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Justice Lawyers Work to Recharge Auto Sector Batteries

by Season Osborne

OTTAWA – Pierre Legault is certainly not afraid of deadlines.

“It’s one thing to work under a normal business deadline,” says Legault, Department of Justice Canada’s Assistant Deputy Minister of the Business and Regulatory Law Portfolio.

“It’s another thing when you know the deadline is at noon on a given day, and at noon the President of the United States will make an announcement, and the Prime Minister of Canada will make a similar announcement a few hours later.”

Legault was referring to the unusual challenges of leading the Canadian legal teams in the restructuring of Chrysler and General Motors, two of North America’s largest car makers.

He coordinated the Canadian legal teams of counsel from the Department of Justice and the Province of Ontario, Export Development Canada (EDC), as well as Canadian and American agents for all three parties.

With the economic downturn last year, Chrysler and General Motors (GM) found themselves in grave trouble and asked the Canadian and American governments for a financial lifeline.

A team of Justice lawyers at Industry Canada played a key role in the historic restructuring.

After the two companies submitted business plans to the Canadian and American governments, Chrysler was given a month and GM was given two months to restructure and reorganize in order to obtain government backing.

The Justice team worked on the complex agreements to provide these companies funding and ensure that they would continue as productive employers in Canada.

The work was complex and intense. The documents and files generated were voluminous. And it was all carried out at an extremely rapid pace, requiring long hours and all-nighters to meet the extraordinary goals.

Last November, as the United States contemplated providing funding to Chrysler and GM, the Canadian government decided to follow a similar course.

Industry Canada, the department leading the deal and the negotiations with the United States government and the automotive companies, had to figure out the best way to do this.

In the past, funding to business was often provided by Industry Canada. However, after analyzing its options, the Department decided that the best way for the government to help the two companies was to turn to EDC.

“I was asked to draft a plan, having EDC be the delivery agent on behalf of Industry,” says Alexia Taschereau, Senior Counsel at Industry Canada who worked on the Chrysler file.

“They had money in their Canada account, which is an account that provides funding loans to car companies or to whoever qualifies to receive such loans. So, we quickly became fast friends with EDC and created a very good working relationship.”

As the auto industry in Ontario would have been seriously affected if the two car companies had failed, the Ontario Ministry of Economic Development and Trade quickly became involved in the deal as well.

A team of Justice lawyers at Industry Canada played a key role
in the historic restructuring.

“When this file started it was just little old me,” laughs Taschereau. “But this looked like it was going to be big.”

It quickly became apparent that the Department of Justice needed to hire outside counsel with expertise in bankruptcy, commercial, corporate and American law to supplement the in-house talent.

“We have the subsidiaries in Canada but the parent company is American, and the bankruptcy filing was in the U.S.,” said Legault. “The agreements are under American law and the negotiations were in the United States, so we needed to have American counsel there.”

Left to right: Alexia Taschereau, Mark Taggart, Pierre Legault, Anne-Marie Levesque.
Absent from the photo is Anne Boudreau.
Photo: Patrick Walton

So the Department retained the international law firm of McKenna Long & Aldridge for the United States, and the Toronto legal firm of Cassels Brock. Each of the three main parties – Industry Canada, EDC, and the Province of Ontario – used both internal and external counsel to assist with the enormous workload.

“One of the really important aspects of this file was being able to work with Ontario lawyers, EDC lawyers, and all of our outside agents. But to do so we had to sing the same song, we had to be able to give consistent legal advice,” says Taschereau.

Legault said his role was in essence to coordinate and develop a Canadian position or view on the various legal questions or agreements and to manage counsel.

“But it was not obvious. The Ontario counsel doesn’t report to the federal government or to the Department of Justice Canada, nor do counsel for EDC, which is an independent Crown corporation. Nevertheless, we had to forge one common legal view.”

When Chrysler submitted its proposal for restructuring to the American and Canadian governments, it became apparent that in order to help out Chrysler Canada, the American parent company had to be helped first. It had to be protected in order for Chrysler Canada to survive.

So the federal government agreed to provide funding to Chrysler Canada and Chrysler U.S., thus allowing for Fiat’s participation in the restructuring. Fiat became a major shareholder of Chrysler U.S., while Chrysler Canada remained a subsidiary.

The reams of documents that sit beside Taschereau’s desk are testament to the impressive amount of work involved in the deal.

To accomplish all this work, the Canadian legal team “camped out” in Washington for seven days where it concluded the Chrysler transaction.

Working in Washington posed certain challenges for the Canadian team.

Legault says security was often an issue, especially for meetings they had at the U.S. Treasury, where they needed security clearance in advance.

“One time, they had our information but didn’t process it in time, so one of my clients and I were asked to stay out of the building out in the street for 45 minutes,” he says.

“So we went and opened an ‘office’ on a bench in Lafayette Park across from the White House.”

Taschereau recalls the long hours put in at the law firm offices of Cadwalader, which was representing the U.S. Treasury.

“We’d go out for dinner at midnight, then come back at 2:00 a.m. and continue. That went on for seven days while we were there,” she says.

“They had a balcony and I remember going outside for a few minutes every hour or so to remind myself that there was daylight, and remember that there were other things going on in the world than what we were doing.”

Legault says the Canadian team worked 55 hours straight during the last 2 days leading up to the closing.

“Basically, we had to finish everything before noon, because at noon President Obama was having a press conference, and Prime Minister Harper was having his press conference about 2:00. So, big deadline,” he says.

“We finished the agreement of interest to Canada half an hour before, and they went on with their press conferences.”

The Chrysler deal wrapped up in April and Chrysler was immediately put under bankruptcy protection in the U.S. When the company emerged from that protection, the final closing on the new Chrysler took place.

While Chrysler was under bankruptcy protection, the Canadian team started working on the General Motors restructuring.

Anne Boudreau at Industry Canada Legal Services, counsel on the GM file, says that while she was able to learn from the Chrysler experience, GM posed different challenges.

It wasn’t being taken over by another company as Chrysler was, and the restructuring was massive. In fact, it is considered the biggest industrial reorganization in history.

There were three phases to the transaction: pre-bankruptcy, bankruptcy, and restructuring.

At each phase, Boudreau says, there were significant negotiations and documentation, which involved working with the U.S. legal team and the U.S. Treasury, as well as negotiations with the General Motors parent company and General Motors Canada.

“The document list is more than 60 documents; not two-pagers either,” she says. “We had just so many documents that there is no way that just in-house counsel could have done it. But, having said that, we very actively participated, both with our colleagues and with our clients.”

An indication of just how big this project was occurred often whenever Boudreau picked up the telephone.

“There were so many parties involved,” she says. “I know on one conference call, just before the GM deal closed, when I logged in I was number 52 on the call, and I was not the last. So there was quite a retinue of people involved.”

The Canadian legal team, again led by Legault, travelled to New York twice for negotiations of the second and third phases to meet with the representatives of the United States Treasury, GM and its lawyers, and other key people involved in the deal, in addition to innumerable other trips to Washington.

The law firm for General Motors, Weil Gotshal, has its own office in the GM building on Fifth Avenue, so that was where the Canadian contingent worked for the duration of the New York trips.

The building is across from Central Park, and Boudreau says looking at it through the bank of windows in the law firm office was as close as she got to the park.

“It was about a six-block walk down Fifth Avenue from the hotel that we stayed at and I’d usually arrive there around 8:00 in the morning. I think the latest I stayed was 3:00 a.m. the following morning. But most nights it was between 11:00 and 12:00 p.m. before I headed back to the hotel. All the while, other team members focussed on other parts of the deal around the clock.”

She adds: “They were long days. I swear they piped oxygen into the room. I didn’t feel it until I was leaving the building.”

It was very much a team effort – within our legal services,
within Justice, and with the other legal counsel.

“It was an amazing experience, because we didn’t all agree, but it was very respectful. We had a lot of laughs, we became good friends, but it was very professional and at the end of the day the decisions that came out were well-reasoned, well-debated, and so it was an amazing environment.”

Taschereau echoes her colleague’s assessment of the experience.

“It was very much a team effort – within our legal services, within Justice, and with the other legal counsel. If we needed a tax expert, we could turn to our tax colleagues. If we needed bankruptcy expertise, we could turn to our experts in the CCAA.”

Legault will always remember his work on the historic file.

“It’s a success story because of the extraordinary work that we did, our ability to do the work, to deliver on time under incredibly short deadlines given the size of the deals and to achieve all our results. Of course the main goal was to protect a whole sector of our economy – automobile manufacturing and the jobs that go with that.”

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