On February 7, 2023, the Alberta Court of Appeal released its decision in Setoguchi v. Uber B.V., 2023 ABCA 45. In its decision, the Court confirmed the importance of the gatekeeping role of justices at class action certification applications.
BACKGROUND
In October 2016, hackers illegally accessed data that Uber B.V.
(Uber) had collected from its drivers and users and stored in a
third-party cloud-based service. The breach resulted in the theft
of personal information, including names, phone numbers and email
addresses of Uber drivers and users worldwide. Uber paid a ransom
to the hackers in return for an assurance that the data would be
destroyed.
The proposed representative plaintiff, Dione Setoguchi (Setoguchi),
was an Uber user at the time of the data breach. She commenced a
proposed class action against Uber for breach of contract and
negligence. Setoguchi alleged that Uber had breached its user and
privacy agreements, and breached its duty of care to the class
members, by failing to take adequate measures to protect users'
personal information.
DECISION ON CERTIFICATION
The Alberta Court of King's Bench denied certification in a
decision reported as Setoguchi v. Uber B.V., 2021 ABQB 18. (See our bulletin Uber Denial of Class Action – Alberta
Court Denies Certification of Privacy Class Action.)
The certification justice began his analysis by considering if the
claim filed by Setoguchi disclosed a cause of action pursuant to
section 5(1)(a) of the Class Proceedings Act, SA 2003, c C-16.5 (CPA). In conducting this analysis,
the certification justice observed that the class had not actually
suffered any harm or damage as a result of the data breach.
The certification justice was clearly concerned that certification
should not be available if it is "plain and obvious" that
the class will not succeed and if there is no evidence of (or a
"basis in fact" for) compensable harm above a de
minimis level. On the record before him, the certification
justice found that there was no harm or loss to any putative class
member. He reluctantly concluded that the "some basis in
fact" test does not apply to causes of action that are fully
and completely pleaded, even if there are in fact no or only de
minimis damages. Accordingly, the certification justice
accepted that Setoguchi had satisfied the cause of action
certification criterion under section 5(1)(a) of the CPA.
Nevertheless, the certification justice denied certification
because he found that a class action was not the preferable
procedure, considering the judicial resources required for the
class action to proceed, the impact on behaviour modification and
the nominal damages that would flow to the class members even if
they were successful.
ISSUES ON APPEAL
The Court considered two issues on appeal. First, whether the negligence claim, as pleaded, disclosed a cause of action recognized in law. And second, whether a class proceeding was the preferable procedure.
THE DECISION ON APPEAL
At the outset, the Court confirmed that the "some basis in
fact" test does not apply to cause of action criterion under
section 5(1)(a) of the CPA. No evidence of loss or harm is required
to determine if a pleading discloses a cause of action on its face.
However, the Court held that the test under section 5(1)(a) should
not be treated as a "perfunctory exercise." It cautioned
that certification justices should consider if each
element of a cause of action is, or ought to be, recognized in law,
particularly if a novel claim has been advanced.
Referring to various authorities from both Canada and the United
States considering data breaches, the Court concluded that the
compromise of publicly available personal information (such as
contact information), without more, does not amount to a legally
compensable loss. It added that even if the class members might be
marginally worse off because of the theft, the damages that flowed
from the theft were negligible. Accordingly, because a key element
of the cause of action in negligence (i.e., damages) could not be
demonstrated at the certification stage, the Court held that the
cause of action in negligence should not be certified.
The Court then considered if a class action was the preferable
procedure for the remaining breach of contract claim. While the
Court noted that a decision on preferability is entitled to
deference, it concluded that it was proper for the certification
justice to ask what purpose the action served in the context of
class proceedings, particularly given that the breach of contract
claim sought nominal damages only. On this point, the Court held
that it was appropriate for the certification justice to weigh the
considerable judicial resources a class proceeding would require
against the nature and importance of the claim. Accordingly, the
Court refused to disturb the conclusion of the certification
justice that a class proceeding was not the preferable means of
resolving the breach of contract claim.
Further, and in light of the negative press and significant
regulatory penalties already imposed on Uber, the Court also
rejected the argument that the goal of behaviour modification would
be achieved if the action proceeded as a class proceeding. In the
result, the Court dismissed the appeal.
KEY TAKEAWAYS
This decision provides helpful clarification about section 5(1)(a) of the CPA and confirmation of the role of a certification justice as gatekeeper. In particular, the Court emphasized that:
- Neither evidence nor "some basis in fact" is required to determine if a pleading discloses a cause of action under section 5(1)(a) of the CPA.
- Courts must carefully consider if each element of a cause of action is, or ought to be, recognized at law, particularly if a novel claim has been alleged.
- Courts must exercise their gatekeeping function by disposing of claims at the pleadings stage if it is appropriate to do so. This includes causes of action for which damages are an essential ingredient, such as negligence claims. If damage cannot be demonstrated at the certification stage, then a certification justice should deny certification.
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