, then whatever merits there are to the franchisees Canadian Anti-Trust argument will likely have to proceed on an individual and not a class level.
Quiznos was able to resist a class certification motion. Judge Perell denied the certification based upon his finding that the plaintiff failed three of the five necessary tests for certification: a) common issue, b) preferable procedure, and c) a litigation plan.
First, there is going to be some confusion on the question of whether a class action waiver in the Quiznos franchise agreement was upheld. While, Judge Perell gave considerable weight to the "freedom of contract" argument, he did not order a stay of the action.
The Quiznos franchisees "knew" when signing their franchise agreement that they were not able to redress any complaints through a class action. Quizno's argued that this contractual limitation was sufficient to derail the class proceeding. Judge Perell ruled against this, without deciding whether parties could contract out of the Class Proceedings Act, 1992.
Let's turn to the three elements of the certification test that Judge Perell found were not satisfied.
My reading of Perell's reasons is that there is essentially one failure which permeates the entire certification process: the rejection that the "but for" Quiznos alleged price maintenance argument could be decided on a class wide basis. Suppose Quiznos had not engage in the pricing activity, then is there a class wide level of damages? Or are the damages individual in nature? Judge Perell found that in this case, the quality and quantity of the individual claims overwhelmed the class mechanism.
Common Issue:
While accepting that the plaintiff raised a number of issues common to the class, Judge Perell decided that the individual franchisee claims for breach of contract the tort of price maintenance would have to be decided at the individual level.
He rejected the plaintiff's expert economist who claimed that there could be a formula to determine at the class level the aggregate measure of damages "but for" the Quizno's alleged price maintenance.
In the end, Judge Perell also accepted the defendant's expert's view that the alleged price maintenance has a common or uniform impact on the franchisees. To determine the impact, one would be forced to go the individual franchisee and determine it.
Preferable Procedure:
On this issue, franchisees can take note that Judge Perell did not accept the fact that an individual representative plaintiff could not afford a costs award made against it showed that the individual was not a suitable representative. Finding otherwise, would have restricted representative plaintiffs to deep-pocketed franchisees.
But, Judge Perell decided that the case at bar is "an example of those cases where the quality and quantity of the individual issues overwhelms any common issues and the extent and quality of the individual issues stand in the way of satisfying the preferable procedure test."
Litigation Plan
Had he found that the plaintiffs satisfied the two above tests, Judge Perell would have required a modification of the litigation plan.
While not fatal to the test for certification, Perell expressed his skepticism that the battle of the expert reports could be over in two months, as detailed in the litigation plan.
My Own Take:
Further, and I think that this is extraordinarily important, Judge Perell rejected the plaintiff's economic expert's view that had Quizno's not engaged in their pricing practices, "the franchisees would form a buyer's group and the franchisees buying group would purchase at uniform prices."
I think that this is a very important clue to franchisees, their associations, and their counsel who wish to litigate franchisor rebate issues on a class basis in Canada.
Without a formed association or buying group, it will be difficult to litigate on a class basis what the prices "should have been".
This is not to say that an individual or three might not succeed in showing their damages, but at a class level, without having a co-op or buying group in existence, you are going to find it difficult to establish class wide damages.
However, if the co-op or buying group exists, the necessary economic evidence is no longer speculative. How much did the co-op lose because it was denied opportunities to purchase on par with the franchisor?
Without trying and possibly failing to create a franchisees buying co-op, the Court is going to find the class action procedure mimicking an individual assessment of damages. Which means no class action certification.
My own view is that this ruling informs Franchisees that cannot let their economic and organizational work be left to their counsel, no matter how talented and competent they are. The Courts are not going to be substitute for on the ground action and organization.
