Tober Foreign Motors, Inc. v. Reiter Oldsmobile, Inc.

• Decision Date: 07 September 1978
• Citation: 376 Mass. 313,381 N.E.2d 908
• Parties: , 1978-2 Trade Cases P 62,266 TOBER FOREIGN MOTORS, INC., et al., 1 v. REITER OLDSMOBILE, INC.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 908

381 N.E.2d 908

376 Mass. 313, 1978-2 Trade Cases P 62,266

TOBER FOREIGN MOTORS, INC., et al., ¹ v. REITER OLDSMOBILE, INC.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued April 4, 1978.

Decided Sept. 7, 1978.

[376 Mass. 314] John J. Curtin, Jr., Boston (Daniel L. Goldberg, Boston, with him), for General Motors Corp.

Robert L. Dambrov, Springfield, for Tober Foreign Motors, Inc., joined in a brief.

Michael G. West, Cambridge, for Reiter Oldsmobile, Inc.

Before HENNESSEY, C. J., and BRAUCHER, KAPLAN, WILKINS and LIACOS, JJ.

KAPLAN, Justice.

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, ² 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 year, 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. ³ 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 "(u)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; ⁴ a franchisee could claim up to treble damages as under c. 93A, §§ 9-10. ⁵

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 "(u)nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." Id., § 2(A ). ⁶ 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 "(u)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...