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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: 7.2.1.1 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

Automobile Fraud: 7.2.1.7 Buyer’s Waiver of Statutory Protections

The protections of the state salvage vehicle statute are not waivable, whether by an “as is” clause or by the buyer’s actions.60 For example, an “as is” clause in the sales contract does not obviate a statutory requirement to disclose that a vehicle is a rebuilt salvage vehicle.61

Automobile Fraud: 7.2.1.8 State Vehicle Identification Number Laws

State vehicle identification number (VIN) laws should also be consulted in cases involving the sale of salvage vehicles.64 These laws prohibit alteration, removal, falsification, or defacement of VINs. They also may prohibit the sale of a vehicle with a VIN discrepancy.65 State VIN laws typically require a legitimate VIN before the vehicle can be titled or registered and allow the police to seize any vehicle that has a VIN discrepancy.

Automobile Fraud: 7.2.1.10 Remedies

The typical salvage vehicle statute is silent on the issue of civil remedies, but most states should imply a damages remedy80 or recognize a violation of the statute as a UDAP violation.81

Automobile Fraud: 7.2.2.1 Overview

Colorado, the District of Columbia, Hawaii, Iowa, Kentucky, Maine, Nevada, New Jersey, New Mexico, North Carolina, North Dakota, and Wisconsin have enacted damage disclosure statutes or regulations that apply to used vehicles.98 In addition, Louisiana requires used vehicle sellers to disclose water damage from flooding, Massachusetts requires private sellers to disclose significant damage, and a Pennsylvania UDAP regulation requires disclosure of certain types of damage.99 Under an Alaska st

Automobile Fraud: 7.2.2.2 Requirements and Interpretations

Alaska requires a motor vehicle dealer that purchases a used motor vehicle from an individual consumer to make reasonable inquiry of the seller as to the condition of the vehicle, including its accident and repair history. The dealer must put this information in writing and have the seller sign it, and must provide this information to prospective purchasers. When the dealer has purchased the vehicle from another dealer, an auction, or a wholesaler, it must disclose this fact to a prospective purchaser.102

Automobile Fraud: 7.2.2.4 Used Vehicles Such As Demonstrators Covered by New Car Damage Disclosure Laws

New car damage disclosure laws, discussed in the next subsection, are more common than used car damage disclosure laws. A new car damage disclosure law may, however, apply to certain used cars: demonstrators, factory executive vehicles, and other vehicles that have not previously been titled to a buyer. As a result, even in states that do not have a used car damage disclosure law, some used cars are subject to damage disclosure requirements.

Automobile Fraud: 7.2.3.1 Practices Covered

About half the states have enacted damage disclosure laws specifying that damage to new cars over a certain dollar amount must be disclosed.176 Demonstrator vehicles may be included in the definition of new car.177

Automobile Fraud: 7.2.3.2 Threshold Amounts of Damage Requiring Disclosure

New car damage disclosure statutes typically require that dealers disclose a new vehicle’s prior damage to consumers, but only if the cost to repair the damage exceeds a specified threshold amount. The thresholds vary by state, but the amount is usually three, four, five, or six percent of the car’s sticker price. For example, using a six percent threshold on a $25,000 car, damage need not be disclosed if the damage costs less than $1500 to repair.