BILL ANALYSIS
SENATE COMMITTEE ON Public Safety
Senator John Vasconcellos, Chair S
1999-2000 Regular Session B
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SB 663 (Figueroa)
As Introduced February 24, 1999
Hearing date: April 13, 1999
Penal Code
MK:br
Crimes: vehicle sales
HISTORY
Source: California District Attorneys Association,
Consumer Protection Committee
Prior Legislation: AB 1644 (Sher) - (1991) Failed Senate
Transportation
Support: Santa Clara County District Attorney; California
Bankers Association; Alameda County District
Attorney; Monterey County District Attorney; Santa
Cruz County District Attorney
Opposition:The California Motor Car Dealers Association;
The California Public Defenders Association;
California Attorneys for Criminal Justice
KEY ISSUES
SHOULD AN AUTOMOBILE DEALER WHO FAILS TO PAY OFF THE
SECURITY OR LEASE AMOUNT WITHIN 20 DAYS OF THE ACQUISITION
OF A VEHICLE BE GUILTY OF A WOBBLER (MISDEMEANOR/FELONY) IF
THE AMOUNT OF PAYMENT IS OVER $400 REGARDLESS OF INTENT?
SHOULD A DEALER WHO FAILS TO PAY REGISTRATION FEES TO DMV
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WITHIN 20 DAYS BE GUILTY OF A WOBBLER IF THE AMOUNT OWED IS
OVER $400 REGARDLESS OF INTENT?
SHOULD A DEALER WHO FAILS TO PAY A CONSIGNOR WITHIN 20 DAYS
AFTER THE SALE OR LEASE OF THE VEHICLE BE GUILTY OF A
WOBBLER IF THE AMOUNT OWED IS OVER $400 REGARDLESS OF
INTENT?
PURPOSE
The purpose of this bill is to create misdemeanor/felony
criminal penalties for a new or used car dealer who fails
to pay off the security or lease amount within 20 days on
any vehicle acquisition; to pay DMV fees within 20 days; or
to fail to pay the amount due to a consignor within 20
days.
Existing law provides that every person who shall
feloniously steal, take, carry, lead, or drive away the
personal property of another, or who shall fraudulently
appropriate property which has been entrusted to him, or
who shall knowingly and designedly, by any false or
fraudulent representation or pretense, defraud any other
person of money, labor or real or personal property, or who
causes or procures others to report falsely of his wealth
or mercantile character and by thus imposing upon any
person, obtains credit and thereby fraudulently gets or
obtains possession of money, or property or obtains the
labor or service of another, is guilty of theft. (Penal
Code section 484)
Existing law provides that grand theft is committed in any
of the following cases: when the money labor or personal
property taken is of value exceeding $400; where the money,
labor or real or person al property is taken by a servant,
agent or employee from his or her principal or employer and
aggregates $400 or more in any 12 consecutive months; when
the property is taken from the person of another; or, when
the property taken is an automobile. (Penal Code section
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487)
Existing law provides that the penalty for grand theft is a
wobbler. (Penal Code section 489)
Existing law provides that embezzlement is the fraudulent
appropriation of property by a person to whom it has been
intrusted. (Penal Code section 503)
Existing law provides that every person who shall
fraudulently remove, conceal or dispose of any goods,
chattels or effects, leased or let to him by any instrument
in writing, or any personal property or effects of another
in his possession, under a contract of purchase not yet
fulfilled, and any person in possession of such goods,
chattels, or effects knowing them to be subject to such
lease or contract of purchase who shall so remove, conceal
or dispose of the same with intent to injure or defraud the
lessor or owner thereof, is guilty of embezzlement. (Penal
Code section 504a)
Existing law provides where under the terms of a security
agreement, as defined in section 9105 of the Commercial
Code, the debtor has the right to sell the property covered
thereby and is to account to the secured party for, and pay
to the secured party, the indebtedness secured by the
security agreement from, the proceeds of the sale of any of
the said property, and where such debtor, having sold the
property covered by the security agreement and having
received the proceeds of such sale, willfully and
wrongfully, and with the intent to defraud, fails to pay to
the secured party the amounts
due under the security agreement, or the proceeds of such
sale, whichever is the lesser amount, and appropriates such
money to his own use, said debtor shall be guilty of
embezzlement and shall be punishable as provided in section
514. (Penal Code section 504b)
Existing law provides that every person intrusted with any
property as bailee who fraudulently converts the same or
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the proceeds thereof to his own use, or secretes it or them
with a fraudulent intent to convert to his own use is
guilty of embezzlement. (Penal Code section 507)
Existing law provides that the penalty for embezzlement is
the same as that for theft of property of the value or kind
embezzled. (Penal Code section 514)
Existing law provides that any person who drives or takes a
vehicle not his or her own, without the consent of the
owner thereof, and with intent either to permanently or
temporarily deprive the owner thereof of his or her title
to or possession of the vehicle, whether with or without
intent to steal the vehicle, or any person who is a party
and accessory to or an accomplice in the driving or
unauthorized taking or stealing is guilty of a wobbler.
