Interpretation ID: nht90-4.50

TYPE: Interpretation-NHTSA

DATE: October 30, 1990

FROM: Marc J. Fink -- Dow, Lohnes & Albertson; Stephen C. Crampton -- Dow, Lohnes & Albertson

TO: Samuel K. Skinner -- Secretary, United States Department of Transportation

TITLE: Re Review of Arbitrary and Capricious Action by the National Highway Traffic Safety Administration

ATTACHMT: Attached to letter dated 1-3-91 to Stephen C. Crampton and Marc J. Fink from Jerry Ralph Curry (A37; Part 591; Sec 1397); Also attached to memo dated 10-31-90 from Toni Fargo to NHTSA

TEXT:

We are writing to ask you to reverse an arbitrary and capricious action by NHTSA and approve John A. Rosatti's proposed importation of his Porsche 959 as a "demonstration" vehicle. Mr. Rosatti's proposed uses for the car, as a promotional tool and addit ion to his automobile museum, are entirely consistent with the "demonstration" exemption, as codified by Congress and implemented by NHTSA. To assuage any concerns that the Porsche 959 will ever be driven on United States highways, Mr. Rosatti agrees to provide a written promise that the car will not be driven on any road or highway in the United States and that he will not sell the car to any United States resident. Mr. Rosatti also agrees to remove the engine from the car and take whatever other rea sonable actions may be required to satisfy NHTSA's concerns that the car not be driven on United States highways.

We find it necessary to appeal to you, Mr. Secretary, because we believe NHTSA's denial of Mr. Rosatti's request was arbitrary and capricious. Mr. Rosatti is considering a legal challenge to NHTSA's action, but would prefer to settle this matter without the unnecessary burden for both parties of a potentia lly protracted litigation.

We have the following objections to NHTSA's ruling: NHTSA's action is unrelated to its statutory mandate to "increase highway safety." NHTSA has failed to consider or discuss in any way Mr. Rosatti's proposed inclusion of the Porsche 959 in his automobi le museum. NHTSA has articulated an untenable interpretation of the "demonstration" exemption. Finally, and importantly, NHTSA's decision to allow another person to import a Porsche 959 for a museum while denying Mr. Rosatti's proposed importation for the same purpose is arbitrary and capricious.

John Rosatti has been in the automobile business for twenty five years; for the last fifteen years, he has owned and operated Plaza Motors of Brooklyn, Ltd.(1) Plaza Motors's grounds consist of buildings totalling approximately 75,000 square feet and co ver two city blocks. Plaza Motors holds Honda, Acura, and Oldsmobile dealerships, selling about 500 cars each month. Approximately 2000 to 3000 people come into Plaza Motors every week.

Dealers like Mr. Rosatti depend heavily upon promotional campaigns to attract buyers; indeed, Plaza Motors spends as much as $50,000 per month

on promotional activities. Mr. Rosatti's promotional plan for the Porsche 959 specifically involves his Acura dealership.(2) Acura cars are advertised as high-quality, exciting, and inexpensive alternatives to fancy European sports cars. Recent advert isements encourage car-buyers to trade in their expensive European cars for Acuras. In keeping with the Acura image, Mr. Rosatti intends to use his Porsche 959 to attract potential Acura buyers. As persons targeted for Acura sales are also likely to be interested in high-quality European sports cars, they will come to see a Porsche 959 on display. When they come, Mr. Rosatti will then have the opportunity to explain the benefits of his sporty, yet affordable, Acuras.

To implement his promotional plan, Mr. Rosatti envisions running numerous advertisements in newspapers and on the radio, enticing potential car-buyers to come and see the Porsche 959. Mr. Rosatti intends to place the Porsche 959, along with his Ferrari Testarossa, Lamborghini Contach, Specially built Porsche 935, and Mark IV Cobra, in a museum located on Plaza Motors's premises. Preliminary estimates are that such an automobile demonstration could attract as many as 1000 additional persons per month t o the dealerships. Completely in line with NHTSA regulations, John Rosatti intends to import the Porsche 959 as a commercial demonstration model.

