High-Tech Law & Litigation Blog

Tesla's Lawsuit Challenging Michigan Law Banning Direct Car Sales Raises Novel First Amendment Issues

A lawsuit filed by innovative technology and automotive company Tesla Motors, which challenges Michigan’s ban on direct car sales to consumers, raises the conflict between the need for discovery into matters of intent and First Amendment rights of association related to lobbying activity. The U.S. Sixth Circuit Court of Appeals will soon have to resolve this conflict in Tesla Motors, Inc. v. Johnson, No. 18-1010. In that case, Tesla seeks information about the communications of a trade association that lobbied in favor of legislation that Tesla has challenged as unconstitutional. This new conflict follows a habitual cycle: Technology companies push boundaries, governments seek to regulate their activities, and the companies become more involved in lobbying regulators and legislatures. The question of whether communications related to those efforts may be discovered by other parties in civil litigation is therefore likely to recur, and the Sixth Circuit’s resolution of the issue will merit close attention.

Background

Tesla Motors arose from the now-familiar trend of technology companies eliminating intermediaries to interact directly with consumers — Tesla prefers to sell cars directly rather than through traditional dealerships. But the Michigan legislature applied the brakes. In 2014, the Legislature passed what Tesla calls the “Anti-Tesla” amendment. This statute, Michigan Compiled Law § 445.157(i), prohibits the sale or servicing of motor vehicles by manufacturers except through franchised dealers. The legislation was widely viewed as an obstacle to Tesla’s operations in Michigan, though the law did not name Tesla directly.

Tesla responded by filing suit, challenging the law as violating the Due Process and Equal Protection Clauses of the U.S. Constitution and as an unconstitutional restraint on trade under the dormant commerce clause. See Second Am. Compl. at 1, 20-23, Tesla Motors Inc. v. Johnson, No. 1:16-cv-1158 (W.D. Mich. Jan. 31, 2017). The legal strategy in Tesla Motors is nearly as innovative as Tesla’s technology. But one aspect of the strategy could set precedent that impacts First Amendment rights, even as it helps Tesla navigate obstacles to its business model. To prove its claim against Michigan officials, Tesla has sought discovery of the internal communications of businesses and trade associations that lobbied in favor of the statute. Third-party dealerships and trade associations challenged the subpoena for communications involving members of the Michigan Automobile Dealers’ Association (“MADA”) based on the First Amendment associational privilege. The dealerships and trade associations lost before a federal district court in Michigan, and the issue is now being briefed before the Sixth Circuit.

Analysis

First Amendment protection extends to the “right to associate for the purpose of speaking,” also called the “right of expressive association.” Rumsfeld v. Forum for Acad. & Institutional Rights, Inc., 547 U.S. 47, 68 (2006) (citation omitted). The associational privilege from disclosure draws strength from NAACP v. Alabama, 357 U.S. 449 (1958), in which the NAACP resisted turning over its membership list to the government for public disclosure. The U.S. Supreme Court held that the government’s interest in disclosure did not outweigh the NAACP’s right to protect its First Amendment freedoms by withholding the lists. See id.

The associational privilege protects this right in the discovery context — but the privilege is not absolute. The Sixth and Ninth Circuits have decided the seminal cases in this area: Marshall v. Bramer, 828 F.2d 355, 359 (6th Cir. 1987), and Perry v. Schwarzenegger, 591 F.3d 1147, 1160 (9th Cir. 2010). In Marshall, the Sixth Circuit upheld a district court’s decision to hold a Klu Klux Klan member in contempt for failing to disclose KKK membership lists to plaintiffs under a protective order. 828 F.2d at 360. The Marshall court distinguished disclosure under a protective order from the NAACP case, which involved public disclosure and a stronger threat of chilling speech. The facts of Marshall also weighed in favor of disclosure — plaintiffs had filed a civil rights case to hold the KKK and its members liable for firebombing their home.

In Perry, the Ninth Circuit developed a more extensive roadmap for how to resolve conflicts between disclosure and associational rights. To assert the associational privilege under Perry, a party must first make a prima facie showing that their First Amendment rights will arguably be infringed because discovery will result in chilling effects for the association. 591 F.3d at 1160. Upon a successful prima facie showing, the party seeking disclosure must then demonstrate that its interests in disclosure outweigh associational rights. In balancing these interests, Perry held that courts should examine: the importance of the litigation; the centrality of the information sought to the issues in the case; the nature of information sought; the substantiality of the First Amendment interests at stake; the extent to which discovery requests have been carefully tailored to avoid unnecessary interference with protected activities; and whether the information is available from other sources. The court held that the disclosure of internal campaign communications related to California’s Proposition 8 could stifle free-flowing associational speech and deter association with campaigns. Id. at 1162. The court also found the plaintiffs could obtain much of the information they sought from other sources and that the information they sought was “attenuated” from the underlying issues in the case. Id. at 1164-65. Accordingly, the Perry court denied disclosure.

In Tesla Motors, the federal district court in Michigan relied primarily on Marshall to grant Tesla access to information about the lobbying activities of dealerships and trade associations that supported the “Anti-Tesla” amendment. The court downplayed associational rights, calling them “essentially commercial interests” in this case, as compared to the “highly volatile nature of the interests” at stake in Perry. See Order Partially Granting and Partially Denying Mot. to Quash, Tesla Motors Inc. v. Johnson, No. 1:16-cv-1158 (W.D. Mich. Dec. 11, 2017). The court found the communications Tesla sought were directly and highly relevant to Tesla’s claims. Finally, the court expressed skepticism that allowing disclosure under an attorneys’-eyes-only protective order would chill First Amendment rights for other trade associations or labor organizations because the court found the facts of Tesla Motors unique.

Implications

The Sixth Circuit’s decision in Tesla Motors will provide guidance in an area with sparse recent precedent. Will the Sixth Circuit find Marshall analogous and conclude there is little threat of a chilling effect when disclosure occurs under a protective order? Or will the court agree with the logic of Perry, which held that the disclosure of campaign communications to even a small group would chill associational rights, especially when that group includes adversaries? Tesla Motors also highlights the difficulty of separating less-protected commercial speech and conduct from lobbying activity that receives protection as political petitioning or speech.

In sum, the Sixth Circuit’s decision matters both for its outcome and for the analysis applied. A decision reinforcing Perry’s standard would perhaps provide a more detailed and disciplined approach to balancing interests in disclosure against protection for associational expression. Yet, Marshall’s analysis acknowledges the well-worn litigation practice of disclosing sensitive information, even to one’s adversaries, under appropriate protective orders. While discovery disputes engender less excitement than Tesla’s feats of engineering, the Sixth Circuit opinion in Tesla Motors promises to set pioneering precedent in its own right. Hopefully the opinion will answer questions that increasingly confront courts and litigants as technology companies engage with regulators and legislators on a broad range of topics.