(Vehicle Code section 10851)
Existing law provides that the Department of Motor Vehicles
(DMV) may, after a hearing, suspend or revoke the license
of any motor vehicle dealer upon determining that the
person to whom the license was issued is not lawfully
entitled to, or had done any one of a specified list of
prohibited activities, including:
Failed to deliver to a transferee lawfully entitled
thereto a properly endorsed certificate of ownership
Violated any of the rules or regulations relating to
registration of vehicles.
Caused any person to suffer any loss or damage by reason
of any fraud or deceit practiced on that person or
fraudulent representations made to that person in the
course of the licensed activity. (Vehicle Code section
11705)
Existing law provides that any dealer engaging in a
consignment with an owner not licensed as a dealer,
manufacturer, etc., licensed under this code, and the
consignment is not otherwise prohibited by this code, shall
execute a consignment agreement as prescribed by section
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11730. The failure of a dealer, when required under this
section, to complete and comply with the terms of the
prescribed consignment agreement for any vehicle which the
dealer agrees to accept on consignment, or to pay the
agreed amount to the consignor or his or her designee
within 20 days after the date of sale of the vehicle, is
cause for suspending or revoking the license of the dealer.
(Vehicle Code section 11729)
Existing law requires a dealer lessor retailer, when
selling a vehicle, to submit to DMV an application
accompanied by all fees and penalties due for registration
or transfer of registration of a vehicle within 30 days
from the date of sale, if the vehicle is a used vehicle and
within 20 days if the vehicle is a new vehicle. The
penalty for failing to do so is $5 per violation and may be
a cause of disciplinary action if the fees are paid 40 days
or more after the sale of a new vehicle or 50 days or more
after the sale of a used vehicle. (Vehicle Code sections
4456(a)(2) and 4456.1)
This bill provides that any dealer, whether licensed or
not, who acquires, by purchase or trade-in, or otherwise,
any vehicle that, at the time of acquisition is subject to
any security interest or lease agreement shall within 20
days of the acquisition of the vehicle, or within 45 days
of the acquisition of a vehicle with out-of-state title,
pay to the secured party or lienholder the outstanding
balance of the note or other security instrument that is
the basis for the security interest in the vehicle, or pay
the lessor the amount due to terminate the lease agreement.
Any person who willfully fails to pay the outstanding
balance as required is guilty of a wobbler, if the amount
was over $400 and of a six-month misdemeanor if the amount
due was less than $400.
This bill provides that when the dealer who failed to
fulfill the requirements listed above is a dealer licensed
as a partnership, every partner and employee who either
directly participated in the activity, authorized another
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partnership agent to so participate or was in the position
to control the activities of the partnership agents who
failed to fulfill the requirements and knowingly failed to
prevent such activity, shall each be subject to the new
penalty.
This bill provides that when the dealer who failed to
fulfill the requirements listed above is a corporation,
every director, officer, and employee who either directly
participated in the activity, authorized another corporate
agent to so participate or was in a position to control the
activities of the corporate agents who failed to fulfill
the requirements and knowingly failed to prevent such
activity, shall each be subject to the new penalty.
