Kia Motors America, Inc. v. Glassman Oldsmobile Saab Hyundai, Inc.

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

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Plaintiff-Appellee, -

KIA MOTORS AMERICA, INC.,

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No. 12-1202

v.

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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.

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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.

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OPINION

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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

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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.