A Canadian court certifies a dealer class action against GM seeking $750 million in damages.
More than 200 Canadian dealers who went out of business as General Motors Corp. re-organized in 2009 have succeeded in getting their $750 million class action suit certified.
An Ontario court granted the former Canadian dealers the ability to present their suit, which claims that General Motors of Canada Limited breached provincial franchise laws in eliminating the dealerships. As part of the maker’s 2009 bankruptcy it decided to eliminate several thousand dealers on both sides of the border.
Eventually, however, a sizable share of the American retailers were brought back into the fold, either by GM reversing positions or by appealing their case through an arbitration system set up by the U.S. Congress.
Also named in the suit is Cassels Brock & Blackwell LLP (Cassels), a major Canadian law firm retained to act for the Canadian GM dealers in anticipation of a GM restructuring. The dealers claim that Cassels was in a conflict of interest by simultaneously acting for the Government of Canada in connection with the GM auto bailout. Like the U.S., one of the conditions for GM to access billions of dollars of Canadian government funding was the elimination of a large number of its dealers.
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 has declined to comment on the lawsuit or the decision by the Ontario Court.
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 Ontario Court concluded that justice would best be served by allowing the dealers to proceed as a class action, The court noted, “[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.”
David Sterns, one of the lawyers for the lead plaintiff, stated “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 the court’s decision, he said, “the dealers now have a chance to put the pieces back together and mount a recovery of their own.”