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«IN THE UNITED STATES DISTRICT COURT WESTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION TESLA MOTORS, INC., a Delaware § corporation § § § § § § ...»

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Case 1:16-cv-01158-JTN-ESC ECF No. 1 filed 09/22/16 PageID.1 Page 1 of 24

IN THE UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

TESLA MOTORS, INC., a Delaware §

corporation §

§

§

§

§

§

Plaintiff §

§ v.

§ CASE NO.

RUTH JOHNSON, in her official capacity as § § Secretary of State and Chief Motor Vehicle § Administrator, BILL SCHUETTE, in his § official capacity as Attorney General, and

§ JURY TRIAL DEMANDED

RICK SNYDER, in his official capacity as § Governor § § Defendants.

§ § § § § § § § § §

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Tesla Motors, Inc. (“Tesla”) brings this lawsuit to vindicate its rights under the United States Constitution to sell and service its critically-acclaimed, all-electric vehicles at Tesla- owned facilities in the State of Michigan. Tesla seeks, on an expedited basis, a declaratory judgment that Michigan Compiled Laws section 445.1574 (“Section 445.1574”), including its recent “Anti-Tesla” amendment, violates the Due Process, Equal Protection, and Commerce Case 1:16-cv-01158-JTN-ESC ECF No. 1 filed 09/22/16 PageID.2 Page 2 of 24 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 also seeks a permanent injunction preventing State officials from enforcing Section

445.1574 against Tesla.

INTRODUCTION

1. Tesla is an American company whose mission is to accelerate the advent of sustainable transport and energy. Among other things, Tesla designs, manufactures, and sells the world’s most advanced zero-emissions, all-electric vehicles. And, while many other companies have moved manufacturing jobs overseas, Tesla designs, builds, and sells cars here in the United States, employing thousands in well-paying jobs.

2. Tesla has catalyzed the electric vehicle industry worldwide. Founded in 2003, Tesla has delivered more than 140,000 cars to date, proving to the market that electric cars can be as desirable as they are environmentally sound, and can eventually replace the gasolinepowered cars that have rolled off of factory lines for more than 100 years. Tesla’s vehicles have been met with resounding acclaim, with Tesla’s Model S receiving Car and Driver’s prestigious “Car of the Century” award and the National Highway Traffic Safety Administration’s highest possible safety ratings. Similarly, a 2015 Consumer Reports survey ranked Tesla’s service centers first in the United States for on-time repairs, courtesy, price, quality, and overall satisfaction. Building on these successes, in March 2016, Tesla unveiled the Model 3, a more affordable, mass-market, electric vehicle set to begin production in late 2017. On May 18, 2016, Tesla publicly reported that customers had paid to reserve approximately 373,000 Model 3 cars.

3. From its inception, Tesla determined that it could not succeed by selling and servicing its vehicles through a traditional network of third-party dealers, and the high-pressure, commissions-driven sales environment they foster. Because Tesla is new to the industry, and

–  –  –

because all-electric vehicles are new to most customers, Tesla’s sales model has focused on educating consumers about its products and technology in a low-key, low-pressure environment.

For example, unlike traditional car dealerships, Tesla sells its cars at uniform and transparent prices based on the configuration and options that a customer selects for the vehicle. Thus, at Tesla, customers will never be rushed into a purchase, haggle over the price of the car, wonder if they could get a better deal across town, or puzzle over confusing add-on products, like GAP insurance or rust-proofing. Tesla’s results, measured by sales and Tesla’s superlative survey rankings, show that this model has immense benefits for consumers.

4. While customers have welcomed Tesla with open arms, groups of industry incumbents, including some dealer associations across the country, have viewed Tesla as a threat to their local monopoly power over automobile distribution. Rather than try to compete with Tesla, some of these well-connected players have tried to block Tesla from local markets altogether by lobbying state legislatures for protectionist legislation.

5. Particularly egregious protectionist legislation was passed by the Michigan Legislature in 2014. Under pressure from the deeply entrenched automobile dealer’s lobby, the Michigan Legislature quietly enacted an outright ban on Tesla’s direct-to-consumer sales model, effectively giving franchised dealers a state-sponsored monopoly on car sales within Michigan.

