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09/07/78 TOBER FOREIGN MOTORS v. REITER OLDSMOBILE

September 7, 1978

TOBER FOREIGN MOTORS, INC. & ANOTHER *FN1
v.
REITER OLDSMOBILE, INC.



Suffolk. Civil action commenced in the Supreme Judicial Court for the county of Suffolk on December 2, 1976. The case was reported by Wilkins, J.

Hennessey, C.j., Braucher, Kaplan, Wilkins, & Liacos, JJ.

SYLLABUS BY THE COURT

Constitutional Law, Motor vehicle franchise, Commerce clause, Police power. Due Process of Law, Vagueness of statute. Consumer Protection Act, Motor vehicle franchise. Motor Vehicle, Dealer, Franchise.

The opinion of the court was delivered by: Kaplan

General Laws c. 93B, enacted by St. 1970, § 814, § 1, regulating business practices among motor vehicle manufacturers, distributors and dealers, and particularly attacking "nfair methods of competition and unfair or deceptive acts or practices," and making unlawful a considerable array of oppressive practices, falls within the Legislature's powers of economic regulation; provisions of the chapter aimed at unfair coercion of dealers by manufacturers or distributors are prima facie within the government's constitutional reach. [319-322]

In a civil action by an automobile manufacturer and a company to which it had recently granted a new dealership franchise against another company, which had long held a dealership franchise from the same manufacturer and was located in the same city as the new franchisee, seeking a declaration that certain provisions of G. L. c. 93B, as amended, regulating the granting by motor vehicle manufacturers of new dealership franchises which would compete with established franchises, were unconstitutional, the plaintiffs failed to show any burden on interstate commerce [322]; c. 93B aims at eliminating unfair or coercive industry practices and the protection of franchisees and the preservation of a sound competitive market [322-323]; and the statute contains no provisions hinting of any purposive effort by Massachusetts to burden sister States to its own advantage [323-326].

An argument that G. L. c. 93B, as amended, regulating business practices in the automotive industry, must be held void under the supremacy clause of the Federal Constitution as in conflict with Federal law was without merit; the statute gives no existing franchisee of a dealership from an automobile manufacturer a veto power over the introduction of a potential competitor [326-328]; Federal antitrust law does not apply to restraints which emanate from State legislation, and c. 93B, a response to a matter of public concern, is administered by an official body [328-330].

General Laws c. 93B, § 4 (3) (l), a civil statute enacted in 1970, and providing that it shall be deemed an unfair method of competition for a motor vehicle manufacturer to grant a competitive franchise to a dealer in "the relevant market area" previously granted to another franchisee, such area to be determined "exclusively by equitable principles," and stating in brief form the criteria for allowing or denying a new franchise, was discussed by this court in connection with the amendment by St. 1977, c. 717, § 3, which defines "relevant market area," and was held not unconstitutional as depriving an automobile manufacturer and a grantee from it of a new dealership franchise of due process in that the provisions of the statute lacked adequate specificity. [330-332]

This court discussed constitutional objections to the arbitration provisions of G. L. c. 93B, § 4 (3) (l), which lacked any express provision for review of an arbitration decision respecting an "additional dealership" granted by an automobile manufacturer where there was an existing dealership, in the light of the amendment of that section by St. 1977, c. 717, § 3, which eliminated arbitration and vested jurisdiction with respect to a controversy over an "additional franchise" in the Superior Court. [332-334]

In an action commenced in this court for Suffolk County on December 2, 1976, General Motors Corporation (GM), an automobile manufacturer, and Tober Foreign Motors, Inc. (Tober), a company located in the city of Springfield to which GM had recently granted a new dealership franchise, sought a declaration and ultimate injunctive relief against Reiter Oldsmobile, Inc. (Reiter), a company which had long held a GM dealership franchise in the same city. The declaration sought was that certain provisions of G. L. c. 93B, as it then stood, *fn2 purporting to regulate the granting by motor vehicle manufacturers of new dealership franchises which would compete with established franchises in the same markets, were unconstitutional, with the result that Tober's franchise would be valid notwithstanding the fact that the statutory requirements were disregarded.

The case reaches us as reserved and reported by a single Justice of this court on November 9, 1977, without decision, upon a statement of agreed facts. We are told that GM generally does not sell its products at retail; rather it uses independent dealers with whom, through its "divisions," it enters into "Dealer Sales and Service Agreements." Such an agreement -- here an Oldsmobile agreement -- has the effect of providing the dealer with the opportunity to secure a line of cars for resale at retail, and obligates him, among other things, to offer warranty and repair services to the purchasers. The Oldsmobile agreement places no restriction on whom the dealer may sell to, nor on the retail sales prices; and the dealer remains free to handle the automobiles of other manufacturers.

