12 ms·

Tesla prevails in top Massachusetts court over direct sales

167 points by hariis 12y ago

JackC 12y ago
Text of the decision: http://www.mass.gov/courts/docs/sjc/reporter-of-decisions/new-opinions/11545.pdf http://www.mass.gov/courts/docs/sjc/reporter-of-decisions/ne... --- Edit: having read the decision, I thought it might be fun to explain what the Court did here. Reading statutes is a lot like reading code. Reading cases is like ... not running the code, because we can't do that, but more like having it explained by a particularly skillful coder with decades of experience. It's fascinating if you're into that stuff. So to start with, we have this statute in Massachusetts that says it is unlawful for a car manufacturer "to own or operate, either directly or indirectly through any subsidiary, parent company or firm, a motor vehicle dealership located in the commonwealth of the same line make as any of the vehicles manufactured ... by the manufacturer[.]" Sounds pretty clear cut, right? Tesla can't run a dealership in Massachusetts that sells Teslas -- there's no helpful exception left out of that quote. But the Court didn't come out that way. If you really want the reading-unfamiliar-code experience, go read the surrounding parts of the statute[1] and see how you think the Court understood that section. It's under subsection (10). ... So, it turns out the Court looked to the legislative history, which is the closest we have to comments -- statements of legislators and the Governor explaining why they were voting for (or not vetoing) the statute. (As a side note, Massachusetts has terrible legislative history, because not much was recorded of the debates, many decisions are made behind closed doors by the Democratic super-majority, and unlike Congress, we rarely explain why a statute is being passed in the text itself -- but there seems to be some history in this case.) The Court concluded that the statute is intended to protect dealers from their own manufacturers. The Court finds: "the purpose of c.93B historically was to protect motor vehicle dealers from a host of unfair acts and practices historically directed at them by their own brand manufacturers and distributors." Or, quoting an earlier case, it's about "preserving a sound competitive market free of the domination of oligopolists[.]" That matters because intent matters -- the Court isn't a computer, and if at all possible it tries to do what the Legislature actually wanted. So then the Court looks back at the statute, and lo and behold, subsection 10 is only one of 12 subsections! (We knew there had to be at least 10.) And every single one of them (besides #10) is obviously designed to regulate relationships between dealers and their own manufacturers. So the Court says, "It would be anomalous to find, within this detailed list of rights and protections that are conferred on dealers vis-à-vis their manufacturers and distributors, a lone provision giving dealers protection against competition from an unaffiliated manufacturer." Instead, they conclude that the Legislature -- which was trying to promote competition -- must have intended subsection 10, like the others, to be a right of dealers against their own manufacturers. And that's why this is ultimately dismissed on the basis of "standing." Cases (almost always) have to be filed by someone with a legally protected interest at stake. If the statute is designed to protect Tesla dealers (if any), then only Tesla dealers can file a case. That means, for now, no one can. (It's an interesting side effect that this essentially means there can be no third-party Tesla dealers in Massachusetts as long as Tesla is selling directly. It's an open question whether that's a good thing.) [1] https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXV/Chapter93B/Section4 https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXV/Cha...
- thisjepisje 12y ago
  If only computers were a bit more like courts.. (It would probably be terrible :D) Thanks for the explanation though, perfectly clear and very interesting. >It's an interesting side effect that this essentially means there can be no third-party Tesla dealers in Massachusetts as long as Tesla is selling directly. The first thing I thought was "well, they've got a problem if someone else starts to sell Tesla's" but of course they've got full control over this.
- twoodfin 12y ago
  I actually find the first part of the decision's discussion on standing fairly persuasive: "Motor vehicle dealership" is a term defined in c. 93B as: "any person who, in the ordinary course of its business, is engaged in the business of selling new motor vehicles to consumers or other end users pursuant to a franchise agreement and who has obtained a class 1 license pursuant to the provisions of [G. L. c. 140, §§ 58 & 59]" Because neither Tesla nor Tesla MA is engaged in the business of selling new Tesla motor vehicles in Massachusetts "pursuant to a franchise agreement," there appears to be a question whether Tesla's business model involves the operation of a "motor vehicle dealership" ... and therefore whether, by its literal terms, the proscription of § 4 (c) (10) applies to the defendants at all. I suppose that if Ford set up "showrooms" in the Natick Mall and tried to claim they weren't "franchises", the Court would consider reading the definition more broadly, but I'd rather any Court read statutes as being as minimally intrusive as possible: No franchise agreement? No problem.
  - toomuchtodo 12y ago
    > I suppose that if Ford set up "showrooms" in the Natick Mall and tried to claim they weren't "franchises", the Court would consider reading the definition more broadly, but I'd rather any Court read statutes as being as minimally intrusive as possible: No franchise agreement? No problem. Can Ford not put vehicles in public areas with associated literature (paper marketing, iPad kiosks, etc), and take orders from that mobile device or via a customer's phone? The order takes place where the servers are (the same as when you buy a Model S on teslamotors.com), and you would be prohibiting the corporation's freedom of speech (finally! a use for Citizens United that sucks less) by preventing them from putting a vehicle out in public (if they have approval of whomever owns/controls the underlying space).
startupfounder 12y ago
Between Tesla and Uber the auto industry is quickly reorganising, becoming more efficient and cutting out the middle man, aka dealerships and taxi companies. It's only a matter of time before drivers are cut out of the equation as well with riders ordering a cab and getting picked up by a self driving Tesla.
- jacquesm 12y ago
  Uber has very little to do with the auto industry. If anything they're in the taxi business.
  - TulliusCicero 12y ago
    For now. But if self-driving taxis become sufficiently cheap and popular, they'll have a huge impact on the auto business.
    - mjwhansen 12y ago
      Or, less far off in the future, will the rise of paid ridesharing change how cars are designed? Perhaps they could be more businesslike in the back where the passenger sits, and more sparse in the front. (I just realized I effectively described the car version of a mullet.)
    - npizzolato 12y ago
      Which is only tangentially related to Uber, unless you're confusing change now with "wouldn't it be nice if we can make self driving cars reliable sometime in the future".
- mindslight 12y ago
  erm, Uber is a middle man taxi company.
- bostonpete 12y ago
  I think Uber is great, but I don't think it's cutting out a middleman. It's just replacing one middleman with another, albeit a more efficient one.
coreymgilmore 12y ago
This is great to hear. The decision lacks any limits on the number of dealerships in MA, unlike similar decisions in NJ and PA (from what I could see, correct me if I am wrong). I hope more states in the future take this route of allowing sales without any limitations.
badkungfu 12y ago
Any dissenters around here? We're going through this stuff now in Georgia. I like the ideal of trying different market approaches than your competitors, and I generally think businesses should; but I did read a counter point[0] that at least made me think. If a large number of individuals or businesses are heavily invested in the-way-things-are, is it ever dangerous to rapidly change the market rules that we've built up- usually for the purposes of consumer protection or fostering businesses that benefit the larger community? -- [0] http://www.peachpundit.com/2014/09/05/tesla-uber-internet-sales-taxes-quit-being-so-easily-duped/ http://www.peachpundit.com/2014/09/05/tesla-uber-internet-sa...
- pseudometa 12y ago
  Never under estimate the ridgidity of those who make money by maintaining the status quo.
  - badkungfu 12y ago
    Eh, yeah, I'm just not sure it's that simple. In the article, he points out that Tesla's been given a lot of taxpayer money plus a lot of incentives for buyers to make their product more attractive. And now they now get to skirt around the market rules that other companies have been stuck with and had to build infrastructure and procedures to deal with more effectively. Maybe Tesla's handouts should be pared back as they grow and are allowed to bypass the old rules.
    - gknoy 12y ago
      The market rules were there to prevent car companies from undercutting their own dealerships, however.
    - toomuchtodo 12y ago
      Besides the Gigafactory, can you point out taxpayer money they were "given"? They had a DOE energy loan that was paid back much earlier than required, with interest. That is not a gift. Also, their vehicles receive the same incentives as other EVs produced by other manufactures. Perhaps other manufacturers should make more EVs (or EVs people will buy) if they would like to capture the benefit of those government incentives.
DannyBee 12y ago
So you need to be very careful in being happy about this: All the court said was that the dealers have no private cause of action. That is, they can't sue to block tesla themselves. The state AG/etc could still do it.
- free2rhyme214 12y ago
  The devil is in the details.
- JackC 12y ago
  I'm not so sure that's true. The conclusion is that the statute "was intended and understood only to prohibit manufacturer-owned dealerships when, unlike Tesla, the manufacturer already had an affiliated dealer or dealers in Massachusetts." I think there would have to be a third-party Tesla franchisee in Massachusetts before the AG could sue on their behalf.
  - DannyBee 12y ago
    That reasoning will be held to be not dicta on the standing issue of private dealers, but would probably be relitigated if the AG sued :) This is because the legal conclusion (under the heading "Conclusion") is limited to the dealers and their private right of action, and thus, only the reasoning that applied to that is considered stare decisis. BUt otherwise, you may end up right. Courts tend to be finicky about this stuff, depending on circumstances.
clairity 12y ago
nice! i'd read somewhere that the dealership model was actually a key aspect to universal car ownership in the US (wish i could find the link). manufacturers apparently had to lobby state legislatures to allow them to set up auto franchises and had to entice franchisees to set up dealerships (this is where all the complicated kickbacks apparently came into play). now the franchisees are understandably lobbying for the opposite to keep manufacturers out. i'm sympathetic to dealers as small business owners but i'm no fan of (most) car salesmen. will be interesting to see if this means dealerships become more competitive (better customer service?) or get pushed out. i've also heard that most dealerships make their money on service, but at least with teslas, that's not a big business (and it's more IT than auto mechanic).
apercu 12y ago
I support the Tesla case for reasons other than that they advocate for electric vehicles. I really hate buying cars. I don't like the games that are played during the process. I've walked away from several car deals, and felt kinda sh*tty about 3 that i didn't walk away from. That is (as much as any other reason) why many people will support a change to the status quo.
- sliverstorm 12y ago
  felt kinda shtty about 3 that i didn't walk away from.* They say that's the hallmark of a fair deal; both parties walk away feeling mildly dissatisfied.
  - djrogers 12y ago
    I doubt any car dealership ever feels mildly dissatisfied after selling a car...
    - apercu 12y ago
      Agreed, it's the hallmark of a fair deal as suggested by a saying i've heard people repeat. But I never bought again from those dealers for the reason that I felt I got a little hosed but was worn down by the process or simply needed to move quickly on a vehicle.
squozzer 12y ago
To me the last paragraph seems a bit funny - "In an unusual blog posting in April, three top U.S. Federal Trade Commission officials expressed opposition to laws banning direct sales, saying they could harm consumers." Maybe the FTC should investigate the way current dealer sales operate if they care about protecting consumers.

