Barclay Damon
Barclay Damon

Legal Alert

New York Federal Court Limits Protection for Motor Vehicle Owner-Lessors Under the "Graves Amendment"

A number of states, including New York, impose vicarious liability on the owner of a motor vehicle for accidents arising out of the negligence of a permissive user. On August 10, 2005, the United States Congress enacted 49 U.S.C. § 30106 (“Rented or leased motor vehicle safety and responsibility”), also known as the “Graves Amendment,” which shields a vehicle owner which rents or leases the vehicle from statutory liability 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).

An open question, until now, was whether the Graves Amendment applies when the lessor is not a traditional leasing company which leases vehicles to the public, but a company set up for no other purpose than to hold title to vehicles and then lease them to a related company.

In Stratton v. Wallace, Case No. 11-cv-74-A (Aug. 1, 2014), the Western District of New York concluded that the Graves Amendment did not go that far. In that case, the owner/lessor of the subject vehicle (Great River Leasing) and the lessee (Millis Transfer) were “affiliates” within the meaning of the federal statute in that they were both subsidiaries of the same holding company (Midwest Holding Group). A driver for Millis Transfer struck and killed the plaintiff’s decedent, who was sitting in a disabled vehicle on the side of Interstate 90.

District Judge Arcara interpreted subsection (2) above as barring ownership liability only where both the owner and the affiliate are without negligence. Since the plaintiff alleged that Millis Transfer was also negligent with respect to the subject accident, its affiliate Great River Leasing was not shielded from vicarious owner’s liability under New York’s ownership liability statute, Vehicle & Traffic Law § 388.

The district court based its decision on the plain statutory language, noting that the sparse legislative history of the Graves Amendment provides little insight into the Congressional intent behind subsection (2). The court, however, was clearly influenced by the general intent of the statute to shield commercial rental and leasing companies from liability without fault when their lessees, over whom they have no control, choose to drive the rented/leased vehicles into states with ownership liability statutes. Here, by contrast, the leasing company was formed by the parent apparently for the sole purpose of purchasing vehicles and leasing them exclusively to an affiliated company.

Notably (although not reported in the decision), Millis Transfer was a federally-certificated interstate motor carrier, with financial responsibility up to $1 million through a liability policy certified to the USDOT by the Insurance Company of North America. Stratton v. Wallace, however, suggests that plaintiffs in ownership liability states may find an additional deep pocket in a company created solely for the purpose of owning vehicles and leasing them to a related motor carrier, if the motor carrier’s negligence contributes to a loss.

If you require further information regarding the content presented in this Legal Alert and its impact on your organization, please contact Thomas B. Cronmiller, Chair of the Torts & Products Liability Defense Practice Area, at (585) 295-4424 or tcronmiller@hblaw.com.