Overview
Volvo Cars Plymouth and Volvo Cars Cape Cod (“Dealers”) sued Volvo Cars USA, LLC (“Volvo Cars”), Volvo Car Financial Services U.S. (“Volvo Financial”), LLC, and Fidelity Warranty Services, Inc. (“Fidelity”) (collectively, “Defendants”) for alleged violations of the Massachusetts dealer act in the United States District Court, District of Massachusetts (“District Court”). Dealers alleged that Defendants underpaid Dealers for parts and labor expended servicing the Volvo Prepaid Maintenance Program (“PMP”) in contravention of Massachusetts law requiring retail rate compensation for certain types of work. The District Court granted Defendants’ motion for summary judgment, finding that because the PMP was offered by a non-manufacturer third party, the PMP did not meet the statutory definition of the type of work covered by Massachusetts law. On November 21, 2024, the First Circuit affirmed the summary judgment, albeit for a different reason.[1]
Fidelity sells the PMP to dealers, who sell them to consumers. The PMP allows consumers to lock in pricing for post-warranty routine maintenance services such as oil changes and fluid replacements. Dealers set the price on the PMP, and Fidelity pays Volvo Financial a referral and incentive fee to, in part, compensate for the use of the Volvo name on the PMP. Dealers choose a reimbursement tier with Fidelity that determines how much Fidelity pays a dealer for the maintenance services it performs. The higher the reimbursement tier, the higher the fee for the PMP that dealer must pay Fidelity when it sells the PMP to a consumer.
While Volvo Cars advertises that the PMP will be honored at “any authorized Volvo dealership,” not all U.S. Volvo dealers participate in the Volvo PMP with Fidelity (19 of 281 do not participate).[2] Additionally, Fidelity pays the dealer performing the PMP service at the reimbursement tier of the dealer selling the PMP.
In the lawsuit, Dealers alleged that Defendants violated the Massachusetts dealer act by not paying “adequate and fair compensation” for service performed pursuant to a PMP. The relevant portion of the Massachusetts dealer act provides as follows:
A manufacturer or distributor shall, within a reasonable time, fulfill its obligations under all express warranty agreements made by it with respect to a product manufactured, distributed, or sold by it and shall adequately and fairly compensate any motor vehicle dealer who, under its franchise obligations, furnishes labor, parts, and materials under the warranty or maintenance plan, extended warranty, certified preowned warranty, or a service contract, issued by the manufacturer or distributor or its common entity, unless issued by a common entity that is not a manufacturer . . . [3]
The District Court granted summary judgment in favor of the Defendants because it found that Fidelity was not regulated by the Massachusetts dealer act since Fidelity is not a manufacturer. But the First Circuit affirmed summary judgment, finding that the “[D]ealers’ sale and service of the Volvo PMP are not franchise obligations” under the Massachusetts dealer act. As noted above, manufacturers are required 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 . . .” Despite various arguments by Dealers, the First Circuit found that the Dealers were not obligated under their franchise with Volvo Cars to sell or provide service under the PMP.
For years, dealers and their lobbyists have pushed state legislatures to increase dealer compensation for warranty and other repairs performed by the dealer pursuant to contracts that manufacturers make with consumers. Initially, this resulted in retail-level compensation for warranty repairs, which in general requires a dealer to be reimbursed at the same rate for warranty work performed as if it had been performed outside of a warranty at the “retail” rate specified by the dealer. In recent years, however, the laws have expanded to require retail rate compensation for work performed beyond warranty agreements, including recall work, service contacts, or prepaid maintenance, such as the PMP.
It will bear watching whether Massachusetts dealers attempt to amend the Massachusetts dealer act to essentially “overrule” the First Circuit’s decision.
BFKN’s Motor Vehicle Group will continue to follow developments in this area.
[1] Colony Place South, Inc. dba Volvo Cars Plymouth v. Volvo Car USA, LLC, Case No. 23-1801, 2024 WL 4850082 (1st Cir. Nov. 21, 2024).
[2] Id. at *6.
[3] Mass. Gen. Laws ch. 93B, §9(b)(1).