Overview
In our inaugural InMotion newsletter published in September, we wrote about Tesla’s recent lawsuit seeking to free itself of Louisiana’s direct sale prohibitions (click here to view). On November 1, 2022, Lucid Group USA, Inc. (“Lucid”) launched a similar bid seeking to have the Texas direct-sales prohibition ruled unconstitutional and permanently enjoined. See Lucid Group USA, Inc. v. Monique Johnston et al., Case No. 1:22-cv-1116 (W.D. Texas).
Background
Lucid is an electric vehicle manufacturer that began delivery of its first vehicle, the Lucid Air, in 2021.[1] The Lucid Air is a luxury EV sedan that ranges in price from $87,400-$242,000.[2] Lucid sells its products without a franchised dealer network.[3] Rather, it employs a direct-sales model that it claims is incompatible with independent dealer distribution.[4]
Lucid operates a warranty and repair service facility in Houston, Texas, and it plans to open “Studios” elsewhere in Texas.[5] But to purchase a Lucid vehicle, Texas residents must order the vehicle from out-of-state Lucid-owned Studios and have the vehicle delivered in Texas.[6]
Lucid operates in this manner because Texas law prohibits manufacturers from obtaining a license to sell motor vehicles from a physical location in Texas.[7]
Lucid’s Complaint & Motion for Summary Judgment
In its two-count complaint, Lucid argues Texas law is unconstitutional for the following reasons:
- Due Process Violation: Lucid argues that Texas law violates 14th Amendment’s Due Process clause because (1) “[e]conomic protection of a particular industry like existing motor-vehicle dealers is not a legitimate governmental interest” and (2) application of the prohibition to Lucid “is not rationally related to the advancement of any legitimate governmental interest.”[8]
- Equal Protection Violation: Lucid argues that Texas law violates the 14th Amendment’s Equal Protection Clause because (1) “[e]conomic protection of a particular industry like existing motor-vehicle dealers is not a valid basis that justifies differential treatment” and (2) it arbitrarily distinguishes between “manufacturers without independent franchised dealers” on the one hand and on the other hand (i) “manufacturers’ franchisees that Texas permits to own and operate motor-vehicle dealerships,” (ii) “‘nonfranchised dealers’ that Texas permits to own and operate motor-vehicle dealerships,” and (iii) “manufacturers whom Texas law permits to lease or sell motor vehicles to Texas consumers.”[9]
Contemporaneous with the filing of the complaint, Lucid also filed for a motion for summary judgment for which no briefing schedule has yet been set.
Outstanding Questions
Lucid’s lawsuit raises at least three questions:
- First, Lucid’s claims are similar to those made by Tesla in a 2020 Michigan lawsuit. In that case, Tesla argued that Michigan’s direct sale and service ban violated due process, equal protection, and the commerce clause. Tesla and Michigan settled and Tesla, but no other manufacturer, can operate its sales model in Michigan. Will Lucid work out a similar settlement in Texas?
- Second, Texas has for many years promoted itself as a business-friendly environment. Indeed, Texas is the home to a factory for Lucid’s rival, Tesla. How will the Texas legislature, which is reconvening in January 2023, react to Lucid’s lawsuit? Will they loosen the regulatory strings or maintain the course?
- Third, Lucid’s lawsuit is the second in less than 90 days challenging state regulatory bans on direct sales. Have the flood gates now been opened and will other manufacturers, both traditional and start-up, file similar lawsuits?
We Can Help You
BFKN’s Motor Vehicle Group will monitor this lawsuit and will provide updates as appropriate. In the meantime, if you have any questions regarding this lawsuit or other manufacturer/motor vehicle dealer issues, please contact us.
[1] (See Complt. at ¶ 13.)
[2] https://www.lucidmotors.com/stories/update-lucid-air-pricing (last visited November 28, 2022)
[3] (See Complt. at ¶ 20.)
[4] (See Complt. at ¶ 27.)
[5] (See Complt. at ¶ 29.)
[6] (See Complt. at ¶ 30.)
[7] (See Complt. at ¶ 36.)
[8] (See Complt. at ¶¶ 53-59.)
[9] (See Complt. at ¶¶ 60-66.)
Motor Vehicle Group
BFKN’s Motor Vehicle Group works with automotive, truck, and motorcycle manufacturers across the country and around the world to implement market representation and development initiatives, litigate protests and lawsuits, and develop effective dealer agreements, standards, and policies. Our attorneys are knowledgeable and creative strategic partners. Whether litigating, counseling, or negotiating transactions on behalf of our clients, we bring to the table extensive in-depth knowledge of the motor vehicle industry and exceptional legal ability, a combination that uniquely positions us to help our clients efficiently and effectively solve difficult problems and achieve their business objectives.