Tesla Motors UT, Inc. v. Utah Tax Commission , 836 Utah Adv. Rep. 47 ( 2017 )

This opinion is subject to revision before final
publication in the Pacific Reporter
2017 UT 18IN THE
SUPREME COURT OF THE STATE OF UTAH
TESLA MOTORS UT, INC.,
Petitioner,
v.
UTAH TAX COMMISSION; UTAH MOTOR VEHICLE ENFORCEMENT
DIVISION,
Respondents.
No. 20150792
Filed April 3, 2017
On Petition for Review of Final Agency Action
Attorneys:
George Riley, Anne E. Huffsmith, Elysa Q. Wan, San Francisco, pro
hac vice, Francis M. Wikstrom, Michael P. Petrogeorge, Salt Lake
City, for petitioner
Sean D. Reyes, Att‘y Gen., Tyler R. Green, Solic. Gen., Stanford
Purser, Deputy Solic. Gen, Gale K. Francis, Laron J. Lind, Asst. Att‘ys
Gen., Salt Lake City, for respondents
Michael D. Black, Dick J. Baldwin for amicus curiae Utah Auto
Dealers Association d/b/a New Car Dealers of Utah
ASSOCIATE CHIEF JUSTICE LEE authored the opinion of the Court, in
which CHIEF JUSTICE DURRANT, JUSTICE DURHAM, JUSTICE HIMONAS,
and JUSTICE PEARCE joined.
ASSOCIATE CHIEF JUSTICE LEE, opinion of the Court:
¶1 This case comes to us on a petition for review of a final
decision of the Utah Tax Commission. In the proceedings below, the
commission affirmed the administrator of the Utah Motor Vehicle
Enforcement Division‘s decision to deny an application for a license
to sell new motor vehicles. The license application in question was
submitted by Tesla Motors UT, Inc., a wholly owned subsidiary of
Tesla, Inc., a motor vehicle manufacturer. In denying Tesla UT‘s
TESLA UT, INC. v. UTAH TAX COMM‘N
Opinion of the Court
application, the Division determined that the application implicates
both the Motor Vehicle Business Regulation Act (Licensing Act),
UTAH CODE § 41-3-101, and the New Automobile Franchise Act, id.
§ 13-14-101.
¶2 The threshold question presented is whether those statutes
together prohibit a wholly owned subsidiary of a motor vehicle
manufacturer from obtaining a license to sell the manufacturer‘s new
motor vehicles in stores in Utah. We hold that they do. We interpret
the statutes to prohibit a motor vehicle manufacturer from owning
part of any separate entity that sells the manufacturer‘s new motor
vehicles in this state. We also uphold the statutory scheme against
Tesla UT‘s constitutional attack. And we accordingly affirm the Tax
Commission‘s decision affirming the denial of Tesla UT‘s application
for a new motor vehicle license.
¶3 This is a narrow, legal decision. We are not opining on
broad policy questions presented at some length by Tesla UT in its
briefing—on whether Utahns would be better off with direct access
to the innovative vehicles offered by Tesla, or whether Tesla‘s ―direct
sales‖ marketing scheme improves the car-buying experience. These
questions are not ours to answer, as we interpret the governing
statutes to control this case and find no constitutional barrier to their
implementation.
¶4 We likewise stop short of deciding whether Tesla itself (the
manufacturer) is barred from obtaining its own license to sell new
motor vehicles. Tesla UT alludes to that question repeatedly in its
briefing. But that question is not at issue because Tesla never
submitted its own application and is not a party to this case. For
reasons presumably important to Tesla, the automobile
manufacturer chose to create a subsidiary entity and directed the
subsidiary to submit a license application. For that reason, we are
ruling only on Tesla UT‘s right to obtain a new vehicle dealer license
as the wholly owned subsidiary of Tesla. We express no opinion on
whether a motor vehicle manufacturer is barred from securing its
own license to sell its own motor vehicles.
I. BACKGROUND
¶5 On February 12, 2015, Tesla UT applied for a license to sell
new Tesla vehicles at a physical store in Salt Lake City. The
application was denied by the Motor Vehicle Enforcement Division
on the ground that Tesla UT did not have a ―franchise‖ to sell Tesla
vehicles as required by the Licensing Act. Tesla UT responded by
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entering into a ―dealer agreement‖ with Tesla. The agreement
authorized Tesla UT to sell new Tesla vehicles. But the agreement
also purported to avoid creating a franchisor-franchisee relationship
under the Franchise Act and prohibited Tesla UT from using Tesla‘s
trademark and trade name.
¶6 With the dealer agreement in hand, Tesla UT reapplied for
a new vehicle dealer license. Again the administrator denied the
application. He determined that Tesla UT either failed to have a
franchise as required by section 41-3-210(g) of the Licensing Act or
had an impermissible subsidiary relationship with its franchisor as
prohibited by section 13-14-201(1)(u) of the Franchise Act.
¶7 Tesla UT appealed to the Utah Tax Commission,
challenging the Division‘s interpretation of the governing statutes
and also asserting a series of constitutional claims. The Tax
Commission affirmed. It concluded that the Division had correctly
interpreted and applied the statutes, while declining to rule on any
of Tesla UT‘s constitutional claims (given that it lacks jurisdiction to
do so. See Appellant‘s Brief, Addendum E, at 17 (citing Nebeker v.
