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Automobile Fraud: 10.11.2.1 Prompt Payment

Sometimes defendants have delayed many months after agreeing to settle a case before making the actual payment. Insist that the settlement agreement specify a payment date, or provide that the settlement itself is contingent upon the defendants making payment within a certain time, and that the consumer will not sign the release until the payment actually arrives. Another variant is to provide that the consumer’s settlement offer can be accepted only by execution of the release and payment of the settlement amount by cashier’s check or certified funds.

Automobile Fraud: 10.11.2.2 Dealer’s or Consumer’s Subsequent Resale of Suspect Vehicle

When settling an automobile fraud claim that involves a dealer or manufacturer taking back a vehicle, it is wise to protect the consumer from claims that could arise if the dealer resells the defective vehicle. The settlement agreement should require the defendant to make full disclosure of the condition of the vehicle if it is resold. Some consumer attorneys insist on an indemnity clause that provides that the defendants must indemnify the consumer for damages, costs, and attorney fees in the event that a subsequent purchaser of the vehicle makes a claim against the consumer.

Automobile Fraud: 10.11.2.3 Protecting the Consumer’s Credit Report

An important element of a settlement is protection of the consumer’s credit record. The settlement agreement should provide that the defendant will take the steps necessary to ensure that adverse information about the loan is deleted from the consumer’s credit history at any consumer credit reporting agency (CRA). There are options about how to accomplish the deletion. The first option requires the creditor to withdraw the entire report of the disputed loan at the CRAs. The consumer’s credit report will then be altogether silent about the loan.

Automobile Fraud: 10.11.2.4 Confidentiality Agreements

Settling defendants often request that the settlement prohibit the parties from disclosing the terms of the settlement to anyone. A second, less extreme clause does not prohibit disclosure altogether, but prohibits publicity. Such clauses raise a host of concerns.692 They enable defendants to cover up massive wrongdoing, and create procedural obstacles if judicial enforcement of the settlement becomes necessary.

Automobile Fraud: 10.11.2.5 Other Terms and Clauses

If one of the defendants holds a note or installment contract signed by the consumer, the settlement agreement should require it to be returned to the consumer, marked paid or canceled. Otherwise, there is a danger that it will be treated as a continuing obligation and assigned to another entity, and the consumer will be dunned for payment or even sued.

Any release should be mutual, with each party releasing the other from the same scope of claims. If only the consumer signs the release, the consumer is vulnerable to suit by the defendant.

Automobile Fraud: 10.11.2.6 Court Costs and Financing Costs

Most settlement agreements deal with responsibility for court costs incurred to date, but in some jurisdictions the clerk’s office may charge additional court costs for entering the settlement order. Or the clerk’s office may prepare a final court cost bill months after the case has been closed. The settlement agreement should deal with unanticipated court cost bills. For example, a clause could provide that any court costs owed to the clerk over and above the deposit posted by the plaintiff at the beginning of the case will be paid by the defendant.

Automobile Fraud: 10.13.4.6 Bond Limitations on the Size of a Recovery

Most bonding statutes limit a surety’s liability, with such language as: “[t]he aggregate liability of the surety shall not exceed the sum of the bond.”825 If there are many claims or claimants, the amount of the bond must be divided accordingly.826 A Virginia statute, limiting the bond recovery to $20,000 per transaction, was interpreted to allow two co-buyers just one $20,000 recovery.827

Automobile Fraud: 10.13.4.7 Surety’s Liability After a Bond Has Expired

In many states, the surety remains liable on the bond after its cancellation for any sale made or any liability accrued on the bond before cancellation.838 In Rhode Island, for example, the bond remains in effect for two years after a dealer has gone out of business.839 This is to indemnify anyone whose cause of action arose while the bond was in effect.

Automobile Fraud: 10.13.4.10 Recovery Against a Bond When Dealer Files Bankruptcy

When a dealer files for bankruptcy, the surety bond does not become property of the estate.850 Nor are proceedings against the bond prohibited by the automatic stay.851 This is so even though allowing recovery against the bond may allow the surety to make a claim against collateral owned by the dealer, creating a “domino effect” that will affect the estate’s assets.852 A specific exception to the automatic stay also allows government agencies

Automobile Fraud: 10.13.4.11 Tips for Recovering Against a Bond

Motor vehicle dealer bonds are usually modest in amount and can be quickly exhausted if a dealer has cheated a number of consumers. In many states, bond proceeds are paid on a first-come, first-served basis.856 The first injured party to give notice may be first in line. At an early date, the consumer’s attorney should determine what steps are necessary to put the consumer’s claim in line for recovery under the bond. The attorney should also check that the bond is in good standing and has not yet been exhausted by other claims.

Automobile Fraud: 10.13.5 Consumer Recovery Funds

A relatively recent development is the establishment of consumer recovery funds that pay injured consumers when the defendant is judgment proof. For example, Virginia has supplemented its bonding requirement with a motor vehicle transaction recovery fund.860 A challenge to the constitutionality of this statute, on the ground that it applied only to judgments obtained from Virginia courts, was dismissed for lack of standing.861

Automobile Fraud: 7.6.1 General

Most jurisdictions—all states except Delaware, Kentucky, Missouri, Tennessee, and Wyoming—have enacted lemon laundering laws.275 In general, when a manufacturer buys back a car, the lemon laundering law requires that certain disclosures be made concerning the vehicle’s history before the vehicle is resold.

Automobile Fraud: 7.6.5 Application of Lemon Laundering Statutes to Multistate Transactions

Lemon laundering often involves multiple states. A car purchased in one state will be bought back by the manufacturer and resold in a second state, where it may then be transferred again to a third state. The first state’s lemon laundering statute may not be violated if the car is resold in another state without the mandated disclosures.296 In addition, the second state’s lemon laundering statute may or may not apply to buybacks originating in other states.

Automobile Fraud: 7.6.6 Remedies for Violations of Lemon Laundering Laws

Some state lemon laundering laws provide their own private cause of action, often including attorney fees.300 Other statutes do not provide a separate private cause of action for violation of the lemon laundering requirements, but those requirements are part of the state lemon law and therefore enforceable through its private cause of action. In these states the question may arise whether the consumer must give the manufacturer notice and an opportunity to resolve the problem before suing.

Automobile Fraud: 7.7.1 Relevance of Dealer Licensing Statutes to Consumer Claims

Nearly every state requires motor vehicle dealers to obtain a license.308 Many licensing statutes and their associated administrative regulations detail standards of conduct for dealers. These standards serve as grounds to revoke or suspend a license or for the state to impose some other sanction. States that do not have consumer protection laws against a particular type of automobile fraud may still have a substantive prohibition of such conduct buried in a dealer licensing statute.