Justice Rebeca Huddle
The Texas Supreme Court has responded to a question certified from the U.S. Fifth Circuit regarding the constitutionality of a statute enacted by the Texas Legislature in 2011 as it applies to oral agreements entered into prior to the effective date of the statute. Fire Protection Service, Inc. v. Survitec Survival Products, Inc. (No. 21-20145 5thCir.; No. 21-1088, SCOTX) arose from an oral agreement between an equipment dealer (Fire Protection) and equipment supplier (Survitec) whereby the supplier provided life rafts for sale by the dealer. The supplier later terminated the agreement without notice of explanation, but not before the 2011 Legislature had passed the Fair Practices of Equipment Manufacturers, Distributors, Wholesalers, and Dealers Act. Among other things, the Act requires suppliers to provide good cause and notice to a dealer before terminating an agreement, as well as to buy back the dealer’s inventory of the supplier’s product. The dealer sued the supplier for failing to comply with the statute. The supplier argued that the application of the law to the oral agreement violated the Texas Constitution’s prohibition of retroactive laws (Art. I, §16). The federal district court agreed with the supplier. The dealer appealed to the Fifth Circuit, which determined that the question was too close to call without input from the Texas Supreme Court.
This case offered SCOTX the opportunity to expand on its analysis of Art. I, §16 in Robinson v. Crown Cork & Seal Co., Inc., 335 S.W.3d 126 (Tex. 2010). As you may recall, Robinson involved the retroactive application of a statute limiting the successor liability of an entity that had acquired a business that had once sold insulation containing asbestos. In a seminal opinion by Chief Justice Hecht, the Court held that the statute was indeed unconstitutionally retroactive, largely because it applied to only one entity and that no compelling public interest was served by its retroactive application. SCOTX, however, established a three-pronged test for determining the issue that requires courts to assess: (1) the nature of the prior right impaired by the statute; (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. See Robinson, at 145. While recognizing the “heavy presumption against retroactive laws,” Chief Justice Hecht cautioned courts not to throw out retroactive statutes unless there is a “compelling public interest” served by doing so. Given the absence of controlling authority in Texas law, the Fifth Circuit declined to make an “Erie guess” as to what that law might be without asking SCOTX first. We, along with everyone else who deals with legislation that affects pending or future litigation, have been keenly interested in what SCOTX has to the say on the subject.
In an opinion by Justice Huddle, SCOTX advised the Fifth Circuit that the statute was not unconstitutionally retroactive for two reasons: (1) “Survitec had no reasonable settled expectation that it could continue to operate under its open-ended, at-will agreement in perpetuity”; and (2) “Survitec had sufficient time between the Act’s enactment and effective date to take whatever steps it thought necessary to avoid the Act’s effects,” including terminating its at-will agreement or entering into a new agreement with a fixed term and allowing it to terminate at will during the term. Justice Huddle emphasized that the usual grace period between a statute’s enactment and effective date is designed to give affected parties sufficient notice of a change in the law to “enable them to adjust their affairs to the change made, if any” (citing Halbert v. San Saba Springs Land & Live-Stock Ass’n, 34 S.W. 639 (Tex. 1896). Contrary to Survitec’s argument that a party should not be held to notice of a statute until it becomes effective, the Court put the burden squarely on the party to pay attention to legislative enactments and act to protect their rights, if they think they have them. Though the heavy presumption against the constitutionality of retroactive statutes remains, SCOTX will not throw out statutes willy-nilly if the parties had time to protect themselves.
