A Toronto car dealership has launched a $750-million class-action suit on behalf of more than 200 General Motors of Canada Ltd. dealers that seeks compensation for how GM handled the termination of their outlets last year.
The suit names the auto maker, law firm Cassels Brock & Blackwell LLP and two of the firm's lawyers. Trillium Motor World Ltd., filed the suit in the Ontario Superior Court of Justice Thursday seeking redress for GM dealers who signed a wind-down agreement last May after the company informed about 240 dealers that it was terminating their dealer agreements and they would no longer be permitted to sell new GM vehicles.
GM had no right to unilaterally terminate dealer agreements, and Cassels Brock had a conflict of interest when it was hired by the Canadian Automobile Dealers Association because, while it was advising dealers, it was also acting for the federal government in Ottawa's bailout talks, Trillium's statement of claim says.
The accusations in the statement of claim have not been heard by the court and a class-action suit needs to be certified before it can go ahead.
Officials from GM Canada and Cassels Brock were not immediately available for comment.
About 215 of the approximately 240 dealers who received termination letters from GM in May signed the wind-down agreements (WDA) after being given a maximum of six days. Another 12 who did not sign the agreements have launched a separate lawsuit against the auto maker.
Trillium was a Pontiac Buick GMC outlet from 1989 until it was terminated last year.
While acting for GM dealers through the CADA, a lobby group for new-car dealers, Cassels Brock was also representing the federal government in the negotiations with GM on a bailout, the suit filed Thursday says.
"Canada was the very party which had insisted on the dealership reduction and which was advancing the majority of the bailout funds," it says.
"The governments of Canada and Ontario had imposed upon GM a term that in order to be eligible to receive extraordinarily large government financial assistance packages (the GM auto bailout) which they were prepared to make available to GM, GM would be required to reduce the number of dealers in the franchise system."
The CADA set up a special legal fund to pay Cassels Brock and asked dealers to participate. "In doing so, they retained a blue chip, Bay Street law firm which held itself out as having the depth, experience and resources to represent them in any complex and fast-paced restructuring or insolvency which may be coming," the suit says.
The federal and Ontario governments contributed $10.6-billion to a bailout of General Motors Corp. and its Canadian unit that was led by the U.S. government, which provided about $50-billion (U.S.).
The suit centres on the events of late May, just a few weeks before GM went into Chapter 11 bankruptcy protection in the U.S. and it appeared possible that GM Canada would go into protection under the Companies' Creditors Arrangement Act.
GM Canada sent e-mail notices to the dealers on May 20 and gave them until May 26 to respond to a compensation offer. The suit says GM warned dealers that "there was a 'strong possibility' that GM would file for reorganization under the Companies' Creditors Arrangement Act."
GM Canada did not file for protection under the CCAA, but the suit says the company did not offer any dealers who signed the wind-down agreement the option of changing their minds.
The suit accuses the auto maker of adopting "a 'shock and awe' strategy giving the affected dealers no more than a few days to come to grips with what they were facing, organize themselves and obtain effective legal representation on the WDA."