Court rejects class action against RBC fund dealer

The suit, which was brought by a pair of retirees, William and Dianne Sharp, alleged that the compensation arrangement put the firm’s interests ahead of its clients’ interests, violating securities laws.

The firm was sanctioned by the Ontario Securities Commission (OSC) in 2018 for violating the sales practices rule that prohibits dealers from favouring proprietary funds over third-party funds in their compensation structure.

The firm settled the case, admitting to violating the rules, and it paid a $1.1 million fine.

However, the court found that proposed civil action following that enforcement case is not suitable as a class action.

“Ultimately, I cannot find that a class proceeding in this case would be fair, efficient, or manageable,” the court ruled.

“The heart of the plaintiffs’ case is the allegation that the defendant harmed their financial interests by acting in a conflict of interest when selling RBC [portfolio] funds… This is a highly individualized claim that is simply not amenable to class determination,” it said.

To start, the court also struck down several of the plaintiffs’ proposed causes for action.

It found the plaintiffs’ claim that the arrangement violated a fiduciary duty to the clients was destined to fail, as were claims of unjust enrichment and breach of “equitable obligation.”

The court said it’s possible the plaintiffs could make a claim for breach of contract. However, it also concluded that assessing damages on a breach of contract claim would require an examination of each investor’s individual circumstances.

“In this case, the determination of each class member’s claim will require evidence of their financial circumstances, when and why they purchased an RBC [portfolio] fund, whether they would have purchased an RBC [portfolio] fund absent enhanced compensation, and whether they suffered a financial loss as a result of investing in RBC [portfolio] funds,” it said.

The court noted that while the plaintiffs argued that many of the losses suffered by individual investors are very small, and that a class action is the only way for investors to get justice, that’s not a sufficient reason to certify a class action.

“The fact that a class proceeding may be the only practical procedure available to the plaintiff cannot justify certification of an unworkable class proceeding that involves individual evidence and fact-finding,” it said.

It also noted that one of the objectives of class proceedings — behaviour modification — has already been accomplished by the OSC enforcement action.

“This case, which will almost certainly devolve into a multitude of individual trials, will not serve the goal of judicial economy,” the court said in its decision.

As a result, it found that the plaintiffs failed to satisfy the requirements for certification as a class action, and it dismissed their application for certification.