NHTSA's new regulations, implementing the Imported Vehicle Safety Compliance Act of 1988, provide a "demonstration" exemption from restrictions on imports of motor vehicles that do not comply with NHTSA safety requirements.(3) " Mr. Rosatti's proposed us e of his Porsche 959 falls under the plain language of NHTSA's regulation and the statute. Indeed his proposed use is consistent with uses mentioned in the Supplementary Information accompanying the new rules.

The Supplementary Information accompanying NHTSA regulations states as follows:

Importation for this class of noncomplying motor vehicles (i.e., demonstration or display vehicles) has been permitted pursuant to the assumption that motor vehicle safety would not be affected by the temporary importation of noncomplying motor vehicles not generally used on the public roads, and whose appearance on them would be limited.(4)

NHTSA's Supplementary Information specifically sanctions automobile manufacturers' display of cars for commercial use.(5) Like manufacturers, Mr. Rosatti intends to display his car to promote sales. The Porsche 959 would, he believes, serve as a powerf ul attraction, drawing people to his automobile dealerships. Also like manufacturers, Mr. Rosatti will not drive the car. There is therefore no distinction between Mr. Rosatti's proposed use and the commercial display of a car by an automobile manufact urer. NHTSA's own rationale and regulations dictate that permission be given to Mr. Rosatti to import his car for demonstration purposes.

Mr. Rosatti also has a second interest in importing the Porsche 959, one that also accords entirely with the concept of a demonstration car. NHTSA's Supplementary Information manifests a concern that museums are not

to be deprived of interesting and valuable items in their collection, stating that museums can import cars under the 25-year exception.(6) Mr. Rosatti's Porsche 959 is both interesting and valuable to automobile enthusiasts. Although Mr. Rosatti's car i s less than 25 model-years old and thus would not fit within the 25-year exception, its importation for use in a car museum conforms to the language and policy of the demonstration exemption.

Mr. Rosatti's motivations for wanting to import his Porsche 959 are simple. Mr. Rosatti is interested in combining his passion for automobiles and pride in his accomplishments in the automobile business with his commercial enterprise. To Mr. Rosatti, th e Porsche 959 and his other collector automobiles represent his success in the automobile industry, an industry to which Mr. Rosatti has devoted his working life. The Porsche 959 is the greatest trophy in his collection of cars. Mr. Rosatti naturally w ants to show off his cars, both for their commercial value and appeal and because they represent his achievements in the automobile industry.(7)

NHTSA's mandate is to "increase highway safety,"(8) but NHTSA fails to explain how highway safety is threatened by Mr. Rosatti's proposed importation. Mr. Rosatti informed NHTSA in his letter-request that he will agree to any reasonable restriction rega rding his use of the Porsche 959 in the United States. Mr. Rosatti has stated that he is willing to remove the engine from the car and display it in a separate area of the museum, apart from the car body. Mr. Rosatti further has agreed to sign a writte n attestation that he will not drive the car nor sell it to a United States resident.(9) However, in its response to Mr. Rosatti's request, NHTSA refused to discuss the reasonableness of Mr. Rosatti's proposed self-imposed restrictions and failed to sug gest any alternative reasonable restrictions on Mr. Rosatti's use of the Porsche 959 in the United States. NHTSA's action is thus unrelated to NHTSA's mandate.

