COURT FILE AND PARTIES

COURT FILE NO .: CV-09-392962-00CP
DATE: 20120911

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: 1250264 Ontario Inc. , Plaintiff/Respondent

AND:

Pet Valu Canada Inc. , Defendant/Moving Party

BEFORE: G.R. Strathy J.

COUNSEL:
David Sterns , for the Plaintiff/Moving Party

Geoffrey B. Shaw , for the Defendant/Respondent , Pet Valu Canada Inc.

Lawrence G. Theall and Bevan Brooksbank , for the Respondent Franchisees

HEARD: By written submissions

ENDORSEMENT: COSTS OF OPT-OUT MOTION

[ 1 ] This endorsement addresses the costs of the plaintiff’s motion to set aside opt-out notices delivered by class members. I concluded that the process had been corrupted by a campaign undertaken by the “Concerned Pet Valu Franchisees” (CPVF) and that opt outs delivered after that campaign should be declared invalid: 1250264 Ontario Inc. v. Pet Valu Canada Inc. , 2012 ONSC 4317 , [2012] O.J. No. 3595.

Applicable Principles

[ 2 ] The parties agree on the principles informing the court’s discretion in awarding costs. They are articulated in Rule 57 of the Rules of Civil Procedure , R.R.O 1990, reg. 194, s. 31(1) of the Class Proceedings Act 1992 , S.O. 1992 c. 6 ( C.P.A. ), and the jurisprudence of this court dealing with costs in class proceedings: see Silver v. Imax Corp. , 2012 ONSC 4064 , [2012] O.J. No. 3150 at para 14 ; Cannon v. Funds for Canada Foundation, 2012 ONSC 3009 , [2012] O.J. No. 2611 at paras. 3 and 4 .

[ 3 ] Having regard to these factors, and the goals of the C.P.A. , the court seeks to arrive at an award that is fair and reasonable, that is proportionate, and that gives effect to the reasonable expectations of the parties.

[ 4 ] The almost universal practice on motions in class actions is that the costs are fixed by the case management judge who heard the motion, in accordance with rule 57.03(1). The case management judge will be aware of the history and dynamics of the litigation and the record of prior motions and costs awards. This informs the judge’s appreciation of what award of costs in the circumstances would be fair and reasonable, proportionate, and in accordance with the reasonable expectation of the parties.

The Submissions of the Parties

[ 5 ] I have read the parties’ written submissions on the costs of the motion. In this section, I will summarize the arguments they make. In the following section, I will discuss the main issues and will set out my conclusions.

[ 6 ] I do not intend to paraphrase every submission made by counsel, but will highlight those that are particularly germane, in my view. The fact that I do not mention a particular submission does not mean that I have not considered it.

(a) Plaintiff’s Submissions

[ 7 ] The plaintiff seeks costs of $69,072.49, inclusive of taxes and disbursements. The fees are about $59,000.00 and the disbursements are about $2,000.00. The plaintiff says that the costs claimed are reasonable and consistent with the principle of indemnity.

[ 8 ] The plaintiff says that this motion was crucial to the survival of the class action, because the campaign waged by CPVF was, as I held, “an unabashed attempt to destroy the class action.” The plaintiff says that the motion dealt with an important issue access to justice for the class. The plaintiff says that the motion was made more complex by the substantial volume of evidence adduced by both respondents and the substantial factums – seventy pages in the case of Pet Valu and forty-one pages in the case of the respondent franchisees.

(b) Pet Valu’s Submissions

[ 9 ] Pet Valu’s going-in position is that it should recover its own costs of the motion, fixed at $148,371.61, on a substantial indemnity basis (slightly in excess of $110,000 on a partial indemnity basis), in view of the unproven allegations of wrongdoing that were made against it. Its fall-back position is that it should recover its costs thrown away as a result of the plaintiff’s “eleventh-hour amendment of its notice of motion” to withdraw those allegations. Alternatively, it argues that there should be no order of costs against it.

