Monday, September 7, 2009

Court Again Rules that Graves Amendment Creates Conflict in Joint Defense Representation of Driver & Rental Car Company

Meigel v. Schulman
(Sup. Ct., Kings Co., decided 8/12/2009)

Kings County Supreme Court Justice Wayne Saitta has done it again.  As he did in Graca v. Krasnik, Justice Saitta not only denied the car lessor's motion for summary judgment, but ordered that separate defense counsel be provided for the renter who was driving the rental car at the time of the accident.

For all actions commenced on or after August 10, 2005, the "Graves Amendment" has provided vehicle lessors with a statutory basis for dismissing vicarious liability claims in motor vehicle accident lawsuits.  This amendment to the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users ("SAFETEA") provides in relevant part that:
[a]n 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).  49 U.S.C. § 30106(a). 
Micki Schulman rented a vehicle from ELRAC, Inc., d/b/a Enterprise Rent-A-Car and was involved in an accident with the plaintiff.  Plaintiff commenced a personal injury action against Schulman and ELRAC.  Prior to discovery, both defendants moved to dismiss plaintiff's complaint against ELRAC based on the Graves Amendment.   On the motion, Justice Saitta sua sponte (of its own accord) raised the issue of whether defendants' counsel had a conflict in representing both defendants while seeking to dismiss the complaint against only one of them.

Defense counsel argued that there was no conflict in one attorney representing both defendants because: (1) the Graves Amendment applied to preclude ELRAC from being held vicariously liable for Schulman's allegedly negligent driving; (2) Schulman submitted an affidavit asserting that that were no problems with the rental vehicle; (3) because the leasing agreement between the defendants required Schulman to indemnify ELRAC for any loss over $25,000, including attorneys' fees, it was in Schulman's best interest to have the case dismissed against ELRAC; and (4) there had been full disclosure of the potential for conflicts and the defendants both consented to the joint representation.  Plaintiff opposed defendants' motion based on the fact that he had not had an opportunity to conduct discovery as to whether ELRAC properly maintained and serviced the vehicle (direct negligence of the vehicle's owner being an exception to the Graves Amendment's liability exemption).

In rejecting defense counsel's argument that there was no conflict in representing both defendants and denying their motion with leave to renew after the appointment of separate defense counsel and completion of discovery, Justice Saitta held:
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. The driver has no independent advocate to oppose the motion which would result in the driver shouldering full liability.

The conflict remains despite the provision in the lease that requires the driver, SCHULMAN, to reimburse ELRAC for any loss they suffer arising from her use of the vehicle.  Such a lease provision is enforceable, but not as to losses resulting from ELRAC's own negligence. This means that if ELRAC's motion to dismiss pursuant to the Graves Amendment was denied on the grounds that they were negligent in maintaining the vehicle, and ELRAC was found liable to the Plaintiff because of that negligence, ELRAC could not seek indemnification from Schulman for that percentage of the damages caused by its negligence. 

Further, such an indemnification provision is enforceable only to the extent that the losses that exceed the minimum primary coverage ELRAC was required to provide pursuant to VTL §370. Elrac v Ward, 96 NY2d 58, 724 NYS2d 692 (Ct of Ap 2001); Haight v Estate of DePamphilis, 5 AD3d 547, 772 NYS2d 833 (2nd Dept. 2004). Thus ELRAC may only seek reimbursement for any losses that exceeded the $25,000 in coverage they were required to provide Schulman. 

There is an inherent conflict in an attorney representing both the driver and the leasing company where there is a possibility that the leasing company may have been negligent. If ELRAC was negligent then the driver would be entitled to contribution from ELRAC and ELRAC could not seek indemnification for such contribution based on its own negligence. 

In this case, counsel has produced an affidavit from SCHULMAN stating that there was nothing wrong with the vehicle, which counsel argues shows that there is no question as to negligence by ELRAC, and thus no conflict.  However, this line of reasoning conflates the issue of whether ELRAC was negligent with whether an attorney representing both ELRAC and the driver can vigorously investigate, on the driver's behalf, whether ELRAC was negligent. 

It is difficult to imagine an attorney, who represented only the driver, agreeing that ELRAC was not negligent based on the fact that the driver, who is not an expert, thought there was nothing from with the car. It is even more difficult to imagine an attorney who represented only the driver, procuring such an affidavit from their client. An independent counsel would almost certainly at a minimum insist on conducting discovery of ELRAC's maintenance and service records before conceding that ELRAC was not negligent. 

There is also a need for separate counsel to evaluate whether there is a basis to argue that the Graves Amendment is not applicable in a given case, either on constitutional grounds or because the company is not a leasing company within the meaning of the act. While it is true that if ELRAC was held vicariously liable, the driver may be liable to reimburse ELRAC for its losses and attorneys fees that exceeded $25,000. However there many be situations in which counsel would conclude that having the leasing company remain in the case, if there is a legal basis for doing so, may increase the chances of a favorable settlement that outweigh the risk of having to reimburse the leasing company and pay additional legal fees. A client is entitled to the undivided loyalty of counsel, even for such strategic decisions. 

Lastly, Plaintiff is entitled to conduct discovery as to the maintenance of the vehicle, before having to answer the summary judgment motion, as such information is both material and within ELRAC's sole control. Therefore summary judgment would be premature at this time.
To read most posts about New York cases involving the Graves Amendment, click here.  

No comments: