Comments on: State Franchise Laws

By: Merlund Atturnee

Merlund Atturnee — Thu, 30 Apr 2009 23:53:03 +0000

I don’t think these types of laws typically violate the dormant Commerce Clause. The Fourth Circuit has dealt with this issue extensively. See Yamaha Motor Corp. v. Jim’s Motorcycle, Inc., 401 F.3d 560(4th Cir. 2005). The statute in Yamaha was held to be unconstitutional because it was overbroad and served no real purpose. States are generally allowed to regulate their local market as they see fit. The Supreme Court has rejected the notion that the Commerce Clause protects the particular structure or methods of operation in a . . . market. Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 127 (1978).

By: AAP

AAP — Wed, 29 Apr 2009 16:46:35 +0000

Will not ever get to the dormant commerce clause. I thought these laws (and the cause of action they give dealers) were the primary reason that a “quick” bankruptcy was being contemplated. i.e. the bankruptcy code is built to dispose of en masse the thousands(?)of potential dealer claims by having the debtor reject the executory dealer contracts and end up with an unsecured claim for their damages. My question is whether they will be able to muster enough strength in numbers to have a voice in the plan of reorganization.

Most of the state laws impose a good faith negotiation requirement and most of the complaints were about manufacturer unfair or discriminatory practices e.g. forcing inventory, or poor selling models on dealers or favoritism to some competing dealer, etc.; that the factory is why we failed and I want a jury trial under the state act. Bankruptcy keeps you from having to sort out all of these (thousands?)different factual claims or at least it forces them into a pattern and they are disposed of en masse and GM moves on with fewer dealers in the big cities and the same number in their more rural locations.

By: BDG

BDG — Wed, 29 Apr 2009 15:47:47 +0000

So, the theory would be…what? That manufacturers have to sell in states on a whole-state, take-it-or-leave-it basis, and so this serves as some kind of capital lock-in? And that lock-in results in inefficient allocation of national capital?

That’s a tough one. Presumably, an in-state manufacturer would face the same limits. Also, I can think of a lot of regulation that, at a guess, the Supreme Court would never want to throw into question that would look pretty similar. Take California regulation of auto safety standards. That’s an extra cost of gaining access to the California market, much like the lock-in cost of gaining access to the best dealerships in a state.