An Ontario court has granted class action status to a lawsuit by over 200 former Canadian GM dealers terminated in connection with the auomaker’s 2009 bailout by the governments of Canada and Ontario.
The lawsuit, seeking C$750m in damages, claims that General Motors of Canada, a subsidiary of General Motors Company, breached provincial franchise laws in eliminating the dealerships.
Also named in the suit is Cassels Brock & Blackwell (Cassels), a major Canadian law firm retained to act for the Canadian GM dealers in anticipation of a GM restructuring. The claim alleges that Cassels was in a conflict of interest by simultaneously acting for the Canadian government in connection with the bailout.
One of the conditions for GM to access billions of dollars of government funding was the elimination of a large number of itsdealers.
The suit alleges that after GM presented a termination package to the affected dealers, Cassels told them to consult their individual lawyers in the limited time which they had to respond to the package. Unable to negotiate as a group, and without group legal counsel, the vast majority of dealers signed back the termination package as presented by GM rather than risking GM filing for a formal insolvency proceeding as GM threatened to do if the dealers rejected the offer. The dealers had between two and four business days to accept the package which was offered.
GM avoided a formal insolvency proceeding in Canada, unlike in the United States where its parent company reduced its dealership network through a formal Chapter 11 bankruptcy protection filing.
In the 68-page decision, Justice GR Strathy described the tumultuous events that took place over six days in May 2009 while GM sought to eliminate the dealers. These events had been largely shielded from public disclosure through confidentiality agreements signed by the dealers at the time of their terminations.
Lawyers for the terminated dealers have initiated freedom of information requests to both the federal and provincial governments in relation to the GM auto bailout. Both governments have denied access to thousands of documents, citing the need to protect commercial interests of unnamed third parties, presumed to be GM. These refusals are currently under appeal.
Concluding that justice would best be served by allowing the dealers to proceed as a class action, Justice Strathy said: “[i]t is not realistic to think that an individual franchisee, who has experienced the loss of their business, is financially or psychologically equipped to engage in protracted, complicated and very expensive litigation with one of the largest corporations in North America and a major Canadian law firm.”
Regarding the claims against Cassels, the judge commented, “[t]his is not a typical solicitor’s negligence case” and that the case raises “important issues concerning lawyers’ duties to their clients, particularly in the context of group retainers.”
David Sterns, one of the lawyers for the lead plaintiff, said “the elimination of the dealers was a man-made disaster for hundreds of family-owned businesses forced to pay the price for GM’s financial problems. As a result of this decision, the dealers now have a chance to put the pieces back together and mount a recovery of their own.”
Trillium Motor World, a former GM dealer in Toronto, has been designated to represent the terminated dealers in every Canadian province.