Tesla May Take Direct Sales Fight To U.S. Federal Court

1 year ago by Steven Loveday 46

Tesla Dealership In Houston, Texas

Tesla Dealership In Houston, Texas

According to a report in Wall Street Journal, Tesla is preparing to take its direct sales case to federal court if needed.

Six states currently have restrictions against the automaker’s direct sales policy. It is against the law for Tesla to sell its cars in Arizona, Michigan, Texas, Connecticut, Utah and West Virginia, due to Tesla not involving a third-party dealership.

Tesla Pop-Up Store In Santa Barbara, CA

Tesla Pop-Up Store In Santa Barbara, California

The legal team at Tesla, headed up by attorney Todd Maron, has been researching similar cases to prepare. A 2013 ruling in New Orleans allowed a monastery to sell “monk-made” coffins using the direct sales method, after a shortage became evident following Hurricane Katrina. Maron said:

“It is widely accepted that laws that have a protectionist motivation or effect are not proper. Tesla is committed to not being foreclosed from operating in the states it desires to operate in, and all options are on the table.”

Tesla recently made some forward progress in Indiana, but the issue is far from resolved. In Michigan, progress seems at a halt and the attorney general’s office wouldn’t comment.

The Federal Trade Commission has often agreed that franchise laws are anti-competitive. Many other organizations back this opinion. Tesla will have little problem recruiting strong supporters. Federal Trade Commission and Institute for Justice attorney Greg Reed agrees with Tesla. WSJ reported Reed’s statement:

“There is no legitimate competitive interest in having consumers purchase cars through an independent dealership.” He calls Michigan’s laws “anti-competitive protectionism.” 

Only dealership lobbyists and a few manufacturers are going to bat against Tesla. GM CEO, Mary Barra poked fun at the company during the Chevy Bolt unveiling. She said:

“Unlike some EV customers, Bolt EV customers never have to worry about driving to another state to buy, service or support their vehicles.”

We may or may not see this case make it to federal court at some point in the near future. Meanwhile, Tesla will continue to fight state-by-state, focusing now on current battles in Indiana, Michigan, Utah, and Connecticut.

Source: WSJ

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46 responses to "Tesla May Take Direct Sales Fight To U.S. Federal Court"

  1. Someone out there says:

    It would be great if there was a federal ruling that made all such laws illegal for any business. These laws makes absolutely no sense at all except for pure protectionism which of course is anti-capitalist and should not be allowed in the USA.

  2. Taser54 says:

    Given that regulation of businesses such as car sales is traditionally left to the States, Tesla will have no success.

    1. no comment says:

      to the extent that a state law conflicts with federal law (such as the sherman act) or the U.S. constitution, the state law is void.

      when i see people having to travel 500 miles to get service for their tesla automobiles, i am no longer sympathetic with the tesla position. granted, the ev enthusiast doesn’t mind having to transport his car 500 miles for service because the ev enthusiasts see such as being an inconvenience that is necessary to advance what he perceives as “the cause”.

      but most people aren’t ev enthusiasts and such people are no more likely than ev enthusiasts to think through the implications of buying a car in which no local service is available. to that extent, consumer protection aspect of laws banning manufacturer sales overcome the potential anti-competitive aspects.

      1. Will says:

        1. You’re not sympathetic with Tesla customers BECAUSE they are forced to drive 500 miles to get a service done as a result of bogus regulations?

        2. You’re convinced these ‘consumer protection’ laws are in general a positive thing because the majority of people are not EV enthusiasts and therefore do not consider, when buying a car, the distance to their nearest service centre?

        I’m sorry if we’re speaking entirely different languages here, but your logic is utterly bizarre. To better explain my position here, I think both points you made in your comment are actually good examples WHY consumer protection laws are a bad idea. It means people can buy a Tesla without much thought, and the chances of there being a local service point are much greater.

