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A look at Cassels Brock’s class action appeal

|Written By Neil Etienne

Litigation related to the class action involving Cassels Brock & Blackwell LLP continues with the firm appealing the $45 million in damages assessed against it in July and its third-party claim against 150 lawyers from across the country heading to a jurisdictional hearing in early December.

‘Our position is that the decision is very well reasoned and it’s based on facts that are extraordinary,’ says David Sterns.

In its notice of appeal, Cassels Brock is seeking to have the judgment against it set aside, the actions against it dismissed with costs or, failing that, a new trial.

“The reasons of the trial judge are deficient, internally inconsistent, fail to properly characterize the evidence at trial and do not demonstrate that the trial judge considered material aspects of the evidence before him,” the firm stated in its notice of appeal.

In his decision this summer in Trillium Motor World Ltd. v. General Motors of Canada Ltd., Justice Thomas McEwen found Cassels Brock had breached contractual and fiduciary duties it owed to some or all of the class members. As well, he found it had breached a duty of care.

In 2009, General Motors eliminated about 200 dealers during the government’s bailout of the auto sector. The class action against GM was seeking $750 million in damages on behalf of those dealers. Also named in the suit was Cassels Brock, which the dealers claimed to have retained during GM’s restructuring through its retainer with the Canadian Automotive Dealers Association. The claim alleged Cassels Brock had failed to disclose it was also acting for the Canadian government in the bailout and had breached its duties to them.

In its appeal of McEwen’s ruling, Cassels Brock argues that contrary to the claims of Trillium Motor World, it never acted for the dealers as GM never made a filing under the Companies’ Creditors Arrangement Act. It argues there was never an official retainer with the dealers and that the trial judge had erred in inferring that it acted differently in its representation of dealer interests as a result of its retainer with their association.

In addition, it argues the judge erred in his application of the law of negligence and failed to define the standard of care for lawyers retained in a group retainer in the circumstances of the case. It also suggests the judge made findings that contradicted his findings in the case against GM and that he failed to consider or apply the concept of professional judgment to his findings.

Cassels Brock states in its appeal there were errors in the findings of causation as that wasn’t a certified common issue and it suggests the trial judge failed to provide a chain of reasoning that would link the breaches he attributed to the firm to any losses by the dealers.

David Sterns, a partner in Sotos LLP who’s acting for the class, says the plaintiffs believe the decision against Cassels Brock should stand.

“We’re responding. Our position is that the decision is very well reasoned and it’s based on facts that are extraordinary,” he says.

Sterns says the appellants have all filed their notices of appeal and expects the appeals will move forward at once, most likely in May 2016.

In the meantime, Cassels Brock’s own third-party claim against 150 individual lawyers involved in the case is also moving forward. Although she was unable to provide further comment, Jo-Anne Demers, a senior partner with Clyde and Co. Canada LLP who’s representing the Quebec-based lawyers, confirms a jurisdictional hearing in relation to the third-party claim will take place Dec. 3.

The claim alleges those lawyers, and not Cassels Brock, were negligent in advising on the wind-down agreements the dealers signed at the time of the bailout and suggests they should have to cover any damages it may have to pay. The agreements required the dealers to obtain independent legal advice before executing them, according to the firm.

Sterns says the Supreme Court has granted leave to hear the jurisdictional argument from Quebec-based lawyers named in the third-party claim. He says those lawyers want their matter heard in Quebec rather than Ontario.

Since McEwen’s ruling, the case has spawned a series of appeals and cross-appeals.

As part of his decision, McEwen found GM hadn’t breached the Arthur Wishart Act and dismissed the action against it. He also dismissed a counterclaim by GM against each of the class members. GM is cross-appealing that decision.

Sterns says the class is cross-appealing as well as it seeks to increase the damages to at least $75 million from Cassels Brock.

Sterns says the appeal against GM relates to the duty of fair dealing owed by the franchisor to the dealers.

“In essence, our argument is that the duty of fair dealing is not diminished because a franchisor is in financial distress,” says Sterns.

“The answer to that is insolvency, and in this case, General Motors made a specific decision not to go into insolvency protection. The main argument in our appeal is that it had the exact same duties, if not heightened duties, to its dealers despite its own financial problems.”

Class action lawyer Ward Branch of Vancouver’s Branch MacMaster LLP says the prospect of Cassels Brock’s third-party claim against 150 lawyers is one many people are watching as “it’s a case of there but for the grace of God go I.”

He says Cassels Brock will face a number of hurdles in stating its case and suggests bringing together 150 individual lawyers will be logistically challenging, especially in light of the current jurisdictional debates.

“That group will stand together and make it very difficult on you,” he says.

“You’re trying to herd 150 cats with 150 different calendars and suddenly you’re having to defend against 150 bright ideas.”

Branch suggests Cassels Brock will likely pursue a strategy of passing blame that he says can be successful in dispersing financial responsibility but is generally far more effective against a smaller group than 150 individuals.

“When you third-party 150 people, it’s almost too deluded,” says Branch.

“I would think going up against 150 people like that would be more bother than a help.”   

For more, see "Cassels Brock case reads like blockbuster script" and "Cassels Brock's counterclaim raises eyebrows."

Update: Law Times incorrectly identified the role of Jo-Anne Demers, senior partner with Clyde and Co. Canada LLP, in the previous version of this story. Demers represents the third-party lawyers in Quebec facing action by Cassels Brock. Law Times apologizes for the error and any confusion it may have caused.

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