July 12th, 2010

Drivers, Renters and Conflicts of Interest (Graves Amendment Raises Lawyer Conflict Issues)

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.

August 22nd, 2008

Graves Amedment Upheld by 11th Circuit

The 11th Circuit Court of Appeals has upheld the Graves Amendment. That 2005 law protects car rental and leasing companies from claims of vicarious liability for injuries caused by their drivers.

The decision comes out of three consolidated suits in Florida, which had allowed (like New York) the injured to sue the owners of the cars, in addition to the drivers. The owners were held to be strictly liable for the conduct of the drivers if the drivers were negligent. This was a public policy choice made by the legislators of some states, since the owners, by being able to exercise some control over who drove their cars, were more culpable than the innocent victims.

But in 2005 a Republican congress decided to strip this power to control their own insurance laws away from the states, and preempted them by giving it to the federal government in the form of protection for the rental and leasing companies. (I wrote about my own rush to beat that law just days ago in The Million Dollar Listserv.) The hypocritical conduct by the Republicans in usurping state authority for the benefit of these corporations has been widely derided.

While insurance laws are strictly state matters, the court held the statute constitutional under the Commerce Clause, due to the use and impact on rented and leased cars across state lines.

Given the current business friendly make up of the Supreme Court, I doubt that an appeal to that court would be successful unless other Circuits divide the issue. This is, to my knowledge, the first federal appellate decision on the law.

See also my post from last September from one of the lower court decisions: Car Rental Immunity Law Held Unconstitutional By Federal Judge.

August 18th, 2008

The Million Dollar Listserv (Updated)

The listserv may be the single greatest tool the solo or small practice lawyer has. And this post explains why.

This is also a story about some of the best lawyering I ever did, and its connection to a listserv. While I suspect that the lesson may be old hat to many readers — since you are obviously already connected or you wouldn’t have found this blog — I’m going to spill forth anyway on the odd chance you do not already belong to a listserv, or that this gets passed by a friend to at least one less-than-connected attorney.

The story involves the case I just blogged about in June that went to verdict. But if you think I’m going to brag about a brilliant legal argument or devastating cross-examination tip that I picked up and used, don’t worry. It isn’t about that.

Rather, it’s about how a good listserv can spill forth a spectacular amount of small nuggets of information, any one of which can help turn a case. In the one I just tried, I had been alerted to an imminent change in the law. That change turned a 100K case into a seven figure case.

By way of background to appreciate this, you have to know that the car accident that injured my client occurred in July 2005, and that the car that did the damage was a leased vehicle. The Graves Amendment was then passed by Congress just three weeks after the accident. And that amendment destroyed the vicarious liability that existed in New York that held leasing companies responsible when their drivers caused accidents.

Within days of being retained by my client, and while she was still institutionalized in rehab, I learned through a listserv that a House-Senate conference had agreed to this amendment that would eviscerate her rights to recover for her injuries. I learned of the legislation just one day before I was to go on vacation, and I had no idea when President Bush would sign it. So I typed up a Complaint at home and rushed it into the courthouse the next day for filing, beating the presidential signature.

I’d like to tell you the best lawyering I ever did had something to do with one of my trials with fancy openings or summations, a great bit of research finding an obscure case or a brilliant legal argument. Or perhaps a story of an argument from the Second Circuit or New York’s First or Second Appellate Departments.

But instead, the blunt reality is that the simple participation in a listserv alerted me to the passage of damaging legislation. Being connected kept me up to date. Being connected got my client to the courthouse door in time. There was another person injured in this accident, by the way, and his lawyer didn’t file in time. I never asked, but I think it is safe to assume he was not connected to people who were discussing the latest of legal events.

So the utterly simple and routine act of typing up a standard personal injury complaint and getting it filed right away turned out to be one of the best things I’ve ever done for a client. Without it she would have been stuck with the insurance policy limits of the two cars involved, 25K and 100K. Instead, she was able to proceed against the owner/lessor for injuries that clearly exceeded those minimal policies, for an ultimate recovery that exceeds those numbers by seven figures.

And so if you are not connected to such a group in your geographic area, or at least your practice area, then find one. Or create one. This is all the more important for the legions of solo and small firm practitioners, giving you not only the opportunity to swap the latest in news, but the latest in court rules, judicial temperaments and local gossip that just might one day mean all the world to your client.

The constitutionality of the amendment, by the way, is currently on appeal.

Update: Just one day after posting this, the Graves Amedment Was Upheld by the 11th Circuit Court of Appeals

September 17th, 2007

Car Rental Immunity Law Held Unconstitutional By Federal Judge (Updated – Reversed)

Late Friday, a federal judge held that the “Graves Amendment” is unconstitutional. The 2005 federal law abolished vicarious liability of long-term automobile lessors (edit: and renters) based solely on ownership. Thus, states such as New York that hold the owners of cars vicariously liable for the negligence of people they permit to drive their cars, saw their state statutes or common law superseded by federal legislation. One defense firm had written when the law was passed that:

This law is sure to change the landscape of motor vehicle accident litigation throughout the United States.

