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Date: 02-17-2023
Case Style:
Daniel McDonald v. Southwest Auto Sales and Finance LLC, et al.
Case Number: 2:22-cv-00152
Judge: Camille D. Bibles
Court: United States District Court for the District of Arizona (Phoenix County)
Plaintiff's Attorney:
Defendant's Attorney: John M. Powers
Description: Phoenix, Arizona consumer law lawyer represented Plaintiff who sued Defendants on a Federal Odometer Act violation theory under 49 U.S.C. 32710
Altering the mileage reading on a motor vehicle is a felony. Effective July 5, 1994, the odometer tampering statutes were recodified from Title 15, U.S.C., to Title 49. The change was not substantive, though the statutes were reworded. Some of the old and new statutes are:
Tampering prohibition: moved from 15 U.S.C. § 1984 to 49 U.S.C. § 32703(2).
False odometer statement prohibition: moved from 15 U.S.C. § 1988 to 49 U.S.C. § 32705(a)(2).
Odometer fraud conspiracy prohibition: moved from 15 U.S.C. § 1986 to 49 U.S.C. § 32703(4).
Criminal penalty provision: moved from 15 U.S.C. § 1990c to 49 U.S.C. § 32709(b).
USAOs should contact CPB when an odometer fraud investigation is opened so that information regarding potential overlaps with other cases can be shared. CPB should also be provided a copy of proposed indictments and informations at least one week before presentation or filing, so that necessary approvals can be obtained.
A. The Nature of Odometer Fraud
Odometer fraud is a pernicious crime that robs thousands of dollars from each victim it touches. See, e.g., United States v. Whitlow, 979 F.2d 1008, 1012 (5th Cir. 1992) (under sentencing guidelines, court affirmed estimate that consumers lost $4,000 per vehicle). The television news magazine 60 Minutes once characterized it as the largest consumer fraud in America. Victims of this fraud are commonly the least able to afford it, since buyers of used cars include large numbers of low income people. In addition, consumers generally are unaware of being victimized.
Odometer-tampering involves several interrelated activities. Late-model, high-mileage vehicles are purchased at a low price. The vehicles are "reconditioned" or "detailed" to remove many outward appearances of long use. Finally, odometers are reset, typically removing more than 40,000 miles.
In addition to the cosmetic "reconditioning" of the car, the odometer tamperer "reconditions" paperwork. Automobile titles include a declaration of mileage statement to be completed when ownership is transferred. To hide the actual mileage that is declared on the title when the car is sold to an odometer tamperer, the tamperer must take steps to conceal this information. These steps vary from simple alteration of mileage figures, to creating transfers to fictitious "straw" dealerships to make it unclear who was responsible for the odometer rollback and title alteration. Alternatively, the odometer tamperers frequently destroy original title documents indicating high-mileage, and obtain duplicate certificates of title from state motor vehicle departments, upon which the false, lower mileage figures are entered.
Whatever method is used, the result is the same. The odometer tamperer possesses an altered, forged, or replacement title document (which is a security under federal law) containing a false low-mileage reading. This title is used to sell the car, for several thousand dollars above its actual value, to a purchaser who is deceived regarding the vehicle's remaining useful life by the altered odometer, by the vehicle's outward appearance, and by the counterfeit, low-mileage title and odometer statement.
B. Nature of CPB's Criminal Prosecutions
Odometer fraud is practiced by a variety of people, including:
Organizations that roll back (or "clock") the odometers on thousands of cars, wholesaling them to dealers who resell them to the public.
Groups of individuals (commonly called "curbstoners") who buy cars, clock them, and sell them through the classifieds, passing them off as cars of a friend or relative ("I'm selling Aunt Sally's Buick for her.").
Individuals who only clock their own car to defeat a lease provision or cheat on a warranty.
Thus, odometer fraud is a pervasive problem in the used car industry. Indeed, the Department of Transportation, National Highway Traffic Safety Administration (NHTSA), has estimated annual consumer loss from this fraud as between $4 and $10 billion.
CPB works with the Odometer Fraud Staff of NHTSA, the FBI, the United States Postal Inspection Service, the IRS, and numerous state agencies in prosecuting odometer fraud. NHTSA's small Odometer Fraud Staff serves both as the lead investigator in many of these cases, and as a partner with other investigative agencies. The cases that CPB prosecutes typically involve rings which purchase and sell hundreds, and often thousands, of used cars annually. Major defendants in large odometer fraud prosecutions have received prison terms of up to seven years under current Sentencing Guidelines which do not permit parole. Sentences in the 18 month to three year range are common.
Odometer fraud/motor vehicle titling fraud investigations generally require coordination--both on a multi-jurisdiction level and on a federal-state level. Rarely do such crimes occur within only one federal jurisdiction. Where a target has operated only locally, or only been involved in a small number of vehicles, prosecution by state or local bodies is commonly the remedy.
C. Contact and Resource Sharing
Many states have law enforcement agents or department of motor vehicle investigators who investigate odometer fraud activities. Early contact and coordination with these agents in investigations not only will provide new investigatory leads, but also can prevent later conflicts at the state/federal level. CPB and NHTSA both have extensive contacts in the odometer fraud investigative community that can assist this process.
