Canada: Ontario Court Of Appeal Overturns Pet Valu Decision: Important Guidance On Communications With Class Members During The Opt-Out Process

Last Updated: June 19 2013
Article by Antonio Di Domenico


On May 3, 2013, the Ontario Court of Appeal overturned a lower court decision that had invalidated certain opt-out notices delivered in a class proceeding between Pet Valu Canada Inc. and its franchisees.1 The decision provides important guidance on the issue of communications with class members during the opt-out process. 

The Salient Facts and the Motion Judge's Decision

In January 2011, Justice Strathy certified a class action against Pet Valu Canada Inc. ("PVC") on behalf of its franchisees.2 The sole certified common issue was whether PVC had a duty to share certain volume discounts and rebates that it received from suppliers with its franchisees. Communication with class members became an extremely contentious issue following certification, so much so that the Plan of Proceeding in the matter directed that any communications with class members before the expiry of the opt-out period were subject to the direction of Justice Strathy.3

The certification order issued on June 29, 2011 approved notice to all class members and advised them that their window to opt-out of the action would run from July 15 to September 15, 2011. By September 4, only 37 opt-out forms had been received from class members. Beginning September 5, the number of opt-out forms noticeably spiked. By September 15, a total of 140 opt-outs had been received, representing approximately sixty-five percent of current franchisees and ten percent of former franchisees. According to Justice Strathy:

... the dramatic increase in opt-outs near the end of the opt-out period was the result of a well-organized, systematic and highly effective campaign by the CPVF to deal a death blow to the class action by persuading other franchisees to opt out.4

Concerned Pet Valu Franchisees ("CPVF") is an independent franchisee association, consisting mainly of franchisees, which has actively opposed the class action. The actions of the CPVF included publishing an anti-class action website, posting online the names of those who opted-out of the class action and executing an active telephone campaign, particularly near the opt-out deadline. In the motion judge's view, the CPVF attempted to destroy the class action, mainly through misinformation. It had sought to advance what it perceived to be the interests of franchisees, which it believed aligned with the interests of the franchisor. In light of this conduct, Justice Strathy made what His Honour regarded as an extraordinary remedy, which included:

  • declaring any opt-out on or after September 5, 2011 invalid;

  • declaring that any opt-out prior to that date was presumptively valid, subject to the right of any franchisee who opted-out prior to that date to move to set aside his or her opt-out; and
  • postponing the opt-out period until after the final disposition of the plaintiff's pending summary judgment motion or other final disposition of the action on its merits.5

The Ontario Court of Appeal's Decision

As noted above, the Ontario Court of Appeal overturned Justice Strathy's decision.  In so doing, it set aside the order invalidating the opt-out notices.    The Court of Appeal noted that the motions judge was rightly attuned to the possibility that the CPVF was attempting to undermine the opt-out process.  It also agreed with applying the test set out in 1176560 Ontario Ltd. v. Great Atlantic & Pacific Co. of Canada Ltd., which found that class members "ought to be free to exercise their right to participate in or abstain from the class action on an informed, voluntary basis, free from undue influence".6  The Court of Appeal held, however, that there was no evidence before the court that the CPVF's campaign crossed the line described in A&P. In particular, the Court of Appeal overturned the motion judge's finding of fact that misinformation had been disseminated by the CPVF. The Court of Appeal did not set out the standard of appellant review that it applied when setting aside that portion of the motion judge's decision, stating only that a "(discretionary decision may) only be set aside if it is based on an error of law, a palpable and overriding error of fact, the consideration of irrelevant factors or the omission of factors that ought to have been considered, or if the decision was unreasonable."7 However, in overturning the motion judge's finding of fact, the Court of Appeal presumably concluded that the motions judge made a palpable and overriding error of fact.  The Court of Appeal further found that the motions judge erred in "imposing on the class members the obligation to communicate in an objective manner and in his interpretation of the campaign as a whole".  The Court of Appeal elaborated, noting that: [t]he CPVF's campaign only dealt with the opinion as to the advisability of the legal proceeding from the business perspective of the franchisees. The campaign had as its central theme the suggestion that the class members should give the franchisor's new management team a chance to deal with the complaint underlying the primary common issue certified in the proceeding. The CPVF's campaign advocated as a matter of opinion that it was not in the interests of the class members to have an outstanding lawsuit between them and the franchisor because it would distract the franchisor from running the business, would harm the Pet Valu trademark and would devalue their assets. In other words, the campaign did not attempt to address the technical merits of the lawsuit. The motion judge ought not to have held the CPVF's campaign to a standard of objectivity but should only have considered if the conduct of the campaign constituted misinformation, threats, coercion, intimidation or was otherwise unlawful. As explained, there is no evidence to support a finding that the opt-outs by individual class members were not voluntary or fully informed.8 The Court of Appeal also held that the motions judge erred by assuming that the survival of the class action depended on the outcome of the opt-out motion.  The motions judge's reasons suggested that the survival of the class action was in question because more than half of the class had opted out. The Court of Appeal disagreed, noting that the number of opt-outs should not impact the viability of the class action: If by the survival of the class action the motion judge was referring to the prospect of decertification, he did not explain why the number of class opt-outs could undermine the evidence satisfying the certification criteria. Indeed, other than perhaps in the most extreme cases, I fail to see any reason why the number of opt-outs would be a basis for decertification. Alternatively, if he meant the viability of the class action somehow depends on the number of remaining class members, there is no basis for this concern. A certified class proceeding will continue regardless of the diminished size of the class and the correspondingly diminished damages award or settlement amount that might follow therefrom.9

