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Injured by a leased or rented car or truck? Getting around the Graves Amendment: Stratton v. Wallace.

Photograph: Semi-tractor and trailer on a cold open road with mountains and dark clouds.

In 2005, Congress delivered (yet another) sweet chocolate bonbon to major corporate enterprises when it enacted what is commonly called the “Graves Amendment.”  The Graves Amendment was enacted to shield and protect motor vehicle leasing and rental companies from vicarious liability as “owners” of the millions of cars and trucks they lease or rent to consumers, either directly or through vehicle fleet and rental agencies.

In 2005, this came as a shock to those representing injured people in motor vehicle accidents, but the numbers of involved vehicles, while significant, were not then overwhelming.  Not so by 2018 -- vehicle leasing and rental is a huge business across America, and the effect of the Graves Amendment on blocking injured plaintiffs from a fair recovery is now massive.    

In 2015, approximately one-third of all cars sold in America were leased.  See:

https://www.usatoday.com/story/money/cars/2016/03/03/report-more-new-cars-leased-than-ever/81286732/

Commercial cars and trucks purchased and thereafter leased by fleet companies has similarly grown off the charts.  In 2016 alone, 1.3 million new vehicles manufactured were fleet-owned and/or leased.  See:

https://www2.deloitte.com/content/dam/Deloitte/de/Documents/consumer-industrial-products/Deloitte_Fleet-leasing-and-management-in-North-America.pdf

The car rental business in the U.S. in 2017 posted $28.63 billion in revenue.  See:

https://www.autorentalnews.com/fc_resources/PDF/arnfb18-market2.pdf

Almost all states in the U.S. have vicarious liability statutes that make the owner of any car, light truck or commercial/heavy truck liable for the negligence of the operator of the vehicle -- including when causing an accident with injuries, assuming the operator had the permission of the owner to operate the vehicle at the time of the collision.  In New York State, this vicarious liability statute is set forth in N.Y. Vehicle and Traffic Law § 388.

N.Y. V.T.L. § 388 states, in relevant part, as follows:

Every owner of a vehicle used or operated in this state 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. 

So, when you give your son or daughter your family car that you own to take to college, and they, in turn, hand the keys to their drunken frat or sorority buddies to go on a beer run to the convenience store because their party ran out of alcoholic beverages, Mom or Dad -- as owners of the car – are statutorily responsible for the horrible collision and injuries that takes place when the drunk buddies using the family car run a red light and collide with the car operated by a nice lady taking her daughter to dance lessons.

This state ownership presumption used to include the corporate owners of leased or rental vehicles.  This was deeply problematic for those corporations, who found themselves in injury lawsuits as statutory owners in almost every county in every state around the country -- they had to hire lawyers, and get insurance, to protect themselves.  Imagine!  How expensive!  What a waste of time, money and profits! 

So Congress, clearly bending to the will (and campaign contributions – you can look it up) of the automobile and truck leasing and rental corporations, enacted a Federal law in 2005 known as the “Graves Amendment” that preempts -- wipes out the effect of -- all state laws across the U.S. that provide this protection to injured parties who are struck by a negligent operator of a vehicle owned by a lease or rental company.  The giant companies that lease and rent cars and trucks are now (allegedly) completely off the hook for liability purposes as a result of this Federal legislation.  What a sweet deal for Penske Truck Leasing, Idealease, LeasePlan USA, Ryder, Enterprise Rent-A-Car, Hertz, Avis, etc. -- you name 'em. 

Don’t you wish Congress would take care of you like that?        

But maybe those companies are not completely off the hook.  There’s a fly in the Graves Amendment soup that a sharp plaintiff’s lawyer and law firm in Buffalo, New York, has identified and exploited -- to the benefit of a dead woman horribly killed by a negligent truck driver operating a leased tractor-trailer in New York.

The key decision, from the U.S. District Court, Western District of New York, by the Hon. Richard Arcara, U.S. District Court Judge in Buffalo, is entitled Stratton v Wallace, 2014 U.S. Dist. LEXIS 105816 (W.D.N.Y., July 31, 2014).

The decision can be accessed on the web here:

http://barclaydamon.com/documents/transportation2014/Stratton_v._Wallace,_2014_U.S._Dist._LEXIS_105816.pdf

In Stratton v. Wallace, Judge Arcara rejected the defendants' Graves Amendment argument there by carefully examining the interrelationship between the vehicle's corporate owners and operators.  The key to the Stratton v. Wallace decision is how modern, sophisticated trucking and rental car entities set up their ownership/lessor-lessee/rental relationship.

