The Rogak Report: 28 Feb 2008 (Part V) ** Vicarious Liability - Rental Cars **
ANOTHER NEW YORK COURT UPHOLDS FEDERAL LAW SHIELDING LEASED VEHICLE OWNERS
Stewart v. Hertz Vehicles, LLC 2008 NY Slip Op 50373(U) Decided on February 27, 2008 Supreme Court, Kings County Rivera, J. Edited by Lawrence N. Rogak
Hertz moved for an order dismissing the plaintiff's complaint against them on the grounds that the action is barred by United States Code Title 49 §30106. The United States Attorney General sought to intervene to defend the constitutionality of the Federal statute which shields owners of leased cars from vicarious liability.
The US Attorney submitted copies of the Congressional Record dated March 9, 2005 and May 18, 2005; a copy of a decision and order issued by United States District Court Judge in the matter of Garcia v Vanguard Car Rental USA, Inc., 2007 WL 686625; a copy of a decision issued by the Superior Court of the District of Columbia, in the matter of District of Columbia Beretta U.S.A., 2006 WL 1892023; a copy of an order in Lake Superior Court, Civil Division, State of Indiana in the case of City of Gary Indiana v Smith & Wesson Corp., dated October 23, 2006; and an opinion of the United States District Court of the Southern District of Georgia in the matter of Seymour v Penske Truck Leasing, dated July 30, 2007.
Plaintiffs in this case alleged incurring personal injuries as a result of a motor vehicle accident which occurred on January 22, 2005. Plaintiffs alleged that their injuries were caused by a collision between two vehicles near the intersection of 135th Street and Union Turnpike in the County of Queens. One vehicle was a Toyota operated by defendant Robert Roecker. The other vehicle was a 2003 Ford operated by defendant Lawrence Stewart. Defendant Hertz was the owner of the 2003 Ford.
It was undisputed that plaintiff's sole theory of liability against defendant Hertz Vehicles, LLC, is based on a theory of vicarious liability, pursuant to Section 388 of the Vehicle and Traffic Law.
49 USCA §30106, otherwise known as the Federal Transportation Equity Act of 2005 or Graves Amendment, enacted on August 10, 2005, states in pertinent part:
(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).
49 USCA §30106 is in direct conflict with New York State Vehicle and Traffic Law §388 (1) which states in relevant part:
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...
"When a federal statute is in conflict with a state statute," held the Court, "the doctrine of Federal preemption is in effect. The doctrine of Federal preemption is found in the U.S. Constitution, article VI, clause 2, well-known as the Supremacy Clause, which states:"
This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.
"Thus, under the Supremacy Clause, if Congress enacted a statute with the intention of exercising its authority to set aside the laws of a state, the federal law must be followed and the state law is preempted (Barnett Bank of marion County, N.A. v Nelson, 517 U.S. 25, 30, 116 S.Ct. 1103, ). A federal statute invalidates any state law which conflicts or is contrary to a valid Federal statute (see Maryland v Louisiana, 451 U.S. 725, 101 S.Ct. 2114)."
"The doctrine of Federal preemption requires courts to examine Congressional intent, which may be explicitly stated in the statutory language or implicitly contained in its structure and purpose. Absent explicit language, an intent to supersede state law may be inferred where the scheme of Federal regulation is so pervasive as to make reasonable the inference that Congress left no room for the states to supplement it."
"The express language of 49 USCA §30106, the Federal Transportation Equity Act of 2005, makes evident that Congress intended to preempt New York State's Vehicle and Traffic Law §388 which holds an owner of a leased vehicle vicariously liable for the negligence of an operator of its vehicle. It is a familiar and well established principle that the Supremacy Clause invalidates state laws when, acting within constitutional limits, Congress is empowered to pre-empt state law by so stating in express terms. 49 USCA §30106 explicitly states that an owner of a motor vehicle that rents or leases the vehicle shall not be liable under the law of any State (emphasis applied)."
"The plaintiff raised the issue that Congress acted outside constitutional limits when preempting states' vicarious liability statutes.... At issue before the court is whether Congress' enactment of 49 USCA §30106, was an infringement of states' rights granted by the 10th Amendment to the United States Constitution, or a legitimate exercise of its authority under the Commerce Clause of the United States Constitution."
"The Commerce Clause, Article I, section 8 of the United States Constitution, provides that 'Congress shall have the power to ... regulate commerce... among the several states ...'"
