Court Opinion

ID: 9394560
Source: CourtListenerOpinion
Date Created: 2023-05-15 20:03:16.0552+00
Date Added: 2024-06-11T17:19:00.963835
License: Public Domain

IN THE SUPREME COURT OF THE STATE OF DELAWARE

TESLA INC.,                                 §
                                            §      No. 375, 2022
       Appellant,                           §
                                            §
       v.                                   §      Court Below: Superior Court
                                            §      of the State of Delaware
THE DELAWARE DIVISION OF                    §
MOTOR VEHICLES,                             §      C. A. No. N21A-09-001
                                            §
       Appellee.                            §

                             Submitted: March 15, 2023
                             Decided:   May 15, 2023

Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR, Justices; and
NEWELL, Judge,1 constituting the Court en Banc.

Upon appeal from the Superior Court. REVERSED AND REMANDED.

Kelly E. Farnan, Esquire, Tyler E. Cragg, Esquire, RICHARDS, LAYTON &
FINGER, P.A., Wilmington, Delaware, Felicia H. Ellsworth, Esquire, Sofie C.
Brooks, Esquire, WILMER CUTLER PICKERING HALE AND DORR LLP,
Boston, Massachusetts, Ari Holtzblatt, Esquire (argued), Leon T. Kenworthy,
Esquire, WILMER CUTLER PICKERING HALE AND DORR LLP, Washington,
D.C., for Appellant Tesla Inc.

George T. Lees III, Esquire (argued), DELAWARE DEPARTMENT OF
TRANSPORTATION, Dover, Delaware, for Appellee The Delaware Division of
Motor Vehicles.

Grayson P. Sundermeir, Esquire, FISH & RICHARDSON P.C., Wilmington,
Delaware, Thomas H. Reger II, Esquire, FISH & RICHARDSON P.C., Dallas,
Texas for Professors Roger D. Blair, Henry N. Butler, Steve Calandrillo, Nicholas
Economides, Herbert Hovenkamp, Max Huffman, Kathryn Judge, Marina Lao,

1
 Sitting by designation under Art. IV, § 12 of the Delaware Constitution and Supreme Court Rule
2(a) to fill the quorum as required by Art. IV, § 12 of the Constitution.
Mark A. Lemley, Stan Liebowitz, Geoffrey A. Manne, John O. McGinnis, Heather
Payne, Michael Sykuta, Alexander Volokh, Samuel N. Weinstein, Lawrence J. White,
and Joshua D. Wright as amici curiae in support of Appellant.

                                       2
SEITZ, Chief Justice:

      Tesla Inc. appeals from a Superior Court judgment upholding a Division of

Motor Vehicles’ (“DMV”) decision denying Tesla’s application for a new dealer

license. The Superior Court agreed with the DMV Director that the Delaware Motor

Vehicle Franchising Practices Act (“Franchise Act”) prohibited Tesla, as a new

motor vehicle manufacturer, from selling its electric cars directly to customers in

Delaware.

      We reverse the DMV Director’s decision and the Superior Court judgment

and remand for further proceedings consistent with this opinion. The General

Assembly enacted the Franchise Act to address the disparity in bargaining power

which permitted new motor vehicle manufacturers to exert economic pressure over

their franchises. Its definitions exclude Tesla and its direct sales model, where new

electric cars are not sold through franchised dealers in Delaware.

                                         I.

                                         A.

      The facts are not in dispute. Tesla designs, develops, manufactures, and

distributes new electric vehicles. Unlike traditional auto makers, Tesla sells its

vehicles directly to consumers without using independent franchise dealers. In 2019,

Tesla filed with the DMV its first application for a dealer license. The record does

not contain what became of this application. Following submission, however, the

                                         3
DMV permitted Tesla to open a new car gallery in the Christiana Mall. The gallery

allows customers to view Tesla vehicles, but Tesla could not sell its cars from an in-

state store.