Mr. Rosatti hand-delivered his request upon NHTSA on May 25, 1990. It took four months for NHTSA to respond to Mr. Rosatti's request and, despite the fact that the New York State Board of Education chartered his museum, NHTSA failed to refer to Mr. Rosa tti's proposed museum in its September 20, 1990 response. We are enclosing (as Attachment C) a copy of Mr. Rosatti's May 25, 1990 request, our letter of September 18, 1990, with the enclosed letter from the New York Education Department and the vote ado pting the charter, and NHTSA's September 20, 1990 response to Mr. Rosatti's request.(10) NHTSA's belated response and failure to address a major argument in favor importing Mr. Rosatti's Porsche 959 is arbitrary and capricious.(11)

Further, NHTSA's interpretation of the "demonstration" exemption is untenable. NHTSA asserts that demonstration does not encompass "static display" and thus differs from the "show" exemption in earlier regulations. The term demonstration, however, come s from the Latin demonstrare 'to show'.(12) Also, the definition of demonstration includes "display." On its face, therefore, the term demonstration encompasses display in a museum. Indeed, there is absolutely no evidence that Congress or NHTSA intend ed to effect a major change in the exemption through a mere exchange of synonyms. NHTSA states in its letter that the Imported Vehicle

Safety Compliance Act of 1988 changed the law in an attempt to reduce the "number of nonconforming vehicles . . . imported into the United States without sufficient assurances or evidence that they were being brought into compliance with all applicable F ederal safety standards." However, the Act was not directed primarily toward "show" or "demonstration" cars, but toward imports that are to be brought into conformance with NHTSA standards. As NHTSA's Supplementary Information to the current regulatio ns confirms, "(t)his is the category of motor vehicle that is most affected by the 1988 amendments."(14)

NHTSA's interpretation would render the "demonstration" exemption duplicative and irrelevant, and clearly Congress did not intend that. In its letter, NHTSA states the following:

(W)ith respect to the new regulation, we have interpreted the word "demonstration" only in the context of allowing importation of nonconforming vehicles by registered importers who wish to prove, or demonstrate, that the vehicle is capable of conformance modification under one of the provisions of 1397 (c) (3) (A) (i).

Nothing in the Act or NHTSA regulations suggests such an interpretation. If a registered importer can prove that its vehicle is capable of modification under 49 C.F.R. S 1397 (c) (3) (a) (i) (1989), then the vehicle is exempt under that section and the " demonstration" exemption is duplicative. If, on the other hand, NHTSA is suggesting that the demonstration exemption is actually a procedural rule of proof for persons seeking exemption under 49 C.F.R. S 1397 (c) (3) (a) (i) , then that interpretation l ikewise conflicts with the Act. The Act explicitly provides procedures for importing a car under Section 1397 (c) (3) (a) (i): the importer furnishes a bond and complies with "such terms and conditions as it appears to the Secretary (of the Treasury) to be appropriate."(15) Indeed, the Act goes on to provide a calculation for the bond, procedures for persons whose registration has been revoked, a requirement that the importer maintain custody of the car, a label requirement, and a requirement that eac h registered importer maintain evidence that it has resources to complete the modification.(16)

Not only is NHTSA's interpretation of the exemption contrary to law, but its application to John Rosatti is arbitrary. Recently, NHTSA granted a "demonstration" exemption to Otis Chandler allowing importation of a Porsche 959.(17) NHTSA allowed Mr. Cha ndler to include his Porsche 959 in his automobile museum collection in Oxnard, California. Yet, John Rosatti's application for prior approval to use the same car in the same circumstances yields a different result. As mentioned before, the New York St ate Board of Regents has granted a charter for Mr. Rosatti's car museum. Mr. Rosatti has provided NHTSA with proposed promotional materials for his museum and has named the other cars that will form the initial museum collection: a Ferrari Testarossa, L amborghini Contach, specially built Porsche 935, and Mark IV Cobra. NHTSA has failed to explain why Mr. Rosatti's proposed importation is different from Mr. Chandler's.

