Ousted Canadian GM dealers are suing the company for $750 million.
A class action lawsuit seeking $750 million in damages has been filed on behalf of 215 Canadian auto dealers terminated by GM as it reorganized last year under the threat of bankruptcy.
The suit was filed in the Ontario Superior Court of Justice and claims that GM of Canada Limited breached franchise laws as it selected dealers for elimination.
The suit also takes aim at a Canadian law firm, CBB, which had been retained in advance to represent Canadian dealers in a GM restructuring or bankruptcy. The suit claims the law firm failed to disclose to the dealers that it was simultaneously acting on behalf of the Canadian Government in the GM auto bailout. CBB is denying the allegations.
(Over 1,200 ousted U.S. GM and Chrysler dealers file for arbitration. Click Here for that story.)
The lawsuit noted that the Canadian Government insisted that GM scale back its dealership network as a condition of its multi-billion dollar bailout funding. The bailout was the largest government subsidy given to a corporation in Canadian history.
The suit charges that after GM presented a termination package to the affected dealers, CBB 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 the termination package as presented by GM rather than risking GM filing for a formal insolvency proceeding as the automaker threatened to do if the dealers rejected its offer. The dealers had between two and four business days to accept the package which was offered.
David Sterns, one of the lawyers for the lead plaintiff, stated “These dealers include some of the best in the country. The offer they were handed gave them a fraction of what their businesses were worth, but they had no collective representation and precious little time.”
The claim states that the dealers “were the only significant stakeholders in the GM auto bailout which were denied a voice in the restructuring.” Regardless, it is claimed that many of the dealers have a right under provincial franchise laws to cancel the agreements.
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 filing.
The representative plaintiff, Trillium Motor World Ltd., brought the action under Ontario’s Class Proceedings Act, 1992. The claim seeks court certification to represent all 215 similarly affected dealers in Canada. The members of the class include automotive dealerships in every province of Canada.