Court Opinion

ID: 819854
Source: CourtListenerOpinion
Date Created: 2013-02-07 15:04:28.601004+00
Date Added: 2024-06-11T09:03:01.168961
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
                          Pursuant to Sixth Circuit I.O.P. 32.1(b)
                                 File Name: 13a0035p.06

              UNITED STATES COURT OF APPEALS
                              FOR THE SIXTH CIRCUIT
                                _________________

                                               X
                           Plaintiff-Appellee, -
 KIA MOTORS AMERICA, INC.,
                                                -
                                                -
                                                -
                                                          No. 12-1202
            v.
                                                ,
                                                 >
                                                -
                                                -
 GLASSMAN OLDSMOBILE SAAB HYUNDAI,

                         Defendant-Appellant. N-
 INC., dba Glassman Kia,

                     Appeal from the United States District Court
                    for the Eastern District of Michigan at Detroit.
                No. 2:11-cv-12090—Arthur J. Tarnow, District Judge.
                               Argued: January 24, 2013
                        Decided and Filed: February 7, 2013
            Before: SILER, SUTTON, and McKEAGUE, Circuit Judges.

                                 _________________

                                      COUNSEL
ARGUED: Lawrence F. Raniszeski, COLOMBO & COLOMBO, P.C., Bloomfield
Hills, Michigan, for Appellant. Catherine E. Stetson, HOGAN LOVELLS US LLP,
Washington, D.C., for Appellee. ON BRIEF: Lawrence F. Raniszeski, COLOMBO
& COLOMBO, P.C., Bloomfield Hills, Michigan, for Appellant. Catherine E. Stetson,
David M. Ginn, HOGAN LOVELLS US LLP, Washington, D.C., Jonathan T. Walton,
Jr., WALTON & DONNELLY, P.C., Detroit, Michigan, for Appellee.

                                 _________________

                                      OPINION
                                 _________________

       McKEAGUE, Circuit Judge. The goal of every car manufacturer is to sell as
many cars as possible. To accomplish this goal they need dealers, which must invest
substantial resources to build attractive facilities and advertise the latest models.
Superficially, dealers share the manufacturer’s goal of selling as many cars as possible.

                                           1
No. 12-1202           Kia Motors America v. Glassman                                           Page 2

But their mutual objectives may diverge if the manufacturer seeks to increase sales by
appointing new dealers, whose efforts may erode the sales of existing dealers. Michigan
recognized this potential problem in 1981 when it enacted the Motor Dealers Act (the
“Act”), which grants car dealers certain limited territorial rights, even when the dealer
has a nonexclusive franchise. The application of the Act to the dealer agreement
between Kia Motors America, Inc. (“Kia”) and Glassman Oldsmobile Saab Hyundai,
Inc. (“Glassman”)1 is at the nub of this dispute.

        The Act requires car manufacturers to provide notice to an existing dealer before
establishing a new dealer within a certain distance of the existing dealer’s location.
Receipt of notice gives the existing dealer a cause of action to challenge the proposed
new dealer. Kia and Glassman entered into a Dealer Sales and Service Agreement (the
“Agreement”) in 1998, when the distance for notice was 6 miles. The Michigan
Legislature amended the Act in 2010 to increase the distance to 9 miles (the “2010
Amendment”). Kia now intends to establish a new dealer more than 6 miles, but less
than 9 miles, from Glassman’s location. The district court found that the parties did not
agree to comply with the 2010 Amendment and that the 2010 Amendment is not
retroactive. Therefore, it concluded that the 6-mile distance applies to the parties’
relationship, and Kia need not give notice to Glassman. We affirm.

