Cassels Brock hit with $45 million in damages in GM dealers class action

An Ontario Superior Court judge has awarded damages against law firm Cassels Brock & Blackwell LLP in the amount of $45 million for breach of fiduciary duty, breach of contract, and professional negligence.

In his 160-page decision Wednesday in Trillium Motor World Ltd. v General Motors of Canada Ltd., Justice Thomas McEwen found Cassels Brock owed contractual and fiduciary duties to some or all of the class members in the case and breached those duties. As well, he found it also owed a duty of care, which was also breached.

In a statement, Cassels Brock general counsel John Birch said it’s business as usual for the firm and it is actively pursuing an appeal. He noted the judgment “creates potentially indeterminate liability for lawyers.”

“Of course, we are disappointed,” Birch said. “But we remain confident that we conducted ourselves properly and in accordance with our professional responsibilities.”

“We feel that the findings are not justified on the evidence and that there are significant legal errors in the decision. We continue to believe that Trillium Motor World and the other automotive dealers had not become our clients in the circumstances, and they were each represented by their own independent legal counsel.”

In May 2009, about 200 General Motors dealers were eliminated during the federal auto bailout. The class action was seeking $750 million in damages on behalf of those dealers. Also named in the suit was Cassels Brock, which had been retained to represent Canadian dealers in a GM restructuring bankruptcy. The claim alleged Cassels Brock failed to disclose to dealers it was also acting for the Canadian government in the GM auto bailout and breached duties to dealers.

Also as part of his decision, McEwen found that General Motors of Canada Ltd. did not breach the Arthur Wishart Act (franchise disclosure), 2000. Therefore he dismissed the action against GMCL. He also dismissed the counterclaim by GMCL against each of the class members.

In his decision, McEwen wrote: “Cassels takes the position that there was only ever the potential for a conflict to arise on account of the two retainers. In other words, Cassels accepts that there was indeed a risk that immediate legal interests of Industry Canada and the GMCL dealers would be directly adverse.”

He then goes on to refer to testimony that indicated that “Cassels would have dropped the GMCL dealers if the risk became reality (‘if an adverse interest arose with respect to that retainer, it’s conceivable that we could not act for the dealers at that time’), there can be little doubt that there was a risk that Cassels’ representation of the GMCL dealers would have been materially affected.

“Thus, the issue is really whether this risk was a substantial one. In my view, the evidence supports a finding that it was,” McEwen wrote.

He then proceeds to outline that at the time of the retainer the following facts were known:

• GMCL was essentially insolvent and relying upon government money to survive;

• The current plan in place was to reduce the dealer network by 29 to 36 per cent by the end of 2014, later accelerated to 42 per cent by the end of 2010;

• Cassels, by virtue of its representation of the Saturn dealers, was aware of the fact that an argument could be raised that GMCL’s proposal may be in violation of the DSSA (dealer sales and service agreements). In fact, it advised the Saturn dealers and drafted a letter on their behalf to send to GMCL in this regard. Accordingly, it would have been aware that if the GMCL dealers were cut, it would have to take a position contrary to Canada’s desire for restructuring;

• The retainer was going to be accepted with the provision that Cassels could not take on the government in a CCAA proceeding. The interest of Canada would be aligned with GMCL on a CCAA filing. The interest of the GMCL dealers would be either to survive the rationalize or to, on the other hand, obtain as much financial compensation as possible if they were to be non-retained.

• The dealers who had received WDAs would have faced the loss of their businesses; and,

• The proposed CCAA filing would be one of, if not the, largest in Canadian history. A CCAA filing is “real time litigation” where parties have limited timeframes to act and react to the proceeding.

Read more on this story Monday on Canadian Lawyer InHouse

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