       In December 2020, Tesla submitted a second application for a dealer license

to sell its electric cars directly to consumers in Delaware. The DMV’s Chief of

Compliance and Investigations Unit denied Tesla’s application. According to the

DMV Chief, the Licensing Act2 requires that the applicant comply with Delaware

law before an application can be granted. She found that Tesla’s application did not

comply with Delaware law because the Delaware Franchise Act3 “prohibits a

manufacturer from directly or indirectly owning an interest in a dealer or dealership”

or from “act[ing] in the capacity of a dealership.”4 The DMV Chief concluded that

Tesla, as a new motor vehicle manufacturer, would violate the Franchise Act if it

sold cars directly to consumers from a store in Delaware.5

                                         B.

       Tesla requested a hearing before an administrative hearing officer, who issued

a report and recommendation that upheld the denial.6 According to the hearing

officer, the Licensing Act required the DMV to ensure that the applicant complies

2
  21 Del. C. § 6300 et seq.
3
  6 Del. C. § 4913(b)(14).
4
  App. to Opening Br. at A30.
5
  Id. at A30–31.
6
  Id. at A403.
                                          4
with the laws of Delaware and other states. Under the Franchise Act, with limited

exceptions, a manufacturer cannot own, operate, control or act as a dealer. Even

though she found that Tesla and its direct-to-consumer sales model did not meet the

definition of a “new motor vehicle dealer” under the Franchise Act, she ultimately

concluded that Tesla was still a “manufacturer” under a separate definition in the

Franchise Act. As a manufacturer, the hearing officer concluded, Tesla could not

sell new vehicles directly to Delaware consumers. The DMV Director agreed with

the hearing officer’s conclusion and upheld the denial.7

                                             C.

       Tesla appealed to the Superior Court, which affirmed the denial. First, the

court found that the DMV could rely on the Franchise Act to deny Tesla a new dealer

license because “any violation of the Franchis[e] Act would be a violation of the

laws of this State” under the Licensing Act.8 Turning to the Franchise Act, the court

agreed with Tesla that (1) Tesla’s business model and its lack of franchises was

likely not contemplated by the statute; (2) “Tesla’s vehicles do not qualify under the

[Franchise Act’s] definition of a new motor vehicle;” and (3) Tesla is not a “new

7
 Id. at A404–05.
8
 Tesla, Inc. v. Delaware Div. of Motor Vehicles, 2022 WL 4483222, at *5 (Del. Super. Sept. 23,
2022).
                                              5
motor vehicle dealer” as defined by the Franchise Act because “it does not enter into

franchise agreements with third party entities.”9

       Despite these observations favorable to Tesla, the court concluded that “the

only Statute which clearly defines a new motor vehicle is the Franchis[e] Act” and

therefore Tesla “cannot sell its cars in [Delaware] because the only way for a dealer

to sell new cars is for those cars to be considered new motor vehicles.”10 In other

words, Tesla would not be selling new motor vehicles as defined by the Franchise

Act. It could not, therefore, get a license to sell new motor vehicles under the

Licensing Act. The court also reasoned that because the Franchise Act does not

explicitly use the term “non-franchising manufacturers,” the court “cannot carve out

an exception for [such] manufacturers.”11

                                              II.

       On appeal, Tesla makes two primary arguments – first, the DMV erred when

it relied on the Franchise Act to deny Tesla a license under the Licensing Act, and

second, the court misinterpreted the Franchise Act.              “When an administrative

decision is on appeal from the Superior Court, ‘this Court examines the agency’s

decision directly.’”12 We must determine “‘whether the agency ruling is supported

9
  Id. at *5–6.
10
   Id. at *6.
11
   Id. at *5.
12
   Delmarsh, LLC v. Envtl. Appeals Bd., 277 A.3d 281, 289 (Del. 2022) (quoting Del. Solid Waste
Auth. v. Del. Dep’t of Nat. Res. & Envtl. Control, 250 A.3d 94, 105 (Del. 2021)).
                                              6
by substantial evidence and is free from legal error.’ Absent any abuse of discretion,

‘the decision of the agency must be affirmed.’ And while ‘[s]tatutory interpretation

is ultimately the responsibility of the courts [a] reviewing court may accord due

weight, but not defer, to an agency interpretation of a statute administered by it.’”13

The DMV administers the Licensing Act but not the Franchise Act.

