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

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

Considering those factors, and the facts of the instant case, the application of the good cause provision of [section]19-103 to the contracts at issue was prospective, and therefore the Court did not apply a retrospective analysis. The contracts, by their terms, could be terminated by either party at any time without good cause, merely by providing 120 days' notice. It was logical, then, that neither party could reasonably expect the contracts to continue for more than 120 days from any given date.

Once the statute was enacted, however, the parties were on constructive notice of its existence. See Lema v. Bank of America, 375 Md. 625, 645 (2003). By continuing to perform their obligations under the contracts without providing notice of termination, the parties effectively renewed their contracts consistent with the applicable law in effect at the time. Id.

In a case strikingly similar to the case sub judice, the 5th Circuit noted that "an open ended dealer agreement which empowers either party to terminate without cause merely by furnishing, say, thirty (30) days' notice to the other party, might be construed as a month-to-month agreement which automatically reconducts itself each month until such notice is furnished by one of the parties." Northshore Cycles, Inc. v. Yamaha Motor Corp., 919 F.2d 1041, 1043 (5th Cir. 1990).

In that case, Northshore Cycles, a dealer of Yamaha products, brought suit against Yamaha to force Yamaha to repurchase its inventory. Northshore, 919 F.2d at 1043. The dealer agreement between the two parties gave Yamaha the option to repurchase inventory upon termination, but did not obligate it to do so. Id. at 1042. In the time between the contract's execution and its termination, Louisiana enacted a statute requiring manufacturers to repurchase inventory upon terminating a dealer contract. Id.

The 5th Circuit reasoned that open-ended dealer agreements without a fixed termination date, that instead renews automatically until either party provides notice, are akin to individual contracts lasting for the duration of the notice period. Id. at 1043.

In Cloverdale Equipment Co. v. Manitowoc Engineering Co., 964 F. Supp. 1152 (E.D. Mich. 1997), the United States District Court for the Eastern District of Michigan discussed the Northshore opinion. Cloverdale involved a dealer contract, subject to termination by either party with 90 days' notice, that was only to last one year. Id. at 1154. After the contract's expiration, the parties continued their business relationship. Id. Eight days after the expiration of the one-year contract, however, Michigan adopted a law requiring "good cause" in order for a supplier to terminate such a contract, and four months later, the manufacturer notified the dealer of its intent to terminate the contract after 90 days. Id. at 1154-55.

In its discussion of whether the Michigan law applied retroactively, the Cloverdale Court noted the Northshore Court's discussion of open-ended contracts with notice provisions, but determined that Northshore provided no guidance where there was no express automatic renewal provision, nor was there an open-ended contract. Cloverdale, 964 F. Supp. at 1160-61.