Utah State Tax Comm’n, 2001 UT 74, ¶ 18, 34 P.3d 180)). The Tax
Commission‘s decision was rooted in section 201(1)(u) of the
Franchise Act. In the commission‘s view, the Tesla entities were at
odds with section 201(1)(u) of the Franchise Act because Tesla UT
was Tesla‘s ―franchisee‖ and a new vehicle dealer and Tesla was a
―franchisor‖ that had an ownership interest in the new vehicle
dealer.
¶8 Tesla UT now petitions this court for review of the Tax
Commission‘s decision, challenging the decision on statutory and
constitutional grounds. Tesla UT‘s claims raise questions of law,
which we review de novo. See Hughes Gen. Contractors, Inc. v. Utah
Labor Comm’n, 2014 UT 3, ¶ 25, 322 P.3d 712.
II. STATUTORY CLAIMS
¶9 Tesla UT‘s statutory claims implicate the Licensing Act and
the Franchise Act. The Licensing Act governs the issuance of a ―new
motor vehicle dealer‘s license.‖ UTAH CODE § 41-3-202(1)(a). Such a
license confers the right to ―offer for sale, sell, or exchange new
motor vehicles.‖ Id. By statute, the Motor Vehicle Division‘s
administrator has the authority to decide whether an applicant is
―qualified‖ to receive such a license. Id. § 41-3-209(1). In exercising
that authority, the administrator is governed by the terms of the
Licensing Act. The Act, among other things, spells out grounds that
constitute ―[r]easonable cause‖ for the denial of a license application.
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Opinion of the Court
Id. § 41-3-209(2)(c). And those grounds include ―a violation of any
state or federal law involving motor vehicles.‖ Id. § 41-3-
209(2)(c)(vii).
¶10 The Licensing Act itself sets forth certain restrictions on the
use of a ―license issued under this chapter.‖ Id. § 41-3-210(1). One of
those restrictions is a proviso that a license holder may not ―engage
in a business respecting the selling or exchanging of new or new and
used motor vehicles for which he is not licensed, including selling or
exchanging a new motor vehicle for which the licensee does not have
a franchise.‖ Id. § 41-3-210(1)(g).
¶11 The above provisions formed the basis for the initial denial
of Tesla UT‘s license application. In denying the first application, the
administrator concluded that Tesla UT was in ―violation‖ of a state
law ―involving motor vehicles‖ because Tesla UT proposed to sell
new motor vehicles for which it did not have a ―franchise,‖ as
required under section 210(1)(g). Tesla UT responded by entering
into a ―dealer agreement‖ with Tesla. And Tesla UT then submitted
a new application for a new motor vehicle license.
¶12 That is where the Franchise Act came into play. In enacting
the Franchise Act, the legislature found that ―[t]he distribution and
sales of new motor vehicles through franchise arrangements in the
state vitally affects the general economy of the state, the public
interest, and the public welfare.‖ Id. § 13-14-101(2)(a). And in
furtherance of those interests, the legislature deemed it ―necessary to
establish statutory guidelines regulating the relationship between
franchisors and franchisees in the motor vehicle industry.‖ Id. § 13-
14-101(c). One of the restrictions set forth by statute is a prohibition
on a ―franchisor‖ ―directly or indirectly‖ ―own[ing] an interest in a
new motor vehicle dealer or dealership.‖ Id. § 13-14-201(1)(u).
¶13 This provision formed the basis of the denial of Tesla UT‘s
second application for a new motor vehicle license. In denying that
application, the administrator noted that if Tesla UT had a franchise
with Tesla, then it ran afoul of the prohibition on a franchisor
―own[ing] an interest in a new motor vehicle dealer or dealership.‖
Id. Alternatively, if there was no franchise relationship between Tesla
UT and Tesla, the administrator stated that Tesla UT would fall back
into trouble under the Licensing Act—on the ground that it lacked
the ―franchise‖ required by Utah Code section 41-3-210(g).
¶14 The Tax Commission‘s decision embraced the
administrator‘s understanding of the two acts. It noted Tesla UT‘s
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position that its dealership agreement with Tesla ―provides it
adequate authorization to sell Tesla vehicles and meets the
requirements of being a franchise under‖ the Licensing Act. But it
concluded that Tesla UT was not qualified to receive a license
because Tesla was a ―franchisor‖ under the Franchise Act and held
an ownership interest in Tesla UT as a ―new motor vehicle dealer‖
that was prohibited by section 13-14-201(1)(u) of that statute.
¶15 These conclusions reflect the ―dilemma of franchise terms‖
identified by the Attorney General‘s office in a filing opposing the
Tesla UT application. In the Attorney General‘s office‘s view, Tesla
UT was caught between the rock of the Licensing Act and the hard
place of the Franchise Act: Either Tesla UT lacked the ―franchise‖
with Tesla required by the Licensing Act, id. § 41-3-210(1)(g), or its
―franchise‖ put it at odds with the Franchise Act‘s prohibition on a
franchisor‘s ownership of an ―interest‖ in a new motor vehicle
dealer, id. § 13-14-201(1)(u).
¶16 The tension between the Licensing Act and the Franchise
Act is at the forefront of the parties‘ briefing in this case. Tesla UT
insists that its dealer agreement satisfies the ―franchise‖ requirement
of the Licensing Act but did not amount to a ―franchise‖ under the
Franchise Act. It also argues, in the alternative, that the Motor
Vehicle Division had no statutory authority to consider any alleged
violation of the Franchise Act in evaluating Tesla UT‘s eligibility for
a new motor vehicle license.