        1. no comment says:

          the situation that i referenced is one that has occurred in the United States, so that is the point of reference. the reason why people have had to transport their Model S cars hundreds of miles for service is because tesla did not have local service facilities, so the car had to be transported to the nearest service facility. obviously, tesla has concluded that it does not make economic sense to locate service facilities in every community in which a Model S might be sold. installing a nationwide service network by a single manufacturer is a huge capital undertaking, which is why manufacturers don’t do it. under a dealership model, the local dealer would have the service center.

          as to consumer protection laws; the reason for consumer protection laws in the United States is that people aren’t generally in the position to engage in extensive scenario testing to consider every circumstance that might occur in advance. so consumer protection laws attempt to anticipate circumstances that might present problems to consumers and to prevent the conditions that might cause those circumstances to come to reality. some might derisively call this a “nanny state” but many of those people would be singing a different tune once they themselves incur some form of injury.

          it’s people like gary bucy, who was critical of laws requiring people to wear helmets when they operate a motorcycle, but then he was singing a different tune when he incurred serious head injury in a motorcycle accident. yes, sometimes the “nanny state” needs to protect people from their own stupidity, because when they incur an injury we can all end up having to pay for it.

          1. Stimpy says:

            This post reads like something out of the Twilight Zone.

            Bad laws are bad.

          2. TomArt says:

            Wow – that is a huge, mistaken assumption! That Tesla owner that was 500 miles away from a service station was due to one of two things:

            1) they are in Michigan, where it is illegal for Tesla to even have a repair shop; or

            2) Tesla hasn’t gotten there, yet.

            Since they do not rely on franchises, then they have to do it all themselves. That costs money. Musk has stated over and over that they want everyone to be able to get their cars serviced locally, but that is going to take 5, 6, 8 or more years to make good on that promise. It takes time.

            If you recall from the reveal, they intend to quadruple the number of stores/service centers globally by the time the Model 3 deliveries begin.

      2. Someone out there says:

        Consumer protection? Wow that is FUD as thick as it gets! What is the consumer protected from when being forced to use an unnecessary middle man to buy a product?

      3. flmark says:

        Your comment is nonsensical, as you seem to assume that a national dealer network some how protects the consumer from himself. Uh Uh! Case in point-

        I got a flat in my Volt about 20 miles west of Jacksonville, FL. I had to get PROACTIVE with OnStar because they were ready to have my Volt hauled to the nearest GM dealer without bothering to inquire as to whether that dealer could actually solve my problem. It was ME who had to make a series of phone calls BEFORE the tow truck arrived and ensure that I was hauled to the PROPER dealer, and MY calls ensured that I had tires awaiting me when I got there.

        So I have to have a dealer because I am too stupid so that I need protection from myself, huh?! A network of dealers guarantees NOTHING in regards to getting your vehicle fixed…and my comment and observation was about a FREAKIN TIRE, for crying out load. We are not even talking about sophisticated electronics. And along that line, the Chevy dealer nearby is incompetent, and the dealer 30 miles away told me to hold off a few weeks on a repair to my 2008 Tahoe Hybrid’s nav system because he didn’t currently have a tech on staff that he trusted.

        Your opinion is easily disproven by the mere PRESENCE of dealer networks ALREADY IN EXISTENCE. Your comment is about the non-educated, yet the non-educated will have just as much chance of being screwed over by picking the wrong FACTORY AUTHORIZED dealer. Unbelievable.

      4. sven says:

        no comment said:
        “to the extent that a state law conflicts with federal law (such as the sherman act) or the U.S. constitution, the state law is void.”

        “No comment” is correct. The federal court will find that the state laws restricting Tesla from selling cars violate the Commerce Clause of the United States Constitution. More specifically, the state laws violate a legal doctrine called the “dormant” Commerce Clause, also known as the “negative” Commerce Clause, which the Supreme Court has inferred from the actual Commerce Clause in the Constituiton.

        The Commerce Clause expressly grants Congress the power to regulate commerce “among the several states.” The idea behind the dormant Commerce Clause is that this grant of power implies a negative converse: a restriction prohibiting a state from passing legislation that improperly burdens or discriminates against interstate commerce. Supreme Court Justice Anthony Kennedy has written that: “The central rationale for the rule against discrimination is to prohibit state or municipal laws whose object is local economic protectionism . . .”

        https://en.wikipedia.org/wiki/Dormant_Commerce_Clause

        1. TomArt says:

          Excellent point and link – thanks!

