The class action lawsuit commenced on behalf of the franchisees of the Quizno’s franchise system in Canada against Quizno’s and its designated distributor, GFS Canada, is headed to the Ontario Court of Appeal.

The Ontario Court of Appeal will consider whether the action was properly certified as a class proceeding by the Divisional Court of the Ontario Superior Court of Justice. That Court had overturned the decision of the class proceedings judge who denied certification at first instance.

The action concerns Quizno’s’ requirements that the franchisees purchase designated products from its designated suppliers at prices controlled by Quizno’s through its affiliate, Canada Food Distribution Company (“CFD”). The action includes a claim against the designated distributor, GFS, against which the action was also certified as a class proceeding and which is also appealing that finding to the Court of Appeal.

The action raises important issues of whether Quizno’s’ scheme breaches its contractual and good faith duties to the franchisees and whether the scheme is in violation of the price maintenance provisions contained in Canada’s competition law statute. CFD appears to have extracted approximately $15,000,000 in 2006 alone from its role in the distribution scheme while the franchisees have, to a significant extent, been struggling to keep their stores viable.

In certifying the action as a class proceeding, the Divisional Court (in a 2-1 decision) accepted that the franchisees met all of the criteria for certification subject to the class representatives producing a litigation plan acceptable to the class proceedings judge. The criteria which the franchisees met are as follows:

a) the pleadings disclosed a cause of action;
b) there was an identifiable class;
c) the claims of the class members raised common issues of fact or law;
d) a class proceeding would be the preferable procedure for the resolution of the common issues; and
e) there is a representative plaintiff who would adequately represent the interests of the class without conflict of interest.

Each of these criteria has been the subject of significant judicial commentary and elaboration. It has been the primary position of Quizno’s and GFS that the plaintiffs do not meet the tests for certification because the action raises numerous individual issues which are not common and which make a class proceeding not the preferable procedure for advancing the plaintiffs’ cause as a result. Although the class proceedings judge agreed with Quizno’s and GFS on these issues, the majority of the Divisional Court disagreed and found that the franchisees met the criteria for all of the reasons advanced by the franchisees.

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