Judge Gives GM Dealers Green Light for Class Certification

TORONTO, Ontario – A superior court judge has certified a class action lawsuit brought by 207 former dealers seeking $750 million from General Motors of Canada Limited and the law firm of Cassels Brock & Blackwell LLP, alleging conflict of interest.

The lawsuit accuses GM of violating franchise laws and unfairly forcing them to close. Although GM retained Cassels Brock to act on the dealers behalf while restructuring its debt, franchisees allege the law firm was simultaneously acting for the government of Canada in connection to the bailout.

The law firm of Sotos LLP, representing the dealers under lead plaintiff Trillium Motor World Ltd., a former GM dealer in Toronto, explained that one of the conditions for GM Canada to access billions of dollars of government funding was the elimination of a large number of GM dealers. David Sterns, one of the lead counsels for plaintiffs said the decision gives the dealers a chance to mount a recovery of their own. "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,” he said in a statement.

As background, in May 2009, when facing dire economic circumstances in getting financial support, GM Canada issued notices of non-renewal to more than 240 of its 750 franchisees. The car dealership gave them six days to accept or reject an agreement whereby they would receive a sum of money in exchange for a speedy shutdown of their operations. GM suggested it would be forced to file for creditor protection under the Companies’ Creditors Arrangement Act if the agreement was rejected.

After 85% accepted the wind-down offer, they then filed a class action lawsuit that GM’s strategy was designed to divide the dealers, conceal GM's true financial position and prevent them from preparing a united response. In particular, the franchisees alleged that General Motors breached its statutory duty of good faith and fair dealing and franchisees’ statutory right to associate with one another. They also accuse that GM’s wind-down agreements were subject to rescission because they were “franchise agreements” within the meaning of Ontario’s Arthur Wishart Act, and GM failed to deliver disclosure statements to the franchisees.

As a result of this court decision, the Canadian law firm of McCarthy Tetrault explained there were three important messages franchisors should consider in dealing with franchisees. First, franchisor/franchisee disputes are well suited to class certification. “This is particularly so where the conduct at issue is that of the franchisor treating all franchisees in common,” authors stated in their article. And last, it states, “An important and unilateral amendment to the franchise agreement may well trigger an obligation to deliver a disclosure statement under Ontario’s franchise disclosure legislation, the Arthur Wishart Act.”

In his decision, Judge G.R. Strathy J. stated, “Judicial economy will be promoted by the aggregation of the claims of the class avoiding multiple trials and potential duplication of fact-finding.” He also ruled that the case could proceed against the Cassels Brock & Blackwell law firm, denying its motion to stay. He explained that while the claims against GM Canada and Cassels are different in nature and based on different causes of action, “they arise out of the same factual matrix, namely the financial plight of GMCL, the termination of 240 dealerships, the Wishart Act and the events during the six days in May 2009,” given to franchisees to make their decision.

Judge Strathy said he saw no logic in putting the Cassels’ claim on the back burner for years, waiting for the claim against GM Canada to work its way through the courts and then potentially revising the claim against Cassels regardless of the outcome of the other claim. “This would not promote judicial economy—on the contrary, it would require much of the same fact-finding with the potential for inconsistent results,” he stated in his ruling.

Frank Zaid of Osler, Hoskin & Harcourt LLP, counsel to General Motors Canada said the dealership is considering filing an appeal in the case. GM and its law firm declined to make any other comments regarding the judge’s decision on allowing the class certification.

Mark Young, managing partner for Cassels Brock & Blackwell stated that because this was a matter before the courts they would not be commenting at this time.