In Stratton v. Wallace, the defendant driver Thomas Wallace was driving a tractor-trailer owned by Great River Leasing, LLC, on the N.Y.S. Thruway.  When driving the tractor-trailer while watching pornographic films in the cab of his truck, Wallace veered out of his lane and struck a disabled car on the right shoulder in which Julie Stratton was a passenger, killing her. The Stratton estate brought suit in negligence against driver Wallace; his employer, Millis Transfer, Inc.; the tractor-trailer's owner, Great River Leasing, LLC; and Midwest Holding Group, Inc., which was the parent of both Millis Transfer, Inc., and Great River Leasing, LLC.

As set forth in the Stratton case, motions were made by the parties as to whether the tractor-trailer's owner, Great River Leasing, LLC, which operated exclusively as a vehicle purchase and leasing company, was protected by the Graves Amendment from vicarious liability.  The Court in Stratton found that based upon the interrelated corporate ownership and lease structure of Millis, Great River, and Midwest, the Graves Amendment did not protect or shield the vehicle owner, Great River Leasing, LLC, from N.Y. V.T.L. § 388 vicarious liability.

Every plaintiff’s personal injury attorney practicing in the area of motor vehicle negligence should carefully study and follow the Stratton case if they find the tortfeasor is operating a leased or rented car or truck.  It is imperative that the attorney understand from the very first moment of his or her case the complex, modern interrelationships car and truck leasing and vehicle rental companies use that may obviate the Graves Amendment problem.  This requires proper pleadings in the Complaint that create an opportunity for full and fair discovery proceedings of each of the corporate parties involved in the vehicle leasing scenarios.  This analysis is critical in an action involving a leased vehicle to determine if, as in the Stratton fact-pattern, the Graves Amendment does not protect or shield one or more of those corporate leasing and/or rental entities from statutory vicarious liability.

Mastering the facts and law of the Stratton case is critical to this analysis.  In the Stratton case, the Court there set out a graphic to show the interrelationship between the parties, which is extraordinarily helpful to review and follow.  

The Court in Stratton recognized what it called "run-of-the-mill" Graves Amendment cases, where the vehicle's owner and operator are related only by an arm's length contract, which the Court described as "generally simple."  In this scenario, the Court stated:

In such cases, the Graves Amendment provides that the owner is not liable for the driver’s negligence so long as (1) the owner's business is leasing or renting vehicles; and (2) the owner was not negligent.

The District Court recognized that in the Stratton case, the scenario was different.  With regard to the Stratton fact-pattern, Judge Arcara stated:

However, what differentiates this [Stratton] case from ordinary Graves Amendment cases is the fact that, here, the lessor and the lessee are related by more than just a lease agreement; in this case, the lessor and the lessee are owned by the same parent company. The Graves Amendment contemplates this situation by providing that the Amendment may also apply to a vehicle owner's ‘affiliate,’ which the Amendment defines as follows:

(1) Affiliate. — The term ‘affiliate’ means a person other than the owner that directly or indirectly controls, is controlled by, or is under common control with the owner. In the preceding sentence, the term ‘control’ means the power to direct the management and policies of a person whether through ownership or voting securities or otherwise.

The Stratton Court found that Great River Leasing, LLC, and Millis Transfer, Inc., were "affiliates" arising from a common owner, Midwest Holding.  The Court then took the Graves Amendment language and inserted the names of the tractor-trailer owner, Great River Leasing, and the affiliate, Millis, into the statute to undertake an analysis of whether the Graves Amendment applied in the Stratton case, as follows:

A.     The statutory language of the Graves Amendment, 49 U.S.C. § 30106:

(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 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).

B.     The Stratton Court’s specific application of the Graves Amendment language, above, plugging-in and utilizing the names of the affiliate parties in that action:

(a)    In general. — [Great River] shall not be liable under the law of any State 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) [Great River or Millis] 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 [Great River or Millis].

The Court in Stratton thereafter determined that while subsection (a)(1) above was true, subsection (a)(2) was not true: the plaintiff in Stratton alleged that Millis was negligent, and as such, because both Great River (the owner) and Millis (as the affiliate of the owner) were not free of negligence, the Graves Amendment was inapplicable.  As a result, the Court found Great River to be vicariously liable under N.Y. V.T.L. § 388.

The analysis in Stratton v. Wallace is applicable to many (but of course not all) modern leasing and rental vehicle ownership scenarios.  What is suggested by the Stratton case and this blog post is that a plaintiff’s attorney plug-in all the potential parties who may be involved in what looks like even a “run-of-the-mill” rental vehicle collision claim.  Internet research involving the major car rental or leasing companies involved, a careful review of the tortfeasor’s vehicle rental papers, and examining what insurance company initially appears on behalf of which leasing or rental company, may reveal the complex and interrelated nature of how that rental or leased car or truck got on the road, who is the real owner, and whether that owner was separately negligent. 

It is fair to say in this writer’s experience, and looking at the Stratton case history, the leasing and rental vehicle corporations do not like attorneys lifting the hood of their modern, complex corporate leasing operations -- which very well may show the high-horsepower Graves Amendment is broken and not functional in their engine bay on your particular claim. 

James Snyder