AUSAs should consult USABook § 4-8.300, et seq., for assistance in odometer fraud prosecutions. Discussion of odometer fraud as well as model indictments, briefs, sentencing materials, and other useful litigation and investigative information is part of USABook.
After consultation with NHTSA's Odometer Fraud Staff, CPB developed a series of forms and form letters that are used in conducting an odometer fraud/altered securities investigation. These forms, essential to tracking down the "paper side" of an odometer fraud/altered securities investigation, have been gathered in an "Investigatory Resources" manual. A copy can be obtained from CPB by federal and state investigative agencies.
Additionally, CPB developed computer software that can be used to track and organize an odometer fraud/altered securities investigation. Information can be entered regarding individual vehicle documents. The software sorts the information and provides summaries that are key to an accurate description of the overall scope of the particular scheme. This software is also available to federal and state investigative agencies. It can be obtained by contacting CPB.
D. Other Offenses Commonly Charged
As the above description of the steps involved in odometer tampering suggests, tampering rings also violate several additional federal criminal statutes. Charges in odometer tampering cases, therefore, often include allegations that these statutes have also been violated. Such charges more accurately depict the totality of the illegal conduct than odometer tampering charges standing alone.
The general conspiracy statute is commonly used in tampering cases. In addition, it is almost always possible to charge mail or wire fraud (18 U.S.C. §§ 1341, 1343). This is because rollback schemes typically involve various types of mailings or wire communications that further the illegal activity. For example, virtually every state mails new titles to the ultimate purchasers of vehicles. The Supreme Court has held that such mailings satisfy the mail fraud statute's requirement that mailings be in furtherance of the scheme. See Schmuck v. United States, 489 U.S. 705 (1989).
Several cases have held that the foreseeability requirement for mail fraud was satisfied by mailings of this nature. United States v. Hubbard, 96 F.3d 1223, 1229-30 (9th Cir. 1996); United States v. Shryock, 537 F.2d 207, 209 (5th Cir. 1976), cert. denied, 429 U.S. 1100 (1977); United States v. Locklear, 829 F.2d 1314, 1318 (4th Cir. 1987); United States v. Galloway, 664 F.2d 161, 163-65 and n.6 (7th Cir. 1981), cert. denied, 456 U.S. 1006 (1982); United States v. Waldrop, 786 F. Supp. 1194, 1202 (M.D. Pa. 1991), aff'd 983 F.2d 1054 (3d Cir. 1992), cert. denied, 508 U.S. 950 (1993).
Title alteration and replacement practices also violate various federal statutes. Possessing, uttering, or making a forged, altered, falsely made or counterfeited title violates 18 U.S.C. § 513. Transporting such a title in interstate commerce violates 18 U.S.C. § 2314. Motor vehicle titles are "securities" within the meaning of these statutes. See 18 U.S.C. §§ 513(c)(3), 2311. A title is "falsely made" even if it is genuine, but contains false information or has been fraudulently procured. See Moskal v. United States, 498 U.S. 103 (1990).
In addition to these violations, money laundering violations are sometimes appropriate. It is not uncommon for odometer tamperers to use checking accounts maintained in bogus names to carry on their businesses. Of course, money laundering charges require a more detailed financial investigation than may otherwise be necessary. Thus, such charges and their attendant forfeitures are generally employed only where there are significant assets of the illegal venture that can be forfeited to the United States. The proceeds of the forfeiture will generally be used for victim restitution.
E. Restitution and Notice to Victims
Congress has encouraged communications between prosecuting offices and victims of crime, as well as victim restitution. See, e.g., 42 U.S.C. § 10607; U.S.S.G. § 5E1.1(a); 18 U.S.C. §§ 3663-64. Accordingly, investigating agencies generally provide notice to the victims of odometer fraud that their vehicles have been subjected to tampering. This enables victims to take appropriate steps to maintain their vehicles, given their actual mileage.
Notice also allows many victims to obtain compensation from dealers which sold cars with altered odometers, regardless of who was responsible for the alteration. For business and legal reasons, dealers frequently compensate consumers who purchased vehicles with altered odometers. Federal law permits consumers to obtain treble damages, or $1,500, whichever is greater, when they are victims of odometer fraud. 49 U.S.C. § 32710. The courts have been liberal in protecting consumers in lawsuits against dealers.
F. Administrative Warrants, Civil Penalties, Injunction Actions
Car dealers are subject to administrative inspection for compliance with the odometer tampering and record-keeping provisions of the odometer tampering laws. 49 U.S.C. § 32707. That section requires "probable cause" for issuance of a warrant. It defines "probable cause" as a valid public interest in effective enforcement of the law sufficient to justify inspection or impoundment. CPB should be contacted for guidance when administrative inspections are sought.
While criminal sanctions are usually appropriate for fraudulent behavior of the sort involved in odometer fraud, civil remedies are available for use in appropriate cases. Civil penalties of up to $100,000 for a related series of violations are authorized. The Secretary of Transportation can impose the penalties, which are collected by the Department of Justice. 49 U.S.C. § 32709(a).
The Attorney General can also seek injunctive relief to restrain violations. 49 U.S.C. § 32709(c). State attorneys general may also bring such actions. 49 U.S.C. § 32709(d). Such civil actions to restrain record-keeping violations are often appropriate.
Outcome: Settled for an undisclosed sum and dismissed with prejudice.
Plaintiff's Experts:
Defendant's Experts:
Comments: