Interpretation ID: 86-5.33

TYPE: INTERPRETATION-NHTSA

DATE: 10/21/86

FROM: AUTHOR UNAVAILABLE; Erika Z. Jones; NHTSA

TO: Herbert Epstein -- Senior Attorney, Office of the General Counsel, Fort Motor Company

TITLE: FMVSS INTERPRETATION

TEXT: This responds to your request for an interpretation of a portion of the National Highway Traffic Safety Administration's (NHTSA) response to the petitions for reconsideration of the final rule establishing the Federal motor vehicle theft prevention standard (51 FR 8831, at 8835, March 14, 1986).

Specifically, you were concerned about the following language:

A manufacturer is free under this standard and the Theft Act to use a transparent paint mask and to specify in its contracts with its dealers that the dealer must remove the mask before selling vehicles or parts. However, if the dealer does not remove the mask, both the manufacturer and the dealer could be liable for violating section 607(a) of the Cost Saving Act. The manufacturer and dealer might both be liable for selling a vehicle not in compliance with the theft prevention standard (prohibited by section 607(a)(1)) and the manufacturer might be liable for falsely certifying that the vehicle complies with the theft prevention standard (prohibited by section 607(a)(4)(B)). The manufacturer must assume its portion of this risk if it wishes to use a transparent integral paint mask that must be removed by its dealers.

You stated in your letter that this discussion could be read as imposing vicarious liability on the manufacturers for a dealer's failure to remove a paint mask after the dealer had painted over the mask. You then asked whether NHTSA's opinion would be affected if the manufacturer provided the dealer in writing, either by letter or service bulletin, instructions on how to protect the labels during dealer preparation and advice that Federal law required dealers to remove the paint mask after performing the dealer preparation operations. Such a step would affect the agency's opinion as to the manufacturer's liability for the non-removal of a paint mask, as explained below.

The language you quoted from the preamble was intended to alert vehicle and parts manufacturers to their statutory obligations under section 607(a) of the Motor Vehicle Information and Cost Savings Act (15 U.S.C. 2027(a)). When dealers must take further actions to bring a vehicle into compliance with the theft prevention standard, section 607 of the Cost Savings Act requires the vehicle manufacturer to exercise due care to ensure that the dealers will, in fact, perform such further actions. See sections 607(a)(4)(B) and 607(b) of the Cost Savings Act (15 U.S.C. 2027(a) (4)(B) and 2027(b)). The language quoted above from the agency response to the petitions for reconsideration implicitly acknowledged this due care defense by stating that manufacturers "could" and "might" be liable for violations of section 607(a) if paint masks were not removed by dealers.

It is not possible for us to give a hard and fast rule of what constitutes due care in all circumstances. For example, a manufacturer that learns that its dealers generally are not removing the paint masks must do more to establish that it exercised due care than it did before it learned of such failures by its dealers. As a general proposition, however, NHTSA believes that a manufacturer using transparent paint masks to protect its labels has exercised due care, and therefore is not liable for violations of section 607(a), when it takes the following steps:

1. The manufacturer includes a provision in its contracts with each of its dealers obligating the dealer to remove the transparent paint masks;

2. The manufacturer issues a service bulletin to all of its dealers providing instructions on how to protect the label during painting, rustproofing, etc., and on how and when to remove the transparent paint masks; and

3. The manufacturer reminds the dealers, either in the service bulletin or in a separate letter, of their contractual and statutory obligations to remove transparent paint masks after performing dealer preparation operations, if the label is then obscured by the paint mask.

Absent unusual circumstances, NHTSA would conclude that a manufacturer has exercised due care for the purposes of section 607 of the Cost Savings Act if the manufacturer has taken these three steps.

Sincerely,

ATTACH.

June 16, 1986

Erika Z. Jones, Esquire -- Chief Counsel National Highway Traffic Safety Administration

Dear Ms. Jones:

Request for Interpretation

The agency stated, * in commenting on 49 CFR @ 541.5(d)(1)(ii)(C), that a manufacturer of a vehicle or replacement part covered by the Vehicle Theft Prevention Standard ("Standard") might be vicariously liable for a dealer's failure to remove a transparent paint mask from an identification label after the dealer painted over the mask even though the manufacturer's contract with the dealer required such removal. The comment did not, however, discuss the situation in which the manufacturer, in addition to entering into such a contract, also provided to the dealer a writing (for example, by a letter or a service bulletin) which

(1) provided instructions on how to protect the label during painting, rustproofing, undercoating or like operation;

(2) stated that, in NHTSA's opinion, federal law required the removal of the protective mask after such operation, if the mask then obscured the label; and (3) stated that violators might be subject to a civil penalty of up to $ 1,000 per violation.

* Docket No. T84-01; Notice 9, "Vehicle Theft Prevention Standard and Selection of Covered Major Parts; Response to Petitions for Reconsideration", 51 Fed. Reg. 8831, 8835 (1986).

In our view, any dealer who breached his contract in the face of such a writing would not be engaged in "normal" dealer preparation operations within the meaning of @ 541.5(d)(1)(ii)(C); to the contrary, the dealer's actions would be in derogation of his contractual obligations. Moreover, by contracting with the dealer and instructing him in the foregoing manner, the manufacturer would have exercised as high a degree of care to prevent the dealer's non-compliance as is reasonable to expect of it. Therefore, we assume you would agree that if a dealer failed in such circumstances to remove the mask he obscured, the manufacturer would have no reason to know in the exercise of due care that the dealer had put the regulated vehicle or replacement part out of compliance with the Standard (15 U.S.C. @ 2027(b)), and would not be liable for the dealer's failure.

We respectfully request your confirmation of our interpretation. Should you have any questions, please contact me. My telephone number is (313) 322-4397.

Respectfully yours,

Herbert Epstein -- Senior Attorney

cc: Stephen R. Kratzke, Esquire