The Legislature did so by amending a statute that prohibited a franchising manufacturer from competing against “its” independent, franchised dealers—which Tesla does not use—to require, for the first time in Michigan’s history, that all new car sales be conducted exclusively through franchised dealers. This new ban made its way through the Legislature covertly, with the Legislature bypassing the public notice-and-comment process to shield the bill from scrutiny or debate. Then, at the urging of the franchised dealers and General Motors (which considers Tesla

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a competitive threat to its own electric vehicle programs), the bill was signed into law by Governor Rick Snyder and was codified in revised Michigan Compiled Laws Section 445.1574.

The new law was immediately recognized by the public for what it was: a highly protectionist, dealer-driven law intended to shut Tesla out of Michigan. It was aptly dubbed the “Anti-Tesla bill.”

6. By design, amended Section 445.1574 effectively bans Tesla’s sales and distribution model within the State of Michigan. In particular, Section 445.1574 prohibits motor vehicle manufacturers from selling their vehicles through manufacturer-owned facilities within the State, instead requiring all manufacturers to contract with independent, franchised dealers to sell their cars. As the vehicle dealer lobby was well aware, Section 445.1574 effectively precludes Tesla from selling its cars within the State of Michigan because the dealer model is not viable for Tesla.

7. Furthermore, Section 445.1574 even bars Tesla from establishing in-state facilities to service and repair Tesla vehicles purchased by Michigan residents in another state or over the Internet. Thus, when applied to Tesla, Section 445.1574 impedes and complicates Tesla owners’ ability to obtain needed repairs. The only conceivable reason to burden Michigan residents in this manner, in blatant disregard for public safety, is to reward the dealers’ generous lobbying efforts by handing them a monopoly.

8. Section 445.1574’s prohibitions violate Tesla’s rights under the U.S. Constitution.

As applied to Tesla, Section 445.1574 blocks Tesla from pursuing legitimate business activities and subjects it to arbitrary and unreasonable regulation in violation of the Due Process Clause of the Fourteenth Amendment; subjects Tesla to arbitrary and unreasonable classifications in violation of the Equal Protection Clause of the Fourteenth Amendment; and discriminates against

–  –  –

interstate commerce and restricts the free flow of goods between states in violation of the dormant Commerce Clause. The sole purpose for applying Section 445.1574 to a nonfranchising manufacturer like Tesla is to insulate Michigan’s entrenched automobile dealers and manufacturers from competition. This is not a legitimate government interest under the U.S.

Constitution.

9. Section 445.1574 serves no interests other than those of two discrete private groups—Michigan’s independent franchised dealers and Michigan-based vehicle manufacturers—to the great expense and detriment of Tesla and Michigan consumers alike.

Michigan supports those special interests by requiring vehicle manufacturers to create a costly and unnecessary Michigan-only franchised-dealer network simply to participate in the Michigan market. Tesla asks the Court to eliminate this Michigan-sanctioned trade zone; permit Tesla to provide necessary maintenance and repair services to Michigan’s Tesla owners; and restore Tesla’s right to compete fairly for the business of Michigan consumers, an outcome that will reduce prices, create jobs, and allow Michigan consumers—not Michigan car dealers or legislators—to choose which vehicles and distribution model they prefer.

–  –  –

10. Tesla brings this lawsuit pursuant to the Civil Rights Act of 1871, 42 U.S.C.

§ 1983, and alleges violations of the Fourteenth Amendment to, and the Commerce Clause of, the U.S. Constitution.

11. Tesla seeks declaratory and injunctive relief against the enforcement of Section

445.1574 against Tesla, and against the practices and policies of the Secretary of State that deprive Tesla of its right to sell and service Tesla vehicles at Tesla-owned facilities within the State.

12. This Court has jurisdiction pursuant to 28 U.S.C. §§ 1331, 1367, 1343, and 2201.

–  –  –

14. Tesla is an American company that designs, develops, and manufactures electric vehicles and provides service and support to owners of its vehicles. Electric vehicles currently comprise less than 1% of new car sales in the United States, and Tesla’s mission is, among other things, to accelerate the world’s transition to electric mobility by bringing to market a full fleet of increasingly affordable electric vehicles.

