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Prospectus misrepresentation securities class action dismissed against underwriters

BLG has obtained a dismissal of a securities class action alleging prospectus misrepresentation against a group of underwriters in a decision that confirms the principle that – at least in Ontario – there must be a representative plaintiff with a claim against each proposed defendant to a class action.

Vecchio Longo Consulting v. Aphria is a class action in which the plaintiff investor alleges, among other things, misrepresentations in the primary and secondary market. The plaintiff purchased Aphria shares in the secondary market and commenced a securities class action against Aphria, certain of its officers and directors, and a syndicate of underwriters who underwrote an Aphria prospectus offering. The plaintiff claimed against Aphria and the officers and directors for secondary market misrepresentation and prospectus misrepresentation, and against the underwriters for prospectus misrepresentation.

The underwriters opposed certification on the basis that the plaintiff had not purchased shares in the prospectus offering and therefore did not have a cause of action against the underwriters. The plaintiff argued that the Ontario jurisprudence based on Ragoonanan v. Imperial Tobacco (which requires a representative plaintiff to have a cause of action against each defendant) had been displaced by the Supreme Court of Canada’s decision in Bank of Montreal v. Marcotte, concerning a Québec class action. The court found that Ragoonanan remained good law and the class action could not be certified against the underwriters without a representative plaintiff who purchased shares in the prospectus offering.

The Ragoonanan principle can play an important role when plaintiffs bring a single class action against multiple defendants (often companies that manufacture or sell a similar product, or are engaged in a similar industry or business practice). Ragoonanan states that there must be a representative plaintiff with an individual claim against each defendant that is to be included in a class action.

However, the court ordered the underwriters to produce a list of all the purchasers in the prospectus offering to assist the plaintiff to locate an appropriate representative plaintiff. There was no precedent for the court making this order. The order was stayed pending appeal, and the Divisional Court granted leave to appeal. This led to the plaintiff agreeing to dismiss the action without costs against the underwriters. The action has been certified against Aphria and certain of the individual defendants, and the secondary market misrepresentation claim has been granted leave to proceed. 

For more information regarding class actions, please reach out to any of the key contacts listed below.

Key Contacts