¶17 The Tax Commission, on the other hand, seeks to conflate
the two statutory notions of ―franchise.‖ Its principal position on
appeal is that the dealer agreement established a ―franchise‖ under
the Franchise Act and that Tesla‘s ownership of Tesla UT as a
subsidiary runs afoul of the Franchise Act. The commission also
defends the Motor Vehicle Division administrator‘s statutory
authority to take violations of the Franchise Act into account in
ruling on an applicant‘s qualification to secure a license. And it
argues, in the alternative, that if Tesla UT does not have a
―franchise‖ under the Franchise Act then it must necessarily be in
violation of the Licensing Act‘s requirement that a license holder
have a ―franchise‖ for the sale of new motor vehicles. See id. § 41-3-
210(1)(g).
¶18 We reject the Tax Commission‘s conception of a unitary
notion of ―franchise‖ under the Licensing Act and the Franchise Act
but nonetheless affirm the decision denying Tesla UT‘s application.
First, we conclude that Tesla UT‘s relationship with Tesla amounts to
a ―franchise‖ under the Licensing Act. Second, we explain that the
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Opinion of the Court
notion of ―franchise‖ under the Franchise Act is different, but hold
that Tesla UT‘s arrangement with Tesla also qualifies as a
―franchise‖ under that statute. Finally, we reject Tesla UT‘s assertion
that the Motor Vehicle Division lacks statutory authority to consider
a violation of the Franchise Act in deciding whether an applicant is
qualified to receive a license.
A. Licensing Act
¶19 The Licensing Act prohibits the holder of a license from
―engag[ing] in a business respecting the selling or exchanging of
new . . . motor vehicles for which he is not licensed, including selling
or exchanging a new motor vehicle for which the licensee does not
have a franchise.‖ UTAH CODE § 41-3-210(1)(g). Tesla UT‘s initial
application for a license was denied on the ground that it lacked the
required ―franchise.‖ And Tesla UT responded by entering into a
formal dealer agreement with its parent.
¶20 The threshold question presented is whether Tesla UT has a
―franchise‖ sufficient to satisfy the Licensing Act. We conclude that
it does. ―Franchise‖ is a defined term under the Licensing Act. Under
this statute, a ―franchise‖ is simply ―a contract or agreement between
a dealer and a manufacturer of new motor vehicles or its distributor
or factory branch by which the dealer is authorized to sell any
specified make or makes of new motor vehicles.‖ Id. § 41-3-102(16).
Tesla UT unquestionably has a ―contract or agreement‖ with a
manufacturer by which it is ―authorized to sell‖ Tesla cars. The
dealer agreement with Tesla makes that clear—even if it wasn‘t
already clear prior to the execution of that contract.
B. Franchise Act
¶21 The Tax Commission does not really contest the above
conclusion under the Licensing Act‘s definition of ―franchise.‖
Instead it falls back on the horns of the ―dilemma‖ noted above. It
asserts that either Tesla UT‘s ―franchise‖ with Tesla is barred by the
terms of the Franchise Act (due to the parent-subsidiary relationship
between the two entities), or if there is no ―franchise,‖ then Tesla UT
must be barred by the terms of the Licensing Act. This implicates the
―unitary franchise‖ theory advanced by the Tax Commission—the
view that a franchise under one statute must constitute a franchise
under all others, and thus that Tesla UT is damned (by the Franchise
Act) if it has a franchise and damned (by the Licensing Act) if it
doesn‘t.
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¶22 We reject the Tax Commission‘s theory because we find it
incompatible with the terms of the governing statutes. We see two
distinct notions of ―franchise‖ in these two statutory schemes and
thus room for the conclusion that a prospective new vehicle dealer
could have a ―franchise‖ for Licensing Act purposes but no
―franchise‖ under the Franchise Act. Ultimately, however, we
conclude that Tesla UT‘s arrangement with its parent corporation
established a ―franchise‖ under both schemes, and thus that Tesla
UT is at odds with the Franchise Act.
¶23 The legislature is undoubtedly empowered to define
―franchise‖ in different ways in different statutory schemes. And
where it has done so we are bound by the statutory definitions—and
not by our judicial preference for linguistic consistency. See In re
Estate of Hannifin, 2013 UT 46, ¶ 20 n.7, 311 P.3d 1016 (―Because the
statute . . . provides these definitions, we [cannot] define those
[terms] as we see fit.‖); see also Pac. Intermountain Express Co. v. State
Tax Comm’n of Utah, 329 P.2d 650, 652 (Utah 1958) (noting ―that
definitions in unrelated statutes do not necessarily determine‖ the
meaning of the same term in the pertinent statute).
¶24 As noted above, the Licensing Act notion of ―franchise‖ is
straightforward—any ―contract or agreement‖ authorizing the sale
of new motor vehicles establishes a ―franchise‖ for purposes of the
Licensing Act. UTAH CODE § 41-3-102(16). Yet the Franchise Act
requires more than that. A ―franchise‖ exists under the Franchise Act
only if there is a written agreement or ―course of dealing or a
practice‖ in which ―(i) a person grants to another person a license to
use a trade name, trademark, service mark, or related characteristic;
and (ii) a community of interest exists in the marketing of new motor
vehicles, new motor vehicle parts, and services related to the sale or
lease of new motor vehicles at wholesale or retail.‖ Id. § 13-14-
102(8)(a). One could certainly have a franchise under the Licensing
Act but no franchise under the Franchise Act.
