One-step, two-step: Federal Court of Appeal confirms common issues must have a minimal evidentiary foundation at certification

In Jensen v. Samsung Electronics Co., the Federal Court of Appeal unanimously confirmed that plaintiffs seeking certification of a proposed class action in Federal Court must demonstrate an evidentiary foundation for both the existence of the proposed common issues and the commonality of those issues across the proposed class.

What you need to know

• The “two-step” approach applies to the commonality requirement at certification. Plaintiffs seeking certification of a proposed Federal Court class action must demonstrate some basis in fact that the proposed common issues exist and that they are common to the entire class.
• Proposed common issues must have an air of reality at certification. At certification, plaintiffs will need to demonstrate at least some evidentiary foundation to support their claim in order to be successful.

Background

The two-step approach to the commonality requirement

Plaintiffs seeking certification of a proposed class action in common law jurisdictions must generally demonstrate that the claims of the proposed class raise common questions.

Courts across Canada have generally held that, to satisfy this commonality requirement, plaintiffs must meet a two-step evidentiary test: they must demonstrate a basis in fact that the proposed common issue(s) exist(s), and that the proposed issue(s) can be answered across the entire class. The two-step test was recently the focus of appeal in Jensen v. Samsung Electronics Co., where the plaintiff vigorously resisted its application and sought a one-step test, which would only require some basis in fact that the proposed common issues were common to all proposed class members.

The facts

In Jensen v. Samsung Electronics Co., the plaintiffs sought certification of a proposed class proceeding relating to the sale of Dynamic Random Access memory chips (DRAM), a type of semiconductor memory chip commonly used in most computer products. The plaintiffs alleged that the defendants, all leading DRAM manufacturers, had breached sections 45 and 46 of the Competition Act by conspiring to suppress the global supply of DRAM and, as result, drive up DRAM prices.

The Federal Court dismissed the plaintiffs’ motion for certification. With respect to the commonality requirement, the motion judge applied the two-step test described above, finding that the plaintiffs had failed to demonstrate any basis in fact for the existence of their proposed common issues. Even though the plaintiffs all purchased the DRAM chips and thus arguably all paid the inflated prices—something common to each of them—the motion judge held that he could not “detect a pulse” of a conspiracy in the plaintiffs’ evidence. As the Federal Court explained, “[t]he certification requirements, however low they may be, were not meant to authorize class actions to proceed on the basis of the commonality of a non-existent proposed common issue.” The plaintiffs appealed the motion judge’s decision to the Federal Court of Appeal.

The Court of Appeal’s decision

The Federal Court of Appeal dismissed the plaintiffs’ appeal. The Court upheld the motion judge’s conclusion that there was no basis in fact for the existence of the proposed common issues.

With respect to the proposed common issues, the Court “wholeheartedly” upheld the motion judge’s adoption and use of the two-step test. The Court rejected the plaintiffs’ argument that the two-step test resulted in an inappropriate assessment of the merits of the claim; the Court emphasized that, if the certification process is to have any meaning, courts must be able to determine whether there is some minimal evidentiary foundation to support the existence of a claim. On this point, the Court echoed the motion judge’s conclusion that a claim with no factual underpinning does not become more founded simply because it is common to a group of plaintiffs.

Key takeaways

The two-step approach to commonality offers defendants two ways to respond to certification. The defendant can say that while the legal issue exists, it is not shared by the entire class. It can also say that while there are some facts that are shared by the class (e.g., they purchased a product), there is no factual underpinning supporting the existence of the proposed common issue (e.g., an unlawful conspiracy relating to the price of the product).

The Federal Court of Appeal’s decision unequivocally endorses the two-step approach. As the Court of Appeal noted in its decision, there is growing support and momentum towards the two-step approach across jurisdictions in Canada. In addition to a long list of cases canvassed by the Court that are at least implicitly applying the two-step approach (see para 81), there has been recent express support for the two-step approach at the Alberta Court of Appeal (Spring v. Goodyear Canada Inc., 2021 ABCA 182 at para 40; Hyundai Auto Canada Corp. v. Engen, 2023 ABCA 85 at para 12) and the Ontario Divisional Court (Kuiper v. Cook (Canada) Inc., 2020 ONSC 128 at paras. 26-36).

With its recent decision in Jensen, the Federal Court of Appeal now joins other recent appellate authority in reaffirming that plaintiffs must be able to demonstrate that their proposed common issues actually exist in order to succeed at certification, not just that they are common to the entire class.