Overview
Late last week, the Illinois Appellate Court upheld Lucid and Rivian’s right to obtain a dealer license to make direct sales to consumers.[1] For the last five years, Tesla has operated direct-to-consumer dealerships in Illinois under a settlement with the Secretary of State (“Secretary”) and certain dealer associations.[2] In 2021, Rivian and Lucid obtained licenses from the Secretary to sell directly to consumers through dealerships operated by affiliates.[3]
A group of dealerships and dealer associations sued the Secretary, Rivian, and Lucid in the Circuit Court of Cook County. The dealers sought court orders prohibiting the Secretary from licensing direct-to-consumer dealerships and prohibiting Rivian and Lucid from selling directly to consumers. The dealers’ primary argument was that two Illinois statutes – the Illinois Vehicle Code (“Vehicle Code”) and the Motor Vehicle Franchise Act (“MVF Act”) – prohibit direct-to-consumer sales by manufacturers or their affiliates. Their alternative argument was that, if Illinois law allows direct-to-consumer sales, that would violate the dealers’ constitutional rights.[4]
The Circuit Court dismissed the dealers’ complaint against the Secretary, Rivian, and Lucid with prejudice. The Circuit Court concluded that neither the Vehicle Code nor the MVF Act prohibit a manufacturer from obtaining a dealer license to sell new vehicles. And the Circuit Court rejected the dealers’ arguments under the U.S. and Illinois constitutions.[5]
The plaintiffs appealed the Circuit Court’s decision to the Illinois Appellate Court, First District. The Appellate Court affirmed the Circuit Court’s decision.[6] There are three holdings in the Appellate Court’s decisions: one interpreting the Vehicle Code and the MVF Act, a second on dealers’ due process rights, and a third on the dealers’ equal protection argument.
First, the Appellate Court held that Illinois statutes do not prohibit a manufacturer from obtaining a license to operate as a motor vehicle dealer. The Appellate Court held that, while the MVF Act prohibits a manufacturer from owning a franchise, a dealership operated by a manufacturer or its affiliate, is not a franchise. The Appellate Court further held that the Vehicle Code’s requirement of a written contract between the manufacturer and the dealer does not apply when the dealer is owned by a manufacturer or its affiliate.[7]
Second, the Appellate Court rejected the dealers’ argument that it would violate their due process rights under the U.S. and Illinois constitutions to allow manufacturers to conduct direct-to-consumer sales. The Appellate Court held that the dealers lack a protectable property interest in their business model as franchised motor vehicle dealers. For that reason, the dealers failed to state a claim for a due process violation.[8]
Third, the Appellate Court rejected the dealers’ argument that it would violate their constitutional equal protection rights to allow manufacturers to conduct direct-to-consumer sales. The Appellate Court quickly dispatched this argument because the dealers had failed to allege that they were similarly situated with Rivian and Lucid or that they had suffered disparate treatment.[9]
Since the Appellate Court affirmed the dismissal of the dealers’ complaint with prejudice, the dealers cannot file an amended complaint in the Circuit Court. The dealers could, however, file a petition for leave to appeal to the Illinois Supreme Court. The Supreme Court would have discretion about whether to take the dealers’ appeal.[10]
Notably, while this opinion specifically concerns two electric vehicle manufacturers, Lucid and Rivian, who do not have existing franchises in Illinois, there is an open question about how broadly this opinion will be interpreted beyond these two manufacturers. BFKN’s Motor Vehicle Group will continue to monitor any developments concerning manufacturers’ direct-to-consumer sales in Illinois.
[1] See Ill. Auto. Dealers Ass’n v. Office of the Ill. Sec’y of State (“IADA”), -- N.E.3d --, 2024 IL App (1st) 230100 (Ill. App. Ct. 1st Dist. 2024)
[2] See IADA, 2024 IL App (1st) 230100, ¶ 6.
[3] See IADA, 2024 IL App (1st) 230100, ¶ 13.
[4] See IADA, 2024 IL App (1st) 230100, ¶ 13.
[5] See IADA, 2024 IL App (1st) 230100, ¶¶ 15-17.
[6] See IADA, 2024 IL App (1st) 230100, ¶ 49.
[7] See IADA, 2024 IL App (1st) 230100, ¶¶ 23-36.
[8] See IADA, 2024 IL App (1st) 230100, ¶¶ 38-43.
[9] See IADA, 2024 IL App (1st) 230100, ¶¶ 45-48.
[10] See Ill. Sup. Ct. R. 315(a).