        2. no comment says:

          i think that you are misinterpreting the dormant commerce clause legal doctrine. application of that doctrine would require proof that the purpose of the no-direct purchase statutes is to protect local auto dealers. the simple defense against a challenge to no-direct purchase statutes would be to establish that the purpose of the laws is to protect consumers, not local auto dealers.

          i am making no declarations for how this litigation is going to turn out. i am just stating that it is not a simple “open and shut” case.

          1. SparkEV says:

            If you can’t grow your own wheat on your land to feed your own chickens due to affecting interstate commerce, anything’s possible. But given that on-line sales is more relevant to interstate transactions, it is far more likely to be valid argument against dealer networks than feeding your chickens.

        3. kubel says:

          There is no interstate commerce issue here. It’s intrastate only. The Commerce Clause is not applicable, and the 10th Amendment wins. This is something Tesla will need to battle out with the individual states.

          1. sven says:

            Cars which are manufactured in one state and sold in another state are by definition interstate commerce.

            These states have enacted laws that prohibit an out-of-state company, Tesla, from directly selling cars in a company-owned store, and in some cases even over the internet. The Tesla cars are manufactured out of state, in California, and would have to cross states lines to be sold interstate in the states that Tesla is suing in federal courts.

            Practically all commerce is interstate commerce subject to the dormant Commerce Clause. Commerce is interstate commerce if 1) the goods are manufactured out-of-state, or 2) manufactured in-state from parts made out-of-state or from out-of-state sourced raw materials. Intrastate commerce refers to goods which are both manufactured in-state and sold in-state, and which are made solely from parts manufactured in-state and from in-state raw materials; otherwise the goods are deemed to have passed through interstate commerce. Likewise, goods imported into a state from a foreign country that are manufactured in a foreign country out of foreign-made parts and foreign-source raw materials are not subject to the dormant Commerce Clause. But if the foreign imported goods are then shipped to another state to be sold there, then they have passed through interstate commerce and are subject to the dormant Commerce Clause.

      5. Steve says:

        Don’t forget that selling new cars, and servicing cars that already exist, are two separate things. This is about Tesla trying to sell new cars.

      6. Steve says:

        There are a lot of places in the USA where Lamborghini owners have to transport their cars 500 miles to get service. How come that is?

        1. steven says:

          Perhaps because Lamborghini has no service infrastructure in some states, simply because either they see no economic advantage in having one there, or no service station in some states have expressed no interest in being Lamborghini authorized.

      7. Pushmi-Pullyu says:

        “no comment” commented:

        “to the extent that a state law conflicts with federal law (such as the sherman act) or the U.S. constitution, the state law is void.”

        Interesting point, thanks.

        I am not a lawyer, but I don’t see that the Constitutional interstate commerce clause applies. States restricting how things are sold in their their State isn’t restricting trade, any more than a State which restricts what hours and on what days you can sell liquor. Arguably, since Tesla can still sell cars online to people in those States, restrictions against selling cars through showrooms or “stores” are Constitutional.

        But the antitrust laws, yeah, I can see a rational argument that the anti-competitive State laws protecting dealerships might well give Tesla an opening for an antitrust suit or charge. The dealerships, in keeping Tesla from competing, certainly are acting as a collective monopoly.

      8. Pushmi-Pullyu says:

        “no comment” commented:

        “…when i see people having to travel 500 miles to get service for their tesla automobiles, i am no longer sympathetic with the tesla position.”

        You seem to be arguing that Tesla should be forced to set up service centers in regions with very low population densities, where such service centers couldn’t possibly pay for themselves.

        Thank goodness we don’t live in a country where the government is able to arbitrarily dictate that companies adopt policies which force them to be unprofitable!

        1. SparkEV says:

          There are many examples where the government forces companies into immediately unprofitable situation. Then the companies usually cope by raising prices. Minimum wage laws is one example.

          If Tesla is required to operate with dealer network in less than profitable areas, they’d simply raise the price of all their cars to compensate. Then there are myriad of other regulations, some seemingly made in random out of thin air and nonsensical that doesn’t add value to the car except to raise its price. Isn’t more socialism grand?

      9. MIkeM says:

        Tortured logic!

    2. MDED says:

      You wrong California can sue another states bc a California manufactur can not sale in other states or ban the sale of boos from all the products from the 6 states and Cuba, all the same.

