TORONTO — A class action lawsuit has been launched on behalf of 215 Canadian General Motors dealerships whose businesses were closed last year as part of the automaker’s massive restructuring.
The lawsuit, which is seeking $750 million in damages, claims GM Canada broke franchise laws by giving its dealers at most four business days to respond to a termination package offered by the company. In addition, the dealerships were unable to negotiate as a group and didn’t have group legal counsel.
Because of this, “the vast majority” agreed to the termination package rather than risk having GM file for insolvency, which the company threatened to do if the offer was rejected, according to a claim filed with the Ontario Superior Court of Justice.
GM Canada didn’t end up filing for bankruptcy protection, although its parent company, General Motors Corp., did file for Chapter 11 protection in the U.S.
“These dealers include some of the best in the country. The offer they were handed gave them a fraction of what their businesses were worth, but they had no collective representation and precious little time,” stated David Sterns, a lawyer with Sotos LLP, the firm representing the dealers.
The claim also names law firm Cassels Brock & Blackwell LLP. The firm was hired in advance to represent the terminated dealers, but failed to disclose that it was also representing the federal government during bailout discussions which ultimately resulted in GM receiving $10.5 billion from the federal and Ontario governments. As a condition of that funding, Ottawa told GM it would have to scale back its dealership network.
The claim also states that the dealers “were the only significant stakeholders in the GM auto bailout which were denied a voice in the restructuring.”
The claims in the lawsuit have not been proven in court.
Calls to Cassels Brock & Blackwell were not immediately returned. GM Canada said it does not comment on matters before the courts.
Twelve individual dealerships slated for closure — 11 in Ontario and one in Prince Edward Island — are already suing GM for alleged breach of contract in a separate suit launched in November.
The plaintiffs in that case say GM’s agreement with its dealers allowed them to renew their contracts and keep selling GM vehicles until at least 2015 as long as they fulfilled sales and other obligations.
That claim asks for punitive damages of $1.5 million as well as additional damages for “loss of profit, loss of goodwill, loss of reputation, loss of business opportunity and loss of market share.”
The claim also alleges that in asking dealers to accept or reject the agreement within four business days, it didn’t leave enough time for the owners to get “meaningful” legal advice.
GM plans to eliminate more than one-third of its Canadian dealerships by October in an attempt to cut costs and streamline its business. The company had more than 700 dealerships in Canada before the closures which were estimated to employ 33,000 people.
GM also intends to close 1,100 dealerships in the U.S.
About 21 per cent of the American General Motors and Chrysler dealers whose businesses are being shut down by the automakers have filed paperwork appealing the decisions. Around 600 dealers out of the roughly 2,800 whose franchises were revoked last year have asked for arbitration hearings in an effort to get their franchises back.
GM Chairman and CEO Ed Whitacre Jr. has said he expects hundreds of dealers to win their franchises back during the process, which must be wrapped up by June 14.