Wipperfurth v. U-Haul Co. of Western Wisconsin, Inc.

304 N.W.2d 767, 101 Wis. 2d 586, 1981 Wisc. LEXIS 2736

• Court: Wisconsin Supreme Court
• Decided: April 29, 1981
• Docket: 80-144
• Status: Published

Opinions

STEINMETZ, J.

The trial judge, the Honorable P. Charles Jones, entered summary judgment declaring ch. 135, Stats., the Wisconsin Fair Dealership Law, was retroactive and constitutional. The trial court also granted the petitioner’s request for a temporary restraining order placing over the petitioner (Paul L. Wipperfurth) the mantle of protection of the requirements of ch. 135 pending the outcome of the action.

The court of appeals reversed the trial court finding the provisions of ch. 135, Stats., prospective only and therefore not applicable to the contract between petitioner (Wipperfurth) and defendant-appellant, U-Haul Company of Western Wisconsin, Inc. (U-Haul). That court took no action regarding the trial court’s restraining order. The court of appeals found a serious question concerning the constitutionality of ch. 135 would arise if it were given retroactive application. That court stated its conclusion was supported by the ambiguity of the language of the act and the legislative history which did not make explicit a requirement that the act apply retroactively.

The parties entered into a written contract on September 17, 1969. That contract was for an indefinite duration. It permitted either party to terminate the contract on 30 days written notice to the other. U-Haul complied with the terms of the contract in terminating the Wip-perfurth dealership.

Wipperfurth states ch. 135, Stats., has granted him protections not in the original contract, that the law is retroactive and that it is a reasonable exercise of the state’s police power.

U-Haul argues the practical result of this law is that a dealership agreement is a life-long or even perpetual contract unless the grantor can terminate it for “good cause” as defined in the statute and on 90 days notice to the dealer. If the dealer’s deficiencies are corrected within 60 days of the grantor’s giving the notice, the termination cannot become effective. It is claimed the notice and correction of deficiencies relationship could continue ad infinitum, with the dealer constantly on the margin of acceptable business practice. To apply this policy prospectively differs greatly from applying it retroactively to a contract which never contemplated such relationship.

U-Haul states its business practices and mode of operation have changed dramatically since the contract was entered into in 1969.

Under its standard dealership contract, as in issue here, U-Haul places its equipment (trailers, trucks, dollies and other equipment associated with domestic moving) with a filling station operator who agrees to store, rent and maintain the equipment. The filling station operator pays no fee for the right to do so, but merely enters into an agreement with U-Haul to perform the services mentioned. The dealer receives a percentage of the gross rental fees and is paid for automative maintenance work done on the equipment. The title and the right to possession of the equipment remains in U-Haul. U-Haul provides a nationwide “do-it-yourself” moving service and, instead of doing all of the necessary work through employees, has utilized filling station operators who, as independent contractors, perform some of the needed services for the agreed upon fee.

As U-Haul expanded its line to more complex and sophisticated equipment, the nature of many American filling stations changed from a full-service garage to a semi or a full “self-service” station. Thus, as the complexity of U-Haul’s equipment and services increased, the need for skilled mechanical help in America’s filling stations decreased.

Due to the decrease in the ability of filling stations’ management to service and maintain its equipment, U-Haul decided that in metropolitan areas it would retain direct possession of its equipment and would directly perform the rental, maintenance and other services to the public.

It was this change in circumstances and business judgment which led U-Haul to terminate Wipperfurth’s dealership.

The dealership law when originally adopted in ch. 179, Laws of 1973, stated in sec. 135.03, Stats. 1973, that the law governed agreements entered into after April 5, 1974.¹ Therefore, in its original form the act was clearly prospective only.

Ch. 171, Laws of 1977, removed the obvious prospective clause and instead adopted a statement of purpose and legislative construction, sec. 135.025, Stats.²

Several arguments are made whether the law was intended to have retroactive interpretation and, if so, then whether it is an unconstitutional violation of the contract clause of the U. S. Constitution.

The legislature did remove the prospective only subsection and instead adopted sec. 135.025, Stats., and particularly (2) (d) which stated the chapter was “To govern all dealerships, including any renewals or amendments, to the full extent consistent with the constitutions of this state and the United States.” (Emphasis added.) This language not only allowed for but invited court interpretation as to legislative intent. The courts were directed in sec. 135.025 that, “This chapter shall be liberally construed and applied to promote its underlying remedial purposes and policies.”

Whatever the legislative intent was in regard to retroactive application of the dealership law, it was not clearly and affirmatively stated and therefore has caused conflicting opinions and decisions of the trial courts in this state.

The court of appeals decided the statute was not clear on its face as to its intent to be applied retroactively and therefore that court ruled:

“Since a serious question concerning the act's constitutionality would arise if the WFDL were given retroactive application, the court must conclude that the act covers only agreements entered into after April 5, 1974. This conclusion is supported by the ambiguity in the language of the act and the legislative history, which do not make explicit a requirement to apply the WFDL retroactively. Therefore, the general rule of the prospective operation of statutes applies in this case.”³

Legislative intent as to retroactivity must be determined independent of the constitutionality of the action.

Swanke v. Oneida County, 265 Wis. 92, 99, 60 N.W.2d 756, 62 N.W.2d 7 (1953) stated:

“ ‘Retrospective operation is not favored by the courts, however, and a law will not be construed as retroactive unless the act clearly, by express language or necessary implication, indicates that the legislature intended a retroactive application. The rule is the converse of the general principle that statutes are to operate prospectively.

The legislative history of this law and its present wording could be interpreted as displaying an intent by the legislature that the dealership law be applied prospectively and retroactively if permitted by the courts. This would be a surrender of the legislative authority over its use of police powers for public purposes. The determination then would be left to the courts on a case by case basis and would provide for uneven justice at best. Federal District Judge James E. Doyle, Western District of Wisconsin, stated this also in H. Phillips Co. v. Brown-Forman Distillers, 483 F. Supp. 1289 (W.D. Wis. 1980):

“I suggest that it would amount to something like this: We legislators desire the statute to apply to all dealerships, whenever granted; we recognize that constitutional questions exist with respect to its application to dealerships granted prior to April 5, 1974; we abandon our independent responsibility to construe and to honor constitutional limits upon our power; we leave it to the courts to limit application if they decide it must be limited.” Id. at 1294.

That is an explanation for the language of sec. 135.-025(2) (d), Stats., as follows: “To govern all dealerships, including any renewals or amendments, to the full extent consistent with the constitutions of this state and the United States.” (Emphasis added.) In doing this the legislature also directed the courts at sec. 135.025 (1) to liberally construe and apply the chapter to promote its underlying remedial purposes and policies which are stated in subsection (2) :

“The underlying purposes and policies of this chapter are:

“ (a) To promote the compelling interest of the public in fair business relations between dealers and grantors, and in the continuation of dealerships on a fair basis;

“(b) To protect dealers against unfair treatment by grantors, who inherently have superior economic power and superior bargaining power in the negotiation of dealerships ;

“(c) To provide dealers with rights and remedies in addition to those existing by contract or common law;

On total consideration, this court determines from the legislative history and the language of the law that the intent of the legislature was to give retroactive as well as prospective application to ch. 135, Stats. That then requires the court’s analysis of the conflict between retroactive application and the constitutional prohibition against the impairment of the obligation of contract.⁴

In Kuhl Motor Co. v. Ford Motor Co., 270 Wis. 488, 71 N.W.2d 420 (1955), the statute challenged was in effect at the time the agreement was made and so that case did not consider retroactive impairment of the obligation of contract.

The Kuhl case dealt with prospective application of legislation on the freedom to contract, while the instant case involves the retroactive application of legislation on the obligation of existing contracts.

The due process clause protects the right of contract, that is, the freedom of persons to enter into contracts which they find mutually agreeable. This right is not unlimited, however. It can be limited by the legitimate exercise of the state’s police power. Mulvaney v. Tri State Truck & Auto Body, Inc., 70 Wis.2d 760, 766, 235 N.W.2d 460 (1975); 16 C.J.S. Constitutional Law sec. 210 (1956). The Kuhl case dealt with a statute that forbade grantor-dealer contracts in the automobile business under which a dealer could be terminated without cause. The right of grantors and dealers to make such contracts was curtailed. In Kuhl the curtailment was found to be a legitimate exercise of police power.

This court stated in State ex rel. Bldg. Owners v. Adamany, 64 Wis.2d 280, 292, 219 N.W.2d 274 (1974):

‘We have thus accepted the proposition that the obligation of contract is not an absolute right, but is one that may be obliged to yield to the compelling interest of the public — the exercise of the police power.”

The United States Supreme Court stated in Berman v. Parker, 348 U.S. 26, 32 (1954):

“Public safety, public health, morality, peace and quiet, láw and order — these are some of the more conspicuous examples of the traditional application of the police power to municipal affairs.”

This court held in Adamany, supra, at 293 that the question to be answered by the court “is what value— of the type cited in Berman — is it vital to preserve, and is there some reasonable relationship between the preservation of that value and the method the legislature has employed to preserve it.”

Thus, it can be determined this court recognizes retroactive application of legislation is permissible, however, in making such declaration the court referred to subjects of “public safety, public health, morality, peace and quiet, law and order” of the Berman case. Those subjects are not the limit of areas that can be affected retroactively, but they do describe the serious nature of permissible interference with the obligations of contracts.

