Lee v. Gallup Auto Sales, Inc.

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
FEB 9 1998
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT

NORVIN LEE; BERNITA GARCIA,

Plaintiffs-Appellants,

v. No. 97-2050

GALLUP AUTO SALES, INC., doing
business as Friendly Motors; JERRY
EGELAND; MONTANA MINING
INC.,

Defendants-Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
(D.C. No. CIV-96-1525 WWD/LCS)

Submitted on the briefs:

Richard N. Feferman and Susan Warren, Law Offices of Richard N. Feferman,
Albuquerque, New Mexico, and Richard J. Rubin, Santa Fe, New Mexico, for
Plaintiffs-Appellants.

Thomas J. Hynes, Hynes, Hale & Gurley, Farmington, New Mexico, for
Defendants-Appellees.

Before BRORBY, BARRETT, and BRISCOE, Circuit Judges.

BARRETT, Senior Circuit Judge.
 In December 1995, plaintiffs bought a 1985 Chevrolet Blazer from

defendant Gallup Auto Sales. The purchase was financed through defendant

Montana Mining Co., which, along with Gallup, is owned and operated by

defendant Egeland. Not long after the purchase, the Blazer developed serious

mechanical problems and ultimately stopped running. Plaintiffs subsequently

learned that the Blazer had substantially more miles on it than they had thought,

based on defendants’ representations. They brought the present action against

defendants for fraudulently furnishing them an inaccurate odometer reading, in

violation of Subchapter IV of the Vehicle Information and Cost Savings Act, 49

U.S.C. §§ 32701-32711 (formerly 15 U.S.C. §§ 1981-1991) (“Act”). Plaintiffs

also asserted various state law claims against defendants.

In reliance on a regulation that exempts vehicles that are ten or more years

old from the disclosure requirements of the Act, the district court concluded that

plaintiffs failed to state a claim under the Act and dismissed their federal claim.

The court also declined to exercise jurisdiction over the remaining state law

claims and, therefore, dismissed plaintiffs’ complaint in its entirety. Plaintiffs

appeal, arguing that the regulation upon which the district court relied is invalid. 1

1
After examining the briefs and appellate record, this panel has
(continued...)

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 As originally enacted in 1972, Subchapter IV of the Act was codified at 15

U.S.C. §§ 1981-1991. The congressional findings were set forth as follows in

§ 1981:

The Congress hereby finds that purchasers, when buying motor
vehicles, rely heavily on the odometer reading as an index of the
condition and value of such vehicle; that purchasers are entitled to
rely on the odometer reading as an accurate reflection of the mileage
actually traveled by the vehicle; that an accurate indication of the
mileage traveled by a motor vehicle assists the purchaser in
determining its safety and reliability; and that motor vehicles move in
the current of interstate and foreign commerce or affect such
commerce.

Section 1988(a)-(b), in turn, contained the following pertinent disclosure

provisions:

(a) Promulgation of rules

Not later than 90 days after October 20, 1972, the Secretary shall
prescribe rules requiring any transferor to give the following written
disclosure to the transferee in connection with the transfer of
ownership of a motor vehicle:

(1) Disclosure of the cumulative mileage registered on the
odometer.

(2) Disclosure that the actual mileage is unknown, if the
odometer reading is known to the transferor to be different from the
number of miles the vehicle has actually traveled.

1
(...continued)
determined unanimously that oral argument would not materially assist the
determination of this appeal. See Fed. R. App. P. 34(a); 10th Cir. R. 34.1.9. The
case is therefore ordered submitted without oral argument.

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 Such rules shall prescribe the manner in which information shall be
disclosed under this section and in which such information shall be
retained.

(b) Violations of rules and giving false statements to transferees
prohibited

No transferor shall violate any rule prescribed under this section or
give a false statement to a transferee in making any disclosure
required by such rule.

