Petition for Review of Final Agency Action
Riley, Anne E. Huffsmith, Elysa Q. Wan, San Francisco, pro
hac vice, Francis M. Wikstrom, Michael P. Petrogeorge, Salt
Lake City, for petitioner
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.
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 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.
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
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
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.
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 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
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.
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.
Tesla UT now petitions this court for review of the Tax
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.
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. 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).
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.
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
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).
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).
The Tax Commission's decision embraced the
administrator's understanding of the two acts. It noted
Tesla UT's 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.
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).
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.
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).
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 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.
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 ...