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Automobile Fraud: 6.3 Do All Disclosure Violations Lead to a Private Right of Action?

The Act provides for a private civil action whenever a “person . . . violates this chapter or a regulation prescribed or order issued under this chapter.”28 This provision thus grants explicit authority for private actions for any type of violation, including violations of the National Highway Traffic Safety Administration (NHTSA) disclosure regulations.

Automobile Fraud: 6.5.1 Federal Court Jurisdiction

The Federal Act gives federal district courts jurisdiction over actions under the Federal Act regardless of diversity or the amount in controversy.51 Cases may also be brought in state court,52 but that action may be removed to federal court within the thirty-day time limit.53

Automobile Fraud: 6.5.2 Venue

As the Federal Act contains no special venue provision, the proper venue for a federal court action is determined by the general venue statute, 28 U.S.C. § 1391. The action may be brought where the defendant resides or where a substantial part of the claim arose.54 A corporation resides anywhere it is incorporated, licensed to do business, or is doing business. In state court actions, the state venue statute must be followed.

Automobile Fraud: 6.5.3 Right to Jury Trial

The Federal Act does not specifically provide for a jury trial. However, the Seventh Amendment to the United States Constitution guarantees the right to a jury trial in “suits at common law, where the value in controversy shall exceed $20.” Rule 38(a) of the Federal Rules of Civil Procedure provides that the right of trial by jury as declared by the Seventh Amendment or as given by a statute of the United States is preserved to the parties inviolate.

Automobile Fraud: 6.6.1 Claim Selection Largely Determines Court Selection

A state odometer act claim cannot be brought in federal court unless there is federal diversity jurisdiction or federal jurisdiction under the Class Act Fairness Act. A federal court has discretion to hear the state claim as supplemental to a Federal Act claim, and will generally do so because the state claim is so closely related.

Automobile Fraud: 6.6.2 Factors in Choosing Between State and Federal Claims and Courts

Consumers preferring state over federal court must weigh the relative merits of such a state court action based only on state odometer and other state claims compared with a federal court action based on claims under both the federal and state statutes. In general, there will not be an issue of the Federal Act preempting state law.62 State statutes do not typically conflict with the purposes of the Federal Act.63

Automobile Fraud: 6.6.3 Benefits of Adding a State Odometer Claim to a Federal Act Claim

When the consumer brings an action in federal court or if it is not imperative that the consumer stay in state court, the best course of action usually is to bring an action under both the state and federal odometer statutes. There will be little question that the federal court will exercise supplemental jurisdiction over the state odometer act claim, because it is so closely related to the Federal Act claim.

Automobile Fraud: 6.7 Drafting the Complaint

Sample complaints that contain Federal Act claims are summarized in Appendix G, infra, and available digitally in Microsoft Word format as companion material to the digital version of this treatise. Because intent to defraud is an element for a private action under the Federal Act,77 it is safest to explicitly plead this intent.

Automobile Fraud: 6.8 No Comparative Fault Defense

It is no defense to liability under the Act that the consumer was at fault in not recognizing the odometer problem. An Act complaint for a violation that requires intent is akin to a complaint in fraud, and there is no comparative fault defense for fraud actions.85

Automobile Fraud: 6.9.1.1 General

The Federal Act states that: “A person that violates this chapter or a regulation prescribed or order issued under this chapter, with intent to defraud, is liable for 3 times the actual damages or $10,000,86 whichever is greater.”87 If treble damages are less than $10,000, then the court awards $10,000. But if treble damages exceed $10,000, then the award of treble damages is mandatory, not permissive.88

Automobile Fraud: 6.9.1.2 Diminished Value of the Vehicle

One measure of actual damages is the difference between the value of the vehicle the consumer thought they were buying and the fair market value of the vehicle after the odometer irregularity has been discovered.96 The mileage irregularity will affect the fair market value in two ways. One is the fact that a higher mileage vehicle is worth less (the next subsection examines how to measure this diminution in value when the actual mileage is unknown).