                                                A.

       Tesla applied for a new dealer license under the Licensing Act. The Act

provides that no person may “carry on or conduct the business of buying, selling or

dealing in new or used motor vehicles unless issued a dealer license by the

[DMV].”14 The Act defines “dealer” and “vehicle” broadly and includes Tesla and

its electric cars.15

       Under section 6312 of the Licensing Act, if the DMV is “satisfied that the

applicant is of good character and, so far as can be ascertained, the applicant has

complied with and will comply with, the laws of this and other states, the [Division]

shall approve the application and issue a dealer license.”16 Section 6313 continues

with specific grounds for which a license or its renewal “may be denied, suspended,

13
   Delmarsh, 277 A.3d at 289 (alterations in original) (first quoting Del. Solid Waste, 250 A.3d at
105; then quoting Pub. Water Supply Co. v. DiPasquale, 735 A.2d 378, 381, 382 (Del. 1999)).
14
   21 Del C. § 6302(a).
15
   Id. §§ 6301(2), (3), (9).
16
   Id. § 6312.
                                                7
or revoked,”17 and lists specific Delaware Code titles that implicate motor vehicle or

tax laws. The Franchise Act is not listed, but one of the grounds for denying a

renewal application or suspending or revoking an existing license, refers back to “the

standard set forth in § 6312.”18

       Tesla argues that the listing of specific Delaware Code titles in section 6313

limits the general “compliance with laws” statement. But section 6313(9) explicitly

refers to the “compliance with laws” requirement in section 6312 to deny a renewal,

or to suspend or revoke an existing license. And the synopsis of the bill explains

that section 6313 “ensures that the same character and conviction review standards

applied during initial application of a dealership license are also applied to the

renewal process.”19 Finally, if Tesla’s application violated the Franchise Act, it

would be strange for the DMV to ignore a violation of Delaware law and issue a

license, only to have the dealer license revoked through some other process.20

17
   Id. § 6313. Section 6313 was amended while this appeal was pending. See 2022 Delaware
Laws Ch. 511 (H.B. 401). The amendment does not impact the parties’ arguments or our
disposition. This opinion cites the current version of section 6313.
18
   21 Del. C. 6313(9).
19
   Del. H.B. 342, 149th Gen. Assem. Summary (2017).
20
   Tesla argues that section 6312 should not be read broadly to include all the laws in this State.
The question here, however, is whether sections 6312 and 6313 include the Franchise Act. Even
if “laws of this and other states” are not read broadly, we interpret the general words as applying
to “things of the same general kind or class as those specifically mentioned.” Aspen Advisors LLC
v. United Artists Theatre Co., 861 A.2d 1251, 1265 (Del. 2004). The Franchise Act, as a statute
regulating the relationship between motor vehicle manufacturers and dealers, is of the same kind
or class as the motor vehicle statute specifically listed in section 6313. 21 Del. C. 6313(4) (listing
Title 22).
                                                  8
       The Superior Court held correctly that the DMV can deny a dealer license for

a violation of the Franchise Act. The next question is whether Tesla’s direct sales

model violates the Franchise Act.

                                         B.

       In Future Ford Sales, Inc. v. Pub. Serv. Comm’n of State of Delaware, we

considered the legislative intent behind the Franchise Act:

       The [Franchise] Act, like its counterpart at the federal level and in a
       large number of states, is remedial legislation intended to regulate the
       relationship between motor vehicle dealers and manufacturers.
       Historically, the gross disparity in bargaining power permitted motor
       vehicle manufacturers to exert economic pressure over franchises
       which prompted Congress and many states to enact regulatory
       legislation to prevent such abusive practices.21

