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20 (OR SO) QUESTIONS ON RETROACTIVITY

20 (OR SO) QUESTIONS ON RETROACTIVITY. Ken Murphy – Arent Fox Mo Sanchez – Baker Hostetler NMVB ROUNDTABLE MARCH 21, 2012. Massive Change.

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20 (OR SO) QUESTIONS ON RETROACTIVITY

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  1. 20 (OR SO) QUESTIONS ON RETROACTIVITY Ken Murphy – Arent Fox Mo Sanchez – Baker Hostetler NMVB ROUNDTABLE MARCH 21, 2012

  2. Massive Change • 22 STATES AMENDED THEIR DEALER LAWS IN 2012. ABOUT HALF OF THE STATES HAVE BEEN DOING SO EACH YEAR FOR THE LAST 3 YEARS. CALIFORNIA HAS AMENDED ITS DEALER LAWS TWICE IN THE PAST 3 YEARS. • ARE SOME STATES TAKING A “CAN YOU TOP THIS” OR “KEEPING UP WITH THE JONESES” ATTITUDE?

  3. Do These Statutes Apply Retroactively? • WHY IS IT IMPORTANT TO KNOW WHETHER A STATUTE IS TO BE APPLIED RETROACTIVELY? • HOW IS THIS ISSUE GOING TO ARISE? • AS PART OF A TERMINATION? • AS PART OF AN ADD POINT? • AS PART OF A BUY/SELL? • IN SUCCESSION? • IN A FINANCING SITUATION?

  4. Crisis As Part Of the Analysis • 342 NEW CAR DEALERSHIPS HAVE GONE OUT OF BUSINESS IN CALIFORNIA SINCE 2007. • CHRYSLER AND GENERAL MOTORS FILED FOR BANKRUPTCY PROTECTION, AS DID SEVERAL RV COMPANIES. • IS A BIGGER CRISIS COMING?

  5. Pre-existing Contract? • DOES THE RETROACTIVITY ANALYSIS EVEN APPLY, I.E., IS THE CONTRACT BETWEEN THE PARTIES “PRE-EXISTING”? • AFTER THE EFFECTIVE DATE OF THE STATUTE, HAVE THE PARTIES MADE A CHANGE TO THE CONTRACT WHICH CAUSED THEM TO “RE-EXAMINE THEIR RELATIONSHIP?” • IF SO, SOME COURTS HOLD THAT THE CONTRACT IS RENEWED AND THE NEW STATUTE APPLIES.

  6. What did the Legislature intend? • IS THERE A STATEMENT IN EITHER THE STATUTE OR THE LEGISLATIVE HISTORY REGARDING RETROACTIVITY? • FOR EXAMPLE: VEHICLE CODE 11713.3(g)(3)(D) DOES NOT: “AFFECT THE ENFORCEABILITY OF … ANY CONTRACT ENTERED INTO ON OR BEFORE DECEMBER 31, 2011.” • CALIFORNIA CIVIL CODE SECTION 3 – “NO PART OF [THE CODE] IS RETROACTIVE, UNLESS EXPRESSLY DECLARED.”

  7. Section 11713.13(c) • VEHICLE CODE SECTION 11713.13 (c) STATES THAT AN OEM MAY NOT “REQUIRE BY CONTRACT OR OTHERWISE, A DEALER TO MAKE A MATERIAL ALTERATION, EXPANSION, OR ADDITION TO ANY DEALERSHIP FACILITY, UNLESS THE REQUIRED ALTERATION, EXPANSION, OR ADDITION IS REASONABLE IN LIGHT OF ALL EXISTING CIRCUMSTANCES, INCLUDING ECONOMIC CONDITIONS.” • WHAT DO “ALL EXISTING CIRCUMSTANCES” AND “ECONOMIC CONDITIONS” MEAN?

  8. Section 11713.13(c) • IF CONSTRUCTION OF A FACILITY WILL TAKE SEVERAL YEARS, DO THE ECONOMIC CONDITIONS HAVE TO BE “PERFECT” OR AT LEAST “STABLE” FOR THAT ENTIRE PERIOD? • SHOULD ECONOMIC FORECASTS BE TAKEN INTO ACCOUNT? • IS IT POSSIBLE TO ELIMINATE RISK FROM A HIGHLY SPECULATIVE BUSINESS?

