Tesla is pursuing a sophisticated legal strategy across the country in its attempt to overcome barriers thrown up by entrenched automobile dealer groups and legacy automakers. Its legislative efforts have worked in some states, but often with limits on things like the number of retail locations Tesla may maintain in a state. As the Company grows, these limits will need to be revisited. But in several states, the entrenched dealers have dug in their heels and crippled or entirely blocked Tesla from conducting business. In Texas, for example, Tesla has been crippled but not entirely blocked. It is free to maintain a showroom in shopping malls, but no sales efforts are permitted. Service centers are permitted, but when Texas Tesla owners call the Service Center, the phone answers in Fremont--which relays the call back to Texas.
But the ultimate barricade was erected in Michigan, which in 2014 enacted a total ban on Tesla’s direct-to-consumer sales model, bestowing on its franchised dealers a monopoly on car sales within Michigan. The car dealers and General Motors—presumably not averse to excluding competitors for their all-electric Bolt—shepherded the legislation and secured the Governor’s approval.
In a feature that may be enough to bring the statute down on constitutional grounds, the “Anti-Tesla bill” even bars Tesla from establishing in-state facilities to service and repair Tesla vehicles purchased on the internet by Michigan residents in another state. So a Michigan resident who buys a Tesla in Indiana, Ohio, Illinois or Ontario will have to take his car out of state for repairs.
Tesla filed suit against Michigan in September 2016, Tesla Motors Inc. v. Johnson. The petition, which is well worth reading, is available at https://www.plainsite.org/dockets/31w235f2r/michigan-western-district-court/tesla-motors-inc-v-johnson-et-al/. The case presents a constitutional frontal attack on the state’s anti-Tesla statute. The grounds are violation of the Due Process, Equal Protection, and Commerce Clauses of the Constitution. This is an ideal test case because the anti-Tesla statute is so blatantly anti-competitive and because it was passed through parliamentary trickery without any serious attempt to justify it, even on pseudo-reasonable grounds.
This constitutional head-on challenge represents a very smart strategy. The constitutional arguments are laid out in an article by Daniel A. Crane, Tesla, Dealer Franchise Laws, and the Politics of Crony Capitalism, 101 Iowa L. Rev. 573 (2016). This outstanding piece is available online at http://repository.law.umich.edu/cgi/viewcontent.cgi?article=2720&context=articles. The author takes up all of the arguments made by the car dealers and calmly eviscerates each one in turn. This article is a pleasure to read, just to see how a methodical analyst guts and minces the flabby claims of the car dealer lobby.
The circumstances by which the anti-Tesla amendment was passed support only one credible inference: the law was intended to wholly deprive a competitor of access to the marketplace, violating the Company's Due Process and Equal Protection rights, not to mention totally excluding an out of state competitor from bringing its products across state lines into Michigan in violation of the Commerce Clause.
In addition to the constitutional issues, there is a subliminal issue running through all of this. Everyone affected by the legal system—judges, lawyers, and the public—have experienced the fictitious “consumer protection” features of franchised car dealers when buying new cars and dealing with dealer service departments. Nobody believes that dealer franchise laws do anything other than protect the profits of incumbent auto dealers. By continuing to allow car dealers to arbitrarily exclude innovators like Tesla from the market, the federal courts would--to use a centuries-old phrase in law--"be making an ass of the law." In other words, crazy rules don’t last forever in the courts.
I think the day is coming when the lawyer members of Tesla Motors Club will be able to submit thoughtful "friend of the court" briefs in support of Tesla’s Michigan case after victories through the trial court and the federal circuit court of appeals. I look forward to it.
Tesla has earned a number of court victories, most notably in Massachusetts, where the state supreme court in 2014 ruled in effect that the dealer franchise law did not limit Tesla—setting off waves of fear throughout the auto dealer industry. Nothing is quite as unpredictable as forecasting the possible success of an unprecedented constitutional case such as Tesla Motors Inc. v. Johnson, the Michigan case. But if any fundamental attack on state anti-Tesla laws has a chance, the Michigan case is the one to bet on.
