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Elio Motors, Inc. v. Louisiana Motor Vehicle Commission

Court of Appeals of Louisiana, Fifth Circuit

March 27, 2019

ELIO MOTORS, INC.
v.
LOUISIANA MOTOR VEHICLE COMMISSION

          ON APPEAL FROM THE TWENTY-FOURTH JUDICIAL DISTRICT COURT PARISH OF JEFFERSON, STATE OF LOUISIANA NO. 775-320, DIVISION "C" HONORABLE JUNE B. DARENSBURG, JUDGE PRESIDING

          Counsel For Plaintiff/Appellant, Elio Motors, Inc. C. William Bradley, Jr. Dwight C. Paulsen, III Natalie J. Taylor L. David Adams

          Counsel For Defendant/Appellee-2ND Appellant, Louisiana Motor Vehicle Commission Adrian F. LaPeyronnie, III

          Panel composed of Judges Susan M. Chehardy, Fredericka Homberg Wicker, and John J. Molaison, Jr.

          JOHN J. MOLAISON, JR. JUDGE.

         This appeal arises from an administrative proceeding before the Louisiana Motor Vehicle Commission ("the Commission"), which found that Elio Motors, Inc. was engaged in manufacturing recreational products and offering to sell them directly to consumers for over four years without a manufacturer's or a dealer's license and imposed civil penalties for the violations, including a $545, 000 fine. La. R.S. 32:1251, et seq.

         Elio sought judicial review of the Commission's decision in the district court, which affirmed the findings of violations and reduced the penalties. We affirm the findings of violations, reverse the district court's reduction of penalties and reinstate the penalties imposed by the Commission.

         SUMMARY OF STANDARD OF REVIEW, KEY ISSUES AND EVIDENCE

         Proceedings before the Commission are governed by the Louisiana Administrative Procedure Act, La. R.S. 49:950, et seq.[1] Pursuant to the standard of review set forth in Section 964(G), as discussed more fully below, we conduct an independent review of the record to determine whether the findings of statutory violations are factually and legally supported and whether the agency exceeded its authority or acted without a rational basis in imposing penalties.

         Elio's vehicle, known as "the Elio," is an enclosed, three-wheeled passenger vehicle that is a cross between an automobile and a motorcycle. It is undisputed that the vehicle is a recreational product, as defined in the licensing law.[2] The dispute centers on whether Elio is a "manufacturer" or a "dealer" within the meaning of the licensing law.

         The law defines a manufacturer as one who "fabricates, manufactures, or assembles" recreational products and a dealer as one who "buys, sells, . . . offers, or attempts to negotiate a sale or exchange of an interest in recreational products and who is engaged wholly or in part in the business of buying and selling recreational products in the state of Louisiana." La. R.S. 32:1252(24), (46)(a). The statutory wording indicates that the activities for which licensing is required must occur in the present tense.

         As set forth in more detail below, the licensing law is designed to promote public safety and to protect members of the public from physical or financial harm resulting from the distribution and sale of motor vehicles and recreational products by those who do business in this state. The statutes are penal in nature and must be strictly construed, but the statutory definitions are very general and contain very little specificity as to what types of activities are either included in or excluded from their scope. The statutes must be interpreted based on the generally prevailing meaning of their terms and on common sense. They should not be interpreted in a way that makes them ineffective or meaningless.

         The Commission invoked the hearing after Elio leased space in the former General Motors manufacturing plant in Shreveport and collected almost $28 million in cash, in the form of refundable and non-refundable online reservations for its vehicle, over a four-year period without being licensed as a recreational products manufacturer or dealer. As of the hearing date, Elio had solicited and received more than 65, 000 reservations and had not produced any vehicles for sale. While taking these reservations, Elio built at least one test vehicle and engaged other companies to produce prototype vehicles and a customized prototype engine, which Elio used for marketing and testing purposes.

