June 4, 2012

Pacific Legal Foundation stands up for the right to open a business in Georgia

By Pacific Legal Foundation stands up for the right to open a business in Georgia

Tomorrow the Supreme Court of Georgia will hear arguments in WMW Honda v. American Honda Motor Company, a case that will determine the scope of a Georgia law that allows existing car dealerships to block the opening of competing dealerships in their area. As I discussed in a prior blog post, this case arose when Honda “made the mistake” of placing a new dealership within eight miles of an offsite service center of a preexisting Honda dealer– WNW Honda.  Rather than compete with the new dealership in the marketplace, WMW decided to take Honda to court, claiming its statutory right to enjoin the creation of any new dealerships in its “market area.” At that point, Honda was left in the precarious position of either proving that the new dealership did not infringe on WMW’s “market area” or that a “public need” existed in the area for another dealership (ie that the new dealership wouldn’t create too much competition for WMW). Honda chose the former and was successful in the lower courts.

Yet, Honda should have never been forced to go through such a costly and time consuming process in the first place. Blatantly protectionist laws like this one violate the Due Process Clauses of the Georgia the Constitution. While states certainly have the power to regulate certain aspects of the marketplace, the Georgia Constitution requires that those laws be aimed at some legitimate public purpose (i.e. the prevention of fraud, or danger to the general public),  and not merely a desire to protect pre-existing businesses from competition.  Indeed, the Georgia Supreme Court has on two prior occasions struck down laws virtually identical to the one at issue in this case, explaining that laws which merely seek to protect a “special group” exceed the legitimate power of the state.

Surprisingly, neither of the lower courts bothered to mention these issues. Instead, focussing on the proper size of WMW’s state-created monopoly without concerning themselves with whether or not the state had the constitutional authority to grant WMW that kind of power in the first place.

Given this lack of attention, Pacific Legal Foundation filed a Brief reminding the Court that protectionist laws  deter economic growth and raise serious constitutional concerns and should therefore be read narrowly.

Thankfully, the Georgia Court has a fairly solid record of protecting the right to earn a living. In fact, when other state and federal courts in the 1930’s began rubber-stamping virtually every kind of economic regulation, Georgia courts held firm to their obligation to determine whether such laws served a public interest and therefore fell within the authority of the state. We aim to remind them of that legacy and are optimistic that such principles will prevail here.

What to read next