–  –  –

15. Defendant Ruth Johnson is the Secretary of State and is sued in her official capacity. Defendant Johnson is, and at all relevant times was, an employee of the State of Michigan. As Secretary of State, Defendant Johnson also serves, and at all relevant times served, as the Chief Motor Vehicle Administrator.

16. Defendant Bill Schuette is the Attorney General of the State of Michigan and is sued in his official capacity. Defendant Schuette is, and at all relevant times was, an employee of the State of Michigan with authority to enforce Michigan law.

17. Defendant Rick Snyder is the Governor of the State of Michigan and is sued in his official capacity. Defendant Snyder is, and at all relevant times was, an employee of the State of Michigan vested by the Michigan Constitution with the executive power of the State, including the power to supervise each of the principal departments of the executive branch of the State government.

18. Defendants Johnson, Schuette, and Snyder (collectively “Defendants”), and their agents and employees performed, participated in, aided, and/or abetted in the acts described below under color of law and directly and/or proximately caused the injuries described below.

–  –  –

19. Tesla began bringing vehicles to market just five years after its founding. Its first offering was the Tesla Roadster, released in 2008, which was the first commercially-produced, highway-capable, all-electric vehicle made in the United States. The Roadster was a highperformance sports car with a battery range of 245 miles, the longest range of any production vehicle up until that time.

20. Building on the Roadster’s success, in 2012, Tesla introduced the Model S, a fullsized, all-electric luxury sedan with a range of 265 miles per charge.1 The market’s response was overwhelming. In 2013, Model S was named Motor Trend Car of the Year2 and was recognized by Consumer Reports for “the highest owner-satisfaction score Consumer Reports has seen in years: 99 out of 100.”3 A 2014 Consumer Reports survey found that “98 percent of Model S owners [said] they would definitely purchase it again.”4 In 2015, Car and Driver named Model S the “Car of the Century,”5 an award given in the prior century to the Ford Model T. In addition, Model S consistently receives a five-star safety rating (the highest possible) in each testing category from the National Highway Traffic Safety Administration.6 By 2015, 1 The most recent variant of Model S (P100D) has a range of 315 miles per charge.

2 2013 Motor Trend Car of the Year: Tesla Model S (November 12, 2012), http://www.motortrend.com/news/2013motor-trend-car-of-the-year-tesla-model-s/.

3 Tesla Model S Takes the Top Spot in Consumer Reports Car Owner-Satisfaction Ratings (November 21, 2013), http://pressroom.consumerreports.org/pressroom/2013/11/my-entry-2.html.

4 Would You Buy Your Car Again? Consumer Reports’ annual car owner satisfaction survey (December 2014), http://www.consumerreports.org/cro/2012/12/owner-satisfaction/index.htm.

5 2015 Tesla Model S 70D, The car of the century, now updated with more power and AWD (May 2015), http://www.caranddriver.com/reviews/2015-tesla-model-s-70d-instrumented-test-review).

6 http://www.safercar.gov/Vehicle+Shoppers/5-Star+Safety+Ratings/2011-Newer+Vehicles/SearchResults?searchtype=manufacturer&manufacturer=151.

–  –  –

Model S was the best-selling plug-in electric vehicle in both the United States and worldwide,7 and was the best-selling large luxury vehicle of any kind in the United States.8

21. In September 2015, Tesla began delivery of its third vehicle, the Model X, a luxury sport utility vehicle. And in March 2016, Tesla began accepting reservations for its fourth vehicle, the Model 3, a lower-cost sedan set to enter production in late 2017. Demand for the Model 3 has been unprecedented, with more than 325,000 reservations placed (with a deposit of $1,000 each) within a week after Model 3 reservations were opened, implying approximately $14 billion in future sales and making Model 3’s launch the largest one-week product launch ever—all without advertisements, paid endorsements, or guerilla marketing campaigns. By May 15, 2016, Tesla had logged approximately 373,000 Model 3 reservations.

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