The Ontario Superior Court Certifies A Class Action Brought By Former Franchisees

Justice Strathy of the Ontario Superior Court of Justice recently certified a class proceeding brought by former General Motors car dealership franchisees against General Motors of Canada Ltd. ("GMC") and Cassels Brock & Blackwell LLP ("Cassels"). The decision illustrates the growing trend of class proceedings stemming from the franchisor/franchisee relationship, as well as the more rare circumstance of legal counsel being defendants to a class proceeding.

Background

The class proceeding arose from the economic downturn and the financial bailout provided by the governments of the United States and Canada to the distressed automaker in 2009. Upon the insistence of the federal and Ontario governments that it fundamentally reorganize its business, GMC informed 240 of its franchisees in May 2009 that their dealer agreements would not be renewed and instead offered franchisees a wind-down package. The representative plaintiff, Trillium, was one of the GMC dealers that entered into a Wind-Down Agreement ("WDA")1 with GMC in May 2009 and voluntarily terminated its dealership agreement. Trillium sought to represent a class composed of dealers who similarly signed the WDA, claiming that GMC breached its obligations under the Arthur Wishart Act (Franchise Disclosure) 2000 S.O. 2000 c. 3 (the "Arthur Wishart Act") and comparable franchise legislation in Alberta and Prince Edward Island. Trillium also alleged that Cassels had been retained to act on behalf of the GMC dealers' Canadian Automotive Dealers' Association ("CADA"), and drafted a memo to the dealers and participated in a conference call in May 2009. However, by virtue of the fact that Cassels had also been retained by the Canadian government to provide advice on the GMC bailout negotiations, Cassels had an undisclosed conflict of interest and breached duties that it owed to the terminated dealers.

The Plaintiff's claims against GMC

Trillium claimed that GMC breached its duties under the Arthur Wishart Act and the legislation's counterparts in Alberta and PEI2 In particular, it was asserted that the WDA was a "franchise agreement" as defined in the legislation, and that GMC failed to deliver a disclosure document 14 days before a franchisee was required to execute the WDA, pursuant to section 5(1). Instead, GMC adopted a strategy designed to keep franchisees "in the dark" concerning GMC's financial position. Damages were claimed for breach of the statutory duty of fair dealing and interference...