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Q & A with Frank Zaid: Opt in or out of court proceedings

Reopening an opt-out period
On May 3, 2013, the Ontario Court of Appeal overturned an earlier decision of the Ontario Superior Court, which held the opt-out notices from former franchisee class members in a Pet Valu franchise class action (see Canadian Business Franchise, March 2013, page 50) were not valid.

In the earlier decision, a number of franchisees opted out of the action. This followed an active campaign by one group of Pet Valu franchisees to persuade all of their fellow franchisees to opt out, so as to give the franchisor’s new management team more time to deal with the issues involved in the class action.

Following the opt-out period, the representative plaintiff sought an order invalidating these opt-outs, however, on the grounds they were the result of the group campaign and, further, the franchisor had coerced franchisees to opt out. The lower court agreed and disallowed the opt-outs.

The Ontario Court of Appeal, in a controversial decision, reopened the opt-out period and held the franchisee class members had “an unassailable right to speak out in opposition to the class proceeding in an attempt to convince other class members to opt out,” as long as the individual decisions to opt out were not the result of franchisor coercion and remained voluntary and informed decisions.

This decision makes it clear class action members can express their own opinions about whether or not they and their peers should opt out of a class action, as long as there is no coercion to do so.

A new level
These three cases are landmark decisions in respect of the franchise issues they discuss. It is difficult to come to a common conclusion or trend as a result of these cases, except that the courts will respect the underlying legislation regarding the rights of the various parties and apply it literally, unless there are serious overriding factors that would substantially negate the intent of the legislation.

Clearly, franchise disputes have been taken to a much more sophisticated level in these cases. We can expect more of the same in the future.

Frank Zaid is a partner and founding chair of the national franchise and distribution practice group in the Toronto office of Osler, Hoskin & Harcourt LLP, Barristers and Solicitors. He is also a franchise mediator and arbitrator with ADR Chambers in Toronto, where he chairs a specialty panel to resolve franchise disputes. For more information, contact him at (416) 862-6415 or (416) 362-8555 or via e-mail at fzaid@osler.com or fzaid@adrchambers.com.

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