Utah SC upholds denial of Tesla UT to sell new vehicles

By S. Laney Griffo | Apr 21, 2017

SALT LAKE CITY (Legal Newsline) - The Utah Supreme Court has upheld a decision by the Utah Tax Commission to deny Tesla Motors UT a license to sell new motor vehicles.

On Feb. 12, 2015, Tesla UT applied for a license with the Motor Vehicle Enforcement Division of the Utah Tax Commission. The license would allow Tesla UT to sell new  vehicles at a physical location in Salt Lake City.

The division denied the application, stating that Tesla UT did not satisfy the Motor Vehicle Business Regulation Act (License Act) because it was not a franchisee of Tesla Motors.

Tesla UT reapplied for the application after entering into a “dealer agreement.”

The agreement allowed Tesla UT to sell Tesla vehicles but prevented Tesla UT from using Tesla’s trademark.

The application was still denied because of section 13-14-201(1)(u) of the New Automobile Franchise Act, which says the franchisor cannot “own an interest in a new motor vehicle dealer or dealership.”

The Tax Commission found that Tesla clearly owned an interest in Tesla UT.

Tesla UT argued the dealer agreement satisfied the License Act but was not a true franchise relationship so it did not violate the Franchise Act because it did not agree to use Tesla’s trademark.

The Supreme Court found this to be untrue.

“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,” the opinion stated. “Even of this early stage, Tesla UT’s use and anticipated use of Tesla trademarks is evident.”

The decision went on to say that even though the dealer agreement didn’t grant trademark access, Tesla had already previously allowed Tesla UT to use the trademark.

Tesla UT also challenged the Motor Vehicle Division’s authority to use the Franchise Act to deny the license.

The high court found that it was acting within its capacity to do so.

“It was performing its responsibility to receive and act upon an  application for a new motor vehicle dealer license,” the opinion stated.

In addition to statutory complaints, Tesla UT attempted to use constitutional arguments to contest the denial.

It argued the ban violated the Free Market Clause of Utah, the Due Process and Equal Protection Clauses of the United States and the Commerce Clause of the United States, but the court found no basis for any of those arguments.

The court decided to uphold the denial using the License Act and Franchise Act to do so and “give effect to those statutes today while also upholding them against constitutional attack.”

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