I have been writing about
Voltage, copyright trolls, and mass
litigation in Canada and elsewhere for almost seven years (beginning on
September 9, 2011 here).
On August 9, 2018 the
Supreme Court of Canada dismissed Voltage
Pictures et al’s application for leave to appeal
from a judgment from the Federal Court of Appeal (FCA) affirming the Federal Courts’ February
2, 2017 order regarding security for costs but for very
different reasons. That order required that Voltage must pay $75,000 into court
for security for costs “forthwith”
pursuant to Federal Courts Rule 416. This
case is the very controversial “reverse
class action” in which Voltage and a few others are trying to sue more than
50,000 individuals at once. This is an unprecedented and arguably completely
unforeseen and unintended use of the relatively new Federal Courts rules
permitting class actions.
For reasons that are not
apparent, the FCA’s decision has only just been posted very
belatedly on August 13, 2018, although it was
rendered on November 15, 2017. I presume that this was an oversight. It’s
unfortunate, because this proceeding was a major milestone in the ongoing efforts
by Voltage and others to sue tens of thousands of individuals through this
reverse class action and in approximately 15 current mass litigation law suits
naming hundreds of “Does”. For example, one such action, that of Bodyguard
Productions, has 726 “Doe” defendants. Another, Morgan Creek, as 352 Doe
Defendants. Both of these strategies – namely the “reverse class action” and
the 15 or so mass litigation lawsuits – are being pursued by the law firm of
Aird and Berlis, LLP. The lead counsel is Mr. Kenneth “Ken” Clark, whose name has arisen before on this blog. Interestingly, most of these 15 mass
litigation proceedings began after the Federal Court ordered the payment into court
“forthwith” of $75,000 for security for costs on February 2, 2017.
I do not know at this
time what connection, if any, Voltage has with these 15 or so mass litigation
actions. However, there are at least some connections. There is apparently a possible
connection between Voltage and Morgan Creek in action T-71-18.
There is also an apparent possible connection between Voltage and Dallas Buyers Club in action T-1674-16.
The SCC’s refusal to
grant leave to appeal to Voltage will come as good news to the potential 50,000
or so defendants in this very unusual and indeed unprecedented “reverse” copyright class action.
One person, Mr. Robert Salna, was singled out by Voltage to represent thousands
of potential class members. As luck would have it, Voltage chose quite possibly
the very worst possible representative person from Voltage’s standpoint, Mr.
Robert Salna, who is a landlord whose internet account allegedly “was used
(likely by his tenants) to unlawfully distribute all of the films at issue in
the underlying proceeding.” Mr. Salna clearly
has some means, has stood on principle and has good counsel.
I have previously written
about how Voltage’s attempt to use a “reverse class action” in the USA was tossed by a federal
district court judge in Oregon in 2013.
Naturally, each of the
50,000 or so defendants in this “reverse class action” may have had a different
factual story to tell. Moreover, as any copyright lawyer in Canada knows, there
is no Canadian case law establishing liability involving the use of BitTorrent
technology by individuals. In any event,
even if there is liability in such a case, the amount of actual damage by any
individual is likely to be minimal – since the cost of streaming or buying a
movie is at most a few dollars. The range of statutory minimum damages for
non-commercial activity is $100 to $5,000 and Canadian courts are consistent in
ruling that statutory minimum damages must bear a correlation to actual
damages. Even $100 is arguably far more than any reasonable measure of actual
damage attributable to one individual in the circumstances as alleged.
There are approximately
50,000 class members as estimated by the plaintiffs in this proposed class
action. If each of them is held liable for the maximum statutory damages amount
of $5,000 for infringement of one work, that could lead to damages of
$250,000,000. Even at the $100 low end of the range, the judgment could be in
the realm of $5,000,000. In fact, several works are involved in this proposed
class proceeding
In this instance, Voltage
is attempting to sue at least 50,000 individuals for a total court
filing fee of $50 for an “application.” This is in contrast to a normal “action”,
which would normally require a filing fee of either $150 or $50 for each separate
lawsuit, the latter being available only for a “simplified action” when the
amount claimed does not exceed $50,000.
So, if Voltage pursues its strategy and succeeds in
getting this reverse class action certified, it will get to sue at least 50,000
individuals for a court filing fee of less than $0.001each – that’s less than a
tenth of a cent.
Voltage and the other
plaintiffs were unwilling to put up any security for costs, which is a very
normal step at the outset of any Federal Court litigation when, inter alia, the plaintiff is a
non-resident entity or when it does not provide an address. See Federal Courts Rule 416.
Voltage had argued the
Federal class action regime was designed to prevent costs awards, including any
“security for costs” requirement.
334.39 (1) Subject to subsection
(2), no costs may be awarded against any party to a motion for certification of
a proceeding as a class proceeding, to a class proceeding or to an appeal
arising from a class proceeding, unless
·
(a) the conduct of the party
unnecessarily lengthened the duration of the proceeding;
·
(b) any step in the proceeding by
the party was improper, vexatious or unnecessary or was taken through
negligence, mistake or excessive caution; or
·
(c) exceptional circumstances make it unjust to deprive the
successful party of costs.
