The Result: Non-Affiliated Car Dealers Cannot Stop Tesla From Selling Cars in Massachusetts

On Monday, September 15, 2014, the Massachusetts Supreme Court issued a ruling clearing the way for Tesla to sell cars directly to customers in Massachusetts in Massachusetts State Automobile Dealers Ass., Inc. et al. v. Tesla Motors MA, Inc. et al., 2014 Mass. LEXIS 719 (Mass. Sept. 15, 2014). The case arose from Tesla’s 2012 opening of a “sales gallery” in a mall in Natick, Massachusetts through which it sought to sell cars directly to customers. For next two years, certain dealers and the Massachusetts State Automobile Dealers Association (the “Dealers”) tried to stop Tesla from selling cars without the use of a dealer. The Massachusetts Supreme Court decision was highly anticipated as Tesla has tried to sell cars without dealers in a number of states.

The Massachusetts Supreme Court held that the Dealers did not have standing to challenge Tesla because Tesla did not have a dealer network. In other words, the court determined that the only party that could challenge Tesla’s direct sales of its cars was a Tesla dealer. Tesla has no dealers in Massachusetts, or anywhere for that matter, so no one has standing to bring suit to stop Tesla—absent a change to the statute. The Massachusetts Superior Court had reached a similar decision when it dismissed the Dealers lawsuit in November 2012.

The Dealers argued Tesla was precluded from selling its vehicles by Mass. Gen. Laws. ch. 93B, §4(c)(10), which provides that it is illegal for an automotive manufacturers 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.” Another section of the law granted any “dealer” injured by a violation of the act to file an action against the offender. Mass. Gen. Law. ch. 93B, §15(a). The Massachusetts Supreme Court rejected the Dealer’s argument for a couple reasons. First, a motor vehicle dealership, under the Massachusetts law, is defined as someone who sells vehicles to a consumer pursuant to a franchise agreement. Since Tesla has no dealers, or franchisees, it could not be a motor vehicle dealership. Second, the Massachusetts law was written to protect dealers from the manufacturers to which they are affiliated, not manufacturers to which the dealers have no connection.

This is a significant decision for Tesla because it has tried, and continues to try, to sell cars directly to consumers in a number of states. Tesla has stated that it does not have the resources to establish a dealer network given the current low level of sales of its high-end, electric cars. The Massachusetts decision, however, may not give Tesla much leverage in other states as it is highly dependent on the language of the Massachusetts statute. Many other state statutes are drafted differently and provide dealers or the state’s attorney general, or a motor vehicle board, standing to enjoin direct motor vehicle sales by a manufacturer. See e.g., Tex. Occ. Code OC. CODE ANN. § 2301.476. Direct sales of Tesla cars has been barred in Texas and many other states.

It will be interesting to see if the Dealers press the Massachusetts legislature to change the Massachusetts law to prevent Tesla from opening future sales locations, or to make it more difficult for Tesla to operate from its existing sales location.