  9. Section 11713.13(c) • WHEN A DEALER AND AN OEM SIGN AN AGREEMENT TO BUILD OR EXPAND A FACILITY, SHOULD IT BE ENFORCEABLE? • WAS VEHICLE CODE SECTION 11713.13 (c) INTENDED BY THE LEGISLATURE TO BE RETROACTIVE? WHY OR WHY NOT?

  10. Section 11713.13(d) • VEHICLE CODE SECTION 11713.13 (d) ET SEQ. GOVERNS REPURCHASE OF CERTAIN ITEMS AFTER TERMINATION. • WAS VEHICLE CODE SECTION 11713.13 (d) INTENDED BY THE LEGISLATURE TO BE RETROACTIVE? WHY OR WHY NOT?

  11. Split Legislative Intent? • CAN TWO SUBSECTIONS OF THE SAME STATUTE (VEHICLE CODE 11713.13) HAVE A DIFFERENT LEGISLATIVE INTENT AS TO RETROACTIVITY? • SUBSECTION (c) – FACILITIES UPGRADES • SUBSECTION (d) – REPURCHASE • WHY OR WHY NOT?

  12. What was the intent? • WERE BOTH THE FACILITIES SUBSECTION AND THE REPURCHASE SUBSECTION ENACTED IN RESPONSE TO THE CRISIS? • WAS THE REPURCHASE SECTION ENACTED SIMPLY BECAUSE CALIFORNIA WAS ONE OF A HANDFUL OF STATES THAT DID NOT HAVE A REPURCHASE STATUTE?

  13. Constitutional Issues • If statute purports to apply retroactively and there is a pre-existing contract, is it a violation of the Contract Clause? • Contract Clause is a provision of federal (and usually state) constitution prohibiting the impairment of pre-existing contract rights. • Contract at issue may be dealer agreement, or separate contract between dealer and manufacturer. • Constitutional analysis is very similar to retroactivity analysis.

  14. RETROACTIVITY/CON LAW CONTRACT CLAUSE ANALYSIS • IS EITHER SUBSECTION OF VEHICLE CODE 11713.13 A SUBSTANTIAL IMPAIRMENT OF A CONTRACT? • SUBSECTION (c) – FACILITIES UPGRADES • SUBSECTION (d) – REPURCHASE

  15. RETROACTIVITY/CON LAW CONTRACT CLAUSE ANALYSIS • IS THE IMPAIRMENT OF EACH SUBSECTION SUBSTANTIVE OR PROCEDURAL? • SUBSECTION (c) – FACILITIES UPGRADES • SUBSECTION (d) – REPURCHASE

  16. RETROACTIVITY/CON LAW CONTRACT CLAUSE ANALYSIS • IS THE IMPAIRMENT TEMPORARY OR PERMANENT? • DOES THIS VARY WITH SUBSECTIONS OF 11713.13? • WHEN DOES “TEMPORARY” BECOME “PERMANENT?”

  17. RETROACTIVITY/CON LAW CONTRACT CLAUSE ANALYSIS • DOES THE INTEREST OF THE LEGISLATION JUSTIFY THE IMPAIRMENT? • THIS ASSUMES WE CAN DETERMINE THE INTEREST OF THE LEGISLATION.

  18. RETROACTIVITY/CON LAW CONTRACT CLAUSE ANALYSIS • IS THE INTEREST OF THE LEGISLATION APPROPRIATE FOR THE PUBLIC INTEREST TO BE PROMOTED? • WAS IT NEEDED TO REMEDY AN EMERGENCY? • WAS THE STATUTE TAILORED TO MEET THE NEED? • WAS THE INTEREST TO BE PROTECTED SOCIETAL OR SPECIAL INTEREST?

  19. Can You Plan Around the Problem? • WHAT DOES ALL OF THIS MEAN TO THE PARTIES WHEN YOU SIT DOWN TO CRAFT AN AGREEMENT IN LIGHT OF THESE ISSUES?

  20. Final Questions • WHERE DO WE GO FROM HERE? • IS THE CRISIS OVER?

  21. Thank you.

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