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.

Question of Fact on Whether Rental Car Company Verified Facial Validity of Renter's Driver's License Precludes Summary Judgment on Graves Amendment

AUTO – GRAVES AMENDMENT – RENTAL COMPANY'S NEGLIGENCE – FACIALLY VALID DRIVER'S LICENSE
Palacios v. Aris, Inc.
(EDNY, decided 3/11/2010)

On November 4, 2007, Aris, Inc., rented a 2007 Toyota Camry to Bursztyn and Azriel.  Azriel had asked Bursztyn to help him rent a car because Azriel did not have a credit card with insurance and thus lacked the ability to rent a car by himself.  Bursztyn's license was already on file at Aris from prior rentals, so he was not required to present a license at the time of rental. When Aris rented the car to Bursztyn, Bursztyn informed Aris that Azriel would be driving the vehicle.  Because he would be driving the vehicle, Azriel provided Aris with a paper that was asserted to be an Israeli driver's license that was in Hebrew and contained no photograph.  Upon being shown that document, Aris rented the vehicle to Bursztyn and Azriel. Azriel left with the Camry, but Bursztyn departed separately.

Later that same day, while Azriel was driving the Camry, there was a collision between the Camry and another vehicle.  The impact of the collision caused one of the cars to land on the nearby sidewalk on top of a pedestrian, plaintiff Palacios.

At the scene, Azriel was issued a ticket for being an "unlicensed operator." Azriel did not appear in court to answer the ticket, and on June 16, 2008, the New York State Department of Motor Vehicles suspended Azriel's privilege to operate a motor vehicle in New York State for his failure to appear in court.  On October 21, 2009, Azriel appeared in court to answer the "unlicensed operator" charge against him and pled guilty to the charge. Plaintiff asserted in this action that as of November 4, 2007, the date of the accident, Azriel's privilege to operate a motor vehicle in New York State had been suspended six times on five different dates.

Aris moved for summary judgment based on the Graves Amendment, a federal statute which exempts vehicle lessors and renters from liability 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 the owner is engaged in the trade or business of renting or leasing motor vehicles and there is no negligence or criminal wrongdoing on the part of the vehicle's owner.  49 U.S.C. § 30106(a)

In opposition to Aris's motion, plaintiff argued that Aris was negligent because it failed in its statutory duty not to rent a vehicle to an individual who did not have a valid driver's license or did not have the privilege to drive in New York State under Vehicle & Traffic Law § 250.  

In denying Aris's motion, United States District Court Judge Joseph Bianco held that

with respect to Aris's reliance on the Graves Amendment, plaintiff has presented evidence that Azriel, when renting the car from Aris, presented a document purporting to be an Israeli driver's license that was in Hebrew and contained no photograph. No other identification was presented. Moreover, there is a factual dispute as to whether the Israeli license presented by Azriel was valid. The Court recognizes there is no duty under New York law for rental car companies, once they determine that the lessee has a facially valid driver's license, to conduct an investigation of the renter, including his or her driving history. However, after reviewing the record in the light most favorable to plaintiff, the Court concludes that plaintiff has raised genuine issues of material fact as to whether the license was valid, whether Aris was negligent in failing to determine whether the purported Isareli license was valid on its face, and whether, given the lack of a photograph, the license presented belonged to the person who was seeking to rent the vehicle. Thus, under the particular circumstances of this case, summary judgment under the Graves Amendment is unwarranted.