This bill provides that any dealer or lessor-retailer who
willfully fails to submit to DMV an application accompanied
by all fees and penalties due for registration or transfer
of registration of any vehicle sold by the dealer or leased
by the lessor- retailer within 20 days of the date of the
sale or lease, or within 40 days of the date of the sale or
lease if the vehicle is subject to any electronic lien
recording program established by the department, is guilty
of a wobbler if the amount of the fee due is more than $400
and a misdemeanor if the amount of the fee due is less than
$400.
This bill provides that any dealer who enters into a
"consignment" arrangement and who sells or leases the
consigned vehicle, and fails to pay the amount due to the
consignor with in 20 days after the sale or lease of the
vehicle is guilty of a wobbler if the amount exceeds $400
and is guilty of a misdemeanor if the amount is less than
$400.
This bill contains uncodified legislative intent language.
COMMENTS
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1. Need for the Bill
According to the author:
Severe financial hardship often results to car
buyers, car consignors and others due to the
failure of car dealers to: 1) pay the Department of
Motor Vehicles the fees the dealer collects from
the car buyer; 2) promptly pay off the lienholder
when the dealer acquires a vehicle subject to a
lien (i.e. a "trade-in" where only the net value
after the lien amount is deducted is credited
toward the vehicle purchase); and 3) promptly pay
funds due to the owner of a consigned vehicle from
proceeds of the sale of that vehicle by the dealer
(consignee).
2. Failure to Pay Off Trade-in within 20 Days
a. This bill
This bill makes it a wobbler for any person, which is
defined as a dealer, to fail to pay a security interest
or lease agreement on a vehicle within 20 days of its
acquisition, or within 45 days if the vehicle has an
out-of-state title, if the amount of pay-off is more than
$400. If the amount of pay-off is less than $400 then
the penalty is a misdemeanor.
This is intended to be used in a circumstance where a
person trades-in their vehicle for another vehicle and
the dealer agrees to pay off the lienholder. If the
dealer fails to pay in a timely manner the person who
traded in the car is still liable for the debt and can
get stuck with having to continue making payments or
paying the whole thing off or else face credit problems.
b. Mens Rea
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Penal Code section 20 provides that "in every crime or
public offense there must exist a union, or joint
operation of act and intent, or criminal negligence."
This is known as the mens rea. "The primordial concept
of mens rea, the guilty mind, expresses the principle
that it is not conduct alone but conduct accompanied by
certain specific mental states which concerns, or should
concern, the law. In a broad sense the concept may be
said to relate to such important doctrines as
justification, excuse, mistake, necessity and mental
capacity, but in the final analysis it means simply that
there must be a 'joint operation of act and intent' as
expressed in section 20 of the Penal Code to constitute
the commission of a criminal offense." (1 Witkin and
Epstein Summary of California Law 2nd Edition, Section
98)
This bill merely requires that a person "willfully" fails
to pay the balance owed on the trade-in. Penal Code
section 7 states that "'willfully' when applied to the
intent with which an act is done or omitted, implies
simply a purpose or willingness to commit the act, or
make the omission referred to. It does not require any
intent to violate the law, or to injure another, or to
acquire any advantage." Thus, the mens rea in this
section merely requires a failure to pay for any reason
without an intent to harm another. All that is required
is that a person failed to meet his or her contractual
obligation within the specified period. This is usually
a situation where a civil remedy would be available under
breach of contract and defenses to that breach could be
asserted by the dealer. This criminal statute does not
appear to allow any defenses. The person who failed to
pay in the required time whether it be due to fraud,
negligence, bankruptcy or natural disaster would be
subject to the same penalty.
WITH A MENS REA REQUIREMENT OF WILLFUL, DOES THIS BILL
CREATE A CRIMINAL PENALTY FOR A VIOLATION OF CONTRACT?
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IN ORDER TO SUBJECT SOMEONE TO A POTENTIAL FELONY, SHOULD
THERE BE SOME SORT OF CRIMINAL INTENT REQUIRED?
c. Applies to everyone dealing with transaction
This section applies to every partner or director or
officer and every employee who directly participated in
the activity; authorized another corporate or partnership
agent to participate in the activity or was in the
position to control the activities of the agents who
failed to fulfill the requirements set forth in this
section of the bill and knowingly failed to prevent such
activity.