In the 1976 model years, GM shipped about 13,000 Oldsmobile cars, manufactured outside Massachusetts, to the fifty-nine franchised Oldsmobile dealers located in the Commonwealth. The defendant Reiter received 270 of these cars. From 1961 until 1976, Reiter had the only Oldsmobile franchise in Springfield; as of December 1, 1976, save for a dealer in Chicopee, Massachusetts, Reiter was the only Oldsmobile dealer in the "Springfield Multi-Dealer Area" consisting, besides Springfield, of thirteen surrounding cities and towns. (There were, however, Oldsmobile dealers in Westfield, Massachusetts, and Enfield, Connecticut, competing to some extent with Reiter; in the recent past, there were dealers in Wilbraham and Chicopee Falls, Massachusetts.)

In early 1976 it became known to Reiter that GM's Oldsmobile division contemplated the award of a new Springfield dealership, and on February 10, 1976, Reiter wrote to Oldsmobile to protest the plan. Nevertheless, on March 8, 1976, Oldsmobile sent a letter of intent to Tober's owners, which was accepted by them, embodying the purpose to award a dealership to Tober to be located in the city (Tober was then, and continues to be, a dealer in Datsun and Toyota cars at that location). Reiter brought suit promptly against Tober and GM in the Superior Court in Hampden County, seeking injunctive relief. That action has failed but does not preclude or affect the present. *fn3 On October 15 and November 9, 1976, Reiter sent telegrams to GM demanding arbitration under the provisions of G. L. c. 93B to be mentioned below. This drew the response on December 2, 1976, that GM considered the relevant part of the statute to be unconstitutional. On that day GM and Tober entered into an Oldsmobile Dealer Sales and Service Agreement. Also on that day they brought the present action for a declaration. Reiter answered and, in a counterclaim with three counts, sought injunctive relief, preliminary and final, together with damages. A single Justice, after denying preliminary relief on the counterclaim and staying proceedings on two counts thereof pending resolution of the constitutional question, on joint motion of the parties severed the counterclaim and transferred it to the Superior Court in Hampden County. On November 9, 1977, a single Justice reported the case which, as limited, propounded the constitutional question.

The action attacked particularly § 3 (a) of G. L. c. 93B, taken in relation to § 4 (3) (l). Section 3 (a) declared "nfair methods of competition and unfair or deceptive acts or practices, as defined in section four," to be unlawful, and provided that courts in construing § 3 (a) might be guided by interpretations of the Federal Trade Commission Act (15 U.S.C. § 45 [1976]). Section 4 stated that a number of acts or practices by manufacturers, distributors, dealers, or others, described in some detail, should be deemed violations of § 3 (a). These included, under § 4 (3) (l), the granting by a manufacturer of a competitive franchise in "the relevant market area previously granted to another franchisee," the relevant market area "to be determined exclusively by equitable principles"; with the proviso that if a manufacturer wished to grant such a competitive franchise, then it must give notice to the existing dealer or dealers in the area and, unless there was agreement, the matter should be submitted to "final and binding arbitration under the principles herein prescribed, for a determination of the relevant market area, the adequacy of the servicing of the area by the existing dealer or dealers and the propriety of the granting of such additional dealership." (The text of § 4 [3] [ l ] is reproduced in Appendix A.) The Attorney General was to enforce compliance with c. 93B in accordance with G. L. c. 93A, §§ 4-8; *fn4 a franchisee could claim up to treble damages as under c. 93A, §§ 9-10. *fn5

The parties' statement adds the following rather meager information about business results since the Oldsmobile franchise went to Tober. In the period January through July 10, 1977, sales of Oldsmobiles increased by 7% over the comparable 1976 period in the "Boston Zone" (which includes Massachusetts, New Hampshire, Vermont, Rhode Island, the northeastern half of Connecticut, and the northeastern portion of New York). Reiter's sales increased 13%, from 150 to 169 Oldsmobile cars. Tober also sold 169 Oldsmobiles. (The dealers in Westfield and Enfield, however, experienced declines of 20% and 5%: 178 to 143; 185 to 176.) In the nature of the case, we find no hard facts in this record as to the economic consequences of the particular feature of the legislation, were it to be enforced.

