Tesla Motors Inc. says its win against dealers in Massachusetts' highest court last week bolsters a central piece of the electric vehicle maker's argument for why it should be allowed to sell directly -- even in other states. Dealer groups disagreed.
A Tesla executive called the Massachusetts Supreme Judicial Court's unanimous decision "the most powerful legal ruling" the manufacturer has received in its multiyear battle with dealers over factory-owned stores. The court dismissed an appeal by dealers, agreeing with a lower court's December 2012 ruling that the dealers lacked standing to sue Tesla.
"The justices in Massachusetts very clearly have said in their estimation that the franchise practices act in Massachusetts, which is quite similar to the franchise practices acts in New Jersey and many other states, was to govern behaviors between manufacturers and their affiliated dealers and that further, these acts are not set up to constrain other behaviors or other business models such as ours," Diarmuid O'Connell, Tesla vice president of corporate development, told Automotive News. "And that principle has got broad applications."
Tesla is using a similar argument in other states including New Jersey and Georgia.
But dealers in other states argue that their franchise statutes do apply to Tesla. And Massachusetts dealers say a state ban on factory stores still exists despite the court's ruling last week.
The court didn't make a "decision on whether there's an illegal factory store. It's just on this whole standing issue," said Robert O'Koniew-ski, executive vice president of the Massachusetts State Automobile Dealers Association. "We have a ban in place. It's whether or not we can raise a complaint."
Jim Appleton, president of the New Jersey Coalition of Automotive Retailers, said the Massachusetts decision will have no influence in other states. It "was strictly a procedural decision, not a substantive decision," Appleton said.
Because the court rejected the appeal for lack of standing, any additional commentary has "no precedential impact. [Other] courts will simply ignore it," he said.
The statutes in New Jersey and Massachusetts are not identical, Appleton also noted. "There is no question that [the New Jersey law] prohibits direct factory retailing."
In a court filing in New Jersey last week, Tesla contended that regulators in that state wrongly blocked its stores from direct sales this spring. Tesla's filing said, in part, that New Jersey's franchise statute, on which regulators purported to rely, doesn't apply to Tesla because it has no franchisor-franchisee relationships.
Appleton also said the conflict likely will be resolved legislatively before Tesla's regulatory challenge is even heard.
"Something may be on the governor's desk and signed before they even decide to grant oral arguments at all," he said.
At least two bills are pending in the New Jersey Senate that would give Tesla an exemption to sell directly at up to four stores in New Jersey. It now has two stores.
One of those bills deals just with the Tesla issue and passed the state Assembly earlier this year. The second bill also would update the state's auto franchise law. Appleton said he expects the Senate to take a vote on the franchise bill in late September or October. In addition to the exemption for four factory-owned stores, that bill requires Tesla to have two service facilities, and any fifth store would have to be franchised, Appleton said.
"It appears that Tesla's best and shortest route to relief is part of a package that addresses both Tesla's concerns and the dealers' concerns," Appleton said.
In late August, Georgia dealers petitioned regulators to shut down Tesla's factory-owned stores, saying the model violated state law. O'Connell said Tesla is preparing a response to that petition.
"Just as in Massachusetts, we believe, because of the way the franchise practices act is written and exists, that we should be able to sell in Georgia under any circumstances," O'Connell said.
Despite the court victory and the string of exemptions to direct-sales bans that Tesla has won in a number of states in recent months, the company continues to keep feelers out in Washington on possible federal options. Tesla founder Elon Musk has said he might pursue a federal lawsuit or legislation if the state battles continue.
The National Automobile Dealers Association is "having conversations in every venue, which you would expect them to, and we are, too," O'Connell said. "But all things being equal, I think probably both parties would love to move on to other business -- the businesses that we're both in."