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STATE OF NEW HAMPSHIRE

SUPREME COURT

CASE NO. 2014-0315

Deere & Company & a.v. State of New Hampshire

CASE NO. 2014-0441

Kubota Tractor Corporation v. State of New Hampshire

CASE NO. 2014-0575

Husqvarna Professional Products, Inc. v. State of New Hampshire.

BRIEF OF AMICUS CURIAE

On behalf of

ASSOCIATION OF EQUIPMENT MANUFACTUERS

May 8, 2015

ASSOCIATION OF EQUIPMENT MANUFACTURERS.

By their attorneys,

Jason R.L. Major. (Bar #14782)

Charles G. Douglas, III, Esq. (Bar #669)

DOUGLAS, LEONARD & GARVEY, P.C.

14 South Street, Suite 5

Concord, NH 03301

(603) 224-1988

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TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW ................................................................................. 1

CONSTITUTIONAL PROVISION, STATUTES, ORDINANCES, RULES OR

REGULATIONS............................................................................................................................. 1

STATEMENT OF THE CASE AND INTEREST OF AMICUS CURIAE .................................. 1

CONCISE STATEMENT OF UNDERLYING FACTS ................................................................ 4

SUMMARY OF THE ARGUMENT ............................................................................................. 4

ARGUMENT .................................................................................................................................. 5

CONCLUSION ............................................................................................................................. 34

REQUEST FOR ORAL ARGUMENT ........................................................................................ 34

CERTIFICATE OF SERVICE ..................................................................................................... 35

ADDENDUM TABLE OF CONTENTS…………………………………………………..……36

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TABLE OF AUTHORITIES

Cases

Alliance of American Insurers v. Chu, 571 N.E.2d 672 (1991) ..................................................... 7

Allied Structural Steel Co. v. Spannaus, 438 U.S. 234 (1978) ..................................................... 20

Baltimore Teachers Union v. Mayor, Etc. of Baltimore, 6 F.3d 1012 (4th

Cir. 1993) .................. 20

Blaisdell, 290 U.S. at 427-28 .............................................................................................. 7, 19, 32

Bricklayers Union Local 21 v. Edgar, 922 F. Supp. 100, 106 (N.D.Ill.1996) .............................. 20

Chrysler Corp. v. Kolosso Sales, Inc., 148 F.3d 892 (1st Cir. 1997)). .............................. 25, 27, 29

Cloverdale Equip. Co. v. Manitowic Engineering Co., 964 F. Supp. 1152 (E.D. Mich 1997) .... 31

Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400 (1983) ............... 20, 30

Equipment Mfg. Institute v. Janklow, 300 F.3d 842 (8th

Cir. 2002) ............................................. 23

Fireside Chrysler-Plymouth Mazda, Inc. v. Chrysler Corp., 472 N.E.2d 861 (Ill. App. 1984) .... 25

Fog Motorsports No. 3, Inc. v. Arctic Cat Sales, Inc., 159 N.H. 266 (2009). .............................. 16

Fornaris v. Ridge Tool Co., 423 F.2d 563 (1st Cir. 1970) ...................................................... 24, 25

Holiday Inns Franchising v. Branstad, 29 F.3d 383 (8th

Cir. 1994) ........................................ 23, 33

Home Building & Loan Assn. v. Blaisdell, 290 U.S. 398 (1934) .................................................. 7

In re Goldman & Elliot, 151 N.H. 770, 773 (2005) ........................................................................ 7

In re Seltzer, 104 F.3d 234 (9th

Cir. 1996) .............................................................................. 30, 32

Kendall-Jackson Winery, Ltd. V. Branson, 82 F. Supp. 844 (N.D. Ill. 2000) .............................. 25

Lower Village Hydroelectric Assocs. 147 N.H. 73 (2001)............................................................. 6

McDonald’s Corp. v Nelson, 822 F. Supp. 597 (S.D. Iowa 1993) ......................................... 22, 26

Mercado-Boneta v. Admin. Del Fondo de Compensacion, 125 F.3d 9 (1st Cir. 1997) ................ 32

Opinion of the Justices, 113 N.H. 201 (1973) .............................................................................. 31

Reliable Tractor v. John Deere Constr. & Forestry Co., 376 Fed. Appx. 938 (11th

Cir. 2010)…24,

25

Roberts v. General Motors Corp., 138 N.H. 532 (1994) .............................................................. 31

Smith Insurance v. The Grievance Committee, 120 N.H. 856 (1980) .......................................... 21

State v. Vashaw, 113 N.H. 636 (1973) ................................................................................... 19, 29

Superior Motors, Inc. v. Winnebago Indus., Inc., 359 F. Supp. 773 (D.S.C. 1973) ....................... 7

Tuttle v. N.H. Med. Malpractice Joint Underwriting Assoc., 159 N.H. 627 (2010) ............. passim

White Motor Corp v. Malone, 599 F.2d 283 (8th

Cir. 1979) ........................................................ 33

Worthen Co. Kavanaugh, 295 U.S. 56 (1935). ............................................................................... 7

Statutes

RSA 347-A............................................................................................................................. passim

RSA 357-C ............................................................................................................................. passim

RSA 357-C:1, I-XXX ..................................................................................................................... 8

RSA 357-C:1, XXI........................................................................................................................ 12

RSA 357-C:12 ................................................................................................................................. 8

RSA 357-C:15 ................................................................................................................................. 8

RSA 357-C:7 ..................................................................................................................... 10, 15, 16

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Other Authorities

Article 23 of the New Hampshire Constitution .............................................................................. 2

Article I, § 10 of the U.S. Constitution, and Part I ......................................................................... 2

N.H. Const., Part I, Article 23......................................................................................................... 5

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QUESTIONS PRESENTED FOR REVIEW

A. Whether the trial court erred in ruling that 2013 Laws, ch. 130 (SB 126) does not

violate Part I, Article 23 of the New Hampshire Constitution or Article 1, Section 10 of the

United States Constitution? Supp. at 1; App. at 118-79.

B. Whether the trial court erred in ruling that 2013 Laws, ch. 130 (SB 126) is not

wholly preempted by the Federal Arbitration Act and the Supremacy Clause of the United States

Constitution because mandatory arbitration of disputes is wholly inconsistent with RSA 357-C?

Supp. at 13-14; App. at 118-79, 390, 418-21.

CONSTITUTIONAL PROVISION, STATUTES, ORDINANCES, RULES OR

REGULATIONS

See above Table of Authorities.

STATEMENT OF THE CASE AND INTEREST OF AMICUS CURIAE

A. Statement of the Case:

On June 25, 2013, Governor Hassan signed SB126 into law. SB 126 (codified at 2013

Laws, ch. 130) repealed RSA 347-A, which was enacted in 1995 and formerly provided for

relatively narrow, “hands off” regulation of the business arrangements between manufacturers of

construction and agricultural equipment and their dealers located in New Hampshire. In place of

the long-standing rules for off-road equipment dealerships existing under RSA 347-A, SB 126

expanded RSA 357-C (the “Auto Dealers Bill of Rights”), a broad and complex statutory scheme

intimately governing the relations between automobile manufacturers and auto dealerships, to

include the equipment manufacturers previously governed by RSA 347-A. Manufacturers of

riding lawn mowers, farm tractors, power take-off equipment, and heavy construction

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equipment, and their contractual relationships with their New Hampshire dealers, are now

retroactively treated like auto manufacturer/dealer relationships.

Several manufacturers of farm, construction, yard and garden equipment filed suit to

declare the changes required by SB126 unconstitutional under Article I, § 10 of the U.S.

Constitution, and Part I, Article 23 of the New Hampshire Constitution, because they constituted

severe, retroactive impairments to their existing contracts with New Hampshire dealers. A

preliminary injunction was granted in favor of the equipment manufacturers on September 19,

2013. Both the State of New Hampshire and the equipment manufacturers moved for summary

judgment in November, 2013. The Superior Court (Smukler, J.) granted summary judgment to

the State, holding that the plaintiffs’ contracts were not substantially impaired or, if they were,

that the State had shown reasonable necessity for the impairments based on legitimate public

purposes.

The equipment manufacturers timely filed their appeal in June of 2014. The Association

of Equipment Manufacturers, an industry trade group representing the interests of manufacturers

of construction and farm equipment around the country, moved for, and was granted leave to file

this brief as Amicus Curiae.

