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Automobile Fraud: 10.2.2 Consumer Must Decide Whether to Withhold Payments and Whether to Return the Car

Among the first decisions an automobile fraud client must make are whether to keep the car or try to return it and whether to continue paying for it. Returning the car and stopping payment will likely lead to an adverse credit report and probably a suit for a deficiency balance, although the consumer’s attorney should warn the dealer and the creditor against taking these steps.7 Keeping the car and not paying for it is likely to result in an adverse credit report and the vehicle’s repossession.

Automobile Fraud: 10.2.3 How to Return the Vehicle

Sometimes a dealer will reluctantly go along with rescission of the sale if it is forced to accept possession of the car. Then the dealer may find it easier to resell the car and forget the first transaction. This may make the consumer nearly whole if the consumer has not yet paid a substantial portion of the purchase price.

Automobile Fraud: 10.2.4 Withholding Payments

If the client decides to keep the car and withhold payments, a strong letter from the attorney to the creditor is appropriate. The letter should explain exactly why the consumer is withholding payments and warn the creditor against repossession or an adverse credit report.

Automobile Fraud: 10.2.5 Asking the Consumer to Perform Preliminary Steps

Depending on the client’s sophistication, the value of the case, and the nature of the attorney’s practice, it may be practical for the consumer to perform much of the preliminary investigation. This is also an easy way for the attorney to screen out less meritorious cases. On the other hand, leaving the preliminary investigation to less sophisticated consumers may be a mistake.

Automobile Fraud: 10.2.6 Placing the Attorney-Client Relationship on a Sound Footing

Attorney fees should be thoroughly explained to the consumer at the outset of the relationship. If the monetary value of the case is small and it involves a claim under a fee-shifting statute, the consumer should be told that, unless the defendants resolve the matter promptly, the attorney fees may end up being larger than the consumer’s recovery. The attorney should take care to document all time spent on the case from the outset in detail.

Automobile Fraud: 10.2.7 Documenting Damages

Damages should be documented from the earliest stage of the case. The consumer should be instructed to document any costs to store, inspect, or repair the car, any days of work missed because of lack of transportation, any increased insurance costs, any denials of credit that may conceivably be related to the car transaction, and all costs of substitute transportation. The consumer should keep track of non-monetary damages such as inconvenience, lost time, embarrassment, and anxiety.

Automobile Fraud: 10.3.1 Selecting Claims to Plead

An automobile fraud case will provide a consumer with a number of potential legal claims. Because transferring a vehicle from state to state is often part of the process that conceals its history, the consumer may even have potential claims under the substantive law of more than one state. Each potential claim will have advantages and disadvantages.

Automobile Fraud: 10.3.4.1 Advantages and Disadvantages of Federal Court

A federal forum is potentially available whenever the plaintiff has a claim under the federal odometer statute (MVICSA), the Truth in Lending Act, or the federal RICO Act, or a claim under the federal Magnuson-Moss Warranty Act with at least $50,000 in controversy.40 State courts also have jurisdiction over claims under these federal statutes.41 Federal jurisdiction is also available if there is diversity of citizenship among the parties and the plaintiff’s claim exceeds the federal jurisdic

Automobile Fraud: 10.3.4.3 Framing Misrepresentation Claims As Federal Odometer Claims

If the consumer prefers a federal forum, in some cases it is possible to plead fraud-type claims as violations of the MVICSA. Any false statement made to the buyer in connection with making the federally required odometer disclosures is a violation of the MVICSA.49 Thus, any oral statements, advertisements, or written representations about a vehicle’s mileage may give rise to federal claims.

Automobile Fraud: 10.3.5.1 General Rules

It is very common for out-of-state entities to be involved in automobile fraud, because interstate transfers of vehicles are a key step in many automobile fraud schemes. If the plaintiff wants to sue out-of-state entities, the court must have personal jurisdiction over those defendants. The existence of potential defendants in several states can also give the plaintiff a choice of forums.

Automobile Fraud: 10.3.5.2 Long-Arm Jurisdiction over Out-of-State Vehicle Sellers

The consensus is that an out-of-state seller will be subject to long-arm jurisdiction if the seller does business in the forum state or follows a regular course of business of selling vehicles that it knows will end up in the forum state. For example, a Kentucky man rolled back a car’s odometer and sold it to a West Virginia dealer, which then sold it to a West Virginia consumer. The consumer showed that the Kentucky man had sold 127 cars to West Virginia dealers during the previous five years.

Automobile Fraud: 10.3.6.1 Introduction

Dealers often include in the paperwork a provision that the dealer can refer any legal action the consumer brings against the dealer to binding arbitration. In effect, the consumer waives the right to use the court system. Dealers include this provision to limit their exposure to class actions, punitive damage awards, discovery, juries, and public disclosure of their illegal practices.

Automobile Fraud: 10.3.6.4 Are Magnuson-Moss Act Claims Subject to Arbitration?

There is conflicting precedent whether a Magnuson-Moss Warranty Act claim for breach of a written warranty is subject to an arbitration requirement.118 There are two grounds to argue that a Magnuson-Moss Act claim can remain in court, and need not be moved to arbitration, but the law is presently unsettled concerning both grounds.

Automobile Fraud: 10.3.6.6 Waiver of the Arbitration Requirement

A defendant can waive its right to require arbitration by waiting too long during court litigation to raise the arbitration requirement. By acting in a way that is inconsistent with a known right, to the consumer’s prejudice, the defendant waives the arbitration requirement. Such may be the case when the defendant first raises the arbitration requirement after extensive discovery, after motions to dismiss or summary judgment are filed, or after other litigation activity.142

Automobile Fraud: 10.3.6.8 Who Decides Arbitrability: the Court or the Arbitrator?

Any challenge to the enforceability of an arbitration agreement must take into account the Supreme Court’s instructions in Rent-A-Center, West, Inc. v. Jackson145 as to who decides whether an arbitration agreement is enforceable: the court or the arbitrator. The court determines arbitrability when the arbitration agreement does not clearly specify that this task is for the arbitrator.

Automobile Fraud: 10.3.6.9 Class Arbitration

Consumers invariably are better off bringing individual claims in court instead of before an arbitrator, particularly because the dealer has selected the arbitration service provider. But the same may not be true of a classwide arbitration. Corporations appear to fear class arbitration more than class actions in court, and consumers may have more success getting a case certified before an arbitrator than a judge.

Automobile Fraud: 10.4.1 Strategic Considerations

In selecting the parties for an automobile fraud suit, remember that all dealerships are not solvent and not all judgments are collectable. Accordingly, it is important to investigate not only the selling dealer, but also the potential liability of others in the chain of title and others involved in the sale.