¶25 Yet we nonetheless affirm the Tax Commission‘s
determination that Tesla UT has a ―franchise‖ arrangement with
Tesla for purposes of the Franchise Act. First we conclude that Tesla
has granted to Tesla UT a ―license‖ to use Tesla trademarks. Then we
explain the basis for our conclusion that there is a ―community of
interest‖ between the two entities under the statute. And we
conclude by rejecting Tesla UT‘s attempts to avoid the clear import
of the plain text of the statute by reference to its supposed
―purpose.‖
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Opinion of the Court
1. Franchise
¶26 The first element of a ―franchise‖ under the Franchise Act is
a grant of a ―license to use a trade name, trademark, service mark, or
related characteristic.‖ Id. § 13-14-102(8)(a)(i). Tesla UT insists that
this element is lacking because the dealer agreement purports to
disclaim the grant of a trademark license. Yet the question presented
is not limited to the bare terms of the dealer agreement. The
Franchise Act may not be circumvented by empty words of
disclaimer. If Tesla has in fact granted Tesla UT the right to use Tesla
trademarks in operating a dealership in Utah, then we must
conclude that this element of a ―franchise‖ is met.
¶27 And we do so conclude. We find the practical reality of the
relationship between Tesla and Tesla UT impossible to reconcile
with the dealer agreement‘s purported disclaimer of a grant of a
trademark license. Even at this early stage, Tesla UT‘s use and
anticipated use of Tesla trademarks is evident. As the Tax
Commission noted, the ―principal place of business‖ identified in the
dealer agreement for Tesla UT is ―2312 South State Street, South Salt
Lake City, Utah 84115.‖ And ―[t]he Tesla name and logo are on the
building at 2312 South State Street.‖ That building, moreover, is the
location for which Tesla UT submitted its license application to the
Utah Motor Vehicle Division. So it is quite apparent that Tesla UT‘s
operation of a dealership is to involve the use of Tesla trademarks.
And Tesla has hardly objected; indeed it has given its open support
for this use and has even directed it.1
¶28 Tesla UT does not meaningfully contest the above. Instead
it hangs its hat on the statutory proviso that a ―franchise‖ exists only
where the franchisor ―grants‖ the trademark license to the
franchisee. UTAH CODE § 13-14-102(8). And it insists that there was
no ―grant‖ here because the license agreement disclaims it and any
1 Ongoing—and even more extensive—trademark use seems
inevitable. A dealer can hardly engage in the operation of a car
dealership without further trademark use—on business cards,
stationery, and further signage. And although there is as yet no
evidence of such use in this record, it seems impossible to believe
that such use is not in fact anticipated. We could remand for findings
on this question if we deemed it necessary to our decision. But we
affirm without a remand because we find other evidence of a grant
of trademark rights in the record as it now stands.
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rights conferred on Tesla UT accrued ―automatically‖ by virtue of its
status as a wholly owned subsidiary.
¶29 We find no logical or legal basis for this argument. As for
logic, either Tesla UT has permission to use the Tesla trademarks or
it doesn‘t. And if it does, it is because those rights were granted by
the owner of the trademark (Tesla), and not because a subsidiary
―automatically‖ acquires trademark rights. Surely Tesla could
establish a subsidiary to which it withholds trademark use rights. So
the fact that Tesla UT has such rights means that it has been granted
them by Tesla.
¶30 Legally, it matters not that Tesla UT‘s trademark license
was not granted in a written dealer agreement. By statute, the
trademark license may be granted through a ―course of dealing or a
practice‖ between the entities. Id. And that is what occurred here.
¶31 At oral argument in this court, Tesla UT sought to obviate
the existence of a grant of trademark rights by invoking the principle
that ―[t]hose who resell genuine trademarked products are generally
not liable for trademark infringement.‖ Beltronics USA, Inc. v.
Midwest Inventory Distribution, LLC, 562 F.3d 1067, 1071 (10th Cir.
2009). Fair enough. A purchaser of a Tesla vehicle has the right to
resell it without a trademark license. And if Tesla UT were in that
position it could resell Tesla cars without a license. Thus, if Tesla UT
were planning only to resell genuine Tesla vehicles—without holding
itself out as a Tesla affiliate by use of Tesla trademarks—it could do
so without a trademark license. But Tesla UT, as noted, is not
anticipating that kind of business. It has applied for a license to sell
cars from a storefront that bears the Tesla trademark on its signage.
And that is classic trademark use.2
¶32 Tesla UT‘s arrangement with Tesla accordingly involves at
least an implied trademark license.3 The license appears to be
2See, e.g., Audi AG v. D’Amato, 469 F.3d 534 (6th Cir. 2006); Harley-
Davidson, Inc. v. Grottanelli, 164 F.3d 806 (2d Cir. 1999); Porsche Cars
N.A. v. Manny’s Porshop, Inc., 972 F. Supp. 1128 (N.D. Ill. 1997).
3 See Menendez v. Holt, 128 U.S. 514, 524 (1888) (―Where consent by
the owner to the use of his trade-mark by another is to be inferred
from his knowledge and silence merely, it lasts no longer than the
silence from which it springs. It is, in reality, no more than a
revocable license.‖ (internal quotation marks omitted)); see also
Conagra, Inc. v. Singleton, 743 F.2d 1508, 1516 (11th Cir. 1984)
(continued . . .)
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Opinion of the Court
revocable. But it clearly has been granted by Tesla in anticipation of
the operation of the dealership that is the subject of the dealer
agreement. And that is sufficient to satisfy the first element of a
―franchise‖ under the Franchise Act.
