In  Maginnis v. FCA Canada Inc. the Ontario Divisional Court upheld the dismissal of the plaintiffs' certification motion against an automobile manufacturer and other defendants in a proposed class action relating to an automotive emission defeat device.

Apart from reaffirming that plaintiffs must provide evidence, and not just allegations of compensable loss to succeed at certification, the Divisional Court's decision in this appeal has some direct implications for manufacturers across industries. Specifically, it:

  • Underscores how a robust recall program may assist to reduce or eliminate compensable harm to consumers that could otherwise support certification; and
  • Reinforces that compensable harm is a "fundamental prerequisite" for class certification in Ontario. A plaintiff's failure to file evidence of compensable harm can therefore be fatal to a certification motion.

Background

In early 2017, various American environmental agencies issued violation notices to a large vehicle manufacturer in the U.S. relating to the installation of software "defeat devices" in certain eco-diesel vehicles (the "Subject Vehicles"). Litigation followed shortly thereafter in both the U.S. and Canada.

In Canada, the plaintiffs commenced a proposed class action against the following (collectively, the "Defendants"):

  • the manufacturer of the Subject Vehicles ("FCA");
  • the designers and suppliers of the emission control devices, and
  • a car dealership that sold a Subject Vehicle to one of the plaintiffs.

The plaintiffs made various claims, including negligent misrepresentation, breach of the Competition Act,  breach of the Consumer Protection Act,  breach of contract, and unjust enrichment.

Prior to the hearing of the certification motion, the U.S. litigation settled and FCA U.S. agreed to recall the Subject Vehicles and repair the emission systems by installing software known as the Approved Emission Modification ("AEM"). FCA U.S. also agreed to pay an amount of money to U.S. owners and lessees if they obtained the AEM, and it provided an extended warranty on the emissions system. FCA Canada began a similar recall program. By the time of the certification decision (discussed below), over two thirds of the Subject Vehicles had been repaired in Canada.

Overview of the Plaintiffs' Arguments

At certification, the plaintiffs claimed that they had suffered loss because:

  • they had paid a premium price for an eco-diesel engine, and had instead received a "dirty" diesel engine; and
  • the repair of the eco-diesel engine resulted in reduced fuel economy or vehicle performance.

The Certification Decision

The Certification Judge refused to certify the class proceeding against the Defendants, stating that the plaintiffs provided no basis in fact for any compensable loss.

The Certification Judge held that there was no evidence that anyone paid a "premium price" for a Subject Vehicle, and even if they did, the Subject Vehicles would be emissions-compliant post-repair, and could be sold, bought, or traded at a value unaffected by the defeat device. There was also no evidence that the repair of the defeat device resulted in reduced fuel economy or vehicle performance.

The Certification Judge did not examine all the factors in the certification test under the Class Proceedings Act  (the "CPA"), focusing instead on the preferable procedure criterion under s.5(1)(d), which requires judges to "consider the goals of class proceedings – access to justice, behaviour modification and judicial economy."

Ultimately, the Certification Judge held that a class proceeding was not a preferable procedure in this case because:

[A]bsent compensable harm, there are no access to justice concerns, the defeat device has been (or is being) repaired and thus behaviour has been modified; and certifying this action would not advance any viable lawsuit and would only result in a waste of judicial resources.

The Divisional Court Decision

On appeal, the Divisional Court upheld the ruling of the Certification Judge.

The plaintiffs argued that the Certification Judge erred in, among other things: (i) requiring the plaintiffs to prove their loss at the certification stage, (ii) finding that there was no evidence of compensable loss and (iii) finding that a class action would not be a preferable procedure.

The Divisional Court disagreed with the plaintiffs' contention that the Certification Judge had erred. Accordingly, it dismissed the plaintiffs' appeal.

Proof of loss at certification

The Divisional Court held that the Certification Judge did not require the plaintiffs to prove loss at the certification stage, nor did he enter into an assessment of the merits stage of the case.

The Defendants led evidence that the AEM provided through the recall made the emissions device effective without affecting overall fuel economy and vehicle performance. Given this evidence, the Certification Judge required the plaintiffs to provide some evidence of compensable loss to the plaintiffs. The Divisional Court noted this approach is consistent with the case law respecting certification motions. While no evidence is admissible in determining whether the pleadings disclose a reasonable cause of action under s. 5(1)(a) of the CPA,  the other paragraphs in s. 5(1) require that the plaintiff show that there is some basis in fact  for each requirement. Such an inquiry is not to be an assessment of the merits of the case at the certification stage.

The Certification Judge correctly held that there was no basis in fact for the proposition that a class proceeding would be the preferable procedure for resolution of the class proceeding. As the defect in the product had been repaired and there was no evidence of compensable harm, then "there are no access to justice concerns, behaviour modification has been achieved, and proceeding any further in court would be a waste of judicial resources."

The Divisional Court rejected the plaintiffs' argument that the Certification Judge's decision was inconsistent with Pro-Sys Consultants Ltd. v. Microsoft Corporation ("Pro-Sys") because he had required them to prove actual loss at the certification stage. The Divisional Court recognized that in Pro-Sys, an indirect purchaser action, the Supreme Court was not focused on the issue in this case - namely, whether there was some basis in fact for finding any compensable loss at all had been suffered by the plaintiffs. Rather, it was focused on whether there was some basis in fact to show that loss-related issues were capable of resolution on a common basis.

Evidence of compensable loss

The Divisional Court held that the Certification Judge did not err in finding that there was no evidence of compensable loss. 

The Certification Judge had found that there was no evidence that anyone paid a premium price for the eco-diesel engine. Even if there had been such evidence, the Certification Judge held that the plaintiffs could not show that there was a difference in value between what they paid and the value of the vehicle when repaired, so as to permit a remedy pursuant to s.18(2) of Ontario's Consumer Protection Act, 2002.  Moreover, the Certification Judge had found that the plaintiffs provided no evidence that there were changes to fuel economy or performance after the updated AEM.

According to the Divisional Court, the plaintiffs had not shown any palpable and overriding error in the Certification Judge's findings of fact. While the plaintiffs argued that they had pleaded losses such as the need to rent a vehicle during the repair of their own, there was no evidence of any such loss before the Certification Judge to that effect.

Preferable procedure

The Divisional Court held that the Certification Judge did not err in finding that a class action would not be a preferable procedure.

Ultimately, the Certification Judge determined that the remedy provided by the repair FCA offered was a remedy that provided access to justice for class members and that a class proceeding would not be a wise use of judicial resources in this case. The Divisional Court held that this finding was consistent with the Supreme Court of Canada's decision in Atlantic Lottery Corp. Inc. v. Babstock and other cases.

The plaintiffs had alleged that the Defendants had engaged in deceitful conduct and misrepresentation, yet they had not been held accountable for that conduct, as there had been no Canadian regulatory proceedings like those in the U.S. In response, the Divisional Court stressed that the purpose of class proceedings is not to punish defendants, but rather provide access to justice for those who have been harmed by the misconduct of a defendant and to achieve behaviour modification. Ultimately, the Divisional Court held that the Certification Judge's finding that there was no compensable harm because the plaintiffs had been made whole, there had been behaviour modification and a class proceeding would not be a wise use of judicial resources, was entitled to deference.

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