  3. Paul says:

    Maybe all who have ordered a Model 3 from these states could contact their local government to tell them that they would like to buy and later have serviced their cars in their own state.

    Or all of us – more the 250.000 by now – who have ordered a Model 3 could create a change.org-like movement telling the USA that a nation that pushes so hard internationally to create zones of free trade should first clean up at home and stop protectionism at the state level.

    1. TomArt says:

      Not a bad idea! A number of petitions from Change.org have been successful in a variety of issues.

  4. Speculawyer says:

    With a quarter billion direct sales orders, Tesla has good reason to avoid the dealership racket.

    1. Speculawyer says:

      Quarter million that is.

  5. Stimpacker says:

    The same GOP politicians who are screaming about jobs going overseas are the same ones blocking Tesla.

    A Tesla is designed in America, made in America, sold all over the world, but barred from some parts of America.

    So does the GOP really want to protect jobs or just the special interests that bribe them?

    1. TomArt says:

      Well, although I work in a legal-intense field, I do not have a law degree and no experience in Constutitional Law.

      However, a potential issue I see, particularly regarding the Interstate Commerce Clause, is that Tesla Motors products are not banned in these states. You can still buy the car out-of-state and then register it in your home state. And, if Tesla Motors chose to work with 3rd-party dealerships, then the problem would be solved.

      I think that the question might just boil down to whether States have the right to mandate how a product is sold (which I think they do, given the different gun purchasing laws).

      A secondary consideration that might work in Tesla’s favor is the legitimate economic issue. My impression is that it could be clearly established in a court of law that car dealerships make (most, majority, insert-proper-legal-criteria-here) of their revenue from repairs and parts, and to a lesser extent on used car sales, that a dealership cannot provide a survivable economic case on new car sales and warranty repairs alone.

      You might be able to go farther and show just how much of that repair and parts revenue comes from the powertrain (oil changes/filters, air filters, oxygen sensors, transmission sensors and fluids, exhaust issues, etc.). I would think that is important since everybody has AC and power windows and tires and brakes and such (though brakes last a lot longer in EVs and hybrids).

      Then, they would also need to point out that a mixed dealership would have genuine conflicts of interest, where the ICEVs make more profit for the dealership, so they would down-sell the EVs and hybrids (which they already do in many places, and testimony + surveys could be offered).

      I do not think that it would be realistic to throw down the existing laws entirely – it is reasonable, IMHO, to prevent OEMs from undercutting their own dealerships, who do provide critical services that the OEMs do not, nor want, to provide.

      I think that what will happen is a compromise law, where at least pure EVs, and maybe all plug-ins, would be exempt from these dealership franchise laws because the economics of EV dealerships is not feasible, and mixed dealerships cause a conflict of interest that would undermine the availability of EVs to the public.

      That’s just my kinda-sorta-educated guess…

      1. Pushmi-Pullyu says:

        TomArt said:

        “I do not think that it would be realistic to throw down the existing laws entirely – it is reasonable, IMHO, to prevent OEMs from undercutting their own dealerships, who do provide critical services that the OEMs do not, nor want, to provide.”

        There is no need to overthrow existing laws en masse. The State laws protecting dealerships were established, as you suggest, to protect dealers from predatory business practices by the auto manufacturers. Auto makers actually did that in the past, which created a genuine need for such laws to protect auto dealers.

        However, since Tesla is trying to avoid the dealership model entirely, there’s no need to protect any independently owned car dealers from Tesla, as Tesla has none of those.

        It’s a mis-use of State laws intended to protect dealers from OEMs, to use such laws to stop Tesla (or any other auto maker with no dealers in the state) from selling cars directly to the public. And if the wording of such State laws is such that they can be used against Tesla without a perverse interpretation of the wording, then those State laws need to be re-worded.

        Let’s keep in mind that Tesla has no restrictions on selling direct to the pubic in the majority of States. It’s only in a few States where dealership associations have been able to stop Tesla from selling cars through their showrooms and “stores”. States where either the laws were worded too broadly, or else the courts have been improperly influenced to interpret the State laws in a perverse way.