2. Community of Interest
¶33 The second element of a ―franchise‖ is a ―community of
interest . . . in the marketing of new motor vehicles, new motor
vehicle parts, and services related to the sale or lease of new motor
vehicles at wholesale or retail.‖ Id. § 13-14-102(8)(a)(ii). Tesla UT
sought to contest this element at oral argument in this court by
asserting that the identity of interest between Tesla UT and its parent
is somehow too close to count as a community of interest. Tesla UT‘s
point is apparently that a ―community‖ involves a group of persons
or entities that are disparate to some degree but unified in other
relevant ways.
¶34 We find no room for Tesla UT‘s position in the language of
the statute. A ―community‖ is a ―unified body of individuals,‖ a
―group linked by a common policy,‖ or a ―body of persons or
nations having a common history or common social, economic, and
political interests.‖ Community, MERRIAM-WEBSTER‘S COLLEGIATE
DICTIONARY (11th ed. 2003). The members of a community
admittedly must be distinct individuals or entities. But the core
characteristic of a ―community‖ is in their unity—under the statute,
unity as to the ―interest . . . in the marketing of new motor vehicles,
new motor vehicle parts, and services related to the sale or lease of
new motor vehicles at wholesale or retail.‖ UTAH CODE § 13-14-
102(8)(a)(ii). And here there is both distinctness and unity: Tesla UT
and Tesla are distinct corporate entities, and their unity could not be
clearer with respect to their interest in selling Tesla cars.
¶35 Tesla UT‘s argument on this point is procedurally barred in
any event, as it was not presented in the briefs but was first raised at
oral argument. See Anderson v. Bell, 2010 UT 47, ¶ 7, 234 P.3d 1147.
We accordingly hold that the second element of a ―franchise‖ under
the Franchise Act is satisfied here, and thus that Tesla UT is subject
to the statutory bar on a ―franchisor‖ ―directly or indirectly‖
―own[ing] an interest in a new motor vehicle dealer or dealership.‖
UTAH CODE § 13-14-201(1)(u).
(―Acquiescence alone is analogous to an implied license to use the
name.‖).
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¶36 In so concluding we stop short of addressing an alternative
point advanced by the Tax Commission—that the operative
prohibition in the statute speaks to only the relationship between a
―franchisor‖ and a ―new motor vehicle dealer,‖ see id., and that Tesla
is acting as a ―franchisor‖ even if it is not operating a ―franchise.‖
That may be right under the plain language of the statute. Certainly
Tesla meets the elements of ―franchisor.‖4 And the operative
prohibition in the statute speaks only to the relationship between a
―franchisor‖ and a ―new motor vehicle dealer,‖ without any express
reference to a ―franchise.‖ Id. But we need not resolve this question
here because we conclude that Tesla also has a ―franchise‖
relationship with Tesla UT. And on that basis we find a violation of
the statutory bar on a ―franchisor‖ ―directly or indirectly‖ ―own[ing]
an interest in a new motor vehicle dealer or dealership.‖ Id.
3. The ―Purpose‖ of the Franchise Act
¶37 Tesla UT seeks to obviate the terms of the Franchise Act by
reference to its avowed ―purpose.‖ That purpose, as Tesla UT sees it,
is to protect dealers against the unequal bargaining power of
automobile manufacturers. And in Tesla UT‘s view that purpose is
not implicated by the relationship between a manufacturer and its
wholly owned subsidiary—a point that Tesla UT advances by
insisting that some of the operative terms of the Franchise Act would
be inapplicable in the parent-subsidiary context.
¶38 This argument is flawed in its threshold premise. The
breadth and reach of our laws are measured by the words that were
voted on by the legislature and signed into law by the governor—not
by the general function or purpose we may ascribe to the law in
retrospect.5 This is a proposition with both legal and practical
4 See UTAH CODE § 13-14-102(10) (defining ―franchisor‖ as a
―person,‖ including a ―manufacturer‖ of ―new motor vehicles,‖ who
―permits a franchisee to purchase, sell, or offer for sale new motor
vehicles manufactured . . . by the franchisor‖); id. § 13-14-102(9)
(defining ―franchisee‖ as a ―person with whom a franchisor has . . .
permitted . . . to purchase, sell, or offer for sale new motor vehicles
manufactured . . . by the franchisor‖).
5 See Craig v. Provo City, 2016 UT 40, ¶ 31, 389 P.3d 423 (―[A] court
cannot reliably discern legislative intent on a particular matter by
reasoning generally from a statement (even an accurate one) of a
broad statutory purpose.‖).
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footings. The legal basis is in the Utah Constitution. Articles VI and
VII of that document provide that legislation becomes law upon
approval by a majority of both houses of the legislature and a
signature by the governor (or a super-majority override of an
executive veto). See UTAH CONST. art. VI, § 22; id. art. VII, § 8. As a
matter of state constitutional law, then, the law consists of the text
that is voted upon and presented to the governor. We may have a
sense of the motivating consideration or ―purpose‖ of a legislative
enactment, but our sense of such purpose is not law; it is at most an
aid in resolving ambiguities in the law.6
¶39 This conclusion also finds footing in practical grounds.
