Attorneys: Don't Restructure Yet Based on Graves Amendment Case
August 2014, TruckingInfo.com - WebXclusive
A federal court in the Western District of New York recently held that a tractor-trailer lessor can be held vicariously liable for the negligence of a lessee, even when that lessor is completely free of any wrongdoing.
The case, Stratton vs. Wallace, stems from a 2009 crash that happened when Julie Stratton hit a deer while traveling on Interstate 90 in New York. While presumably waiting for assistance in her disabled vehicle, a tractor-trailer driven by Thomas Wallace allegedly struck Stratton’s car. Stratton died as a result of the collision, and her husband filed a lawsuit against Wallace as well as against Wallace’s employer, Millis Transfer; the owner and lessor of the truck, Great River Leasing; and the parent company of both Millis and Great River, Midwest Holding Group.
Subsequently, the parties filed cross-motions for summary judgment regarding whether Great River is shielded from vicarious liability under the Graves Amendment, a federal statute which provides that a negligence-free lessor or rental company cannot be held responsible for the negligence of a lessee or renter.
The Graves Amendment reads as follows:
(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).
The defendants argued that Great River, which owned the tractor and trailer at issue, operated solely as a lessor and is therefore protected under federal law. The plaintiff countered that Millis, the trucking company that employed Wallace, was alleged to be negligent, and that Millis is an “affiliate” of Great River. Therefore, the Graves Amendment does not apply.
The magistrate judge handling the pretrial matters recommended that summary judgment be granted to Great River, reasoning that Congress passed the Graves Amendment in order to abolish vicarious liability imposed by state courts and legislatures on vehicle-lessors and their negligence-free affiliates.
The district court disagreed with the magistrate’s recommendation and attempted to distinguish the situation from “[r]un-of-the-mill Graves Amendment cases—where the vehicle’s owner and operator are related only by an arm’s length contract . . . .”
The court determined that Millis and Great River are “affiliates” under the Graves Amendment, because they are both wholly-owned subsidiaries of Midwest Holding. The court further noted that the decision came down to a question of statutory interpretation: “(1) whether the parenthetical ‘(or an affiliate of the owner)’ . . . is intended to be a substitute for the word ‘owner’; or (2) whether the parenthetical is meant to be read in addition to the word ‘owner.’”
The court held that the phrase should be read “in addition to . . . ‘owner’” — meaning that, in order for the Graves Amendment to apply, both the lessor and any affiliates of the lessor, which in this case was the lessee, must be free of negligence. Accordingly, the court concluded that the Amendment does not shield Great River from vicarious liability, even though Great River’s only act was to lease the vehicle to Millis. Consequently, under the reasoning set forth in Stratton, negligence-free lessors may be held vicariously liable for the acts of lessees when the entities are found to be “affiliates,” a result that seems to clearly contradict the intention of the Graves Amendment.
So where does this leave us?
Many trucking companies have painstakingly designed and built structures like Millis to take advantage of the protections provided by the Graves Amendment and other similar laws. Although this case seems to attack the benefits of this structure, the analysis of this decision seems to be more of a veil-piercing expedition than an analysis of the Graves Amendment, which has been almost uniformly interpreted in this context since its drafting.
Don’t go restructuring based on this case. It should be overturned on appeal as being out of touch with the majority position. The case has garnered the attention of several industry groups, and hopefully, will have a short-lived effect on the industry.
By Rob Moseley and Kristen Nowacki are with the Smith Moore Leatherwood law firm, specializing in transportation issues.