         Elio contends it will seek the appropriate Louisiana licenses in the future but claims it is not currently subject to the licensing requirements for recreational products manufacturers or dealers because the design of its vehicle has not been finalized and it has not yet produced any vehicles for sale or sold a vehicle. Elio claims the online reservation payments are for a "spot in line" to possibly purchase a vehicle at a later date, at a price to be agreed on in the future, rather than deposits toward the sale of a vehicle. Elio also asserts that it does not have a sufficient connection to Louisiana to support the imposition of penalties.

         The evidence presented at the hearing, when viewed in its entirety, does not support Elio's claims. The evidence shows that, while soliciting and accepting online reservation payments in amounts ranging from $100 to $1, 000 and listing a specific targeted base price for the vehicle, most recently $7, 450, Elio has:

• Identified the online payments as "customer deposits" for the reservation of "an Elio vehicle";
• Described the online reservations as "pre-orders," "pre-production sales," and "binding purchase commitments";
• Offered a "locked in price" to non-refundable reservation holders who met certain conditions;
• Reported to the Securities and Exchange Commission that 88 percent of all reservation holders had received a "locked in price";
• Used as its toll-free telephone number, 844-BUY-ELIO; • Described itself as a manufacturer on its website and in press releases;
• Leased space in the former General Motors manufacturing plant in Shreveport and mentioned its affiliation with the plant in numerous public communications, including the online reservations program and other fundraising and marketing efforts;
• Applied for a federal Advanced Technology Vehicles Manufacturing loan, available to manufacturers who re-equip, expand or establish manufacturing facilities in the United States that produce fuel-efficient advanced technology vehicles (ATVs) or qualifying components, or who perform engineering integration in the U.S. for ATVs or qualifying components;
• Announced the formation of engineering and supplier partnerships with other companies who would work with Elio to produce its vehicle;
• Engaged other companies to build, for Elio and at its direction, prototype vehicles and a customized prototype engine used by Elio to promote its vehicle at auto shows, on other tours around the country, and online; and
• Built at least one test vehicle under the direction of an Elio employee who had "taken countless vehicle programs through the manufacturing process for other automakers."

         A more detailed discussion of the evidence appears below. Elio did, at times, say and do things that would suggest it does not fit within the statutory definitions at issue, but the overwhelming weight of the evidence places Elio within the scope of the definitions and substantiates Elio's ties to Louisiana.

         REGULATORY SCHEME

         In order to provide some context for our discussion of the issues presented, we first consider the purpose and scope of the Commission's regulatory authority, as set forth in the Louisiana Motor Vehicle Commission Law. The legislature's Declaration of Public Policy appears in La. R.S. 32:1251, which states in relevant part that the law was enacted based on the legislature's findings that

the distribution and sale of motor vehicles and recreational products in the state of Louisiana vitally affects the general economy of the state, 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 and to license those persons enumerated in R.S. 32:1254 and doing business in Louisiana in order to prevent frauds, impositions, and other abuses upon its citizens, . . . and to protect the public against the creation or perpetuation of monopolies and practices detrimental to the public welfare, . . . to prevent unfair practices by said licensees, to promote the public safety and prevent disruption of the system of distribution of motor vehicles and recreational products to the public and prevent deterioration of facilities for servicing motor vehicles and keeping same safe and properly functioning[.] . . .[3]

(Emphasis added.)

         The scope of the Motor Vehicle Commission's authority includes evaluating the financial standing and business integrity of all license applicants and holders, as well as their ability to properly conduct business, the effect of licensing on the applicant's business and the consuming public, and "such other pertinent information consistent with the safeguarding of the public interest and public welfare." La. R.S. 32:1254(C)(2), (C)(8), (D)(1), (D)(5), (E)(1), (E)(8). See and compare Louisiana Motor Vehicle Commission v. Wheeling Frenchman, 235 La. 332, 103 So.2d 464, 466-67, 469 (1958) and Benson & Gold Chevrolet, Inc. v. Louisiana Motor Vehicle Commission, 403 So.2d 13, 18 (La. 1981).