Hardly any statute is enacted for only one purpose. Most all of our
laws are aimed at balancing competing purposes, not at advancing
one at all costs.7 And for that reason, a myopic focus on one
perceived purpose is likely to upset the precise balance—the
legislative compromise—enacted into law by the legislature.8
¶40 That problem is evident in Tesla UT‘s view of the Franchise
Act. That statute is undoubtedly aimed in part at protecting
franchisees (dealers) from franchisors (manufacturers). But we
cannot say that that is the statute‘s only purpose. Surely it is also
aimed at delineating the respective responsibilities of franchisees
and franchisors, and at protecting the latter to some degree.
6 See VCS, Inc. v. Utah Cmty. Bank, 2012 UT 89, ¶ 23, 293 P.3d 290(―Our understanding of purpose, in other words, can be employed to
inform and resolve ambiguities in the text; it cannot be used to
establish an ambiguity that does not exist, or to override the
meaning of a statute that is otherwise plain.‖).
7 See Myers v. Myers, 2011 UT 65, ¶ 27, 266 P.3d 806 (―Legislation is
rarely aimed at advancing a single objective at the expense of all
others.‖); Olsen v. Eagle Mountain City, 2011 UT 10, ¶ 23 n.6, 248 P.3d
465 (―[M]ost statutes represent a compromise of purposes advanced
by competing interest groups, not an unmitigated attempt to stamp
out a particular evil.‖).
8 See Frank H. Easterbrook, Text, History, and Structure in Statutory
Interpretation, 17 HARV. J.L. & PUB. POL‘Y 61, 68 (1994) (explaining
that, for this reason, a decision allowing a vague statutory purpose to
override the compromise reflected in the text ―dishonors the
legislative choice as effectively as expressly refusing to follow the
law‖).
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¶41 Section 13-14-205 is a good example. This provision
allocates liability between a franchisor and franchisee for damages to
a car during transit. Under section 205, a ―franchisee is solely liable
for damage to a new motor vehicle after delivery by and acceptance
from the carrier.‖ UTAH CODE § 13-14-205(1)(a). That provision can
easily apply to a franchise involving a parent and subsidiary. It
insulates the parent (manufacturer) from liability for damages
incurred after acceptance, channeling all liability to the subsidiary
(dealer).
¶42 Provisions like this foreclose the conclusion that the
Franchise Act has no salience as applied to a parent and subsidiary.
They also indicate that the statute is aimed at protecting both
franchisees and franchisors to some degree. Tesla undoubtedly had
its reasons for establishing a separate subsidiary entity—and for
submitting the new dealer license application in the name of that
subsidiary. Presumably one of the key reasons was to limit the
liability of the parent-manufacturer. And the Franchise Act provides
such protection to the manufacturer—delineating the line between
franchisor liability and franchisee liability.
¶43 The statute says what it says. It expressly bars a franchisor
from having an ownership interest in a new motor vehicle dealer.
And we cannot override that clear prohibition by a vague sense of
overarching statutory purpose.
C. The Motor Vehicle Division‘s Authority
¶44 Tesla UT‘s final attempt to avoid the Franchise Act‘s
prohibition on a manufacturer‘s ownership interest in a dealer is its
assertion that the Motor Vehicle Division lacked the legal authority
to look to that statute in making licensing decisions. The principal
basis for this argument is Utah Code sections 13-14-106 & -107. Those
provisions assign to the Department of Commerce the responsibility
of investigating and imposing sanctions for violations of the
Franchise Act. And if the Motor Vehicle Division were engaged in
that kind of activity—investigating and imposing sanctions for
Franchise Act violations—then Tesla UT might be right to challenge
the Division‘s authority.
¶45 But that is not what the Motor Vehicle Division was up to.
It was performing its responsibility to receive and act upon an
application for a new motor vehicle dealer license. And in fulfilling
that responsibility, the Division is required to deny a license where
there is ―a violation of any state or federal law involving motor
vehicles.‖ UTAH CODE § 41-3-209(2)(c)(vii).
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TESLA UT, INC. v. UTAH TAX COMM‘N
Opinion of the Court
¶46 To assist the Division in this and other determinations, the
administrator is authorized to ―require information from the
applicant concerning the applicant‘s fitness to be licensed.‖ Id. § 41-
3-105(4)(b). And the Division is likewise empowered to use the
information provided by an applicant to determine the applicant‘s
fitness. That is all that happened here. In response to a standard
inquiry from the administrator, Tesla UT disclosed that it is wholly
owned by Tesla. And the administrator, in turn, decided that Tesla
UT was ineligible for a license because it was in ―violation‖ of a
―state . . . law involving motor vehicles,‖ id. § 41-3-209(2)(c)(vii)—the
bar on ―franchisor‖ ownership of a new motor vehicle dealer in
section 201(1)(u) of the New Automobile Franchise Act.
¶47 We see no reason to conclude that the administrator
exceeded his authority. He in no way stepped into the Department of
Commerce‘s role—of conducting an independent investigation or
imposing a sanction under the Franchise Act. He was simply doing
his job—of acting on a license application based on considerations
dictated by statute.
¶48 For these reasons, we affirm the Tax Commission‘s decision
under the terms of the operative statutes. We find the text of these
provisions to sustain the denial of Tesla UT‘s application, and we see
no basis for overriding the statutory language.
III. CONSTITUTIONAL CLAIMS
¶49 Tesla UT‘s constitutional claims are threefold. Tesla UT
challenges the constitutionality of the bar on a motor vehicle
manufacturer‘s ownership interest in a new motor vehicle dealer
under the Free Market Clause of the Utah Constitution, the Due
Process and Equal Protection Clauses of the United States
Constitution, and the so-called ―dormant‖ Commerce Clause of the
United States Constitution.
