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Franchise class actions here to stay

Trillium marks latest case in a series of class actions between franchisors and franchisees.
|Written By Andi Balla

When the Ontario Superior Court last month certified a $750-million class action involving former auto dealers suing General Motors of Canada Ltd., it marked the latest in a series of class actions related to the franchisor-franchisee relationship.

Whether the product is cars, deli sandwiches, or pet toys, franchising companies are a magnet for class actions.

“The relationship is uniquely disposed toward class action treatment,” says Bevan Brooksbank, a lawyer with Stikeman Elliott LLP in Toronto.

That’s because the very nature of franchising involves uniform franchise agreements and similar relationships between the big company and its franchisees.

It’s no surprise then that there have been certifications for class actions against companies ranging from Quiznos Canada Restaurant Corp. to Pet Valu Canada Inc. In other cases, involving Shoppers Drug Mart Corp. and Tim Hortons Inc., certification is still being sought. But Trillium Motor World Inc. v. General Motors of Canada Ltd. is the latest high-profile case to get certification.

GM dealer Trillium represents a large number of former GM dealers in Ontario that claim the car company breached provincial franchise laws by eliminating dealerships as part of the 2009 auto bailout deal with the governments of Canada and Ontario. One of the conditions for GM to access billions of dollars of government funding was the elimination of a large number of GM dealers.

The GM case is of particular interest for the legal community because law firm Cassels Brock & Blackwell LLP is also named as a defendant in the lawsuit. The firm acted for the Canadian GM dealers in anticipation of a GM restructuring, and the dealers allege Cassels Brock was in a conflict of interest by simultaneously acting for the government of Canada in connection with the auto bailout.

In his decision to certify the class action, Justice George R. Strathy noted a class action is better than individual litigation in this case because “it is not realistic to think that an individual franchisee, who has experienced the loss of their business, is financially or psychologically equipped to engage in protracted, complicated and very expensive litigation with one of the largest corporations in North America and a major Canadian law firm.”

As the trend of class actions continues, once certification is reached, the vast majority end in settlement, says Brooksbank. And that’s the case with class actions in general.

But in certifying many recent franchise-related class actions, some believe Ontario courts have sided too much against franchises.

“My opinion is that franchise law and its judicial interpretation by the courts of Ontario has created probably the most perilous jurisdiction in the world in which to conduct franchises,” Peter Dillon, head of the franchise practice at Siskinds LLP in London, Ont., told InHouse last year.