Canada: A Critical Eye: Québec Court Of Appeal Reinforces Screening Of Class Actions At Authorization (Certification)

A recent decision by the Québec Court of Appeal ("Court of Appeal"), Hazan c. Micron Technology Inc. (Hazan),¹ is the latest of a recent string of decisions showcasing judicial willingness to take a critical look at the pleaded claims in a proposed class action, and deny authorization of unsubstantiated claims or claims based on untenable interpretations of the Competition Act.²

Background

The plaintiff filed an application for authorization to institute a national class action against several large manufacturers of Dynamic Random Access Memory ("DRAM") chips, a type of semiconductor memory chip used in most computer products that allows information to be electronically stored and rapidly retrieved. The plaintiff alleged that the defendants engaged in a price-fixing conspiracy to increase the price of DRAM chips while restricting production. The foundation for the plaintiff's claim was the defendants' large global market share of DRAM chips. They had no evidence to suggest there was any actual unlawful agreement between the parties.

The plaintiff sought damages and an injunction against the defendants for extra-contractual liability under the Civil Code of Québec, conspiracy in violation of the Competition Act, and misrepresentation under the Consumer Protection Act. The proposed class was all direct and indirect purchasers who acquired the defendants' DRAM chips or products containing them between June 1, 2016 and February 1, 2018.

Parallel actions related to DRAM chips with similar allegations were commenced in Federal Court, in British Columbia and in Ontario. This was the first of the recent DRAM cases to receive a decision from an appellate court in Canada.

The Legal Framework

Authorization to institute a class action in Québec has four criteria. The main one at issue here was the requirement in Article 575(2) of the Code of Civil Procedure ("C.C.P") that "the facts alleged appear to justify the conclusions sought". Though the facts alleged are deemed to be prima facie true, the allegations cannot be simple assertions, and if they are considered vague, imprecise or too general, the plaintiff must adduce some accompanying evidence to buttress those allegations and for an arguable case.

Superior Court of Québec

The Superior Court of Québec ("Superior Court") dismissed the authorization application, citing that the alleged facts did not justify the conclusions sought. Specifically, in the absence of an agreement to conspire between the defendants, the Superior Court could not draw a conclusion of conspiracy from the mere fact that the nature of the market for DRAM chips is an oligopoly. References to similar class actions filed in the United States that had since been dismissed, and to an investigation in the DRAM chip industry by foreign authorities, including antitrust authorities, without elaborating on the nature and results of such investigation, either did not reveal evidence of conspiracy, or simply presented opinions rather than proof. As a result, the plaintiff's allegations were deemed to be vague, imprecise and general, to the point where the plaintiff had failed to present an arguable case.

The Appeal

The plaintiff appealed the decision, alleging that the Superior Court erred in its analysis of article 575(2) C.C.P. that the plaintiff argued that the Superior Court's analysis was focused on the merits of the case instead of a prima facie screening of the facts, and that the judge asked for proof of the existence of a price-fixing agreement. The Appeal was heard by a panel consisting of Justice Doyon, Justice Cotnam and Justice Moore (the "Panel").

The Panel disagreed, finding that the lower court did not conduct a merits-based analysis. Rather, the lower court was seeking supporting evidence and was correct in concluding that the evidence was both flawed and did not support the allegations. Citing Infineon Technologies AG v. Option consommateurs, the Panel held that:

"'mere assertions are insufficient without some form of factual underpinning', thus requiring that general and imprecise allegations be 'accompanied by some evidence to form an arguable case'".³

The plaintiff was also criticized for masking their appeal pleadings to fit the appearance of a question of law, when in reality it was simply an attempt to challenge the lower court's findings.

Key Takeaways

This case sees the Court of Appeal upholding the lower court's scrutiny of a proposed class action at the authorization phase, notwithstanding that the threshold for authorization is quite low. This follows a similar outcome as the Federal Court's decision in Jensen v. Samsung Electronics Co. Ltd. (Jensen),⁴ a proposed competition class action that parallels this action. Both the Federal Court in Jensen and the Court of Appeal in Hazan dismissed class action authorization or certification applications against DRAM chip manufacturers as the lack of material facts created untenable allegations.⁵

While the burden on the plaintiff at authorization in Québec remains low, Hazan highlights that a proposed class action can be defeated if the pleaded facts constitute mere assertions, which are insufficient to form an arguable case.

Footnotes

1. 2021 QCCS 2710, aff'd 2023 QCCA 132.

2. See for example: Latifi v. The TDL Group Corp., 2021 BCSC 2183, Jensen v. Samsung Electronics Co. Ltd., 2021 FC 1185, and Mohr v. National Hockey League, 2022 FCA 145.

3. Infineon Technologies AG v. Option consommateurs, 2013 SCC 59.

4. Jensen v. Samsung Electronics Co. Ltd., 2021 FC 1185.

5. The Federal Court decision in Jensen was subsequently appealed to the Federal Court of Appeal. The decision is presently under reserve. For a summary of the Jensen decision, see here.

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