Canadian Manufacturing

GM Canada denies ambushing dealers during 2009 downsizing

Lawyer for automaker said dealers who signed deal made decision "with their eyes wide open"



TORONTO—General Motors of Canada Ltd. (GM Canada) denied in court accusations that it deliberately ambushed and misled dozens of its dealers in 2009 when it gave them six days to decide whether to shut down within months and receive whatever compensation the automaker would offer, or risk pushing the automaker into bankruptcy protection and ending up with nothing.

The dealers were experienced and sophisticated business people who made their choice “with their eyes wide open” and those who signed the deals had decided it was better to get something than “roll the dice” and risk everything, lawyer Kent Thomson told Ontario Superior Court on the opening day of the trial.

The class action lawsuit launched by 181 of the dealers is seeking as much as $750 million in compensation, claiming they could have received a better deal if they’d had more time and better legal representation than they received in 2009.

In the opening remarks for what’s expected to be a six-week trial, David Sterns, lawyer for the dealers, said that GM Canada broke provincial laws in Ontario, Prince Edward Island and Alberta that state dealers, as franchisees, must get 14 days notice and complete disclosure if asked to sign any contract by their franchisor—in this case GM Canada.

But the automaker chose to wait, giving the dealers less time to negotiate a better deal, said Sterns.

“The evidence will show that (GM Canada) achieved this result by ambush, deception and divide and conquer tactics,” he said.

Thomson said that Sterns mischaracterized the franchise laws and that the dealers were advised repeatedly that they had virtually no chance of getting anything for their business if GM Canada sought bankruptcy protection—a definite possibility at the time when the wind-down offers were made, amid an industry-wide downturn.

In another element of the trial, the automaker is suing the dealers covered by the class action for the return of the $123 million it paid them for shutting down by the end of 2009.

The automaker argues that the dealers waived the right to launch legal action against GM Canada when they signed the wind-down agreements.

The dealers are also suing Toronto law firm Cassels Brock & Blackwell LLP, alleging the firm, retained to advise them, was in a conflict of interest because it also represented the federal government on the auto industry bailout.

The firm denies the allegation.

The case was originally filed by a former Toronto GM dealership, now called Trillium Motor World, on behalf of dealerships in Ontario, Alberta and P.E.I. that were told in May 2009 that their dealer agreements would be terminated before their normal expiration date.

The automaker slashed its operations to qualify for billions of dollars of government bailout money following the financial crisis.

Both Ottawa and the Ontario government acquired GM shares in 2009 after providing some $10.6 billion in aid to the automaker.

The trial continues.

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