¶50 We find no merit in any of these claims. And we
accordingly uphold the constitutionality of the statutory bar on a
motor vehicle franchisor‘s ownership of an interest in a new motor
vehicle dealer.
A. Free Market Clause
¶51 Tesla UT first invokes the so-called Free Market Clause of
the Utah Constitution. UTAH CONST. art. XII, § 20. This provision
states that ―[i]t is the policy of the state of Utah that a free market
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system shall govern trade and commerce in this state to promote the
dispersion of economic and political power and the general welfare
of all the people.‖ Tesla UT views this statement as a constitutional
barrier to the statutory prohibition on a motor vehicle franchisor‘s
ownership of an interest in a new motor vehicle dealer. We disagree.
¶52 Not every provision of the constitution states an
enforceable limitation on our government. Some provisions are non-
justiciable: They are stated at so high a level of generality or
aspiration that they require legislation to establish a limitation
enforceable in our courts. See Bott v. DeLand, 922 P.2d 732, 737 (Utah
1996) (noting that ―constitutional provisions are not self-executing if
they merely indicate a general principle or line of policy without
supplying the means for putting them into effect‖), abrogated on other
grounds by Spackman v. Bd. of Educ. of Box Elder Cty. Sch. Dist., 2000
UT 87, 16 P.3d 533.
¶53 The quoted language of the Free Market Clause is such a
provision. This clause articulates only a ―policy.‖ And it frames the
policy in terms that identify only a ―general principle‖ with no
justiciable standard or ―means for putting [it] into effect.‖ Id. We
know from the Free Market Clause that our charter for state
government is in favor of a ―free market.‖ But we know little more
than that.
¶54 The general aspiration for a ―free market‖ is too vague a
policy to sustain a justiciable constitutional standard. So without any
implementing legislation, we deem this provision non-justiciable.
We reject this claim on that basis.
B. Equal Protection and Due Process
¶55 Tesla UT next turns to the Equal Protection and Due
Process Clauses of the Utah and United States constitutions. The
basis for this claim is the assertion that Tesla UT has been denied a
property interest (in selling cars) on a discriminatory basis. Tesla UT
claims that similarly situated dealers are granted a new motor
vehicle license. And it asserts that the State has no legitimate ground
for denying Tesla UT a license on the basis of its subsidiary
relationship with Tesla. Again we disagree.
¶56 As an initial matter, we note that Tesla UT has not briefed
its state constitutional claims ―as an issue separate and distinct from
[their] federal counterpart[s].‖ State v. Rynhart, 2005 UT 84, ¶ 12, 125
P.3d 938. We accordingly proceed under solely a federal
constitutional standard. Id.15
TESLA UT, INC. v. UTAH TAX COMM‘N
Opinion of the Court
¶57 And we find no merit in these claims. The applicable
standard of scrutiny is rational basis review. Because there is no
suspect classification at work under the Licensing Act and Franchise
Act, the law ―need only be rationally related to a legitimate
government purpose.‖ See Save Palisade FruitLands v. Todd, 279 F.3d
1204, 1210 (10th Cir. 2002). This holds ―even if the law seems unwise
or works to the disadvantage of a particular group, or if the rationale
for it seems tenuous.‖ Romer v. Evans, 517 U.S. 620, 632 (1996). The
legislature may draw lines that the judiciary views as curious or
even unwise. But unless those lines are utterly lacking in a rational
basis, we judges have no say in the matter; we leave the second-
guessing to the political branches of government.
¶58 And here we find nothing irrational about the line drawn
by the legislature. An apparent purpose of the operative statutes is
the protection of consumers from sharp or fraudulent new motor
vehicle sales practices. That purpose, moreover, may be thought to
be advanced by a statutory prohibition on a car manufacturer‘s
ownership of a dealer—as the independence of a dealer may
rationally be expected to protect the consumer from sharp or
fraudulent practices. Our law ensures the existence of two
independent entities (a manufacturer and a dealer) with incentives to
satisfy the needs of the consumer. And the legislature‘s thinking—
which we can hardly call irrational—is that consumers are better
protected by an independent dealer than they would be by a dealer
owned by the manufacturer.
¶59 That is sufficient to sustain the constitutionality of the
statutory scheme at issue under rational basis review. We reject Tesla
UT‘s equal protection and due process claims on that basis.
C. Dormant Commerce Clause
¶60 Tesla UT lastly turns to the ―dormant‖ Commerce Clause.
It asserts that the statutory scheme places a burden on interstate
commerce that is ―excessive‖ in relation to the putative local
benefits. This claim invokes the standard from Pike v. Bruce Church,
Inc., 397 U.S. 137 (1970): ―Where the statute regulates even-handedly
to effectuate a legitimate local public interest, and its effects on
interstate commerce are only incidental, it will be upheld unless the
burden imposed on such commerce is clearly excessive in relation to
the putative local benefits.‖ Id. at 142.
