JOHN DEERE CONSTRUCTION AND FORESTRY CO. v. Reliable Tractor, Inc.

This case comes to this Court as a certified question from the United States District Court for the Middle District of Georgia. We are asked to decide whether the good cause *142provision of the Maryland Equipment Dealer Act (“the Act”), Md.Code (1975, 2005 Repl.Vol.), § 19-103 of the Commercial Law Article, applies to two dealer agreements, where the good cause provision of the Act was enacted after the contracts were executed but before the attempted termination of the contracts that gave rise to the cause of action in this case.

We shall hold that the good cause provision applies to the dealer agreements at issue in this case, and that the attempted termination, without cause, of the agreements at issue in this case, is prohibited by Maryland law. Further, we shall hold that the two open-ended agreements,1 which were subject to termination by either party with 120 days notice, were renewed following the enactment of § 19-103. Accordingly, the law, which was in effect at the time of the renewal, was incorporated into the agreements in accordance with Maryland law.

FACTUAL AND PROCEDURAL BACKGROUND

We adopt the underlying facts as set forth by the United States District Court for the Middle District of Georgia in its certification order. The court stated:

Plaintiff Reliable Tractor, Inc. is an authorized dealer of [appellant2] John Deere Construction & Forestry Company’s (“John Deere”) Forestry Equipment and Utility Equipment lines. The dealer agreements under which [Reliable] operates as an authorized John Deere dealer were entered into by [Reliable] and [John Deere] in 1984. On March 27, 2007, [appellant] John Deere issued a notice of termination to [appellee], stating that [appellant] was going to terminate *143the dealer agreements in 120 days. The dealer agreements specifically state that John Deere may terminate the agreements vnthout cause if John Deere gives 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 Maryland enacted the Equipment Dealer Contract Act (“the Equipment Dealer Act”). See Md.Code Ann., Com. Law §§ 19-101 to 19-305 (West 2007). In 1998 the Maryland Legislature amended the Equipment Dealer Act to provide that equipment suppliers, such as John Deere, cannot terminate a dealer agreement “without good cause” (“the good cause provision”). See Md.Code Ann., Com. Law § 19-103.

In this case, [Reliable] has moved for summary judgment on Count II of its complaint, which seeks a declaratory judgment that [John Deere’s] attempted without cause termination is prohibited by the Equipment Dealer Act. [John Deere], on the other hand, contends that the Equipment Dealer Act’s good cause provision does not apply to this case because the good cause provision was enacted after the dealer agreements at issue were executed, and Maryland law does not permit the retroactive application of a law in the absence of clear legislative intent.

(Footnote omitted.)

The U.S. District Court then certified the following question of law to this Court, pursuant to Md.Code (1973, 2006 Repl.Vol.), § 12-603 of the Courts and Judicial Proceedings Article,3 and Md. Rule 8-3054:

*144Whether 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?

DISCUSSION

Maryland law currently prohibits suppliers5 from terminat*145ing a dealer6 contract “without good cause” (“the good cause provision”). Md.Code (1975, 2005 Repl.Vol.), § 19-103 of the Commercial Law Article (hereinafter “ § 19-103”). This requirement that suppliers have “good cause” to terminate a dealer contract was first enacted in 1998. 1998 Md. Laws, ch. 333.7 John Deere argues that, because the good cause provision was not enacted until 1998, application of the statute to the contracts executed in 1984 would constitute a retroactive application of the statute. Applying a retroactive analysis, John Deere argues that the statute cannot apply to the contracts in this case, because it fails both requirements for a proper retroactive application of a statute: there must be clear legislative intent for the statute to apply retroactively, and the application of the statute must not interfere with vested rights, or deny due process.

Reliable Tractor argues, by contrast, that application of the good cause provision would not constitute a retroactive application of the statute. Reliable Tractor’s argument is based on its assertion that these were open-ended agreements that, because they required 120 days notice for termination, effectively became a series of 120 day contracts. As such, Reliable Tractor asserts that application of the good cause provision in this case is, in effect, prospective, as neither party had a vested right in the contracts beyond that 120 day notice period.

John Deere is correct in its assertion that, 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, *146and second, 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, 829 A.2d 611, 618 (2003). We do not, however, reach the retrospective application analysis because we conclude that applying the good cause provision to these contracts is not a retroactive application, but rather a prospective one.

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, 406 A.2d 284, 287 (1979); see also Lema v. Bank of America, 375 Md. 625, 645, 826 A.2d 504, 516 (2003) (noting that “parties are presumed to know the law when entering into contracts, and thus, ‘all applicable or relevant laws must be read into the agreement of the parties just as if expressly provided by them, except where a contrary intention is evident’ ” (quoting Wright v. Commercial & Sav. Bank, 297 Md. 148, 153, 464 A.2d 1080, 1083 (1983))). 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 in its terms, we must first decide whether the good cause provision of § 19-103 is being applied retroactively or prospectively.

