Thursday, March 5, 2009

Federal Court Holds that Graves Amendment Does Not Provide a Federal-Question Basis for Subject Matter Jurisdiction in Federal Court

Arias v. Budget Truck Trust I

(EDNY, decided 2/27/2009)

In pertinent part, the "Graves Amendment" provides:
§ 30106. Rented or leased motor vehicle safety responsibility. (a) In general. An owner of a motor vehicle that rents or leases the vehicle to a person (or an affiliate of the owner) shall not be liable under the law of any State or political subdivision thereof, by reason of being the owner of the vehicle (or an affiliate of the owner), for harm to persons or property that results or arises out of the use, operation, or possession of the vehicle during the period of the rental or lease, if: (1) the owner (or an affiliate of the owner) is engaged in the trade or business of renting or leasing motor vehicles; and (2) there is no negligence or criminal wrongdoing on the part of the owner (or an affiliate of the owner).
Most motor vehicle rental and leasing defendants use the Graves Amendment as a tort defense to indirect or vicarious liability under state laws such as New York's Vehicle & Traffic Law § 388. This defendant attempted to use the Graves Amendment as the jurisdictional basis for removing plaintiff's state court action to federal court.

Plaintiff's state court complaint alleged that defendant was engaged in the business of renting trucks, and that one of its rented trucks had collided with plaintiff, injuring him. In its notice of removal, defendant Budget Truck Trust defendant asserted federal question jurisdiction based on the Graves Amendment. Budget Truck contended that the Graves Amendment made the case removable under the "complete preemption doctrine." Alternatively, Budget Truck alleged that there was diversity of citizenship between the parties.

The federal district court disagreed, holding that the Graves Amendment does not provide a federal-question basis for subject matter jurisdiction in federal court:
There is no indication in the Graves Amendment that Congress intended to vest exclusive jurisdiction in the federal courts over vehicle accident cases involving leasing companies. Rather, the face of the statute indicates that it may be raised as a defense against vicarious liability claims arising under state law, regardless of whether the action is brought in state or federal court. The fact that there is a federal defense to a state law claim does not mean that the state law claim is to be recast as federal.

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The Graves Amendment stands in contrast to the few areas where the complete preemption doctrine applies, such as cases requiring the interpretation of benefit plans under §502(a) of ERISA, 29 U.S.C. §1132(a), or collective bargaining agreements under §301 of the Taft-Hartley Act, 29 U.S.C. §185(a). In these latter areas, Congress has "federalized" the contracts in question to provide uniform interpretation in the federal courts and promote important federal policies. No such language or intent appears in the Graves Amendment. It simply provides a defense to leasing companies against negligence claims by injured parties. To that extent, it "preempts" the state law negligence claim, but the cases are clear that preemption as a defense and complete preemption as a basis for removal are distinct.

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Absent diversity, plaintiff would have no right to commence this action in federal court; defendant may therefore not remove it from state court.

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Since defendant has failed to allege an adequate basis for subject matter jurisdiction, this case is remanded to state court.
The court did, however, stay its remand order for 10 days to give Budget Truck an opportunity to file an amended notice of removal to allege a diversity of citizenship basis of federal court subject matter jurisdiction.

For other posts on the Graves Amendment, click here.

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