By Stephanie K. Mann, J.D.
Under the stipulated agreement, the Michigan officials found that the state law does not prohibit Tesla from operating though a subsidiary for repair services and that it can assist in the sale of a Tesla vehicle as long as the title sale takes place in another state.
Michigan Secretary of State Jocelyn Benson and Attorney General Dana Nessel have announced that they have entered into a joint stipulation and motion to dismiss with Tesla to settle a lawsuit alleging that Michigan’s 2014 law improperly prohibited the auto maker from selling their cars within the state. Under the stipulated agreement, Michigan residents will be able to lawfully buy a Tesla and have it serviced in Michigan as long as the sales contract indicates the sale took place in a state other than Michigan and Tesla indirectly owns service and repair facilities through a subsidiary (Tesla, Inc. v. Benson, January 22, 2020, Neff, J.).
Tesla Motors, Inc. challenged a 2014 amendment to Michigan’s motor vehicle franchise law which prohibited direct sales from automakers, thereby blocking Tesla from obtaining a dealership license and selling cars in Michigan. The amendment has been referred to as the "anti-Tesla law." As part of its discovery related to the intent of the amendment, Tesla subpoenaed three car dealers to turn over communication with their trade association regarding their joint political and commercial interests. The dealers moved to quash the subpoena on First Amendment grounds, but a magistrate judge rejected the argument and ordered them to answer the subpoena.
The dealers appealed to the district court which upheld the magistrate’s ruling finding no error in evaluating the circumstances of the case or balancing the parties’ competing interests. The dealers were more than just interested non-parties and had helped draft the amendment. The Michigan Automobile Dealers Association (MADA) appealed the decision. Tesla moved to dismiss the appeal for lack of jurisdiction. MADA opposed the motion to dismiss and moved to expedite its appeal.
The Sixth Circuit eventually decided that the dealers were unable to appeal the partial denial of their motion to quash third-party subpoenas that requested communications between the dealers and their trade group. The discovery ruling was not appealable under the Perlman doctrine, as a collateral order or as an order that has the practical effect of an injunction. Therefore, the appeal was dismissed for lack of jurisdiction.
According to the stipulated agreement, Benson and Nessel determined that no Michigan law prohibits a subsidiary that is wholly owned by Tesla from owning or operating a service and repair facility as long as Tesla itself does not directly own the facilities. In addition, Michigan law does not prohibit Tesla from delivering vehicles to Michigan residents in Michigan (whether directly, through a subsidiary, using an independent carrier, etc.), as long as the sale of the vehicle occurred outside of the state of Michigan.
Under the agreement, Tesla is allowed to operate one or more galleries in the state to educate customers and facilitate out-of-state transactions. Permitted activities include conducting demonstration drives; discussing prices, service, financing, leasing, and trade-ins with potential customers; helping potential customers configure a vehicle; facilitating ordering and purchase of a vehicle for which legal title transfers out-of-state; and facilitating customer transaction paperwork for a sale for which legal title transfers out-of-state.
In exchange, Tesla has agreed to file a motion to dismiss their pending legal action.
This case is No. 1:16-cv-01158-JTN-SJB.
Attorneys: John J. Bursch (Bursch Law PLLC) for Tesla, Inc. D. J. Pascoe, Department of Attorney General, for Jocelyn Benson, Dana Nessel and Gretchen Whitmer.
Companies: Tesla, Inc.
MainStory: TopStory FranchisingDistribution MichiganNews
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