                                      I. BACKGROUND

        The facts are uncomplicated. Kia imports and distributes Kia products in the
United States. Glassman is a car dealer in Southfield, Michigan. Their Agreement is a
relatively simple contract. It appointed Glassman as an authorized Kia dealer. It
contains provisions governing things such as sales and delivery, operation of the
dealership, and service and parts. Importantly for this appeal, the Agreement clearly

        1
          In Glassman’s answer to Kia’s complaint, it clarified that its name is actually Glassman
Automotive Group, Inc. d/b/a Glassman Kia. Both parties stated that Glassman is incorporated in
Michigan. A quick search on the Michigan Department of Licensing and Regulatory Affairs’ website
revealed that Glassman Oldsmobile Saab Hyundai, Inc. was one of the assumed names of Glassman
Automotive Group, Inc. until 2000 (the last Oldsmobile was made in 2004). The search also revealed that
Glassman Automotive Group, Inc. is incorporated in Delaware, not Michigan. Since Kia is a California
corporation (we checked), we still have subject matter jurisdiction.
No. 12-1202           Kia Motors America v. Glassman                                             Page 3

states that Glassman’s right to sell Kia products is not exclusive. Kia “expressly
reserves the unrestricted right to sell Kia Products itself and to grant others the right to
sell Kia Products, whether or not in competition with [Glassman].” R. 1-2, Agreement,
PageID # 17. Glassman understood that it was “not being granted an exclusive right to
sell Kia products in any specified geographic area.” Id. at PageID # 18.

         Although its right to sell Kia products is nonexclusive, Glassman agreed to
assume certain responsibilities in its geographic region. It agreed to “vigorously and
aggressively promote, solicit and make sales of Kia Products within its [Area of Primary
Responsibility]”—a location left undefined in the Agreement.2 Id. at PageID # 25.
However, Glassman agreed “that it has no right or interest in any [Area of Primary
Responsibility] that [Kia] may designate.” Id. Instead, in the sentence whose meaning
is at issue in this appeal, the parties agreed 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].” Id. (emphasis added).

         Kia’s right to establish a new dealer in Glassman’s vicinity is unrestricted by the
Agreement, but it is restricted by an anti-encroachment provision3 in the Act. See Mich.
Comp. Laws § 445.1576. This provision requires a car manufacturer to give notice to
an existing dealer before establishing a new dealer in the same vicinity. In relevant part,
the Act provides as follows:

         (2) Before a manufacturer or distributor enters into a dealer agreement
         establishing or relocating a new motor vehicle dealer within a relevant
         market area where the same line make is represented, the manufacturer
         or distributor shall give written notice to each new motor vehicle dealer
         of the same line make in the relevant market area of its intention to

         2
          The Agreement says that “the [Area of Primary Responsibility] is a tool used by [Kia] to
evaluate [Glassman’s] performance of its obligations.” R. 1-2, Agreement, PageID # 25. It “may be
altered or adjusted by [Kia] at any time.” Id. Apparently the contours of the Area of Primary
Responsibility were set forth in a “business and operating plan,” which was not included in the record on
appeal. See id. at PageID # 20.
         3
          “Antiencroachment or elbow-room statutes restrict the manufacturer’s freedom to appoint new
dealers within a specified proximity of existing dealers. The purpose of such statutes is to prevent
oversaturation of an area with dealers in a particular line of cars.” 2 W. Michael Garner, Franchise and
Distribution Law and Practice § 14:32 (2012).
No. 12-1202        Kia Motors America v. Glassman                                  Page 4

       establish an additional dealer or relocate an existing dealer within that
       relevant market area.
       (3) Within 30 days after receiving the notice provided for in subsection
       (2), or within 30 days after the end of any appeal procedure provided by
       the manufacturer or distributor, a new motor vehicle dealer may bring a
       declaratory judgment action in the circuit court for the county in which
       the new motor vehicle dealer is located to determine whether good cause
       exists for the establishing or relocating of a proposed new motor vehicle
       dealer. Once an action has been filed, the manufacturer or distributor
       shall not establish or relocate the proposed new motor vehicle dealer
       until the circuit court has rendered a decision on the matter. An action
       brought pursuant to this section shall be given precedence over all other
       civil matters on the court’s docket.

Id. (emphasis added). When Kia and Glassman signed the Agreement in 1998, the
“relevant market area” was defined as the area within 6 miles of the proposed new
dealer. However, on August 4, 2010, the Act was amended to extend the distance to 9
miles. See 2010 Mich. Pub. Acts No. 139 (codified at § 445.1566(1)(a)).

       Sixteen days after the 2010 Amendment became effective, Kia informed
Glassman that it intended to establish a new dealer in Troy, Michigan. The new dealer
would be located about 7 miles from Glassman’s location (thus falling within the
“relevant market area” under the 2010 Amendment, but outside the “relevant market
area” when the Agreement was signed in 1998). When Glassman protested that it was
entitled to notice under the Act, Kia filed a declaratory judgment action in the United
States District Court for the Eastern District of Michigan. Kia sought a declaration that
the 2010 Amendment did not require it to give notice to Glassman and did not give
Glassman the right to protest the new dealer. Glassman filed a counter-complaint asking
for the opposite declaration. The parties then filed cross-motions to dismiss and for
judgment on the pleadings.

       The district court granted Kia’s motions and denied Glassman’s motions. It
concluded that when the parties used the term “applicable law” when referring to Kia’s
right to establish a new dealer in Glassman’s Area of Primary Responsibility, they meant
the law in effect in 1998 and did not intend to incorporate future changes in the law. It
No. 12-1202        Kia Motors America v. Glassman                                  Page 5

further determined that the 2010 Amendment did not operate retroactively to affect a
contract entered into before its enactment because the Amendment is substantive—not
procedural—in nature. Kia had argued that applying the 2010 Amendment retroactively
would violate the Contracts Clauses of the Michigan and United States Constitutions,
but because the district court found that the 2010 Amendment was not retroactive, it did
not reach this question. Glassman timely appealed.

                                    II. ANALYSIS

A. Standard of Review

       We review de novo the district court’s grant or denial of a Rule 12(b)(6) motion
to dismiss and a Rule 12(c) motion for judgment on the pleadings.              Tucker v.
Middleburg-Legacy Place, LLC, 539 F.3d 545, 549 (6th Cir. 2008).

B. Glassman’s Contract Argument

       The issue in this case is whether the 2010 Amendment requires Kia to give
Glassman notice. Glassman contends that it does and has advanced both a contract
argument and a statutory argument to support its position. We tackle first the contract
argument and ultimately find that it fails.

       Glassman contends that the parties agreed to comply with subsequent changes
to the Act, including the 2010 Amendment, when they stated that Kia could establish
new dealers in Glassman’s Area of Primary Responsibility “[a]s permitted by applicable
law.” As a preliminary matter, it is not at all clear that this provision is even relevant
here. By its terms, it applies only when the new dealer would be located within
Glassman’s Area of Primary Responsibility. “Area of Primary Responsibility” is solely
a contractual term and is distinct from the statutory term “relevant market area.”
Glassman has never explicitly asserted that the proposed new dealer would be within its
Area of Primary Responsibility, and Kia has assured us that it will not. Additionally,
when read in context, this phrase seems directed more toward reinforcing the
nonexclusive nature of Glassman’s distribution rights than toward restricting Kia’s right
to establish new dealers.
No. 12-1202           Kia Motors America v. Glassman                                            Page 6

