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Quiznos Owed Money from Failed Class Action in Ontario

In Canada, the losing party pays part or all of the legal costs of the motion or trial. Recently, the Quiznos class action was not granted certification, and several days ago, Justice Perell ruled on what the losing party, the Quiznos franchisees, had to pay their franchisor for legal costs.

The costs ruling is complicated because of the number of parties, different motions brought and the eventual decision.

Justice Perell decided that

"Thus, for the certification motion, I award the Quiznos Defendants the sum of $214,902.54 plus GST, which I leave for them to calculate, in any event of the cause and payable forthwith.

Subject to the items that I disallowed, the balance of their claim for costs is either to the Quiznos Defendants in the cause or deferred to be decided later."

Effectively, this will put the two numbered companies who were the plaintiffs either out of business or in a very difficult bind.

Quiznos will likely take the view that the failure to pay the costs within 30 days is a breach of the franchise contract and terminate the lead plaintiffs.

That may bring an end to the certification even if the plaintiff's appeal of the certification ultimately is upheld.

Justice Perell was aware of this possibility and noted:

"In a similar vein of arguments that are premature, the Plaintiffs advanced an argument that they relied on the Class Proceedings Act, 1992 in order to be able to sue and bring the Defendants conduct to an end and therefore, if I correctly understand their argument, an award of costs against them would frustrate the access to justice goals of the Class Proceedings Act, 1992. Thus, they state in paragraph 4.19 of their written costs submissions:

In this case, the plaintiffs would not reasonably have been expected to incur the disproportionate quantum of costs related to the certification process required by the Act solely to recover their own damages. Moreover, the conduct of the defendants is ongoing. It is of fundamental importance to the action to bring an end to the conduct of the defendants and to bring about a solution to issues affecting the plaintiffs' businesses.

One problem with this argument is that it has not been proven that the Plaintiffs allegations of misconduct by the Defendants are true. That is a matter for the Plaintiffs to prove at a trial of their individual claims.

Another difficulty I had with the parties' submissions is that, in my opinion, while they were helpful, they did not adequately address the issues that arise when a court is asked to exercise its discretion to make a costs award in the context of an action that was commenced under the Class Proceedings Act, 1992 but that will be ongoing as an individual action."

There have been only a few cases in which costs against a losing plaintiff in a class action have been awarded. None of the losing plaintiffs continued their case as an individual action.

Frankly, Justice Perell asked both counsel to meet an impossible standard: who knows what factors there really are which constrain the Court's discretion in a case in which the certification fails, but there is an underlying cause of action.

We are not going to get a principled answer from a sample space of 1.

What is hard to understand is Justice Perell's examination of the party's bill costs - that is to say, there is no examination other that allowed/disallowed. There is none of the usual balancing of the factors in this costs award.

Finally, there discussion about whether the plaintiffs raised a novel point of law, the private enforcement of the price fixing in the franchise context, is simply dismissed by Justice Perell as:

"In the case at bar, both the stay motion and the certification motion raised important issues, and the parties' litigation may have contributed to the development of the law, but, in my opinion, neither motion should be regarded as being a test case, as raising a novel point of law, or as being a matter of public interest in the requisite sense.

The motions for a stay and for certification were essentially hard-fought motions where the litigants were advancing their own causes and commercial interests with little altruistic motivation."

No litigant has altruistic interests: they would not be in litigation if altruistic.

The franchise community, however, is very interested to know if the Quiznos supply arrangements were violations of the Competition Act, given that Quiznos described these arrangements as "normal with the industry".

It would be hard to imagine a more important legal point to raise: are all you franchisors potentially engaging in criminal activities with your supply arrangements?

I don't get it.

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Full post as published by Misleading Advertising Law on June 12, 2008 (boomark / email).