Courts Itself Raises and Disqualifies Defense Counsel of Driver & Lessor Based on Conflict of Interest

AUTO – LEASED VEHICLE – GRAVES AMENDMENT – RETAINED DEFENSE COUNSEL – CONFLICT OF INTEREST
Graca v. Krasnik
(Sup. Ct., Kings Co., decided 7/28/2008)

Since August 10, 2005, the "Graves Amendment" has provided vehicle lessors with a statutory basis for dismissing vicarious liability claims in motor vehicle accident lawsuits. In this case, defense counsel's motion to dismiss this action against co-defendant Honda Lease Trust not only was unsuccessful, but prompted the motion court, sua sponte (of its own accord), to disqualify Allstate's staff counsel from representing both defendants in this action.

Plaintiff allegedly was injured in a motor vehicle-pedestrian accident and brought this personal injury action against the vehicle's driver, Krasnik, and owner, Honda Lease Trust. The complaint did not allege that Honda Lease Trust was the vehicle's lessor. Allstate appointed staff counsel to defend both defendants, and counsel moved to dismiss the action against Honda Lease Trust based on the Graves Amendment (49 U.S.C.A. § 30106). During oral argument, Kings County Supreme Court Justice Wayne Saitta raised the question of whether it was a conflict for defendants' attorney to represent both the driver and the owner where they were moving to dismiss against the owner only.

Defense counsel did not argue that no conflict existed but that because of the Graves Amendment, any concern about a conflict of interest was moot because that statute relieves a leasing company from vicarious liability as a matter of law. In opposition to the motion to dismiss, plaintiff argued that she did not allege that Honda was the lessor of the vehicle nor did Honda annex to its motion any documentation, a lease or affidavit from a person with knowledge, which would substantiate that claim. Plaintiff did not submit any written position as to the conflict of interest issue as it was raised by the court at oral argument.

In denying Honda's motion to dismiss the action based on the Graves Amendment, Justice Saitta held:

The police accident report annexed to Defendants' motion lists the owner as "Honda Lease Trust". The complaint alleges Honda was the owner of the vehicle Krasnik was driving, and that Krasnik was driving the vehicle with the "consent and permission of its owner, express or implied". Nothing further is stated or submitted as to the relationship between the Defendants.
Defendants, in their motion, assert that the Graves Amendment provides a basis for dismissal against Honda but they fail to provide any admissible evidence to demonstrate Defendants had a lessor/lessee relationship. Also Defendants provide no affidavit of a person with personal knowledge attesting that Honda Lease Trust is in the business of leasing cars. Although, Defendants, in reply submit a largely illegible copy of a lease, that lease appears to indicate a party other than Honda Lease Trust as lessor. Defendants fail to show that there are no questions of fact as to whether they are a lessor or in the business of leasing cars, accordingly summary judgment must be denied.

With respect to the court's own concern about defense counsel's conflict of interest in representing both Krasnik and Honda, Justice Saitta ruled:

The Court has raised sua sponte whether it is a conflict for Defendants' attorney to represent both the driver and owner where the attorney moved to dismiss the action against the driver pursuant to the Graves Amendment. While the motion was made by the attorney for both Defendants, no affidavit in support from the driver was included and it is unclear that he gave informed consent to the motion.

* * * * *

Defendants' attorneys do not argue that no conflict exists but that because of the Graves Amendment, any concern about a conflict of interest is moot because legislation relieves a leasing company from vicarious liability as a matter of law.
However, the mere assertion of a Graves Amendment defense does not mean there are no questions of fact as to whether the Amendment applies. A party asserting the defense must show they are engaged in the business of leasing vehicles. Also, the Amendment is only a defense to vicarious liability, so a defendant must also demonstrate that there was no negligence on their part.
Furthermore, there is an inherent conflict of interest in representing two named defendants where, if the case against one defendant (owner/lessor) is dismissed pursuant to the Graves Amendment, the other defendant (driver) is left bearing full liability for the claims alleged in Plaintiff's complaint. Defendants' attorneys cannot zealously represent both Defendants where they seek dismissal of the claims against one of the defendants they represent while the other has no independent advocate to oppose the motion which would result in their shouldering full liability.

* * * * *

The conflict exists at the point the attorney recognizes that one of their two clients may have a Graves Amendment defense.

* * * * *

Here, the issue giving rise to the conflict of interest, the dismissal of the claim against one defendant shifting liability to the other, rises to a level that full disclosure and consent would not cure. The driver has the right to an advocate who will zealously investigate and assess whether there is a basis to contest the applicability of the Graves Amendment, and if so, vigorously oppose the defense.
This Court has the authority to raise this issue sua sponte, despite the relief not having been sought by either party. Indeed, the Court has an obligation to intervene where it recognizes a possible conflict in a case before it.
Accordingly, Defendants' [sic] cannot be adequately represented by the same counsel where counsel seeks to have all liability dismissed as to Honda, leaving Defendant Krasnik without an independent opportunity to resist that motion. Separate counsel must be provided to Defendant Krasnik.

I don't agree with this decision. Lessors typically are named as additional insureds on personal auto policies and frequently consent to allow the lessee's personal auto insurer to defend both with single counsel. What Justice Saitta didn't realize or discuss is the potential of a cross claim by the lessor against the lessee/driver for indemnification. Moving to dismiss a Vehicle & Traffic Law § 388 claim against the lessor does nothing to increase the lessee's/insured's exposure to damages. If a conflict of interest exists in these situations, it exists at inception of the defense, not when defense counsel decides to make a summary judgment motion based on the Graves Amendment.

Nevertheless, if a personal auto insurer wished to avoid any argument over its appointed defense counsel's conflict of interest, I suppose it could appoint separate counsel for the lessor and immediately make a motion -- one supported by adequate evidentiary proof -- for summary judgment based on the Graves Amendment.

To read most posts about New York cases involving the Graves Amendment, click here.