         Furthermore, although the parties have not agreed what state’s law governs their
agreement,4 it is a generally accepted rule of construction that “changes in the law
subsequent to the execution of a contract are not deemed to become part of [the]
agreement unless its language clearly indicates such to have been [the] intention of [the]
parties.” 11 Richard A. Lord, Williston on Contracts § 30:23 (4th ed. 1990); see also
Rutherford Farmers Coop. v. MTD Consumer Grp., Inc., 124 F. App’x 918, 920 (6th
Cir. 2005) (applying Tennessee law and quoting Williston). Contracting parties are free
to agree that their rights and duties will track the law as it changes, but because the terms
of their bargain could be significantly altered, they must make their intent to do so clear.
“[A]pplicable law” could just as easily refer to the anti-encroachment statute in effect
when the contract was signed as to the current anti-encroachment statute. Cf. Energy
Reserves Grp., Inc. v. Kan. Power and Light Co., 459 U.S. 400, 416 (1983) (The parties
agreed that “any contractual terms [were] subject to relevant present and future state and
federal law.”) We find here no clear indication that by saying Kia could establish new
dealers “[a]s permitted by applicable law” the parties intended to incorporate future
changes in the law and thus interpret that phrase to refer to the law in effect when the
contract was signed.

         Glassman’s argument that the Agreement as a whole controverts this
interpretation is alluring but ultimately fails. Glassman points out that numerous
provisions in the Agreement define the parties’ duties according to what the law
requires. Two provisions in particular require Glassman to comply with applicable
consumer-protection laws and applicable safety and emission-control laws. Kia agrees
that these provisions require Glassman to comply with current laws, not just the laws in
effect when the Agreement was signed. Therefore, argues Glassman, the Agreement
should be interpreted to also require Kia to comply with the current anti-encroachment
law.

         4
          The Agreement provides that it shall be governed by and construed according to California law,
but the parties have indicated that this choice-of-law provision might be rendered void by Michigan
Compiled Laws Section 445.1573(h).
No. 12-1202        Kia Motors America v. Glassman                                   Page 7

       But we cannot ignore the important distinction between the provision at issue
here and the other provisions that reference applicable law. Those other provisions
primarily concern Glassman’s responsibility, as a car dealer, to comply with generally
applicable laws and regulations. In contrast, the provision at issue here directly concerns
the relationship between Kia and Glassman. The 2010 Amendment would alter a key
aspect of the parties’ bargain—the nonexclusive nature of Glassman’s distribution rights
and Kia’s right to establish new dealers. Amendments to consumer-protection and
emission-control laws, on the other hand, alter Glassman’s responsibilities vis-à-vis the
general public; they do not significantly change the parties’ bargain. Therefore, there
is a fundamental difference between the provision at issue here and the other provisions
that incorporate applicable law, and our interpretation does not conflict with the rest of
the Agreement.

C. Glassman’s Statutory Argument

       Having determined that the Agreement does not incorporate the 2010
Amendment, we turn next to Glassman’s statutory argument. We must decide whether
the 2010 Amendment operates retroactively to change Kia’s obligations under the
Agreement. We conclude that it does not.

       In Michigan, the question of whether a statute should be applied retroactively or
only prospectively is a question of legislative intent. Frank W. Lynch & Co. v. Flex
Technologies, Inc., 624 N.W.2d 180, 182 (Mich. 2001). But there is a presumption that
statutes operate only prospectively “unless the contrary intent is clearly manifested.” Id.
(quotation omitted). This presumption holds “especially true if retroactive application
of a statute would impair vested rights, create a new obligation and impose a new duty,
or attach a disability with respect to past transactions.” Id. The Michigan Supreme
Court has repeatedly observed that the Michigan Legislature “knows how to make clear
its intention that a statute apply retroactively,” so the absence of express retroactive
language is a strong indication that the Legislature did not intend a statute to apply
retroactively. See Brewer v. A.D. Transport Express, Inc., 782 N.W.2d 475, 478 (Mich.
2010) (quoting Frank W. Lynch & Co., 624 N.W.2d at 183). The “requirement that the
No. 12-1202        Kia Motors America v. Glassman                                   Page 8

Legislature make its intention clear” “is especially true when a new statutory provision
affects contractual rights, an area ‘in which predictability and stability are of prime
importance.’” Frank W. Lynch & Co., 624 N.W.2d at 184 (quoting Landgraf v. USI
Film Prod., 511 U.S. 244, 271 (1994)).

       There is an exception to the presumption against retroactivity when a statute can
be classified as remedial or procedural. Id. at 183. “[S]tatutes which operate in
furtherance of a remedy or mode of procedure and which neither create new rights nor
destroy, enlarge, or diminish existing rights are generally held to operate retrospectively
unless a contrary legislative intent is manifested.” Id. (quotation omitted). Although
Michigan courts describe the exception as encompassing laws that are either remedial
or procedural, in this context the terms essentially mean the same thing—laws that are
procedural in nature and do not create or destroy substantive rights. See id.; see also
Dale Baker Oldsmobile, Inc. v. Fiat Motors of North America, Inc., 794 F.2d 213, 217
(6th Cir. 1986) (“[R]emedial statutes involve procedural rights or change the procedures
for effecting a remedy. They do not, however, create substantive rights that had no prior
existence in law or contract.”).

       We have previously determined that another section of the Motor Dealers Act
operates prospectively only. See Dale Baker Oldsmobile, 794 F.2d at 219-20. In Dale
Baker Oldsmobile, the issue was whether a section that expanded a dealer’s rights upon
the termination of a dealer agreement applied retroactively to contracts executed before
the enactment of the statute. Id. at 215. Among other things, the new section required
the manufacturer to pay the dealer an amount equal to one year’s rental value of the
dealership premises. Id. After reviewing several Michigan cases dealing with issues of
retroactivity, we concluded that the new section would impose substantive duties on the
manufacturer and award substantive rights to the dealer and thus should not be applied
retroactively. Id. at 219-20.
No. 12-1202           Kia Motors America v. Glassman                                         Page 9

        The 2010 Amendment is silent as to whether it operates retroactively or only
prospectively.5 There is thus no clear legislative intent that the Amendment should be
applied retroactively. The only remaining question, then, is whether the exception for
procedural or remedial laws applies.             In other words, is the 2010 Amendment
substantive?

        Glassman argues that the 2010 Amendment is procedural because it constituted
a “minor change” to the definition of “relevant market area” and “did not impose any
new legal duties on Kia that had not already existed in the prior version nor did it create
new substantive rights for an existing dealer, such as Glassman.” Appellant Br. 32, 37.
For support, it cites a decision from the Michigan Supreme Court in which that court
held that an amendment to the Mechanics’ Lien Act extending the time for filing a lien
from 60 days to 90 days was procedural and thus applied retroactively. See Hansen-
Snyder Co. v. Gen. Motors Corp., 124 N.W.2d 286, 288 (Mich. 1963). The court
reasoned that since the right to acquire a lien was not affected, the only change
“pertained solely to [the] procedure for effectuating the statutory right already existing.”
Id.

        But the amendment in Hansen-Snyder is not analogous to the 2010 Amendment.
Before the Amendment, the statute allowed Kia to establish a new dealer more than six
miles from Glassman without restriction. After the Amendment, Kia must provide
notice before doing so, and that notice allows Glassman to bring a declaratory judgment
action to protest the new dealer. Clearly, the Amendment imposes a new substantive
duty and provides a new substantive right that did not previously exist. Rather than
change the mechanics or time frame for objecting to a new dealer, the Amendment gives
Glassman the substantive right to object. Therefore, it cannot be viewed as procedural,
and the presumption against retroactivity applies.