The General Assembly made it clear that the Act was intended to regulate

manufacturers and their franchises “to prevent frauds, impositions and other abuses

upon [Delaware] citizens.”22

       For the most part, the Franchise Act provisions regulate the relationship

between a “manufacturer,” on the one hand, and a “dealer” on the other hand. The

Act addresses: termination, cancellation, nonrenewal, sale, and succession to

ownership of franchises between manufacturers and dealers;23 manufacturers’

obligations to compensate dealers for predelivery, warranty, and other services and

21
   654 A.2d 837, 842 (Del. 1995).
22
   6 Del. C. § 4901.
23
   Id. §§ 4906–11.
                                          9
to indemnify certain losses incurred by dealers;24 the allocation of risk of loss in

transportation between manufacturers and dealers;25 the validity of certain

agreements between manufacturers and dealers,26 manufacturers’ obligations in

establishing or relocating dealerships;27 and consumer data provided by dealers to

manufacturers.28 Section 4913, which contains the direct sale restriction at issue,

has a list of unlawful acts by manufacturers against dealers.29

       It bears repeating that the Franchise Act regulates the business relationship

between a manufacturer and a dealer. As explained below, neither the statutory text

nor the legislative history support the DMV’s interpretation that the Franchise Act

is intended to prohibit the direct sales model, which does not involve such business

relationships.

                                                C.

       When interpreting a statute, “the fundamental rule is to ascertain and give

effect to the intent of the legislature.”30 To do so, we start with the statutory text to

24
   Id. §§ 4903, 4905.
25
   Id. § 4904.
26
   Id. § 4914.
27
   Id. § 4915.
28
   Id. § 4919.
29
   For example, a manufacturer is prohibited from coercing dealers to order new motor vehicles,
participate in an advertising campaign, or enter into an agreement with the manufacturer, delaying
or failing to deliver vehicles to dealers, refusing to disclose certain information to dealers, and
increasing prices of the vehicles that dealers had ordered. Id. §§ 4931(a)–(b).
30
   Delmarsh, 277 A.3d at 290 (quoting Coastal Barge Corp. v. Coastal Zone Indus. Control Bd.,
492 A.2d 1242, 1246 (Del. 1985)).
                                               10
determine if it is ambiguous.31 “When the intent is reflected by unambiguous

language in the statute, the language itself controls.”32 And “the court’s role is

limited to an application of the literal meaning of those words.”33

       Section 4913(b)(14) of the Franchise Act provides that a “manufacturer” shall

not “directly or indirectly own an interest in a dealer or dealership; or operate or

control a dealer or dealership; or act in the capacity of a dealer.”34 Under the Act, a

“manufacturer” means “any person, resident or nonresident, who manufactures or

assembles new motor vehicles.”35 “New motor vehicle” in turn is defined as:

       [A] vehicle which has been sold to a new motor vehicle dealer and
       which has not been used for other than demonstration purposes and on
       which the original title has not been issued from the new motor vehicle
       dealer.36
The Act further defines “new motor vehicle dealer” or “dealer” as:

       [A]ny person or entity engaged in the business of selling, offering to
       sell, soliciting or advertising the sale of new motor vehicles and who
       holds, or held at the time a cause of action under this chapter accrued,
       a valid sales and service agreement, franchise or contract granted by
       the manufacturer or distributor for the retail sale of said manufacturer’s
       or distributor’s new motor vehicles.37

31
   Leatherbury v. Greenspun, 939 A.2d 1284, 1288 (Del. 2007).
32
   Ross v. State, 990 A.2d 424, 428 (Del. 2010).
33
   Leatherbury, 939 A.2d at 1288 (quoting In re Adoption of Swanson, 623 A.2d 1095, 1096–97
(Del. 1993)).
34
   6 Del. C. § 4913(b)(14). There are certain exceptions that are not relevant here.
35
   Id. § 4902(7).
36
   Id. § 4902(8)b (emphasis added).
37
   Id. § 4902(9) (emphasis added).
                                            11
       When the definitions are read together, a “manufacturer” under the Franchise

Act manufactures or assembles “new motor vehicles” that have been sold to a “new

motor vehicle dealer” who holds “a valid sales and service agreement, franchise, or

contract granted by the manufacturer or distributor for the retail sale.”38 Tesla’s

electric cars will not be sold to a dealer that holds a valid sales contract by Tesla,

and therefore it is not a “manufacturer.”