B. Interest of Amicus Curiae, Association of Equipment Manufacturers:

The Association of Equipment Manufacturers (“AEM”) is a non-profit trade association

comprised of more than 850 member companies engaged in the manufacture and sale of mobile,

portable, and hand-held equipment used in the construction, agriculture, equipment, forestry, and

mining industries and products and services related to these industries. AEM is committed to,

inter alia, enhancing the competitiveness of manufacturers by shaping an environment conducive

to economic growth and to increasing understanding amongst policymakers, the media, and the

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general public regarding the vital role of equipment manufacturing to America’s economic future

and standard of living.

Additionally, AEM conducts surveys of the United States economic “footprint” of

various industries, including the economic supply, income and jobs created by them. See, e.g.,

The Economic Footprint of the Agricultural Equipment Industry: Report to the Association of

Equipment Manufacturers, Inforum at the University of Maryland, February 2014, App. p. 37.

The Economic Footprint of the Construction Equipment Industry on the U.S. Economy: Report to

the Association of Equipment Manufacturers, Inforum at the University of Maryland, August

2014. App. p. 67. AEM therefore has a unique vantage point regarding the impact and

application of state equipment dealership statutes not only from an industry standpoint, but also

from practical and economic standpoints as well. AEM therefore seeks to address issues of

interest and importance to equipment manufacturers at all government levels.

This case presents just such an issue. Most of AEM’s manufacturer members distribute

their products through independent dealers located throughout the world. Over the decades, these

manufacturers and their dealers have developed solid business relationships that have stood the

test of time and the marketplace. The contracts that have evolved are a function of the type of

products, the nature of their markets and their combined experience.

The contracts that AEM’s members in the construction and agricultural, equipment

manufacturing industries have with their dealers have also been shaped by a combination of

mutual negotiation and state dealership statutes. Such dealership statutes exist in nearly all of the

fifty states, including New Hampshire. Accordingly, AEM’s members have considerable

familiarity with the intent, interpretation, and appropriate application of these statutes around the

country. Based on its members’ extensive practical experience, AEM is uniquely suited to

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explain the large-scale impact of SB126 on existing relationships and contracts between

equipment manufacturers and dealers, and why the Superior Court’s decision should be reversed

in this case.

CONCISE STATEMENT OF UNDERLYING FACTS

AEM defers to the Appellants’ Statement of Facts as set forth in their Appeal Brief.

SUMMARY OF THE ARGUMENT

SB126 constitutes a wholesale, retroactive evisceration and replacement of the mutually-

agreed upon contracts between equipment manufacturers and their dealers. It therefore violates

the “contracts clauses” of both the Federal and New Hampshire Constitutions. The changes

forced upon the contracts between manufacturers and their dealers contain changes that, even

singly, constitute “substantial impairments” of those contracts. Taken in total, the changes

required by SB126 amount to a total destruction of those pre-existing contracts between the

manufacturers and their New Hampshire dealers.

These changes were not part of a foreseeable, gradual evolution in regulation of the

relationships between equipment manufacturers and dealers. Rather than an evolution in

regulation, SB126 constitutes an unexpected and unwarranted revolution in regulation.

Moreover, the complete upheaval in the relationships between manufacturers and dealers

required by SB126 is not justified by any important governmental interest in addressing

widespread societal or economic harms. Rather, the passage of SB126 was driven by special

interest groups with an admitted desire to “level the playing field” between equipment

manufacturers and their dealers – a purpose which does not pass constitutional muster under the

contracts clauses of the New Hampshire or Federal Constitutions.

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The adoption of SB126, which forces equipment manufacturers into an inapplicable

dealership model intended to apply to automobile sellers, is likely to cause irreparable harm to

the existing relationships between the manufacturers and their New Hampshire dealers.

Equipment manufacturers may need to evaluate whether they can continue to do business

through separately-owned dealerships in New Hampshire at all. This obviously may have an

immediate economic impact on those New Hampshire dealers, the scope of which is not yet fully

understood.

ARGUMENT

I. SB126 VIOLATES THE “CONTRACTS CLAUSES” OF THE U.S. AND

NEW HAMPSHIRE CONSTITUTIONS BECAUSE IT SUBSTANTIALLY

IMPAIRS EXISTING CONTRACTS BETWEEN EQUIPMENT

MANUFACTURERS AND THEIR DEALERS

The “Contracts Clause” of the United States Constitution, Article I, § 10, provides that

“[n]o state shall … pass any … law impairing the obligation of contracts.” New Hampshire’s

Constitution has an equivalent provision, which reads “Retrospective laws are highly injurious,

oppressive, and unjust. No such laws, therefore, should be made, either for the decision of civil

causes, or punishment of offenses.” N.H. Const., Part I, Article 23. While Part I, Article 23 does

not explicitly reference existing contracts, the New Hampshire Supreme Court has held that “its

proscription duplicates the protections found in the contracts clause of the United States

Constitution.” Tuttle v. N.H. Med. Malpractice Joint Underwriting Assoc., 159 N.H. 627, 640

(2010). Moreover, this Court has “relied upon federal contract clause cases to resolve issues

raised under Part I, Article 23 where contract impairment, and not simply retroactive application

of a law, was alleged. Id. at 640-41. The Court therefore has treated “Article I, Section 10 [of the

Federal Constitution] and Part I, Article 23 [of the State Constitution] to offer equivalent

protections where a law impairs a contract….” Id. at 641.

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Contract Clause analysis under New Hampshire law involves a three part inquiry to

determine whether legislation operates as a “substantial impairment of a contractual

relationship.” The three parts of the inquiry are “whether there is a contractual relationship,

whether a change in law impairs that relationship, and whether the impairment is substantial.”

Tuttle, 159 N.H. at 641(quoting Lower Village Hydroelectric Assocs. v. City of Claremont, 147

N.H. 73, 77 (2001)). If the legislation is determined to substantially impair a contract, “a

balancing of the police power and the rights protected by the contract clauses must be performed,

and [the] law … may pass constitutional muster only if it is reasonable and necessary to serve an

important public purpose.” Furlough, 135 N.H. at 634 (quotation omitted).

A. It is Undisputed that Equipment Manufacturers Selling their Products in

This State Had Pre-Existing Contractual Relationships With their New

Hampshire Dealers

It is not disputed that the equipment manufacturers who are parties to this case had

dealership agreements with their New Hampshire dealers that pre-existed the passage of SB126.

However, the impact of SB126’s enactment, and the resulting inclusion of all manufacturers of

construction, agricultural, yard and garden machinery under the complex umbrella of RSA 357-C

obviously impacts companies who are not named parties. Dealership agreements like those at

issue in this case are utilized by the vast majority of equipment manufacturers in this country to

establish the unique and mutually beneficial parameters of their relationships with independent

dealers. The unconstitutional impact of SB126 therefore reaches well beyond the named parties

of this case.

B. The Changes In Law Enacted Under SB126 Impair the Pre-Existing

Contractual Relationships Between the Equipment Manufacturers and Their

New Hampshire Dealers

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While this Court has stated that it generally appreciates the power of the legislature to

“change, modify and repeal existing law, and to enact new laws,” it has made clear that “in light

of the constitutional prohibition against retrospective laws, such legislative power is not without

restriction.” In re Goldman & Elliot, 151 N.H. 770, 773-74 (2005). “This doctrine reflects the

deeply rooted principles that persons should be able to rely on the law as it exists and plan their

conduct accordingly and that the legal rights and obligations that attach to completed

transactions should not be disturbed.” Tuttle, 159 N.H. at 648 (quoting Alliance of American

Insurers v. Chu, 571 N.E.2d 672, 678 (1991)). Legislation which makes “material alterations in

the character, terms, or legal effect of an existing contract impairs the obligations of that

contract.” Superior Motors, Inc. v. Winnebago Indus., Inc., 359 F. Supp. 773, 777 (D.S.C. 1973).

Further, “a statute imposing added conditions or duties on parties to a contract is void if it

produces a change in the obligations or substantial rights of a party.” Id.

