Judge gives go ahead to lawsuit by former GM dealers

The lawsuit, launched last year by 207 former GM dealers, alleges the car company used high-pressure tactics in May 2009 to pressure dealers into signing away their legal rights in “wind-down agreements,” giving them just six days to make up their minds.

The Globe and Mail
March 2, 2011

Judge gives go ahead to lawsuit by former GM dealers
Jeff Gray

General_Motors.jpg

An Ontario judge has okayed a class-action lawsuit launched by former GM car dealers that accuses General Motors of Canada Ltd. of using “shock and awe” tactics to pressure them into closing their dealerships during the financial crisis.

The $750-million lawsuit, certified as a class-action on Tuesday in a ruling by Mr. Justice George Strathy of the Ontario Superior Court, also targets Bay Street law firm Cassels Brock & Blackwell LLP, accusing it of having an “undisclosed conflict of interest.”

No allegations have been proven. Neither GM nor Cassels would comment on the case, saying it was before the courts.

The lawsuit, launched last year by 207 former GM dealers, alleges the car company used high-pressure tactics in May 2009 to pressure dealers into signing away their legal rights in “wind-down agreements,” giving them just six days to make up their minds.

The move to close dealerships came as GM engaged in high-stakes bailout talks with the Canadian government and allegedly told its dealers they must accept the wind-down agreements or the car company could face bankruptcy.

The dealers allege that GM violated franchise laws that say franchisees must be given at least 14 days to consider a franchise agreement. GM disputes that its “wind-down” offers were legally franchise agreements.

The dealers’ lawyer on the class-action case, David Sterns of Sotos LLP, said the certification was a major step forward for his clients, some of whom were forced to face a snap decision to scrap businesses they had built up over decades in just a few days.

“It’s a validation of our claim from start to finish,” Mr. Sterns said of the certification ruling. “You have multi-generational dealers, who have been selling cars for years … and then all of a sudden, wham-bam, you’ve got six days to decide the fate of your business.”

The suit is also being watched closely by Bay Street’s major law firms because of the allegations against Cassels.

The suit alleges that the firm was retained by the Canadian Automobile Dealers Association and advised GM dealers as they faced the possibility of shutdowns. But unbeknownst to the dealers, the suit alleges, Cassels was also retained by the federal government, which was pressuring GM to cut costs by shutting down those same dealers.

According to the judge’s ruling, Cassels argues that it was only retained by the dealers for advice in the event GM Canada went into bankruptcy, which did not occur. The firm also points to the fact that the dealers behind the lawsuit retained their own lawyers to quickly look over the wind-down agreements.

In his decision, Judge Strathy said the dealers’ allegations raise important issues about lawyers’ duties to their clients: “These are allegations of breaches of the fiduciary obligation of undivided loyalty that is at the heart of the lawyer-client relationship.”

And he refused a request by Cassels’ lawyers for a stay in the case pending the results of the allegations against GM.

“I accept that this action may be oppressive and onerous to Cassels and an embarrassment to its partners. A lawsuit, particularly one involving a claim for $750-million, is necessarily so,” the judge writes.

But he goes on to argue that it is not in the firm’s interest to have litigation “hanging over their heads for many years” and that Cassels should instead participate in the case from the beginning.

Mr. Sterns agreed the case raised major questions for the legal profession about alleged conflicts-of-interest: “This case is certainly going to shine a light on that issue. It’s really a laboratory case for the examination of legal ethics.”

http://www.theglobeandmail.com/report-on-business/judge-gives-go-ahead-to-lawsuit-by-former-gm-dealers/article1927276/


Brought to you by WikidFranchise.org

Risks: Conflict of interest, Incompetent or predatory: for the small business investor, the outcome is the same, Class action lawsuits are an unproven form of remedy, Credence goods, Credence good fraudulent expert, Credence goods: taking advantage of the innocents, Fiduciary duty, Independent franchisee association betrayal, Intimidation, Lawsuits, class action, Lawyers trying to play both sides of dispute, Reputation risk, Sue the franchisee association and officers, Sue the lawyer, Termination of franchisee, mass, Trust, Waiver of legal rights, Canada, 20110302 Judge gives

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License