L e g a l C o r n e r : O dome ter Problem s D on’ t G o Away W i t h “E xemp t ” S t a tu s

Odometer Problems Don’t Go Away With “Exempt” Status

D e a l e r Q u e s t i o n : I’ve received an attorney-demand letter involving an issue of the true mileage of a vehicle I sold that fell under the mileage “exempt” rule because it was over 10 years old. Doesn’t the “exempt” status remove any potential liability for mileage discrepancies?

A n s w e r : No. “Exempt” means the vehicle is not subject to the federal odometer law disclosure requirements of placement of mileage on the title certificate. But that doesn’t necessarily affect the possible implications of the Texas Deceptive Trade Practices Act (DTPA) prohibitions on misrepresentation of the characteristics and qualities of a product sold or leased.

It is a fact of life that purchasers of motor vehicles consider the number of miles a vehicle has travelled to be an important piece of information in determining the value of that vehicle. And, when a buyer finds out after the purchase that the vehicle has more miles than appeared on the odometer or more than was otherwise disclosed, that buyer feels cheated.

Certainly, the value of low mileage was known to thieves who have rolled back odometer mileage on vehicles to increase the prices they can sell them for. And this information was known to congress when it passed the federal odometer tampering and disclosure laws. Consumer groups and plaintiffs’ attorneys are well aware of the opportunities for litigation that odometer issues give rise to. The importance to vehicle buyers of having correct information on a vehicle’s mileage is also brought home to dealers and vehicle auctions when mileage discrepancies arise after a sale.

Federal odometer law prohibits disconnecting, resetting, or altering an odometer with the intention to change the mileage registered by the odometer, and operating a vehicle with the odometer disconnected, with the intent to defraud.

Also, the law requires that a seller of a vehicle disclose the cumulative mileage registered on the odometer, or, if the seller knows that the registered mileage is incorrect, disclose that the true miles are unknown.

The federal disclosure can be made as “exempt” if the vehicle falls under the exemption for older vehicles depending on its model year. Prior to January 1, 2021, the exemption applied to vehicles 10 years old or older. A new rule from the National Highway Traffic Safety Administration (NHTSA) now changes the exempt age to 20 years, reflecting the increasing average age of vehicles still in operation. The new rule requires an odometer disclosure for every transfer of ownership for vehicles up to 20 model years old, beginning with model year 2011 vehicles (thus 2011-year models will be subject to federal disclosure through 2031). Modelyear-2010 and older vehicles remain subject to the previous 10-year rule.

The penalties for violation are fairly steep. A civil penalty can be assessed of up to $2,000 per vehicle involved up to a total of $100,000, plus prison time, in addition to

by Michael W. Dunagan TIADA GENERAL COUNSEL Fe d e r a l o d o m e t e r l a w p r o h i b i t s d i s c o n n e c t i n g , r e s e t t i n g , o r a l t e r i n g a n o d o m e t e r w i t h t h e i n t e n t i o n t o c h a n g e t h e m i l e a g e r e g i s t e r e d b y t h e o d o m e t e r, a n d o p e r a t i n g a v e h i c l e w i t h t h e o d o m e t e r d i s c o n n e c t e d , w i t h t h e i n t e n t t o d e f r a u d .

. . . t h e r e i s v e r y l i t t l e d e b a t e t h a t t h e t r u e m i l e a g e o f a v e h i c l e i s a m a t e r i a l f a c t t h a t a b u y e r r e l i e s o n . I f t h e i n f o r m a t i o n f r o m t h e s e l l e r i s u n t r u e o r m i s l e a d i n g , t h e n t h e b u y e r h a s a p o t e n t i a l c a u s e o f a c t i o n .

civil damages to victims of three times the actual damages suffered.

Many dealers are of the opinion that a vehicle that is eligible for the “exempt” designation on the area of the title certificate where odometer mileage is typically disclosed — is not subject to any type of mileage disclosure. To these dealers, the term “exempt” removes any obligation to make mileage disclosures of any kind and exempts sellers from claims made by buyers as to mileage discrepancies.

