I. Update to the Graves Amendment
On August 10, 2005, President George W. Bush signed into law the "Safe, Accountable, Flexible and Efficient Transportation Equity Act of 2005," which amended Sub-Chapter 1 of Chapter 301 of Title 49, United States Code, colloquially referred to as the "Graves Amendment." The Graves Amendment abolishes the imposition of any form of vicarious liability on car and truck rental and leasing companies in the United States on actions based solely on their renter's negligence. As Congressman Graves, the sponsor of the measure, explained: "What we are doing is eliminating vicarious liability simply because the [car rental agencies] own the vehicle." 151 Cong. Rec. H1199, H1200-01, 134 (daily ed. March 9, 2005)(statement of Rep. Graves). Thus, the Graves Amendment specifically prohibits vicarious liability-based causes of action against entities that are in the trade or business of renting or leasing vehicles.
The practical import of the Graves Amendment is to prevent the offloading of increased litigation costs onto consumers, often forced to pay higher rental rates, and to prevent smaller rental and leasing companies from going out of business, thereby limiting consumer choice. The Graves Amendment further focused on protecting the car and truck rental industry from the unequal application of law in fifteen (15) states and the District of Columbia that imposed vicarious liability on the corporate owners of rental vehicles.
Although the Graves Amendment precludes vicarious liability, it does not exclude any and all potential liability against a vehicle owner, which is allowed in limited circumstances. While 49 U.S.C. §30106(a)(2) creates an exception to the statute for the rental or leasing company's negligent maintenance claims, "it is rarely applicable and should be cautiously applied in light of Congress' clear intent to forestall suits against vehicle leasing companies." Carton v. General Motors Acceptance Corp., 639 F.Supp.2d 982, 996 (N.D. Iowa 2009). "Unless a State specifically imposes a legal duty on lessors to ensure that their lessees maintain adequate insurance or to ensure that their lessees have adequate driving records, § 30106(a)(2) only appears to apply to claims predicated on criminal wrongdoings and negligent maintenance claims..." Dubose v. Transp. Enter. Leasing, LLC, 2009 WL 210724 (M.D. Fla. Jan. 27, 2009)(emphasis added).
The Savings Clause also allows an exception for state insurance and licensing laws. "Under the Graves Amendment, states may require insurance or its equivalent as a condition of licensing or registration, or may impose such a requirement after an accident or unpaid judgment." Garcia v. Vanguard Car Rental USA, Inc., 540 F.3d 1242, 1244 (11th Cir. 2008).
II. The Savings Clause Exception: When Graves Amendment Does Not Apply
Many plaintiffs have identified obvious shortcomings in the Graves Amendment, further exasperated by plaintiff-friendly jurisdictions. Thus, in many instances, especially in jurisdictions with low pleading standards, plaintiffs will often include allegations of negligence against the owner, to avoid preclusion by the Graves Amendment. This will prevent a vehicle owner or lessor from resolving a lawsuit at the pleading stage, but rather requires the parties to engage in the discovery process.
For example, the Graves Amendment would not preclude liability when a plaintiff alleges a vehicle owner negligently entrusted a vehicle to a lessee. In Muhammad v. Skomsvold, the Court determined that because the plaintiff alleged that Hertz [a rental vehicle company] itself was negligent, by negligently entrusting a vehicle to a person who was unfit to drive, the Graves Amendment did not apply. No. 2:21-cv-01536-APG-EJY, 2021 U.S. Dist. LEXIS 204021, at *4-5 (D. Nev. Oct. 22, 2021); see, Grandelli v. City of N.Y., 2019 NY Slip Op 32856(U), ¶ 7 (Sup. Ct.)(Denying Home Depot's Motion for Summary Judgment on the grounds that it was too early to conclude Home Depot did not have any causal responsibility for the October 31, 2017 terrorist attack by renting a truck to Sayfullo Saipov).
The Graves Amendment also does not apply in instances where a plaintiff alleges a vehicle was negligently maintained. Novovic v. Greyhound Lines, Inc., No. CV-08-3190 (CPS), 2008 U.S. Dist. LEXIS 94176, at *8-9 (E.D.N.Y. Nov. 19, 2008). In such instances, there needs to be an analysis regarding who had the duty of maintaining the vehicle and/or whether the lessor was involved in the maintenance of the vehicle. The Court in Novovic noted that there could be grounds for a claim against the lessor when a lease required the lessee to follow the lessor's "recommended standards of care and maintenance," the lease permitted the lessor to make periodic inspections of equipment, inspect records concerning the equipment, and allowed the vehicles to go to the lessor's facility for inspections. Id.; see also, Johnson v. Alamo Fin., L.P., No. 6:09-cv-1768-Orl-19GJK, 2009 U.S. Dist. LEXIS 109062, at *8 (M.D. Fla. Nov. 19, 2009)("The allegation of negligent maintenance therefore brings the vicarious liability claim within the exception to the Graves Amendment set forth in Section 30106(a)(2).")
A federal court for the Western District of New York fairly recently expounded on this exclusion to include the negligence of affiliate companies. See Stratton v. Wallace, No. 11-CV-74-A(HKS), 2014 U.S. Dist. LEXIS 105816 (W.D.N.Y. July 31, 2014). In Stratton, Julie Stratton was killed when her disabled vehicle was struck by a tractor trailer driven by Thomas Wallace. Julie Stratton's spouse, Michael Stratton, brought a lawsuit against various corporate entities, including the employer of Thomas Wallace, Millis Transfer, Inc.; the owner of the truck, Great River Leasing, LLC, and the common owner of both Millis Transfer, Inc. and Great River Leasing, LLC, Midwest Holding Group, Inc. Id. at *3. The Court in Stratton was tasked with deciding how the corporate structure and affiliate relationship between the three defendant entities impacted liability for purposes of the Graves Amendment. The Stratton Court found that to immunize the owner of a vehicle from vicarious liability, subsection (a)(2)required that both the owner and the affiliate of the owner be free from negligence. Id. at *12. Therefore, in order for the Graves Amendment to shield liability, the affiliate companies, both the lessee [Millis Transfer, Inc.] and the lessor [Great River Transfer, LLC] must be free of negligence. Id. at *15.
Although it is not widely clear if other Courts will follow Stratton, the holding should encourage entities to be mindful about their business processes, as well as their corporate structures in light of the growing limitations on the Graves Amendment. Entities that have intricate relationships with affiliates regarding the rental or lease of vehicles may be faced with the additional hurdle of demonstrating that an affiliate was not negligent in addition to proving the entity itself was not negligent in order to find relief under the Graves Amendment. Additionally, contractual relationships that give an owner or lessor right to control maintenance of a vehicle may further open it up to liability.
Please note that the law on the Graves Amendment is always changing with new decisions from state and federal courts, as well as legislative action.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
