Tesla Files Lawsuit Against State Of Michigan, Demands Jury Trial Over Direct Sales Restrictions

SEP 27 2016 BY STEVEN LOVEDAY 40

Last week, Tesla officially filed a lawsuit against the state of Michigan, for not allowing the company to sell its cars within the state. Michigan recently denied Tesla’s request for a dealership license because the state’s law makes it illegal to sell cars directly.

Tesla store

Tesla store

Michigan law specifically states that an automaker is required to set up a contract with a dealership and can’t actually sell its own cars. This type of law applies in other states as well. While the laws are old, and seem unfair to many, they are being upheld around the U.S.

Tesla has been fighting this battle with Michigan and other states for quite some time. Michigan recently attempted to bring the matter to an end by asking Tesla to show proof that it has a dealer contract. Of  course, Tesla is its own dealer. The company makes its own cars and sells its own cars. Makes sense right? Nope. In Michigan you can make cars but you aren’t allowed to sell them … at least not without involving a third party.

Tesla feels that Michigan’s laws banning direct sales:

Violate the Due Process, Equal Protection, and Commerce Clauses of the Constitution as applied to Tesla by prohibiting Tesla from selling its vehicles directly to consumers and by precluding Tesla from performing service and repairs within the State.

Tesla hopes to assure that such laws can’t be enforced. Also, Tesla is fighting an amendment, that Michigan Governor Rick Snyder signed, referred to as the “anti-Tesla” bill. The bill makes it so that Tesla can’t open a dealership in Michigan. The reason for all of the concern is that dealers believe that they should be protected by law, so that companies can’t employ direct sales methods and put them out of business. However, the laws were passed years ago and for many reasons that are not relevant today.

Tesla has stores in 20 other countries and none of them are restricting the company. In the U.S., Tesla is only active in 23 states, plus the District of Columbia. It’s okay for the company to flourish in our nation’s capitol, but not in many states. Texas, Connecticut, and Utah are following a path similar to Michigan’s, by withholding a license agreement from Tesla. Other states allow Tesla to function with various rules and restrictions. Others only allow galleries, but no sales, test drives, etc. So you can look at a Tesla  but you can’t get inside one and you can’t take one home. For buyers, this is merely an inconvenience, as they will just drive across state lines and buy one.

Representatives have lobbied for Tesla and introduced bills, and the Federal Trade Commission is also involved, urging Michigan and other states to reconsider. If Tesla continues to be denied, the case will escalate to higher courts, and eventually the federal government will become involved.

Source: Detroit News, Tesla

Categories: Tesla

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40 Comments on "Tesla Files Lawsuit Against State Of Michigan, Demands Jury Trial Over Direct Sales Restrictions"

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MDEV

Finally the pad to the Supreme Court and the end of the political corruption and favoritism to the dealership cartel.

pjwood1

Right, and a 4 – 4 split would revert to an appeals court decision. Today, there 10 judges hearing oral arguments for the CPP. It could suffer the same fate in a system blunted by one ideology’s interpretation of Constitutional “consent”, for SCOTUS nominees. Would it be Constitutional to keep up the SCOTUS attrition, just because the Executive and Congressional branches don’t agree?

Rob Stark

All interpretations of the Constitution are ideological.

It is not restricted to one side. Calling your side “common sense” or “obvious” and the other side ideological or simply “wrong” does not change that.

Chris

Rob you are citing a false equivalence, not every idealogical argument is equal. I could cite the earth is round and you could say no I believe it is flat because I can’t see the curve from my front porch. Are these two different view points equal? I know i have cited a very simple analogy but I get so tired of hearing this argument.

SJC

The Senate has agreed to have a hearing on every Supreme Court nominee for the last 200+ years, McConnell is the only one to break that tradition based on partisanship.

Even Reagan’s nominee Kennedy was heard and confirmed in Reagan’s last year by a Democratic Senate.

Nix

SCOTUS has already weighed in on the constitutionality of state franchise laws decades ago. They ruled that they were constitutional. For example, New Motor Vehicle Bd. v. Orrin W. Fox Co., 439 U.S. 96 (1978) where SCOTUS ruled 8-1 that the State of California was “constitutionally empowered” to pass laws regulating automotive franchises.