It would thus appear to these folks that if a dealer doesn’t roll back odometers or otherwise manipulate them to make vehicles appear to have less mileage than they really have, and the dealer follows the rules of disclosure, he or she would be protected from odometer litigation. This has not proven to be the case.

A narrow reading of the term “exempt” overlooks an important area of the law. DTPA creates an independent cause of action for misrepresentation by a seller about (among other things) the type, quality, and characteristics of goods sold. And there is very little debate that the true mileage of a vehicle is a material fact that a buyer relies on. If the information from the seller is untrue or misleading, then the buyer has a potential cause of action.

In a suit for misrepresentation under the DTPA, the fact that a vehicle was exempt from the federal requirement that mileage be posted on the title certificate probably wouldn’t provide a defense to the seller.

Under the DTPA, the consumer doesn’t have to prove that the seller knew that the information was incorrect, and, unlike the federal odometer law, doesn’t have to prove that the seller actually tampered with or rolled back the odometer. That is, the DTPA will allow a buyer/consumer to prevail if he or she shows that the seller made a representation of fact, that the representation of fact was untrue,

and the consumer suffered damages as a result of the misrepresentation.

Even dealers who are totally innocent of wrong-doing, and, in fact, themselves victims of fraud, can easily get wrapped up in expensive litigation over mileage on a vehicle.

“ E x e m p t ” f o r f e d e r a l d i s c l o s u r e p u r p o s e s d o e s n o t n e c e s s a r i l y m e a n “e x e m p t ” f r o m s t a t e m i s r e p r e s e n t a t i o n l a w s

Many dealers have assumed that if a vehicle qualifies under the federal disclosure rule as “exempt,” the entry of that word on the title eliminates all problems associated with odometers. In actual lawsuits we have seen, the buyers claim that they asked and were specifically told that the miles showing on the odometer were the true miles. In some cases, they simply say that they relied on the mileage on the odometer and weren’t informed by the seller of any discrepancy.

In one case, the plaintiff claimed that the vehicle actually exceeded 200,000 miles at time of sale, but that the dealer led them to believe the mileage was only over 100,000 (the vehicle had an old mechanical odometer that only went to 100,000 miles). Nothing in the dealers’ files indicated, however, that it was specifically disclosed in writing that the mileage exceeded 100,000, much less 200,000, or that the vehicle was being sold without any actual knowledge of the true mileage.

EPI-TIADAhalf FEB2021.pdf 1 1/10/21 2:35 PM I n a s u i t f o r m i s r e p r e s e n t a t i o n u n d e r t h e DT PA , t h e f a c t t h a t a v e h i c l e w a s e x e m p t f r o m t h e f e d e r a l r e q u i r e m e n t t h a t m i l e a g e b e p o s t e d o n t h e t i t l e c e r t i fi c a t e p r o b a b l y w o u l d n ’ t p r o v i d e a d e f e n s e t o t h e s e l l e r.

I f i t a p p e a r s t h a t t h e v e h i c l e h a s m o r e m i l e s t h a n w a s r e p r e s e n t e d t o t h e b u y e r, t a k e i m m e d i a t e s t e p s t o r e s o l v e t h e d i s p u t e , e v e n i f i t m e a n s m a k i n g a n a d j u s t m e n t i n t h e p r i c e o r b u y i n g t h e v e h i c l e b a c k .

Also, in each case, the dealer involved felt that he had no obligation to make any kind of disclosure since (a) the vehicle was exempt from federal disclosure, and (2) he had no knowledge of what the actual mileage was, and (3) on a vehicle that old, the mileage doesn’t make any difference anyway.

All of these lawsuits could have been avoided, or at least more strongly defended, if the dealer had disclosed in writing that the dealer did not know the actual mileage the vehicle had traveled, and that in all likelihood, the vehicle had over 100,000 miles. A verbal disclosure of this fact, in the face of the buyer’s denial of the disclosure, results in a swearing match. Dealers should not rely on the word “exempt” to replace written disclosure of excess or unknown mileage.

