New Rules for Old Business? How to Determine if Newly Enacted Statutes Will Be Retroactively Applied

Everyday, federal and state legislators consider and enact statutes that change the rules governing business relationships between parties. While many believe these statutes only impact conduct that occurs following the statute’s effective date, sometimes this is not the case. Rather, a statute may operate retroactively, thus impacting conduct and transactions that transpired prior to the statute’s effective date.

Courts generally allow procedural^[1] or remedial^[2] statutes to be applied retroactively, while substantive^[3] statutes are presumed to apply prospectively.^[4] Thus, Courts employ a presumption against the retroactive application of substantive statutes.[5] The Supreme Court stated this presumption is based on “[e]lementary considerations of fairness” which dictate individuals should have an understanding of what the law is at the time of their action so they can adjust their conduct accordingly.[6] Absent a violation of a constitutional provision, “the potential unfairness of retroactive civil legislation is not a sufficient reason for a court to fail to give a statute its intended scope.”[7]

In Landgraf v. USI Film Products,[8] the Supreme Court enumerated a two-step framework for courts to follow in analyzing whether a statute should apply retroactively.[9] The first step requires courts to “determine whether Congress has expressly prescribed the statute’s proper reach.”[10] If Congress does so, a court may end its analysis and apply the statute in a manner consistent with Congress’ express intent.[11] If Congress does not provide an express command, courts must apply normal statutory construction rules to determine if Congress intended the statute to only apply prospectively.[12] Thus, a court’s inquiry under this prong is not limited to the statutory text but may include an analysis of the statute’s legislative history.^[13]

Absent a finding of clear congressional intent under step-one, a court proceeds to step-two under the framework. Step-two requires courts to determine whether the statute would have a “retroactive effect.”[14] A statute has a retroactive effect when it either “impair[s] rights a party possessed when he acted, increase[s] a party’s liability for past conduct, or impose[s] new duties with respect to transactions already completed.”[15] “A statute only has an impermissibly retroactive effect when it would change the legal consequences of actions actually taken (or refrained from) prior to the statute’s effective date.”[16] If the court finds the statute does not have a retroactive effect, then the court will find that it may operate retroactively.[17]

In sum, absent any constitutional implications, a statute will be applied retroactively if either: (1) Congress expressly provides for the statute to be applied retroactively, or (2) retroactive application of the statute will not have a “retroactive effect.” To illustrate these principles, consider the following cases:

In O’Brien v. J.I. Kislak Mortgage Corporation,[18] the parties disputed whether a congressional amendment to a federal statute could be applied retroactively.[19] The relevant portion of the amendment provided it applied to “any consumer credit transaction . . . that is commenced before the date of the [amendment’s] enactment.”[20] Legislative history of the amendment also evinced congressional intent that the amendment be given retroactive effect.[21] The district court ruled the amendment should be given retroactive effect given the amendment’s explicit statutory text and legislative history.[22]

In Beaver v. Tarsadia Hotels,[23] the parties disputed whether a congressional amendment to a federal statute could be applied retroactively.[24] The amendment contained express language stating it would take effect 180 days after it was enacted.[25] The district court concluded the amendment could not be applied retroactively.[26] On appeal, the Ninth Circuit affirmed the district court’s ruling.[27] In applying the first-step of the Lansgraf framework, the Ninth Circuit noted the 180-day delay in the amendment’s effective date suggested the amendment should only be applied prospectively.[28] The Ninth Circuit stated this delay was likely due to Congress intending to give actors time to conform their behavior to the new legislation.[29]

In Kia Motors America, Inc. v. Glassman Oldsmobile Saab Hyundai, Inc.,[30] the parties disputed whether an amendment to the Michigan Motor Dealers Act (the “Dealers Act”) could retroactively change the terms of a contract executed prior to the effective date of the amendment.[31] Specifically, this amendment altered the meaning of the term “relevant market area” in the Dealers Act, a term incorporated into the party’s independent agreement.[32] The district court found the amendment was substantive in nature, thus could not be applied retroactively.[33] On appeal, the Sixth Circuit affirmed the district court’s findings.[34] The Sixth Circuit noted application of the expanded “relevant market area” definition to the contract would result in the creation of new substantive duties and rights under the contract that did not previously exist.[35]

As evidenced by the cases above, whether a statute applies retroactively is not always clear from the statute’s face. This lack of clarity leads to uncertainty among parties regarding their relationship with each other and increases the potential of a lawsuit between them. Thus, it is important for individuals to understand if new legislation applies retroactively and how its retroactive application impacts their business relationships to prevent difficulties down the road.

If you have questions regarding whether new legislation retroactively applies to your prior business transactions, contact the attorneys at Rabin Kammerer Johnson at (561) 659-7878.

[1] A procedural statute governs the means and methods by which parties apply and enforce their rights. Ferretti v. Nova Se. Univ., Inc., 586 F. Supp. 3d 1260, 1267 (S.D. Fla. 2022).

[2] A remedial statute is one that “is designed to correct, clarify, or validate; redress an existing grievance, problem, or injury; introduce provisions conducive to the public good; confer or change a remedy; or clarify legislative intent soon after controversies arise as to the interpretation of an act.” Id. at 1266.

[3] A substantive statute attaches new legal consequences to events completed before its enactment. Id.

[4] Id.

[5] Ahmad v. Morgan Stanley & Co., 2 F. Supp. 3d 491, 496 (S.D.N.Y. 2014) (citing Leshinsky v. Telvent GIT, S.A., 873 F. Supp. 2d 582, 590 (S.D.N.Y. 2012)).

[6] Landgraf v. USI Film Prod., 511 U.S. 244, 265 (1994).

[7]Id. at 267.

[8] 511 U.S. 244 (1994).

[9] Id. at 280.

[10] Id.

[11] Id.

[12] Morton Int’l, Inc. v. A.E. Staley Mfg. Co., 106 F. Supp. 2d 737, 751 (D.N.J. 2000) (citing Mathews v. Kidder, Peabody & Co., 161 F.3d 156, 161 (3d Cir.1998)).

[13] Lattab v. Ashcroft, 384 F.3d 8, 14 (1st Cir. 2004) (citing Martin v. Hadix, 527 U.S. 343, 355–57 (1999)).

[14] Landgraf, 511 U.S. at 280.

[15] Id.

[16] Lattab, 384 F.3d at 16 (1st Cir. 2004) (citing Landgraf, 511 U.S. at 280).

[17] Landgraf, 511 U.S. at 280.

[18] O’Brien v. J.I. Kislak Mortg. Corp., 934 F. Supp. 1348, 1359 (S.D. Fla. 1996).

[19] Id.

[20] Truth In Lending Act Amendments of 1995, PL 104–29, September 30, 1995, 109 Stat 271.

[21] O’Brien, 934 F. Supp. at 1359 (citing 141 Cong. Rec. H9513–01, H9515 (Sept. 27, 1995)).

[22] O’Brien, 934 F. Supp. at 1360.

[23] 816 F.3d 1170 (9th Cir. 2016).

[24] Beaver, 816 F.3d at 1176.

[25] Id. at 1187

[26] Id. at 1175.

[27] Id.

[28] Id. at 1187.

[29] Id.

[30] 706 F.3d 733 (6th Cir. 2013).

[31] Id. at 736–37.

[32] Id. at 737.

[33] Id.

[34] Id. at 741.

[35] Id. at 741–42.