Voltage wanted to argue
that the class action mechanism in the Federal Courts Rules is intended to
immunize plaintiffs from costs except in very limited circumstances. However,
the Federal Court of Appeal ruled that the nature of a reverse class action may
well be an example of when “exceptional circumstances make it unjust to deprive
the successful part of costs”. The motions judge in this instance, Justice
Boswell, awarded $75,000 security for costs because he reasoned that the
certification motion had not yet been filed.
The FCA convincingly ruled
that Justice Boswell got the right result but for the wrong reason:
[8] Notwithstanding this, I believe
that the Federal Court’s order should nonetheless be upheld as there is an
alternate basis for finding that the Court possessed the jurisdiction to make
it. In the exceptional
circumstances of this case, which involve a proposed reverse class proceeding
brought by foreign corporations with no significant assets in Canada against a
proposed class potentially comprised of thousands of individuals resident in
Canada, it is entirely possible that, if he is successful, the respondent
might be awarded costs under Rule 334.39(1)(c). This paragraph allows for costs in respect of a
certification motion, a class proceeding or an appeal arising from a class
proceeding if “exceptional circumstances make it unjust to deprive the successful
party of costs”. Such circumstances could well be found to exist in the present
case, but that issue will not be addressed unless and until the Federal Court
dismisses the certification motion.
[9] The circumstances in Rules 416(1)(a) and (b)
apply, and, therefore, but for this being a proposed class proceeding, the
Federal Court would be empowered to make an order for security for costs. I do
not believe that the fact that this is a proposed class proceeding forecloses
the Federal Court from making such an order in the present case. More
specifically, I do not believe that a determination under Rule 334.39(1)(c) is a condition precedent to the
exercise by the Federal Court of its discretion under Rule 416 to order
security for costs in a case such as this, and there is nothing in the Rules or
the case law of this Court that would require such a conclusion.
…
[11] If the appellants were correct
in the interpretation they urge, an order for security for costs could never be
made in the case of a class proceeding involving exceptional circumstances as a
determination under Rule 334.39(1)(c) cannot be made until a determination on
the merits is made. In my view, such an interpretation is untenable as it could
well deprive a representative defendant like Mr. Salna of any realistic hope of
recovering the costs he might eventually be awarded.
[12] Moreover, it appears that none
of the access to justice concerns that motivate the prima facie no-costs regime enshrined in the Rules for class
proceedings militates against the order for security in the instant case. The appellants appear to be fully
able to bring their action, and, indeed, had two lawyers gowned before this
Court on this appeal. In addition, they declined to file any evidence detailing
their financial means to retain and instruct counsel or to post the required
security for costs. On the other hand, the respondent and other members of the
proposed class will likely face difficulty in funding representation. Thus,
there is no principled basis for finding that an order for security for costs
should not be made in the present case and there is no binding authority that
indicates that the Federal Court erred in making such an order. I
therefore believe that it was open to the Federal Court to make the impugned
order for security for costs.
[13] Nor do I see any basis to
interfere with the quantum of the security set by the Federal Court, a
discretionary factual determination that this Court cannot interfere with in
the absence of palpable and overriding error. The appellants can point to no
such error here, particularly in light of the magnitude of the expenses
incurred to merely litigate the motion for security. Further, if the appellants
are right and the Samuelson-Glushko Canadian Internet Policy and Public
Interest Clinic will be intervening in the certification motion and carrying
the bulk of the argument, it would be possible for the appellants to seek to
have the Federal Court vary its order and decrease the amount of the security
for costs they are required to provide. Indeed, in its reasons, the Federal
Court commented on just such a possibility.
[14] Thus, I would dismiss this
appeal.
The Supreme Court of
Canada is not going to hear Voltage’s appeal regarding the security for costs
order. As usual, they don’t provide reasons. The bottom line is that the FCA
decision stands as controlling precedent.
Thus, the takeaway from all
this is arguably as follows:
- A “reverse class action” is indeed an “exceptional circumstance” and any foreign plaintiff must be prepared to put up potentially substantial security for costs at an early stage and potentially even more to follow at later stages if such an action ever gets certified, which is far from being clearly likely, for reasons beyond the scope of this blog
- Voltage may also be liable for reasonably substantial costs for the motion for security for costs.
It will be extremely
interesting to see whether Voltage now proceeds in this controversial “reverse
class action”. If it wishes to proceed, it must put up $75,000 now and may be
liable for substantial costs of the vigorously opposed security for costs
motion in due course. I have previously noted how a prior Voltage
foray in the Federal Court against Tekksavy customers fizzled
when it was ordered to pay substantial costs. In fact, notwithstanding the
Federal Court’s order of February 2, 2017 that the $75,000 for security for
costs be paid into court “forthwith”
(which means in a matter of days, not months or years), it apparently has still
not been done, which seems rather odd. That order was not stayed by the unsuccessful
appeal to the FCA or the subsequent unsuccessful leave to appeal application to
the SCC.
Moreover, it will also be
very interesting to see whether the possibly greater awareness amongst lawyers
and even self-represented defendants about Federal Courts Rule 416 and “security for costs” will have any impact
on the 15 or so mass litigation lawsuits against thousands of “Doe” defendants that
were also launched by Mr. Clark.
Stay tuned.
HPK
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