On February 12, 2021, federal Judge Nancy Atlas agreed with Peter & David McLauchlan, along with their co-counsel Jeremy Gaston, that applying the Texas Fair Practices of Equipment Manufacturers, Distributors, Wholesalers, and Dealers Act, TEX. BUS. & COMM. CODE Section 57.001 et seq. (the “Act”) retroactively to oral dealership agreements between Survitec Survival Products and Fire Protection, Inc. that pre-dated the Act’s effective date would be a violation of article I, Section 16 of the Texas Constitution.
Survitec, the successor to the 1920s era inventor of the self-inflating life raft and manufacturer of the following life raft brands: Crewsaver, DSB, Elliot, Revere, RFD, RFD-Toyo, SSP, TOYO and Zodiac (www.survitecgroup.com), terminated its life raft dealership with Fire Protection Service, Inc. Fire Protection sued under the Act claiming millions in damages and the case ended up in trial in federal court in Houston. The McLauchlan Law Group team was able to establish that the dealerships for each brand dated back to the 1990s–well before the effective date of the Act in 2011. The agreements were oral and each party had the right to terminate at any time and for any reason. The court found that because the contracts pre-dated the Act and continued after the Act became effective, applying the Act retroactively violated the Texas Constitution.
To arrive at that conclusion, the court performed a three factor analysis as dictated by the Texas Supreme Court to decide if a retroactive statute is constitutional: (1) the nature of the prior right impaired by the statue; (2) the extent of the impairment; and (3) the nature and strength of the public interest served by the statute as evidenced by the Legislature’s factual findings. With respect to the first factor, Judge Atlas found that the parties had settled expectations that their agreement would be enforced according to the terms to which they agreed, including the term allowing either party to terminate the agreement without cause. The court found that the retroactive application of the Act, particularly Section 57.153 precluding a supplier from terminating a dealer agreement without good cause, impaired those settled expectations.
On the second factor, the court opined that the extent of the impairment of the parties’ settled expectations in their pre-existing agreement was significant, in not total as retroactive application of the Act completely prevents Survitec from terminating FPS without one of the good causes bases listed in Section 57.154 of the Act, which all require some action by or involving FPS that adversely impacts Survitec or FPS’s customers, or reflects FPS’s change of ownership or financial distress. The court noted that once the Act became effective, Survitec could not terminate the agreement, as previously, based on general dissatisfaction with FPS’s performance, changes in Survitec’s business model, relocation to a new geographic area or a change to a different product line.
Addressing the third factor concerning the public interest, Judge Atlas noted that the Texas Legislature viewed protecting dealers from changes imposed by suppliers as a valid goal. However, she pointed to the Texas Supreme Court’s ruling in Robinson v Crown Cork & Seal Co., 335 S.W. 3d 126, 146-7 (Tex. 2010) where the court stated: “A retroactive law is not permissible merely because the end seems to justify the means. The presumption is that a retroactive law is unconstitutional without a compelling justification that does not greatly upset settled expectations.” Judge Atlas concluded that the retroactive application of the Act to the parties’ dealer agreement greatly upsets the parties’ settled expectations that their oral agreement would remain terminable at will. She said that the relatively narrow public interest of benefitting dealers fails to outweigh the Act’s significant disruption of the parties’ settled expectations. Therefore, the retroactive application of the Act to the FPS-Survitec oral agreement violates article I, Section 16 of the Texas Constitution.FPS has until March 13th to decide whether to appeal Judge Atlas’s ruling. A copy of the opinion and order can be reviewed at the link below.