By Jon Hood
ConsumerAffairs.com
January 24, 2010
A former Toronto GM dealer has filed a class action lawsuit against the auto giant's Canadian arm, accusing it of breaching franchise laws by forcing dealership to close in the wake of its restructuring.
Trillium Motor Corp., acting on behalf of 215 shuttered Canadian dealers, is seeking $250 million from GM of Canada and law firm Cassels Brock & Blackwell LLP.
The suit, filed Thursday in the Ontario Court of Justice, says that GM basically forced dealers to close and levied the threat of insolvency proceedings against those that held out. According to the complaint, the corporation received $10.6 billion in aid from the Canadian government, but only on the condition that it close a significant number of dealerships across the country.
In May, GM sent letters to around 240 dealers informing them that franchise agreements, set to expire in fall 2009, would not be renewed. Some were offered "wind-down" agreements, containing now desperately-needed income, if they agreed to close by the end of 2009, and announced their decision within six days of the offer.
The suit says that approximately 90 percent of the letter's recipients agreed to accept the wind down offer under "intense pressure" from GM. According to the complaint, "GM opted to employ a 'shock and awe' strategy, giving the affected dealers no more than a few days to come to grips with what they were facing, organize themselves and obtain effective legal representation on the wind-down agreement."
GM allegedly threatened dealers who refused the offer with insolvency proceedings, according to the complaint.
The suit claims that the wind-down agreements are unenforceable because they were not obtained in compliance with franchise law.
The suit also sets forth serious allegations against Cassels, claiming that the firm simultaneously represented the plaintiff dealers and the Canadian government, and failed to disclose this information. Representing two individuals or groups who may have competing interests at the same time, known as a concurrent conflict of interest, is a serious breach of responsibility in the law profession.
The dealers maintain that they got a raw deal from GM. "These dealers include some of the best in the country," said David Sterns, the plaintiffs' lead attorney. "The offer they were handed gave them a fraction of what their businesses were worth, but they had no collective representation and precious little time."
Meanwhile, hundreds of GM dealers in the U.S. have announced that they plan to fight to keep their doors open through binding arbitration. A spending bill passed by the House of Representatives in December provided the right to such arbitration for over 1,000 dealers that GM plans to close by October of this year. Many of the shuttered dealerships were operating at a profit and had no debt to speak of. While some may manage to keep their dealerships, those who lose will have lost thousands of dollars, and will have no options for appeal.
