Flashback: Auto industry rebound limited: experts | GM to add second Oshawa shift early | GM kills Opel sale to Magna | Magna wins battle for Opel | Ontario to subsidize electric cars as auto-sector boost | Nationalized General Motors emerges from bankruptcy after 40 days | Nationalized General Motors gets go ahead from US judge | Harper ‘not counting on’ recouping billions loaned to GM | ‘New GM’ to emerge from bankruptcy | Germany OKs Magna bid to acquire GM’s Opel | Auto bailout costs soar, contribute to $50B deficit | US could own 69% of GM as bankruptcy looms | Autoworkers accept GM deal in 86% vote | GM, CAW reach new labour deal | GM Canada plans to cut 40% of its dealer network | Oshawa truck plant closes | GM deal likely involves bigger sacrifices: McGuinty | GM execs dump stock, shares plummet | GM bankruptcy likely, CAW says | Fiat aims to be global powerhouse by acquiring Chrysler, Opel | Chrysler Canada assembly plants shut down | Banker at heart of credit crisis leads plan to buoy auto sales | Ontario mulls equity stake in GM | US government may take controlling share of General Motors | GM chief says company is preparing in case it files for bankruptcy | Whitehouse fires General Motors CEO | GM pensions: Who’s responsible? | GM wants twice as much taxpayer’s money | Auto bailout gives Federal, Provincial governments incremental nationalization powers | Canadian auto bailout could reach more than $4-billion | U.S. to spend $17.4-billion to ‘rescue’, nationalize auto industry | State to bail out, control US auto industry
Jeff Gray, The Globe and Mail
April 6, 2010
Cassels in crosshairs for representing GM dealers while at same time advising federal government on bailout
For many car dealers across the country, it was a tense Victoria Day weekend last year. In the midst of high-stakes government bailout talks, General Motors of Canada Ltd. told hundreds of its dealerships they had to agree to shut down or the company could face bankruptcy.
Many agreed. But now, some of those dealers have filed a $750-million class-action lawsuit, alleging GM used “shock and awe” tactics to pressure them into signing away their rights in “wind-down agreements,” giving them as little as two business days to make up their minds.
That’s not why many lawyers are keeping a close eye on this case, however. The reason the legal profession is keenly interested is simple: The lawsuit doesn’t target only GM. It is also aimed at venerable Bay Street law firm Cassels Brock & Blackwell LLP, and accuses its lawyers of having a conflict-of-interest in the case.
The alleged conflict, outlined in the lawsuit’s statement of claim, is this: Cassels was retained, and paid millions of dollars in fees, to advise the GM dealers as they faced the possibility of shutdowns during the company’s restructuring. But, unbeknownst to the car dealers, the law firm was also working for the federal government, which was pressuring GM to cut costs by shutting down those same dealers, the claim alleges.
The lawsuit’s allegations, which have not been proven in court, come as Canada’s legal profession wrestles over the rules that govern conflicts-of-interest, an area where it is safe to say the lines are decidedly blurry.
“This is a huge case,” said Richard Devlin, a professor at the Schulich School of Law at Dalhousie University in Halifax. “But it’s part of a larger of pattern.”
It’s a pattern established by a handful of recent Supreme Court of Canada rulings that have caught the legal profession’s attention by appearing to broaden the definition of conflict of interest.
The issue has also grown in importance as the concentration of Canada’s legal industry has increased over the last few decades. As big law firms get bigger, potential conflicts within law firms become more common.
While the issue is again on the front-burner, it has been an active debate ever since a 1990 Supreme Court ruling, MacDonald Estate v. Martin, in which a law firm was forced to quit acting for a plaintiff because one of its lawyers, years earlier, had acted for the defendant in the same case.
Law firms have tried to avoid potential conflicts and appease the courts by erecting internal “screens” between lawyers working with potentially conflicted clients. They are forbidden from talking shop and can even have their computer access limited, in order to prevent any leaks of confidential information.
But a more recent Supreme Court ruling forced the legal profession to re-examine its rules on conflicts of interest. In 2002, the Supreme Court ruled in Regina v. Neil — a tangled case involving an Edmonton paralegal accused of fraud and faking a divorce document — that lawyers owe their clients a broadly defined “duty of loyalty.”
Mr. Justice Ian Binnie wrote in the decision that lawyers should not represent a client “whose interests are directly adverse the immediate interests of another current client” even if the matters are unrelated, unless clients are told about the situation and agree to it.
Gavin MacKenzie, former treasurer of the Law Society of Upper Canada, said the judgment, and its broad definition of conflict of interest, caused “consternation” in the country’s law offices as firms took a hard look at their own client lists.
And it sparked a rash of conflict-of-interest allegations in courtrooms across the country, as some lawyers tried to use the ruling as a weapon to get opponents thrown off cases.