       The hearing officer agreed with Tesla that, due to its direct sales model, it is

not a “new motor vehicle dealer” under the Franchise Act.39 The Superior Court

also agreed that Tesla’s vehicles are not “new motor vehicles,” meaning they have

not been sold to “dealers.”40 Neither the DMV nor the Superior Court explained,

however, how Tesla could nonetheless be a “manufacturer” under the definitions in

the Franchise Act, which specifically defines a manufacturer as one that

manufactures “new motor vehicles” that are sold to a new motor vehicle dealer

holding a franchise or similar agreement.

       The hearing officer relied on a Tesla hearing exhibit, where Tesla listed itself

as a manufacturer.41 Admittedly, Tesla is an automobile manufacturer. The General

Assembly, however, can be its own lexicographer and define what it means to be a

38
   Id. §§ 4902(8)b, 4902(9).
39
   App. to Opening Br. at A402 (Hearing officer’s report and recommendations).
40
   Tesla, Inc., 2022 WL 4483222, at *6.
41
   App. to Opening Br. at A402, A150 (Hearing exhibit).
                                             12
manufacturer for purposes of the Franchise Act. When a statute specifically defines

a term, even if it is different than its ordinary meaning, the Court will apply the

definition used by the General Assembly.42

       The Superior Court also relied on the fact that the Franchise Act does not use

the term “non-franchising manufacturer,” and the court should not carve out

exceptions to the statute. But the Act defines “manufacturer” in a specific way that

excludes Tesla. By applying the statutory definitions, we are not carving out an

exception to the statute.

       Finally, the definition of “dealer” in the Franchise Act contrasts sharply with

that under the Licensing Act, which would include Tesla and other manufacturers

who sell directly to consumers.43 And defining “manufacturer” and “dealer” in

relation to each other is consistent with the Franchise Act’s purpose of protecting

dealers from a manufacturers’ unfair practices.

                                                  D.

       The DMV argues that the Franchise Act is intended to regulate all

manufacturers even if they use the direct sales model. It points to the declaration of

purpose in the Franchise Act, which provides:

42
   Fox v. Standard Oil Co. of N.J., 294 U.S. 87, 95–96 (1935) (refusing to accept a term’s ordinary
meaning where it is defined by the statute); Tanzin v. Tanvir, 141 S. Ct. 486, 490 (2020) (same);
Stiftel v. Malarkey, 384 A.2d 9, 21 (Del. 1977) (“It is an accepted principle of statutory
construction that, if the legislature does define the coverage of a statute by providing a definitional
section, a court will be bound by that definition.”) (Quillen, J., dissenting).
43
   21 Del. C. §§ 6301(2)–(3).
                                                 13
       [T]he distribution and sale of vehicles within this State vitally affects
       the general economy of the State and the public interest and the public
       welfare, and that in order to promote the public interest and the public
       welfare, and in the exercise of its police power, it is necessary to
       regulate vehicle manufacturers, distributors or wholesalers and factory
       or distributor representatives, and to regulate franchises issued by the
       aforementioned who are doing business in this State in order to prevent
       frauds, impositions and other abuses upon its citizens and to protect and
       preserve the investments and properties of the citizens of this State.44
       The declaration of purpose, however, is subject to the same, specific definition

of “manufacturer” as other provisions in the Act. 45 Further, the legislative history

of section 4913(b)(14) supports a narrower scope of the direct sale restriction.

       The General Assembly enacted section 4913(b)(14) in 2001.46 According to

the synopsis of the bill, “a manufacturer . . . will not compete directly with its

dealers.”47     The possessive pronoun “its” supports our interpretation that the

restriction only covers manufacturers that have their own dealers.

       Other states have relied on similar language to exclude the direct sales model

from franchising restrictions. For instance, in Arizona Auto Dealers Association v.