The United States Supreme Court stated in Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 240 (1978):

“The language of the Contract Clause appears unambiguously absolute: ‘No State shall . . . pass any . . . Law impairing the Obligation of Contracts.’ U. S. Const., Art. I, sec. 10. The Clause is not, however, the Draconian provision that its words might seem to imply. As the Court has recognized, ‘literalism in the construction of the contract clause . . . would make it destructive of the public interest by depriving the State of its prerogative of self-protection.’ W. B. Worthen Co. v. Thomas, 292 U.S. 426, 433.”

In the Spannaus case, the court stated at 241:

“First of all, it is to be accepted as a commonplace that the Contract Clause does not operate to obliterate the police power of the States. ‘It is the settled law of this court that the interdiction of statutes impairing the obligation of contracts does not prevent the State from exercising such powers as are vested in it for the promotion of the common weal, or are necessary for the general, good of the public, though contracts previously entered into between individuals may thereby be affected. This power, which in its various ramifications is known as the police power, is an exercise of the sovereign right of the Government to protect the lives, health, morals, comfort and general welfare of the people, and is paramount to any rights under contracts between individuals.’ Manigault v. Springs, 199 U.S. 473, 480.”

At 242 of Spannaus:

“If the Contract Clause is to retain any meaning at all, however, it must be understood to impose some limits upon the power of a State to abridge existing contractual relationships, even in the exercise of its otherwise legitimate police power ....

“In Home Building & Loan Assn. v. Blaisdell, 290 U.S. 398, the Court . . . acknowledged that, despite the Contract Clause, the States retain residual authority to enact laws ‘to safeguard the vital interests of [their] people.’ Id., at 434. In upholding the state mortgage moratorium law, the Court found five factors significant. First, the state legislature had declared in the Act itself that an emergency need for the protection of homeowners existed. Id., at 444. Second, the state law was enacted to protect a basic societal interest, not a favored group. Id., at 445. Third, the relief was appropriately tailored to the emergency that it was designed to meet. Ibid. Fourth the imposed conditions were reasonable. Id., at 445-447. And, finally, the legislation was limited to the duration of the emergency. Id., at 447.”

In W. B. Worthen Co. v. Thomas, 292 U.S. 426 (1934), the court stressed the retroactive effect of the state law and held it “invalid under the contract clause, since it was not precisely and reasonably designed to meet a grave temporary emergency in the interest of general welfare.” Spannaus, supra, at 243.

In Worthen Co. v. Kavanaugh, 295 U.S. 56 (1935), the court held a law invalid under the contract clause and Justice Cardozo wrote for the court, “ ‘Even when the public welfare is invoked as an excuse’ . . . the security of a mortgage cannot be cut down ‘without moderation or reason or in a spirit of oppression.’ ” Spannaus, supra, at 243.

In United States Trust Co. v. New Jersey, 431 U.S. 1 (1977), the court again recognized that in spite of the absolute language of the clause, it “must leave room for ‘the “essential attributes of sovereign power,” . . . necessarily reserved by the States to safeguard the welfare of their citizens.’ ” Spannaus, supra, at 244. The court also stated in Spannaus, supra, at 244:

“Despite the customary deference courts give to state laws directed to social and economic problems, ‘[legislation adjusting the rights and responsibilities of contracting parties must be upon reasonable conditions and of a character appropriate to the public purpose justifying its adoption.’ ”

In Spannaus the court wrote:

“[T]he first inquiry must be whether the state law has, in fact, operated as a substantial impairment of a contractual relationship. The severity of the impairment measures the height of the hurdle the state legislation must clear. Minimal alteration 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. at 244-45.

Next, the court looks to the degree of anticipation of the parties to expect interference with their reliance on the obligations of the contract.

The Supreme Court recognized a presumption favoring “legislative judgment as to the necessity and reasonableness of a particular measure.” United States Trust Co., supra, at 23.

The dissent in the Spannaus case decided that the contract clause of the constitution did not apply due to a basic disagreement with the majority as to the reasons the framers of the constitution had for including that clause. The dissent applied an analysis of due process protection of the Fourteenth Amendment and found the Minnesota law being considered constitutional.

In applying the due process analysis, the dissent considered the parties’ degree of reliance on the existing law when the contract was entered into and their anticipation for change or interference by the legislature. However, the dissent failed to concede that a prior contractual relationship between the parties should receive consideration when a statute is analyzed which has a social purpose which type always creates duties that burden one class of persons and benefit another.

The criticism of the dissent to the majority’s reliance on the contract clause was stated as follows:

“Under the Court’s opinion, any law that may be characterized as ‘superimposing’ new obligations on those provided for by contract is to be regarded as creating ‘sudden, substantial, and unanticipated burdens’ and then to be subjected to the most exacting scrutiny. The validity of such a law will turn upon whether judges see it as a law that deals with a generalized social problem, whether it is temporary (as few will be) or permanent, whether it operates in an area previously subject to regulation, and, finally, whether its duties apply to a broad class of persons. See ante, at 249-250. The necessary consequence of the extreme malleability of these rather vague criteria is to vest judges with broad subjective discretion to protect property interests that happen to appeal to them.” Id. at 260-61.

