Five years ago, a conservative Congress and President expanded federal power by enacting the Graves Amendment. This federal legislation reached into state laws and granted immunity to car rental and leasing companies by overriding the laws of states that held the vehicle owners vicariously liable for the acts of their drivers.
But legislation has persisted against the rental car companies anyway, and conflicts of interest have been exposed as a result. Previously, after an accident involving a rental vehicle, New York attorneys would simply plead in the Complaint that the owners were vicariously liable under Vehicle and Traffic Law § 388. But with that law knocked out by the Graves Amendment (see: Car Rental Immunity Law Held Unconstitutional By Federal Judge (Updated – Reversed)) lawyers have been arguing that the owners were negligent in the way they entrusted the cars to the drivers or in the maintenance of the vehicle. If I were to rent a car with bad brakes from Avis or Hertz, for instance, and then rear-ended someone and was sued, the rental company might well be liable.
But when the defendants answer these suits, all too often there is just one law firm that represents both the driver and the rental company. This, as we say in legalese, is a big, fat no-no.
On June 25th, Supreme Court (New York’s trial level court) Justice Jack Battaglia took on the subject, without the plaintiff even raising the issue by motion. In Vinokur v. Raghunandan Justice Battaglia disqualified the firm of Shapiro, Beilly, Rosenberg & Aronowitz for trying to represent both owner and driver.
The issue arose when the leasing company sought summary judgment, based on the immunity that Congress gave them with the Graves Amendment. Not so fast, wrote Justice Battaglia, pointing out that:
An attorney who undertakes the joint representation of two parties in a lawsuit should not continue as counsel for either one after an actual conflict of interest has arisen because continued representation for either or both parties would result in a violation of the ethical rules requiring an attorney to preserve a client’s confidences or the rule requiring an attorney to represent a client zealously.
And when does this issue arise? Not when the issue is raised by the opposing party or the court, but rather, at the time the reasonable attorney should have been aware of it. According to Justice Battaglia, “in this case a reasonable lawyer should have been aware of the conflict of interest upon receipt of Plaintiff’s Complaint.”
The reason for the conflict should be clear, though it apparently wasn’t to the firms that have attempted the dual representation: If the leasing company is dismissed from the suit, the driver is left holding the bag for the entire verdict. The leasing company has an interest here in saying the car was in perfect working order, while the driver may be puzzling on why, for example, the car didn’t stop as quickly as s/he thought it should when the brakes were hit. Justice Battaglia wrote:
“…a law firm representing both the leasing company and the driver has an inherent conflict of interest where the law firm seeks to move for dismissal of the complaint only as against the leasing company since the driver would be left bearing full liability.”
And it doesn’t matter when the plaintiff raises the issue, or even if the plaintiff raises the issue. Because the driver may have a cross-claim against the leasing company that is completely independent of the plaintiff’s claim against the driver. How does the driver tell his lawyer that the brakes on the car rental didn’t work when the same lawyer represents the car company? How does the lawyers zealously represent the driver by doing adversarial discovery of the rental company’s maintenance records? Justice Battaglia:
In addition, even though a plaintiff may in some circumstances not assert any other basis of liability against a leasing company other than vicarious liability pursuant to Vehicle and Traffic Law § 388, a driver of the leased vehicle may assert, if appropriate, cross-claims against the leasing company for, among other things, having provided the driver with a vehicle with a mechanical defect.
The law firm could have been saved from this, perhaps, if they had the written consent of both of their clients. The court noted:
…the Law Firm may still represent both clients if conditions set forth in Rule 1.7(b) of the Rules of Professional Conduct are met. Rule 1.7(b) provides that, “Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:
(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in writing.” (Rules of Professional Conduct [22 NYCRR 1200.0] Rule 1.7 [b].)
But, since this written consent was not obtained, the firm was disqualified from representing the driver as well as the leasing company. The court didn’t rule on whether the firm could continue to represent the leasing company, but it seems to me that a motion by the defendant-driver’s new counsel to disqualify his former defense firm could easily be made.
On a final note, the encroachment by the federal government on state laws is currently before Congress in the form of the Braley Amendment to undo the damage caused by the appropriation of power with the Graves Amendment. Ironically, people who claim to generally support state power over federal power are opposed, which tells you how political philosophy often takes a back seat to protecting the interests of Big Business from some on the right. Numerous consumer groups support the restoration or rights that had been stripped away by the Graves Amendment. The car rental and leasing companies, of course, want the continued immunity.
