Massachusetts Judge Says Prepaid Vehicle Maintenance Plans Not Subject to State Dealer Statute

Seyfarth Shaw LLP

A Massachusetts federal court judge has ruled that an OEM-branded prepaid vehicle maintenance plan sold and administered by a third-party to auto dealers is not subject to the Massachusetts Motor Vehicle Dealer Act and therefore dealers are not entitled to receive retail labor rates for work performed under the plan. In Colony Place South, Inc. v. Volvo Car USA LLC, two Massachusetts Volvo dealers alleged that Volvo, its captive finance company (“Volvo Financial”), and a third-party administrator (“FWS”) violated the Dealer Act by “requiring” the dealers to sell a prepaid maintenance plan that reimbursed the dealers at a rate less than their established retail labor rates that they receive for warranty service under the Dealer Act. 

The Dealer Act requires a “manufacturer or distributor” to “adequately and fairly compensate any motor vehicle dealer who, under its franchise obligations, furnishes labor, parts and materials under the warranty or maintenance plan. . . issued by the manufacturer or distributor or its common entity, unless issued by a common entity that is not a manufacturer.” The defendants moved for summary judgment, arguing that neither Volvo Financial nor FWS is subject to the Dealer Act because neither is a ”manufacturer or distributor” of motor vehicles. Volvo also argued that the prepaid maintenance plans are not a “warranty or maintenance plan” issued by Volvo, nor were the dealers “required” to sell the plans, noting that 10% of Volvo dealers nationwide choose not to sell the plans. The dealers argued that Volvo actively advertises and markets the prepaid maintenance plans and receives benefits from the plans, and that Volvo was using “smoke and mirrors” by selling the plans indirectly through related entities, making the plans subject to the Dealer Act.

The court agreed with Volvo, writing in a short text order that “[t]he parties involved in making available to Volvo owners post-warranty maintenance and repair financing cannot plausibly be understood to be ‘manufacturers’ or ‘distributors’ of motor vehicles as those terms as used in” the Dealer Act. The case is notable because the court rejected the dealers’ expansive interpretation of the Dealer Act and held that it narrowly applied only to “manufacturers” or “distributors” of motor vehicles, freeing up captive finance companies and third-party administrators of finance and insurance products to provide products and services without running afoul of the Dealer Act.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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