Arizona Department. of Transportation, a case challenging Tesla’s direct sales in

Arizona, the court pointed to the use of “its” in the Arizona franchise act.48 The

relevant provision provides that a manufacturer “shall not directly or indirectly

44
   6 Del. C. § 4901 (emphasis added).
45
   Id. § 4902 (stating the definitions are for terms “[a]s used in this chapter”).
46
   Del. S.B. 80, 141st Gen. Assem. Summary (2001).
47
   Id. (emphasis added).
48
   2017 WL 9753918, at *4 (Ariz. Super. Mar. 3, 2017).
                                                  14
compete with or unfairly discriminate among its dealers.”49 The court found that the

use of “its” means that the provision “ha[s] no application to manufacturers that do

not have any of their own dealers with which to compete or discriminate against.”50

The court then held that the franchise statute does not prohibit Tesla from obtaining

a dealer license within the state.51

                                              E.

       The DMV also contends that the General Assembly should decide whether

and how Tesla can sell directly to the consumers. It points to (1) a proposed

amendment to section 4913(b)(14) that carves out an exception for electric vehicles

manufacturers and (2) the fact that many other states took legislative action and

amended similar restrictions to allow Tesla and similar manufacturers to engage in

direct sales.

       The proposed amendment does not prove that our plain language reading is

incorrect. “Proposed legislation has no place in statutory construction. Before being

adopted, legislation is open to free and vigorous debate. As proposed legislation is

debated, minds can be changed.”52 The outcome of the proposed amendment is

unknown at this time.           The proposed amendment may reveal the current

49
   Id. (emphasis added) (quoting A.R.S. § 28-4460(A) (2017)).
50
   Id.
51
   Id. at *1, *4.
52
   Pizzadili P’rs, LLC v. Kent Cnty. Bd. of Adjustment, 2016 WL 4502005, at *10 (Del. Super.
Aug. 26, 2016), aff’d sub nom. LTR Props., LLC v. Pizzadili P’rs, LLC, 157 A.3d 757 (Del. 2017).
                                              15
understanding of a few members of the legislative branch of government but does

not yet represent the General Assembly as a whole.

       The fact that other states took legislative action to amend their franchise laws

also carries no weight in our statutory interpretation. The states that the DMV lists

– Pennsylvania, Maryland, New Jersey, and North Carolina – all had statutes that

contained expansive definitions that would include Tesla within the direct sale

restriction absent an amendment.53 The same is true for Michigan,54 where Tesla

settled with the state to allow Tesla to deliver vehicles to residents in Michigan so

long as the legal title for the vehicles is transferred outside the state.55 The expansive

definitions in those state statutes are absent in the Delaware statute.

53
   Pennsylvania’s statute defines “manufacturer” to encompass any person who manufactures or
assembles “vehicles” and defines “vehicle” to include “[e]very devise which is or may be moved
or drawn upon a highway.” 63 Pa. Stat. Ann. § 818.102 (West). Maryland’s statute prohibits a
“manufacturer” from “sell[ing] a new vehicle to a retail buyer” and does not seem to define
“manufacturer” or “new vehicle.” Md. Code Ann., Transp. §§ 15-101, 15-305 (West). New
Jersey’s statute prohibits “motor vehicle franchisor” from selling motor vehicles to consumers.
N.J. Stat. Ann. § 56:10-27 (West). It defines “motor vehicle franchisor” to include those
manufacture “new motor vehicles” and defines broadly “new motor vehicle” to mean “a newly
manufactured motor vehicle.” Id. § 56:10-26. North Carolina’s statute defines “manufacturer” to
include a person who manufacturers or assembles “new motor vehicles” and defines the latter to
mean motor vehicles that have never been subject to an approved sale except for a sale between
manufacturers and dealers or between dealers. N.C. Gen. Stat. Ann. § 20-286 (West).
54
   The Michigan statute contains a similar direct sale restriction as the Delaware statute and a
similar definition for “manufacturer.” Mich. Comp. Laws Ann. §§ 445.1564(5), 445.1574(1)(h)
(West). The Michigan statute, however, defines “new motor vehicle” broadly to mean motor
vehicle that “is in the possession of the manufacturer . . . or has been sold only to a new motor
vehicle dealer and for which the new motor vehicle dealer has not issued an original title.” Id.
§ 445.1565(1) (emphasis ended).
55
   App. to Opening Br. at A310 (Joint stipulation in Tesla, Inc. v. Benson at el., Case No. 16-cv-
1158 (W.D. Mich. Jan. 22, 2020)).
                                               16
                                                F.

