Fleet Management

Attorneys: Don't Restructure Yet Based on Graves Amendment Case

August 2014, TruckingInfo.com - WebXclusive

by Rob Moseley & Kristen Nowacki

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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.

Comments

  1. 1. Greg Foreman [ August 30, 2014 @ 07:50AM ]

    Excellent article, should be required reading for every CDL driver. The article provides an appreciation of where the commercial driver stands in the logistics “food chain”, I.e, at the bottom. My brief career as a CDL driver demonstrated such. Drivers are at the bottom of the food chain in the sense that trucking companies shed as much as, if not all, liability onto them. Even the DOT, FMCSA, contributes to this scenario by making drivers 100% responsible for DOT inspections conducted by commercial, I.e, truck stop, inspections. The driver-as the designated agent for the trucking company-is liable for insuring the inspector is legal licensed, certified, and approved by the DOT to perform the inspection and is liable for any violations missed by the inspector. Legislation such as the Graves Amendment “statutorally” legitimizes the “bottom feeder” stature of commercial drivers. If the average commercial driver were aware of the extent such liability unions would be-should be-for more prevalent in the trucking industry.

  2. 2. Dan [ September 03, 2014 @ 03:31PM ]

    Actually, it's as simple as this & has been going on for a very long time. It's called keeping the money in the family. Taking the money from the right pocket & putting it in the left, or vice versa if you prefer. Starting in the 1970's a local, now defunct, ambulance companies vehicles were rented to the owner/husband by the wife's "dealership". She in turn sold them when they were turned in for new ones. Did that for many yrs. Ended when both passed. That idea was copied by a local bus company which is also gone....on it's own volition, as is the owner thru passing some yrs. ago. They were audited by the DOT in '79, only time if I remember right, but that was for logbook violations. Their parculiar leasing arrangement was never.mentioned from what the drivers gleened and they were a small company so the walls talked. Things change yet remain the same.

 

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