The law in effect at the time parties agree to a contract becomes part of their agreement,

and their contract must be interpreted in light of it when determining whether new legislation

impairs the contract. “To know the obligation of a contract we look into the laws in force at its

making.” Worthen Co. Kavanaugh, 295 U.S. 56, 60 (1935). “[T]he laws which subsist at the

time and place of the making of a contract, and where it is to be performed, enter into and form a

part of it, as if they were expressly referred to or incorporated into its terms.” Home Building &

Loan Assn. v. Blaisdell, 290 U.S. 398, 429-30 (1934).

RSA 347-A (“Regulation of Equipment Dealerships”) was enacted in 1995. Prior to that

time there was no New Hampshire statutory scheme providing any legislative guidance to the

relationship between equipment manufacturers and their independent dealers in New Hampshire.

RSA 347-A set forth an exceedingly simple regulatory scheme, consisting of just eleven

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statutory sections occupying only eight (8) pages of text in the written RSA volumes. The

definitions section under RSA 347-A:1 defined only seven terms. The substantive provisions

addressed the following subjects:

• Providing notice of termination of dealer agreements (RSA 347-A:2);

• A manufacturer’s duties and obligations with regard to repurchasing inventory

upon termination (RSA 347-A:3-A:5);

• Transfer of a dealership’s ownership interest to another (RSA 347-A:6); the

application of uniform commercial practice regarding security interests (RSA

347-A:7);

• The timing of payment of warranty claims (RSA 347-A:8);

• Expressly providing for arbitration as binding method of dispute resolution (RSA

347-A:9);

• Prohibiting waiver of the chapter (RSA 347-A:10); and

• Obligations of successors in interest (RSA 347-A:11).

By contrast, RSA 357-C, under which equipment manufacturers are now governed via

SB126, has sixteen subsections covering more than forty (40) pages of the written RSA volume.

The definitions section alone contains at least thirty separate defined terms. See RSA 357-C:1, I-

XXX. There is a “New Hampshire Motor Vehicle Industry Board” with authority to conduct

hearings and otherwise enforce provisions of the Act. See RSA 357-C:12. There is also a

misdemeanor level criminal penalty established for violations of the Act. See RSA 357-C:15. A

non-exhaustive list of new obligations, limitations, and other changes forced upon the pre-

existing contractual arrangements between equipment manufacturers and their independent New

Hampshire dealers includes, but is not limited to:

1. Manufacturers may no longer sell any new equipment at a lower price than the price

offered to any other dealer for the same model similarly equipped. RSA 357-C:3, III (e).

2. Manufacturers may no longer sell or lease any new model at a lower price than the

price charged a dealer for the same model similarly equipped. RSA 357-C:3, III (f).

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3. Manufacturers may no longer prevent or attempt to prevent a dealer from changing the

dealership’s capital structure or financing unless the capital standard used is mutually

agreed to and is “reasonable.” RSA 357-C:3, II (h).

4. Manufacturers may no longer prevent or attempt to prevent any transfer of ownership

in a dealership to which the manufacturer would not have to reasonably consent. RSA

357-C:3, III (i).

5. Manufacturers may no longer compete with a dealer in the relevant market area, with

certain exceptions for government sales and other transactions. RSA 357-C:3, III (k) and

III (b); RSA 357-C:9.

6. Manufacturers may no longer grant a competitive franchise in the “relevant market

area” of an existing franchisee unless authorized in limited circumstances by Ch. 357-C.

Id.

7. Manufacturers may no longer impose “unreasonable” restrictions on a dealer relating

to transfer, sale, right to renew, termination, discipline, noncompetition covenants, site-

contract, right of first refusal or option to purchase, compliance with subjective standards,

or assertion of any legal or equitable rights. RSA 357-C:3, III (n).

8. Manufacturers may no longer change a dealer’s relevant market area without “good

cause.” RSA 357-C:3, III (o).

9. Manufacturers may no longer require a franchisee to agree to any contract term which

waives a jury trial, specifies venue for dispute resolution, requires arbitration of disputes,

requires payment of franchisor’s attorney fees under any circumstances, or gives the

franchisor an option to purchase the franchise. RSA 357-C:III (p).

10. Manufacturers may no longer require a dealer to relocate, expand, improve, remodel or

alter the dealer’s facilities, or provide for manufacturer-exclusive facilities, with certain

exceptions. RSA 357-C:3, III (q) & V (a).

11. Any manufacturer’s right of first refusal to acquire the dealership is valid only if it

meets numerous restrictions and limitations imposed in Ch. 357-C. RSA 357-C:3, III (s).

12. Manufacturers may no longer require a dealer to purchase a model type as a condition

to purchasing another model type. RSA 357-C:3, III (t).

13. Manufacturers may no longer evaluate a dealer’s performance by using a measurement

that differentiates between sales in the dealer’s territory, and sales outside the dealer’s

territory. In addition, the manufacturer shall provide the dealer with all information, data,

evaluations, methodology or other items that the manufacturer considered for the dealer’s

performance evaluations. RSA 357-C:3, III (u).

14. Manufacturers may no longer require adherence to any performance standard or sales

objective that is not applied uniformly to all similarly situated dealers; and is also fair,

reasonable, equitable and based on accurate information. The manufacturer has the

burden to prove a performance standard or sales objective complies. The dealer may

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object to any measurement by filing a complaint with the Motor Vehicle Industry Board

for a ruling. RSA 357-C:3, III (v).

15. Manufacturers may no longer obligate the dealer to sell any extended service contract,

maintenance plan, policy or other service provided by the manufacturer, or have the dealer

sell or transfer any dealer retail sales contract or lease to the manufacturer, or its financing

arm or other related entity. RSA 357-C:3, III (x).

16. The Act severely restricts the manufacturer’s ability to specify or request any site

contract or exclusive use agreements to the franchisee. RSA 357-C:3, II (y).

17. Manufacturers may no longer require a dealer to floor plan any of dealer’s inventory,

or finance its facilities or operations, through any financial source designated by the

manufacturer. RSA 357-C:3, III (z).

18. Manufacturers may no longer require the dealer to change the dealership location, alter

facilities, construct or renovate its facilities, or add or replace signage unless such action is

reasonable and justifiable in light of numerous conditions and factors listed in the Act. In

most cases, no manufacturer-mandated changes in facilities may be required until 15 years

after the dealer obtained a certificate of occupancy for the facility. RSA 357-C:3, V (a) –

(e).

19. A manufacturer must now provide the dealer with access to, and copies of, its “dealer

file” each calendar year. The dealer file includes all documents (hard copy and electronic

form) in the manufacturer’s possession that are in any way related to a dealer’s

compliance with the franchise agreement or the manufacturer’s standards. RSA 357-C:3-a.

20. Manufacturers are now prohibited from recovering all or any portion of its costs for

compensating dealers in the state for warranty parts and labor, including an increase in

wholesale price of a vehicle or by reduction in the amount due to the dealer, or by change,

surcharge or other imposition. RSA 357-C:5.

21. Manufacturers are now prohibited from requiring a dealer to agree to eight specific

provisions in order for the dealer to sell a retail installment contract, lease or loan to the

manufacturer’s captive finance company. RSA 357-C:6-a, II.

22. Manufacturer may no longer terminate, cancel or fail to renew a franchise or dealer

agreement without proper notice to the dealer and “good cause.” In addition, in most

cases the Motor Vehicle Industry Board must find, after a formal hearing, that there is

“good cause for termination.” Dealers are provided with 180 days to remedy most

deficiencies that would justify a termination or cancellation of a dealership agreement.

RSA 357-C:3, III (c); RSA 357-C:7.

23. Equipment manufacturer/dealer relationships are now overseen by a Motor Vehicle

Industry Board. Any dealer may file a written complaint with the Board, complaining that

a manufacturer’s conduct violates any provisions in Ch. 357-C. The Board will hold a

public hearing and issue a decision. Alleged violations of some provisions entitles the

parties to engage in discovery as provided in a Superior Court civil suit. Attorneys fees

may be awarded if the Board finds a violation of Ch. 357-C. RSA 357-C:12.

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Even this lengthy list is not exhaustive of the changes that SB 126 forces on equipment

manufacturers’ agreements with their New Hampshire dealers.

Plaintiffs in this case have listed at least ten separate impairments of their pre-existing

agreements with their New Hampshire dealers. The impairments listed by the plaintiffs in

relation to their contracts with their dealers in this State are not unique to them. Because of the

pre-existing regulatory backdrop of RSA 347-A, shaping by market forces, and long-tested

methods of how to do business efficiently, the vast majority of equipment manufacturers selling

their products through independent dealerships in New Hampshire will face similar impairments

to their contracts.