       The DMV claims that a direct sale prohibition on all manufacturers could

prevent fraud and abuse and protect Delaware citizens, and that this Court should

not second guess the General Assembly’s policy determination. The DMV does not,

however, explain how fraud or abuse are prevented by a direct sales ban under the

Franchise Act. The only authority the DMV cites is International Truck & Engine

Corp. v. Bray.56 That case and a prior case, Ford Motor Co. v. Texas Department of

Transportation,57 involve constitutional challenges to the direct sale restriction in

Texas’s motor vehicle statute. The challenges were brought by manufacturers who

wanted to sell or market vehicles directly to consumers.58 The Fifth Circuit upheld

the statute and refused to “second-guess the empirical judgments of lawmakers

concerning the utility of [the] legislation.”59

       The cases are distinguishable from the current case. In the Fifth Circuit cases,

the manufacturers had their own dealers in Texas and were found by the court to be

able to “wield power” over their dealers60 and “remain in a superior market position

to [their] dealers.”61 The court found that “a reasonable legislator could believe [the

56
   372 F.3d 717, 729 (5th Cir.), opinion corrected on denial of reh’g, 380 F.3d 231 (5th Cir. 2004).
57
   264 F.3d 493, 498 (5th Cir. 2001).
58
   Id. at 498; Int’l Truck & Engine, 372 F.3d at 718–19.
59
   Int’l Truck & Engine, 372 F.3d at 728 (quoting CTS Corp. v. Dynamics Corp. of Am., 481 U.S.
69, 92 (1987)); Tex. Dep’t of Transp., 264 F.3d at 504, 511.
60
   Int’l Truck & Engine, 372 F.3d at 729.
61
   Tex. Dep’t of Transp., 264 F.3d at 504.
                                                17
direct sale restriction] would further the State’s legitimate interest in preventing

manufacturers from utilizing their superior market position to compete against

dealers.”62 The cases do not provide a policy rationale for a total direct sale ban for

manufacturers who do not have dealers.

       In addition, courts in other states have found their franchise statutes do not

protect dealers from competition with manufacturers of other brands.                       The

Massachusetts Supreme Judicial Court, for example, rejected car dealers’ challenge

to Tesla’s sales efforts, and found that “[c]ontrary to the [dealers’] assertion, . . . the

type of competitive injury they describe between unaffiliated entities is not within

the statute’s area of concern.”63 The court also found the direct sale restriction was

“intended and understood only to prohibit manufacturer-owned dealerships when,

unlike Tesla, the manufacturer already had an affiliated dealer or dealers in

Massachusetts.”64 Similarly, a New York court found the increase in interbrand

business competition was not an injury within the zone of interests protected by the

franchise statute.65

62
   Id.; Int’l Truck & Engine, 372 F.3d at 728–29.
63
   Massachusetts State Auto. Dealers Ass’n, Inc. v. Tesla Motors MA, Inc., 15 N.E.3d 1152, 1159
(Mass. 2014).
64
   Id. at 1162.
65
   Greater N.Y. Auto. Dealers Ass’n v. Dep’t of Motor Vehicles, 969 N.Y.S.2d 721, 727 (N.Y. Sup.
Ct. 2013).
                                              18
                                            III.

          The DMV raises two alternative grounds to uphold the application denial.

Although these grounds were not relied on by the hearing officer or the director to

deny Tesla’s application, we address these alternative grounds as they were raised

on appeal, involve only legal issues, and will guide the DMV on remand.