Section 1901, which contained general definitions for all four subchapters

of the Act, defined a “motor vehicle” as “any vehicle driven or drawn by

mechanical power manufactured primarily for use on the public streets, roads, and

highways, except any vehicle operated exclusively on a rail or rails.”

Pursuant to the directive of § 1988(a), the Secretary of Transportation,

through the National Highway Traffic Safety Administration (“NHTSA”),

promulgated various regulations concerning the disclosure of odometer

information. At issue here is the regulation relating to exemptions, which

provides in pertinent part as follows: “A transferor or a lessee of any of the

following motor vehicles need not disclose the vehicle’s odometer mileage: . . .

(3) A vehicle that is ten years old or older . . . .” 49 C.F.R. § 580.6(3).

In 1994, Congress revised Title 49 of the United States Code, relating to

Transportation, and, as part of that revision, it repealed 15 U.S.C. §§ 1981-1991

and recodified the provisions at 49 U.S.C. §§ 32701-32711. Although the

recodification included some changes in the wording of the statutory provisions at

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issue, Congress intended no substantive change in the law. See Pub. L. No. 103-

272, § 6(a), 108 Stat. 745, 1378 (1994); H.R. Rep. No. 103-180, at 5 (1994),

reprinted in 1994 U.S.C.C.A.N. 818, 822. Likewise, subsequent amendments to

the disclosure requirements contained in 49 U.S.C. § 32705 that were made in

1996 effected no substantive change. See Pub. L. No. 104-287, § 9(a), 110 Stat.

3388, 3400 (1996).

II.

Plaintiffs contend that the regulatory exemption for cars ten or more years

old is invalid because the Secretary lacked authority under the Act to promulgate

the exemption, the exemption is contrary to the purpose of the Act, and the

agency findings underlying the exemption directly contradict the congressional

findings set forth in the Act. Although plaintiff raised these challenges in the

district court, that court did not address them. The court impliedly rejected the

arguments, however, when it relied upon the regulatory exemption to dismiss

plaintiffs’ claim.

“The rulemaking power granted to an administrative agency charged with

the administration of a federal statute is not the power to make law. Rather, it is

the power to adopt regulations to carry into effect the will of Congress as

expressed by the statute.” Mabry v. State Bd. of Community Colleges &

Occupational Educ., 813 F.2d 311, 315 (10th Cir. 1987) (quotation omitted).

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Although we generally defer to an agency’ s interpretation of a statute that it

administers, we do so only when “the statute is silent or ambiguous with respect

to the specific issue.” Chevron U.S.A., Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837, 843 (1984). Moreover, “[a] precondition to

deference under Chevron, is a congressional delegation of administrative

authority.” Adams Fruit Co. v. Barrett, 494 U.S. 638, 649 (1990). Therefore, we

must first consider whether the Act grants authority to the Secretary to exempt

transfers of ten-year-old vehicles from the disclosure requirements of the Act.

In Orca Bay Seafoods v. Northwest Truck Sales, Inc., 32 F.3d 433 (9th Cir.

1994), the Ninth Circuit considered the validity of another portion of the

exemption regulation at issue here: the subsection exempting transferors of large

trucks from the disclosure requirements, see 49 C.F.R. § 580.6(1). Looking at the

plain language of the statute, as set forth in Title 15 of the United States Code,

the court concluded that the Act did not authorize the Secretary to create the

exemption. Orca Bay Seafoods, 32 F.3d at 434-35. “Congress told the secretary

to require odometer disclosure for ‘any’ transferor of a ‘motor vehicle.’ The

word ‘any’ and the comprehensive definition of ‘motor vehicle’ rebuts the

suggestion that transferors of large trucks may be exempted.” Id. at 435. The

court noted that, even if the Secretary had a rational basis for exempting large

trucks from the disclosure requirements, “rationality is not enough. The Secretary

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needed authority. The large truck regulation must fall because Congress did not

delegate to the Secretary of Transportation the power to exempt large trucks.” Id.

at 436. Accord, Davis v. Dils Motor Co., 566 F. Supp. 1360, 1362-63 (S.D.W.Va.

