Individual to Group to Class Disputes in Franchising – Considerations for Resolution

12. Management of Groups and Classes

There are significant differences in the obligations upon and challenges facing counsel when representing a group of franchisees or a representative plaintiff in a class proceeding.

In a group action, counsel represent each and every member of the group. Counsel are expected to address with the group in advance how the following matters will be addressed:

a)      the handling of information provided by one group member  which that group member may want treated confidentially from the other group members;

b)      settlement opportunities which may exist for any particular group member independently of the other group members;

c)      processes for communicating developments and seeking instructions;

d)     the handling of conflicting instructions from among group members;

e)      the sharing of legal costs and expenses; and

f)       negotiating and dividing up any potential settlement.

In a class proceeding, the class representative alone is responsible for providing instructions to class counsel both before and after certification. Nevertheless, it is not uncommon for the class representative to be supported in his or her efforts by a large group of franchisees and potentially by a franchisee association. Counsel have obligations to the class representative but also to the class members before and after certification. Counsel need to distinguish between the interests of existing and former franchisees all of whom may be in a putative class. Franchise associations may be utilized to fund disbursements in a class proceeding. That fact may suggest to a franchisee association or its executive that the association is entitled to have a say in the conduct of the class proceeding. Counsel must be certain to establish from the outset how such associations or executives will be managed while the class action proceeds.

Firms acting for plaintiff classes in class proceedings typically establish a communication system on their firm websites for franchisees to access. Certain parts of the website may be password protected. It is common in class proceedings that communications with class members occur apart from formal website postings and court-sanctioned notices. It is important for class counsel to recognize their obligations to potential class members before certification and their obligations to class members after certification when providing advice and information concerning the proceeding.

Although it is easier to manage the process of advising and obtaining instructions from a single class representative or limited number of class representatives as compared to the management of a group retainer, the communication process with class members is significantly complex and requires careful management.

It is of fundamental importance when advising franchisees, whether on an individual, group or class basis, that franchisee counsel appreciate that the advice they give and the actions they take may have a significant impact on the franchise system.  Indeed, the advice given may not be perceived to be and may not in fact be in the interest of all franchisees or the franchise system itself. For this reason, it is particularly incumbent on franchisee counsel to take a longer term perspective of the dispute and to consider strategies which may preserve the longer term interest of the franchisee client(s) in the franchise system.  Since the franchise client(s) may well continue to be a part of the franchise system long after the dispute with the franchisor has been resolved, franchisee counsel should assess how the consuming public may react towards the franchisor’s brand given the issues in dispute.

The very fact that franchisee-franchisor disputes often occur in the context of an ongoing relationship and may potentially receive interest from the media and the public places further responsibility on counsel advising franchisees.  Counsel should carefully consider the wide array of potentially available strategies to address and resolve the concerns of the initial client who first raised the franchise dispute. Even in cases where the issues appear systemic in nature, counsel has the primary duty to the initial client contact to act in that client’s best interests. In many instances, those interests may be better advanced by not pursuing the claims of others who may be similarly situated.

13. Franchisor Responses to Group and Class Proceedings

This subtopic could easily be the subject matter of its own plenary session and cannot be fully addressed within the confines of this paper. When facing class or group proceedings, franchisors typically seek to individualize as many of the issues in dispute as possible with a view to avoiding certification or severing the group claim. It is common for franchisor counsel to employ a “divide and conquer” campaign in the hopes of destroying or at least weakening the group dynamic. However, now that the Court of Appeal in Midas has recognized that section 4 of the Arthur Wishart Act extends to the right to commence a class action, attempts by a franchisor to interfere with a class or group proceeding could very well expose a franchisor to a claim for damages under subsection 4(5) of the Arthur Wishart Act. Of course, as mentioned earlier, just because franchisees have the statutory right to associate that extends to the right to bring a class action does not mean that every franchise class action should be certified. Again, the test for certification under the CPA must be satisfied, and any group action by franchisees must be properly joined within the requirements of provincial rules of civil procedure.

Similarly, in light of the Court of Appeal’s statement in Midas regarding the suitability of class proceedings for the resolution of franchise disputes, franchisors would do well to narrow their resistance to certification to those issues for which they feel their positions are strongest. Though every case is different, a franchisor should carefully evaluate its strengths and weaknesses for the certification hearing and define its approach accordingly, rather than expend tremendous resources in an attempt to defeat certification across the board.

14. Summary

Disputes that arise in the context of an ongoing business relationship present particular challenges and particular opportunities for resolution. Without question, the courts have recognized that franchising disputes involving systemic issues are well suited for class action treatment. Though that may be true, franchise disputes are also well suited to be resolved in a whole manner of alternative means. Counsel on both sides of a franchise dispute should always explore opportunities to resolve the matter outside of court, especially when the litigation is in the form of a costly class or group proceeding. With creativity, discipline and experience, counsel can hopefully identify a practical and efficient approach to resolution.

In those cases in which alternative means of dispute resolution are unsuccessful or impossible, franchisees have available a significant ability to level the playing field against their franchisors by pursuing class and group proceedings. Though the body of certification decisions in the franchise context is small, both franchisees and franchisors should pay close attention over the course of the next several months to the numerous certification hearings scheduled. If the current trend continues, we expect to see many more franchise class proceedings commenced -and certified – in the coming years.