Former GM auto dealers launch class action lawsuit against GM Canada and national law firm

Jan 21, 2010, 16:31 ET from Sotos LLP

TORONTO, Jan. 21 /PRNewswire/ - A class action lawsuit seeking $750 million in damages on behalf of 215 Canadian GM auto dealers terminated in connection with last year's auto bailout was launched today in the Ontario Superior Court of Justice.

The lawsuit claims that General Motors of Canada Limited, a subsidiary of its U.S. parent, General Motors Company, breached franchise laws in connection with the agreements which GM obtained from the dealers it selected for elimination as part of the federal bailout.

Also named in the suit is Cassels Brock & Blackwell LLP (CBB), a Canadian law firm which had been retained in advance to represent Canadian dealers in a GM restructuring or bankruptcy. The claim alleges that CBB failed to disclose to the dealers that it was simultaneously acting for the Canadian Government in the GM auto bailout. 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 alleges 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 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.

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.

A copy of the court filed statement of claim is available at: