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

Massive Change 22 STATES AMENDED THEIR DEALER LAWS IN 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?

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?

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

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.

What did the Legislature intend? IS THERE A STATEMENT IN EITHER THE STATUTE OR THE LEGISLATIVE HISTORY REGARDING RETROACTIVITY? FOR EXAMPLE: VEHICLE CODE (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.”

Section (c) VEHICLE CODE SECTION (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?

Section (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?

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

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

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

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?

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.

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

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

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

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.

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?

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?

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

Thank you.