Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Auto dealer association seeks declaratory judgment in Tesla dealer license dispute, (Jan 27, 2015)

By Linda O’Brien, J.D., LL.M.

A trade association of automobile dealers, an auto dealer, and ambulance manufacturer are seeking a declaratory judgment that Missouri law does not permit the issuance of a new motor vehicle dealer license to the company store of auto maker Tesla, since the license holder is not a franchisee of a manufacturer. The plaintiffs filed a complaint in the circuit court for Cole County, Missouri (Missouri Automobile Dealers Association v. Ray, January 22, 2015).

Tesla Motors, Inc. manufacturers and sells electric cars and has a company-owned store in University City, Missouri. The Missouri Automobile Dealers Association (MADA) is the largest professional association of motor vehicle dealers in Missouri. Reuther Ford is a family-owned auto dealership that complies with the state franchise law. Osage Industries manufactures ambulances that are sold only through dealers licensed by the state.

The complaint alleges that, under the Missouri Motor Vehicle Franchise Practices Act (“Act”), it is unlawful for any person to engage in business as a motor vehicle dealer or manufacturer without first obtaining a license from the Department of Revenue (DOR). In 2013 and 2014, the DOR received applications from Tesla for a motor vehicle dealer license. On the form, Tesla affirmed that the application was made to conduct business as a bona fide dealer, auctioneer, or manufacturer. Tesla stated in multiple letters to the DOR that it was a manufacturer and sold its vehicles directly to the general public. With its application, Tesla filed a franchise agreement confirmation which stated Tesla authorized “Tesla Motors, Inc.” to sell Tesla vehicles. Subsequently, the DOR issued Tesla a motor vehicle dealer license.

According to the complaint, the actions by the DOR in issuing Tesla new and renewed motor vehicle dealer licenses violates the Act because Tesla was never entitled to the license. Tesla’s application does not meet the statutory requirements for a dealer license in the following respects: (1) the company store cannot be a franchise holder, since the franchisor and franchisee cannot be the same entity; (2) Tesla’s role as manufacturer and dealer are mutually exclusive; (3) the franchise agreement confirmation was inaccurate as there is no franchise agreement; and (4) the company store is not a bona fide dealer because it lacks a showroom, display lot, service capacity, and adequate signage.

The DOR knew or should have known that Tesla failed to meet the statutory requirements for obtaining a new motor vehicle dealer license at the time the license was granted and upon each subsequent renewal, in the association’s view. The decision by the DOR to issue and renew the license to Tesla allegedly violates public policy and creates a non-level playing field where one entity — Tesla —is subject to preferential treatment and all bona fide dealers are discriminated against. Moreover, the DOR’s decision will encourage other vehicle manufacturers to disregard the requirements to sell vehicles through properly licensed dealers which operate pursuant to valid franchise agreements with their manufacturers, the complaint states.

The DOR’s decision to issue and renew the license to Tesla harms manufacturers by permitting Tesla to sell directly to the public when other manufacturers cannot, the association charged. The conduct of the DOR allegedly has created an arbitrary, capricious, unreasonable, and unlawful regulatory structure.

The plaintiffs assert claims under the Missouri Motor Vehicle Franchise Practices Act. The action seeks declaratory relief, writ of prohibition, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 15AC-CC00032.

Attorneys: Lowell D. Pearson and R. Ryan Harding (Husch Blackwell LLP) and Johnny K. Richardson and Gregory C. Mitchell (Brydon Swearengen & England) for Missouri Automobile Dealers Association, Reuther Ford, Inc., and Osage Industries, Inc.

Companies: Reuther Ford, Inc.; Osage Industries, Inc.

News: FranchisingDistribution MissouriNews