Federal Court of Appeal breathes new life into “reverse” class actions

La version française de cette communication est publiée ici.

In Salna v Voltage Pictures, LLC, 2021 FCA 176 the Federal Court of Appeal overturned a lower court’s decision to refuse certification of a “reverse” class action. A reverse class action is where one plaintiff seeks to bring a claim against a representative defendant and have the result bind all other similarly situated defendants.

What you need to know

  • The underlying case is an application for infringement of Voltage’s copyright in five different movies. Voltage sought to certify a class of respondents who are all alleged to have downloaded the same movies, with Mr. Salna as the representative respondent.  
  • The Federal Court dismissed Voltage’s certification motion, finding that it met none of the requirements for certification. The Court of Appeal reversed that decision, and sent the case back to the Federal Court for further consideration of whether a class action was the preferable procedure and whether the respondent was a suitable representative.
  • The Court of Appeal determined that:
    • The “novelty” of the reverse class action was not a reason to deny certification. While the Court of Appeal acknowledged the proposed proceeding “may ultimately flounder”, it was an error to presume that would happen at an early stage in the case.
    • Although online copyright infringement may raise novel issues, the threshold question of whether the pleadings disclose a cause of action should not be resolved by resort to expert evidence; all a court must do at this stage is determine whether the moving party should be precluded from advancing the argument at trial. Novel but arguable claims, supported by sufficient material facts, should be allowed to proceed.
    • The fact that the monetary consequences for each class member may be low, and therefore provide little incentive to defend, does not mean that no suitable representative respondent exists. If that were the case, it would undermine the plaintiff’s ability to pursue individually non-viable claims. This would conflict with the purpose of class actions.
    • Although the Court acknowledged that the proposed representative respondents raised a number of “substantive concerns”, it would be premature to allow these issues to defeat certification. If those concerns were to materialize, decertification “remains an option”.

The underlying dispute

Voltage Pictures LLC sought to certify an application for copyright infringement as a respondent class proceeding, also known as a “reverse class action”. Voltage alleged that the purported class of respondents were directly and indirectly infringing its copyright in five films, through downloading and uploading those films on peer-to-peer file sharing protocol sites like BitTorrent. Voltage had previously obtained a Norwich order compelling certain ISPs to disclose the identity of alleged infringers, including the defendant Mr. Salna. His IP address was selected because his account had offered to “seed” (or upload) all five films at some point.

The Federal Court dismissed Voltage’s motion for certification because it held that Voltage had not met any of the five criteria required to certify a class action in the Federal Courts Rules. Voltage appealed.

The Federal Court of Appeal decision

In a unanimous decision, the Federal Court of Appeal returned the certification motion to the Federal Court for reconsideration. Although the Court of Appeal had sufficient evidence to conclude that the pleadings disclosed a cause of action, that an identifiable class existed, and that there were common questions, it held that the other factors in the test for certification required additional fact-finding to resolve.

The applicable law

The five requirements that must be met for a judge to certify a class action are codified in Rule 334.16 of the Federal Courts Rules. They are:

  1. the pleadings disclose a reasonable cause of action;
  2. there is an identifiable class of two or more persons;
  3. the claims of the class members raise common questions of law of fact, whether or not those issues predominate;
  4. a class proceeding is the preferable method of resolving the common issues; and
  5. there is a suitable representative of the class.

A reasonable cause of action

Overturning the certification judge’s decision, the Federal Court of Appeal decided that Voltage’s pleadings disclosed a reasonable cause of action. Voltage’s statement of claim alleged three separate causes of action: direct infringement, secondary infringement and authorizing infringement. In conducting his analysis, the certification judge assessed the strength of the direct infringement claim, relying on expert evidence about the nature of BitTorrent. The Court of Appeal concluded that was an error, and the Federal Court should have only considered the pleaded facts in assessing the causes of action. The Court of Appeal did that analysis and concluded that direct infringement and authorizing infringement were properly pleaded, but agreed with the Federal Court that secondary infringement was not.

An identifiable class

The Federal Court had not been satisfied with Voltage’s evidence that there was a class of two or more people. The Court of Appeal concluded that the judge had applied the civil standard of evidence to this question, rather than the less onerous “some basis in fact” test.

Voltage had claimed that it was in possession of “thousands of IP addresses” that had allegedly infringed its copyrights. But this statement was simply a footnote in its legal argument. The Federal Court of Appeal agreed with the Federal Court that it was not evidence.

However, the Court of Appeal nonetheless concluded there was “some basis in fact” to support the existence of a class of two or more people. This came from an affidavit Voltage had filed and accompanying cross-examination where the affiant stated that the proposed respondent Mr. Salna’s IP address “had been chosen”. The Court of Appeal said this statement “suggests that more than one IP address was identified, meaning there was more than one internet account subscriber in the proposed class.” The Court of Appeal acknowledged this was a “thin reed on which to stand” but concluded it met the “some basis in fact” test. 

Common questions

In conducting its analysis of this branch of the certification test, the Federal Court had focused on whether there were common answers to the proposed common questions. The Court of Appeal held this analysis was improper. The correct inquiry was whether the resolution of a proposed question would be common to the proposed class members. The Court of Appeal said that the primary question to be answered was whether certification would advance the principal goals of a class proceeding: judicial economy, behaviour modification, and access to justice. The Court of Appeal held that resolving even a single issue among many may achieve these goals. The “speculative concerns” that had been raised by Mr. Salna about certain of the proposed common issues were not persuasive.

Whether a class proceeding would be the preferable method of resolving the claims

The Court of Appeal sent the case back to the Federal Court to redetermine preferability. The evidence about the size and shape of the class was weak, and certain of the Federal Court’s conclusions (including that joinder of multiple actions would be preferable) were not adequately explained. It was therefore impossible for the Court of Appeal to determine whether a class proceeding would be preferable.

In conducting its preferability analysis, the Court of Appeal touched on the unique character of “reverse” class actions. The Federal Court was concerned that class defendants could and would opt out of the class, reducing the class to a miniscule size. It used this possibility to conclude that a class proceeding was not the preferable procedure. The Court of Appeal was skeptical of this reasoning. It hypothesized that a class action could be good for the respondents because it would allow them to share defense costs and would reduce the pressure on them to settle. It accepted the possibility of opt-outs, but concluded that if every member opted out of the class, it could be decertified. Until then, concerns about the size of the class were premature.

A suitable class representative

The Court of Appeal also remitted the question of whether the respondent was a suitable representative to the lower court for reconsideration. The record did not contain sufficient evidence, and the Federal Court’s reasons had insufficient analysis, for the Court to determine if the criterion had been met.

At the motion for certification, the Federal Court had concluded the respondent was not a suitable representative because he was not sufficiently incentivized to defend the action. Under the Copyright Act, at most Mr. Salna would be liable for $5,000 in statutory damages. Hence, there would be little reason for him to bear the cost of vigorously defending the action.

The Federal Court of Appeal rejected the lower court’s reasoning because it would lead to the conclusion that no respondent class proceedings would ever have a suitable representative plaintiff respondent where the monetary consequence for each class member was low. This consequence, the Court of Appeal held, would be incompatible with the purpose of class actions, which is to allow recovery of individually nonviable claims. The principle of encouraging access to justice applies in both “regular” and “reverse” class actions.

Conclusion

Whether this case will ultimately move forward as a class action will have to await a further decision from the Federal Court, and possibly another trip to the Court of Appeal. As a result, it will likely be some time before we know whether a reverse class action is a viable method for a copyright owner to bring infringement claims.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

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