Tesla is clearly going for jury nullification and/or fostering outrage in the electorate and politicians, since they have nothing to lose in this state. The automotive lobby owns this state, and Tesla knows they aren’t going to get anything passed, like they still have hope in places like Texas, etc.

It is so sad it needs to come to this, a constitutional challenge. These laws seem so obviously contrary to American capitalist based values it is amazing they receive any support and there is not more public outcry against them. These laws are simply anti-consumer and anti-business, and their only reason to exist is to protect an established business model with a strong lobbying capability.

Anyway, preaching to the choir here, let’s just hope it does not take forever to resolve.

Yogurt

Hopefuly it will go to the top court and bring an end to the forced dealership model forced by state laws that were bought by dealers…
GM and the rest of big auto probably dislike dealers more than Tesla since they are forced to do business with them and have a number of the dealers give them a bad name…
They just dont want Tesla to have a competive advantage while they are stuck with a 100 year old system that skims their profits and makes their customers mad…

Mister G

And TESLA only sells EV’s no gas guzzlers signaling a significant threat to fossil fuel industry.

Pushmi-Pullyu

All of us Tesla fans had better hope this does not need to go to the Supreme Court, because if it does, then it will be years and years before it progresses that far. We can hope it will be resolved at a lower level, and thus resolved much faster.

According to the Detroit News, Tesla has filed this case in a Federal Circuit Court. Only 2% of Federal circuit court rulings are given review by the Supreme Court. So if Tesla loses at this level, the chances that the Supreme Court will take it on appear pretty low.

ModernMarvelFan

If Tesla want to win this battle, it needs to aim for repealing the law for ALL, not just itself.

Make it an industry wide change for any/all car makers so it would have a bigger support base.

No existing automakers will come out supporting the Tesla fight because dealers got each and every major automakers held up by the throats with existing laws.

John in AA

The way legal precedents work is that if Tesla establishes this for itself, it will be applicable to others unless the court for some reason restricts its finding to only apply to Tesla (incredibly unlikely).

In short, what you describe is what they are doing. Although other automakers with existing dealership contracts would still presumably have to honor those contracts, IMO rightly so. But they’d have the option of not renewing them, or paying to terminate them, if they chose to. Now, they don’t have that option.

Pushmi-Pullyu
John in AA said: “The way legal precedents work is that if Tesla establishes this for itself, it will be applicable to others unless the court for some reason restricts its finding to only apply to Tesla (incredibly unlikely).” Yes, but the ruling could certainly be restricted to regions (or States) where the manufacturer in question didn’t have any independently owned dealerships. There is certainly a legal case to be made that a ruling in favor of Tesla should not affect the existing contracts between legacy auto makers and their dealers. Let us not forget that there was a genuine reason that these protectionist laws were passed to protect auto dealers. In the past, in timed of economic downturn, the auto makers would practice predatory business practices to force the dealers to make up some or all of the losses the auto maker experienced due to that downturn. Now, I don’t know the details or history of this, but it may be naive to think that won’t start happening again if these State laws are thrown out altogether. In my opinion, the independent dealership model is obsolete, and over time it will die a natural death. (This is known as… Read more »
Nix

There is only one way I can think of that the courts could rule in Tesla’s favor, and still keep the law in effect for all the rest of the dealers and car makers. That would be to rule that it would be somehow unconstitutional for the law to apply to Tesla, because they don’t have franchise dealerships. That would essentially carve a hole for just Tesla, and otherwise leave the law in full effect.

I don’t see that Tesla would be able to make a constitutional argument like that. They’ve succeeded in making a statutory argument like that before, but turning a successful statutory argument into a constitutional argument is quite a leap.

(for anybody wondering — a statutory argument is where a party contests HOW a law is applied without challenging the law itself. A constitutional argument contests the validity of the law itself, not how the law is applied.)

