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Cassels Brock’s counterclaim raises eyebrows

|Written By Kendyl Sebesta

Cassels Brock & Blackwell LLP has shocked lawyers across the country after it sued more than 150 practitioners and law firms in the midst of highly publicized conflict of interest allegations against it.

“It’s quite a complicated web they’ve spun,” says Russell Hart, a partner at Gerrand Rath Johnson LLP who’s one of the more than 150 lawyers named in the claim.

“The tremendous amount of paperwork and logistics that went into it is stunning. It’s very, very unusual. It just happened I was the unfortunate one named.”

Hart’s Saskatchewan law firm was one of the more than 100 across the country that advised General Motors of Canada Ltd. auto dealers in May 2009 on “wind-down agreements” introduced during the company’s financial troubles.

The dealers have accused GM of using “shock and awe” tactics to pressure them into closing their businesses over the course of six days in 2009 in a bid to secure a government bailout.

A class action lawsuit led by Trillium Motor World Ltd., one of the 240 dealers forced to close up shop, alleges many of them had a right to cancel the agreements and sue for breach of duty of fair dealing under the province’s franchise laws.

The claim on behalf of more than 200 dealers is seeking $750 million in damages. Cassels Brock has now launched the counterclaim against the lawyers and law firms. None of the allegations in either claim has been proven in court.

“Every one of the class members lost their businesses as a direct result,” says David Sterns, a lawyer at Sotos LLP who represents the auto dealers in Trillium Motor World Ltd. v. General Motors of Canada Ltd. and Cassels Brock & Blackwell LLP.

“They are in dire straits and haven’t been able to recover. They’ve been caught up in a whirlwind.”

Cassels Brock, the class action alleges, had an undisclosed conflict of interest in the case because the firm advised both the Canadian Automobile Dealers Association and the federal government during the negotiations.

According to the claim launched by Trillium in 2010, Cassels Brock had a contractual relationship and an obligation to provide legal advice to the auto dealers about the “wind-down agreements.” It also had a fiduciary duty to the auto dealers, the claim alleges.

In Cassels Brock’s counterclaim against the law firms and lawyers like Hart, it alleges they should cover any damages it may have to pay. It also seeks costs.

The more than 150 lawyers and law firms named in the lawsuit range from sole practitioners in Saskatchewan to Bay Street heavy hitters. It identifies some of them simply as John Doe. The claim alleges they, not Cassels Brock, were negligent in advising on the agreements.

“The WDAs (wind-down agreements) required each dealer to obtain independent legal advice before executing a WDA,” Cassels Brock writes in its counterclaim.

“Each of the dealers who signed a WDA did so after obtaining independent legal advice from one of the third parties, as set out in Schedule A. Cassels did not provide independent legal advice to any of the dealers in relation to the WDAs.”

Some people connected to the case call it an unusual move that could set an interesting legal precedent.

“I imagine the process of being served was very surprising to those lawyers,” says Sterns.

“It’s unusual that the lawyers who advised the auto dealers aren’t being sued by my clients, yet they are being sued by Cassels Brock. One wouldn’t expect that.”

Superior Court Justice George Strathy also hinted at the potential impact of the conflict of interest allegations against Cassels Brock in his certification ruling in the class action last year.

He noted that determining whether Cassels Brock was in a solicitor-client relationship with all of the class members; whether it owed contractual, fiduciary or other duties to the class; and whether there was a breach of them were all important questions to consider.

“These are weighty questions,” wrote Strathy. “A negative answer to the first two questions will send the plaintiffs packing insofar as Cassels is concerned. A positive answer to all will significantly advance the claims of the class against Cassels.”

A ruling in favour of the dealers in the class action could mean lawyers and law firms would owe duties to members of a class they represent even if they don’t advise them directly on a particular deal and could apply to any member of the group, Strathy hinted.

That could have spell trouble for the legal profession, says Hart, who notes a ruling in favour of the dealers in the class action could cause lawyers to become significantly more cautious about who they represent in the future.

“In our case, it appears to be a purely academic move,” says Hart of the counterclaim. “It seems as though they’re just trying to see how far they can take it. We’ll have to wait and see how it goes.”

Still, most involved in the case are saying little about the Cassels Brock’s move.

Cassels Brock declined to comment about its counterclaim, as did most of the lawyers and law firms named in it.

“I think it’s safe to say that we were all really surprised,” says Patrick Brennan, co-leader of Bennett Jones LLP’s financial services practice. A defendant in the counterclaim, he declined to comment further on the matter.

In the meantime, GM and Cassels Brock both lost appeals of the Superior Court’s certification decision in the class action in a Divisional Court ruling in March. Cassels Brock is now seeking leave to appeal to the Court of Appeal.

As for the legal strategy behind Cassel Brock’s counterclaim, Hart says, “One could only speculate.”

“As for the true legal strategy and tactic behind the suit, I’m afraid I have no idea. We’ll have to see what comes to light in the upcoming months.”

Still, Hart says he isn’t worried.

“Yes, I was named in the suit, but it’s really quite irrelevant to the client’s case,” says Hart, who adds his inclusion in the action “was quite improper, really.”

According to Sterns, discoveries will begin later this year in the class action.

For more, see "Cassels Brock case reads like blockbuster script."

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