Michigan Motor Dealers Act Amendments Do Not Apply Retroactively to Require Prior Notice of Opening New Dealership

This posting was written by Tobias J. Gillett, J.D., LLM, contributor to Antitrust Law Daily.

Kia Motors may open an automobile dealer within nine miles of an existing Michigan dealership without providing notice to the dealer, despite a 2010 amendment to Michigan’s Motor Dealers Act requiring manufacturers to provide notice and an opportunity to bring a declaratory judgment action to dealers within nine miles of the new dealer, the U.S. Court of Appeals in Cincinnati has ruled (Kia Motors America, Inc. v. Glassman Oldsmobile Saab Hyundai, Inc., February 7, 2013, McKeague, D.).

Kia and the Michigan dealer entered into their dealer agreement in 1998, when the statute specified a six-mile zone requiring notice rather than a nine-mile zone, and the amendment did not apply retroactively.

Glassman Oldsmobile Saab Hyundai, Inc. is a Southfield, Michigan automobile dealer. In 1998, Kia and Glassman entered into a nonexclusive Dealer Sales and Service Agreement appointing Glassman as an authorized Kia dealer. The agreement stated that “[a]s permitted by applicable law, [Kia] may add new dealers to, relocate dealers into or remove dealers from the [Area of Primary Responsibility] assigned to [Glassman].”

In 1998, Michigan’s Motor Dealers Act required manufacturers to provide written notice to existing dealers within six miles of a proposed new dealer before establishing the dealer, and permitted the existing dealer to bring a declaratory judgment action within thirty days of receiving notice “to determine whether good cause exists for the establishing or relocating of” the proposed new dealer. In 2010, the Michigan legislature amended the Act to extend this zone to nine miles from existing dealers.

Shortly after the amendment became effective, Kia informed Glassman that it intended to establish a new dealer in Troy, Michigan, about seven miles from Glassman. Glassman protested the lack of written notice from Kia, and Kia filed an action for a declaratory judgment that the 2010 amendment did not require it to give notice to Glassman.

The district court granted summary judgment to Kia, concluding that the amendment did not operate retroactively to require Kia to give notice. Glassman appealed.

Contract Argument

On appeal, Glassman contended that the parties had intended to incorporate changes to the law, such as the 2010 amendment, by including the “as permitted by applicable law” language. The appeals court initially noted that the language might not apply to this case, since the language limited Kia’s ability to establish new dealers within Glassman’s “Area of Primary Responsibility,” a term distinct from the “relevant market area” term in the Act. Kia had stated that the new dealer would not be established within Glassman’s “Area of Primary Responsibility.”

Even if it did apply, however, the court observed that changes to the law are generally not incorporated into an agreement unless the language of the agreement clearly indicates the intent of the parties to include such changes. Since “as permitted by applicable law” could refer to the provision of the Act in effect when the contract was signed as easily as it could refer to the current provision, the language did not clearly indicate the intent of the parties to incorporate changes in the law.

Glassman also argued that the 2010 amendment should apply, since other provisions in the agreement required Glassman to comply with applicable consumer-protection, safety, and emission-control laws, and since Kia agreed that those provisions required Glassman to comply with current laws as well as those in effect when the agreement was signed. However, the court of appeals observed that those provisions referred to Glassman’s responsibilities to the general public, and did not “significantly change the parties’ bargain.” Since the dealer establishment provision “directly concern[ed] the relationship between Kia and Glassman,” it differed fundamentally from the other provisions, in the court’s view.

Statutory Argument

Having determined that the agreement did not include the 2010 amendment, the court proceeded to address whether the Michigan legislature intended the 2010 amendment to apply retroactively. The court noted that Michigan statutes are generally presumed to operate only prospectively “unless the contrary intent is clearly manifested.” However, procedural statutes that “neither create new rights nor destroy, enlarge, or diminish existing rights are generally held to operate retrospectively unless a contrary legislative intent is manifested.”

Since the legislature had not manifested a clear intent for the amendment to apply retrospectively, the only issue was whether the amendment was substantive or procedural. Glassman had argued that the amendment was procedural “because it constituted a minor change to the definition of relevant market area,” and did not “create new substantive rights.” However, the court concluded that the amendment, by requiring Kia to provide notice if it established a dealer more than six miles from an existing dealer, did impose a new duty on Kia, and “provide[d] a new substantive right that did not previously exist.”

The court also rejected an argument that, since Kia was intending to establish a new dealer after the 2010 amendment, the amendment would not have to be applied retrospectively, finding that the amendment would “affect[] Kia’s rights under a contract that predates the amendment.”

In addition, the court noted that its decision would permit it to avoid the constitutional question whether applying the 2010 amendment retroactively would violate the Contracts Clauses of the United States and Michigan Constitutions. The court therefore concluded that the 2010 amendment should not be applied retroactively to the agreement, and affirmed the district court’s grant of judgment on the pleadings to Kia.