"Congress' Commerce powers are vast and must be given great deference. The Supreme Court has consistently held that it 'must defer to a congressional finding that a regulated activity affects interstate commerce, if there is any rational basis for such a finding.' These powers, however, are not without limits; they must have some nexus to interstate commerce. As the Supreme Court stated in United States v Lopez, 514 U.S. 549 , the scope of Congress' Commerce powers has evolved over time to cover three categories of activity: (1) the channels of interstate commerce; (2) the instrumentalities of interstate commerce; and (3) intrastate activities that substantially affect interstate commerce ."
"Section 30106 falls within all three categories of Congressional power to regulate commerce. First, it 'regulates the channels of interstate commerce' by regulating use of the nations roads and highways (Gonzales v Raich, 545 U.S. 1, ). Second, it 'regulates and protects the instrumentalities of interstate commerce', because it 'regulates the leasing and operating of motor vehicles which are quintessential instrumentalities of modern interstate commerce.' (Garcia v Vanguard). And three, it affects intrastate activities that substantially affect interstate commerce."
"Even without applying the above standard established by Lopez , the enactment of Section 30106 was a proper exercise of congressional regulation under the Commerce Clause because it directly affects interstate commerce. Section 30106 applies only when a vehicle owner is 'engaged in the trade or business of renting and leasing motor vehicles'. The entire scope of Section 30106 was an attempt by Congress to regulate the commercial activity of renting and leasing automobiles. The renting and leasing of automobiles, by its nature, affects interstate commerce as rented and leased automobiles routinely cross state lines in their use. The enactment of Section 30106, pre-empting state statutes that hold these owners strictly liable under a vicarious liability theory, will help keep the costs of insurance down for these businesses. If one state enacts a vicarious liability statute, rental companies will need to adjust their insurance coverage because it is forseeable that a rented vehicle will cross the border into that state regardless of whether the vehicle was rented in that state. Those engaged in the trade or business of renting and leasing motor vehicles will pass much of the increased costs of insurance coverage on to consumers. Whether Section 30106 is good policy is not the question. The only question is whether the Congress' enactment of Section 30106 was a regulated activity affecting interstate commerce. The enactment of Section 30106 and its affect on interstate commerce are so profound that the court does not need to find an attenuated affect."
"In addition, the court notes that the argument that tort liability is a power granted to the States by the Constitution is a limited one. The powers of the States, reserved to them by the Tenth Amendment, state: 'The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.' The Tenth Amendment generally reserves to the States traditional police powers, such as the power to proscribe or punish conduct through state tort laws, and prohibits Congress from 'commandeering the legislative process of the States by directly compelling them to enact and enforce a federal regulatory program.' (Hodel v Virginia Surface Mining & Reclamation Ass'n, Inc., 452 U.S. 264 )."
"However, the fact that Section 30106 regulates an area of tort liability does not make it an unconstitutional exercise of power by Congress. If a power is delegated to Congress in the Constitution, the Tenth Amendment expressly disclaims any reservation of that power to the States. Congress' authority under the Commerce Clause is 'plenary' and 'complete in itself; it may be exercised to its utmost extent and acknowledges no limitations other than are prescribed in the Constitution' (Hodel v Virginia Surface Mining & Reclamation Ass'n, Inc., supra., 452 U.S. at 276)."
"The Court finds that Section 30106 is a permissible exercise of Congress' Commerce Clause powers. Furthermore, the Appellate Division Second Department has recently addressed and definitely resolved the question in its decision issued on February 1, 2008 in the matter of Graham v. Dunkley, 2008 WL 269527 [2nd Dept 2008]. This decision reversed the aforementioned Supreme Court Queens County decision, cited as 13 Misc 3d 790. 'Should New York wish to provide protection to innocent victims of accidents with leased and rented vehicles, it may require companies to lease or rent vehicles only to drivers with insurance, set up a fund, or take some other legislative action not barred by the federal statute. However, actions against rental and leasing companies based solely on vicarious liability may no longer be maintained.'"
"Defendant Hertz's motion to dismiss plaintiff's complaint against them on the grounds that the action is barred by United States Code Title 49 §30106 is granted."
Comment: The Second Department's recent decision in Graham would have been controlling on this Supreme Court case anyway, but it's good to see the law applied in the trial courts.