¶61 Yet Tesla UT does little to support the applicability of this
test in a case like this one, and nothing to establish the precise nature
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of the standard of scrutiny. Tesla UT‘s claim implicates some
difficult, unresolved questions under the dormant Commerce
Clause—whether Pike balancing applies in a case like this one,9 and
what sort of deference is given to purported governmental
interests.10 Instead it treats Pike as an alternative formulation of the
9 We have precious little guidance from the U.S. Supreme Court on
the domain of Pike balancing. See Brannon P. Denning, Reconstructing
the Dormant Commerce Clause Doctrine, 50 WM. & MARY L. REV. 417,
456 (2008) (noting ―that the Court has not invalidated a state or local
law under balancing since Justice Scalia has been on the Court‖);
Daniel K. Lee & Timothy P. Duane, Putting the Dormant Commerce
Clause Back to Sleep: Adapting the Doctrine to Support State Renewable
Portfolio Standards, 43 ENVTL. L. 295, 309 (2013) (―[T]he Court has
continually broadened the concept of discrimination over the years,
which has allowed it to apply strict scrutiny more liberally to state
regulation while diminishing the application of the Pike test.‖). The
court has openly acknowledged that ―there is no clear line
separating the category of state regulation that is virtually per se
invalid under the Commerce Clause, and the category subject to the
Pike v. Bruce Church balancing approach.‖ Brown-Forman Distillers
Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 579 (1986). So it is no
surprise that there is a split among federal circuit courts on the
question of when the Pike test is triggered. See Nat’l Paint & Coatings
Ass’n v. City of Chicago, 45 F.3d 1124, 1132 (7th Cir. 1995) (declining to
apply Pike in cases where the statute does not discriminate against
out-of-state businesses ―in either terms or effect‖); U & I Sanitation v.
City of Columbus, 205 F.3d 1063, 1065 (8th Cir. 2000) (implicitly
holding that Pike applies even when there is no discrimination
against out-of-state businesses; invalidating a local ordinance that
burdened only purely intrastate activities).
10 See James D. Fox, Note, State Benefits Under the Pike Balancing Test of
the Dormant Commerce Clause: Putative or Actual?, 1 AVE MARIA L.
REV. 175, 177 (2003) (―The law is unsettled though, and the legal
standard to be applied to the state benefits side of the Pike balancing
scale is amorphous at best, resulting in unacknowledged splits
between the courts of appeals.‖). Some circuits have applied a
rational basis test. See Alaska Airlines, Inc. v. City of Long Beach, 951
F.2d 977, 984 (9th Cir. 1991), as amended on denial of reh’g (Jan. 9, 1992)
(declining to undertake Pike balancing and ruling that a non-
discriminatory ―ordinance would violate the commerce clause only
if the particular means chosen to achieve its goals were irrational,
arbitrary or unrelated to those goals.‖); Ford Motor Co. v. Texas Dep’t
(continued . . .)
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TESLA UT, INC. v. UTAH TAX COMM‘N
Opinion of the Court
rational basis standard set forth above. It acknowledges that the state
has a ―legitimate governmental interest in regulating the relationship
between car manufacturers and their independent franchised
dealers,‖ but insists that such ―interest is not furthered by the denial
of Tesla‘s license since Tesla does not franchise,‖ and thus that there
is ―no evidence that [the] denial of Tesla‘s license advanced any
legitimate government interest at all.‖
¶62 We reject this argument on its terms—without reaching the
broader questions implicated but not addressed in the briefing in
this case (concerning the applicability of the Pike test in this case and
the difference, if any, between the rational basis test and the
balancing test called for under Pike). Tesla UT‘s argument appears to
have two components: (a) the assertion that the state‘s interest in
regulating the franchise relationship is not implicated because Tesla
is not operating an independent franchise; and (b) the allegation that
the State has not shown that the denial of a license to Tesla UT
advances any of the State‘s admitted interests. Yet both assertions
fail for reasons set forth above. The first point fails on the statutory
grounds for our decision—that Tesla is operating a franchise under
the terms of both the Licensing Act and the Franchise Act. See supra
¶¶ 18, 24–25. And the second point overlaps precisely with—and
thus fails for reasons noted in the context of—our rational basis
analysis. See supra ¶¶ 57–59. We reject this claim on these grounds.
¶63 In so doing we are not concluding that Pike is necessarily
implicated in a case like this one, or that the balancing standard we
apply here is the correct one. Our point is simply that Tesla UT‘s
dormant commerce arguments overlap completely with points
raised elsewhere in its briefing. Thus, we reject this claim for reasons
of Transp., 264 F.3d 493, 504 (5th Cir. 2001) (ruling that the plaintiff
―failed to carry its burden of proving that ‗the burden imposed on
such commerce is clearly excessive in relation to the putative local
benefits‘‖ where ―the evidence is not so one-sided as to lead this
Court to believe that the proffered state interests are an excuse to
discriminate against or burden interstate commerce for the benefit of
local industry‖). But others have required something more. See Ass’n
of Int’l Auto. Mfrs., Inc. v. Abrams, 84 F.3d 602, 612 (2d Cir. 1996)
(remanding a case on Pike grounds, in part because the legislative
reasoning behind the relevant statute was ―debatable‖).
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Cite as: 2017 UT 18Opinion of the Court
stated elsewhere in our opinion, while emphasizing that it is not our
role to engage in further research or analysis on behalf of a litigant.11
IV. CONCLUSION
¶64 The Utah Legislature has enacted statutes prohibiting a
subsidiary of a motor vehicle manufacturer from obtaining a license
to sell the manufacturer‘s new motor vehicles in stores in Utah. We
give effect to those statutes today while also upholding them against
constitutional attack. And we therefore affirm the denial of a new
motor vehicle license to Tesla UT.
11 See State v. Thomas, 961 P.2d 299, 305 (Utah 1998) (―While failure to
cite to pertinent authority may not always render an issue
inadequately briefed, it does so when the overall analysis of the issue
is so lacking as to shift the burden of research and argument to the
reviewing court.‖).
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