  6. SparkEV says:

    Interstate commerce clause of the US constitution, baby! Go Tesla, beat this anti competitive crap!

  7. Salkin says:

    The GOP talk alot about freedom but when it comes to letting people decided how they want to buy their own car freedom is somehow not that important anymore.

  8. Ian says:

    Maybe Tesla could have a contest. Defeat the dealer laws in your state and win a free model X,S,and 3 once Tesla can start selling. Hmmm, sounds really good.

  9. ffbj says:

    I think Tesla has a reasonable technical case.
    I think they were planning to go this way all along, but were just biding their time, honing their skills in the state battles, and adding ammunition to their case,such as the recent FTC recommendations and inquires for comments.

  10. floydboy says:

    Wait a minute! GM is actively working to keep Tesla sales and service out, but then comments on how Tesla service is not ubiquitous? Wow, just wow!

    1. Anti-Lord Kelvin says:

      Well, as they have already understood that they can’t beat Tesla, now they are trying to screw consumers impeding Tesla to have service centres. So, go GM, after burning almost every electric trolley network, crashing the EV1, you want to piss off more and more US consumers.Sure,it’s such a winning strategy!!!

      1. ffbj says:

        Funny how that works.

        1. Paul says:

          Yes, it was a cynical remark by Ms. Barra that a plus of the Bolt over the Model 3 is that you cannot have your Model 3 serviced everywhere. Knowing that she actively lobbied for the rules that restrict Tesla and free trade.

          She lost me as a client with that.

          1. Jeffrey Songster says:

            That is my take too… For a company that had to write off and dump all its toxic assets to the point where many call them Government Motors and its management was taken over… to say the crap that Ms. Barra is saying only proves that they haven’t fixed the idiotic arrogance of that company. GM killed the electric car… sold the best batteries at the time to Texaco… and then nearly killed itself with bad designs, parts and such and now instead of being an EV team player they are throwing shade at those who are. I can wait for Renault Nissan or Tesla to deliver their cars thanks. Just lost another one Ms. Barra.

  11. Ian says:

    Tesla is as close to a gas powered car as a horse and wagon are. Can’t they redefine what tesla vehicles are, thus removing themselves from current modern vehicle legislation in regards to sales. Are the Amish or ranchers buying horse drawn wagons from certified franchises or has GM pushed anti Amish/rancher cart legislation. (Ridiculous but you get my point) GM might try to sell electric vehicles like Tesla but Tesla will never sell ice vehicles like GM therefore not the same type of company or industry.

  12. Kdawg says:

    I made a reservation for a Model 3, and I live in Michigan. How’s this going to work? Can Tesla ship vehicles to Michigan if you order online, or do people have to drive out of the state to get their car?

    1. Pushmi-Pullyu says:

      Various people in various States (for example, Texas) have reported being able to buy a Tesla car online, and register it in their State, despite the fact that Tesla is prohibited from selling a car directly through a showroom or “store” in the State.

      I think if any State did try to stop someone from taking legal possession of a car bought online, or prohibit them from registering the car in the State, then Tesla would immediately have a very strong Federal case under the “interstate commerce” clause. But (so far as I know) no State imposes such restrictions, so Tesla has no legal standing for a case based on restriction of interstate commerce.

      At least, that’s my layman’s understanding — I’m not a lawyer.

    2. Tim F. says:

      I’m expecting delivery of a Model X in Michigan in the next month. My delivery specialist indicated that if you live more than 160 miles from the nearest service center they will deliver the car for free via a third party carrier. You always have the option to pick it up a the service center as well, which is the only way to get the full delivery experience and new owner orientation. Otherwise, it’s just dropped off and you’re on your own to figure it out.

      1. Kdawg says:

        Sweet. Thanks.

  13. Crissa says:

    I’m pretty sure it’s a fib about Bolts being repaired within 500 miles of every household. There aren’t as many GM electrics on the road as Teslas, I’m sure they don’t have a magical number of electric technicians that popped into existence.

    1. Jeffrey Songster says:

      Should be interesting to see how many of the old ‘great’ dealers are even willing to sell cars that don’t repeatedly fill their service bays. GM can’t even make a key switch properly… no wonder they are farming out this whole thing to Korea Incorporated via Lucky Goldstar!