The plaintiffs identified the following as direct impairments of their existing contracts

with their dealers, which should be considered by the Court as impacting the majority of

equipment manufacturers doing business through dealerships in this State:

i. Dealership Area

The concepts of “dealership area” and “relevant market area” were not regulated under

RSA 347-A. Because dealership or market area was not regulated under the previous statutory

scheme, equipment manufacturers and their New Hampshire dealers commonly negotiated these

aspects of their contracts based on mutual understandings of their respective roles and market

forces. It is common in the industry for manufacturers to reserve the right to enlarge or reduce a

dealer’s dealership area in their dealership contracts.

This right reserved to equipment manufacturers under their pre-SB126 contracts is

vitiated by the retroactive application of RSA 357-C:3, III, which makes it an “unfair and

deceptive practice” for equipment manufacturers to make changes to a dealer’s market area

without “good cause.” Moreover, the new scheme limits the manufacturers’ discretion by

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requiring dealership market area to be determined by “the principles of equity.” RSA 357-C:1,

XXI. Both of these sections impose entirely new requirements upon manufacturers, limit the

obligations and duties of dealers, and limit the discretion of the parties (particularly the

manufacturers) to determine and define the most effective market area for their business

relationship. This alteration of the balance between equipment manufacturers and their dealers is

an obvious impairment of their pre-existing contractual rights and obligations.

ii. Competing Dealerships

The discretion of equipment manufacturers to place or authorize new dealerships in the

“market area” of an existing dealership selling their products was not regulated under the prior

regime embodied in RSA 347-A. To allow flexibility to meet market forces, equipment

manufacturers’ contracts commonly contain provisions permitting the manufacturer to compete

directly or authorize other dealers to compete with already-established dealers in the same area.

These contractual provisions also typically allow manufacturers to add, relocate, discontinue, or

reassign dealer areas.

Placing equipment manufacturers under RSA 357-C destroys the discretion previously

permitted under their contracts with their dealers. RSA 357-C:3, III makes it an “unfair and

deceptive practice” for a manufacturer to compete with an existing dealer in the “relevant market

area.” It is also deemed an unfair and deceptive practice to “grant a competitive franchise in the

relevant market area previously granted to another franchisee….” RSA 357-C:9 requires

manufacturers to provide advance notice to dealers of any plans to add or relocate a competing

dealership within the relevant market area. Moreover, dealers are now entitled to file a protest

with the Motor Vehicle Industry Board upon receiving such notice. The MVIB will only allow

an addition or relocation of a competing dealership if the manufacturer can show “good cause.”

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Like the sections in RSA 357-C restricting manufacturers’ ability to define “market

area,” these limitations on competitive dealerships place restrictions on manufacturers’ discretion

that did not exist under the prior RSA 347-A regulatory scheme. There was certainly no

requirement to impress upon a government board that “good cause” exists for the exercise of

such discretion. The freedom of equipment manufacturers permitted by RSA 347-A, to exercise

discretion as they deemed necessary was incorporated into their pre-SB126 contracts with their

New Hampshire dealers. These new limitations on their discretion, and concomitant relaxation

of the dealers’ obligations under their contracts, are inconsistent with the existing terms of their

dealership agreements, resulting in an obvious impairment of those contracts.

iii. Maintenance of Capital

Many equipment manufacturers supply unique, specialized, and quite expensive articles

of equipment. For this reason, it is common for many equipment manufacturers dealing such

equipment to have dealership agreements that require minimum levels of capitalization to be

maintained by the dealer. RSA 347-A, being specific to equipment manufacturers, rather than

automobile manufacturers, did not restrict such agreements.

RSA 357-C:3, III(h) eliminates the equipment manufacturers’ discretion to set such

minimum capitalization rates unilaterally, and now requires them to set such standards through

negotiations with the individual dealership. This is a totally new requirement not contemplated

under the previous statutory scheme, and in derogation of the equipment manufacturers’

contractual rights under their pre-SB126 contracts with their dealers. It therefore constitutes an

impairment of those contracts.

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iv. Fulfillment of Dealer Orders

Equipment manufacturers’ rights and obligations with respect to filling, rejecting, or

delaying orders for products made by their dealers was not regulated under RSA 347-A. This

was an area that was left to the manufacturer’s discretion, to account for market forces and the

specific economic and performance capabilities of individual dealers.

As with the other rights and obligations discussed above, under RSA 357-C, the

equipment manufacturer’s previously-enjoyed discretion is severely limited. RSA 357-C:3, III

(a) and III (q) permit an equipment manufacturer to refuse an order placed by a dealer only when

certain specifically defined occurrences, beyond the manufacturer’s control (like acts of God,

work stoppages, embargoes, etc). This limitation on the equipment manufacturers’ discretion,

and equivalent increase in the dealerships’ rights and power under the contracts, was not

contemplated or agreed to by the parties to those agreements or by the prior regulatory scheme.

It therefore constitutes an impairment of those contracts.

v. Terminations/Cancellations/Non-Renewals

Termination, cancellation, or non-renewal of dealership agreements was regulated under

RSA 347-A:2, which allowed for termination, cancellation or non-renewal when a dealer failed

to abide by a dealership agreement. RSA 347-A:2, II permitted immediate termination of such

agreements for certain specified reasons. These regulatory provisions were necessarily

incorporated into manufacturers’ dealership agreements with their New Hampshire dealers.

RSA 357-C, by contrast, contains a host of new requirements, several of which are

inconsistent with not only the manufacturers’ pre-SB126 agreements with their dealers, but also

with the prior regulatory scheme upon which they relied in drafting their agreements. For

instance, immediate termination of a dealership agreement is no longer permitted for any reason.

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Worse, any proposal to terminate, cancel, or non-renew a dealership agreement must now be

brought before the Motor Vehicle Industry Board, to obtain a finding that there is “good cause”

for such termination, cancellation, or non-renewal. See RSA 357-C:7. Further, RSA 357-C

prohibits termination or non-renewal under several circumstances which specifically permitted

immediate termination under RSA 347-A, and which were therefore commonly written in to pre-

SB126 dealership agreements.

For instance, RSA 347-A:2, II (d)-(f) permitted immediate termination if the dealership

underwent a change in location or ownership. By contrast, RSA 357-C:7, III(a) provides that

“good cause” to terminate a dealership agreement does not exist when there is a change of

ownership, unless that change would have the effect of sale of the franchise. RSA 357-C:7(d)

similarly excuses the transfer of stock from the owner of a dealership to family members. Such

transfers would permit immediate termination under RSA 347-A:2, II.

Again, the new statutory regime under which equipment manufacturers have been placed

by SB126 severely limits discretion and rights they previously had under their contracts and RSA

347-A. Those rights are replaced with new obligations and restrictions which fundamentally

alter then nature of the agreements regarding termination, cancellation, non-renewal, including

the obligation to seek government approval of a decision to terminate a dealership agreement

“for good cause.” These new limitations and un-bargained for obligations are impairments of the

manufacturers’ pre-SB126 contracts with their New Hampshire dealers.

vi. Arbitration

Under the pre-SB126 regulatory regime, RSA 347-A:9 expressly permitted binding

arbitration as a sole means of dispute resolution between equipment manufacturers and dealers.

16

Many equipment manufacturers and dealerships relied upon this provision and incorporated it

into their contracts before the enactment of SB126.

RSA 357-C:3, III(p)(3) makes it an “unfair and deceptive practice” for equipment

manufacturers to require a dealer to agree to binding arbitration clause. Moreover, RSA 357-C:7

and C:12 operate together to force equipment manufacturers to preemptively litigate disputes

over termination, cancellation, or non-renewal before the Motor Vehicle Industry Board and/or

Superior Court. RSA 357-C:6, I renders void any alternative dispute resolution clause that

conflicts with these sections. The Supreme Court has already held that these sections work

together to prohibit selection of alternative forums for dispute resolution. “We interpret RSA

357-C:6, III and RSA 357-C:2 to require that a New Hampshire forum, including the superior

court, entertain any action brought under [RSA 357-C] and to render unenforceable any forum

selection clause that would prevent it from doing so.” Fog Motorsports No. 3, Inc. v. Arctic Cat

Sales, Inc., 159 N.H. 266-268-69 (2009).