It remains to say that two days before this case was reserved and reported, on November 7, 1977, St. 1977, c. 717, was enacted (effective ninety days thereafter), revising sundry provisions of G. L. c. 93B. In the revision of § 4 (3), treating of illegal acts by manufacturers, subdivision (l) emerged as follows. It is an illegal act under § 3 (a) for a manufacturer "arbitrarily and without notice to existing franchisees" to grant a franchise to an additional franchisee who would conduct his dealership "from a place of business situated within the relevant market area of an existing franchisee or franchisees"; a manufacturer intending to make such a grant must give sixty days' prior notice to franchisees within a twenty-mile radius of the proposed new location; an existing franchisee may petition the Superior Court to determine whether the grant is arbitrary. "Relevant market area" is defined. Finally, the court, in determining whether the grant is arbitrary, shall consider "all pertinent circumstances"; these may include eight stated factors. (The text of § 4 [3] [ l ], as revised, appears in Appendix B.) In response to an illegal practice under c. 93B, the dealer may begin his own action for equitable relief, but multiple damages are not available. G. L. c. 93B, §§ 12, 12A.

1. Background and legitimacy, in general, of the statute. The Legislature in 1967 enacted G. L. c. 93A which addressed itself to "nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." Id., § 2 (a). *fn6 This was essentially an act for the protection of consumers. In 1968 came a Report of the Legislative Research Council Relative to Regulation of the Automotive Industry (1968 Mass. Senate Doc. No. 983); and G. L. c. 93B, approved in 1970, followed with an attack particularly on "nfair methods of competition and unfair or deceptive acts or practices" (id., § 3 [ a ] occurring in the automotive industry. The act covered transactions between dealers and the public, but dwelt especially on the relations among manufacturers, distributors, and dealers (which, however, must in the end also affect consumers). Here was a response to long-recognized problems including that of the coercion of dealers by automobile manufacturers through such means as the cutting off or purposeful manipulation of the supply of cars. See, in addition to the Report, (supra) , S. Rep. No. 1879, 84th Cong., 2d Sess., Bigness and Concentration of Economic Power -- A Case Study of General Motors Corp., at 79; H.R. Rep. No. 2850, 84th Cong., 2d Sess.; House Doc. No. 468, 76th Cong., 1st Sess., FTC Report on Motor Vehicle Industry, at 1075; S. Macaulay, Law and the Balance of Power: The Automobile Manufacturers and their Dealers, 5-21, 48, 164-170, 176-177 (1966); Brown, A Bill of Rights for Auto Dealers, 12 B.C. Indus. & Com. L. Rev. 757 (1971). Congress had in fact provided a partial response to these problems with the 1956 Automobile Dealers' Day in Court Act, 15 U.S.C. §§ 1221-1225 (1976), which placed an obligation of good faith on manufacturers and invited supplementation in State legislation. *fn7

Chapter 93B, § 4, makes illegal under § 3 (a) a considerable array of oppressive practices. Among those condemned are: requiring dealers to accept unwanted parts or accessories as a condition of securing the cars they request; implementing unfair plans for the allocation of cars among dealers; failing to deliver cars to dealers in reasonable quantities and at reasonable times; threatening cancellation of franchises; refusing without good cause to extend franchise agreements; discriminating in pricing among franchisees; except in special situations, operating manufacturer-owned retail outlets within the market areas of franchisees. Yet another technique with potentialities of unfairness is the granting of new franchises near established ones: having invested in his dealership, a dealer who has displeased the manufacturer, or who simply appears to be dispensable, finds his business turned into a losing venture overnight by the award of a new franchise around the corner, and, it may be, without any practical benefit to, or, indeed, with negative effects on, the buying public. In the attempt to regulate the granting of dealerships in territory already served, our statute in § 4 (3) (l) finds some echo in the legislation of a number of other States. *fn8

Chapter 93B as a whole is of a type falling within the Legislature's powers of economic regulation, and those provisions aimed at unfair coercion of dealers have evident justifications which bring them prima facie within the government's constitutional reach. Thus the Legislature might act for the express purpose of protecting dealers against what it could conceive to be the inequitable consequences of overweening economic power wielded by manufacturers -- neither the Massachusetts nor Federal Constitution requires that a State let the chips fall where they may. So also the Legislature was not barred from acting on the belief that consumers would be hurt in the long run by tolerating the manufacturers' power to dictate the selling practices of their retail outlets: there has been complaint, for example, that dealers' servicing of ...


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