Generally, the presumption is that statutes operate prospectively unless there is evidence of a contrary intent. Kim, 376 Md. at 289, 829 A.2d at 618. We have said that “ ‘[rjetroactivity, 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, 219 A.2d 820, 824 (1966) (quoting Bell v. State, 236 Md. 356, 369, 204 A.2d 54, 61 (1964)). “This rule of construction is particularly applicable where the statute adversely affects *147substantive rights, rather than only altering procedural machinery.” Id.

To date, although we have clearly established the analysis to be used when applying a statute retroactively, this Court has only provided limited analysis of what constitutes a retrospective application of a statute. See Kim, 376 Md. at 289-90, 829 A.2d at 618-19 (noting only that retroactive application of a statute is one that “ ‘determine^] the legal significance of acts or events that occurred prior to its effective date’ ” (quoting State Comm’n on Human Rel. v. Amecom Div., 278 Md. 120, 123, 360 A.2d 1, 3-4 (1976))); Langston v. Riffe, 359 Md. 396, 406, 754 A.2d 389, 394 (2000) (defining the terms “retroactive” and “retrospective” as “acts which operate on transactions which have occurred or rights and obligations which existed before passage of the act”); see also State Ethics Comm’n v. Evans, 382 Md. 370, 389, 855 A.2d 364, 375 (2004) (Harrell, J., dissenting) (“Our cases, for the most part, however have not considered in any depth the definition of, or developed an analytical paradigm for determining in the first instance, what constitutes retroactive application of a statute.”).

Notably, the Supreme Court of the United States has provided some guidance on how to define retroactive application of a statute. In Landgraf v. USI Film Products, 511 U.S. 244, 280, 114 S.Ct. 1483, 1505, 128 L.Ed.2d 229, 262 (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. . . .” Landgraf, 511 U.S. at 269, 114 S.Ct. at 1499, 128 L.Ed.2d at 254-55. Instead, the Court 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.” Landgraf, 511 U.S. at 270, 114 S.Ct. at 1499, 128 L.Ed.2d at 255. In the process, *148the factors to be considered are “fair notice, reasonable reliance, and settled expectations.” Id. We adopt that analysis.

Considering these factors, and the facts of this case, we hold that the application of the good cause provision of § 19-103 to these contracts is prospective, and therefore we do not apply a retrospective analysis. In this case, the contracts, by their terms, could be terminated by either party at any time without good cause, merely by providing 120 days notice. It is 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, the parties were on constructive notice of its existence. See Lema, 375 Md. at 645, 826 A.2d at 516 (noting that “parties are presumed to know the law when entering into contracts”). 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. See id. (noting that “‘all applicable or relevant laws must be read into the agreement of the parties just as if expressly provided by them, except where a contrary intention is evident’” (quoting Wright, 297 Md. at 153, 464 A.2d at 1083)). Balancing principles of fair notice, reasonable reliance, and settled expectations, we conclude that the correct analysis in light of these facts is a prospective, rather than a retrospective, application of the statute.

Furthermore, case law supports our determination that a retroactive analysis does not apply to open-ended agreements when they are allowed to continue for longer than the duration of the notice period, after the enactment of an applicable statute. In a case strikingly similar to the case at hand, the United States Court of Appeals for the Fifth 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 recon-ducts itself each month until such notice is furnished by one of the parties.” Northshore Cycles, Inc. v. Yamaha Motor Corp., *149919 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. Northshore, 919 F.2d 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 Fifth Circuit reasoned that open-ended dealer agreements without a fixed termination date, that instead renew automatically until either party provides notice, are akin to individual contracts lasting the duration of the notice period. Northshore, 919 F.2d 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. 964 F.Supp. at 1154. After the contract’s expiration, the parties continued their business relationship. Id. Eight days after the expiration of the one-year contract, 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. Cloverdale, 964 F.Supp. 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. 964 F.Supp. at 1160-61. Unlike Cloverdale, but similar to Northshore, the present case involves an open-ended agreement.

The agreement in the present case requires the parties to provide 120 days notice before termination. Applying the Northshore rationale, the agreement in this case is a succession of renewable contracts lasting 120 days. Therefore, if *150Deere had provided notice of termination within 120 days of the enactment of § 19-103, to apply that enactment to the contracts at issue would then constitute a retroactive application of the law. Deere, however, did not attempt to terminate the contracts, without cause, until more than 120 days after § 19-103 became law. Thus, by that time, the contracts had already renewed. Accordingly, any application of § 19-103 to the contracts as renewed constituted a prospective application of the law.

John Deere relies on Rigger v. Baltimore County, 269 Md. 306, 305 A.2d 128 (1973), for the proposition that the application of the statute in this case would be retroactive. In Rigger, the relevant statute declared that lease provisions holding landlords harmless from liability for injuries arising from their own negligence were against public policy. 269 Md. at 308, 305 A.2d at 130. We held that the statute could not be retroactively applied to a lease which was executed prior to the enactment of the statute, but where the injury in question occurred after the enactment of the statute. Rigger, 269 Md. at 312, 305 A.2d at 132.