These sections of RSA 357-C do not merely “modify” the equipment manufacturers’ pre-

SB126 agreements with their dealers. The nullification of binding arbitration clauses, which

were incorporated into many equipment dealership agreements in accordance with RSA 347-A:9,

turns the previous regulatory scheme on its head, flatly reversing an essential term of those pre-

existing contracts. Such a change amounts to an obvious impairment of the equipment

manufacturers’ pre-SB126 contracts.

vii. Warranties

RSA 347-A:8 regulated the timing of warranty payments to dealers, but did not regulate

the actual amounts paid to dealers for warranty reimbursements. Equipment manufacturers

could use their discretion to develop warranty programs with set costs for performance of

17

warranty work and provision of replacement parts. Dealership agreements commonly include

warranty manuals and warranty program guidelines as part of their explicit terms.

SB126 has removed the equipment manufacturers’ discretion with regard to payments

made under warranty programs. Rather than establishing a set cost for warranty labor rates and

other performance costs, the dealer can now demand to be paid at its retail labor rate and

replacement parts prices. See RSA 357-C:5, II(b). To compound the burden placed upon

equipment manufacturers by this new rule, RSA 357-C:5, II(b)(iv) prohibits the equipment

manufacturers from recouping those elevated costs, and requires any disputes regarding the

appropriate rates charged for warranty work to be decided by the Motor Vehicle Industry Board.

As with the other provisions discussed above, SB126 has eliminated a crucial area of

discretion that equipment manufacturers previously relied upon in structuring their relationships

with their dealers, and places voluminous new obligations upon them, altering the balance

between the dealer and the manufacturer fundamentally. This constitutes an impairment of the

equipment manufacturers’ pre-SB126 contracts.

viii. Full-Line Sales

Under RSA 347-A, equipment manufacturers’ discretion to decide what lines of

equipment particular dealers were best suited to selling was unlimited. Such discretion is

essential in the equipment industry because the range of equipment varies so widely. One

equipment manufacturer may produce products ranging from small portable generators and lawn

mowers up to heavy excavation equipment. Unlike automobile and motorcycle dealerships,

equipment dealerships are not a “one-size fits all” business equation.

Under RSA 357-C, equipment manufacturers are now compelled to offer their entire

product line through any dealer. RSA 357-C:1, XXVII broadly defines “line make” to include

18

all equipment offered for sale by an equipment manufacturer under one brand name. This

creates an obvious potential for abuse and detriment to the manufacturers. A small “mom and

pop” dealer in Coos County may not be realistically equipped, either financially or logistically,

to sell certain specialized equipment. RSA 357-C nevertheless removes any discretion on the

part of the manufacturer to prohibit sales by dealers who cannot actually finance or support such

equipment. See RSA 357-C:3, III(q).

SB126 therefore places yet another burden on equipment manufacturers that did not exist

under their pre-SB126 contracts or the previous regulatory scheme under RSA 347-A. Such

unforeseen and un-bargained-for burdens constitute an impairment of their contracts with their

New Hampshire dealers.

ix. Competing Lines of Equipment

It was not uncommon prior to the enactment of SB126 for equipment manufacturers to

place limitations on dealers’ rights to sell equipment offered by their competitors. RSA 347-A

contained no provision limiting a manufacturer’s discretion in this regard. Under RSA 357-C:3,

II(c), it becomes an unfair and deceptive act and practice for a manufacturer to include or enforce

any such limitation in their contracts with their dealers. Under the previous regulatory regime, a

manufacturer could terminate or non-renew a dealership agreement for violation of a competing

line of equipment limitation.

Thus, SB126 again limits a substantive right previously enjoyed by equipment

manufacturers, and in fact imposes a new obligation upon them to permit their competition to be

sold under the same dealership roof. This is plainly inconsistent with any dealership agreement

containing a limitation on competing lines, and an obvious impairment to any equipment

manufacturers’ rights under such a contract.

19

x. Cumulative Effect of Impairments

Many of the above-listed legislative changes compelled upon equipment manufacturers

via SB126 actually turn the pre-existing regulatory regime on its head, such as the rejection of

binding arbitration, previously allowed expressly under RSA 347-A:9, and the complete

eradication of discretion previously wielded by manufacturers with regard to lines of equipment

sold, warranty cost controls, and establishment of market areas for dealerships. RSA 347-A

contemplated and permitted broad control of these contract parameters by manufacturers. The

relative freedom to contract permitted by RSA 347-A is in direct contrast to the suffocating

regulatory scheme envisioned under RSA 357-C.

The freedom to enter into contracts where discretion was retained by the manufacturer

over such matters was “the law[] which subsist[ed] at the time and place of the making of a

contract … and form a part of it, as if they were expressly referred to or incorporated into its

terms.” Blaisdell, 290 U.S. at 429-30. Eliminating that discretion over such a broad range of

previously-contracted for rights unravels some of the most essential terms from the equipment

manufacturers’ agreements with their dealers. It was precisely this sort of legal “instability of

affairs” which motivated inclusion of the Contract Clause in the U.S. Constitution, and led to it

becoming part of New Hampshire’s constitutional jurisprudence as well. See, e.g., Blaisdell, 290

U.S. at 427-28; State v. Vashaw, 113 N.H. 636, 637-38 (1973) (“The underlying policy of this

prohibition is to prevent the legislature from interfering with the expectations of persons as to the

legal significance of their actions take prior to the enactment of a law.”).

Both from a quantitative and qualitative standpoint, the reversal of key contractual terms

in equipment manufacturers’ dealership agreements following the enactment of SB126 constitute

contract impairments in the context of a Contract Clause analysis.

20

C. The Impairments to the Pre-Existing Contracts Between the Equipment

Manufacturers and their New Hampshire Dealers are Substantial.

As set forth above, SB126 impacts numerous provisions that are commonly included in

equipment dealership agreements. Some of those commonly-included provisions, such as

termination provisions, arbitration agreements, warranty coverage, dealership area agreements

and others are so fundamental to the nature of the agreement that legislation impacting any one

provision could be deemed a substantial impairment of the contract. Where, as here, there as

many as a dozen separate commonly-included contract provisions that are effectively written out

of pre-SB126 agreements between equipment manufacturers and their New Hampshire dealers

under the terms of RSA 357-C, that the overall impairment of these contracts is “substantial,” is

beyond reasonable argument to the contrary.

i. SB126’s Complex Regulatory Scheme Vitiates So Many and Such

Important Established Contractual Practices Between Equipment

Manufacturers and their Dealers that the Contracts are Essentially

Destroyed

The U.S. Supreme Court has yet to provide “specific guidance as to what constitutes a

‘substantial’ contract impairment.” Tuttle, 159 N.H. at 649. (citing Baltimore Teachers Union v.

Mayor, Etc. of Baltimore, 6 F.3d 1012, 1017 (4th

Cir. 1993)). However, it is clear that “total

destruction of contractual expectations is not necessary for a finding of substantial impairment.”

Id. (quoting Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 411

(1983)). "An impairment rises to the level of substantial when it abridges a right which

fundamentally induced the parties to contract initially or when it abridges legitimate expectations

which the parties reasonably and heavily relied upon in contracting." Bricklayers Union Local 21

v. Edgar, 922 F. Supp. 100, 106-07 (N.D.Ill.1996). In Allied Structural Steel Co. v. Spannaus,

438 U.S. 234 (1978), the U.S. Supreme Court suggested that:

21

The severity of an impairment of contractual obligations can be measured by the factors

that reflect the high values the Framers placed on the protection of private contracts.

Contracts enable individuals to order their personal and business affairs according to their

particular needs and interests. Once arranged, those rights and obligations are binding

under the law, and the parties are entitled to rely on them.

Id. at 245. The degree of impairment is “particularly pertinent” because:

[t]he severity of the impairment measures the height of the hurdle the state legislation

must clear. Minimal alterations of contractual obligations may end the inquiry at its first

stage. Severe impairment, on the other hand, will push the inquiry to a careful

examination of the nature and purpose of the state legislation.

