Canada: A "Monster Of Complexity" — Certification Denied In DRAM Price-Fixing Cases

Last Updated: September 4 2008
Article by Warren B. Milman and Madeleine Renaud

Most Read Contributor in Canada, September 2018

The B.C. Supreme Court recently refused to make what would have been the first-ever contested certification order in a class action brought on behalf of indirect and direct purchasers in a Canadian price-fixing case. The plaintiff sought to certify a class action on behalf of B.C. residents who had purchased dynamic random access memory (DRAM) or products containing DRAM, alleging that the defendants had engaged in an international conspiracy to fix prices of these computer memory chips. The court refused certification, finding that the plaintiff had failed to propose a viable class-wide method of establishing harm and liability. A related class action was similarly denied by the Québec Superior Court, albeit on different grounds.

McCarthy Tétrault Notes:

When the US government proceeded against a handful of international companies who manufacture DRAM — for having artificially raised the price of the product sold to certain original equipment manufacturers in the US between 1999 and 2002 — an inevitable tidal wave of class action lawsuits followed.

In the US, those suits fell into two general categories:

  1. those brought on behalf of direct purchasers (i.e., those who purchased DRAM directly from the manufacturers); and

  2. those brought on behalf of indirect purchasers (i.e., just about everyone else, including the ultimate consumers of the myriad products that contain DRAM).

Theses two categories of claimants must sue separately in the US because the US Supreme Court has held that, as a matter of policy, only direct purchasers can have a valid claim in a price-fixing case, regardless of whether (or the extent to which) they successfully passed the price increase on to their own customers.

The rationale for this rule arises from the difficulty inherent in trying to discern how far down the chain of distribution a particular price component may have been passed. The American rule arbitrarily stops the analysis at the first stage in the chain — thereby avoiding the issue and ensuring that at least the claims of direct purchasers can viably proceed.

To complicate matters, many American states have enacted legislation that repeals this rule, allowing indirect claims to proceed despite the Supreme Court's decision. On the strength of such legislation, both direct and indirect purchaser suits have been launched. While many of the direct purchaser claims have settled, the indirect claims have recently been undermined by successful defence motions, leaving the question of their viability very much in doubt.

In Canada, there is no comparable rule precluding indirect purchasers from recovering, nor is there any clear guidance on how the "pass-on" issue would ultimately be dealt with. Nevertheless, the American jurisprudence has been influential.

In one of the leading Canadian cases, the Ontario Court of Appeal denied certification of a claim brought on behalf of homeowners (i.e., indirect purchasers) concerning an alleged overcharge in the price of the pigment used to colour bricks. This was largely because the evidence adduced was considered insufficient to demonstrate how harm could be proved on a "class-wide" basis, as would be necessary for the claim to succeed. Determining liability in that situation would turn the action into a "monster of complexity" — the court would be required to conduct a long series of individual trials dealing with many complex issues and many parties. Such a process would eliminate any potential judicial efficiency that might be gained from certifying the action as a class proceeding.

The recent B.C. decision in the DRAM case follows in the same vein. The court concluded that the plaintiff had failed to establish that liability to the class members was a common issue. Specifically, the plaintiff did not demonstrate a "class-wide basis of establishing that any overcharge (in the price of DRAM) filtered down and was borne by direct and indirect purchasers of DRAM products in B.C." Since liability to class members would have had to have been determined on an individual basis, the court concluded that a class action would not be the "preferable procedure" as required by the B.C. Class Proceedings Act.

The court also found that the proposed plaintiff would not be a suitable representative plaintiff because it could not show a class-wide basis for establishing liability, and because it was in a conflict of interest with other class members at different levels of the distribution chain.

In a related case by a Québec plaintiff, the Québec Superior Court also denied "authorization" (the Québec equivalent of certification in the common law provinces.) However, the court held that there were sufficient common issues, even though the class consisted of direct and indirect purchasers, and even though suppliers used various distribution chains for the different products they manufactured.

The court refused authorization because the US guilty pleas on which the motion was based failed to establish a prima facie cause of action under Canadian law, and because the plaintiff could not adequately represent the interests of the members of the proposed class. The Québec Court also found, as did the B.C. Court, that the proposed representative plaintiff was in a conflict of interest in representing the interests of direct and indirect purchasers.

To date, no Canadian court has certified a class action involving indirect purchasers in a price-fixing case, where certification has been contested. Therefore, the DRAM cases have been and will continue to be closely watched. The plaintiffs have filed appeals in both provinces. If the decisions are upheld, it will be much more difficult to advance price-fixing claims on behalf of both direct and indirect purchasers.

Warren Milman acted for one of the defendants on the B.C. certification motion, and Madeleine Renaud acted for one of the defendants on the Québec authorization motion.

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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