Vicarious Liability Law Alert
Automobile leasing companies breathe sigh of relief as Graham v. Dunkley is overturned on appeal PlaintiffA?a,?a,,?s bar waits for other shoe to drop in U.S. Court of Appeals, 11th Circuit.
In a significant ruling for the automobile leasing and renting industry, an intermediate appellate court in New York has upheld the constitutionality of a federal law that exempts automobile leasing and rental companies from state laws imposing vicarious liability on automobile owners. At the same time, the U.S. Court of Appeals, 11th Circuit, is considering a similar case. Thus, for the moment, the tide of judicial opinion appears to have shifted clearly in favor of those who support relieving the leasing and rental industry from the burdens of state vicarious liability laws.
In August 2005 the president of the United States signed into law a massive federal highway spending bill that contained an amendment preempting all state laws imposing vicarious liability on motor vehicle owners, as long as the owners were companies engaged in the business of leasing or renting automobiles. The new law, commonly referred to in the industry as the A?a,?A"Graves AmendmentA?a,?? (after its sponsor, U.S. Rep. Sam Graves of Missouri) was codified as 49 U.S.C. A,? 30106. The Graves Amendment was aimed primarily at New York, which is the sole remaining state to impose unlimited vicarious liability on vehicle owners. Other states, such as Florida and Connecticut, recognized causes of action for vicarious liability based on ownership, but effectively placed caps on such liability. The Graves Amendment was criticized by various groups, including the New York State Trial Lawyers Association and the New York State Bar Association, as usurpation by the federal government of a stateA?a,?a,,?s power to control its substantive law of torts.
In 2006 a state trial judge, Thomas V. Polizzi, ruled the Graves Amendment was unconstitutional. See, Graham v. Dunkley, 13 Misc. 3d 790 (Sup. Ct. Queens Cty. 2006). That decision received much attention at the time and was eventually appealed to the Appellate Division, Second Department, which is an intermediate New York State appellate court.
Justice PolizziA?a,?a,,?s Ruling in Graham Overturned
The Second Department has now reversed Justice PolizziA?a,?a,,?s decision and has held the Graves Amendment to be constitutional. See, Graham v. Dunkley, 2008 NY Slip Op. 958 (2d DepA?a,?a,,?t 2007). In reversing the order of the lower court, the Second Department has sided with the weight of judicial authority that the Graves Amendment is a valid exercise of the congressional power to regulate interstate commerce. The Second Department cited five lower court decisions, in which judges had rejected the arguments made by Justice Polizzi. See, Merchants Ins. Group v. Mitsubishi Motor Credit Assn., 2008 U.S. Dist. LEXIS 4755 (E.D.N.Y. 2007); Dupuis v. Vanguard Car Rental USA, 510 F.Supp.2d 980 (M.D. Fla. 2007); Seymour v. Penske Truck Leasing Co., Inc., 2007 U.S. Dist. LEXIS 54843 (S.D. Ga. 2007); Garcia v. Vanguard Car Rental USA, Inc., 510 F.Supp.2d 821 (M.D. Fla. 2007); Iljazi v. Dugre, 2007 Conn. Super. LEXIS 984 (J.D. Waterbury at Waterbury 2007).
Other Pending Appeals
The Second Department is the first appellate court to weigh in on the issue of the Graves AmendmentA?a,?a,,?s constitutionality. However, it will not be the last appellate court to rule on the issue. In two cases decided in U.S. District Court for the Southern District of Florida, Judge K. Michael Moore, ruled that Congress exceeded the authority granted to it under the Commerce Clause of the U.S. Constitution when it enacted the Graves Amendment. See, Vanguard Car Rental USA, Inc. v. Drouin, 521 F.Supp.2d 1343 (S.D. Fla. 2007); Vanguard Car Rental USA, Inc. v. Huchon, 2007 U.S. Dist. LEXIS 76399 (S.D. Fla. 2007). Both the Drouin and the Huchon cases are being appealed to the U.S. Court of Appeals for the 11th Circuit. A decision should be handed down later this year.
In ruling the Graves Amendment unconstitutional, both Justice Polizzi (in Graham) and Judge Moore (in Drouin and Huchon) reasoned that CongressA?a,?a,,? ability to pass laws is limited to those specific powers enumerated in the Constitution, and that pursuant to the Tenth Amendment, all powers not enumerated are reserved to the states or to the people. Although CongressA?a,?a,,? presumed power to exempt leasing and rental companies from state vicarious liability laws is ostensibly promulgated under the Commerce Clause of the Constitution (Art. I, A,? 8, cl. 3), these trial court judges reasoned that the clauseA?a,?a,,?s power was limited in its scope and that Congress could only regulate internal state affairs under three categories of activity. First, Congress may regulate the use of the channels of interstate commerce. Second, Congress is empowered to regulate and protect the instrumentalities of interstate commerce, or persons or things in interstate commerce, even though the threat may only come from intrastate activities. Third, CongressA?a,?a,,? commerce authority includes the power to regulate those activities having a substantial relation to interstate commerce, i.e., those activities that substantially affect interstate commerce. These three categories were set forth by the U.S. Supreme Court in United States v. Lopez (514 U.S. 549 ). Justice Polizzi and Judge Moore both ruled that the Graves Amendment did not fall within any of these three categories.