        5
          In an amendment to another section of the Act, enacted on the same day as the 2010
Amendment, the Legislature explicitly provided that the amendment would apply to dealer agreements in
existence on the effective date of the amendment. See 2010 Mich. Pub. Act No. 141 (codified at Mich.
Comp. Laws § 445.1574(1)(x)).
No. 12-1202           Kia Motors America v. Glassman                                         Page 10

        Before leaving the issue of retroactivity we must briefly dispose of Glassman’s
two remaining arguments, both of which are similar to arguments we have rejected in
previous opinions. First, Glassman disputes that a retroactivity issue even exists in this
case. Since Kia sought to establish the new dealer after the 2010 Amendment, argues
Glassman, requiring Kia to comply with the Amendment would require applying it
prospectively only. However, this argument ignores the fact that the Amendment affects
Kia’s rights under a contract that predates the Amendment, and we therefore rejected it
in a prior case. See Bob Tatone Ford, Inc. v. Ford Motor Co., 197 F.3d 787, 792 (6th
Cir. 1999) (applying Ohio law). A statute operates retroactively when it “‘takes away
or impairs vested rights acquired under existing laws.’” Landgraf, 511 U.S. at 269
(quoting Soc’y for Propagation of the Gospel v. Wheeler, 22 F. Cas. 756, 767 (No.
13,156) (C.C.D.N.H. 1814) (Story, J.)). To require Kia to comply with the 2010
Amendment would clearly require us to apply the Amendment retroactively because it
would take away Kia’s previously unrestricted contractual right to establish a new dealer
more than 6 miles from Glassman. See Dale Baker Oldsmobile, 794 F.2d at 219-20
(indicating that a statute would operate retroactively if it impacted a pre-existing
contract, even though the conduct it regulated post-dated the statute); Byjelich v. John
Hancock Mut. Life Ins. Co., 36 N.W.2d 212, 215 (Mich. 1949) (same).6

        Second, Glassman disputes that Kia has a vested contractual right that would be
affected by the 2010 Amendment. It argues that Kia’s right to establish a new dealer
was just a statutory right, which according to Glassman is not a vested right. But this
argument ignores the Agreement, and we have rejected it before. See Dale Baker
Oldsmobile, 794 F.2d at 220 (“This argument ignores the fact that defendant acquired
contract rights at the time the parties entered the dealer agreement.”). The Agreement
expressly gave Kia the right to establish new dealers. Since in 1998 the law only
restricted Kia’s right to establish new dealers within 6 miles of Glassman’s location, Kia

        6
          Glassman cites two cases from the Michigan Court of Appeals for this point, neither of which
are persuasive or merit discussion. We have already declined to follow the approach taken in Anderson’s
Vehicle Sales, Inc. v. OMC-Lincoln, 287 N.W.2d 247 (Mich. Ct. App. 1979). See Dale Baker Oldsmobile,
794 F.2d at 218. The issue in LaFontaine Saline Inc. v. Chrysler Group LLC, No. 307148, 2012 Mich.
App. Lexis 2378 (Mich. Ct. App. Nov. 27, 2012) was whether a letter of intent qualifies as a dealer
agreement, and the court never addressed a potential retroactivity issue.
No. 12-1202        Kia Motors America v. Glassman                                 Page 11

had an unrestricted contractual right to establish new dealers outside that radius. Clearly
the 2010 Amendment would affect that contractual right because it would require Kia
to give Glassman notice.

D. Kia’s Constitutional Argument

       Kia contends that applying the 2010 Amendment retroactively would violate the
Contracts Clauses of the United States and Michigan Constitutions because its
unrestricted contractual right to establish a new dealer outside the 6-mile radius would
be impaired. The fact that retroactive application would raise a significant constitutional
question provides an additional reason for applying the 2010 Amendment prospectively
only. See Dale Baker Oldsmobile, 794 F.2d at 221 (“A state statute, which has not been
authoritatively construed by the state court, should be construed in a manner which will
avoid such constitutional questions.”). Because we hold that the 2010 Amendment is
not retroactive, we need not reach the constitutional issue.

                                  III. CONCLUSION

       In sum, we agree with the district court that the Agreement did not incorporate
future changes in the anti-encroachment law and that the 2010 Amendment is not
retroactive. We therefore AFFIRM the order granting Kia’s motion to dismiss and for
judgment on the pleadings and denying Glassman’s motion.