Québec Court of Appeal denies authorisation application for DRAM class action

The Québec Court of Appeal has upheld the Superior Court’s dismissal of an authorisation application in Hazan v Micron Technology Inc (2021 QCCS 2710). This ruling is the latest in a string of recent decisions in Canada that showcase judicial willingness to take a critical look at pleaded claims in proposed class actions and deny authorisation of unsubstantiated claims or those based on untenable interpretations of the Competition Act (Latifi v The TDL Group Corp, 2021 BCSC 2183; Jensen v Samsung Electronics Co Ltd, 2021 FC 1185; and Mohr v National Hockey League, 2022 FCA 145).

Background

The plaintiff filed an application for authorisation to institute a national class action against several large manufacturers of dynamic random access memory (DRAM) chips – a type of semiconductor memory chip used in most computer products that allows information to be electronically stored and rapidly retrieved. The plaintiff alleged that the defendants engaged in a price-fixing conspiracy to increase the price of DRAM chips while restricting production. The foundation for the plaintiff’s claim was the defendants’ large global market share of DRAM chips. They had no evidence to suggest that there was any actual unlawful agreement between the parties.

The plaintiff sought damages and an injunction against the defendants for extra-contractual civil liability under the Civil Code of Québec, conspiracy in violation of the federal Competition Act and misrepresentation under Québec’s Consumer Protection Act. The proposed class were all direct and indirect purchasers in Canada that acquired the defendants’ DRAM chips – or products containing them – between 1 June 2016 and 1 February 2018.

Parallel actions related to DRAM chips with similar allegations were commenced in other Canadian jurisdictions and the United States, but this was the first of the recent DRAM cases to receive a decision from a Canadian appellate court.

The legal framework

Class actions in Canada proceed in two stages. The first is certification, referred to as ‘authorisation’ in Québec. The second stage is a trial to determine the outcome based on the issues identified at stage one. Québec, which is a civil law jurisdiction, slightly diverges from other common law provinces at the authorisation stage: the court undertakes a screening process that aims to establish whether the application presents an arguable case. The four criteria for authorisation must be interpreted in a flexible, liberal and generous fashion, and the plaintiff’s burden must be one of demonstration and not proof. Article 575 of the Code of Civil Procedure lists the four criteria for authorisation as follows:

• the class members’ claims raise “identical, similar or related issues of law or fact”;
• the alleged facts “appear to justify the conclusions sought”;
• the class composition makes it “difficult or impracticable to apply the rules for mandates to take part in judicial proceedings on behalf of others or for consolidation of proceedings”; and
• the class member appointed as the representative plaintiff is “in a position to properly represent” the class members.

Superior Court of Québec

The main criterion at issue in Hazan was Article 575(2) of the Code of Civil Procedure. The Superior Court of Québec dismissed the authorisation application, citing that the alleged facts did not justify the conclusions sought. Specifically, in the absence of an agreement to conspire between the defendants, the court could not draw a conclusion of conspiracy from the mere fact that the nature of the market for DRAM chips is an oligopoly. References to similar US class actions that had since been dismissed and foreign investigations in the DRAM chip industry (including by antitrust authorities) without elaborating on the nature and results either did not reveal evidence of conspiracy or simply presented opinions rather than proof. While the court agreed that the facts alleged are deemed to be prima facie true at this initial screening stage, the allegations cannot be simple assertions. If they are considered vague, imprecise or too general, which the court concluded was the case here, the plaintiff must adduce some accompanying evidence to buttress those allegations and form an arguable case.

The appeal

The plaintiff appealed the decision, alleging that the Superior Court erred in its analysis of Article 575(2); it argued that the court’s analysis was focused on the merits of the case instead of a prima facie screening of the facts and that the judge asked for proof that a price-fixing agreement existed.

The Court of Appeal disagreed, finding that the lower court was seeking supporting evidence rather than proof, and that it was correct in concluding that the supplied evidence was flawed and failed to support the allegations. Citing the Supreme Court’s decision in Infineon Technologies AG v Option consommateurs (2013 SCC 59), the Court of Appeal held that: ‘‘mere assertions are insufficient without some form of factual underpinning”, thus requiring that general and imprecise allegations be “accompanied by some evidence to form an arguable case’’.

Key takeaways

This case sees the Court of Appeal upholding the lower court’s scrutiny of a proposed class action at the authorisation phase, notwithstanding that the threshold for authorisation is quite low. This follows a similar outcome seen in the Canadian Federal Court’s decision in Jensen v Samsung Electronics Co Ltd (2021 FC 1185, conf’d on appeal 2023 FCA 89), a proposed competition class action that parallels this one. Both the Federal Court and Federal Court of Appeal in Jensen and the Court of Appeal in Hazan dismissed class action authorisation or certification applications against DRAM chip manufacturers as the lack of material facts created untenable allegations.

While the burden on the plaintiff at authorisation in Québec remains low, Hazan highlights that a proposed class action can be defeated if the pleaded facts constitute mere assertions, which are insufficient to form an arguable case.