Strict conflict-of-interest rules also created what lawyers call “beauty contests,” in which a client consults all the top law firms in one specialty — sharing confidential information about a case — before choosing one, in a deliberate attempt to make it impossible for an opponent to hire one those same firms under conflict-of-interest rules.
Such tactics prompted the Canadian Bar Association, which represents the interests of the country’s lawyers, to assemble a task force on the issue in 2008. It was led by Scott Jolliffe, the chairman and chief executive officer of Gowlings Lafleur Henderson LLP in Toronto.
The Neil case judgment “gave rise to a whole bunch of new litigation for tactical purposes to try to disqualify counsel and create a disadvantage for your opponent,” Mr. Jolliffe said. “So we went through four or five years of that when all of a sudden, lawyers, in-house outside counsel and judges said ‘Hey, this is crazy. We’ve got to rethink this.’”
Among its recommendations, Mr. Jolliffe’s task force concluded that the allowing of unrelated matters to cause conflicts of interest was “unnecessarily restrictive” and “poses practical problems.”
But the bar association doesn’t make the rules for lawyers. The country’s law societies do. The Federation of Law Societies of Canada, the umbrella group made up of the country’s 13 law societies that regulate the profession, is now in the midst of drafting its own new “model code” on conflicts of interest, which its members could then choose to adopt.
This conflict about conflicts makes for an interesting backdrop for the case against GM and Cassels Brock, which is scheduled for a hearing in the Ontario Superior Court of Justice in December, where a judge will decide whether it can proceed as a class action.
Neither Cassels nor GM would comment on the lawsuit.
The lawyer spearheading the case against Cassels and GM, David Sterns at Sotos LLP in Toronto, said his case will force Canada’s major law firms to look again at their approach to conflicts of interest.
“The prevailing views of some of the big firms have gotten a bit lax,” Mr. Sterns said in an interview. “And this case is going to serve as a useful reminder as to why conflicts of interest are really an inviolate rule of the profession. They are not to be trifled with.”
Source | See also under Nationalization: UK Budget 2010: Darling puts emphasis on broadband for all | Barack Obama’s healthcare bill passed by Congress | Obama urges Senate to hand total oversight of financial sector to Federal Reserve, eliminate ‘Reserve’ part | U.S. cybersecurity bill introduced in Senate | UK: Carbon capture storage lauded, will ‘generate 100,000 jobs and Ãƒâ€šÃ‚Â£6.5bn a year’ | United States weighs massive expansion of Internet monitoring | GM to add second Oshawa shift early | Ontario Premiere McGuinty heralds Samsung ‘green energy’ deal‘Green jobs’ are key to U.S., Canadian recovery: US Ambassador | | House of Representatives passes Obama healthcare legislation | GM kills Opel sale to Magna | UK banks receive more bailouts, restructuring | Irish state plans to take majority stake in debt-ridden banks | Flaherty chooses himself as authority on banking oversight | Ontario to subsidize electric cars as auto-sector boost | Nationalized General Motors emerges from bankruptcy after 40 days | Nationalized General Motors gets go ahead from US judge | Bankster “Holiday” Planned for September? | Harper ‘not counting on’ recouping billions loaned to GM | Government to acquire ’substantial’ stake in Citigroup | ‘New GM’ to emerge from bankruptcy | U.S. judge approves sale of Chrysler assets to Fiat | Auto bailout costs soar, contribute to $50B deficit | US could own 69% of GM as bankruptcy looms | Autoworkers accept GM deal in 86% vote | GM, CAW reach new labour deal | GM Canada plans to cut 40% of its dealer network | Oshawa truck plant closes | GM deal likely involves bigger sacrifices: McGuinty | GM execs dump stock, shares plummet | GM bankruptcy likely, CAW says | Chrysler Canada assembly plants shut down | Banker at heart of credit crisis leads plan to buoy auto sales | Ontario mulls equity stake in GM | US government may take controlling share of General Motors | US govt considers becoming bank shareholder | GM chief says company is preparing in case it files for bankruptcy | Aussies Announce $31B National Broadband Network | Whitehouse fires General Motors CEO | Geithner wants a bigger stick | UK government takes control over Lloyd’s bank | GM pensions: Who’s responsible? | GM wants twice as much taxpayer’s money | Greenspan backs bank nationalisation | World stocks fall on skepticism over U.S. bank plan | Britain unveils plans for nationalized internet service | Auto bailout gives Federal, Provincial governments incremental nationalization powers | Canadian auto bailout could reach more than $4-billion | U.S. to spend $17.4-billion to ‘rescue’, nationalize auto industry | State to bail out, control US auto industry | Bush outlines radical plan to part-nationalise bank | US considers following British example of taking stakes in banks | New World Order: Global co-operation, nationalisation and state intervention — all in one day