OTTAWA - The statement of claim in what is purportedly the biggest legal conflict of interest claim in Canada’s history reads like a script from a blockbuster movie.
The country is on the precipice of economic meltdown. The fiscal outlook is so desperate that a prime minister who fought against big government his entire adult life decides to spend billions of dollars of public money saving the heart of the nation’s industrial output - the auto sector.
A deal is closing behind boardroom doors. But in exchange for a life-saving infusion of cash, the government insists - and the auto giants agree - that the manufacturers must sacrifice hundreds of their auto dealerships from coast to coast.
As the deadline looms, one of the giants gives more than 200 dealers a six-day deadline to respond to an ultimatum agreeing to close their operations in return for a series of “wind-down payments” or risk losing everything in a gigantic bankruptcy.
An association representing the dealers convinces most of them to throw thousands of dollars each into a legal fund to retain counsel from one of the biggest law firms in the country.
But tragically, as the final hours tick by, the dealers, including some of the most respected leaders in their communities, many of them in business for one or two generations, don’t get the legal advice they need, according to the statement of claim.
Most of them sign away their future under contract requirements that leave many holding nothing but empty buildings by the end of the year, the statement of claim says. Some allege they don’t have enough money to cover severance obligations to their employees.
As well, after the dealers take down their sales signs and clear out their lots while selling cars and trucks at bargain-basement prices, more devastating news emerges that allegedly puts salt in the wound.
The law firm the government had retained was also the same firm the Canadian Automobile Dealers Association was using to advise the dealers, the statement of claim says.
But, as one of the country’s leading experts on legal conflicts of interest cautions, that is only one side of the story.
The other side has yet to emerge, and, of course, none of the allegations have been proven in court
“This is what the plaintiff says,” Simon Chester, a senior partner at Heenan Blaikie LLP, tells Law Times. “It is perfectly possible that [the law firm] has a wonderful and coherent explanation that will satisfy the judge.”
There is no question the $750-million class action lawsuit launched earlier this month by Trillium Motor World Ltd. against General Motors of Canada Ltd. and Cassels Brock & Blackwell LLP, along with two of the firm’s partners, is rocking the legal world and could, eventually, rock the political world as well.
“It is the largest conflict of interest case in Canadian history,” says Chester, who knows the issue well. He can name and describe by heart the four major Supreme Court of Canada cases that have fleshed out conflict of interest law for lawyers and law firms in Canada.
Cassels Brock, the firm the statement of claim alleges represented the dealers at the same time it was working for the federal government during the bailout negotiations, wouldn’t comment last week. The government didn’t respond to questions by press time while GM, too, declined to comment.
The two Cassels Brock lawyers named in the lawsuit are Peter Harris, who allegedly consulted the dealers in a last-minute conference call two days before the deadline for their decision on the GM compensation offer; and Michael Weinczok, who later published his role in the GM bailout on his firm’s web site.
According to Chester, Supreme Court decisions on conflicts of interest have established a doctrine that stipulates the knowledge of one partner in a firm will be “imputed” to the other partners regardless of their location in Canada or abroad. The entire firm must avoid conflicts that would arise when different partners represent clients whose interests compete.
David Sterns, a lawyer at Sotos LLP, which is representing the dealers along with WeirFoulds LLP, says legislative protection offered by the Arthur Wishart Act and similar franchise legislation in Alberta and Prince Edward Island is crucial to the case along with the information and advice the plaintiffs allege Cassels Brock failed to give them as the deadline neared.
The 36-page statement of claim is available on the Sotos web site at sotosllp.com/class-actions/gm-dealers-claim.
It claims Cassels Brock failed to advise the dealers of the protection offered by the franchise legislation. Among other things, the franchisor must give franchisees a “complete and truthful” disclosure document 14 days before any deadline to sign a new agreement, the statement of claim asserts.
The GM letter giving the dealers six days to decide on the wind-down agreement was sent on May 20 last year, the Wednesday before the Victoria Day long weekend, the statement of claim says.
“Facing intense pressure,” 90 per cent of the dealers signed the agreement before the 6 p.m. deadline on May 26, the plaintiffs say.
Near the end, despite the retainer that had been arranged by the dealership association, Cassels Brock advised the dealers they should each obtain independent legal advice from their local lawyers, the statement of claim alleges.
At the same time, while still on retainer from the dealership association, the firm gave advice to and took instructions from a “steering committee” of dealers who had not been asked to give up their dealerships, the claim says.
The association’s “own interests lay with its continuing dealerships, which would support it in the future,” the statement of claim goes on to say. Two days after the deadline, the auto dealers association acknowledged there was a conflict of interest between the continuing dealers and those who were losing their businesses.
It was only at that time that it selected a separate law firm for the affected dealers, the statement of claim says.
“It was an all-systems failure, and we’re going to get to the root causes through this lawsuit,” says Sterns. “The clients lived it.”