The wording of this section is confusing because it
refers to "activity" when what is punished by this
section is a failure to act, however, assuming that "the
activity" which is referred to is the acquisition of the
car, then this bill appears to potentially subject
everyone at a dealership to a criminal penalty for a
single transaction. Anyone who did the hiring for a
dealership would be a person who authorized another to do
a transaction and then any sales representative who
discussed the transaction and anyone who discussed
financing or helped close the deal would be participants
in the activity. Under this bill all of these people
could be subject to a criminal penalty.
The bill also does seem to impose a mens rea requirement
for a supervisor who failed to prevent the activity by
requiring that he or she "knowingly" failed to prevent
the activity, but it appears if that person also hired
the individual or is the supervisor of the individual
then he or she could be liable for authorizing the agent
to participate.
WHAT "ACTIVITY" MUST A PERSON PARTICIPATE IN TO BE
SUBJECT TO THE CRIMINAL PENALTY SINCE THE CRIMINAL
PENALTY REQUIRES A FAILURE TO ACT, NOT AN ACTION?
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WHO SHOULD BE SUBJECT TO THE CRIMINAL PENALTY IF THE
PAYMENT IS NOT MADE IN TIME? THE OWNER, PARTNER,
DIRECTOR? ALL SALES PEOPLE? THE PERSON IN CHARGE OF
SENDING IN THE PAYMENTS? SHOULD ALL THESE PEOPLE FACE
THE SAME CRIMINAL LIABILITY WITH NO PROOF OF AN INTENT TO
DEFRAUD?
d. Acquires by purchase, trade-in or otherwise
This section of the bill applies to "any person who
acquires, by purchase, trade-in, or otherwise, any
vehicle that, at the time of acquisition is subject to
any security
interest . . . ." Any person is defined as a "dealer"
whether licensed or not, who "for commission money or
other value sells, exchanges, buys, or offers for sale,
negotiates or attempts to negotiate, a sale or exchange
of interest in, a vehicle subject to registration . . .or
is engaged wholly or part in the business of selling
vehicles or buying or taking in trade, vehicles for the
purpose of resale, selling, or offering for sale or
consigned to be sold, or otherwise dealing in vehicles .
. . ." (Vehicle Code section 285)
The California Motor Car Dealers Association is concerned
about the vagueness of the use of "or otherwise" in
reference to acquires. They believe that:
[I]t covers just about any circumstance under
which a dealership may come into possession of a
vehicle. Dealers acquire possession of vehicles
that may be subject to a security interest in a
variety of situations where they have no
contractual obligation to payoff a lienholder's
security interest. Those situations include:
bailments under which a dealer may store a
customer's vehicle; a dealer may acquire
possession of a vehicle for purposes of service
or warranty repairs; or, a dealer may hold a
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vehicle as collateral during a test drive or for
some other lawful purpose.
SHOULD THE BILL BE MADE CLEARER AS TO WHICH TRANSACTIONS
IT INTENDS TO IMPOSE THIS DUTY?
e. Other applicable sections
As noted above, this bill creates criminal penalties for
what is in essence a violation of a contract, thus civil
remedies already exist for these situations when a person
is damaged by the failure to pay off a security.
There are also criminal penalties that exist that may be
applicable when there is fraud involved. Penal Code
section 484 provides that that every person . . . who
shall fraudulently appropriate property which has been
entrusted to him . . . is guilty of theft. Theft is
punishable as a wobbler if the value of the property is
$400 or more or if it is the theft of an automobile.
Penal Code section 503 defines embezzlement as the
"fraudulent appropriation of property by a person to whom
it has been intrusted." The penalties for embezzlement
are the same as those for theft. A car dealer who sells
a trade-in before paying off a security could arguably
have been found to "fraudulently appropriated the
property" by implying good title in selling it.
DO ANY OTHER CRIMINAL PENALTIES FOR THEFT OR EMBEZZLEMENT
APPLY?
