TORONTO—General Motors of Canada Ltd. (GM Canada) went to extraordinary lengths to keep its dealers informed about its restructuring plans in the aftermath of the financial crisis, a lawyer for the automaker told a Toronto courtroom.
Lawyer Kent Thomson, in his opening remarks, said it was widely known through briefings, media coverage and meetings that the automaker’s original restructuring plan had been rejected in February 2009 by the United States, Canadian and Ontario governments and that the company had been given a limited time to deliver a faster downsizing plan, including cutting its dealership network.
Thomson also said GM Canada’s preparations for filing for court protection in Canada on June 1, 2009, the date that its parent was expected to seek protection under U.S. bankruptcy law, were far advanced and not a pressure tactic when it told a group of dealers that they had six days to accept a wind-down deal to compensate them for getting out of the business.
A group of former GM dealers have sued the automaker 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.
GM Canada disputes the allegations and is counter suing to recover $123 million received by the dealers for closing as part of the company’s downsizing.
The national class action lawsuit has been spearheaded by former Toronto dealer Thomas (Lynt) Hurdman, who owned and operated the Trillium Motors dealership in Scarborough, Ont.
GM Canada’s claims that the wind-down agreement signed by Hurdman and the other dealers was valid and that it specifically said they wouldn’t be able to take any legal action against the company or join in any class action against the automaker.
“Trillium is squarely in breach of that obligation. There can’t be any doubt of that,” Thomson said.
“What about the other class members? If they think they can sit at the back of the courtroom immune from the consequences of this thing? They absolutely cannot.”
He said that more than 30 dealers opted to stay out of the class action but “the people in the back of this room chose not to” refrain.
“And now they get to suffer the consequences of that choice,” Thomson said, waving in the general direction of an audience that included former dealers and members of their families.
On average, the dealers received about $600,000 each in compensation under the wind-down agreement—although the amounts varied widely and reached as high as $2.2 million, according to GM Canada.
Thomson said Hurdman’s “alleged shock and surprise” at the proposal in 2009 “rings hollow.”
He said Hurdman’s Trillium Motors dealership in Scarborough had underperformed other Toronto-area dealers’ sales for years before the finacial crisis and that Hurdman had discussed possible options with GM officials including selling or merging the business.
Hurdman received about $677,000 for the shutdown of his dealership.
The dealers allege GM Canada broke provincial laws in Ontario, Prince Edward Island and Alberta that give dealers, as franchisees, 14 days notice and complete disclosure if asked to sign any contract by their franchisor.
But Thomson said that GM Canada isn’t in a franchise relationship, since it doesn’t collect a franchise fee for setting up the business nor a percentage of sales as a royalty.
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.
Cassels Brock denies the allegation.
GM 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.