[ 10 ] The nub of Pet Valu’s submission is that the plaintiff made serious, unsupported and ultimately abandoned allegations that Pet Valu, its CEO and its lawyers colluded with CPVF to circumvent the court’s order concerning communications with the class. It relies on rule 57.01(2) to the effect that the court may award costs against a successful party and rule 57.01(4)(c), to the effect that the court may award costs on a substantial indemnity basis. It also relies on rule 57.01(1)(g) and says that the plaintiff should have admitted that it had no grounds to bring the motion against Pet Valu.

[ 11 ] Pet Valu also relies on rule 57.01(1)(e) and says that the unwarranted allegations made much of the proceedings unnecessary and inappropriate, lengthened the time the motion took and increased the costs and made the motion more complex than it would otherwise have been.

[ 12 ] It says that the allegations made against it made the motion very important to Pet Valu and that the motion itself dealt with substantial matters of first impression, including rights of free speech and the court’s jurisdiction to re-structure or postpone the opt out process.

[ 13 ] Pet Valu also relies on rule 57.01(1)(b) with respect to the apportionment of liability. It says that no costs should be ordered against it because it was not responsible for the circumstances giving rise to the motion.

(c) Submissions of the respondent franchisees

[ 14 ] The responding franchisees submit that there should be no costs awarded against them for the following reasons: they are non parties, success was divided on the motion, there were novel issues raised on the motion and the plaintiff made improper and vexatious allegations that resulted in costs being thrown away.

[ 15 ] The respondent franchisees say that the allegations of collusion and contravention of a court order were withdrawn on the eve of the motion, there was no order made prohibiting communication by the CPVF with other class members and success was therefore divided and the parties should therefore bear their own costs: Burtch v. Barnes Estate , 2007 ONCA 95 .

[ 16 ] They say that the complexity of the motion was increased due to the plaintiff’s unfounded and ultimately withdrawn allegations and that these improper and vexatious allegations resulted in unnecessary steps being taken, which should result in consequences for the plaintiff.

[ 17 ] The respondent franchisees concede that the motion raised important issues and says that the court’s discretion under s. 31(1) of the C.P.A. should be exercised to award no costs, because the motion involved a matter of public importance and a novel issue of law. Awarding costs against them would not promote the goal of access to justice.

[ 18 ] Ultimately, the respondent franchisees say that the costs claimed by the plaintiff are excessive and unreasonable. The hourly rates claimed are too high on a partial indemnity basis and unnecessary time was spent pursuing issues that were abandoned.

Analysis

[ 19 ] In this section, I will set out my conclusions on costs.

(a) The motion was important

[ 20 ] This was an important motion. It went to the integrity of the opt-out process. This issue transcends the immediate interests of the parties and engages the court’s interest in ensuring that the opt-out process is fair and reflects the informed wishes of the class. The significance of the motion cannot be under-stated. The survival of the class action depended on the outcome of the motion. The substantial amount of time and effort that the parties put into the motion, and the extensive materials they delivered, are indicative of the importance of the motion in terms of what was at stake.

(b) The motion was hotly contested

[ 21 ] Like every other step in this proceeding, this motion was vigorously contested. In a previous costs endorsement, I noted that this has been “hard-fought class action litigation”: 1250264 Ontario Inc. v. Pet Valu Canada Inc. , 2011 ONSC 5316 . That remains the case. This motion was vigorously defended by Pet Valu and the respondent franchisees.

(c) The result of the motion

[ 22 ] The plaintiff was successful on the motion. While not completely successful, perhaps, the most important consequence was the decision to set aside the opt-outs. The fact that the plaintiff was not wholly successful, in that some relief was not granted, should not result in a discount of the costs, in my view.

(d) Important issue does not necessarily mean no costs

[ 23 ] Section 31(1) of the C.P.A. provides that “[I]n exercising its discretion with respect to costs under subsection 131 (1) of the Courts of Justice Act , the court may consider whether the class proceeding was a test case, raised a novel point of law or involved a matter of public interest.” Both Pet Valu and the respondent franchisees invoke this provision. They say that the motion raised a number of novel issues concerning communications between franchisees, the opt-out process and the court’s jurisdiction to restrain communications and to re-constitute or postpone the opt-out process.

