“The novelty of [a] proposed class action is not…a reason to deny an application to certify [a] proceeding….The law must be allowed to evolve.”
With these words, Justice Rennie of the Federal Court of Appeal begins his analysis in Salna v Voltage Pictures, LLC,, ultimately concluding that the Federal Court had erred in its decision to deny certification of a reverse class proceeding. In his view, the principles that underlie the analysis of all potential class actions are the same. The matter was remitted back to the lower court for further consideration.
A reverse class action, also known as a defendant class, is a civil action brought against persons defending on behalf of a group of similarly situated persons. The objectives of reverse class actions are the same as those for plaintiff class actions: (i) the conservation of judicial resources and private litigation costs; (ii) preventing re-litigation of the same issues; and (iii) spreading expenses and resolving common issues over many defendants or respondents.
Reverse class actions are contemplated in Rule 334.14(2) of the Federal Court Rules. They are also contemplated by section 4 of Ontario’s Class Proceedings Act, 1992. In essence, these provisions enable a party to an action or application against two or more defendants or respondents to bring a motion for certification of the proceeding as a class proceeding and for the appointment of a representative defendant or respondent. While there are minor differences in wording, in both situations there are five criteria that must be met to certify a class action:
a. The pleadings disclose a reasonable cause of action;
b. There is an identifiable class of two or more persons;
c. The claims of the class members raise common questions of law or fact, whether or not those common questions predominate;
d. A class proceeding is a preferable procedure; and
e. There is an appropriate representative for the class.
Beyond reverse class actions, provisions such as section 3 of Ontario’s Class Proceedings Act, 1992, allow a defendant who is subject to two or more proceedings to request certification of a proceeding as a class proceeding with the appointment of a representative plaintiff.
Interestingly, while the law with respect to the certification of plaintiff class actions has flourished, the law with respect to “reverse class actions” and defence class actions in Canada is largely non-existent. In creating a road map for the consideration of future potential class actions of these types, Justice Rennie noted that if the Federal Court’s reasoning was correct: “No respondent class proceeding would ever have a suitable representative respondent in circumstances where the monetary consequence for each class member is low.” A conclusion that is directly contrary to the “raison d’être” of class proceedings.
The Lower Court’s Decision
The Plaintiffs, Voltage Pictures, LLC (the “Plaintiffs”), a group of movie production companies, sought certification of a proposed defendant class of Canadians for copyright infringement under sections of the Copyright Act, RSC 1985 c C-42. The Plaintiffs alleged that five of their films where illegally distributed in violation of copyright protection. The Plaintiffs claimed that Mr. Salna and the other respondent class members infringed copyright protection by making their films available for download through a BitTorrent network, advertising on the network that the films were available and authorizing the infringement by failing to take steps to prevent the illegal downloading from happening. Upon identifying Mr. Salna from the IP address, the Plaintiffs sought to certify a class action for copyright infringement.
The Federal Court dismissed the motion for certification ruling that none of the five criteria for certification had been met. On the first criteria, that the pleadings must disclose a reasonable cause of action, the Federal Court determined that the Plaintiffs had not proven its claims at this stage. On the second criteria, that there be some evidence of an identifiable class of two or more persons, the Federal Court noted that the Plaintiffs changed its description of the class in oral argument and excluded two of its named respondents, Mr. Rose and Ms. Cerilli, from its proposed class. That left Robert Salna as the only representative respondent. The Federal Court concluded that the determination of responsibility for infringement associated with each IP address will be a difficult technical exercise, and thus no clear class of two or more persons had been established.
With respect to the common issues, the Federal Court found that only the first two of the nine proposed common issues were common questions, as the outcomes of the other seven would be different depending on the factual circumstances of each respondent. On the fourth requirement, the Federal Court determined that Voltage’s litigation plan was unmanageable and that the proposed class action raised more individual issues than common issues within the class and judicial resources and economy would not be saved by certifying the class. Finally, the Federal Court concluded there was no suitable representative respondent who had an interest in defending the application on behalf of a class. The Federal Court concluded that another strategy, the joinder of multiple individual actions, was preferable over certifying a class.
The respondent/defendant appealed the motion with respect to the cost award, and the Plaintiffs cross-appealed the decision to deny certification of the proposed reverse class action.
The Decision of the Federal Court of Appeal
In allowing the cross-appeal in part, the Federal Court of Appeal concluded that the lower court erred in the application of the test of whether a reasonable cause of action was disclosed in the certification application. The court noted “if the Federal Court’s reasoning prevailed, Voltage, and those similarly situated, would, in many cases, be without any remedy for violation of their copyright: a respondent class proceeding is not available and the joinder of thousands of individual actions simply not feasible.” The court acknowledged “that the proposed respondents have raised a number of substantive concerns as to whether the class proceeding is, in the end, legally and administratively viable. It was premature, however, to presume that they would materialize and be fatal to the certification application. There may be problems down the road and decertification always remains an option “if the conditions for certification are no longer satisfied with respect to the proceeding.”
With respect to the first certification criteria, in the statement of claim, Voltage pleaded direct infringement, secondary infringement and authorization infringement. Rather than accepting the facts alleged as true – as required at the certification stage – the lower court conducted a detailed analysis of the evidence with respect to the merits of the direct infringement claim. This was an error in law. The Federal Court of Appeal found that the pleadings did disclose a novel but arguable claim for direct and authorization infringement but not with respect to secondary infringement.
As for the identifiable class criteria, the court found that since Mr. Salna’s IP address had been chosen, it suggested that there are other IP addresses that were identified suggesting the existence of a proposed class. This was enough to satisfy the “some basis in fact” test.
With respect to the third criteria for certification, the court noted that as long as the resolution of a question is common for all of the proposed class members, the criteria would be met. It is not necessary that the answers are common as well. The primary concern at this stage is whether the class proceeding would be fair, efficient and manageable and whether it will advance the principal goals of judicial economy, behaviour modification and access to justice. The court concluded the questions were found to be common for the entire class.
As for the final two criteria, Justice Rennie concluded that the court below erred in “merging concerns with respect to the litigation plan into the preferably test” and, among other errors, in presuming that every class member plaintiff would opt out of the action. Due to the lack of proper factual analysis, the issues of preferable procedure and the suitability of the representative plaintiff were remitted back to the lower court for reconsideration.
The court’s decision in Salna is one of the few Canadian cases where a court has grappled with certification of reverse class proceedings. The detailed analysis provided is welcome guidance with respect to how these novel class actions, as well as potential defence class actions, should be analyzed. The bar for certification is not high and as Justice Rennie noted “The principles work both ways”. Further, the unique circumstances surrounding a reverse class action, and the difficulties class counsel may encounter along the way, should not be a barrier, at the certification stage, to certification. Those issues can be addressed, if they arise, as the litigation proceeds.
 Ibid at para 34.
 Ibid at para 36.
 Ibid at para 37.
 Ibid at para 38
 Ibid at para 39.
 Ibid at para 7.
 Ibid at para 8.
 Ibid at para 73.
 Ibid at para 99.
 Ibid at para 102.
 Ibid at para 108
 Ibid at para 123