Chicago Auto Trade Association - Appellate Courts Decided Two Significant Cases Related to Threats to the Franchise Model

Appellate Courts Decided Two Significant Cases Related to Threats to the Franchise Model

Thursday, August 29, 2024 3:36 PM | Anonymous member (Administrator)

[From NADA] Over the last week, two appellate courts handed down significant decisions regarding threats to the franchise model, with mixed results for dealers, but dealers won the argument that posed the greatest threat nationwide.

On August 26, a federal appeals court agreed with the Louisiana Auto Dealer Association (LADA) that a state ban on direct sellers did not violate Tesla’s constitutional rights. Unfortunately, the court revived Tesla’s claim that the composition of the Louisiana Motor Vehicle Commission violates Tesla’s due process rights.
On August 23, an Illinois appellate court held that Illinois law does not prohibit manufacturers from obtaining dealer licenses to sell directly to consumers.

Both cases show real and continuing threats to the franchise model. Fortunately, Tesla’s equal protection claim, which could have threatened all franchise-protection laws nationwide, was rejected.

In Tesla v. Louisiana Dealers Association, the lower court had dismissed all of Tesla’s claims, which were that Louisiana’s ban on direct sellers and ban on direct sellers performing warranty service violated its equal protection rights, and that the composition of the Louisiana Motor Vehicle Commission violated its right to due process and federal anti-trust law.
A three-judge panel of the U.S. Court of Appeals for the 5th Circuit unanimously affirmed the district court’s rejection of Tesla’s equal protection claim—a claim that, if successful, would have posed the biggest threat to state franchise-protection laws nationwide because it could invalidate all state laws restricting direct sales.
The appeals court, splitting 2-1, unfortunately revived Tesla’s claim that the composition of the Louisiana Motor Vehicle Commission, which includes dealers, violates Tesla’s due process right and poses a potential anti-trust issue. It remanded those issues to the district court to decide and took no view on whether those claims should ultimately be successful.
In Illinois Automobile Dealers Association v. Illinois, a judge for the Appellate Court of Illinois, First District, affirmed the lower court and held that the Illinois Vehicle Code and the state Motor Vehicle Franchise Act do not prohibit Rivian and Lucid from obtaining dealer licenses and conducting direct-to-consumer sales. The court also rejected IADA’s claims under the U.S. and Illinois Constitutions.

LADA and IADA are reviewing the full opinions and considering their appellate options.

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