Id. (emphasis added). There can be little doubt that in this case that the multitude of fundamental

changes wrought upon the relationships between equipment manufacturers and their New

Hampshire dealers created by SB126 collectively (and in many cases individually) constitute

severe and substantial contractual impairments.

For instance the new “good cause” requirements for terminations, cancellations, and non-

renewals required under RSA 357-C are directly analogous to similar retroactive requirements

discussed by this Court in Smith Insurance v. The Grievance Committee, 120 N.H. 856 (1980).

In Smith, the plaintiff became an insurance agent for Middlesex Insurance Company in 1976.

The parties had a contract which permitted termination of their agency agreement upon written

notice to the other. Id. at 858. Middlesex provided notice to Smith that it intended to terminate

their relationship effective May, 1979. Id.

However, in 1978, the Legislature had enacted RSA 402:75, establishing a “Grievance

Committee.” This committee (not unlike the Motor Vehicle Industry Board under RSA 357-C)

had the authority to hold hearings on grievances brought by insurance agents relating to the

termination of their contracts with insurance companies, and to rescind such terminations if it

deemed it appropriate. Id. at 860.

22

While recognizing the Legislature’s “admittedly broad power to legislate in furtherance

of such diverse interests as public health, safety, comfort, protection of property, and general

welfare,” the Supreme Court held that the Contract Clause “is not a dead letter” and does

“impose some limits upon the power of a State to abridge existing contractual relationships, even

in the exercise of its otherwise legitimate police power.” Id. at 863. The Court held that RSA

402:75, and the powers granted to the Grievance Committee to interfere with an insurance

company’s contracted-for right to terminate its agreement, violated the Contract Clause:

In this case, the parties expressly agreed that “[t]his Agreement may be terminated by

either the Company or the Agent on written notice to the other….” RSA 402:75 (Supp.

1979) would irrevocably and retroactively alter this contractual relationship by depriving

the company of its expressly reserved right to terminate the agreement, which was

entered into prior to the effective date of the statute.

Id. The various “good cause” standards set forth under RSA 357-C, and the requirement to

justify decisions which manufacturers previously had reserved discretion to decide themselves to

the Motor Vehicle Industry Board, parallel the requirements set forth in RSA 402:75 that this

Court deemed an unconstitutional impairment of the insurance company’s contract in Smith.

A similar retroactive statutory scheme impacting restaurant franchises was analyzed in by

the U.S. District Court for the Southern District of Iowa in McDonald’s Corp. v Nelson, 822 F.

Supp. 597 (S.D. Iowa 1993). The federal District Court found that the parties had arranged their

pre-existing franchise agreements based on certain expectations. For example, they understood

that the franchisees’ transfer rights were subject to restriction, that the franchisees had no

protected “market territory,” and that there were certain conditions under which the agreement

could be immediately terminated. The District Court found that these contracted-for

expectations played an integral role in the operation of franchisors’ franchise system. Id. at 606.

In particular, the franchisors relied on their contract provisions to “operate as an incentive [to

23

franchisees] to maximize their performance; allow [franchisors] to change with current market

conditions; and serve the consuming public by maintaining adequate control … over … quality.”

Id. The retroactive effect of the Iowa Franchise Act was to abrogate all of these essential

elements of the franchisee agreements between the plaintiff franchisor and its franchisees. Id.

The District Court found that the Franchise Act unconstitutionally impaired the pre-

existing franchise agreements, and held that the Act lacked a “significant and legitimate” public

purpose to justify its retroactive application where the stated primary purpose of the Act was

“specifically to adjust the balance of power between contracting parties.” Id. at 608-09. The

Court of Appeals for the Eight Circuit upheld the decision in favor of the franchisor, stating that

it could not be “seriously contested that the retroactive feature of the relevant Iowa legislation

substantially impaired the obligations previously owed to the plaintiffs in this case.” Holiday

Inns Franchising v. Branstad, 29 F.3d 383, 384 (8th

Cir. 1994).

The Eight Circuit came to same conclusion in Equipment Mfg. Institute v. Janklow, 300

F.3d 842 (8th

Cir. 2002). Janklow is especially instructive because unlike this case, where

equipment manufacturers are being moved suddenly from one relatively unrestrictive regulatory

scheme into a new, complex and highly restrictive regulatory scheme designed around entirely

different consumer products, Janklow involved mere amendments to a statute that the equipment

manufacturers were already regulated under. See Id. at 848-49. In Janklow, the amendments to

the South Dakota Dealer Protection Act would have prohibited manufacturers from terminating

dealership agreements for reasons that would have constituted grounds for termination under

both prior law and the parties’ pre-amendment contracts. Id. at 855-57.

SB 126 reaches further and changes the balance of the relationships between

manufacturers and their dealers to a greater degree than the amendments that were deemed

24

unconstitutional in Janklow. It follows that if the impairments to equipment manufacturers’

rights to terminate their dealership agreements constituted substantial impairments of their

contracts in Janklow, the severe limitations on the same rights under SB126 must constitute

substantial impairments in this case.

The U.S. Court of Appeals for the Eleventh Circuit reached a similar conclusion in

Reliable Tractor v. John Deere Constr. & Forestry Co., 376 Fed. Appx. 938 (11th

Cir. 2010). The

question at issue was whether 1998 amendments to the Maryland Equipment Dealer Act

requiring “good cause” to be shown before a dealership agreement could be terminated violated

the Contract Clause. John Deere had entered into two open-ended dealership agreements with

Reliable Tractor in 1984 that continued until it decided to terminate its dealership agreements in

2007. Id. at 938. The Court of Appeals held that the retroactive “good cause” standard was a

substantial impairment of John Deere’s rights under the pre-existing contract with Reliable

Tractor:

Because the original 1984 dealer agreements were in force in 1998 when the Maryland

Act's good cause provision became law, the Act effected a change in law that impaired

an existing contractual relationship—it limited a contractual right to terminate the dealer

agreements. And, we conclude that this impairment was substantial. A provision

granting the right to terminate a contract without cause is a material provision of that

contract. The Maryland Act impairs the contractual right of one party, John Deere, to

terminate the contract without cause on 120 days notice. Applying the Act would

effectively extend the dealer agreements indefinitely unless John Deere can meet the

terms of the Act's good cause provision. We conclude that this would substantially

impair the contractual relationship between John Deere and Reliable Tractor and would

violate the Contracts Clause.

Id. at 942 (citations omitted and emphasis added); see also Fornaris v. Ridge Tool Co., 423 F.2d

563, 568 (1st Cir. 1970), rev'd on other grounds 400 U.S. 41 (holding that a law converting a

contractual relationship terminable by either party without cause into one which can be

25

terminated only under certain conditions was a "change of great magnitude" that violated the

Contracts Clause).

In Kendall-Jackson Winery, Ltd. V. Branson, 82 F. Supp. 844 (N.D. Ill. 2000), the

manufacturer was a winery, who wished to terminate a distributorship agreement. Retroactive

application of the Illinois Wine and Spirits Industry Fair Dealing Act of 1999 required

affirmative showings of “good faith” and “non-retaliatory motive” before a distributorship

agreement could be terminated. Id. at 848. The Federal District Court found that these retroactive

limitations on the winery’s right to terminate at-will constituted substantial impairments of its

pre-existing contract rights:

The Act's restriction on the plaintiffs' rights to terminate their distribution agreements at-

will will likely be found to constitute a substantial impairment. A manufacturer's lifeline

to the consuming public is its distributor, and a distributor can, to a significant extent,

make or break a manufacturer's success in the marketplace. Predictably, where

termination of a distribution contract is not within the manufacturer's sole discretion but

instead must be justified to a court or administrative agency, the parties at the time of

contracting would be far more inclined to articulate rights, duties and expectations, than

where termination is entirely discretionary and need not be justified. For this reason, a

limitation on the manufacturer's right to terminate its distributor at will can be presumed

to constitute a significant abridgment of the parties' legitimate expectations at the time of

contracting.

Id. at 873 (emphasis added). Reliable Tractor, Fornaris, and Branson all stand for the

proposition that retroactive legislation introducing “for cause” standards or other limitations on a

manufacturer’s pre-existing right to terminate a dealership agreement at its discretion constitute a

“substantial impairment” of the contract within the context of a Contract Clause analysis. The

“good cause” standard and requirement to litigate terminations before the Motor Vehicle

Industry Board required by SB126 are, as a matter of law, substantial impairments of the

equipment manufacturers’ contracts in this case.

