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Warren K. Winkler Class Actions Moot

2017 Moot Problem (Detailed Version)

1. Factual Summary 1

  • A. Introduction

[1] It is a period of economic recovery and reformation. Conventional capital markets were crippled by successive food safety and security crises that gripped industrialized nations in the early 2000s. In the aftermath, agriculture has outpaced all other sectors for investment and trade. New marketplaces, exchanges, institutions, and currencies displaced the former behemoths of the financial sector as investors sought refuge from other floundering markets.

[2] This new economic reality is driven as much by investor savvy as government action and innovation. In response to the crises, governments and regulators have instituted scientific and market interventions to control the quality and safety of the food supply. In the meat production sector, for instance, biotechnological advancements have led to the complete commodification of North American livestock.

  • B. The Cowmoddities Sector

[3] Buyers and sellers of beef must trade their interests in cattle on the newly-formed Bovine Stock Exchange (the “BSE”), created as a means of controlling agricultural investor confidence and ensuring access to a safe meat supply by producers, buyers, and various wholesalers and dealers. To the irritation of many in the Canadian agricultural sector, the BSE is located in Toronto and is governed by Ontario law.

[4] The BSE trades exclusively in live beef cattle (not dairy cattle) and has emerged as the national marketplace for doing so. Sellers on the BSE are primarily large-scale cattle farmers or agents representing pools of small farms’ cow supply, whereas buyers are primarily entities that turn live cattle into sides of beef. Other BSE traders buy and sell interests in cattle for the purpose of arbitrage. Well-known corporations that trade in live cattle include such brands as Milky White Co., Minotaur Meat Co., Valley Veal Co., and EIEIO Co.

[5] Prices on the BSE are quoted through an intermediary trading desk, and trade on the BSE is denominated in Beefcoin (BFC [฿]). Beefcoin (or “moooney”, as it is affectionately known) is a suede-print currency minted in Alberta. While the value of Beefcoin depends in part on the volume of trading on the BSE, it is also affected by the Beefcoin Return Generating Rate (BRGR”). BRGR is calculated and published online daily by the BSE. BRGR and Beefcoin are positively correlated when BRGR increases (decreases), the value of Beefcoin increases (decreases). This fluctuation is not based on a fixed proportional factor or multiple.

[6] The new, “bullish” economy has also spawned specialized ‘beef banking’ businesses, which have some influence over trades in cattle. For instance, the value of BRGR is the average of the interest rates that these banks estimate that they would pay to other banks to borrow Canadian dollars for a one-month period if they were to borrow on the day the rate is being set. The banks individually provide their daily rates to the BSE (which determines and publishes the value of BRGR) and publish their individual rates on their websites every day. The leading beef industry banks are

1 Unless explicitly directed otherwise by the moot organizers:

  • 1. Student facta are only to rely on the motion records for factual citations; and

Moo Money Bank (“MM Bank”), Investing Lean Co. (“IL Bank”), and Kattle Kommercial Bank (“KK Bank”) (collectively and colloquially, “MMILKK” or the “Beef Banks”). The Beef Banks’ customers consist exclusively of players in the beef industry, from individual farmers to large institutional clients in need of leverage to support their business operations and investments.

[7] In addition to the BSE, which is the primary market for live cattle, secondary and tertiary markets have also emerged. The secondary market consists of the purchasing of beef from persons who trade directly on the BSE in order to make processed beef products. The tertiary market consists of purchasing secondary market products for further processing. Typically, secondary and tertiary market participants negotiate standing offer contracts, so-called “cow futures”, and other instruments to facilitate their supply needs. These contracts typically limit the margin available to their supplier by a factor linked to BRGR, but denominate the purchases in Canadian dollars. It is also common for other beef market participants to make purchase, sales, and pricing decisions based on BRGR. Notably, end consumers are conventionally not considered to be part of the secondary or tertiary markets due to their distance downstream in the supply chain (and the fact that most of them have never heard of BRGR).