Incidentally, no pro-Tesla bill is pending in the current Texas legislative session, according to Texas Legislature Online, http://www.capitol.state.tx.us/Home.aspx. I am reasonably sure that pro-Tesla legislation will not pass in Texas for many years. Tesla's decision not to sponsor a Texas reform bill tells me that the Company is putting its chips on the Michigan case.
We should all stay tuned to Tesla Motors Inc. v. Johnson. It may be the case that breaks the back of the car dealers and their legacy auto industry allies.
But the ultimate barricade was erected in Michigan, which in 2014 enacted a total ban on Tesla’s direct-to-consumer sales model, bestowing on its franchised dealers a monopoly on car sales within Michigan. The car dealers and General Motors—presumably not averse to excluding competitors for their all-electric Bolt—shepherded the legislation and secured the Governor’s approval.
In a feature that may be enough to bring the statute down on constitutional grounds, the “Anti-Tesla bill” even bars Tesla from establishing in-state facilities to service and repair Tesla vehicles purchased on the internet by Michigan residents in another state. So a Michigan resident who buys a Tesla in Indiana, Ohio, Illinois or Ontario will have to take his car out of state for repairs.
Tesla filed suit against Michigan in September 2016, Tesla Motors Inc. v. Johnson. The petition, which is well worth reading, is available at https://www.plainsite.org/dockets/31w235f2r/michigan-western-district-court/tesla-motors-inc-v-johnson-et-al/. The case presents a constitutional frontal attack on the state’s anti-Tesla statute. The grounds are violation of the Due Process, Equal Protection, and Commerce Clauses of the Constitution. This is an ideal test case because the anti-Tesla statute is so blatantly anti-competitive and because it was passed through parliamentary trickery without any serious attempt to justify it, even on pseudo-reasonable grounds.
This constitutional head-on challenge represents a very smart strategy. The constitutional arguments are laid out in an article by Daniel A. Crane, Tesla, Dealer Franchise Laws, and the Politics of Crony Capitalism, 101 Iowa L. Rev. 573 (2016). This outstanding piece is available online at http://repository.law.umich.edu/cgi/viewcontent.cgi?article=2720&context=articles. The author takes up all of the arguments made by the car dealers and calmly eviscerates each one in turn. This article is a pleasure to read, just to see how a methodical analyst guts and minces the flabby claims of the car dealer lobby.
The circumstances by which the anti-Tesla amendment was passed support only one credible inference: the law was intended to wholly deprive a competitor of access to the marketplace, violating the Company's Due Process and Equal Protection rights, not to mention totally excluding an out of state competitor from bringing its products across state lines into Michigan in violation of the Commerce Clause.
In addition to the constitutional issues, there is a subliminal issue running through all of this. Everyone affected by the legal system—judges, lawyers, and the public—have experienced the fictitious “consumer protection” features of franchised car dealers when buying new cars and dealing with dealer service departments. Nobody believes that dealer franchise laws do anything other than protect the profits of incumbent auto dealers. By continuing to allow car dealers to arbitrarily exclude innovators like Tesla from the market, the federal courts would--to use a centuries-old phrase in law--"be making an ass of the law." In other words, crazy rules don’t last forever in the courts.
I think the day is coming when the lawyer members of Tesla Motors Club will be able to submit thoughtful "friend of the court" briefs in support of Tesla’s Michigan case after victories through the trial court and the federal circuit court of appeals. I look forward to it.
Tesla has earned a number of court victories, most notably in Massachusetts, where the state supreme court in 2014 ruled in effect that the dealer franchise law did not limit Tesla—setting off waves of fear throughout the auto dealer industry. Nothing is quite as unpredictable as forecasting the possible success of an unprecedented constitutional case such as Tesla Motors Inc. v. Johnson, the Michigan case. But if any fundamental attack on state anti-Tesla laws has a chance, the Michigan case is the one to bet on.
Incidentally, no pro-Tesla bill is pending in the current Texas legislative session, according to Texas Legislature Online, http://www.capitol.state.tx.us/Home.aspx. I am reasonably sure that pro-Tesla legislation will not pass in Texas for many years. Tesla's decision not to sponsor a Texas reform bill tells me that the Company is putting its chips on the Michigan case.
We should all stay tuned to Tesla Motors Inc. v. Johnson. It may be the case that breaks the back of the car dealers and their legacy auto industry allies.