*  *  *  *  *

Although foreign drivers may operate vehicles in the United States, "[a]n entity can be held liable for knowingly allowing an unlicensed driver to operate a vehicle." Pacho v. Enterprise Rent-A-Car Co., 572 F. Supp. 2d 341, 352 (S.D.N.Y. 2008). Thus, even though the Graves Amendment may allow a rental car company to escape vicarious liability for another's negligence, by the Graves Amendment's very terms, the rental car company will still be liable if the company itself is negligent. Accordingly, a rental company may be liable if it allows an unlicensed driver, or a driver without a valid license, to operate a vehicle.  Although this obviously requires that rental car companies assess the facial validity of a driver's license before renting to that driver or otherwise allowing that driver to operate a vehicle, this duty does not require the company to investigate a renter's driving record where that renter has presented a valid driver's license. See, e.g., Sigaran v. Elrac, Inc., 22 Misc. 3d 1101[A], 875 N.Y.S.2d 824, 2008 NY Slip Op 52569[U], 2008 WL 5381494, at *6 [N.Y. Sup. Ct. 2008] (finding failure to state a cause of action when "[p]laintiffs failed to cite any legal authority that ELRAC was under an obligation to check Fernandez's driver's record beyond verifying that he had a valid driver's license"); Vedder v. Cox, 18 Misc. 3d 1142[A], 859 N.Y.S.2d 900, 2008 NY Slip Op 50408[U], 2008 WL 595857, at *1-2, 4 [N.Y. Sup. Ct. 2008] finding no evidence or legal basis from which to conclude that rental company had a duty to investigate the driving record of a defendant who had a "history of suspended driving privileges," particularly without proof that the company rented the vehicle to the defendant "during a time that his driving privileges were suspended"); accord Barksdale v. Nat'l Bank of Detroit, 186 Mich. App. 286, 463 N.W.2d 258, 260-61 (Mich. App. 1990); Osborn v. Hertz Corp., 205 Cal. App. 3d 703, 710, 252 Cal. Rptr. 613 (Cal. App. 1988). However, if Aris was negligent in failing to exercise reasonable care to determine that the license was facially valid and belonged to Azriel, then the Graves Amendment would not protect Aris from liability.

Interestingly, the court also denied Bursztyn's motion for summary judgment, who argued that he had only assisted Azriel in renting the car and owed no duty to the plaintiff:  

Under the particular circumstances of this case, the Court cannot determine as a matter of law on summary judgment whether Bursztyn negligently entrusted this vehicle to an unsafe or unlicensed driver.  At Aris, in the presence of Bursztyn, Azriel presented a temporary license that was written in Hebrew and lacked a photograph of its holder. There is a material issue of fact regarding whether, in light of the circumstances of this transaction--the fact that Bursztyn had just met Azriel that day, was unaware whether Azriel had a valid driver's license, and saw Azriel procure a temporary foreign license without a photograph on it--Bursztyn should have been reasonably concerned about entrusting Azriel with a vehicle and was negligent in doing so.  Based on the information in the record, it cannot be determined on summary judgment as a matter of law whether Bursztyn knew, or should have known in the exercise of reasonable care, that permitting Azriel to drive the vehicle "represented an unreasonable risk of harm to that person or to others because of [Azriel's] incompetence to handle it safely." See Good, 564 N.Y.S.2d at 952. Viewing these facts in a light most favorable to the plaintiff and drawing all reasonable inferences therefrom, plaintiff has put forth sufficient evidence to survive summary judgment on this issue.

To read most posts on this blog about New York court decisions involving the Graves Amendment, click here.

Bronx Supreme Grants Lessor's Motion to Renew and for Summary Judgment Based on Graves Amendment

AUTO – LEASED VEHICLE – GRAVES AMENDMENT
Antwi v. HVT, Inc.
(Sup. Ct., Bronx Co., decided 9/11/2009)

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).

After plaintiff had successfully moved for partial summary judgment on liability against all defendants, defendant HVT, Inc. moved for leave to amend its answer to add an affirmative defense based on the Graves Amendment, for renewal of the plaintiff's previous motion, and for summary judgment in its favor based on the Graves Amendment.  Plaintiff opposed HVT's motion, arguing: (1) that HVT's Graves Amendment defense lacked merit; (2) that HVT waived that affirmative defense by not having asserted it in its original answer; (3) that such defense was prejudicial; (4) that HVT proffered no excuse for having failed to seek summary judgment in response to plaintiff's prior motion; and (5) that HVT failed to establish its prima facie entitlement to summary judgment.