167 points by hariis 12y ago

JackC 12y ago

Text of the decision: http://www.mass.gov/courts/docs/sjc/reporter-of-decisions/new-opinions/11545.pdf http://www.mass.gov/courts/docs/sjc/reporter-of-decisions/ne... --- Edit: having read the decision, I thought it might be fun to explain what the Court did here. Reading statutes is a lot like reading code. Reading cases is like ... not running the code, because we can't do that, but more like having it explained by a particularly skillful coder with decades of experience. It's fascinating if you're into that stuff. So to start with, we have this statute in Massachusetts that says it is unlawful for a car manufacturer "to own or operate, either directly or indirectly through any subsidiary, parent company or firm, a motor vehicle dealership located in the commonwealth of the same line make as any of the vehicles manufactured ... by the manufacturer[.]" Sounds pretty clear cut, right? Tesla can't run a dealership in Massachusetts that sells Teslas -- there's no helpful exception left out of that quote. But the Court didn't come out that way. If you really want the reading-unfamiliar-code experience, go read the surrounding parts of the statute[1] and see how you think the Court understood that section. It's under subsection (10). ... So, it turns out the Court looked to the legislative history, which is the closest we have to comments -- statements of legislators and the Governor explaining why they were voting for (or not vetoing) the statute. (As a side note, Massachusetts has terrible legislative history, because not much was recorded of the debates, many decisions are made behind closed doors by the Democratic super-majority, and unlike Congress, we rarely explain why a statute is being passed in the text itself -- but there seems to be some history in this case.) The Court concluded that the statute is intended to protect dealers from their own manufacturers. The Court finds: "the purpose of c.93B historically was to protect motor vehicle dealers from a host of unfair acts and practices historically directed at them by their own brand manufacturers and distributors." Or, quoting an earlier case, it's about "preserving a sound competitive market free of the domination of oligopolists[.]" That matters because intent matters -- the Court isn't a computer, and if at all possible it tries to do what the Legislature actually wanted. So then the Court looks back at the statute, and lo and behold, subsection 10 is only one of 12 subsections! (We knew there had to be at least 10.) And every single one of them (besides #10) is obviously designed to regulate relationships between dealers and their own manufacturers. So the Court says, "It would be anomalous to find, within this detailed list of rights and protections that are conferred on dealers vis-à-vis their manufacturers and distributors, a lone provision giving dealers protection against competition from an unaffiliated manufacturer." Instead, they conclude that the Legislature -- which was trying to promote competition -- must have intended subsection 10, like the others, to be a right of dealers against their own manufacturers. And that's why this is ultimately dismissed on the basis of "standing." Cases (almost always) have to be filed by someone with a legally protected interest at stake. If the statute is designed to protect Tesla dealers (if any), then only Tesla dealers can file a case. That means, for now, no one can. (It's an interesting side effect that this essentially means there can be no third-party Tesla dealers in Massachusetts as long as Tesla is selling directly. It's an open question whether that's a good thing.) [1] https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXV/Chapter93B/Section4 https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXV/Cha...

thisjepisje 12y ago
If only computers were a bit more like courts.. (It would probably be terrible :D) Thanks for the explanation though, perfectly clear and very interesting. >It's an interesting side effect that this essentially means there can be no third-party Tesla dealers in Massachusetts as long as Tesla is selling directly. The first thing I thought was "well, they've got a problem if someone else starts to sell Tesla's" but of course they've got full control over this.
twoodfin 12y ago
I actually find the first part of the decision's discussion on standing fairly persuasive: "Motor vehicle dealership" is a term defined in c. 93B as: "any person who, in the ordinary course of its business, is engaged in the business of selling new motor vehicles to consumers or other end users pursuant to a franchise agreement and who has obtained a class 1 license pursuant to the provisions of [G. L. c. 140, §§ 58 & 59]" Because neither Tesla nor Tesla MA is engaged in the business of selling new Tesla motor vehicles in Massachusetts "pursuant to a franchise agreement," there appears to be a question whether Tesla's business model involves the operation of a "motor vehicle dealership" ... and therefore whether, by its literal terms, the proscription of § 4 (c) (10) applies to the defendants at all. I suppose that if Ford set up "showrooms" in the Natick Mall and tried to claim they weren't "franchises", the Court would consider reading the definition more broadly, but I'd rather any Court read statutes as being as minimally intrusive as possible: No franchise agreement? No problem.
- toomuchtodo 12y ago
  > I suppose that if Ford set up "showrooms" in the Natick Mall and tried to claim they weren't "franchises", the Court would consider reading the definition more broadly, but I'd rather any Court read statutes as being as minimally intrusive as possible: No franchise agreement? No problem. Can Ford not put vehicles in public areas with associated literature (paper marketing, iPad kiosks, etc), and take orders from that mobile device or via a customer's phone? The order takes place where the servers are (the same as when you buy a Model S on teslamotors.com), and you would be prohibiting the corporation's freedom of speech (finally! a use for Citizens United that sucks less) by preventing them from putting a vehicle out in public (if they have approval of whomever owns/controls the underlying space).

startupfounder 12y ago

Between Tesla and Uber the auto industry is quickly reorganising, becoming more efficient and cutting out the middle man, aka dealerships and taxi companies. It's only a matter of time before drivers are cut out of the equation as well with riders ordering a cab and getting picked up by a self driving Tesla.

jacquesm 12y ago
Uber has very little to do with the auto industry. If anything they're in the taxi business.
- TulliusCicero 12y ago
  For now. But if self-driving taxis become sufficiently cheap and popular, they'll have a huge impact on the auto business.
  - mjwhansen 12y ago
    Or, less far off in the future, will the rise of paid ridesharing change how cars are designed? Perhaps they could be more businesslike in the back where the passenger sits, and more sparse in the front. (I just realized I effectively described the car version of a mullet.)
  - npizzolato 12y ago
    Which is only tangentially related to Uber, unless you're confusing change now with "wouldn't it be nice if we can make self driving cars reliable sometime in the future".
mindslight 12y ago
erm, Uber is a middle man taxi company.
bostonpete 12y ago
I think Uber is great, but I don't think it's cutting out a middleman. It's just replacing one middleman with another, albeit a more efficient one.

coreymgilmore 12y ago

This is great to hear. The decision lacks any limits on the number of dealerships in MA, unlike similar decisions in NJ and PA (from what I could see, correct me if I am wrong). I hope more states in the future take this route of allowing sales without any limitations.

