Tesla mulls federal suit to sell in Texas, Michigan, other states (and Hurricane Katrina may help)

March 30, 2016

This is a very big week for Tesla. Just a few short months after delivering its first Model X crossovers to earlybird customers, the all-electric automaker will begin taking reservations for another new model tomorrow.

Priced from $35,000, the Tesla Model 3 could dramatically boost Tesla's sales stats and ensure its place in the auto market for many years to come. But the company still has one major hurdle to overcome: state franchise laws. According to Auto News, Tesla may be preparing to challenge those laws in court--and a case that followed in the wake of Hurricane Katrina could lend Tesla some help.

The legal lay of the land

It's no secret that Tesla has fought a very long, very hard, very public battle against state dealer networks, the National Automobile Dealers Association, and other groups who want to maintain the status quo in America's showrooms. But despite those efforts--and despite many, many state franchise laws that prohibit automakers from selling directly to consumers--Tesla has made headway. It's even got the Federal Trade Commission on its side.

That said, there are some holdouts.Six states still prevent Tesla from selling vehicles directly to consumers: Arizona, Connecticut, Michigan, Texas, Utah, and West Virginia.

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Tesla and its CEO, Elon Musk, are now weighing the possibility of taking their case to the feds--literally.

How could a federal lawsuit help open the doors to those six states--and by extension, perhaps broaden Tesla's footprint in other states? After all, franchise laws are state laws, and they've been on the books for years.

Tesla is hanging its hopes on a federal case that was heard in the wake of Hurricane Katrina.

Of cars and caskets

The case in question was filed by the monks of St. Joseph Abbey, which is located on the north shore of Lake Pontchartrain, not far from New Orleans. At first glance, the monks' plight may seem completely unrelated to Tesla's, but the parallels are there. 

As anyone who watched Six Feet Under can attest, the funeral-industrial complex is a massive, well-oiled machine. It bears quite a few similarities to the auto industry, including many state laws that force would-be buyers of caskets and funeral services to do so via a licensed funeral director.

Such restrictions caused problems in Louisiana after Hurricane Katrina, when the failure of the federal levee system led to hundreds of deaths. Suddenly, there were a huge number of bodies to be buried, and very few funeral homes or funeral directors on hand to meet the need. There was also a shortage of coffins, and with most families out of work, affording the few coffins available was difficult.

The monks of St. Joseph Abbey offered two less-expensive, hand-crafted caskets, ranging in price from $1500 to $2000, which they sold directly to the public. The Louisiana Board of Embalmers and Funeral Directors filed suit, arguing that what the monks were doing was illegal, but ultimately, three federal judges ruled against them.

In their decision, the justices said that "the sole reason for these laws is the economic protection of the funeral industry", and that, the justices continued, did not constitute "a valid government interest". Tesla believes that it can persuasively argue that state franchise laws for auto dealers serve a similarly unlawful purpose.

Tesla hopes that it can resolve its issues with the six remaining states without taking its case to federal court. If it does, Tesla may not be able to paint itself as sympathetically as a group of monks trying to sell inexpensive coffins to grieving families in the wake of a massive natural disaster, but the decision in St. Joseph Abbey v. Castille could still be Tesla's key to salvation.

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