Law Times

Law Times • February 22, 2010 FOCUS PAGE 11 Price-fixing class actions in flux Certification in two recent cases has defence lawyers watching eagerly BY JULIUS MELNITZER For Law Times C lass actions based on global price-fi xing con- spiracies have been fal- low ground for plaintiff s. Apart from the settlement approval context, Canadian courts had never certifi ed such a case, let alone one that involved a pro- posed consolidated class of di- rect and indirect purchasers. Th e key to these decisions is in the courts' conclusions that the plaintiff s had failed to ad- duce reliable expert evidence that there was a workable meth- odology for determining loss and liability on a class-wide ba- sis, particularly where the dam- ages may have been passed on along the chain of distribution. All this has changed with two recent decisions: Pro-Sys Consul- tants Ltd. v. Infi neon Technologies AG (also known as the DRAM case) from the British Columbia Court of Appeal and Irving Paper Ltd. v. Atofi na Chemicals Inc. from the Ontario Superior Court. "Th ese cases have lowered the bar for certifi cation of class actions, and particularly price- fi xing class actions, in any case in which there is no direct con- tractual relationship between the plaintiff s and the defendants," says David Kent of McMillan LLP, co-counsel for the Micron group of defendants in DRAM. In DRAM, the plaintiff s al- leged that certain international manufacturers of dynamic ran- dom access memory chips, an es- sential component of virtually all modern electronic products, had engaged in an unlawful conspir- acy to fi x prices. Although there had been some guilty pleas in the United States, there were none in Canada, and the ones south of the border were limited in terms of admissions dealing with the victims of the conspiracy. Notwithstanding the guilty pleas, Justice David Masuhara of the B.C. Supreme Court denied certifi cation. In a sweeping deci- sion, including a penetrating re- view of the expert evidence called by both sides, he ruled the plain- tiff s hadn't established they could prove harm on a class-wide basis. But on Nov. 12, the appeal court reversed that decision and granted certifi cation, making it the fi rst appellate court in Cana- da to certify a class action in an antitrust case where the defen- dants had contested the certifi ca- tion. Th e unanimous bench ruled Masuhara had erred in undertak- ing a rigorous review of the expert evidence because the plaintiff had only to demonstrate that a cred- ible methodology for proving class-wide damages existed. Justice Helen Rady had ar- rived at much the same con- clusion in Irving Paper some two months earlier. Th e case involved an international in- vestigation into allegations of price-fi xing by global manufac- turers of hydrogen peroxide, a bleaching and oxidizing agent widely used in the pulp and pa- per and other industries. After two manufacturers pleaded guilty in the United States, plaintiff s launched par- allel class proceedings both here and there. Although a dis- trict court certifi ed the action south of the border, the Th ird Circuit Court of Appeals over- ruled the decision and remand- ed the case back to the district court for a rigorous analysis of the plaintiff 's expert evidence. to see signifi cantly more civil class actions in circumstances where there has been criminal wrongdoing," Kent says. Rady's ruling also foreshad- owed the decision in DRAM by concluding the plaintiff s could establish potential liability for certifi cation purposes by rely- ing on the damage aggregation provisions of provincial class action legislation. In her opin- ion, these provisions allowed the plaintiff s to establish such judgment in DRAM, is written plainly and demonstrates that at the certifi cation stage, courts will not allow themselves to get into the complicated arguments and records that defendants have typ- ically amassed in their eff orts to thwart legitimate class actions." But Chris Naudie of Os- ler Hoskin & Harcourt LLP and co-counsel for the Elpida Memory group of companies in DRAM, maintains that both cases are signifi cant departures This judgment pokes a signifi cant hole in defendants' ability to persuade courts that price-fi xing cases are not amenable to certifi cation and aggregate assessment. Following the Th ird Circuit court's decision, the Canadian plaintiff s sought certifi cation of a broad class of direct and in- direct purchasers of hydrogen peroxide across Canada over an 11-year period. Th e plaintiff s produced an expert report ap- proving a class-wide methodolo- gy for assessing loss and liability; the defendants countered with an expert who opined that the methodology was unworkable. But, much as the B.C. court ruled, Rady decided she didn't have to weigh the merits of the expert evidence at the certifi ca- tion stage as it wasn't necessary to establish whether a workable methodology for determin- ing loss in fact existed — only whether it might exist. "Both courts decided to avoid the intricate problems that previous cases have wres- tled with at the certifi cation stage, which means we're going liability merely by showing that the defendants had acted unlawfully but without proof of damages to all members of the class. "Th is judgment pokes a sig- nifi cant hole in defendants' abil- ity to persuade courts that price- fi xing cases are not amenable to certifi cation and aggregate assess- ment," says Charles Wright, who led the Siskinds LLP team repre- senting the plaintiff class in Irving Paper. "Th e judgment, like the from existing jurisprudence in Canada and the United States. "In prior cases, numerous courts have ruled that the leg- islation's aggregation provisions were intended to assist with the valuation of damages at trial and cannot be used to establish the existence of class-wide issues at the certifi cation stage," he says. Similarly, Naudie criticizes the cases' approach to aggre- gate damages. "Both courts' endorsement of a more deferential approach to assessing the plaintiff 's ex- pert evidence is diffi cult to rec- oncile with the Ontario Court of Appeal's decision in Chadha v. Bayer Inc., which has been the leading Canadian decision on certifi cation in price-fi xing cases," Naudie says. Indeed, the matter seems to be coming to a head. Th e B.C. DRAM defendants have fi led a leave application to the Supreme Court of Canada. Meanwhile, the DRAM pro- ceedings in Ontario remain on hold. Otherwise, an appeal to the Quebec Court of Appeal that will deal with that province's version of the class proceeding is pending, and an application for leave to appeal in Irving Paper is on reserve in Ontario. Th roughout, what seems to be the results-oriented ap- proach of DRAM and Irving Paper will be of considerable concern to defence lawyers. "Th e courts have made it clear that having no redress for plaintiff s where this type of un- lawful conduct has occurred is not an alternative that the courts will tolerate," Wright says. 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