  • C. The Alleged Market Manipulation

[8] Bessie Brown was a finance intern with the BSE a position she landed after graduating with an MBA in farm finance from the University of Guelph in June 2015. Coming of age in a period of drastic economic transformation, Bessie had been optimistic about the prospect of significant structural change taking place in Canadian society after the collapse of financial markets in the 2000s. However, like many of her contemporaries, she was disillusioned to see (what she perceived as) the same centralization of power and wealth from the former “one percent” reflected in the new economy’s power players, including among the leading corporations that now dominated the BSE and the banks that catered to these entities.

[9] In January 2016, Bessie reached her breaking point and abruptly resigned from the BSE, decrying that she “couldn’t take any more of the bull-. She found a new job as a freelance journalist with the agribusiness news website Moos from the Herd (“Moos”). While conducting research for an article she was looking to write about the Beef Banks, Bessie became frustrated with her inability to find a juicy story. She came upon a website for Angry@Agri (“A@A”), a nomadic and diffuse hacktivist network consumed with exposing what it views as the deceit of “Big Cow Business in the New e-Cow-nomy” (in the words of their ‘About Us’ webpage).

[10] To her surprise, mere minutes after she sent an email to A@A introducing herself, she

received a reply from Leni Leather, the group’s head hacker. Leni requested an urgent meeting. At

their meeting, Leni revealed to Bessie that she had recently hacked into the email accounts of two

traders at MM Bank Patty Prowteen and Ronald Rump. From these emails, Leni uncovered that Patty and Ronald, along with several other traders at the other Beef Banks, had been providing false interest rate information to BSE from January 1, 2014 to December 31, 2015, in order to covertly manipulate BRGR and the value of Beefcoin (which would, in turn, affect trading prices on the BSE, when calculated in Canadian dollars, and the transaction prices of secondary and tertiary market participants).

[11] Bessie was delighted at the prospect of being the face of this story. Leni agreed to hand over the stolen emails to Bessie on the condition that Bessie would exposethe Beef Banks. As promised, on February 1, 2016, Bessie published a dramatic account of what she had just learned on the Moos website, along with all emails she received from Leni. Bessie accused the Beef Banks of orchestrating a massive conspiracy affecting the entire beef industry. Bessie’s article was immediately picked up by major mainstream media organizations and shared widely on social media.

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  • D. The Plaintiff Commences an Action

[12] Chuck Charolais owns and operates a small beef farm operation near Kenora, Ontario with about 200 head of cattle. He took over the family farm from his parents in 1997. Chuck’s business has undergone tremendous transformation to stay alive in the BSE-controlled beef market and make its meat make ends meet. Chuck maintains an active social media presence to promote agricultural lifestyle and discuss the challenges facing small farm operators. Chuck’s means of accessing the BSE is by pooling his cattle with the services of Hector Holstein, an agent who deals in bulk live cattle sales on the BSE. This is a common arrangement for the hundreds of small farms across the province of Ontario who would either rather focus on raising cattle or do not have the cattle volumes or trading sophistication to independently trade on the BSE.

[13] Chuck is a longtime reader of Moos. He read Bessie’s posts on February 2, 2016, and was instantly incensed at the prospect that the prices he had received for his cattle had been manipulated by the Beef Banks. In a series of Twitter posts on the trending hashtag #BSEbusted, Chuck expressed interest in banding together with other impacted parties to bring a class action law suit.

[14] Clarabelle Cow Corp. (“Clarabelle”) is a large industrial beef farm based in Cornwall, Ontario that primarily sells live cattle on the BSE. Clarabelle has about 100,000 head of cattle. Clarabelle was also following the BSE story that was unfolding since Bessie’s revelations on Moos. On February 3, 2016, Clarabelle’s general counsel, Angus Aberdeen, noticed the Tweets from Chuck’s Twitter handle (@cowabunga97). After conferring with senior management, Angus directed Clarabelle’s social media department to respond to Chuck on Twitter (from @claracowcorp) and suggest that he retain a reputable plaintiff-side class actions firm to begin the process of certifying a class.