In support of its motion, HVT submitted an an affidavit from a Diane Adams, the Manager of the Procedures and Regulations Department for American Honda Finance Corporation, the servicer of HVT's leasing program and agent of HVT for all obligations of HVT as a lessor under its lease contracts. Adams averred that the vehicle that struck the plaintiff's car was a leased vehicle, owned by HVT.  The Adams affidavit also stated that the lessee driver involved in the accident was not an employee or agent of HVT, that HVT had no duty to repair or maintain the leased vehicle, that the vehicle's lessee was responsible for repairs and maintenance, and that as of the accident date, HVT was in the business of leasing motor vehicles to the public.

In granting HVT's motion for renewal of plaintiff's earlier motion for partial summary judgment, Bronx County Supreme Court Justice Nelson Roman reiterated the general rule that an application for leave to renew must be based upon additional material facts which existed at the time the prior motion was made, but were not then known to the party seeking leave to renew, and, therefore, not made known to the court.  Justice Roman went on to note that the New York courts have carved out an exception to that general rule:

Additional Insured Not Collaterally Estopped From Relitigating Factual Issue Affecting Coverage

COMMERCIAL GENERAL LIABILITY – ADDITIONAL INSURED – LEASED PREMISES – COLLATERAL ESTOPPEL
Franklin Dev. Co., Inc. v. Atlantic Mut. Ins. Co.
(2nd Dept., decided 3/24/2009)

The "Additional Insured—Manager or Lessors of Premises" endorsement (CG 20 11 01 96) adds the lessor or manager as an insured "but only with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to [the named insured]."  Cases involving this endorsement often raise questions regarding the scope of the leasehold; in other words, what is "that part of the premises" that was actually leased to the named insured tenant?

Plaintiff Franklin Development Company leased space in a building it owned to Hertlein Special Tool Company. Pursuant to the lease terms, Hertlein obtained a CGL insurance policy for the leased premises from Atlantic Mutual, naming Franklin as an additional insured. An employee of Hertlein allegedly fell in a stairwell in the building and sustained injuries. He commenced a personal injury action against Franklin and two related entities, which in turned impleaded Hertlein.

In a previous appeal in the underlying personal injury action, the Second Department modified the motion court to grant plaintiffs' motion for summary judgment, dismissing the primary complaint and all cross claims against them.  Although plaintiffs had raised the issue of whether the stairwell where the injured party had fallen was an area covered by the additional insured clause of Hertlein's insurance policy with Atlantic Mutual, the Second Department stated that that issue "need not be reached" in light of its decision granting summary judgment to plaintiffs.

Plaintiffs moved and Atlantic Mutual cross-moved for summary in this declaratory judgment action.  The motion court not only granted Atlantic Mutual's cross motion, declaring that it was not obligated to defend or indemnify plaintiffs in relation to the underlying action, but also found, sua sponte, that this action was frivolous within the meaning of 22 NYCRR 130-1.1, and ordered that a hearing be conducted to determined an award of attorneys' fee to the defendant and the imposition of a sanction upon the plaintiffs.

In REVERSING the motion court's decision and remitting the matter back to Supreme Court for a determination on the merits of plaintiffs' motion, the Second Department ruled that the doctrine of collateral estoppel did not apply to preclude plaintiffs' from relitigating in this action the question of whether the stairwell was an area covered by the additional insured endorsement:  

Since Franklin appealed from the Supreme Court's denial of its motion for summary judgment on the third-party complaint, which was based on the issue presented here, Franklin addressed the issue before this Court, but, for the reasons discussed, this Court did not reach the issue. Thus, the issue was not necessarily decided and Franklin did not have "a full and fair chance to overturn the earlier decision" (Tydings v Greenfield, Stein & Senior, LLP, 11 NY3d 195, 200). Accordingly, the Supreme Court's determination thereof is not entitled to preclusive effect (see generally Tydings v Greenfield, Stein & Senior, LLP, 11 NY3d 195). 