The analysis of the dissent in Spannaus leaves only the test of reasonableness to be applied to the legislation and with a presumption in favor of reasonableness. The majority considers several tests to be applied — vested rights and reliance on them, the degree of infringement, anticipation of change, length of effectiveness and reasonableness of the act as a solution for a serious social problem.

The test of the dissent is purely subjective and depends entirely on whether a majority agrees with the solution of the legislation to a social problem or even whether the problem exists or should be solved. It in effect is no test with any reliability and not worthy of being considered a legal standard.

This court in Adamany, supra, appeared to accept only the test of reasonableness of legislation as applied to the contract clause of the constitution (due process application was not discussed). At 301, the court stated:

“We will presume a constitutional purpose if there is any reasonable basis upon which the legislation can be explained by facts within the knowledge of this court. Those facts can be skeletal in nature and can be apparent from the face of the legislation. We would accept a legislative declaration explaining the purpose to be served by this act, for we presume that such declaration would have been founded upon legislative fact-finding. But such facts are totally absent here, and only speculatively can we justify this legislation. Speculation, however, can also lead to conclusions that are contrary to those urged by the defenders of this law.”

The foregoing would not provide any judicial test to the legislation, and it was not the rule in the Adamany case.

The court in Adamany also stated at 299:

“This court adheres to the basic philosophy of Kuhl, supra, that an unequivocal legislative declaration of public policy, made either before or after the execution of a contract, becomes a part of that contract if the legislature makes it clear that such is its intention and if it can be determined, either by recitals in the legislation or by judicial notice, that vital public interests will be impaired if the legislation is not given effect and vital interests will be enhanced by enforcement of the legislation.”

Kuhl did not consider retroactivity as stated in this quote, since there the law was in existence when the contract was executed and therefore the issue was not the impairment of the obligation of contract, but rather the right to the freedom to contract.

Finally, in Adamany, the court stated:

“Hence, it seems clear that, for the police power of the state of Wisconsin to affect the constitutionally protected right of contract, there should be evidence that the legislation is necessary for the vital interests of the people of the state. ...

“A statute that seeks to modify, by the invocation of the police power, a constitutionally guaranteed right, such as the right of contract, should be carefully drawn to show that the use of such power is necessary and exigent and serves a vital purpose of government. While courts are willing to indulge any reasonable presumption to sustain police-power-type legislation, they ought not be asked to speculate or conjure up possible explanations to support a legislative act.” Id. at 300-03.

There has been no showing that the severe disruption of contractual expectations of these parties was necessary to meet an important social problem. The retroactive application of the dealership law on this existing contract with its established obligations was severe as to substantive rights of the contract not only as to remedy of the parties. Retroactive application here affected vested rights and obligations substantially. The dealership law was not so carefully drawn to show the use of the police power was reasonably necessary and exigent and it served a vital purpose of government to retroactively affect contracts in existence when it was made law. In fact, the equivocating language of sec. 135.025 (2) (d), Stats., does not demonstrate the legislative determination of necessity to apply police power retroactively. Therefore, the court holds retroactive application of eh. 185, Stats., is prohibited as unconstitutional by Art. I, sec. 10 of the United States Constitution.

By the Court. — The decision of the court of appeals is affirmed.

1 “135.03 Cancellation, and alteration of dealerships. No grant- or, directly or through any officer, agent or employe may terminate, cancel, fail to renew or substantially change the competitive circumstances of a dealership agreement entered into after April 5, 1974 without good cause. The burden of proving good cause shall he on the grantor.”

2 “135.025 Purposes; rules of construction; variation by contract. (1) This chapter shall be liberally construed and applied to promote its underlying remedial purposes and policies.

“(2) The underlying purposes and policies of this chapter are:

“(a) To promote the compelling interest of the public in fair business relations between dealers and grantors, and in the continuation of dealerships on a fair basis;

“(b) To protect dealers against unfair treatment by grantors, who inherently have superior economic power and superior bargaining power in the negotiation of dealerships;

“(c) To provide dealers with rights and remedies in addition to those existing by contract or common law;

“(d) To govern all dealerships, including any renewals or amendments, to the full extent consistent with the constitutions of this state and the United States.

“(3) The effect of this chapter may not be varied by contract or agreement. Any contract or agreement purporting to do so is void and unenforceable to that extent only.”

3 Wipperfurth v. U-Haul of Western Wis., Inc., 98 Wis.2d 516, 523, 297 N.W.2d 65 (Ct. App. 1980).

4 The United States Constitution, Art. I, sec. 10, clause 1 provides :

“No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make any thing but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.”