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

AUTO – GRAVES AMENDMENT – FEDERAL-QUESTION JURISDICTION – COMPLETE PREEMPTION DOCTRINE
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.

Claim First, Sue Second -- No Justiciable Controversy Where No Breach

COMMERCIAL PROPERTY – JUSTICIABLE CONTROVERSY – PREMATURE ACTION – FILING CLAIM BEFORE SUING
King's Gym Complex, Inc. v. Philadelphia Indem. Ins. Co.
(2nd Cir. US Ct. Apps., decided 9/15/2008)

When running up against a policy's two-year suit limitations period, may an insured sue its insurer before making a claim? The Second Circuit, United States Court of Appeals, says no.

King's Gym Complex sued its commercial property insurer in federal court for business income loss coverage before actually filing a claim with the company. The complaint asserted a breach of contract cause of action. Philadelphia Indemnity moved to dismiss the complaint based on the court's lack of subject matter jurisdiction, contending that there was no justiciable controversy for the court to adjudicate.

In AFFIRMING the District Court's granting of Philadelphia's motion, the Second Circuit Court of Appeals agreed with the lower court's reasoning that since King's Gym had not submitted a business loss claim to Philadelphia prior to suing, Philadelphia could not have breached its duty under the policy to honor such a claim, and King's Gym could not assert a claim in federal court based upon such an alleged breach. The Second Circuit also rejected King's Gym's argument that it should be allowed to maintain a suit, even though no justiciable controversy yet existed because otherwise it would be time-barred.

King's Gym argued that the policy did not require it to file a claim before suing, and Philadelphia had not requested that it file a proof of loss on its business income loss claim. The Second Circuit also rejected this argument, holding:

As to the question of its filing a business loss claim with Philadelphia, King's Gym argues that the policy does not explicitly require it to "file a claim" before filing suit against Philadelphia unless Philadelphia had previously requested King's Gym to submit a proof of loss, which Philadelphia did not do. Although the language of the policy between King's Gym and Philadelphia is unclear regarding precisely what conduct by the insured constitutes a filing of a business loss claim, we need not address the question of whether King's Gym did so in this case. King's Gym conceded -- both before the District Court and in its brief to this Court -- that it had not suffered any business loss prior to its filing suit against Philadelphia. The policy obligates Philadelphia to pay for the 'actual loss of Business Income' the insured sustains as a result of a covered loss, and there is no evidence in the record that Philadelphia ever denied or declined to follow up on an actual loss of business income claim by King's Gym. Indeed, the record demonstrates that Philadelphia repeatedly tried to contact King's Gym and, prior to King's Gym's complaint, notified it that it considered the claim inactive." The District Court correctly concluded that there existed before it no dispute ripe for adjudication, and the District Court properly granted Philadelphia's motion to dismiss King's Gym's claims for lack of subject matter jurisdiction.

The same argument of lack of a justiciable controversy and subject matter jurisdiction can be made in a situation where an insured does not submit its replacement cost holdback claim prior to the two-year loss anniversary but nonetheless commences suit to "protect the statute", i.e., to sue within the policy's two-year suit limitations period. My office has successfully moved to dismiss a number of such suits on this basis. See No Replacement of Property Within 2 Years Results in Dismissal of RC Holdback Suit.

This decision is unpublished. Pursuant to Federal Rules of Appellate Procedure Rule 32.1, parties may cite to this opinion, but must provide a copy of it with their papers.