Cassels Brock to pay $45M to GM class action dealers

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Justice Thomas McEwen found that General Motors of Canada Ltd. did not breach the Arthur Wishart Act related to its 2009 dealer wind-down and dismissed the $750-million class action roughly 200 deleted dealers have spent years fighting for.

Law firm Cassels Brock & Blackwell LLP, named in the suite by the dealers, must pay the class $45 million for breach of fiduciary duty, breach of contract and professional negligence, according to the ruling.

“When you look at what went on in May 2009 and the need these dealers had to be represented, then layer on to it the conflict of interest, it was going to be two trains coming down the same track and that’s why there was a significant damages award made,” David Sterns, a partner with Sotos LLP in Toronto told Canadian Lawyer magazine.

The judge also dismissed the counterclaim by GMCL against each of the class members in his 160-page ruling issued July 8.

Trillium Motor World Ltd. V. General Motors of Canada Ltd. was billed to be a precedent setting case that could have redrawn the concepts related to dealer-OEM relationships and the idea of franchise protection under provincial law for the nation’s car dealers.

In his ruling, Justice McEwen asks that if GMCL owed a duty of fair dealing to the class members, did it breach this duty by delivering the wind-down agreements to the class members on or after May 20, 2009 and requiring acceptance of the wind
-down agreements by 6 p.m. EST on May 26, 2009?

“The answer to this common issue is no,” he wrote.

“Not disclosing the dealer restructuring process did not breach GMCL’s obligation of fair dealing. First, it was not dishonest. Second, it was reasonable in the circumstances because the restructuring process had not yet crystallized,” he wrote.

“Given the frenetic pace of events, all of the challenges GMCL was facing, and the dealers’ awareness that a great number of them would be eliminated by the end of 2010, it was not unreasonable for GMCL to determine whether the wind-down plan could be effected before making any formal announcements.”

Furthermore, McEwen notes that on May 15 GMCL did inform the Canadian Automobile Dealership Association (CADA) it would attempt to develop a wind-down process related to its dealer network.

And while GMCL communicated this information to allow CADA and the steering committee to prepare for what was ultimately to come and to disseminate information to the dealers: “Neither CADA nor the Steering Committee decided to act on that information or take a leadership role. CADA took the position that it would simply respond once the final message was delivered, and the Steering Committee maintained its position that it would only deal with issues surrounding a potential CCAA filing.”

The trial took 41 days to complete and wrapped in late December. The parties called 25 witnesses, including eight experts. The 96 exhibits introduced into evidence contained hundreds of individual documents. In closing argument the parties filed approximately 1,500 pages of written submissions.

With regards to Cassels Brock, McEwen wrote: “I find that Cassels was retained by the Class Members including Trillium to protect their interests in any complex restructuring of the dealer network and to represent them in any GMCL CCAA proceedings. I further find that Cassels breached its contractual and fiduciary duties by accepting the retainer having already agreed to act for the Federal Government (through Industry Canada) in relation to any GMCL CCAA proceedings. Cassels knew about this conflict from the outset; yet, rather than declining to act for the GMCL dealers and referring to an unconflicted law firm, or even telling the dealers about the retainer with the Federal Government, continued to act for both the Federal Government and the dealers.”

- With files from Canadian Lawyer