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Automobile Fraud: 9.4.8.3 Lemon Laundering and Nondisclosure of History of Mechanical Problems
The undisclosed sale of a vehicle with a lemon buyback history is a UDAP violation.421 The consumer should be able to bring such a claim against both the selling dealer and the manufacturer.422 The lack of privity between the manufacturer and consumer is no defense for the manufacturer.423 A dealer’s ignorance of the manufacturer’s lemon laundering is also no defense for the dealer, because knowledge and intent are not elements of UDAP claims
Automobile Fraud: 9.4.8.4 Nature of Prior Use
It is deceptive to misrepresent or fail to disclose the nature of a car’s prior use, such as that it had been repossessed or was used as a demonstrator, executive car, taxicab, police car, driver’s education car, or rental vehicle.438 Misrepresenting the number of prior owners is a UDAP violation.439
Automobile Fraud: 9.4.8.5.1 Deceptive to represent used cars as new
It is deceptive to sell a used car as new or to fail to disclose that a car is used.450 Misrepresentation or nondisclosure is likely to violate a general UDAP prohibition against deception even if there is no statutory provision or regulation that specifically prohibits the practice.
Automobile Fraud: 9.4.8.5.2 Distinguishing new cars from used cars
Whether a vehicle is new or used can be a disputed question. Often a definition can be found in a motor vehicle statute, but courts may hold that this definition is not binding in a UDAP claim.452
Automobile Fraud: 9.4.8.5.3 Investigating whether a car is new or used
As noted in the preceding subsection, some courts define a new car as one that has never been titled. Another definition is a car that has never been the subject of a retail sale. With either definition, the issuance of a title to a previous buyer will be critical evidence that the car is used.
Automobile Fraud: 9.4.8.5.4 Implications of FTC Used Car Rule
The Federal Trade Commission’s Used Car Rule requires dealers to display a Buyers Guide as a window sticker in all used vehicles offered for sale.469 “Used vehicle” is defined as one driven more than the limited use necessary in moving or road testing the vehicle prior to delivery to a consumer.470 A dealer who misrepresents a used car as new is highly likely to violate this rule by failing to display the window sticker that might alert the buyer that the vehicle is used.
Automobile Fraud: 9.4.8.6 Misrepresentations Concerning Clear Title
When a car dealer represents that it can sell a car, it represents that it has good title to the car.472 Selling a vehicle without disclosing a lien on it is a UDAP violation, even if the seller believes the lien to be invalid.473 It is a UDAP violation for even an innocent car dealer relying on a seemingly valid certificate of title to sell a car that later turns out to be stolen.474
Automobile Fraud: 9.4.8.7 Gray Market Vehicle Sales
The sale of a “gray market” vehicle—one made by a legitimate manufacturer, but for distribution in a market outside the United States478—is likely to involve UDAP violations.
Automobile Fraud: 9.4.9 Limitations on UDAP Litigation
In general, UDAP statutes place few restrictions on private actions.
Automobile Fraud: 9.4.10 UDAP Remedies
Among the most attractive features of a UDAP claim are the available remedies.
Automobile Fraud: 9.5.1 Advantages and Disadvantages
The private remedies authorized by the federal Racketeer Influenced and Corrupt Organization provisions of the Organized Crime Control Act of 1970 (RICO)515 have assumed great importance in diverse fields of civil litigation. Although RICO was primarily devised as a weapon against organized crime, its broad provisions for criminal and civil liability were deliberately drawn to encompass types of business-related misconduct that are not peculiar to gangsters.
