Class Action Update June 2012
We wish to provide you with an update on the Canadian class action against Midas Canada Inc.
You are receiving this because our records show that you owned a Midas franchise in Canada on both July 11, 2003 and May 31, 2007. If you did not own a Midas franchise during this period, you should not read this update and should destroy it.
This letter will tell you:
- What the lawsuit is about
- Nature of a class action lawsuit and how you stand to benefit
- What is the status of the lawsuit?
- When we expect the trial to take place
- Possibility of settlement
- Staying in touch
What the lawsuit is about
This class action is brought on behalf of all Canadian Midas dealers who owned a Midas shop during the period of July 11, 2003 and May 31, 2007. The claim alleges that Midas Canada breached its duties of good faith and fair dealing to the dealers by eliminating the preferential pricing of parts and other benefits which were an integral part of the Midas franchise system.
In 1980, Midas Canada came to its dealers proposing a new royalty arrangement: the dealers would pay a higher royalty fee (10% of gross sales instead of the previous rate of 5%). In return, dealers would receive a discount on products purchased through Midas’ wholly-owned distribution network. The discount was equal to 14.5% off the wholesale price that Midas gave to its other customers. This gave the Midas dealers a significant competitive advantage. The discount more than offset the increased royalty rates under the new franchise agreement. In fact, the arrangement was to the net benefit of the dealers. Almost all Midas dealers accepted this increased royalty in exchange for preferential pricing on products.
Midas dealers enjoyed this advantageous discount for 20 years. In 2001, Midas announced that it would stop noting the discount on invoices but would continue to apply it behind the scenes. In 2003, Midas ceased its parts manufacturing and distribution network altogether. Dealers were then required to purchase products from other sources. With the elimination of the Midas factories and distribution network came the loss of the 14.5% discount and the end of a distribution network tailored to the dealers’ needs that had existed for decades. The 10% royalty rate paid by the dealers, however, remained unchanged.
The suit alleges that Midas Canada breached its duty of good faith, or was unjustly enriched, by keeping the royalty rate the same while significantly scaling back the benefits that the Midas dealers enjoyed. The system went from one based on a unique economic model (high royalty/low cost of goods and superior distribution network plus the Midas Lifetime warranty), to a garden-variety auto service franchise that competes with other systems having a lower royalty structure. The end result has been a sharp decline in the number of Midas shops and a sharp reduction in the profit of the dealerships.
Nature of a class action lawsuit and how you stand to benefit
The Ontario Superior Court of Justice certified this action as a class action in 2009. The class is defined as all “corporations, partnerships and individuals carrying on business in Canada as franchisees on both July 11, 2003 and May 31, 2007 under franchise agreements with the defendant, Midas Canada Inc.”
As a result of the certification, each member of the class stands to benefit from any settlement or judgment that may be obtained. No class member is liable to pay costs if the action is unsuccessful.
What is the status of the lawsuit?
A class action lawsuit generally proceeds in the following stages:
- Trial preparation/mediation stage
- Trial (if no settlement)
- Appeal (if necessary)
We have completed stages 1 and 2 and the majority of the discovery stage.
Discovery is the lengthiest stage of most lawsuits. During the discovery stage, both the plaintiff and the defendant must produce all documents that are relevant to the lawsuit and submit to examinations by the other side.
We examined Midas’ representative for discovery in July 2011. Midas agreed to provide us with a number of further answers in writing. We received those answers last month.
Midas examined the representative plaintiff, Daniel McGolrick, in September, 2011. Mr. McGolrick also agreed to provide a number of further answers in writing which were delivered last month.
We anticipate that a brief follow-up examination will be conducted this month.
After the examinations for discovery are completed this month, we will notify the court that we are ready to set a trial date. We will then move to the pre-trial phase of the action. This will involve a pre-trial conference before a judge to discuss the trial and to attempt settlement. Before trial, the parties may choose to engage in a mediation. Mediation is a voluntary process designed to attempt to arrive at a settlement. A first mediation was held in 2009 before the certification motion but was unsuccessful.
When we expect the trial to take place
If we do not succeed in resolving the case at or before mediation, we will proceed to a trial. We expect the trial to take place within 12 to 18 months depending on court availability.
Possibility of settlement
As stated, we have tried once before to mediate this case with Midas and we were not successful in arriving at a settlement. We are open to a second mediation and have indicated to Midas’ counsel that if this is to take place, we should do this without further delay. Midas’s counsel has not responded.
Staying in touch
We ask that you provide us with your current contact information by visiting our online registration at https://www.sotosllp.com/class-actions/midas/ and click “Stay in touch”. Or, you can mail, fax or email your contact information to Sotos LLP c/o Delita Nunes, su. 1250, 180 Dundas St. W., Toronto, Ontario M5G 1Z8 firstname.lastname@example.org Fax: 416-977-0717.
If you expect to close or sell your business in the near future, please provide us with a forwarding address where we may contact you.
For further updates on this action, please visit the webpage on our website devoted to this class action: https://www.sotosllp.com/class-actions/midas/
If you have any relevant information or documents, please send them to us for review.
For further information, please contact:
Andy Seretis, tel: 416.977.5333 ext. 306; fax: 416.977.0717; email@example.com.
MIDAS CANADA DEALER CONTACT INFORMATION
Full corporate name:
Name and store # of shop:
Address of dealership:
New address if dealership no longer in business:
Please mail, fax or email this information to
Sotos LLP c/o Delita Nunes, su. 1250, 180 Dundas St. W., Toronto, Ontario M5G 1Z8 firstname.lastname@example.org Fax: 416-977-0717