Consumers may recall a period of time in New York (and other states probably) when auto manufacturers discontinued the less expensive option of leasing new vehicles. That was reportedly due in large part to states’ vicarious liability laws, under which auto manufacturers’ finance companies or leasing trusts, still holding title to the leased vehicles during the lease term, could be held liable in damages for injuries caused by the negligent operation of the leased vehicle even though the lessor itself was not negligent. Like it or not, the enactment of the Graves Amendment restored auto leasing as an affordable option for new car consumers. If the Graves Amendment is repealed, auto manufacturers will likely eliminate the leasing option once again, and consumers who are unable to afford the higher monthly payments of buying a new car will suffer in the name of restoring deeper, non-negligent recovery pockets for personal injury plaintiffs and their attorneys. That should surprise no one, given that the bill amendment’s sponsor, Rep. Bruce Braley (D-IA), is the former president of the Iowa Trial (aka Personal Injury Plaintiffs’) Lawyers Association.
http://www.pointoflaw.com/archives/2010/05/using-motor-veh.php
http://www.autorentalnews.com/Blog/Auto-Focus/Story/2010/05/Here-We-Go-Again-Graves-Amendment-under-Attack.aspx
The Braley Amendment’s supporters erroneously stated in their May 26, 2010 letter to Congressman Braley (http://centerjd.org/archives/press/2010/GravesAmendmentGroupF2.pdf) that the Graves Amendment permits “rental car companies … to escape responsibility for serious injuries caused by their uninsured drivers.” Not in New York, it doesn’t. Rental car companies are still required to carry the state-mandated liability and uninsured motorists coverages, even if the renter lacks his or her own insurance.
This explains why there recently has been an increased number of hits on my blog’s Graves Amendment posts from the U.S. House of Representatives, Senate and other Washington, D.C. IP addresses. I suspected something was up.
Roy:
None of your links point to any empirical data to support the contention that vicarious liability makes an appreciable difference in auto insurance coverage. My understanding, and I’m sure you will correct me if I am wrong, is that the insurance industry keeps their data very tightly concealed.
Nor do the links address the public policy issues of the injured person being victimized a second time with the grant of immunity. As between the victims and the owners, the owners are in a better position to control how their vehicles are used.
Eric —
If I loan my car to you, I do so presumably because I know you and trust that you’ll be a careful driver, so as not to expose me to V&T § 388 indirect liability. Car lessors don’t have that level of control at all, and rental companies have only some, from taking a facially valid driver’s license from the renter. I honestly don’t get the victimized/victim thing. If car lessors and rental companies are required to carry state-mandated insurances, like they are in New York State, how are persons injured by leased or rented vehicles being “victimized” at all, much less a second time, as you say, by the Graves Amendment’s grant of immunity from vicarious TORT (not insurance coverage) liability?
I can’t speak to whether or how the Graves Amendment affects insurance coverage premiums, but it certainly affects the availability of the more affordable option of leasing rather than buying a new car. Blame the auto manufacturers if you like, but the “cost” of vicarious liability if the Graves Amendment is repealed will undoubtedly be passed on to new car consumers.
You forget Roy that plaintiff attorneys do not care about consumers in general, only about the specific consumer who has engaged their services. This is as it should be.
I agree that the general public will be shafted if the Graves Amendment repealed but that’s not a legitimate concern for any individual plaintiff attorney, whose concern must be for the client at hand
It’s up to the rest of us to oppose those interests where necessary
And yes, I agree that there is an inherent conflict of interest since the interests of the driver and the rental car company are not necessarily aligned
I am a 37 yr old male who was involved in an MVA in 2006 with a driver of an Enterprise rental vehicle and this amendment is causing problems, because this driver had no license or insurance. Even though he didn’t rent this vehicle, his girlfriend, who rented it and allowed him to drive this vehivle,didn’t even have enough insurance to cover the vehicle, much less a wreck. When do we hold a company responsible for their legal paperwork and their vehicles. It’s now Dec. 2010 and my case is still not settled after 1 shoulder surgery’s and 2 back surgery’s, the second one being a fusion and stabalization in which was not needed before hand. Please vdon’t let these companies continue to get away with this.
Thank You,
This Grave’s Ammendment has to be thrown out. In Oct 2009 my husband was hit in the rear of his truck by a girl driving a rental car that her boyfriend rented for her. # days before the accident He let his insurance drop. So now he is not insured. Why should my husband have to suffer because of this Grave’s Ammendment. They have to change this ammendment.Saving on car insurancew is we would all like to do…ok…..Have no insurance….rent a car….drive the car…..get in accident with car that is your fault. Walk away. The other party could be seriously hurt and the driver of the rental car juts walk’s away. Please do something about this ammendment!!!!!!
My question is for the people who oppose the Graves Amendment. Do you believe a bank should be responsible for the actions of the drivers of vehicles to which the bank has made auto loans? If not, then why would a lessor’s liability be any different. A lease or rental contract is a financial instrument having the same function as a retail installment contract. Both contracts allow for a financier and an operator. The only difference is the timing of when the transfer of ownership takes place. Nevertheless, in any case, it is the driver and only the driver who is negligent for liabilities created by his or her operation of the vehicle. In the rare instance when the leasing or rental company allowed an incompetent driver to get behind the wheel of a car – then, yes, there is negligence on the part of the lessor. The Graves Amendment covers this scenario. In fact, an automobile dealership can be held liable for selling a vehicle to someone who is incompetent under the same premise. It is called negligent entrustment. I am not sure why anyone would have a problem with the Graves Amendment. Finally, we a have a clearly written law that prevents [ed: idiotic, gratuitous slam deleted] attorneys from wrongfully going after corporations. It is unfortunate that there are irresponsible drivers on the roads, but you still have them with or without the Graves Amendment. The only difference is that with the Graves Amendment in place, you will have to work just as hard at going after the driver in the case of a leased vehicle as you would going after the driver of a loaned or owned vehicle.