## F I L E D United States Court of Appeals Tenth Circuit 

### FEB 9 1998 

### PATRICK FISHER Clerk PUBLISH UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

NORVIN LEE; BERNITA GARCIA,

Plaintiffs-Appellants,

v. GALLUP AUTO SALES, INC., doing business as Friendly Motors; JERRY EGELAND; MONTANA MINING INC., Defendants-Appellees. No. 97-2050

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 o f Richard N. Feferman, Albuquerque, New Mexico, and Richard J. Rubin, Sant a 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.1 After examining the briefs and appellate record, th is panel has (continued...) -2- In December 1995, plaintiffs bought a 1985 Chevrole t Blazer from defendant Gallup Auto Sales. The purchase was financed through defendant Montana Mining Co., which, along with Gallup, is ow ned and operated by defendant Egeland. Not long after the purchase, th e Blazer developed serious mechanical problems and ultimately stopped running. Plaintiffs subsequently learned that the Blazer had substantially more mile s on it than they had thought, based on defendants’ representations. They broughtthe present action against defendants for fraudulently furnishing them an inac curate odometer reading, in violation of Subchapter IV of the Vehicle Informati on and Cost Savings Act, 49 U.S.C. §§ 32701-32711 (formerly 15 U.S.C. §§ 1981-1 991) (“Act”). Plaintiffs also asserted various state law claims against defe ndants. In reliance on a regulation that exempts vehicles t hat are ten or more years old from the disclosure requirements of the Act, th e district court concluded that plaintiffs failed to state a claim under the Act an d dismissed their federal claim. The court also declined to exercise jurisdiction ov er the remaining state law claims and, therefore, dismissed plaintiffs’ compla int in its entirety. Plaintiffs appeal, arguing that the regulation upon which the district court relied is invalid. 11 (...continued)

determined unanimously that oral argument would notmaterially 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 ar gument.

-3- As originally enacted in 1972, Subchapter IV of the Act was codified at 15 U.S.C. §§ 1981-1991. The congressional findings we re set forth as follows in § 1981: The Congress hereby finds that purchasers, when buy ing motor vehicles, rely heavily on the odometer reading as a n index of the condition and value of such vehicle; that purchaser s are entitled to rely on the odometer reading as an accurate reflect ion of the mileage actually traveled by the vehicle; that an accurate indication of the mileage traveled by a motor vehicle assists the pur chaser in determining its safety and reliability; and that mo tor vehicles move in the current of interstate and foreign commerce or a ffect such commerce. Section 1988(a)-(b), in turn, contained the followi ng 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 th e following written disclosure to the transferee in connection with the transfer of ownership of a motor vehicle: (1) Disclosure of the cumulative mileage registered o n the odometer. (2) Disclosure that the actual mileage is unknown, if the odometer reading is known to the transferor to be d ifferent from the number of miles the vehicle has actually traveled.-4-

Such rules shall prescribe the manner in which info rmation shall be disclosed under this section and in which such info rmation shall be retained. (b) Violations of rules and giving false statement s to transferees prohibited No transferor shall violate any rule prescribed und er this section or give a false statement to a transferee in making any disclosure required by such rule. Section 1901, which contained general definitions f or all four subchapters of the Act, defined a “motor vehicle” as “any vehic le driven or drawn by mechanical power manufactured primarily for use on the public streets, roads, and highways, except any vehicle operated exclusively o n a rail or rails.” Pursuant to the directive of § 1988(a), the Secreta ry of Transportation, through the National Highway Traffic Safety Adminis tration (“NHTSA”), promulgated various regulations concerning the disc losure of odometer information. At issue here is the regulation relat ing to exemptions, which provides in pertinent part as follows: “A transfer or or a lessee of any of the following motor vehicles need not disclose the vehi cle’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 St ates Code, relating to Transportation, and, as part of that revision, it r epealed 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-5-

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 in1994 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 fo r cars ten or more years old is invalid because the Secretary lacked authori ty 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 c ontradict the congressional findings set forth in the Act. Although plaintiff raised these challenges in the district court, that court did not address them. T he court impliedly rejected the arguments, however, when it relied upon the regulat ory 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 effectthe will of Congress as expressed by the statute.” Mabry v. State Bd. of C ommunity Colleges & Occupational Educ. , 813 F.2d 311, 315 (10th Cir. 1987) (quotation omi tted).-6-