Pushmi-Pullyu
Nix said: “That would essentially carve a hole for just Tesla, and otherwise leave the law in full effect.” It would also leave the door open for other new auto makers to sell cars without having independent franchised dealerships. As I recall, CODA arranged for some existing dealerships to add CODA sedans to their lineup. If a space was “carved out” for Tesla, then other new auto makers could use that, too; they wouldn’t have to do what CODA did. As I see it, Nix, the problem isn’t that these State laws are outdated and need to be removed from the books. The problem is that these existing laws are being used for a purpose they were never intended for, to block Tesla from selling from stores which are not independently owned franchises. I don’t think it should be particularly hard for the courts to “carve out” an exception for companies like Tesla; companies the laws were never intended to put limitations on, when those laws were passed. It merely involves clarifying the original intent of the law, to prevent misapplication under the letter of the law. Again, all this is just the opinion of one person who’s not a… Read more »
Nix

I agree, the best case for Tesla is for the courts to rule that the law doesn’t apply to them (or other car makers who don’t have franchise sales).

“clarifying the original intent of the law, to prevent misapplication under the letter of the law.”

That would be a statutory challenge to the application of the law, not a constitutional challenge to the law. That would be filed in Michigan State Court. But lawmakers and the Governor have been very clear that it is the the intent of Michigan law is that all direct car sales to the public are “prohibited under Michigan law” (quote from gov. Snyder) and can only be done through franchise dealerships.

That’s why Tesla hasn’t filed a lawsuit like that. Instead they have filed in federal court, filing a direct challenge to the constitutionality of the law itself, not to whether the statute is being applied properly.

That’s a very different lawsuit.

Trollnonymous

lol……..Stealerships.

Zukidrvr

A state that actually builds forward thinking EVs, but has virtually no QC infrastructure – fighting to stay in the past. Ugh!

Kdawg

“For buyers, this is merely an inconvenience, as they will just drive across state lines and buy one.”
———
I live in Michigan and have a reservation for a M3. What sucks is, even if I go to another state to buy it, I still have to pay Michigan use tax. If people could find a way to get around paying local state taxes, the state would instantly pass a bill allowing local sales.

no comment

if you are going to be using the car in michigan, what is your objection to paying a vehicle use tax in michigan?

flmark

Merely semantics. Use taxes ARE sales taxes, just not collected in the same format.

And it would make a significant issue if you would be sending your tax $ to a DIFFERENT state. Law makers would reconsider in a heartbeat if there was an en masse movement to go around the system and pay those sales taxes elsewhere. SC has (at last used to when I was stationed there) consumer friendly caps. If you had a friend in SC and could keep the car there for a significant period you could be way ahead. The practicality of getting around sales taxes is extremely challenging.

no comment

even as a sales tax, if you bought your car in one state but were not going to register the car in that state, you would presumably not be charged a sales tax in the state where you bought the car (i am not going to state that this is true for *every* state, but it is true for states that consider the point of sale to be based on where the buyer lives). in that case, you can expect to pay a sales tax in the state where you are going to use the car when you attempt to register it there.

Mark

I agree with you, hit the thug states that don’t permit direct sales where it hurts them! Could you lease your car from an out of state leasing company? Maybe it’s a business model we should look in to. The car would have to be licensed in another state. That being said it would make your Tesla stand out even more.

ffbj

This will be viewed as a David vrs. Goliath sort of legal tussle. Popular sentiment will reside with the nimble upstart master of the technologically superior sling, of course being the anointed of the Almighty helps too, against the heavily armed giant champion of the old ponderous and slow industry.

MDEV

Ford did the same before become the big company.

Four Electrics

These dealership laws exist because early on manufacturers were reliant on capital from dealerships to fund operations. Dealerships wanted to ensure that, if they ponied up money to help manufacturers, the manufacturers would not turnaround and use that money to compete directly with dealerships.

These days, of course, alternative sources of capital exist, but the laws remain on the books.

That said, using a jury to attempt to repeal a state law is kind of ridiculous. I don’t believe a lawsuit that attempts to prevent a state from regulating business transactions within its own borders will be successful. This is not an interstate commerce issue. This is like McDonald’s suing because a state has set their minimum wage too high.

no comment

the “interstate commerce” issue is that tesla is located in california, which is a different state from michigan. that said, while we don’t have the full story on this lawsuit, it sounds like more of a publicity stunt than it does a lawsuit that tesla legal counsel really believes has much of a chance of winning.

my guess is that this thing gets tossed out before it even gets to trial.