F r a u d c o m m i t t e d b y p r i o r o w n e r

One of the other sources of odometer-related litigation we are seeing involves vehicles that have had odometers replaced by prior owners. These consumers are trading in their vehicles without disclosing to the dealers that the current odometer doesn’t reveal the actual mileage of the vehicle. In this scenario, the dealer taking the trade sells the vehicle to another dealer, who retails it, relying on the mileage statement given by the consumer who traded it in.

Sometime later, the new retail purchaser determines that the vehicle was repaired years earlier with more miles than the odometer currently shows. Title and repair history research show that the original owner had the speedometer or entire dashboard replaced, with the new odometer starting at zero or an amount less than the true mileage.

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The retail dealer is sued for misrepresentation or for rescission, despite the fact that he can show that he relied on an odometer statement showing the same miles he disclosed. In this situation, litigation can usually be avoided if the retail dealer buys the vehicle back and looks to his seller for compensation. The problem arises when an upstream dealer refuses to make good on the vehicle, usually declaring that “I did nothing wrong.” In those cases, it is often necessary to file cross-actions against upstream sellers, seeking indemnification for our dealer client. These cases often turn into multi-party litigation that run up large amounts of attorney’s fees.

The plight of innocent dealers has also been compounded by a spate of recent federal court opinions that assessed damages under the federal odometer law based on the fact that the dealer “should have known” about an odometer discrepancy even though he had no actual knowledge. The “should have known” standard places a burden on the dealer to do some investigation on mileage and not rely entirely upon the odometer statement received.

C l u s t e r r e p l a c e m e n t s

We’ve seen a recent rash of odometer litigation arising out of the replacement of electronic instrument clusters. Because of a failure of a vehicle’s on-board computing system, entire clusters have been replaced. Often the replacement is a used unit that has an odometer reading fewer miles that the defective replaced cluster. If this is the case, and no written disclosure of this fact is given, there will likely be litigation when the buyer finds out about the missing miles. A disclosure statement, signed by the buyer prior to closing, informing the buyer that the cluster has been changed out and reporting the mileage on the old one at time of removal, is the proper way to handle this situation. The fact that a vehicle is exempt from federal odometer disclosure will probably not help the seller.

We also know of one Texas dealer who was charged under a federal criminal indictment for violating the federal odometer act by routinely replacing clusters that had high-mileage odometers with clusters that had low-mileage odometers and failing to inform buyers of the changes.

U t i l i z e v e h i c l e m i l e a g e a n d c o n d i t i o n d a t a b a s e s

Commercial and government services offer vehicle condition, history, and mileage information. Attaching copies of printouts of such reports to a disclosure statement that is signed by the buyer and included in the closing documents is a good way of establishing (1) that the dealer relied on information from authoritative sources; (2) made a good-faith attempt to provide objective information to the buyer; and (3) disclosed to the buyer that there may be conditions to the vehicle that the dealer is not aware of. A sample “Used Car Condition and Mileage Disclosure” form is available to TIADA members at txiada.org. Av o i d i n g l i t i g a t i o n

I have had dealers tell me that the price for older, higher-mileage vehicles would be the same regardless of whether it had less than 100,000 or more than 100,000 miles. The buyers and their attorneys obviously didn’t agree. And, if that were the case, then making a written disclosure shouldn’t negatively impact the sales process.

Once a discrepancy arises, it is important to promptly review the facts. If it appears that the vehicle has more miles than was represented to the buyer, take immediate steps to resolve the dispute, even if it means making an adjustment in the price or buying the vehicle back. Any loss at that point would likely be small compared to the price of multi-party consumer litigation.

Michael W. Dunagan is an attorney in Dallas, Texas who has represented the Texas Independent Automobile Dealers Association for over 40 years. He has written a number of books and hundreds of articles for trade journals and law reviews. His clientele includes dealers, banks, finance companies, auto auctions and credit unions.

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