On May 4, 2015, Justice A.D. Macleod of the Alberta Court of Queen’s Bench certified an omnibus class action in Starratt v. Mamdani, 2015 ABQB 280. The class action involves claims of investment fraud and misrepresentation by the defendants brought on behalf of class members in 21 subclasses. Certification was granted despite the case’s complexity, and the varying alleged harms to class members arising from the alleged fraud and misrepresentations of the defendants.

The plaintiffs allege that they were induced into a scheme, also known as the “Platinum Investments”, that defrauded them out of millions of dollars.  From 2002 to 2012, the alleged scheme had been promoted by the defendants in television, radio and print media as an opportunity to invest in commercial real estate with high returns.  The plaintiffs typically invested by buying a number of limited partnership units, sometimes trusts, under an offering memorandum that outlined the investments’ management, amounts purchased, mortgage registrations, and which promised the segregation of funds in specific bank accounts.

The plaintiffs allege that the defendants did not abide by their representations.  In addition to comingling the funds received for the Platinum Investments, the defendants are alleged to have taken undisclosed fees, failed to disclose actual mortgage amounts, and engaged in the sale of property owned by the defendants to each investment at inflated prices, without disclosing the price increase or the non-arm’s length nature of the transactions.

Despite the fact that the claim was 83 pages in length, “not always concise”, and included claims of conspiracy, misrepresentation, breach of fiduciary duty, breach of trust, and fraud, among other causes of action, the Court certified the action.  In so doing, Justice Macleod noted that the lack of specific detail in the pleading was mitigated by the affidavits filed, which contained specifics and documents supporting the plaintiffs’ claim.  Justice Macleod also found that the complaints of the defendants relating to the insufficient detail in the pleading can be addressed by answers to demands for particulars or during the discovery phase.   In short, it was held that the imperfections in the pleading can be managed or remedied and are not fatal to the certification application.

The Court rejected the defendants’ argument that the allegations of misrepresentation were not suitable for certification on the basis that the misrepresentation claims were one of many other claims supporting the existence of the overall scheme of fraud. Although the allegations of conspiracy were rather vague, Justice Macleod found that there were sufficient allegations in the pleading as a whole that showed that specific defendants allegedly controlled the corporations and their employees in pursuit of the common goal of defrauding investors (again, noting that any imperfections in the pleading can be remedied).

Despite their differing impacts on individual plaintiffs, Justice Macleod held that the allegations of fraud and conspiracy were common to the class. The substantial comingling of funds among the various investments justified resolving any differences in the context of an omnibus class action with 21 subclasses, rather than in multiple class proceedings.

The cost of pursuing those behind a fraudulent investment scheme will often outstrip the investment made by any one individual investor. Historically, cases of this nature have been viewed as too particularized in nature, and thus not easily yielding to resolution by way of a class action. This case highlights a notable development on the use of class actions for addressing wrongs in massive investment fraud cases.

*The Author would like to acknowledge the assistance of Denisa Mertiri, Student-at-Law.