"Take-Aways" from the Ontario Court of Appeal's Decision

There are a number of "take-aways" arising from the Court of Appeal's decision:

  • Class members are not obliged to communicate with each other in an objective manner during the opt-out period.  They may express their views with each other about whether to opt out of the class action as long as the conduct does not amount to misinformation, threats, intimidation or coercion. The question of whether communications cross the line enunciated in A&P will depend upon the facts and circumstances of each case.
  • The viability of the class action does not necessarily depend on the number of opt-outs and the corresponding number of remaining class members.  This includes circumstances where more than half of eligible class members opt-out of the class action.
  • The Court of Appeal acknowledged that the motion judge's order was an exercise of his broad discretion jurisdiction under s. 12 of the Class Proceedings Act, 1992, and that "(a) discretionary decision to safeguard the fairness of a class proceeding is entitled to receive significant deference from (an appellant court)".10 Deference is particularly relevant in class proceedings in Ontario where specialized case management judges live the case and have a unique perspective on issues like opt-outs. The Court of Appeal nevertheless saw fit to overturn the motion judge's decision.
  • The Court of Appeal made clear that when class members are engaging in tactics that may demand judicial scrutiny during the opt-out period, the representative plaintiff(s), through counsel, should promptly seek the intervention of the supervising judge.  The Court of Appeal was critical of the representative plaintiff's failure to promptly notify the motion judge of its concerns regarding the CPVF's campaign.11
  • The Court of Appeal did not discuss at length the role of defendants in these circumstances. It noted that "the defendant may not sit idly by in the face of such conduct [i.e., conduct that amounts to misinformation, threats, intimidation, or coercion] without running the risk that a court will invalidate opt-outs based on the application of the informed and voluntary test established in A&P."12 The role of defendants in these circumstances will invariably involve a case by case analysis. Defendants should seek legal advice before taking any steps in that regard.


1. 1250264 Ontario Inc. v. Pet Valu Canada Inc., 2013 ONCA 279 [Pet Valu].

2. 1250264 Ontario Inc. v. Pet Valu Canada Inc., 2011 ONSC 287.

3. 1250264 Ontario Inc. v. Pet Valu Canada Inc., 2012 ONSC 4317 at para. 14.

4. Ibid. at para. 24.

5. Ibid. at para. 83.

6. 2002 CanLII 6199 (ON SC) at para. 75 [A&P].

7. Supra note 1 at para. 40.

8. Pet Valu, supra note 1 at para. 79-80.

9. Ibid. at para. 48.

10. Ibid. at para. 40. 

11. Ibid. at para. 44.

12. Ibid. at para. 44.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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