Canadian Federal Court of Appeal confirms rarity of reverse class proceedings in Voltage v. Salna

A respondent class proceeding, sometimes known as a “reverse” class action, is initiated by a plaintiff who designates a representative defendant (or respondent) to represent the interests of a proposed class of defendants. This is in contrast to a traditional class proceeding where a plaintiff (or applicant) serves as a representative on behalf of a class of plaintiffs. Reverse class proceedings are a rarity in Canada, with only a small handful having been commenced.

The Federal Court of Appeal (FCA) has confirmed that the principles applicable in plaintiff class proceedings are equally applicable in ‎‎reverse class proceedings. That is, where certification would serve access to justice, behavioural modification, ‎‎and judicial economy, a class proceeding is the preferable procedure.

In Voltage Pictures LLC v. Salna (2023 FC 893) Fothergill J. for the Federal Court once again denied certification of a proposed respondent class proceeding of internet account holders accused of infringing copyrights by sharing certain films through BitTorrent networks.

Voltage addresses the role and purpose of reverse class proceedings, while shedding light on their significant inherent challenges and complexities. Specifically, the case raises questions about giving effective notice to unidentified respondents accused of online copyright infringement. Ultimately, the Court denied certification based on the finding that the proposed plan for notifying respondents, which relied on the notice-and-notice regime under the Copyright Act, was unworkable and contrary to the legislative scheme. Consequently, the viability and practical operation of reverse class proceedings, especially those involving unidentified copyright infringers, remains uncertain.

Procedural background

In 2019, Voltage first applied to the Federal Court for certification of a reverse class proceeding. The Court dismissed the motion finding that Voltage did not meet any of the certification criteria (2019 FC 1412). The respondents appealed from an award of costs; on cross-appeal, Voltage succeeded in having the case remitted in part back to the Federal Court ‎‎for reconsideration (2021 FCA 176).‎ The FCA held that ‎the lower court ‎erred in refusing to certify the proceeding on the basis that none of the five ‎certification criteria ‎were met. Instead, the FCA found that the first three criteria of certification were met and that the final two criteria ought to be remitted back to the Federal Court for reconsideration.

In the subsequent reconsideration (2023 FC 893), the Federal Court denied Voltage’s motion for certification on the basis that there was no workable litigation plan, but granted Voltage the ability to re-apply for certification with a revised litigation plan.

Overview

Rule 334.16(1) of the Federal Court Rules sets out the 5 criteria for certification. The FCA found the first three certification criteria to be met, and referred the remaining to the Federal Court (2021 FCA 176). Accordingly, the issues were:

(1) whether the proposed class proceeding is the preferable procedure (sub rule (1)(d)); and,

(2) whether Mr. Salna is a suitable representative respondent (sub rule (1)(e)).

Fothergill J. held that a class proceeding was the preferable procedure but that the proposed litigation plan did not set out a workable method for advancing the proceeding. While the class representative typically bares the burden of establishing a workable litigation plan for the purposes of Rule 334.16(1)(e), in a reverse class proceeding it is the plaintiff’s burden to establish a workable litigation plan, rather than the proposed representative respondent. Voltage was therefore required to demonstrate that there was a workable method of advancing the proceedings on behalf of the proposed class. Since the litigation plan’s proposed use of the Copyright Act’s notice-and-notice regime‎¹‎ to notify class members and advance the proceeding on behalf of the class was not permissible, the class proceeding could not be certified. Although the Court found that Mr. Salna was capable of vigorously and fairly defending the class, despite his reluctance, the litigation plan also did not adequately address the funding of class counsel an issue of “paramount importance” and, if not sufficiently addressed in a litigation plan, could prove to be fatal to certification.

Facts

Voltage Pictures LLC, along with other production companies forming the Voltage film studio, sought certification of a reverse class proceeding against Mr. Salna and the unidentified class members, each of whom were alleged to have infringed Voltage’s copyright by sharing Voltage’s films via BitTorrent networks.

