Summary of a Recent
Judicial Development in
Commercial Transactions

Law to Protect Dealers from Termination Without Cause Applied
to Open-Ended Contracts Made Prior to Law's Passage

Eric H. Foy,
National AgLaw Center Research Associate

Summary of Decision

In John Deere Construction and Forestry Co. v. Reliable Tractor, Inc., 957 A.2d 595 (Md. 2008), the Maryland Court of Appeals, in response to a certified question from the United States District Court for the Middle District of Georgia, held that a Maryland law prohibiting suppliers from terminating dealer contracts without good cause applied to open-ended contracts entered into prior to the law's passage.

Background

Plaintiff (Reliable Tractor) was an authorized dealer of John Deere Company (John Deere) pursuant to an agreement of the parties from 1984. Id. at 597. The agreement allowed John Deere to terminate the relationship with Reliable Tractor without cause by providing 120 days notice. Id. On March 27, 2007, John Deere attempted to terminate Reliable Tractor with a notice of termination in compliance with the agreement. Id. In 1987, prior to the attempted termination but after the parties entered into the dealer agreement at issue, Maryland enacted the Equipment Dealer Contract Act, which provides that equipment suppliers cannot terminate dealer agreements without good cause. Id. Reliable Tractor filed a complaint in United States district court seeking a declaratory judgment stating that John Deere's attempted termination violated the Equipment Dealer Act. Id. The court then certified the following question to the instant court: "Whether the Maryland Equipment Dealer Act's good cause provision applies to the termination of a dealer agreement where the dealer agreement was entered into before the good cause provision was enacted but the alleged without cause termination occurred after the good cause provision was enacted." Id.

Arguments

Reliable Tractor argued that termination without cause by John Deere was prohibited by the Equipment Dealer Act. Id.

John Deere contended "that the Equipment Dealer Act's good cause provision [did] not apply . . . because the good cause provision was enacted after the dealer agreements . . . were executed, and Maryland law [did] not permit the retroactive application of law in the absence of clear legislative intent." Id. at 597-98.

Analysis and Holdings

The court did not reach the retroactive application issue because it held that the application of the good cause provision to the contracts at issue was prospective rather than retroactive. Id. at 598. In Maryland, statutes operate prospectively unless there is evidence of a contrary intent. Id. at 599. In making this determination, the court focused heavily on the open-ended nature of the agreements between the two parties. Id. at 600. Because the open-ended contracts automatically renewed, the agreement was viewed as a succession of renewable contracts lasting 120 days. Id. at 602. Finding that the attempted termination took place after the statute was enacted and after the statute was incorporated into the agreement through its automatic renewals, the court held Deere's attempted termination without cause was subject to Maryland's Equipment Dealer Contract Act. Id. at 602-03.

The case was decided on September 15, 2008.