          First, the DMV argues that if Tesla’s vehicles are not “new motor vehicles”

as defined under the Franchise Act, Tesla cannot obtain a dealer license to sell its

cars under the Licensing Act. In other words, according to the DMV, an applicant

is required to show that its vehicles are “new motor vehicles” under the Franchise

Act to receive a license under the Licensing Act.

          The argument is unpersuasive. The Franchise Act does not regulate a dealer’s

license – the Licensing Act does. The Franchise Act does not make it illegal to sell

cars that are not “new motor vehicles.” The Licensing Act does not require that the

applicant satisfy the definition of “new motor vehicles” under the Franchise Act.

The term “new motor vehicle” does not appear in the Licensing Act.

          What the Licensing Act does provide is that “[n]o person, corporation, . . . or

any other legal entity shall carry on or conduct the business of buying, selling or

dealing in new or used vehicles unless issued a dealer’s license by the [Division].”66

Both “vehicle” and “dealer” are defined broadly in the Act to include Tesla and its

66
     21 Del. C. § 6302(a).
                                            19
cars. “Vehicle” is defined to mean “motor vehicles, trailers, . . . and any other device,

in, upon, or by which any person or property is or may be transported or drawn upon

a public highway.”67 “Dealer” is defined to mean any person or corporation “who

is in the business of buying, selling, or exchanging . . . and/or . . . who offers to sell,

sells, displays or permits the display for sale, of 5 or more vehicles within a 12-

month period.”68 The definition of “dealer” further excludes a manufacturer “who

sells or distributes vehicles to licensed dealers . . . if that manufacturer . . . does not

sell vehicles to retail buyers.”69 Manufacturers like Tesla, that sell directly to retail

customers and do not sell to licensed dealers, are considered “dealers” under the

Licensing Act and can sell their new “vehicles” in Delaware if the other Licensing

Act requirements are met.

        Second, the DMV argues that Tesla does have contracts with its wholly owned

subsidiaries in other states to sell its vehicles. Although not exactly clear, the DMV

seems to argue that based on this fact, Tesla’s vehicles are sold to “dealers,” i.e., the

out-of-state subsidiaries, making Tesla a “manufacturer” under the Franchise Act.

        The definition of “dealer” under the Franchise Act does not include those who

engage in contracts outside of Delaware to sell cars outside of Delaware. The

“applicability” provision of the Franchise Act states that the Act is limited to “[a]ny

67
   Id. § 6301(9).
68
   Id. § 6301(2).
69
   Id. § 6301(3)f.
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person who engages directly or indirectly in purposeful contracts within this State in

connection with the offering or advertising for sale or has business dealers with

respect to a new motor vehicle sale within this State.”70                    Tesla’s out-of-state

subsidiaries are not “dealers” as defined by the Franchise Act.

                                                 IV.

       We reverse the Superior Court’s judgment upholding the DMV’s denial of

Tesla’s new dealer license application and remand for further proceedings consistent

with this opinion.71

70
    6 Del. C. § 4917 (emphasis added).
71
    At oral argument, Tesla argued a remand is not necessary as the DMV officer has completed the
review and found no other basis to deny the application. This does not seem to be the case. See
App. to Opening Br. at A328 (“Q. And so if this provision, [§ 4913(b)(14)], were to be held to be
inapplicable to Tesla, would that . . . change your decision? A. I would review the entire
application again and make my decision at that point. Q. Given it was the sole basis for your
denial, what would you rely on? A. I would review the application again to make sure that
everything was consistent with when it was submitted earlier this year, as I would with any other
dealership.”); id. (“Q. The specific denial criteria of one through nine, do any of them apply in this
application? A. I don’t have enough information about Title 4 . . . . We did not do an on-site visit
. . . . I did not check the phone number . . . . Q. So you wouldn’t obtain that information in making
a decision to deny a company? A. I would have, if this was going to be approved, we would have
gone through it. During the denial process, we didn’t do site visits at the time. The application
was submitted, so we wouldn’t have checked the location, the physical location at that time.”).
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