Automobile Fraud: 6.9.1.3 Computing Diminished Value When True Mileage Cannot Be Determined

In odometer tampering cases in which a vehicle’s true mileage cannot be determined, the difference in the value of the car as it was represented to be and its value as it was in fact delivered is difficult to measure. The most sensible position is to base the car’s actual value on the testimony of an expert as to its value assuming the mileage is unknown and also that the odometer disclosure must state that the mileage is not accurate, and that a seller’s truthful representations about mileage must admit that the mileage is unknown.

Automobile Fraud: 6.9.1.4 Availability of Treble Damages When Consumer Seeks to Rescind the Transaction

Many consumers who discover odometer fraud will want to return their vehicle to the dealer and get all their money back. While the Federal Act does not explicitly provide for such equitable relief, courts have held this remedy is available under the Act,107 and a court can certainly award such a remedy under Uniform Commercial Code Article 2 or a common law claim. But consumers seeking to unwind the transaction may be depriving themselves of the benefit of a treble damages remedy.

Automobile Fraud: 6.9.1.5 Cost of Service Contracts, Other Voided Coverages

When a consumer purchases a vehicle, the dealer may also sell a service contract or extended warranty, GAP insurance, or other products whose terms may state that if there is a mileage discrepancy, the contract is voided.112 Then, even though the consumer may not have attempted to use the service contract or other product, the contract is worthless and the damages are the total cost of the product and any related charges for the contract. These should be actual damages under the Act, which should then be trebled.

Automobile Fraud: 6.9.1.6 Costs to Determine Odometer Discrepancy

Expenses incurred to determine if the odometer is accurate are incidental damages that should be trebled under the Act.113 These expenses can include charges assessed by a mechanic in investigating the odometer or other aspects of the vehicle to determine its true mileage. Such expenses can also include the cost of a Carfax or other summary title search, or the cost of a detailed title search obtained from one or more state departments of motor vehicles.

Automobile Fraud: 6.9.1.8 Financing Costs and Other Charges That Are Higher Than Warranted Because of Vehicle’s Diminished Value

Actual damages should include any additional amounts the consumer paid in taxes, insurance, and financing charges because the consumer paid more for the vehicle than it was worth.122 For example, if a vehicle is worth $10,000 instead of $15,000, based on its true mileage, then the consumer should have paid taxes, insurance, and financing charges based on a $10,000 cash price. The difference between that amount and the amount actually paid for these charges is actual damages.

Automobile Fraud: 6.9.1.9 Other Consequential Damages

As the Federal Act claim is essentially a fraud or tort claim, the plaintiff can seek incidental and consequential damages for time off from work,124 emotional distress (if the situation is egregious enough),125 medical bills, or accidents caused by the undisclosed actual mileage of the vehicle (for example, brake failure).126 Care in formulating damages is important because the awarded actual damages are then trebled.

Automobile Fraud: 6.9.1.10 Prejudgment Interest

While prejudgment interest is not a right under federal law, it is ordinarily awarded absent a justification for withholding it.127 The district court determines if the interest would compensate the wronged party, and whether the equities would preclude such an award.128 Despite the fact that actual damages are trebled under the Federal Act, the equities do not preclude the award of prejudgment interest on actual damages related to the odometer violation.129

Automobile Fraud: 6.9.2.1 $10,000 Minimum Damages

The Federal Act specifies that a person violating the Act with an intent to defraud is liable for private remedies of the greater of treble damages or $10,000. The increase in the minimum damages amount to $10,000 became effective on October 1, 2012.130

Automobile Fraud: 6.9.2.2 Prerequisites for Minimum Damage Award

The plaintiff does not have to prove any actual damages to recover the minimum statutory amount.134 The plaintiff need only prove that the defendant violated the Act with an intent to defraud. Any violation of the Act or regulations leads to the minimum damage award. Unlike other federal consumer statutes, the Act does not contain a bona fide error defense or specify that only certain violations lead to statutory damages.