Automobile Fraud: 9.5.2 Elements of a RICO Claim
The RICO statute is somewhat confusing to deal with, partly because it does not prohibit racketeering activity directly. Rather, the core of a claim is the existence of an enterprise and the manner in which a defendant relates to that enterprise. RICO prohibits four types of relationships, each of which entails either a “pattern of racketeering activity” or the “collection of an unlawful debt.” The four prohibited practices spelled out in section 1962, subsections (a) through (d), are as follows:
Automobile Fraud: 9.5.3 Application to Automobile Fraud Cases
The most common predicate offense in an automobile fraud case is mail fraud or wire fraud.540 Mail and wire fraud fall somewhere in between common law fraud and UDAP deception as to difficulty of proof.541 The defendant need not itself use the mails to further the automobile fraud scheme as long as some victims, or others involved in the scheme, used the mails for some purpose related to the automobile fraud.542 An example is a purchaser who
Automobile Fraud: 9.6.1 Overview
Approximately half the states have enacted legislation similar to the federal RICO statute, and most of these statutes create a private civil cause of action.563 They are often quite similar to the federal RICO statute, but differ in various respects. State RICO statutes do not require a nexus between racketeering activity and interstate commerce. Some also have less complex requirements about how the defendant’s acts affect an enterprise.
Automobile Fraud: 9.6.2 Advantages of State RICO Claims over UDAP and Federal RICO Claims
State RICO laws offer a number of strategic advantages when compared to state unfair and deceptive acts and practices (UDAP) statutes. UDAP statutes are broad and flexible, but in some states they have certain limitations. Not all state UDAP statutes authorize multiple damages or attorney fees. Some exclude significant actors such as banks and insurance companies, and some have short statutes of limitations.
Automobile Fraud: 9.7 Lease Unconscionability Claims
When a dealer leases a vehicle to the consumer, and the dealer misrepresents or fails to disclose the vehicle’s history, then another possible cause of action is a UCC Article 2A unconscionability claim. Every state except Louisiana has now enacted Uniform Commercial Code Article 2A on Leases.
Automobile Fraud: 9.8 Negligence
To make out a claim for negligence, the consumer must show that the defendant had a duty and breached that duty, proximately causing damages to the plaintiff.573 As a seller of a motor vehicle has a duty to inspect it in many states,574 the first element may not be difficult to show in an automobile fraud case. A more serious difficulty is that in many states, economic loss—such as the diminished value of goods purchased—cannot be recovered in a negligence action.
Automobile Fraud: 9.9 Breach of Contract
Claims for breach of the automobile fraud contract may be viable in some circumstances.577 For example, if the contract states that a vehicle is a 2010 Toyota but it is actually a 2008 model, or half of a 2008 model welded to half of a 2010 model, the consumer has a contract claim.578 The contract may state the mileage, in which case the consumer would have a contract claim if the statement is false.
Automobile Fraud: 7.1 Introduction; Enforcement of State Automobile Fraud Statutes
The prior two chapters examine federal and state odometer statutes. This chapter reviews other statutes that deal specifically with automobile fraud.
Automobile Fraud: 7.2.1.1 Introduction
All fifty states and the District of Columbia have statutes regulating the resale of and issuance of title for salvage vehicles.16 Many of these statutes also contain requirements for the handling of damaged vehicles that have not been repaired or restored for safe use on the roads.
Automobile Fraud: 7.2.1.2 Constitutionality
Courts have upheld the constitutionality of state salvage vehicle statutes. An Iowa court rejected a challenge to a salvage statute that treated insurers differently from others who obtain damaged vehicles.
Automobile Fraud: 7.2.1.3 Persons Covered
Most salvage vehicle laws apply to anyone who transfers ownership of a covered vehicle.26 A minority of salvage vehicle laws apply only to transferors who are in the business of selling cars, but even this category may include more than just motor vehicle dealers. For example, a licensed dealer-to-dealer wholesale auctioneer under Minnesota’s motor vehicle statutes was covered by the state title branding statute even though it offered the vehicle for sale only as an agent of the owner.27
Automobile Fraud: 7.2.1.4 Definition of Salvage Vehicle
State statutes vary widely in their definition of a salvage vehicle. In some states the definition is simply a vehicle that has been transferred as salvage or declared to be salvage by an insurer.31 Others define a salvage vehicle as one for which an insurance company has made a total loss settlement.32