26

The impairment on the manufacturer’s contractual right to establish relevant market areas

for dealers is also substantial. In Fireside Chrysler-Plymouth Mazda, Inc. v. Chrysler Corp., 472

N.E.2d 861 (Ill. App. 1984), the plaintiff was an automobile dealership, who brought an action

against an automobile manufacturer, alleging violation of the Illinois Motor Vehicle Franchise

Act, The dealership argued that the Act’s provisions defining "relevant market area" should be

applied retroactively, such that its “market area” would then include an area not encompassed by

plaintiff's 1971 franchise agreement, and would give plaintiff standing to object to the

manufacturer establishing other dealerships in that area. Id. at 576-77.

The Illinois Appellate Court held that the plaintiff’s request to retroactively apply the act

to redefine its sales territory would violate the Contract Clause:

[Retroactive] [a]pplication of the Act in this instance therefore impairs vested

contractual rights acquired by the parties prior to the effective date of the Act and its

amendments. Applying the 1983 definition of "relevant market area" would attach a new

disability to Chrysler and B.G.C.P. in respect to the transaction and considerations

already passed, namely, the terms and conditions covered by the 1971 franchise

agreement. Application of the Motor Vehicle Franchise Act under the facts at bar

therefore constitutes an unconstitutional impairment of the obligation of contracts and

impermissibly interferes with vested substantive rights.

Id. at 866-67. See also McDonald’s Corp., 822 F. Supp. At 602, 607 (holding that statutory

amendment creating an exclusive territory for franchisee at the expense of franchisor’s prior

right to decide territory at its discretion constituted a substantial impairment of its contract).

As the cases cited above make clear, several of the changes forced upon equipment

manufacturers by SB126 in derogation of their pre-existing contractual rights would individually

amount to substantial impairments of their contracts. Taken collectively, the multitude of

impairments including, but not limited to: restricting the manufacturers’ right to establish sales

territories; limiting the right to terminate dealership agreements; eliminating the discretion to set

capitalization standards; eliminating the discretion to set warranty reimbursement rates;

27

nullification of binding arbitration clauses; limits on competition within dealership territories,

and many other new limitations or obligations that equipment manufacturers did not contract for

under the pre-SB126 regulatory regime, clearly amount to substantial impairment of their

contracts.

The trial court’s contrary ruling in this case seems to flatly ignore the fundamental

alteration in the relationship between manufacturers and dealers brought about by SB126. As the

proponents of the bill stated, it “levels the playing field” by severely curtailing manufacturers

discretion in at least a half-dozen key areas of the contract, impacting not only their level of

control over the relationship with their dealers, but also their financial bottom line, through

control of warranty reimbursements, dispute resolution costs, and restrictions on the number of

dealers available to sell its products in a “relevant market area.” In short, SB126 has the effect of

presenting not just one substantial impairment of a contract, but many.

ii. SB126 Was Not a Foreseeable Evolution in Regulation of Equipment

Manufacturers’ Relationships with their Independent Dealers – It Was an

Unexpected and Unconstitutional Revolution in Regulation

The Supreme Court has previously recognized “that the determination of whether a

contract impairment is substantial may be influenced by whether the contracting parties relied

upon the abridged contract right.” Tuttle, 159 N.H. at 650. Consistent with the concept of

reliance on prior contract rights, some courts also look at whether the subject matter of the

contract has historically “been the subject of heavy state regulation.” Id. The theory under this

analysis is that where there is a history of stringent regulation, “further regulation might be

foreseeable and, thus, any change to the contract caused by such regulation would not necessarily

constitute a substantial impairment.” Id. However, “standing alone, ‘a history of regulation his

28

never a sufficient condition for rejecting a challenge based on the contracts clause.’” Id. (quoting

Chrysler Corp. v. Kolosso Sales, Inc., 148 F.3d 892, 895 (1st Cir. 1997)).

In Tuttle, this Court held that:

The simple fact that insurance is a heavily regulated industry does not preclude a

conclusion that the Act substantially impairs the policyholders’ vested contract rights to

share in the JUA earnings…. The State cites no provision of the regulatory scheme in

place prior to the passage of the Act that would suggest that private insureds should

anticipate the transfer of monies retained by their insurer into the State’s general fund.”

Id. at 650.

Looking at SB126 in this context, its passage was not remotely foreseeable to the

equipment industry. The history of regulation for the equipment industry in New Hampshire is

one of simplicity and legislative restraint. Prior to 1995, the State had no established regulatory

scheme for contracts between equipment manufacturers and their dealers. In 1995, RSA 347-A

was enacted. As set forth in Section I-B, supra, RSA 347-A provided for limited regulation of a

few narrow aspects of the manufacturer/dealer relationship. The approach set forth in RSA 347-

A was fair and balanced, as evidence by the fact that it was not amended or even the subject of

legislative discussion for eighteen (18) years.

SB126 therefore came as a sudden, unpredicted shock to the equipment manufacturing

industry when it was rushed through the Legislature in early 2013, tossing aside the limited

scope of regulation set forth in RSA 347-A and replacing it with what is by comparison a hyper-

detailed regulatory scheme developed around an entirely different industry. There was no

pressing crisis that would have presaged the sudden regulatory upheaval brought about by

SB126. Its micro-managerial complexity bears no logical or foreseeable relationship to the

simplicity and freedom to contract previously permitted by RSA 347-A.

29

It was not only New Hampshire’s regulatory history in this area that made SB126 such a

surprise. AEM is unaware of any other state in the union that has adopted an equivalent

legislative scheme, forcing equipment manufacturers into a box designed for the motor vehicle

industry as SB126 does. That is with good reason, because the motor vehicle industry revolves

around a relatively narrower set of products, aimed at different markets, and with players who

have vastly different bargaining powers relative to one another.

The totality of the changes rendered to the regulatory landscape by SB126, combined

with the relative abruptness of its passage, was not the sort of “progressive tightening” or “small

and predictable step” along a gradual path of regulatory enhancement that would pass

constitutional muster. See Chrysler Corp., 148 F.3d at 895. SB126 was the opposite – the very

sort of sea change that the Contract Clauses were meant to prohibit. See State v. Vashaw, 113

N.H. at 637-38 (the policy of the Contract Clause is to prohibit legislative changes that would

interfere with the expectations of contracting parties as to the legal significance of their pre-

legislation actions).

The unpredictability of SB126’s abrupt passage, viewed in opposition to the long history

of relatively unfettered freedom to contract under RSA 347-A (and a history prior to 1995 of no

regulation at all), provides a clear basis to find that the equipment industry’s well-grounded

reliance on prior law, and their contracts formulated under that prior law, have been substantially

impaired by SB126.

II. SB 126 WAS ENACTED TO SERVE SPECIAL INTERESTS – IT DOES

NOT REASONABLY SERVE ANY BROAD SOCIETAL PURPOSE

While SB126 clearly results in a substantial impairment of the equipment manufacturer’s

contractual rights as arranged under prior law, under Contract Clause analysis the State may

attempt to show that the new law is nevertheless constitutional if it was enacted to serve an

30

“important public purpose,” and that as enacted, the new law is “reasonable and necessary” to

accomplish that purpose. See Tuttle, 159 N.H. at 653. In other words, “a balancing of the

[State’s] police power and the rights protected by the contract clauses must be performed….” Id.

A. SB 126 Does Not Serve A Significant and Legitimate Public Purpose

The first step in the balancing test is determining whether the law serves a “significant

and legitimate public purpose.” Energy Reserves Group, Inc. v. Kansas City Power & Light Co.,

459 U.S. 400, 411-12 (1983). Remedying “a broad and general social or economic problem”

would be a significant and legitimate public purpose. Id. at 412. The requirement of showing a

legitimate public purpose for legislation impairing contracts “guarantees that the State is

exercising its police power, rather than providing a benefit to special interests.” Id. It is the

State’s burden to prove “that the contract impairment is reasonable and necessary, since it asserts

the benefit of its own statute.” In re Seltzer, 104 F.3d 234, 236 (9th

Cir. 1996).

In this case, SB126 does not pass the “significant and legitimate purpose” test. SB 126

was clearly and admittedly passed for the purpose of “leveling the playing field” between

manufacturers and dealers. See House Journal No. 17, House Record, pp. 1472-73 at App. p.

