Letting the Electrics Slide: A Constitutional Challenge to State Dealer-Franchise Laws Prohibiting Direct-to-Consumer Car Sales
By Thomas Sperber
Tesla Motors has a business model for its U.S. sales unlike that of all other car manufacturers: Tesla sells cars directly to consumers rather than through a system of independently owned dealers. Most car manufacturers choose not to sell cars this way because most states have dealer laws that ban direct-to-consumer sales. To use this business model, Tesla has had to win narrow exceptions to these dealer franchise laws. It has mostly succeeded with this method and can now sell cars, albeit from a limited number of company stores, in all but six states.
Tesla is now suing the state of Michigan claiming that its dealer franchise law violates Tesla’s rights to substantive due process and equal protection. Traditionally, economic regulations facing Fourteenth Amendment challenges are subject only to a low standard of scrutiny that grants great deference to legislative judgment. However, some lower courts have been applying a standard of scrutiny that, while still low, requires some inquiry into the legitimacy of the legislature’s justifications of the regulation.
This Note argues that, if Tesla’s case reaches the U.S. Supreme Court, the Court should institute a more exacting standard of review for economic regulations that discriminate against one party for the sole purpose of protecting the economic interests of another. The extremely deferential reaction to cases such as Lochner v. New York, where the right of parties to contract was upheld against all better judgments, has no place in a political system where big money interests can influence state legislatures. To be clear, this Note does not ask the Court to carve out an exception for Tesla but rather to strike down the universal ban on direct-to-consumer car sales. This Note embarks on a thorough review of the Court’s application of substantive due process, a study of the current regulatory climate of new car sales, and a recommendation that the Court should consider the compelling policy reasons to rule in favor of Tesla.