One of the remarkable things about this landmark piece of legislation was that it was slipped into a 900 page bill in the wee hours of the morning at a House-Senate conference, and had never been the subject of floor discussion or debate. According to the same article from the defense firm, the legislation affected Florida, Connecticut, Maine, and mostly New York.

But U.S. District Court Judge Michael Moore, sitting in the Southern District of Florida, dumped the law on its head, become the first federal judge to declare the federal meddling in state business to be unconstitutional, finidng that the law violates the Commerce Clause. The decision is here: Vanguard-v-Huchon.pdf. The law had previously been held unconstitutional in New York by a trial court judge, violating both the Tenth Amendment and the Commerce Clause.

The legislation has been a source of concern for the clients of personal injury law practitioners, not simply due to the hypocrisy of an allegedly conservative band of politicians sticking their nose into state matters, but because it allowed owners to rent or lease their cars without regard to the liability concerns of renting to people who use those cars in a negligent manner.

The Washington, DC-based Center for Constitutional Litigation represented the car crash victim. In a press release (update: a press release is below), they wrote:

“In this statute Congress did not even try to regulate commerce. It told the states what their tort law had to be, whether it affected interstate commerce or not. The Constitution does not give Congress that power.”

These cases are sure to go up to appellate courts.

(Eric Turkewitz is a personal injury attorney in New York)
—————————————————————————-
Addendum September 19, 2007:
This press release was received via email from the American Association for Justice:

Last week the Center for Constitutional Litigation scored a
major win that furthers our fight to assure that victims of corporate
negligence or misconduct can hold wrongdoers accountable in the civil
justice system.

In a ruling with wide implications for federal preemption and
vicarious liability, the U.S. District Court for the Southern District
of Florida on September 14 declared the Graves Amendment
unconstitutional. That amendment had given immunity to automobile rental
agencies for harm caused by their vehicles (Vanguard Car Rental v.
Huchon, Case No. 06-10082-CIV-Moore/Garber, USDC SD FL).

In 2005, the Graves Amendment (49 U.S.C. Section 30106) was
snuck into a 900-page transportation appropriations bill without review
from relevant congressional committees. The move intentionally
pre-empted state laws that imposed vicarious liability on rental car
companies. The amendment was the prized lobbying success of the
politically active rental car industry, which invested a substantial sum
in campaign contributions in the effort.

The Florida ruling holding the Graves Amendment unconstitutional
came in a declaratory judgment action brought by a group of rental car
companies against a person who had been injured in a collision with a
rental car. The United States intervened to defend the statute’s
constitutionality. However, U.S. District Judge K. Michael Moore found
the amendment “is an unconstitutional overreaching of Congress’ power
under the Commerce Clause.”

“Under the rationale set forth” by the rental car companies and
the United States, Judge Moore noted, “this Court is hard pressed to
think of any type of state legislation which could not be pre-empted by
Congress, including state taxes.” Simply put, the ruling gives rental
car companies a powerful incentive to assure that their customers are
adequately insured. Striking down the Graves Amendment also helps
ensure that victims of car accidents with rented or leased vehicles will
be adequately compensated for their injuries.

The ruling however could ultimately have wide repercussions
regarding the federal government’s preemption powers. In recent years,
Congress has shown little reluctance to legislate in areas of
traditional state concern. Courts, led by the U.S. Supreme Court, have
found such over-reaching legislation in violation of the Constitution.

CCL has numerous cases against the Graves Amendment pending in
Florida state courts, having won many on a statutory interpretation
argument that this federal court chose not to follow. CCL also is
working closely with American Association for Justice members and
affiliated state associations in New York and Connecticut and is counsel
in cases pending in those states.

The CCL entered the case at the request of the attorneys for the
victims, Patricia M. Kennedy and Thomas Scolaro of Leesfield Leighton
and Partners, P.A. in Miami, to address the constitutional issues. John
Vail, CCL Vice President and Senior Litigation Counsel, and Andre Mura,
CCL Litigation Counsel, did the briefing on the constitutional issues,
with Mura arguing the case.

I’m sure you all join me in congratulating CCL for this
milestone victory.
====================================

Addendum – October 24, 2007: Avis has asked me to take down their trademarked logo from this post, as per the comments here. I’ve addressed the issue in a subsequent post: Avis Tells Me Cease And Desist on Use Of Its Logo.

Addendum – October 29, 2007: Dear Avis (A Public Response To Your Trademark Complaint On My Blog)

Updated, August 22, 2008: The 11th Circuit Court of Appeals has upheld the constitutionality of the Graves Amendment.