108; see also Governor Hassan’s Twitter Feed (June 25, 2013) (“Gov. Hassan signing SB126

into law, leveling the playing field for NH’s vehicle and equipment dealers.”) App. p. 110.

However, leveling the playing field between contracting parties is expressly prohibited as a

significant and legitimate public interest. See Allied Structural Steel, 438 U.S. at 247;

McDonald's Corp., 822 F.Supp. at 608; Janklow, 300 F.3d at 861.

Beyond the admitted nod to special interest groups representing dealers (including the

New Hampshire Auto Dealers Association, who gave the Governor a special pen to sign SB126

into law with, there are no legislative findings or statement of purpose in SB126. App. p. 111.

31

The absence of such findings and declaration of purpose is telling. “[L]egislative findings and

declarations have no magical quality to make valid that which is invalid but they are entitled to

weight in construing the statute and in determining whether the statute promotes a public purpose

under the Constitution.” Opinion of the Justices, 113 N.H. 201, 203 (1973) (internal quotations

omitted).

More telling still is the plain language of the statute itself. RSA 357-C is quite plainly

aimed at shifting the advantage to motor vehicle (and now equipment) dealers. This Court has

already so stated in Roberts v. General Motors Corp., 138 N.H. 532 (1994): “The clear intent of

the non-consumer oriented provisions [of RSA 357-C] is to protect the investment and property

interests of those who are already dealers.” Id. at 536. A overview of the provisions already

cited above demonstrate that the intent of the law is to give in-State dealers an “upper hand” in

their relationship with equipment manufacturers (i.e., through control over warranty

reimbursement rates, protection of sales territories, control over orders and lines sold, etc.).

Where statutes like SB126 have been analyzed by other courts, revealing a plain intent to

serve certain special groups by modifying existing contracts, the consensus has been that such

laws do not serve significant and legitimate public purposes. For instance, in Janklow, the U.S.

Court of Appeals for the Eight Circuit held that the South Dakota Dealer Protection Act was

intended to protect the special interests of in-state dealers by modifying and restricting pre-

existing equipment dealership contracts, and that it therefore did not serve a legitimate public

purpose. See Janklow, 300 F.3d at 861. The same result was reached, based on precisely the

same reasoning, in Cloverdale Equip. Co. v. Manitowic Engineering Co., 964 F. Supp. 1152,

1164-65 (E.D. Mich 1997) (holding the Michigan Farm and Utility Equipment Act served the

32

narrow interests of dealers over equipment manufacturers, and therefore lacked a significant and

legitimate public purpose).

B. SB126 Is Not Reasonable and Necessary Legislation

While SB126 clearly does not pass muster as serving a significant and legitimate public

purpose, even if the Court assumed that it did, it is not reasonable or necessary in the means by

which it attempts to accomplish its goal. “Although deference is due to the legislature … a court

must undertake its own independent inquiry to determine the reasonableness of the law and the

importance of the purpose behind it.” Mercado-Boneta v. Admin. Del Fondo de Compensacion,

125 F.3d 9, 13 (1st Cir. 1997). Moreover, “the State bears the burden of proving that the contract

impairment is reasonable and necessary….” In re Seltzer, 104 F.3d 234, 236 (9th

Cir. 1996).

In analyzing the reasonableness of the legislation, the New Hampshire Supreme Court

has focused upon the following factors: (1) whether the law meets an emergency need; (2)

whether the law was enacted to protect a basic societal interest, rather than a favored group; (3)

whether the law is appropriately tailored to the targeted emergency; (4) whether the imposed

conditions are reasonable; and (5) whether the law is limited to the duration of the emergency.

See Tuttle, 159 N.H. at 657; see also Home Bldg. & L. Assn. v. Blaisdell, 290 U.S. 398, 444-47

(1934). SB126 fails this factorial analysis.

First, the lack of any legislative findings or statement of purpose, combined with the

nearly two-decades-long history of successful business relationships between equipment

manufacturers and their dealers under RSA 347-A, compels the conclusion that there was no

“emergency” public need for SB126. Second, as already described above, SB126 was clearly

intended to promote the narrow interests of special interests, not the broader public. Third, there

was no emergency, but even if there was, SB126 is not tailored to doing anything other than

33

nullifying existing contracts to provide more favorable terms to in-State dealers to the detriment

of the existing arrangements they had with equipment manufacturers. Fourth, the imposed

conditions are plainly unreasonable – SB126 vitiates nearly every important element of existing

manufacturer/dealer contracts and replaces it with protectionist provisions that immediately and

irreparably impact manufacturers’ competitive and financial interests. Fifth, SB126 is intended

to provide permanent “leveling of the playing field” in favor of dealers at the expense of

equipment manufacturers. It is not limited in duration to any “emergency.”

The immediate, permanent nullification and statutory re-writing of long-standing

contracts to favor a narrow group is simply not reasonable under the Contract Clauses. “If a

State undertakes to alter substantially the terms of a contract, it must justify the alteration, and

the burden that is on the State varies directly with the substantiality of the alteration.” White

Motor Corp v. Malone, 599 F.2d 283, 287 (8th

Cir. 1979). Given the severity and pervasiveness

of the changes wrought by SB126, the State has not met its burden to show that the legislation is

reasonable and necessary in this case.

III. THE ECONOMIC IMPACT OF SB126 MAY BE UNFAVORABLE FOR

NEW HAMPSHIRE’S ECONOMY IN THE LONG RUN

In light of the obvious dealer-centric approach and lack of legislative findings to support

the passage of SB126, it is apparent that little regard was given to the long-term economic

impact the statute may have on New Hampshire. The willingness to abruptly pass retroactive

laws that substantially impair existing, long-term contracts solely to advance the narrow interests

of favored groups sends a meaningful warning sign to out-of-State manufacturers. It signals a

potential volatility in the legal landscape that makes it much more difficult for manufacturers to

plan or invest in business in the State. In the words of one court: “To put it in economic terms, a

party’s evaluation of the possibility of interference is reflected in the negotiated price, and thus

34

the value of performance to it is not reduced if it can more or less accurately value the risk of that

interference.” Holiday Inns Franchising, Inc. v. Branstad, 29 F.3d 383, 385 (8th

Cir. 1994).

The unexpected and unheralded passage of a statute so comprehensively destructive of

pre-existing contracts makes valuing the risk of doing business in New Hampshire much more

difficult than it was prior to its adoption. It has not been unheard of for smaller-scale

manufacturers (who have nothing like the resources available to the motor vehicle manufacturers

that RSA 357-C was originally intended to rein in) to back away from investment in states with

excessively protectionist and unpredictable legal landscapes. The adoption of SB126, and the

circumstances under which it was adopted, raise that risk for New Hampshire. Such a result

would eventually harm not only New Hampshire consumers and equipment users, but also

potentially many of the in-State dealers that the law was intended to protect.

CONCLUSION

For the reasons stated above, the Court should rule that SB126 violates the Contracts

Clauses of both the United States and New Hampshire Constitutions, and reverse the Superior

Court’s decision in this case.

REQUEST FOR ORAL ARGUMENT

Not applicable.

Respectfully submitted,

ASSOCIATION OF EQUIPMENT

MANUFACTURERS

AMICUS CURIAE

By:

Jason R.L. Major (NH Bar #14782)

Charles G. Douglas, III (NH Bar #669)

DOUGLAS, LEONARD & GARVEY, P.C.

14 South Street, Ste. 5

Concord, NH 03301

603-224-1988

35

CERTIFICATE OF SERVICE

I hereby certify that copies of the within brief have been forwarded this 8th

day of May,

2015 to Kevin M. Fitzgerald, Esq., Anthony J. Galdieri, Esq., Gordon J. MacDonald, Esq.,

Francis C. Fredericks, Jr., Esq., Gregory A. Holmes, Esq., Brian J.S. Cullen, Esq., Shelagh C.N.

Michaud, Esq., Michael A. Delaney, Esq., Thomas J. Collin, Esq., Jennifer S. Roach, Esq.,

James D. Kelly, Esq., Shaun M. Gehan, Esq., William M. Guerry, Jr., Esq., and Russell F.

Hilliard, Esq..

Jason R.L. Major