[15] Chuck retained the law firm Horne & Huff LLP, and on June 1, 2016, he commenced an action in the Ontario Superior Court of Justice in Toronto against the three Beef Banks. The Statement of Claim indicates that Chuck is seeking to certify a class proceeding under the Ontario Class Proceedings Act, 1992 (the “CPA”) on behalf of all persons who engaged in buying or selling on the BSE or in the secondary or tertiary markets at times when BRGR was wrongly manipulated between January 1, 2014 and December 31, 2015. Chuck alleged misrepresentation, relying on the common law cause of action for negligent misrepresentation as well as a statutory cause of action contained in the Ontario Livestock Exchange Act, 2010 (the “LEA”). The relevant provisions of the LEA are similar to section 138.3 of the Ontario Securities Act, which requires leave to commence a proceeding under the statutory provision for misrepresentation.

[16] The defendant MM Bank retained Udder & Tuhg LLP. The other two Beef Bank defendants agreed to adopt the submissions (written and oral) that counsel for MM Bank will make throughout the class proceedings. Lead counsel for the defendants have indicated in media releases that senior Beef Bank executives deny the allegations contained in the Statement of Claim, and in any event, that each of their institutions has policies against such behaviour. In an effort to bolster confidence in the beef market, MMILKK has instituted a special fund to compensate persons who can prove they incurred losses as a result of any proven manipulation of the BRGR.

[17] In an early case conference, it was ordered that Moe Cowbell J. would first hear a motion for leave under the statutory misrepresentation claim, before proceeding to a certification motion. The leave motion was heard on October 1, 2016. Notorious for his speedy decision-writing abilities, Cowbell J. released his decision on October 10, 2016. He denied leave to proceed under the statutory cause of action for misrepresentation. The plaintiff has decided not to appeal this ruling. Based on Cowbell’s decision, the plaintiff amended his Statement of Claim and motion materials in order to remove reference to the statutory cause of action, focusing solely on common law negligent misrepresentation.

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[18] In an effort to gain an upper hand in the class proceedings before the next certification motion is heard, the defendants hired a private investigator to see if they could dig up any dirt about Chuck. The investigator discovered that Chuck was receiving funding for the class action from a company called Beef Au Jus-tice Inc. (“BAJI”). Corporate searches revealed that BAJI was a wholly- owned subsidiary of Clarabelle and had only one director Sally Simmental and no employees. Chuck had not disclosed any funding agreement to the court during the leave motion dealing with the statutory cause of action. While disclosure of a funding agreement is not required at the certification stage of a class proceeding, a party may raise it in their arguments with respect to the certification criteria under section 5 of the CPA. The defendant banks have instructed their counsel to raise the newly discovered funding agreement at the upcoming certification motion.

  • E. The Motion for Certification

[19] The motion for certification will be heard on February 25, 2017. Motion records have been filed with the court. Facta are due by the deadlines specified.

  • 2. Tips from the Organizers

In preparation for the moot, students are advised to turn their minds to whether all of the criteria for certifying a class action under section 5 of the CPA are met. Specifically, students should consider:

  • a. Is the class definition appropriate (given that the class definition includes purchasers and sellers of beef products on the secondary and tertiary markets and the Class Period includes all days during the two-year period from January 1, 2014 to December 31, 2015)?

  • b. Are there sufficient issues in common between the proposed class members (given the elements for demonstrating common law negligent misrepresentation and unconscionability, and the potentially varying effects that the Defendants’ representations may have had on potential class members)?

  • c. Is a class action a preferable procedure for the common law negligent misrepresentation claim (given the rejection of the claim under the statutory cause of action)?

  • d. Should the third party funding agreement be approved?

Note that the methodologies reflected in the expert reports have been fabricated for the purposes of this problem and should be accepted as “real” scientific methods in this fictional world. 2 Students are encouraged to make submissions about the strengths or weaknesses of a methodology, but cannot challenge the existence of the methodology compared to real world science.

McCarthy Tétrault will hold a strategy session for all student participants on November 1, 2016 from 6:30 to 8:00 PM. Our practitioner speakers at the event will provide insight into the above issues and written and oral advocacy techniques in the class actions context. All mooting teams are strongly encouraged to participate. The event will be available by videoconference or for in-person participation in Toronto.

  • 3. Questions?

All questions must be directed to the moot organizers by the date(s) specified in the rules for the moot. Please review the rules prior to raising questions concerning moot procedure and submission requirements.

2 All characters and events depicted in the materials for the 2017 Winkler Moot are fictional.

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