Sparks fly as Cassels Brock rejects GM conflict claim

Cassels Brock & Blackwell LLP was “hopelessly conflicted” when it represented the Canadian government in its bailout talks with General Motors of Canada Ltd. in 2009 while simultaneously acting for the Canadian Automobile Dealers Association, counsel for dealers who launched a class action over the matter told a Superior Court judge last week.

Before some 180 dealers signed GM’s wind-down agreement in 2009, Cassels Brock “did nothing” to help them get a better deal from the company, said Bryan Finlay, one of the counsel for the dealers, as the trial got underway on Tuesday. The class action seeking $750 million in damages names GM and Cassels Brock as defendants. None of the allegations have been proven in court.

The interests of the dealers were adverse to those of Canada, said Finlay, adding that instead of advising the dealers of their rights, Cassels Brock told some of them the wind-down agreements weren’t negotiable.

“The dealers were small potatoes when put up against Industry Canada, which was advancing millions of dollars,” he told Justice Thomas McEwen.

For its part, Cassels Brock argues the association, and not the individual dealers, had retained the firm. When the wind-down notice went to a group of GM dealers, the association advised them to seek legal advice from their individual lawyers.

“Each of the dealers who signed a [wind-down agreement] did so after obtaining independent legal advice. Cassels did not provide independent legal advice to any of the non-retained dealers,” the firm said in its statement of defence filed in the case.

Finlay dismissed Cassels Brock’s defence that it was the association and not the dealers that had retained the firm. He argued internal communication between the firm’s lawyers suggested they were aware they were representing the dealers.

He pointed to an e-mail Cassels Brock lawyer Bruce Leonard sent to his colleagues raising his concerns about a possible conflict in representing both the dealers and the Canadian government at the same time. But a response to that e-mail suggested the association was the client and it was aware of Cassels Brock’s representation of the government.

In the same e-mail chain, Leonard also reminded his colleagues Cassels Brock would “back off the dealers if their position threatens Industry Canada’s,” said Finlay.

Cassels Brock didn’t present its opening statement on the first day of the class action trial on Tuesday. Earlier in the day, another lawyer for the plaintiffs, David Sterns of Sotos LLP, argued GM had made the dealers sign the wind-down agreements during the financial crisis through “ambush, deception, and divide-and-conquer tactics.”

GM gave the dealers just six days to obtain legal advice and sign the agreement when, as a franchisor, the law required it to give them at least 14 days to mull over the deal, Sterns told the court.

The dealers received no notice they’d be receiving the wind-down agreements when other parties, such as the federal and provincial governments, were aware of what was to come, Sterns suggested.

The dealers were in “a state of shock” when they received the letter on May 20, 2009, advising them of the wind-down plans, he said, adding the reason behind the delay to get the information to them wasn’t some “act of God” but GM’s own convenience.

Sterns also alleged the letter GM sent to the dealers was misleading in many ways. It led the dealers to believe GM’s government bailout package was subject to a 45-per-cent reduction of its dealer network by the end of 2010, said Sterns.

“General Motors’ message to the dealers was that the government was forcing their hands to make the cuts by the end of 2010,” he said. But in fact, “the government at no time required General Motors to reduce the dealership by the end of 2010 as a condition of the bailout,” he added.

In addition, GM told the dealers the wind-down offer required 100-per-cent acceptance, but “the evidence will show a 100-per-cent acceptance was never required,” according to Sterns. The company also refused to reveal to the dealers which one of them had received the wind-down notice, something Sterns said was a breach of their right to association.

Kent Thomson, counsel for GM, said the allegations are “of no substance” and told the court to “strip the inflammatory rhetoric” of his opposite counsel.

The dealers were “sophisticated” businesspeople who made their choices after getting the benefit of independent legal advice, according to Thomson.

“They made a fully informed decision with their eyes wide open,” he said, adding there had been “no ambush whatsoever.”

The dealers signed the agreement because they were well aware of the loss they would suffer if GM had filed for bankruptcy, said Thomson, adding his client would lead expert evidence to prove it was “so far under water that if you were an unsecure creditor, you would have literally been left with a goose egg.”

With respect to GM’s obligation as a franchisor under the Arthur Wishart Act, the company says the legislation didn’t apply to the wind-down agreement.

“As GMCL did not offer to grant a franchise in connection with the offer of the Wind Down Agreements, GMCL was not a franchisor for the purpose of section 5 of the Wishart Act, section 4 of the Alberta Franchises Act, or section 5 of the PEI Franchises Act when offering the wind down agreements,” GM said in its statement of defence.

“Accordingly, GMCL had no obligation to deliver a disclosure document to any of the accepting dealers at least fourteen days prior to the signing of the wind down agreement by that accepting dealer, or at all.”

The trial continues with hearings set for six weeks in Toronto.

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

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