Client Alert: Tesla’s Lawsuit Could Be a Game Changer in Louisiana
- Despite consumer demand for Tesla EVs, and its approach to selling EVs, Tesla is still prohibited from selling and servicing vehicles in a number of states
- Tesla recently sued the Commissioners of the Louisiana Motor Vehicle Commission (LMVC) and the Louisiana Automobile Dealers Association (LADA) to overturn a direct sale and service ban in Louisiana
- Tesla alleges illegal antitrust behavior by LMVC and LADA
- This lawsuit may change the way state motor vehicle commissions are constructed and impact remaining direct sale bans for Tesla, and possibly other manufacturers
In late August, Tesla launched a new lawsuit1 to challenge the State of Louisiana’s direct sale ban, which prohibits Tesla from selling, leasing and servicing its electric vehicles in the State. What distinguishes this from other lawsuits brought by Tesla against direct sales bans, is Tesla’s allegations that LADA and the LMVC effectively conspired, or used anti-competitive tactics, to get an amendment to the existing direct sale ban passed targeting Tesla and to interpret other state laws to prevent Tesla from leasing and servicing vehicles in Louisiana as well. Tesla sued the Commissioners of the LMVC (in their capacity as LMVC members and personally), and their respective motor vehicle dealerships, and LADA asserting claims for violation of federal and state antitrust laws, violations of the US Constitution (due process, commerce clause, equal protection) and violation of Louisiana’s unfair trade practices act. Tesla also seeks a declaration that: (1) the LMVC’s composition of dealer members does not comport with due process; (2) the state’s direct sale and service ban are unconstitutional; and (3) the defendants’ conduct violates state and federal law. In addition to declaratory relief, Tesla seeks injunctive relief, money damages, attorneys’ fees and costs.
The gist of Tesla’s allegations is that the defendants lobbied the Louisiana legislature in 2017 to amend its direct sales ban to prohibit sales by a vehicle manufacturer that did not have a franchised dealer network. Tesla alleges: “[t]his amendment was the direct result of the [LADA], the Dealerships, and (on information and belief) some of the individual Commissioners’ joint efforts to bar Tesla from Louisiana.”2 The previous version of the Louisiana direct sale ban only prevented vehicle manufacturers with franchised dealers from selling directly to consumers. The pre-2017 version of the law would have allowed Tesla to sell directly in Louisiana. Tesla also claims that Louisiana law as currently enacted allows Tesla to lease vehicles and service those leased vehicles. However, Tesla claims that the defendants “have also engaged in concerted effort to reinterpret state law to prohibit Tesla from operating in Louisiana.”3 Tesla points to three subpoenas issued by the LMVC on it, or its related companies, and other actions by the LMVC and LADA to chill Tesla’s activities in Louisiana.
Tesla’s lawsuit complains about the conflicting roles of the LMVC Commissioners, who are also competitors/dealers, and LADA, and their concerted efforts to stop Tesla from operating in Louisiana. Tesla alleges that "[t]he Dealers Association, its leadership, its members, and the Dealerships’ concerted action to co-opt the Commission to bar Tesla from Louisiana is ‘unethical, oppressive, unscrupulous, [and] substantially injurious.’ [citation omitted]. Tesla has been required to – and will be required to continue to – expend resources fighting against these attempts to bar Tesla from the market."4
This lawsuit is markedly different from a prior lawsuit filed by Tesla in Michigan federal court seeking to overturn Michigan’s direct sale and service bans. The Michigan lawsuit5 was filed by Tesla in 2016 and asserted claims under the US Constitution (due process, commerce clause and equal protection). In that lawsuit, Tesla sued only government officers and did not sue the Michigan Automobile Dealers Association or any dealers in their public, personal or corporate capacities. The Michigan lawsuit also did not allege that dealers and the state effectively conspired to engage in anti-competitive behavior. Indeed, the Michigan lawsuit was rather tame in its allegations against the State of Michigan, as compared to the current lawsuit filed in Louisiana.
The Louisiana lawsuit, however, alleges that Defendants “have asserted authority over Tesla and have adopted an interpretation of Louisiana law that allows or will allow the [LMVC] to take action even against Tesla’s lawful activities including leasing and providing warranty repair and services for Tesla vehicles in Louisiana. The Commission’s attempt to bar Tesla from Louisiana is evidence of the grave Due Process problem that Louisiana has created: because of its controlling majority of members drawn from the [LADA] and the Dealerships, the [LMVC’s] composition ensures that Tesla is regulated by its direct competitors, who have a direct pecuniary interest in barring Tesla from [Louisiana].”6
The Michigan lawsuit was settled in early 2020 and resulted in Tesla (but no other manufacturers) being able to effectively sell and service vehicles in Michigan. The Michigan Attorney General stated that Tesla “may operate under existing Michigan law” and that “any Michigan resident may lawfully buy a Tesla and have it serviced in Michigan.”7 The settlement was a clear victory for Tesla over Michigan’s still enacted direct sale ban.
Nothing of significance has happened in the lawsuit yet, but it bears close watching. If Tesla is able to prove that LADA and LMVC used their influence and power to thwart competition and that the LMVC effectively serves for the benefit of motor vehicle dealers by eliminating competition, then unlike with the Michigan settlement, this lawsuit may result in changes to the direct sales laws and/or the structure of the LMVC that open new distribution possibilities for all motor vehicle manufacturers. This lawsuit may also have an impact on other states that still ban direct sales and service and/or have similarly structured motor vehicle boards or commissions.
Certainly, BFKN’s Motor Vehicle Group will monitor this lawsuit and report on any significant developments.
1 Tesla, Inc. et al. v. Louisiana Automobile Dealers Assoc., et al., Case No. 2:22-cv002982-SSV-DPC, United States District Court, Eastern District of Louisiana (filed Aug. 26, 2022).
2 Tesla LA Lawsuit Compl. ¶137.
3 Id. ¶147.
4 Id. ¶300.
5 Tesla Motors, Inc. v. Ruth Johnson, et al., Case No. 1:16-cv-01158-JTN-SJB, United States District Court, Western District of Michigan (filed Sept. 22, 2016).
6 Tesla LA Compl. ¶¶18-19.