Tesla suit could shine light on back-room lobbying at state Capitol

Paul Egan | Detroit Free Press

Show Caption Hide Caption Tesla suit could shine light on back-room lobbying at state Capitol A court case involving electric car manufacturer Tesla and the State of Michigan could provide a rare glimpse to records related to behind-the-scenes lobbying of the governor and Legislature.

LANSING — A court fight between the State of Michigan and electric car manufacturer Tesla could give Michigan taxpayers a rare glimpse at what goes on between powerful lobbyists, state lawmakers, and the governor’s office.

Tesla, which is suing the state in federal court in Grand Rapids, has subpoenaed records of communications between the Michigan Automobile Dealers Association, key state lawmakers, and Gov. Rick Snyder just prior to the passage of a 2014 law that bars manufacturers from selling directly to customers and requires them to sell through franchised dealerships.

Both the auto dealers and Sen. Joe Hune, R-Gregory, whom the suit alleges introduced the restrictive language and is married to a lobbyist whose firm lobbies for auto dealers, have moved to quash the subpoenas, saying such records are confidential under state law.

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But Tesla, which has some company-owned retail stores around the country but no franchised dealerships, says the records are essential to the auto manufacturer’s case and are not protected under federal law, which trumps state law.

A June 13 hearing is set in federal court in Grand Rapids before U.S. Magistrate Judge Ellen Carmody.

The Center for Public Integrity ranks Michigan last among the 50 states for laws promoting transparency and ethical conduct in state government. Michigan is one of only two states, along with Massachusetts, where both the governor's office and the Legislature are effectively exempt from public records laws, so the records Tesla is seeking would never normally see the light of day.

In Michigan, the secretary of state rejected Tesla's license application for a dealership and service facility in Grand Rapids. The denial cited the 2014 law, saying it requires a dealer to have a bona fide contract with an auto manufacturer to sell its vehicles.

Hune's wife, Marcia, is a registered state lobbyist who works for the large multi-client firm Government Consultant Services. GCSI's clients include Auto Dealers of Michigan, state records show.

The Auto Dealers of Michigan Political Action Committee has given $5,250 to funds associated with Hune since 2013, state records show.

"Under pressure from the local dealer's lobby, the Legislature enacted a ban on Tesla's direct-to-consumer sales model, giving local franchised dealers a state-sponsored monopoly on car sales within Michigan," Tesla attorney John Bursch,who is a former state solicitor general, said in a May 23 court filing.

"This ban was enacted in 24 hours, with no public notice or comment. Tesla is entitled to discovery into this secret process."

According to the suit, House Bill 5606 of 2014 "had nothing to do with direct sales" when it was introduced and passed by legislative committees, instead protecting the ability of car dealers to charge customers certain fees.

On Oct. 1, Hune introduced an amendment that deleted a single word but had far-reaching effects, the suit alleges. The revised version of the bill passed both chambers of the Legislature by Oct. 2.

"Neither Tesla nor the public at large even learned about the anti-Tesla prohibition until after the Legislature approved the bill," Tesla said in a court filing.

"This was important to the bill's proponents, who knew that the amendment would draw significant criticism if publicized."

Snyder signed the bill into law on Oct. 21.

Tesla alleges the ban on direct sales violates its constitutional rights to due process and equal protection and also violates the commerce clause of the U.S. Constitution by discriminating against out-of-state vehicle manufacturers.

"This prohibition is unconstitutional because it is a purely protectionist measure intended to insulate Michigan-based automotive dealers and manufacturers from competition, supported by no rational bases as applied to Tesla," the automaker alleges.

The state denies those allegations and says Tesla was effectively banned from making direct sales under a 2000 law enacted years before the bill Tesla is challenging.

The 2000 law barred vehicle manufacturers from owning, operating or controlling dealerships in Michigan but did not explicitly ban sales by a manufacturer such as Tesla, which has no dealerships.

The defendants in the lawsuit are Secretary of State Ruth Johnson, Attorney General Bill Schuette, and Snyder.

Tesla asked the defendants to produce all documents related to "you and any third party (including but not limited to Michigan motor vehicle dealers, Michigan motor vehicle manufacturers, the Michigan Automobile Dealers Association, and individuals associated with the Michigan Automobile Dealers Association)" concerning HB 5606.

Tesla also specifically asked for records of communications between Hune and third parties, and subsequently subpoenaed Hune; Rep. Jason Sheppard, R-Lambertville, and Kurt Berryman, who is director of legislative affairs for Auto Dealers of Michigan.

It's not clear from the court filings why Sheppard, who was elected in November 2014 and took office in January 2015, was singled out for a subpoena. Sheppard's campaign finance funds have received $8,650 from the Auto Dealers of Michigan PAC since 2013, state records show.

Sheppard, in filing objections to his subpoena through a state attorney, said he wasn't in office when the bill was passed, and his "limited involvement" with the issue included a 2015 meeting attended by certain House members and several Tesla representatives, at which Tesla attorneys demanded changes be made to the 2014 law.

Sheppard, through a spokeswoman, declined comment, citing the pending litigation.

The Hunes did not respond to e-mails seeking comment.

Tesla said in a court filing it needs the records "to demonstrate the law's protectionist motivation."

Tesla initially asked the defendants for all of the records, including lawmaker records, but "counsel for the state defendants objected and said that although the documents were located on state computer servers, Tesla would have to serve third-party document subpoenas on individual legislators."

Sen. Hune, represented by a lawyer from the Attorney General's Office, objected to his subpoena, saying it violates "the legislative immunity afforded to legislators."

Hune, who could not be reached for comment, also argued the subpoena was technically faulty, because instead of being served on him personally, it "appears to have been dropped off at Senate offices."

Berryman, who is both a registered lobbyist and an attorney, filed a motion through his Lansing attorney John Pirich to quash his subpoena, saying it demands "disclosure of privileged information" protected by freedom of association under the First Amendment, as well as attorney-client privilege and attorney-client work product.

Also, "the subpoena's sheer breadth imposes an undue burden and expense on Berryman," who isn't even a party to the lawsuit, Pirich argued.

Records that are not subject to FOIA can still be subpoenaed in court cases. But state law prohibits subpoena of legislator statements made "pursuant to his or her duty as a legislator," and protects the "legislative files, recordings, tapes, records, memoranda, or written documents of a member of the Legislature."

"Tesla is entitled to documents that evidence the intent and coordination that took place behind the scenes when the Legislature effectively gave franchised dealers a state-sponsored monopoly on car sales in Michigan ... while engineering the legislative process to steadfastly remove any public attention or scrutiny," Bursch wrote.

The "11th-hour" change proposed by Hune involved the removal of a single word —"its" — Tesla alleges. As a result of that change, a clause in the bill that said manufacturers were banned from selling new vehicles directly to customers "other than through its franchised dealers" became a requirement that such sales only take place "through franchised dealers."

Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4.