         FACTS AND PROCEDURAL BACKGROUND

         The evidence introduced at the hearing shows that Elio Motors is an Arizona corporation authorized to do business in Louisiana and has publicly described itself as a "start-up vehicle manufacturer." In 2013, Elio announced that it had leased space in the former General Motors plant in Shreveport and would use the plant to produce a low-cost, high mileage, three-wheeled enclosed passenger vehicle called "the Elio," with two front wheels, one rear wheel, a driver's seat in front and a passenger seat in the rear. [4] The Elio has many of the same features as traditional passenger cars but is designed to be smaller and lighter, with an estimated fuel efficiency of 84 miles per gallon and a target retail price of $7, 450. We refer to the Elio vehicle as "the vehicle" to avoid confusion with the company name and the name of its founder and CEO, Paul Elio.

         Elio has expressed its commitment to build the vehicle in America, with American workers. Elio listed the Shreveport plant as its principal place of business in its application for authority to do business in Louisiana and does not have a plant anywhere else. Elio initially estimated that commercial mass production would begin at the Shreveport plant in 2015, but later changed the date several times, first to 2016, then to 2017, and then to 2018. As of the hearing date in July 2017, Elio had not begun commercial mass production of the vehicle.

         Elio began soliciting online reservations for its vehicle in 2013 and had received more than 65, 000 reservations by the time of the hearing. During that time, Elio has been engaged in extensive design, research and development, marketing and fundraising activities relating to the vehicle, as discussed below. The company has raised capital from a number of sources, including loans, advances from its directors and stockholders, the public sale of its corporate stock, an equity crowdfunding investment campaign governed by federal law, and its online reservations program.

         Additional facts relating to the Shreveport plant, Elio's activities and website, the online reservations program and Elio's report to the Securities and Exchange Commission are discussed below.

         Shreveport Plant

         In the initial press release announcing its acquisition of space in the former General Motors manufacturing plant in Shreveport, which GM had closed in 2012, Elio stated the plant would be "the foundation for building the new vehicle" and that the company "has been accepting pre-orders on its website and touring the country to showcase the prototype." [5] (Emphasis added.) Elio initially stated that it would use the existing equipment in the plant but later determined that some of the equipment would not be needed and sold it.

         In each of the 13 press releases that followed, the Shreveport plant is mentioned as Elio's "first manufacturing site." Some press releases referred to the Shreveport plant as Elio's "production facility," while others described it as "a world-class manufacturing facility where General Motors previously built the Hummer H3 and Chevy Colorado." Elio also mentioned the plant on its website and in other public communications about its vehicle, as noted below.

         After acquiring space in the Shreveport plant, Elio announced that it would bring 1, 500 jobs back to the facility, which had closed recently. Elio's acquisition of space in the plant garnered support from Louisiana's governor, the Louisiana Department of Economic Development, the Caddo Parish Commission, and the Caddo Parish community, according to documents filed in evidence.

         At the hearing, Elio's Vice President of Governmental Affairs, Joel Sheltrown, testified that Elio had asked some of its suppliers who normally make their products overseas to make them at the Shreveport plant, where additional space was available for lease, or elsewhere in the United States.

         Elio's Activities

         Elio has announced that its vehicle will come with air conditioning and heating, power locks and windows, a reinforced roll cage, seatbelts, airbags and antilock brakes and that it will be offered in several colors, with either manual or automatic transmission.

         Since the inception of the online reservations program in 2013, Elio has formed engineering and supplier partnerships with more than 20 companies, all of whom were named in press releases, and announced that it had contracted with other companies to build a series of prototype vehicles, as well as a prototype of a unique, highly fuel-efficient internal combustion engine, "specifically for Elio." Elio toured the country with the prototype vehicles and engine to generate interest in the vehicle and to promote its online reservations program. Elio described itself as the first start-up auto company in the United States in 60 years "to build its own internal combustion engine." (Emphasis added.) It appears from the record that the prototype vehicles are driveable.

