Louisiana’s motor vehicle commission is waging an unlawful investigation into Tesla’s operations within the state as part of a conspiracy with car dealers to oust the electric carmaker, the automaker’s lawyer argued Tuesday before a panel of the U.S. Court of Appeals for the Fifth Circuit.
Tesla’s lawyer, Ari Holtzblatt of Wilmer Cutler Pickering Hale and Dorr, argued the Sherman Antitrust Act, as well as the 14th Amendment’s due process and equal protection clauses, bar the dealers’ “efforts to appropriate state power to eliminate competition” as the company urged the Fifth Circuit to revive a lawsuit against several members of the Louisiana Motor Vehicle Commission, the Louisiana Automobile Dealers Association and a group of dealers.
Louisiana’s direct-sales ban and subsequent state regulation restrict consumer freedom, Tesla argued in its 2022 lawsuit that a district court judge tossed last year. The Fifth Circuit panel will decide whether the district judge rightfully dismissed the case.
The judges’ decision could have implications for Texas, where Tesla has unsuccessfully lobbied to end the ban on direct-to-consumer sales.
Paul Clement of Clement & Murphy, arguing for all the defendants, said Tesla’s “real beef” is with state law that blocks direct-to-customer sales models and that the company’s existing operations in Louisiana underscore that the state is not violating antitrust law.
Texas statutes are similar to the Louisiana laws Tesla is challenging, according to the Texas Automobile Dealers Association that filed a friend of the court brief to the Fifth Circuit in December. The group argued Louisiana’s direct-to-consumer ban “easily survive[s] constitutional scrutiny.”
“Tesla cites no case in which a court has struck down a manufacturer-direct sales prohibition as unconstitutional,” TADA wrote in its brief. “However, Tesla has convinced a few states to interpret their existing statutes as not applying to a new manufacturer that has never sold vehicles using dealers.”
The Department of Justice also waded into the case, filing a friend of the court brief in October. Matthew Mandelberg, a DOJ lawyer, appeared before the panel Tuesday and said U.S. District Judge Sarah Vance misinterpreted antitrust law in her June opinion tossing the lawsuit and sought clarification from the Fifth Circuit.
“We care about this issue because it’s important not to superimpose additional requirements on top of … the required elements,” Mandelberg said, referencing the DOJ’s contention that Judge Vance was incorrect in holding a defendant must have an “anticompetitive purpose” in order to violate Section 1 of the Sherman Act. “This could affect more than just this case, including other cases brought by the government. And thus we ask this court to make clear in its decision that alleging an anticompetitive purpose is not necessary to state a Section 1 claim.”
In 2017, Louisiana passed a bill that eliminated exceptions to the state’s manufacturer-to-consumer sales ban. The dealers association, dealerships and some commissioners had lobbied for the bill, Tesla has said in its lawsuit.
Tesla is still allowed to lease and service its vehicles in the state, but the company accuses the defendants of acting to prevent even those operations. Tesla points to three subpoenas the motor vehicle commission had issued against Tesla that signal what the carmaker deems an unlawful investigation. The subpoenas sought to retrieve records about Tesla Lease Trust’s activities in Louisiana, the vehicles leased by the company’s Lease Trust and warranty service performed on vehicles.
Tesla filed a case in state court challenging the commission’s subpoenas, and that case is pending, lawyers told the Fifth Circuit judges Tuesday.
Tesla also pointed to emails between dealers and commissioners that the company obtained from public records requests. In one email exchange about Tesla’s plan to open a service center, the then-executive director of the commission responded, “On top of it.”
That response indicates that the executive director and the dealer were in agreement, Holtzblatt said. But the defendants have argued reaching such a conclusion from the emails would require an “inferential leap.”
The email response is open to interpretation, one of the judges noted. Holtzblatt argued the communication presents a factual question that needs to be allowed to proceed through discovery.
The commission includes auto dealers, which presents a conflict of interest, Tesla argues.
“If a judge has a financial interest in a dispute before them, then we don’t wait to see what the outcome of the dispute is,” Holtzblatt said to the judges. “The fact that the judge has a financial interest creates a due process violation right away and that’s the same problem that we have with the dealer commissioners.”
Holtzblatt referenced several other cases that sought to resolve what he argued are similar due process issues, including Gibson v. Berryhill, which was decided by the U.S. Supreme Court. Tesla has argued the dealers’ bias against Tesla is even more profound.
Judge Jerry E. Smith questioned the defendants’ lawyer about the commission’s objectivity.
“It seems to me obviously plausible that there would be a conflict of interest,” Smith said.
Clement pushed back saying, “The whole reason that there is a dispute about whether Tesla is obeying the scope of the fleet owner exception is because this commission has allowed them to service their own vehicles” as evidence the commission is not biased against Tesla.
Louisiana law generally prohibits manufacturers from operating a warranty repair center in the state, but offers an exception for “fleet owners,” a status that Tesla obtained.
“The fact that Tesla was granted the exemption and is on the market, and the only dispute now is the scope of the exemption, that seems to be a powerful indicator that this commission can call balls and strikes,” Clement said.
Given the Fifth Circuit’s decisions in Ford Motor Co. v. Texas Department of Transportation and International Truck & Engine Corp. v. Bray, Clement argued Tesla’s equal protection claim seems “dead on arrival.”
In the 2001 Ford case, over Ford’s online sales of pre-owned cars, the Fifth Circuit found Texas law, like Louisiana law, did not violate equal protection. The Fifth Circuit upheld Texas’ direct sales ban in the International Truck case, which came after the Ford case, the defendants’ explained in their brief.
Judges Catharina Haynes and Dana M. Douglas also sat on the panel.
Tesla is also represented by David Gringer, Andres C. Salinas, Andrew K. Waks, Tony J. Lee of Wilmer Cutler Pickering Hale and Dorr and Mark R. Beebe and Diana Cole Surprenant of Adams and Reese.
Louisiana Automobile Dealers Association is also represented by Matthew Rowen of Clement & Murphy and Jeanne C. Comeaux and Claude Favrot Reynaud Jr. of Breazeale, Sachse & Wilson.
TADA is represented by Robert T. Mowrey, Thomas G. Yoxall, W. Scott Hastings and Daron L. Janis of Locke Lord.
The case number is 23-30480.