Although we generally defer to an agency’ s interpr etation of a statute that it administers, we do so only when “the statute is sil ent 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] precond ition 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 disclos ure 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 Titl e 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’ transferorof a ‘motor vehicle.’ The word ‘any’ and the comprehensive definition of ‘mot or 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 ratio nal basis for exempting large trucks from the disclosure requirements, “rationali ty is not enough. The Secretary-7-

needed authority. The large truck regulation must fall because Congress did not delegate to the Secretary of Transportation the pow er 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 truck s void); Lair v. Lewis Serv. Ctr., Inc. , 428 F. Supp. 778, 780-81 (D. Neb. 1977) (same). Recently, the Seventh Circuit considered the validi ty of the exemption for vehicles ten or more years old. The court began it s analysis by noting that “the text of the Act [as codified in Title 49 of the Uni ted States Code] does not, either explicitly or implicitly, exempt any class of motorvehicles from its odometer disclosure requirements.” Diersen v. Chicago Car E xch. , 110 F.3d 481, 485 (7th Cir.), cert. denied , 118 S. Ct. 178 (1997). The court further noted t hat 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 th e Act extends only to procedural matters, e.g. , “the way in which information is disclosed and re tained,” 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 pu rpose, see 49 U.S.C. § 32701(b)(1),(2), “to suggest that purchasers of o lder vehicles are less deserving of protection than consumers who buy newer vehicles .” Diersen , 110 F.3d at 486.-8-

“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 inva lid, and that the district court erred in relying on it to grant judgment to the def endant seller. Id. at 486. [T]he NHTSA does not , without statutory authority, have jurisdiction to tell victims of odometer fraud that they are wit hout a remedy if the car they purchased was ten or more years old. This effectively removes a cause of action that Congress has unambig uously provided to allvictims of odometer fraud, regardless of the age o f 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 requi rements of the Act, but that determination is legislative in natur e 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 Diersenand Orca Bay Seafoods , and conclude that the Act does not authorize the Secret ary 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,2 Because we conclude that the Secretary did not have authority to

promulgate the regulation at issue, we do not addre ss plaintiffs’ other challenges to the regulation. -9- 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 n ot end the inquiry, however. Defendants contend that we should uphold the district court’s dismissal of plaintiffs’ claim, even if the regulatory exempt ion is invalid, because plaintiffs otherwise failed to state a claim for relief. We w ill uphold a district court’s dismissal for failure to state a claim “only when i t appears that the plaintiff can prove no set of facts in support of the claims thatwould entitle him to relief, accepting the well-pleaded allegations of the compl aint 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 citationomitted), cert. denied , 118 S. Ct. 55 (1997). Plaintiffs alleged in their complaint as follows. Defendants Gallup Auto Sales and Egeland purchased the Chevrolet Blazer atissue 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 the3 In other words, the odometer had rolled over upon r eaching 99,999

miles, and now read 67,262 miles, though the actual mileage was 167,262. -10- 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 mechanic al limits. In November 1995, Ms. Arthur sold the Blazer back to defendants . Defendants then sold the Blazer to plaintiffs in December 1995. When plaint iffs purchased the vehicle, neither the speedometer nor the odometer worked. T he 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 mileag e on the odometer was 67,262. Defendants also checked the box that said: “WARNIN G! NOT THE ACTUAL MILEAGE ODOMETER DISCREPANCY.” Appellants’ App. at13. Defendants did not check the box that said: “MILEAGE IN EXCES S OF MECHANICAL LIMITS.” Id. Defendants contend that their statements on the tit le application were not false and, therefore, that they did not violate the Act. Specifically, defendants argue that, because the odometer was not working wh en plaintiffs purchased the Blazer in December 1995 and apparently had not been working during Ms. Arthur’s ownership, as evidenced by the fact that i t registered the same number of4 Both the Act and the regulations require that an ac curate 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. -11- 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 d isclosure requirements of the Act as they relate to the transferor of a vehic le 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 theircases 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 th at the odometer has turned over after registering 99,999 miles, he must disclose th at 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 thei r initial disclosure to plaintiffs, on the purchase order, was inaccurate a nd misleading. See Hughes v.
Box , 814 F.2d 498, 502 (8th Cir. 1987) (“Given the bro ad purpose of the Act to protect motor vehicle purchasers from inaccurate mi leage representations by-12-

sellers, a transferor should, at the very least, have some duty to specifically and unambiguously alert the transferee to the fact thatthe transferor’s initial representation of the vehicle’s mileage was incorre ct, 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 s imply by “completing the odometer mileage statement correctly”). While we express no opinion as to the correctness o f the holdings of our sister circuits, we recognize that their cases woul d give rise to a cause of action based on the facts alleged here. Therefore, we can not 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 dismissi ng 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 exi sts 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 furth er proceedings consistent with this opinion.