         In 2016, Elio announced that "the Elio Motors team" in Michigan had built the first in a series of test vehicles, known as the E-series, to be used for testing and engineering purposes. This was done under the direction of Gino Raffin, Elio's Vice President of Manufacturing and Product Launch, who was quoted as saying, "We've been receiving assemblies and components from our suppliers since the completion of our engineering phase, and we're excited to see our Elio E-Series vehicles coming together. Our first vehicles will be ready for our suppliers and internal teams to begin testing and calibration in the near future."

         In the announcement about the first E-Series test vehicle, Elio described Mr. Raffin as "the guru in process and manufacturing assembly for our Shreveport assembly facility who . . . has taken countless vehicle programs through the manufacturing process for other automakers for more than 30 years[.]" (Emphasis added.)

         Press releases issued by Elio in 2015 and 2016 described the building of the prototype vehicles, the prototype engine and the E-Series testing vehicles as important steps in its "march toward production." (Emphasis added.)

         In March 2016, Elio announced its plans "to sell 100 pre-production vehicles built at its Shreveport, Louisiana, production facility fourth quarter of 2016 [sic]." The company later changed the target date for assembling these vehicles to 2017. At the hearing in July 2017, Elio's witness, Mr. Sheltrown, testified that Elio had not built any of the 100 vehicles it had said it would build or produced any other vehicles for sale, primarily due to a lack of funding.

         Mr. Sheltrown testified that the prototype vehicles Elio used for promotional purposes were not made by Elio, but by another company, and the final vehicle will not be identical to the prototypes. He acknowledged, however, that the prototypes were built "for Elio, for demonstration purposes."

         Elio's Website

         Screen shots from Elio's website were introduced in evidence, along with testimony from the Commission's Executive Director, Lessie House, about her visits to the site. This evidence shows that Elio made several present-tense statements about itself and its vehicle online, including the following:

• Elio Motors "is an American vehicle manufacturer committed to revolutionizing how consumers think about transportation" and" is a

designer, developer and manufacturer of highly efficient, low cost three wheeled vehicles."

• "The Elio: American Innovation at its finest. U.S. made by American workers at the former GM plant in Shreveport, Louisiana."
• "Introducing the Ultimate Commuter Vehicle. Now you can save time, money and the environment." (Emphasis added.)

         The website includes a picture of the Shreveport plant, with an Elio Motors sign in front of the building, and pictures of prototype vehicles, one of which is shown driving and the other of which appears to be parked at a home. One question in the Frequently Asked Questions section is, "Can I buy one now?" The answer reads: "You can reserve your Elio right now by clicking 'Reserve Your Elio."' (Emphasis added.)

         A person who clicks "Reserve Your Elio Today" can make a refundable or a non-refundable reservation in the amount of $100, $250, $500 or $1, 000. Elio agreed to add a bonus of 25 percent to the amount of a non-refundable reservation payment, and to apply the combined amount of the payment and the bonus "to the purchase of your Elio" (Emphasis added.) At one time, the bonus amount was 50 percent. For refundable reservations, the amount to be applied to the purchase is the amount paid for the reservation, with no bonus.

         Website visitors can sign up for a newsletter that "will keep you updated on everything between now and the day your Elio arrives" (Emphasis added.)

         Elio's Online Reservations Program

         The online reservation program allows members of the public to make a refundable or a non-refundable payment for your reservation of an Elio vehicle with us" as stated in the online reservation agreements that accompanied the payments. (Emphasis added.)

         Elio began taking online reservations in 2013. By 2014, it had 10, 000 reservations. The number increased to 40, 000 in 2015, to 60, 000 in 2016, and surpassed 65, 000 by the time of the hearing in 2017. More than 80 percent of the reservations were non-refundable. Elio has referred to the online payments of both types as a "deposit" or as "customer deposits."

