Legal Opinions - Maryland Court of Appeals: September 29, 2008

Daily Record, The (Baltimore), Sep 29, 2008

Contracts

Cause for termination

BOTTOM LINE: Dealer agreements executed prior to enactment of CL [section]19-103 were, in effect, renewed following the enactment of the statute; therefore, the statute applied prospectively to prohibit manufacturer from terminating agreements without cause.

CASE: John Deere Construction and Forestry Co. v. Reliable Tractor, Inc., Misc. Docket No. 12, September Term, 2007 (filed Sept. 15, 2008) (Judges Bell, Battaglia, GREENE & Raker (retired, specially assigned)) (Judges Harrell, Murphy & Cathell (retired, specially assigned), dissenting).

FACTS: Reliable Tractor, Inc. was an authorized dealer of John Deere Construction & Forestry Company's Forestry Equipment and Utility Equipment lines. The dealer agreements under which Reliable operated as an authorized John Deere dealer were entered into by Reliable and John Deere in 1984.

On March 27, 2007, John Deere issued a notice of termination to Reliable, stating its intent to terminate the dealer agreements in 120 days. The dealer agreements specifically provided that John Deere could terminate the agreements without cause by giving 120 days' notice prior to termination. At the time Reliable and John Deere entered into the dealer agreements, Maryland did not have any law that prohibited the termination of a dealer agreement without cause.

In 1987, however, Maryland enacted the Equipment Dealer Contract Act, see CL [section][section]19-101 to 19-305, and in 1998, the Legislature amended the Act to provide that equipment suppliers, such as John Deere, could not unilaterally terminate a dealer agreement "without good cause." See CL [section]19-103.

After filing suit in federal district court, Reliable moved for summary judgment on Count II of its complaint, which sought a declaratory judgment that John Deere's attempted without-cause termination was prohibited by the Equipment Dealer Act.

The U.S. District Court certified the following question of law to the Court of Appeals, pursuant to CJ [section]12-603 and Md. Rule 8-3054: "Whether the Maryland Equipment Dealer Act's good cause provision applies to the termination of a dealer agreement where the dealer agreement was entered into before the good cause provision was enacted but the alleged without cause termination occurred after the good cause provision was enacted?"

The Court of Appeals held that the good cause provision applied to the dealer agreements at issue, and that the attempted termination of the agreements, without cause, was prohibited by Maryland law.

LAW: Maryland law currently prohibits suppliers from terminating a dealer contract "without good cause" (the good cause provision). CL [section]19-103. That requirement was first enacted in 1998. See 1998 Md. Laws, ch. 333.

Here, John Deere argued that, because the good cause provision was not enacted until 1998, application of the statute to the contracts executed in 1984 would constitute an impermissible retroactive application of the statute.

Pursuant to Maryland law, a proper retroactive application of a statute requires a two part analysis: first, a determination that the legislature clearly intended the statute to apply retroactively, and secondly, a determination that retroactive application does not "impair vested rights, deny due process, or violate the prohibition against ex post facto laws." Allstate Ins. Co. v. Kim, 376 Md. 276, 289 (2003).

It is well-established in Maryland that "laws subsisting at the time of the making of a contract enter into and form a part thereof as if expressly referred to or incorporated in its terms, and the principle embraces alike those provisions which affect the validity, construction, discharge and enforcement of the contract." Dennis v. Mayor and City Council of Rockville, 286 Md. 184, 189 (1979).

In order to determine whether the good cause provision existed at the time of the "making" of the contract, such that the provision was incorporated into its terms, the first issue was whether the good cause provision of CL [section]19-103 was applied retroactively or prospectively. Generally, the presumption is that statutes operate prospectively unless there is evidence of a contrary intent by the Legislature. See Kim, 376 Md. at 289.

"'Retroactivity, even where permissible, is not favored and is not found, except upon the plainest mandate in the act'." State Farm Mut. Auto. Ins. Co. v. Hearn, 242 Md. 575, 582 (1966) (quoting Bell v. State, 236 Md. 356, 369 (1964)). "This rule of construction is particularly applicable where the statute adversely affects substantive rights, rather than only altering procedural machinery." Id.

In Landgraf v. USI Film Products, 511 U.S. 244, 280, (1994), the Supreme Court defined retroactive application of a statute as one that "would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed." The Court rejected a bright line rule, noting that "a statute does not operate 'retrospectively' merely because it is applied in a case arising from conduct antedating the statute's enactment." Id. at 269. Instead, it required a "process of judgment concerning the nature and extent of the change in the law and the degree of connection between the operation of the new rule and a relevant past event." Id. at 270. In the process, the factors to be considered are "fair notice, reasonable reliance, and settled expectations." Id.