On the issue of Atlantic Mutual's duty to defend, the Second Department also ruled that Atlantic Mutual "failed to establish, as a matter of law, that the allegations of the complaint in the underlying action did not suggest a reasonable possibility of coverage, that there was no possible factual or legal basis upon which the defendant might eventually be held to be obligated to indemnify Franklin, or that the only interpretation of the allegations against the insured was that the factual predicate for the claim fell wholly within a policy exclusion[.]"

Statute of Limitations, But Not Graves Amendment, Held to Bar Adding Vehicle Lessor as Defendant

AUTO – GRAVES AMENDMENT – RELATION BACK DOCTRINE
Flederbach v. Fayman
(2nd Dept., decided 12/2/2008)

Since its enactment, the "Graves Amendment" has provided vehicle lessors and renters with a statutory basis for dismissing vicarious liability claims in motor vehicle accident lawsuits.  The New York courts have previously held that the Graves Amendment only applies to actions commenced by the filing of the initial summons and complaint after its August 10, 2005, enactment date, and does not bar vicarious liability claims against vehicle lessors asserted in amended pleadings in actions commenced prior to that date.  See, Jones v Bill, 10 NY3d 550 (2008); Tirado v ELRAC Inc., 54 AD3d 261 (3rd Dept. 2008).

New York Vehicle and Traffic Law § 388 provides that "[e]very owner of a vehicle . . . shall be liable and responsible for death or injuries to person or property resulting from negligence in the use or operation of such vehicle, in the business of such owner or otherwise, by any person using or operating the same with the permission, express or implied, of such owner."

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).

In this case, plaintiff learned during the deposition of the offending driver taken more than three years after the accident that the offending vehicle was a leased vehicle, and that Chase Manhattan Automotive Finance Corp. (now known as Chase Auto Finance Corp.) was the lessor.  Plaintiff moved for leave to serve a supplemental summons and amended complaint adding Chase as a party defendant, and Suffolk Supreme denied that motion based on its conclusion that such a supplemental claim could not be made after August 10, 2005 effective date of the Graves Amendment.

The Second Department AFFIRMED but for a different reason.  While acknowledging that the Graves Amendment does not bar vicarious liability claims against vehicle lessors asserted in amended pleadings in actions originally commenced prior to its effective date, the Second Department found that plaintiff's claim against Chase was barred by the applicable three-year statute of limitations: 

The plaintiffs argue that the claim against Chase relates back to the timely-commenced action against the operator of the offending vehicle. However, the plaintiffs failed to meet their burden of proving that the relation-back doctrine is applicable, since there is no evidence that Chase knew or should have known that, but for a mistake on the part of the plaintiff, it would have been named in the action as well (see, Buran v Coupal, 87 NY2d 173 [1995]). Indeed, there is no evidence that Chase was aware of the accident, much less the lawsuit, within the limitations period (see Williams v Majewski, 291 AD2d 816 [2002]; compare Porter v Annabi, 38 AD3d 869 [2007]). Since notice within the limitations period is "the 'linchpin' of the relation back doctrine" (Buran v Coupal, 87 NY2d 173, 180 [1995]), the denial of the plaintiffs' motion for leave to serve a supplemental summons and amended complaint adding Chase as a defendant to the action was correct. 

Thus, before the relation back doctrine under CPLR § 203 may be invoked to permit an otherwise time-barred claim, the plaintiff must demonstrate that: 

(1) both claims arose out of same conduct, transaction or occurrence; 

(2) the new party is "united in interest" with the original defendant, and by reason of that relationship can be charged with such notice of the institution of the action that he will not be prejudiced in maintaining an action on the merits; and 

(3) the new party knew or should have known that, but for an excusable mistake by plaintiff as to the identity of the proper parties, the action would have been brought against him as well.

In this case, plaintiff did not demonstrate the third condition -- that Chase knew of should have known, but for the plaintiff's mistake not suing the vehicle's actual owner, that this action would have been brought against it, as well.  Graves Amendment did not apply, but the statute of limitations did.

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