Ontario Court Orders Franchisee in Pet Valu Class Action to Pay $1.7 million in Costs

In Pet Valu Canada Inc. v. Rodger, 2018 ONSC 3353, the Ontario Superior Court of Justice ordered the sole shareholder of the representative plaintiff in the Pet Valu class action to pay the franchisor’s costs of the class action.

In January, 2016, the Ontario Court of Appeal dismissed the Pet Valu class action in its entirety on a summary judgment motion by the franchisor. The representative franchisee, a corporation, was ordered to pay costs to the franchisor of approximately $1.7 million, which the franchisor had incurred in its defence of the class action.

As the corporate franchisee ceased operations, and ceased to have any assets, the franchisor brought an action against the sole shareholder of the franchisee to enforce payment of the costs award.  The franchisor then moved for summary judgment.

The Court reviewed the indemnification provisions of the franchise agreement, which personally bound the shareholder to the costs award payable by the franchisee. The Court also found that the personal guarantee that the shareholder signed also imposed direct liability for the costs award. The Court noted that there was nothing inherently distinct about class actions to take them outside the indemnification provisions of the franchise agreement.

The Court also noted that the representative plaintiff in a franchise class action was generally bound to pay costs awards to the franchisor if the class action is dismissed. The Court also noted that the franchisee failed to take steps to attempt to secure third party financing for the class action, as many representative plaintiffs do.

Please see our webpage for more information on McCarthy Tétrault’s Retail and Consumer Markets Group.

Franchise & Distribution litigation

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