On February 7, 2023, the Alberta Court of Appeal released its decision in Setoguchi v. Uber B.V., 2023 ABCA 45. In its decision, the Court confirmed the importance of the gatekeeping role of justices at class action certification applications.
In October 2016, hackers illegally accessed data that Uber B.V. (Uber) had collected from its drivers and users and stored in a third-party cloud-based service. The breach resulted in the theft of personal information, including names, phone numbers and email addresses of Uber drivers and users worldwide. Uber paid a ransom to the hackers in return for an assurance that the data would be destroyed.
The proposed representative plaintiff, Dione Setoguchi (Setoguchi), was an Uber user at the time of the data breach. She commenced a proposed class action against Uber for breach of contract and negligence. Setoguchi alleged that Uber had breached its user and privacy agreements, and breached its duty of care to the class members, by failing to take adequate measures to protect users’ personal information.
DECISION ON CERTIFICATION
The Alberta Court of King’s Bench denied certification in a decision reported as Setoguchi v. Uber B.V., 2021 ABQB 18. (See our bulletin Uber Denial of Class Action – Alberta Court Denies Certification of Privacy Class Action.)
The certification justice began his analysis by considering if the claim filed by Setoguchi disclosed a cause of action pursuant to section 5(1)(a) of the Class Proceedings Act, SA 2003, c C-16.5 (CPA). In conducting this analysis, the certification justice observed that the class had not actually suffered any harm or damage as a result of the data breach.
The certification justice was clearly concerned that certification should not be available if it is “plain and obvious” that the class will not succeed and if there is no evidence of (or a “basis in fact” for) compensable harm above a de minimis level. On the record before him, the certification justice found that there was no harm or loss to any putative class member. He reluctantly concluded that the “some basis in fact” test does not apply to causes of action that are fully and completely pleaded, even if there are in fact no or only de minimis damages. Accordingly, the certification justice accepted that Setoguchi had satisfied the cause of action certification criterion under section 5(1)(a) of the CPA.
Nevertheless, the certification justice denied certification because he found that a class action was not the preferable procedure, considering the judicial resources required for the class action to proceed, the impact on behaviour modification and the nominal damages that would flow to the class members even if they were successful.
ISSUES ON APPEAL
The Court considered two issues on appeal. First, whether the negligence claim, as pleaded, disclosed a cause of action recognized in law. And second, whether a class proceeding was the preferable procedure.
THE DECISION ON APPEAL
At the outset, the Court confirmed that the “some basis in fact” test does not apply to cause of action criterion under section 5(1)(a) of the CPA. No evidence of loss or harm is required to determine if a pleading discloses a cause of action on its face. However, the Court held that the test under section 5(1)(a) should not be treated as a “perfunctory exercise.” It cautioned that certification justices should consider if each element of a cause of action is, or ought to be, recognized in law, particularly if a novel claim has been advanced.
Referring to various authorities from both Canada and the United States considering data breaches, the Court concluded that the compromise of publicly available personal information (such as contact information), without more, does not amount to a legally compensable loss. It added that even if the class members might be marginally worse off because of the theft, the damages that flowed from the theft were negligible. Accordingly, because a key element of the cause of action in negligence (i.e., damages) could not be demonstrated at the certification stage, the Court held that the cause of action in negligence should not be certified.
The Court then considered if a class action was the preferable procedure for the remaining breach of contract claim. While the Court noted that a decision on preferability is entitled to deference, it concluded that it was proper for the certification justice to ask what purpose the action served in the context of class proceedings, particularly given that the breach of contract claim sought nominal damages only. On this point, the Court held that it was appropriate for the certification justice to weigh the considerable judicial resources a class proceeding would require against the nature and importance of the claim. Accordingly, the Court refused to disturb the conclusion of the certification justice that a class proceeding was not the preferable means of resolving the breach of contract claim.
Further, and in light of the negative press and significant regulatory penalties already imposed on Uber, the Court also rejected the argument that the goal of behaviour modification would be achieved if the action proceeded as a class proceeding. In the result, the Court dismissed the appeal.
This decision provides helpful clarification about section 5(1)(a) of the CPA and confirmation of the role of a certification justice as gatekeeper. In particular, the Court emphasized that:
Neither evidence nor “some basis in fact” is required to determine if a pleading discloses a cause of action under section 5(1)(a) of the CPA.
Courts must carefully consider if each element of a cause of action is, or ought to be, recognized at law, particularly if a novel claim has been alleged.
Courts must exercise their gatekeeping function by disposing of claims at the pleadings stage if it is appropriate to do so. This includes causes of action for which damages are an essential ingredient, such as negligence claims. If damage cannot be demonstrated at the certification stage, then a certification justice should deny certification.
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