         A person who makes a reservation payment must agree to the terms of a reservation agreement that appears on the website. There are separate reservation agreements for refundable and non-refundable reservations.

         The Refundable Reservation Agreement states:

This Reservation Agreement . . . is for your reservation of an Elio vehicle with us.
1. Reservation
By entering into this Reservation Agreement, you hereby confirm that you wish to receive an Elio vehicle (prototype can be viewed on our website.)
2. Nature of Agreement; Non-Binding Reservation Payment
The Reservation Payment is REFUNDBALE and provides you with the benefits in Section 4 below depending on the level of your payment. This agreement does not constitute an agreement for the sale of a vehicle and does not lock in pricing, a production slot, or an estimated delivery date. You are under no obligation to purchase a vehicle from us, and we are under no obligation to supply you with a vehicle. If and when we notify you of the availability of the vehicle and you wish to proceed with the purchase, such sale and purchase will be governed by a separate and legally binding Purchase Agreement between you and us or between you and another authorized dealer (Elio). In the event a purchase is made, your Reservation Payment will be credited against the purchase price.
5. Order Process
When the start of production of your reservation nears, we will ask you to confirm your option selections and provide full details regarding the legal purchaser of the vehicle. Elio will create an order for your vehicle containing the information provided by you, and a Purchase Agreement indicating the estimated purchase price of your vehicle, taking into account the base price of the model and any options included or that you select, plus estimates of any applicable taxes, duties, transport and delivery charges, and any other applicable fees. Elio will then submit to you the order and the Purchase Agreement for your review. If you wish to proceed and purchase the vehicle, you must sign and return the Purchase Agreement together with any amounts that are then required to be paid. . . .
Base vehicle and/or option pricing may not be available at the time of your reservation, and if pricing is available, it is subject to change until agreed upon in an executed Purchase Agreement.
11. Acknowledgments
YOU UNDERSTAND THAT ELIO MOTORS, INC., MAY NOT HAVE COMPLETED THE DEVELOPMENT OF THE VEHICLE OR BEGUN MANUFACTURING THE VEHICLE AT THE TIME OF YOUR RESERVATION. WE WILL HOLD YOUR RESERVATION PAYMENT SEPARATELY IN AN ESCROW OR TRUST FUND BUT WILL NOT PAY ANY INTEREST ON RESERVATION PAYMENTS, EXCEPT TO THE EXTENT REQUIRED BY LAW. (Emphasis added.)

         Section 4 of the agreement states that a reservation payment of $100 "entitles you to a priority delivery date based upon the date we receive your completed Agreement and payment," and that a payment in a higher amount "entitles you to a priority delivery date ahead of all the participants" who paid a lower amount. (Emphasis added.)

         The Non-refundable Reservation Agreement contains the same provisions but identifies the reservation as non-refundable and "All In," and states in Sections 2 and 4 that the reservation payment plus a bonus equal to 25 percent of the payment amount will be credited against the purchase price in the event a purchase is made. It also states that Elio will not hold the reservation payment separately or in an escrow or trust fund.

         In August 2016, Elio instituted a "Limited Time Offer" for non-refundable reservation holders to "lock in" a "vehicle purchase base price" of $7, 300 until the company reached a total of 65, 000 reservations.[6] In a press release announcing this offer, Elio explained that it had applied for an Advanced Technology Vehicles Manufacturing (ATVM) loan from the Department of Energy, and that recent changes to the agency's loan guidelines would require start-up companies "to further demonstrate market acceptance through firm sales commitments." Paul Elio is quoted in the release as saying, "We have developed more than $350 million in pre-production sales with over 56, 000 reservations, with the vast majority being non-refundable[.]" (Emphasis added.)

         The release further stated that the company

is now seeking the necessary binding purchase commitments to meet the recent change in loan criteria. As an extra incentive for the non-refundable reservation holders, the company will lock in the vehicle price at an even lower $7, 000* base price for those that make a binding commitment ...

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