1983) (holding regulatory exemption for large trucks void); Lair v. Lewis Serv.

Ctr., Inc., 428 F. Supp. 778, 780-81 (D. Neb. 1977) (same).

Recently, the Seventh Circuit considered the validity of the exemption for

vehicles ten or more years old. The court began its analysis by noting that “the

text of the Act [as codified in Title 49 of the United States Code] does not, either

explicitly or implicitly, exempt any class of motor vehicles from its odometer

disclosure requirements.” Diersen v. Chicago Car Exch., 110 F.3d 481, 485 (7th

Cir.), cert. denied, 118 S. Ct. 178 (1997). The court further noted that the broad

definition of “motor vehicle” contained in the Act does not “provide a basis for

the exemption promulgated by the NHTSA.” Id. Moreover, the regulatory

authority given the Secretary by the language of the Act extends only to

procedural matters, e.g., “the way in which information is disclosed and retained,”

49 U.S.C. § 32705(a). See Diersen, 110 F.3d at 485-86. The court also observed

that there was nothing in the Act’s statement of purpose, see 49 U.S.C.

§ 32701(b)(1),(2), “to suggest that purchasers of older vehicles are less deserving

of protection than consumers who buy newer vehicles.” Diersen, 110 F.3d at 486.

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 “Because the text of the Odometer Act does not even suggest -- much less

explicitly state -- a legislative intent to exempt entire classes of vehicles from the

disclosure requirements of the Act,” the court held that the regulation exempting

vehicles ten or more years old from the Act is invalid, and that the district court

erred in relying on it to grant judgment to the defendant seller. Id. at 486.

[T]he NHTSA does not, without statutory authority, have jurisdiction
to tell victims of odometer fraud that they are without a remedy if the
car they purchased was ten or more years old. This effectively
removes a cause of action that Congress has unambiguously provided
to all victims of odometer fraud, regardless of the age of vehicle
being purchased. . . . [T]he regulation issued by the NHTSA, in
effect, repeals a portion of the statute. There may be good policy
reasons for exempting older vehicles from the requirements of the
Act, but that determination is legislative in nature and is properly
made by Congress, and not by regulatory fiat.

Id. at 487 (footnote omitted). See also Dalton v. United States, 816 F.2d 971, 974

(4th Cir. 1987) (stating that an agency’s power to issue regulations “does not

comprehend the power to modify or repeal the clear intent of Congress”).

We agree with the reasoning of Diersen and Orca Bay Seafoods, and

conclude that the Act does not authorize the Secretary to make an exception to the

disclosure requirements for transferors of vehicles that are ten or more years old.

Therefore, we hold that the exemption contained in 49 C.F.R. § 580.6 is invalid,

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and that the district court erred in relying on it to dismiss plaintiffs’ federal

claim. 2

III.

Our holding on the validity of the exemption does not end the inquiry,

however. Defendants contend that we should uphold the district court’s dismissal

of plaintiffs’ claim, even if the regulatory exemption is invalid, because plaintiffs

otherwise failed to state a claim for relief. We will uphold a district court’s

dismissal for failure to state a claim “only when it appears that the plaintiff can

prove no set of facts in support of the claims that would entitle him to relief,

accepting the well-pleaded allegations of the complaint as true and construing

them in the light most favorable to the plaintiff.” Yoder v. Honeywell Inc., 104

F.3d 1215, 1224 (10th Cir.) (quotation and citation omitted), cert. denied, 118

S. Ct. 55 (1997).

Plaintiffs alleged in their complaint as follows. Defendants Gallup Auto

Sales and Egeland purchased the Chevrolet Blazer at issue in May 1995 from

Dennis Brown. Mr. Brown certified on the title that the odometer read 67,262

miles, but he also checked the box indicating that the actual mileage exceeded the

2
Because we conclude that the Secretary did not have authority to
promulgate the regulation at issue, we do not address plaintiffs’ other challenges
to the regulation.

