Massachusetts Business Franchise Litigation Involves Auto Dealers

February 12, 2013

Our Boston franchise attorneys understand a number of competing car dealerships have banded together to file suit against a rival they contend is skirting state auto dealership franchise laws - specifically, Massachusetts General Law 93B.repetitionseries10.jpg

This legislation, which governs the business practices of auto manufacturers, dealers and franchises in Massachusetts, says, in part, that a manufacturer is prohibited from owning a dealership. Usually that's not an issue, as manufacturers make the vehicles, which are then shipped off to a dealership to be sold. These dealership franchises, which are independently-owned, must abide by a list of state regulations, including holding special licenses and guaranteeing that they can conduct repair work on the vehicles they sell.

The target of this action, by the Massachusetts State Automobile Dealers Association and the National Automobile Owners' Association, is Tesla Motors. Tesla Motors, according to the complaint in a Boston Superior Court, allegedly broke the law when it opened its own dealership, albeit a small one, in the Natick Mall.

The rival companies say that Tesla has an unfair advantage because it's not investing the millions of dollars that other car manufacturers must in order to ensure that their franchises are complying with their agreements and with the law. It's also not having to spend the money that multi-brand dealerships do when they have to dedicate a different showroom to each brand.

But Tesla says it isn't doing anything wrong. Company administrators say that because it is such a small firm, its production capacity is not nearly enough to adequately stock any of its two dozens stores. So customers have to get on a wait list in order to purchase a vehicle. Thus, Telsa is unlike a regular dealership, where a customer can walk in, sign some paperwork and drive off in a new car.

Still, the rival companies say they aren't backing off of their illegal trade practices lawsuit. Although a judge refused to issue an injunction that would have barred Tesla from operating its stores while the suit is pending, the company has stopped offering test drives and reservations at certain locations.

The CEO of Tesla, Elon Musk, said the real issue here is that these large manufacturers are terrified electric vehicles are going to undermine their business.

The other dealers, however, counter that it has more to do with the difficulties for customers who need to get services. For example, Tesla's Boston service center is scheduled to open in the spring, but it would be in a different location than the dealership, contrary to requirements for franchised dealers.

In reality, franchise laws weren't written with the goal of protecting the consumer. They were written to protect dealerships from distributors and manufacturers who might be otherwise cut off contracts without warning or be tempted to strong-arm dealerships into purchasing models.

There are a great deal of advantages - and disadvantages - when it comes to franchising, regardless of whether you are in the auto industry. Speaking to a Boston franchise attorney before entering into any franchise agreement is essential to ensuring your rights are protected. We encourage franchise owners or those considering opening a franchise to seek legal advice as early as possible in the process. .

The Brown Law Firm, LLC, has offices in Belmont and Boston. For a free and confidential consultation, call 617-489-0817 or contact us online.

Additional Resources:
Natick Tesla store still facing lawsuit from Mass. dealerships, Nov. 26, 2012, By Clifford Atiyeh, Boston Globe

More Blog Entries:
Boston Business Lawyers Talk Lawsuits Over Online Posts, Nov. 6, 2012, Boston Small Business Lawyer Blog