Pushmi-Pullyu

Four Electrics said:

“…using a jury to attempt to repeal a state law is kind of ridiculous. I don’t believe a lawsuit that attempts to prevent a state from regulating business transactions within its own borders will be successful. This is not an interstate commerce issue.”

I agree. I am not a lawyer, but Tesla requesting a jury trial suggests to me that they don’t think they can win on the legal merits of the case.

And I don’t see it as an Interstate commerce issue either. For example, could a company that makes whiskey successfully sue the State of Kansas in Federal court, on the grounds that it was a violation if Interstate commerce for Kansas to ban sale of liquor on Sunday, whereas the neighboring state, Missouri, does not?

Nope. States are certainly allowed to regulate sales within their own border.

Frankly, I wonder if Tesla is filing this lawsuit for publicity purposes, and not with any realistic hope of winning. Unfortunately, companies sometimes do that.

floydboy

Essentially, because of the surreptitious way in which the amendment to the previous law was enacted(specifically to prevent Tesla from selling directly to consumers) it appears Tesla wants to force this into the open. To obstensively bring this to the ‘court of public opinion’, hence the jury trial thing as opposed to the standard route.

It seems they don’t want to take down the dealership model, as much as shame the dealers, through public scrutiny, into some sort of compromise. By being the “reasonable party” in this, Tesla gets the public to put pressure on the legislators and dealers to come to the negotiating table. That way they get to avoid the nuclear option and the uncertainty and expense that entails.

Pushmi-Pullyu

I find this to be an insightful analysis, and my guess is that you are entirely correct here.

Nix
Four Electrics is correct on the history. Back when there were a whole bunch of gas car companies, the biggest challenge for them was expansion. They couldn’t afford to build their own sales and service locations, so they had to rely upon typically Mom and Pop type of local shops to sell their cars. Some car makers would end up undercutting their own dealers, by offering the same car for sale at the same price they sold it to the dealers, undercutting them. Or they would simply stop supplying units to Mom and Pop dealers that were in successful markets they wanted to put their own stores in. So there was a time and place for these laws. The big question is whether there is a time and place for them now, and more to the point — whether they should apply at all to Tesla, who has never sold any cars through dealers, and therefore cannot screw over any dealers. That is a better argument than trying to convince the courts to overturn laws that have been on the books for decades, and have already survived constitutional challenges. They used that argument successfully before and got some states to… Read more »
TAYLOR SOCHOCKI

The problem is that the Michigan law prohibiting Tesla would have allowed them to make a statutory claim, but Michigan changed the law so there can be no doubt that it applies to any automaker. You can read a transcript of Tesla’s suit here http://www.detroitnews.com/story/business/autos/2016/09/22/tesla-lawsuit/90831598/

JMIJON

Dealership Owners are & have been getting free Rides On the Backs of car Buyers for a very Long time..All Car makers should be running their own “Sales & Service Stores”. No more FREE RIDES for the arrogant Dealer Principles !!!

MatteM3

Banning a product raises its value, so this is actually good for tesla 🙂

Mister G

Yes and also makes the product highly exclusive in Michigan which might increase demand for the product. I can see the ad stating…”big government bans Tesla…get a Tesla”

Terawatt

Welcome to the land of the free, home of the brave!

GSP

While we currently not free, certainly not as free as we ought to be in Michigan and Texas, we are brave and we will fight.

I think these local laws are an unconstitutional restraint of trade. Since the Michigan legislature is steadfast in their protectionist laws, Tesla is suing in federal court. I think the court will overturn this Michigan law, but even if it does not we have other options, such as new federal legislation.

As the people of New Hampshire say “live free or die.”

GSP

Wineboy

Brought to you by the same state that spent millions of Michigan’s taxpayers money to fight the direct shipment of wine and went to the supreme court and lost. Granholm v. Heald

ItsNotAboutTheMoney

However, in that case, the major issue was that the laws explicitly differentiated between in-state and out-of-state wineries.

Michigan does not differentiate between in-state and out-of-state car manufacturers.

Crissa

Specifically calling the bill as Anti-Tesla by someone who created it makes it a ‘bill of attainder’ which is illegal.

Now… Conservative judges generally don’t care about such legalities that we’ve followed for two hundred some years, but…