[ 24 ] Section 31(1) is invariably raised by a party who has lost a motion. It is never raised at the time a motion is heard. I have little doubt that, had the shoe been on the other foot, Pet Valu and the respondent franchisees would have been demanding substantial costs (as Pet Valu in fact does) and would have argued that the motion was not novel and was simply the exercise of the court’s well-settled supervisory jurisdiction over the opt-out process: see my reasons on the motion at para. 60.

[ 25 ] I would be more sympathetic to the “novel question” argument if the parties had discussed the costs in advance and had agreed that there be no order as to costs regardless of the outcome due to the novelty of the issue. I would be equally sympathetic if the respondents had said, at the outset, that in view of the novelty of the issue they would not be seeking costs and would be asking that there be no order as to costs, regardless of the outcome. I am less sympathetic when the issue is only raised to avoid the normal consequence that costs follow the event.

[ 26 ] In any event, it is my view that while the circumstances may have been novel, the principles in play were not, and it was in fact simply an issue of the exercise of the court’s supervisory jurisdiction. The plaintiff incurred substantially costs in order to preserve the integrity of the process. The respondents strenuously opposed the relief sought. The respondents were not successful and they should pay the costs.

(e) The costs claimed are generally reasonable

[ 27 ] The costs claimed by the plaintiff are generally reasonable. The costs outline submitted by Pet Valu is indicative of the time and effort involved in the motion. I accept the submissions of the respondent franchisees that the rates claimed by the plaintiff are slightly in excess of the rates that would be applied in a case of this kind. That being said, the time spent was reasonable, there was an appropriate division of responsibility between the various lawyers involved and the overall amount claimed is not at all out of line with what the parties would expect to be awarded on a motion of this importance.

[ 28 ] In my view, an all-inclusive award of $60,000.00 would be fair and reasonable.

(f) Pet Valu is not entitled to costs

[ 29 ] I have concluded that Pet Valu should not receive its costs of the motion. It opposed the relief sought by the plaintiff and was unsuccessful. It would be extraordinary to award costs against the successful party and in favour of the unsuccessful one. Such an award would be justified only in exceptional cases: see David Polowin Real Estate Ltd. v. The Dominion of Canada General Insurance Co. , 2008 ONCA 703 . This is not such a case.

[ 30 ] While I accept the proposition that an unsuccessful party who has been on the receiving end of unsupported allegations of misconduct may be entitled to costs, the allegations of misconduct made by the plaintiff were withdrawn prior to the hearing. The real issue at the hearing was whether the court should interfere with the opt-out process. Pet Valu sided with the respondent franchisees on that issue and it lost. It should not recover its costs.

(g) Who should pay the plaintiff’s costs?

[ 31 ] I have concluded that Pet Valu and the respondent franchisees (the executive of CPVF) should be jointly and severally liable for the plaintiff’s costs.

[ 32 ] The CPVF, of which the respondent franchisees were executive members, was formed for the sole purpose of defeating the class action. It took a very active role in attempting to do so. Its actions made it necessary for the plaintiff to bring this motion. It made a vigorous response to the motion. It should be required to pay the plaintiff’s costs.

[ 33 ] Pet Value spent a considerable amount of time in both its written materials and in oral argument supporting the position of the respondent franchisees and making the argument that the court should not interfere with the results of the opt-out process. In my reasons on the opt-out motion, I noted, at para. 65, that Pet Valu was not a party to the activities of CPVF that tainted the opt-out process. I also observed, however, that the CEO of Pet Valu “was clearly aware of what CPVF was up to and was content to let it continue unabated.” I noted elsewhere, at para. 47, that the president of the CFC executive, who was one of the founders of CPVF, perceived that the CPVF’s interests were aligned with Pet Valu’s in defeating the class action.

[ 34 ] In opposing the motion, Pet Valu was not simply responding to allegations made against it – allegations that were ultimately withdrawn. It was supporting the position taken by the respondent franchisees and was supporting an opt-out process that had been perverted. It is fair and reasonable that it should pay costs in the circumstances.

[ 35 ] For these reasons, the plaintiff shall have its costs, fixed in the amount of $60,000.00, forthwith, payable by Pet Valu and the respondent franchisees, jointly and severally.

G.R. Strathy J.

Date: September 11, 2012