Rigger involved a ten-year lease executed in 1960 that included an indemnification clause whereby the tenant was required to indemnify the landlord for injuries sustained by third parties on the premises. 269 Md. at 307, 305 A.2d at 129. In 1964, the General Assembly deemed such exculpatory clauses void, as they were contrary to public policy. Rigger, 269 Md. at 308, 305 A.2d at 130. In 1965, a third party who was injured on the premises sued, and a dispute arose as to the liability of the lessor and the lessee. Rigger, 269 Md. at 308-09, 305 A.2d at 130. In Rigger, we said that “[t]he determinative event in this context is the execution of the lease, and not the happening of the accident.” 269 Md. at 311, 305 A.2d at 132.

Our decision in Rigger is not incompatible with the rationale in Northshore. Under the Northshore rationale, where there is a contract with a fixed term, executed prior to the effective date of a statute and set to expire after the *151effective date of the statute, application of the statute is retroactive unless the contract was allowed to renew after the statute became effective. See 919 F.2d at 1043. In Rigger, the contract was for a set term, executed prior to the effective date of the statute and set to expire thereafter. 269 Md. at 307-08, 305 A.2d at 129-30. The present case, however, is distinguishable from Rigger. Like the situation in North-shore, this case involves open-ended contracts that were effectively renewed after the good cause provision was enacted. Given the periodic nature of the contracts, the date of execution is, therefore, not the original date of execution, but rather the date of the most recent 120 day renewal. Because the contracts were allowed to renew following the enactment of the good cause provision, that provision applies prospectively.

Reliable Tractor argues that Maryland cases suggest that the relevant date, for purposes of determining whether a statute is being applied retroactively, is the date of the event giving rise to the cause of action, and not the date of the execution of the contract. It maintains that the fact that the parties entered into their contract before the good cause provision came into being is completely irrelevant. In Hearn, although both the execution of the insurance contract and the date of the accident preceded the enactment of the statute, this Court noted that “the accident occurred on March 3,1964, suit was filed against Robert on April 10 and the statute did not become effective until June 1. The substantive right of State Farm to notice in accordance with the policy had accrued before the statute came into effect.” 242 Md. at 583, 219 A.2d at 824. The date noted by this Court was not the date that the contract was executed, but instead the date of the accident. Id.

This Court has subsequently discussed Hearn, noting that “the statute ... did not apply to a[n insurance] policy in effect when an accident occurred on March 3, 1964.” Washington Suburban Sanitary Comm’n v. Riverdale Heights Volunteer Fire Co., Inc., 308 Md. 556, 561, 520 A.2d 1319, 1322 (1987) (emphasis added). Accordingly, in Hearn, the relevant acts or events pertaining to our construction of the insurance policies, *152in that case, occurred prior to the statute’s effective date. In the present case, however, the relevant acts or events occurred after the statute’s effective date. Therefore, our analysis in Hearn does not control the outcome in this case.

Furthermore, even if we assume, arguendo, that our case law is inconsistent on the point of whether the relevant date for determining that the application of a statute is, or is not, retrospective is the date of the execution of the contract or the occurrence of the event that gave rise to the cause of action, we need not resolve that assumed discrepancy in this case. In this case, both the date of the execution of the contracts, and the date of the attempted termination that gave rise to the claim, took place after the enactment of the statute, and therefore the application of the statute is prospective. The ongoing nature of the contracts, together with the 120 day notice provision, effectively created a series of 120 day contracts. See Northshore, 919 F.2d at 1043. Because the contracts were allowed to renew after the enactment of the statute, the contracts were executed subsequent to the enactment of the statute. Likewise, the event that gave rise to the cause of action in this case is Deere’s attempted termination of the contracts without good cause, which occurred on March 27, 2007, long after the enactment of the good cause provision. Because both the execution of the contracts and the event giving rise to the cause of action took place subsequent to the enactment of the statute, the statute applies prospectively.

Finally, the contractual provision which allows for termination without cause is clearly in conflict with the statutory provision of § 19-103, which requires termination for good cause. We have said that a contract provision that violates public policy set forth in a statute is invalid to the extent of the conflict between the contract and that policy. Mayor & City Council of Baltimore v. Clark, 404 Md. 13, 33, 944 A.2d 1122, 1133-34 (2008) (reiterating that “ ‘a contract conflicting with public policy set forth in a statute is invalid to the extent of the conflict between the contract and that policy5 ” (quoting Medex v. McCabe, 372 Md. 28, 39, 811 A.2d 297, 304 (2002))). *153Thus, the provisions of the contracts at issue in this case that allow termination without good cause are invalid to the extent that they conflict with the good cause provision set forth in § 19-103.

CERTIFIED QUESTION OF LAW ANSWERED AS SET FORTH ABOVE. COSTS TO BE EQUALLY DIVIDED BETWEEN THE PARTIES.

HARRELL, MURPHY, and CATHELL, JJ., Dissent.