Texas judge recommends $1.7 million fine against Ford for selling used cars online

Ford Motor Co. faces a record $1.7 million fine in Texas for selling used cars directly to consumers through the Internet, in violation of state law.

The fine was recommended by administrative law judge Kathryn Scales of the Texas Department of Transportation (DOT) after her review of the case. Under Texas law, automakers are expressly forbidden from selling used vehicles directly to consumers. In addition, anyone selling used vehicles in the state must have a license, and Ford didn't have one.

Scales has recommended that Ford pay $1,723,161 in fines and penalties for selling 11 used vehicles through its Fordpreowned.com Web site. The fine is about one-third of what could be levied under state law, according to Scales' recommendations, which were released Nov. 21 in a 35-page ruling.

If approved, the fine would be the largest ever levied by the enforcement division of the Texas motor vehicle division, according to Jack Durham, the office's managing attorney.

Karen Cox, an attorney at the Texas DOT who helped prosecute the case, said the judge's recommendations will now go before the Texas Motor Vehicle Board on Jan. 18 for final action.

The board can accept the recommendations, reject them or modify them, she said.

"They get to make the final call," she said. "We completely support the judge's findings."

Peter Olsen, a spokesman for Dearborn, Mich.-based Ford, said the company will file a response to the judge's recommendations by Dec. 11 and will vigorously seek a lower penalty from Texas officials at the penalty hearing in January.

"Hopefully, [the fine] will be reduced or go away," Olsen said.

The ruling follows a U.S. District Court decision in August, when Judge Sam Sparks ruled against Ford, citing Texas laws forbidding manufacturers from also acting as auto dealers (see story).

Ford had argued that state laws unconstitutionally discriminated against e-commerce and interstate commerce. The automaker also claimed that the laws infringed on its First Amendment rights to advertise and sell the vehicles online (see story).

But the court disagreed, ruling that the Texas laws equalized the market power between manufacturers and dealers to further the public interests of Texas residents.

Ford sold the vehicles on the Internet in the Houston area until November 1999. The carmaker advertised the used vehicles on a Web site, listing no-haggle prices and vehicle descriptions. Consumers could put down $300 deposits and complete their transactions at a local Ford dealership.

The original complaint against Ford was filed in November 1999 by the enforcement division of the Texas Motor Vehicle Division after agents repeatedly observed Ford's online used-vehicle showroom on the Internet.

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