badkungfu 12y ago

Any dissenters around here? We're going through this stuff now in Georgia. I like the ideal of trying different market approaches than your competitors, and I generally think businesses should; but I did read a counter point[0] that at least made me think. If a large number of individuals or businesses are heavily invested in the-way-things-are, is it ever dangerous to rapidly change the market rules that we've built up- usually for the purposes of consumer protection or fostering businesses that benefit the larger community? -- [0] http://www.peachpundit.com/2014/09/05/tesla-uber-internet-sales-taxes-quit-being-so-easily-duped/ http://www.peachpundit.com/2014/09/05/tesla-uber-internet-sa...

pseudometa 12y ago
Never under estimate the ridgidity of those who make money by maintaining the status quo.
- badkungfu 12y ago
  Eh, yeah, I'm just not sure it's that simple. In the article, he points out that Tesla's been given a lot of taxpayer money plus a lot of incentives for buyers to make their product more attractive. And now they now get to skirt around the market rules that other companies have been stuck with and had to build infrastructure and procedures to deal with more effectively. Maybe Tesla's handouts should be pared back as they grow and are allowed to bypass the old rules.
  - gknoy 12y ago
    The market rules were there to prevent car companies from undercutting their own dealerships, however.
  - toomuchtodo 12y ago
    Besides the Gigafactory, can you point out taxpayer money they were "given"? They had a DOE energy loan that was paid back much earlier than required, with interest. That is not a gift. Also, their vehicles receive the same incentives as other EVs produced by other manufactures. Perhaps other manufacturers should make more EVs (or EVs people will buy) if they would like to capture the benefit of those government incentives.

DannyBee 12y ago

So you need to be very careful in being happy about this: All the court said was that the dealers have no private cause of action. That is, they can't sue to block tesla themselves. The state AG/etc could still do it.

free2rhyme214 12y ago
The devil is in the details.
JackC 12y ago
I'm not so sure that's true. The conclusion is that the statute "was intended and understood only to prohibit manufacturer-owned dealerships when, unlike Tesla, the manufacturer already had an affiliated dealer or dealers in Massachusetts." I think there would have to be a third-party Tesla franchisee in Massachusetts before the AG could sue on their behalf.
- DannyBee 12y ago
  That reasoning will be held to be not dicta on the standing issue of private dealers, but would probably be relitigated if the AG sued :) This is because the legal conclusion (under the heading "Conclusion") is limited to the dealers and their private right of action, and thus, only the reasoning that applied to that is considered stare decisis. BUt otherwise, you may end up right. Courts tend to be finicky about this stuff, depending on circumstances.

clairity 12y ago

nice! i'd read somewhere that the dealership model was actually a key aspect to universal car ownership in the US (wish i could find the link). manufacturers apparently had to lobby state legislatures to allow them to set up auto franchises and had to entice franchisees to set up dealerships (this is where all the complicated kickbacks apparently came into play). now the franchisees are understandably lobbying for the opposite to keep manufacturers out. i'm sympathetic to dealers as small business owners but i'm no fan of (most) car salesmen. will be interesting to see if this means dealerships become more competitive (better customer service?) or get pushed out. i've also heard that most dealerships make their money on service, but at least with teslas, that's not a big business (and it's more IT than auto mechanic).

apercu 12y ago

I support the Tesla case for reasons other than that they advocate for electric vehicles. I really hate buying cars. I don't like the games that are played during the process. I've walked away from several car deals, and felt kinda sh*tty about 3 that i didn't walk away from. That is (as much as any other reason) why many people will support a change to the status quo.

sliverstorm 12y ago
felt kinda shtty about 3 that i didn't walk away from.* They say that's the hallmark of a fair deal; both parties walk away feeling mildly dissatisfied.
- djrogers 12y ago
  I doubt any car dealership ever feels mildly dissatisfied after selling a car...
  - apercu 12y ago
    Agreed, it's the hallmark of a fair deal as suggested by a saying i've heard people repeat. But I never bought again from those dealers for the reason that I felt I got a little hosed but was worn down by the process or simply needed to move quickly on a vehicle.

squozzer 12y ago

To me the last paragraph seems a bit funny - "In an unusual blog posting in April, three top U.S. Federal Trade Commission officials expressed opposition to laws banning direct sales, saying they could harm consumers." Maybe the FTC should investigate the way current dealer sales operate if they care about protecting consumers.