Federal Court of Appeal clarifies evidentiary burden and denies certification for DRAM class action

The Federal Court of Appeal has upheld the Federal Court’s dismissal of a certification motion in Jensen v Samsung Electronics Co Ltd (2021 Federal Court 1185). The appeal stems from the underlying Federal Court decision of Justice Gascon (the ‘motion judge’) and follows its Québec counterpart’s ruling in Hazan v Micron Technology Inc (2023 QCCA 132), which upheld a lower court’s decision to scrutinise a class action at the authorisation phase where the plaintiff’s pleadings were “mere assertions” (2023 QCCA 132 at para 10).

Background

The plaintiffs in Jensen commenced the proposed class action in May 2018, seeking C$1 billion in damages from the defendants: three leading manufacturers of dynamic random-access memory chips (DRAM), a kind of semiconductor memory chip used in most computer products, including mobile phones and laptops. The plaintiffs alleged that the defendants breached Sections 45 and 46 of the Canadian Competition Act by conspiring through direct communications in private meetings and public statements – or signalling – to each other to suppress the global supply of DRAM and increase DRAM prices.

In February 2019 the plaintiffs brought a motion to certify the action as a class proceeding.

The lower court’s decision

At the Federal Court of Canada, the motion judge dismissed the plaintiffs’ motion because their claim disclosed no reasonable cause of action for breach of Sections 45 or 46 of the act (2021 Federal Court 1185 at para 69). The motion judge concluded that, at best, the facts pleaded would support an allegation that the defendants had engaged in “conscious parallelism”, which is not in and of itself unlawful, nor is it sufficient to establish the defendants entered into an unlawful agreement – an “essential and prominent” component of a Section 45 conspiracy (2021 Federal Court 1185 at para 147; 2023 FCA 89 at para 59, citing 2021 Federal Court 1185 at para 146):

[T]he Statement of Claim essentially invents a fictitious scenario of intent, communications and coordination between the Defendants that do not exist in or flow from the documents the Plaintiffs claim to paraphrase.

Given the absence of material facts to support the plaintiffs’ conspiracy claim, the motion judge held that the plaintiffs were similarly unable to establish the minimum evidentiary basis (ie, “some basis in fact”) for their proposed common issues.

The appeal

The plaintiffs appealed the decision of the motion judge, who they alleged erred in finding that the plaintiffs’ claim did not plead a reasonable cause of action and that the plaintiffs failed to provide some basis in fact for the conspiracy-related common issues.

The Court of Appeal dismissed the appeal, “wholeheartedly” agreeing with the motion judge’s approach to certification:

No rubber stamping

The court’s role and duty must go beyond conducting a symbolic review of a proposed class action at the certification stage. The certification process is a “meaningful screening device” for speculative claims. The analysis at this stage must be more than superficial.

Probing the evidence

While courts should refrain from conducting a full-blown merits analysis on certification, they should not allow purely speculative pleadings to be certified. Striking this balance requires the courts to engage in some level of evidentiary investigation to ensure that the allegations fairly represent the underlying evidence relied on to support their claim.

No change in law

The court rejected the plaintiffs’ submission that their approach to the evidentiary investigation was a departure from the traditional two-step approach set out in Hollick v Toronto (City) (2001 SCC 68). In fact, it held that the test could not reasonably be applied without first deciding whether there is some basis for the allegations – which requires a review of some minimal evidence.

The appeal court stressed that even at the certification stage, the allegations and the material facts and evidence put forward by the plaintiff need to be scrutinised. Such analysis does not uproot the entire class proceedings scheme as a result.

Key takeaways

The Federal Court of Appeal’s decision sets out clearly how courts should strike the proper balance between assessing minimal evidence to support a claim and avoiding a full merits analysis. Both the Court of Appeal and the motion judge rejected the plaintiffs’ contention that a requirement to lead some evidence to substantiate the allegations would necessitate a merits analysis at certification. While this evidentiary burden is low, it “cannot be so low as to be devoid of any meaning” (2023 FCA 89 at para 69).

The decision also builds on the Federal Court of Appeal’s commentary in Mohr v Hockey Canada (2022 FCA 145; leave to appeal to the Supreme Court denied in 2023 CanLII 31588 (SCC)) on the scope of permissible evidence in these types of motions, dismissing the notion that courts are confined solely to the pleadings in determining whether they disclose a reasonable cause of action.