Mr. Rosatti is not asking for special treatment. Mr. Rosatti asks only that the proposed importation of his Porsche 959 be fairly considered and that he be treated like other Porsche 959 importers. Mr. Rosatti has

offered proof of his intention never to drive the Porsche 959 in the United States and, indeed, welcomes any necessary further inquiry into his proposed use of the Porsche 959. Mr. Rosatti has agreed to remove the engine from the car and to provide a wr itten promise that the car never will be driven in the United States. New York State has chartered Mr. Rosatti's automobile museum. In light of these facts, uncontroverted by NHTSA, Mr. Rosatti's proposed use of the Porsche 959 falls within the meaning and the policy of the "demonstration" exemption. We therefore respectfully request that you reverse NHTSA's determination on the issue and approve Mr. Rosatti's proposed importation.

Footnotes: (1) Copies of recent newspaper advertisements for Plaza are appended to this letter as Attachment A.

(2) Advertising proposals for the Acura/Porsche 959 advertising campaign are appended to this letter as Attachment B.

(3) The Imported Vehicle Safety Compliance Act of 1988, 102 Stat. 2818, 2824 (to be codified at 15 U.S.C. 1397 (j)), provides that "(t) he Secretary may exempt any motor vehicle or item of motor vehicle equipment... upon such terms and conditions as the Secretary may find necessary solely for the purpose of ... demonstrations." The NHTSA regulation implementing this provision of the statute, 49 C.F.R. 591.5 (j) (1989), states as follows: No person shall import a motor vehicle or item of motor vehicle equipment into the United States unless, at the time it is offered for importation, its importer files a declaration, in duplicate, which declares...(t) he vehicle or equipment item does not conform with all applicable Federal motor vehicle safety, bumper, and theft prevention standards, but it (sic) being imported solely for the purpose of ...demonstrations.

(4) 54 Fed. Reg. 40,069, 40,076 (Sept. 23, 1989).

(5) The Supplementary Information interprets "demonstration" cars as including "nonconforming products for display at automobile shows to gauge public reaction to new styling or engineering features." Id.

(6) Id.

(7) To further exhibit his car, if permitted Mr. Rosatti would transport it to automobile shows, in particular, monthly Porsche-club shows at the Jacob Javits Center.

(8) See 23 U.S.C. 401 (1988); 49 U.S.C. 105(c) (1) (1988).

(9) Indeed, the value of the car as a collector's item would be seriously diminished if it were to be driven on roads surrounding Mr. Rosatti's dealership in New York City.

(10) We are also enclosing (as Attachment D) a letter, dated September 27, 1990, from another NHTSA official, offering "(o) ne last thought on a matter that may not be covered (in the September 20, 1990 letter, regarding)...importation for museum purpose s." This letter, written by a

NHTSA official outside the NHTSA Chief Counsel's office, states without analysis that museums may only import cars over 25 years old. This conclusory museums may only import cars over 25 years old. This conclusory statement hardly constitutes an adequa te response by NHTSA to Mr. Rosatti's proposed museum. This is especially so in light of the fact that NHTSA recently allowed another automobile-museum owner to import a car less than 25 years old. See infra p. 7.

(11) See 5 U.S.C. 555 (e) (1988) (agency required to give prompt notice of and grounds for denial of an informal request).

(12) Webster's Ninth New Collegiate Dictionary at 338 (1988). As NHTSA apparently adopted Webster's definition of show, there is no reason not to adopt its authority on the meaning of demonstration. In its letter, NHTSA states that it defines show as " to cause to be seen," Attachment C at 14; Webster's first definition of show is "to cause or permit to be seen." Webster's Ninth New Collegiate Dictionary at 1091.

(13) Id. at 338.

(14) 54 Fed. Reg. 40,069, 40,073 (Sept. 23, 1989).

(15) 102 Stat. 2818 (to be codified at 15 U.S.C. 1397 (c) (2)).

(16) Id. at 2818-22 (to be codified at 15 U.S.C. 1397 (c) (2) (B) to 1397 (d) (2)).

(17) Attachment E to this letter is a copy of Colman, The Vigil, Excellence Magazine, October, 1990, at 60, chronicling Mr. Chandler's importation of a Porsche 959.