Tesla prevails in top Massachusetts court over direct sales

http://www.reuters.com/article/2014/09/15/us-tesla-motors-massachusetts-lawsuit-idUSKBN0HA29620140915

by hariis • 12 years ago

167 51 12 years ago

JackC2• 12 years ago

Text of the decision: http://www.mass.gov/courts/docs/sjc/reporter-of-decisions/ne...

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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/Cha...

thisjepisje2• 12 years 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.

twoodfin2• 12 years 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.

toomuchtodo7• 12 years 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• 12 years 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• 12 years ago

Uber has very little to do with the auto industry. If anything they're in the taxi business.

TulliusCicero• 12 years ago

For now. But if self-driving taxis become sufficiently cheap and popular, they'll have a huge impact on the auto business.

mindslight• 12 years ago

erm, Uber is a middle man taxi company.

bostonpete2• 12 years 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.

toomuchtodo7• 12 years ago

Uber is the stepping stone to self driving cars. Their valuation will drop when investors realize that anyone can purchase a self-driving car with financing. There is an ocean of mobility demand out there, and its naive to think its going to be captured by Uber because someone installed the Uber app first.

chrismcb2• 12 years ago

How are taxi companies a middle man in the auto industry? Is uber suddenly using bicycles or some other non auto conveyance to transport people around? Even in the taxi industry, uber is not cutting out a middle man, they are becoming one.

coreymgilmore• 12 years 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.

badkungfu2• 12 years 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-sa...

pseudometa• 12 years ago

Never under estimate the ridgidity of those who make money by maintaining the status quo.

badkungfu2• 12 years 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.

cratermoon3• 12 years ago

Somewhat of a dissent: A law that protects dealers from being screwed over by manufacturers and distributors is a good thing, but the court said that the law protects dealers for car maker G from being harmed by the actions of G, not the actions of car maker T. But if car maker T can act in ways that harm dealers for other car maker G, then some protection is probably needed.

I would expect that the standing issue would be different if dealer for G could show harm by the actions of maker T.

This article gives more info about the decision: http://www.reuters.com/article/2014/09/15/us-tesla-motors-ma...

dang• 12 years ago

Thanks. Url changed to that from http://www.pddnet.com/news/2014/09/court-tesla-motors-can-se....

thisjepisje2• 12 years ago

What's this thing about protecting others from harm? Isn't harming your opponent what competition is all about? Not directly harming them, of course, but simply by being better than them, which is the case here.

chrismcb2• 12 years ago

How do you expect maker T harming dealer G? Other than making a better product and outselling G? Maker t can't force maker G to change its relationship with dealer G or undercut G. I would expect that if maker T is harming dealer G other than by normal market forces, then they are probably already doing something illegal and no further protection is actually needed.

zo1• 12 years ago

"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?"

Drastic and radical changes that happen quickly are probably quite a shock to a lot of business/industries/people. However, we must take care in what "regulation" or "consumer protection" as you call it, we add lest we actually make the subsequent change more drastic and actually harmful(more so than the harm we're trying to prevent by putting the regulation in place).

We're only in this situation because of regulation designed to protect already-invested businesses. At the time it was probably argued that having them fail would be a "dangerous and rapid change", or something to that effect. And the regulation sort of propped up or let the businesses get even more heavily invested into their ideas with no fear of alternative markets etc.

We could argue that if those regulations never got in place, those relatively smallish businesses would have failed at the time. The then owners would have adjusted, started over, or re-tooled their business to fit in.

twoodfin2• 12 years ago

I'd only dissent so far as I'm unconvinced that the Court wouldn't have reached a different opinion if, say, some newly independent spinoff brand of GM was muscling in on its parent company's dealers by trying to sell directly to consumers. That is, I am suspicious it helped that Tesla had the green halo it does.

If the law is producing bad outcomes, the legislature should face pressure to change the law. We shouldn't rely on the Court to stretch as far as it can to get the "right" result.

But JackC's summary of the opinion makes a reasonable case that the standing issue was properly decided.

DannyBee2• 12 years 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• 12 years ago

The devil is in the details.

JackC2• 12 years 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.

DannyBee2• 12 years 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• 12 years 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).

apercu2• 12 years 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• 12 years 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• 12 years ago

I doubt any car dealership ever feels mildly dissatisfied after selling a car...

squozzer• 12 years 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.

Tesla prevails in top Massachusetts court over direct sales

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