Using forensic software, Voltage had identified the Internet Protocol (IP) address associated with internet accounts it believed illegally shared five of its films. Mr. Salna’s identity was obtained through a Norwich order, a pre-trial remedy for discovery that can be obtained to compel third parties to disclose information to a plaintiff (2017 FCA 97). Voltage claimed to have identified thousands of additional IP addresses that had infringed its copyright in its films, but had not otherwise identified these respondent class members.

Decision

On the first issue, Voltage demonstrated that there was “some basis in fact” for the class proceeding being the preferable procedure—an analysis assessed against the aforementioned principal goals of class proceedings.

On the second issue, however, Voltage could not show that its proposed plan for contacting class members was permissible, or that there was adequate funding for class counsel.

Preferability analysis

Fothergill J. found that the advantages of a class proceeding outweighed speculative concerns over the actual number of class members and the possibility of a multitude of different defences. In its assessment, the Court sidestepped the issue of many, if not all, respondents opting out of the class by stating that the Federal Courts Rules addressed any concerns in this regard by permitting adjustment or decertification.

Suitable representative respondent analysis

Despite Mr. Salna objecting to being the representative respondent on a number of grounds, including that he had no incentive to defend the proceeding and that there was no method to ensure payment of class counsel, the Court found that, in accordance with the FCA’s earlier holding that finding a representative respondent incapable due to a lack of financial incentive would essentially foreclose any representative from being suitable in a reverse class proceeding when monetary consequences are low, he could have been an appropriate class representative.

The litigation plan

The notice-and-notice regime

The central issue in this case revolved around Voltage’s proposed use of the Copyright Act’s notice-and-notice regime for notifying the respondent class. The Copyright Act allows copyright owners to prepare “notices of claimed infringement” that ISPs must forward to potential infringers. However, the Copyright Act expressly prohibits the inclusion of certain information in such notices, including offers to settle and requests or demands for payment. Considering these express prohibitions, the Court concluded that Parliament did not intend for ISPs to provide notices regarding legal proceedings or court documents, such as a certification orders, to potential respondents. While the regime allows for notifying users of claimed infringements, it does not permit the service of litigation-related documents particularly where those documents affect substantive rights.

Litigation plan amendments

The Court allowed Voltage to re-apply for certification with a revised litigation plan addressing the funding of class counsel and producing a workable method for identifying and communicating with respondent class members.

The Court appears to have given some direction to Voltage in concluding that:

[91] The notice-and-notice regime in the Copyright Act may be used to inform Class Members that their infringing activities are known to Voltage. A targeted advertising campaign may persuade them to identify themselves confidentially to Class Counsel. A Norwich order may be obtained to identify recalcitrant Class Members, who may then be given notice of the class proceeding in much the same way as occurred in Voltage Holdings, LLC v Doe#1, 2022 FC 827.

However, the Court’s comments are obiter and do not necessarily confirm that such steps in a reworked litigation plan would ultimately be sufficient to grant certification.

Takeaways

• The objection of a proposed representative respondent to acting on behalf of a proposed class of respondents in a reverse class proceeding will not on its own defeat certification. While such objections may seem contrary to the overarching purpose of the class proceeding regime, which aims to benefit individual class members, the court will consider various factors in determining whether even a “reluctant” representative respondent can adequately and fairly represent the class to achieve the goals of the class proceeding regime.
• While the Court recognized the obvious risk of opt-outs in reverse class proceedings, the potential risk of significant opt-outs does not automatically preclude certification, rather the court can de-certify the proceeding should it no longer be viable.
• Subsection 41.25(2) Copyright Act draws a distinction between a notice of alleged infringement and litigation, consequently the notice-and-notice regime cannot be used to advance class proceedings where the identity of proposed class members are unknown.

We will closely monitor the progress and any significant developments in this case. If Voltage successfully addresses the deficiencies in its litigation plan and obtains certification, it would be the first known reverse class proceeding for copyright infringement in Canada. It will be particularly interesting to observe how the courts will ultimately navigate the unique challenges posed by reverse class proceedings, such as the management of opt-outs and other procedural complexities, much of which remains untested.