Second Department Reaffirms Its Finding that Graves Amendment is Constitutional -- Personal Injury Action Against Trustee of Vehicle Lessor Is Dismissed

GRAVES AMENDMENT – VICARIOUS LIABILITY – "AFFILIATE" OF THE VEHICLE OWNER – CONSTITUTIONALITY
Gluck v. Nebgen
(2nd Dept., decided 4/27/2010)

In  Graham v Dunkley, 50 AD3d 55 (2nd Dept. 2008), the Appellate Division, Second Department, held that "the Graves Amendment was a constitutional exercise of congressional power pursuant to the Commerce Clause of the United States Constitution."  Since that decision was issued, injured parties have continued to challenge both the constitutionality and application of the Graves Amendment to New York personal injury actions against vehicle renters and lessors.

The Graves Amendment exempts an "owner (or an affiliate of the owner) ... engaged in the trade or business of renting or leasing motor vehicles" from vicarious liability for injuries or damages caused by the negligent operation of the rented or leased vehicle.  The question addressed in this case is whether the Graves Amendment applies to an entity that it not the offending vehicle's actual owner and lessor, but is affiliated with and related to the owner/lessor.

Gluck was a passenger in defendant Nebgen's car, which collided with a vehicle operated by defendant Turco.  Turco's motor vehicle allegedly was leased from defendant NILT, Inc., which was the title owner of that vehicle.  NILT, Inc. is the trustee of of Nissan-Inifinit LT, a Delaware statutory trust.  Gluck brought this personal injury action, and NILT moved to dismiss plaintiffs' complaint pursuant to CPLR Rule 3211(a)(7), asserting that it could not be held vicariously liable for Turco's alleged negligence by reason of the Graves Amendment, which preempted New York Vehicle & Traffic Law § 388.  Plaintiffs opposed NILT's motion on two grounds: (1) that the Graves Amendment did not apply because NILT neither itself leased the Turco vehicle nor is in the business of leasing vehicles; and (2) that the Graves Amendment violates the Commerce Clause of the United States Constitution. 

An employee of Nissan North America testified at an examination before trial that NILT, Inc., was a subsidiary of Nissan North America, and that NILT, Inc., was the trustee of NILT Trust, the owner of Nissan-Infiniti LT.  He also testified that NILT Trust is owned by Nissan Motor Acceptance Corporation, which relies on dealers to originate leases directly to and with consumers.  Once a consumer leases a vehicle, the lease is purchased by Nissan-Infiniti LT.  The Nissan employee testified that as trustee for Nissan-Infiniti LT, NILT, Inc., was not directly involved in the practice of leasing automobiles to the ultimate consumer.  NILT, Inc.'s main purpose was to acquire motor vehicle titles from Nissan Motor Acceptance Corp. in order to allow it to raise capital for the funding of the lease finance business.  After Turco leased her vehicle from Smithtown Nissan, the lease was assigned to Nissan-Infiniti LT, who by way of the NILT Trust, is owned by NILT, Inc.

In an affidavit submitted in support of NILT, Inc.'s 3211(a)(7) motion, it was explained that the primary purpose of the "originating" or "titling" trusts commonly utilized in the automotive leasing industry is to isolate the ownership of the lease contracts in the event of creditors rights actions against a non-bank corporation engaged in the manufacture or leasing of motor vehicles, and that without such trusts, the funding of motor vehicle lease contracts to consumers would be considerably more expensive or unavailable. 

In granting NILT's motion to dismiss plaintiffs' complaint against it, Suffolk County Supreme Court Justice Peter Mayer held:

Here, deposition testimony by Alan Hunn indicates that NILT is the owner of Nissan-Infiniti LT whose primary role is to purchase customer leases directly from Nissan dealerships. Mr. Hunn testified that by purchasing the motor vehicle titles, NILT allows Nissan-Infiniti LT to raise capital for the funding of the lease financing business. NILT's expert explained that as an "originating trust", NILT is indispensable to the leasing trade since it lowers Nissan-Infiniti's costs to consumers.  Plaintiffs' restrictive interpretation of the Act, as relating only to those businesses which directly lease a car to the consumer, is belied by the Act's attempt to effect an industry-wide reformation and deliver lower costs to the consumer.  Plaintiffs' interpretation of the Act would negate its broad aim and ignore NILT's integral role in the assumption of leases from Nissan dealerships. Under these circumstances NILT is unmistakably among those affiliates targeted by the Act.  Moreover, the instant action is distinguishable from Zizerski v Life Quality Motor Sales, NYLJ October 27, 2008, Kings County. Unlike Zizerski where the Court refused to extend the protection of the Graves Act to the defendants because they provided defendants with a loaner rather than a leased vehicle, here it is undisputed that the car provided to defendant Turco was a leased motor vehicle.  

Plaintiffs appealed the dismissal of their complaint against NILT, Inc., and the Appellate Division, Second Department, AFFIRMED, holding:

The Supreme Court properly granted that branch of the motion of the defendant NILT, Inc. (hereinafter the respondent), which was to dismiss the complaint insofar as asserted against it pursuant to CPLR 3211(a)(7). The respondent showed that it was an "owner (or an affiliate of the owner) . . . engaged in the trade or business of renting or leasing motor vehicles" (49 USC § 30106). Since there are no allegations of negligence or wrongdoing on its part, the respondent was entitled to dismissal of the complaint insofar as asserted against it for failure to state a cause of action (see 49 USC § 30106; Graham v Dunkley, 50 AD3d 55, 58). The plaintiffs' cross motion also was properly denied.

The Second Department also rejected "[t]he plaintiffs' remaining contention [as being] without merit (see Graham v Dunkley, 50 AD3d at 58)."  That remaining contention was the plaintiffs' additional argument that the Graves Amendment is unconstitutional.  By citing page 58 of its 2008 decision in Graham v. Dunkley, the Second Department implicitly reaffirmed its finding that the Graves Amendment is a constitutional exercise of congressional power pursuant to the Commerce Clause of the United States Constitution.