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odometer’s mechanical limits. 3 Later that month, defendants sold the Blazer to

Eleanor Arthur, certifying that the mileage on the odometer was 67,262, but that

the actual mileage exceeded the odometer’s mechanical limits. In November

1995, Ms. Arthur sold the Blazer back to defendants. Defendants then sold the

Blazer to plaintiffs in December 1995. When plaintiffs purchased the vehicle,

neither the speedometer nor the odometer worked. The purchase order they

received at the time indicated that the mileage on the Blazer was 67,262.

In January 1996, defendants filled out a title and registration application for

the Blazer, on which they certified that the mileage on the odometer was 67,262.

Defendants also checked the box that said: “WARNING! NOT THE ACTUAL

MILEAGE ODOMETER DISCREPANCY.” Appellants’ App. at 13. Defendants

did not check the box that said: “MILEAGE IN EXCESS OF MECHANICAL

LIMITS.” Id.

Defendants contend that their statements on the title application were not

false and, therefore, that they did not violate the Act. Specifically, defendants

argue that, because the odometer was not working when plaintiffs purchased the

Blazer in December 1995 and apparently had not been working during Ms.

Arthur’s ownership, as evidenced by the fact that it registered the same number of

3
In other words, the odometer had rolled over upon reaching 99,999
miles, and now read 67,262 miles, though the actual mileage was 167,262.

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miles when she bought it in May as it did when she sold it back in November,

they properly listed the actual miles as “unknown,” rather than as “in excess of

mechanical limits,” on the title application. 4

This circuit has not had occasion to consider the disclosure requirements of

the Act as they relate to the transferor of a vehicle on which the odometer has

rolled over, and we need not do so here. We note, however, that at least two

other circuits have addressed this issue, and their cases support plaintiffs’ claim

that defendants should have disclosed to them that the mileage on the Blazer was

at least 167,262. See Suits v. Little Motor Co., 642 F.2d 883, 886 (5th Cir. 1981)

(“[W]here as here a transferor has actual notice that the odometer has turned over

after registering 99,999 miles, he must disclose that actual mileage is 100,000

miles plus the figure shown on the odometer.”); Ryan v. Edwards, 592 F.2d 756,

760-61 (4th Cir. 1979) (same).

Likewise, cases from at least two circuits support plaintiffs’ argument that

defendants may be liable under the Act because their initial disclosure to

plaintiffs, on the purchase order, was inaccurate and misleading. See Hughes v.

Box, 814 F.2d 498, 502 (8th Cir. 1987) (“Given the broad purpose of the Act to

protect motor vehicle purchasers from inaccurate mileage representations by

4
Both the Act and the regulations require that an accurate odometer
statement be given by the transferor in connection with the titling and licensing of
a vehicle. See 49 U.S.C. § 32705(b); 49 C.F.R. § 580.5.

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sellers, a transferor should, at the very least, have some duty to specifically and

unambiguously alert the transferee to the fact that the transferor’s initial

representation of the vehicle’s mileage was incorrect, and to make clear the

vehicle’s actual mileage.”); Ryan, 592 F.2d at 761 (holding that, when a

transferor makes contradictory statements about the mileage of a vehicle, he will

not be insulated from liability under the statute simply by “completing the

odometer mileage statement correctly”).

While we express no opinion as to the correctness of the holdings of our

sister circuits, we recognize that their cases would give rise to a cause of action

based on the facts alleged here. Therefore, we cannot say that plaintiffs can

prove no set of facts in support of their claim that would entitle them to relief

under the Act.

In conclusion, the district court erred in dismissing plaintiffs’ federal claim

based on the regulatory exemption contained in 49 C.F.R. § 580.6, and defendants

have not demonstrated that an alternative basis exists upon which to uphold the

district court’s dismissal under Fed. R. Civ. P. 12(b)(6). Therefore, we must

REVERSE the judgment, and REMAND the case for further proceedings

consistent with this opinion.

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