HAVE DISTRICT ATTORNEYS ATTEMPTED TO PROSECUTE THESE
CASES UNDER EXISTING STATUTES?
f. Constitutionality
Article I Section 10 of the California Constitution
provides, in pertinent part, "A person may not be
imprisoned in a civil action for debt or tort . . . ."
The opponents believe that as this bill may result in
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putting someone in prison for a failure to pay something
which may be based on a reason other than fraud, that
this bill violates Article I Section 10.
DOES THIS SECTION VIOLATE THE CONSTITUTIONAL PROVISIONS
AGAINST IMPRISONING SOMEONE FOR BAD DEBTS?
g. Additional opposition
The California Motor Car Dealers Association also is
concerned because they note that there are reasons other
than fraud where a trade-in vehicle may not be paid off
within 20 days of a dealer's contractual commitment to
purchase the vehicle.
The first is default or rescission which can occur where
the customer either intentionally or unintentionally
misrepresented the amount of a lien on the trade-in or
the dealer discovers there has been collision damage or
other misrepresented problems with the car. This could
also occur if the dealer has a customer satisfaction
policy that permits the customer to return a purchased
vehicle for a set number of days and get all of his or
her consideration returned.
Another is insolvency. "On rare occasions, a dealership
may be unable to pay off a trade-in due to insolvency.
Dealership insolvency occurs when a dealership is unable
to meet its financial obligations, including its
contractual duty to pay off a trade-in vehicle. An
automobile dealership, like any other business, can be
susceptible to economic conditions, natural disasters,
mismanagement or other events that may result in
insolvency. A natural catastrophe such as an earthquake
or a fire, an internal embezzlement, an unexpected
judgment, or a sudden economic downturn may rapidly and
unexpectedly lead to insolvency, foreclosure by
creditors, and/or bankruptcy petition."
SHOULD ANY CRIMINAL PENALTY FOR FAILURE TO PAY TAKE INTO
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CONSIDERATION THESE NON-FRAUDULENT REASONS FOR FAILURE TO
PAY?
3. Failure to Pay DMV Fees within 20 Days
a. This bill
Provides that any dealer or lessor-retailer who willfully
fails to submit to the DMV an application accompanied by
all fees and penalties due for registration or transfer
of any vehicle sold by the dealer or leased by the
lessor-retailer within 20 days of the date of sale or
lease, or within 40 days of the date of the sale or lease
if the vehicle is subject to any electronic recording
lien program is guilty of a wobbler if the money owed is
more than $400 and of a misdemeanor if the money owed is
less than $400.
Existing Vehicle Code provisions give a dealer 30 days to
pay the registration if the vehicle is a used vehicle and
20 days if the vehicle is a new vehicle with monetary
penalties if the payment is made late. (See Vehicle Code
sections 4456 and 4456.1.)
IF THERE ARE GOING TO BE PENALTIES FOR FAILURE TO PAY DMV
FEES, SHOULD THE TIME FRAMES MATCH EXISTING REQUIREMENTS?
b. Mens Rea
This section of the bill also has a mens rea of
willfully. Thus, paying the fees one day late for any
reason could result in criminal penalties.
WITH A MENS REA REQUIREMENT OF WILLFUL, DOES THIS BILL
CREATE A CRIMINAL PENALTY FOR A VIOLATION OF CONTRACT?
IN ORDER TO SUBJECT SOMEONE TO A POTENTIAL FELONY, SHOULD
THERE BE SOME SORT OF CRIMINAL INTENT REQUIRED?
c. Other applicable sections
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As noted above, existing law imposes monetary penalties
on the dealer for failing to pay the registration fees on
time. There is a $5 fee for each violation which
increases to $25 if the application was more than 50 days
from the date of sale for a used vehicle and 40 days from
the date of sale for a used vehicle. There is also a $25
fee if DMV returns an application and a corrected
application is not sent within the specified time frame.
The Vehicle Code also provides that DMV may suspend or
revoke a dealer's license for failure to pay DMV fees in
a timely manner. (See Vehicle Code section 11705(a)(8).)
The statutes on theft and embezzlement may also apply if
a dealer takes money from a customer and converts the
money to his or her own use without ever paying the DMV
fees.
ARE CURRENT SANCTIONS FOR FAILING TO PAY DMV FEES IN A
TIMELY MANNER, SUCH AS SUSPENSION OF A DEALER'S LICENSE,
ADEQUATE?
d. Opposition
The California Motor Car Dealers Association states:
There are numerous non-criminal reasons why a
registration application and fees may be untimely
submitted to DMV: in a used car transaction,
title work and documents necessary to complete the
application may not be submitted to the selling
dealer in a timely fashion; the underlying
transaction may be rescinded due to
nonperformance, fraud or some other ground; title
disputes may arise; a dealership employee that
handles DMV paperwork may be ill, may innocently
misplace the paperwork, or may be negligent in
meeting the existing 20 or 30 day deadlines.
Should a dealer be sent to state prison for up to
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three years and fined $10,000 because one of his
or her employees submitted a late registration
application.
SHOULD THIS BILL CONSIDER NON-CRIMINAL EXPLANATIONS FOR
FAILING TO PAY FEES ON TIME?
4. Failure to Pay Consignor within 20 Days
a. This bill
This bill provides that any dealer who enters into a
consignment arrangement and who sells or leases the
consigned vehicle and fails to pay the amount due the
consignor within 20 days after the sale or lease of the
vehicle is guilty of a wobbler if the amount due is more
than $400 and a misdemeanor if the amount due is less
than $400.
b. No Mens Rea
This section of the bill has no mens rea requirement.
Failure to pay the money owed within 20 days is the only
thing required.
SHOULD A POTENTIAL FELONY REQUIRE SOME MENS REA?
c. Other applicable sections
Along with civil penalties for breach of contract,
existing law already provides criminal penalties for
misdemeanor penalties for a person who fails to comply
with the requirements for a consignment arrangement under
the Vehicle Code. (Vehicle Code section 40000.11 (a))
Existing law also provides for dealer license suspension
or revocation for a violation of the requirements set
forth in the Vehicle Code for consignment arrangements.
(Vehicle Code sections 11729 and 11705(a)(10))
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Failure to pay someone money owed them and converting it
to one's own use should also constitute embezzlement.
HAS THE EXISTING MISDEMEANOR PROVISION BEEN USED?
d. Constitutionality
Article I Section 10 of the California Constitution
provides, in pertinent part, "A person may not be
imprisoned in a civil action for debt or tort" . . . .
The opponents believe that as this section may result in
putting someone in prison for a failure to pay something
which may be based on a reason other than fraud, that
this bill violates Article I Section 10.
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DOES THIS SECTION VIOLATE THE CONSTITUTIONAL PROVISIONS
AGAINST IMPRISONING SOMEONE FOR BAD DEBTS?
5. Uncodified Intent
This bill also includes uncodified legislative intent
language.
California Motor Car Dealers Association notes that
language in section (b), page 2 lines 21-25 is inaccurate
in stating that result of failing to pay the DMV fees is
that "the consumer discovers that he or she cannot lawfully
drive the vehicle until the department receives the money
due for the registration" because "under Vehicle Code
section 4455 (c) a consumer may lawfully operate a new or
used vehicle that displays a copy of a report of sale for
six months after the vehicle has been sold by a dealer."
SHOULD THE LEGISLATIVE INTENT LANGUAGE BE CHANGED TO MORE
ACCURATELY REFLECT EXISTING LAW?
6. " Three-Strikes"
This bill creates a new felony which could result in a
person with one or more prior serious or violent felonies
receiving a sentence of 25 to life. All dealers and their
sales people must be licensed and a person cannot receive a
license with a prior felony on their record. However,
section 2 of the bill applies to persons "licensed" or
"unlicensed" so although most of the people covered by this
bill would not be subject to "three-strikes," section 2 of
the bill could result in a person receiving a sentence of
25 to life. The other sections just refer to "dealers" so
they may or may not include unlicensed dealers.
SHOULD A "THREE-STRIKES" EXEMPTION BE ADDED TO THE
PROVISIONS OF THIS BILL?
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