What are Plaintiffs Doing to Skirt the Graves Amendment?

The Graves Amendment, passed in 2005 and codified at 49 U.S.C. § 30106, bars an action for vicarious liability under state law against commercial lessors of motor vehicles involved in motor vehicle accidents, provided that the lessor is free from negligence or criminal wrongdoing. Courts across the country have used the Amendment to protect lessors of tractors, trailers, and intermodal chassis. New York courts have been leaders in protecting rights under the Graves Amendment, especially against New York’s infamous vicarious liability statute, Vehicle and Traffic Law § 388. So, what are the plaintiffs’ lawyers doing to avoid the Graves Amendment?

A double-truck head-on collision, and a downtown New York terrorist attack, illustrate the cleverness of the plaintiffs’ bar. The former is seen in the Illinois federal court case of Favorite v. Sakovsky (August 16, 2019). The terrorist attack is at the center of Grandelli v. City of New York, in Manhattan state court (September 24, 2019). In each horrible case the plaintiffs’ attorneys attempt to increase the pool of financially viable defendants, and to avoid the Graves Amendment.

In Favorite, widow Stephanie Favorite sued the Sakovski estate, BB Wolf, Inc., and Compass Truck Rental and Leasing, the company that leased the Sakovski truck to BB Wolf. She alleged that Compass negligently entrusted the truck to BB Wolf, and should have known that BB Wolf might employ an incompetent driver. Specious as the allegation was, the court denied Compass’s Graves Amendment motion to dismiss because there had been no discovery as yet. A full fact development might support Compass, but the bare complaint did state a cause of action for negligent entrustment.

In Grandelli, Sayfullo Saipov rented a pick-up truck from Home Depot and drove it into a crowd of pedestrians and bicyclists in lower Manhattan, killing eight people. The estate of one victim brought suit against the City and several agencies, and also against Home Depot, alleging that the truck’s lessor negligently entrusted the truck to Saipov, in spite of certain “red flags” from law enforcement publications to be on the lookout for customers who might use a truck to commit terrorist attacks. Home Depot made a Graves Amendment motion to dismiss before conducting any discovery. The court in New York County denied the motion without prejudice, on the incomplete record before it. The court held that the complaint sufficiently stated a case for negligent entrustment, which circumvents the Graves Amendment.

Only one appellate court has considered whether a negligent entrustment claim is barred by the Graves Amendment. In Carton v. GMAC (2010), the Eighth Circuit ruled that vicarious liability claims are barred, but a claim of negligent entrustment, not just negligent maintenance of a leased vehicle, can create an exception to the Graves Amendment. But in this case, the court held plaintiff’s allegations failed to rise to the level of negligent entrustment.

For now, equipment lessors will continue to face negligent entrustment claims, likely unprotected by the Graves Amendment. Lessors should be prepared to present proof of careful practices and procedures to thwart claims of negligent entrustment.

CA Federal Court Restrains Enforcement of “ABC Test” for Motor Carriers

Edward J. Schwartz United States Courthouse

A federal district court in southern California issued a temporary restraining order on New Year’s Eve barring the enforcement of the state’s Assembly Bill 5, set to go into effect on New Year’s Day. AB 5 adopted the “ABC test” to determine if a particular worker is an independent contractor or an employee. The test hits particularly hard on the motor carrier industry, because many trucking companies use legitimate independent contractors – owner-operators – as part of their business model. The court’s decision was compelled largely because under the Federal Aviation Administration Authorization Act (“FAAAA”), states are not to enact or enforce their own laws related to a price, route, or service of any motor carrier regarding transportation of property. The TRO applies only to the motor carrier industry.

The ABC test presumes that a worker is an employee, not an independent contractor. The hiring party can rebut that presumption only if it can establish each of three factors:

  • The person is free from the control and direction of the hiring party in connection with the performance of the work, both under the contract for the performance of the work and in fact.
  • The person performs work that is outside the usual course of the hiring entity’s business.
  • The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Rebutting the presumption is virtually impossible for a motor carrier, because it cannot meet Prong B. The owner-operator will always be within, not outside, the usual course of business of the hiring motor carrier. Thus, the California Trucking Association and several members of the industry brought the legal challenge.

Judge Benitez granted the TRO, holding that the plaintiffs had met their burden to show 1) they are likely to succeed on the merits, 2) they are likely to suffer irreparable harm in the absence of relief, 3) the balance of the equities tips in their favor, and 4) the requested relief is in the public interest.

Although this is a very preliminary victory, it signals what may come from Judge Benitez on the motion for a preliminary injunction and, ultimately, the outcome of the case at the trial level. There is still a long road to travel, but this outstanding beginning sends a signal to the states that the Congress has a preemptive role in motor carriers’ business regulation. Notably, New Jersey has just enacted legislation adopting the ABC test, and for the same reasons as are evident in California. Will New Jersey’s legislation, too, be found to interfere with Congressional regulation of motor carriers? We will be watching.

Is PIP Reimbursement Arbitration Mandatory for a Self-Insured in New Jersey?

An appellate court in New Jersey says that it is. In Liberty Mut. Ins. Co. v. Penske Truck Leasing, Co., CEVA Freight, LLC, and Michael Kika, a recently published decision, the Appellate Division ruled that a self-insured must submit to mandatory arbitration in regard to a PIP reimbursement claim. An arbitrator, not a court, will decide whether the self-insured was negligent and must reimburse the PIP carrier. The decision is important because it is the first such published opinion.

In our post of June 17, 2019, we explained that a PIP-paying insurance carrier has a statutory right of direct reimbursement from a negligent motorist – a “tortfeasor” – not by way of subrogation, but through negotiation or arbitration. In Liberty Mutual, the court reiterated that statutory right and held that CEVA Freight, Inc., a self-insured trucker, is required to arbitrate the issue of whether its employee, Michael Kika, was negligent – thus a tortfeasor – in the operation of CEVA’s truck. If so, CEVA must reimburse Liberty Mutual.

Michael Kika, CEVA’s truck driver, allegedly caused a collision on Route 9 in Monmouth County, New Jersey, by blocking the roadway while attempting to back into a customer’s lot. Eugene Jerinsky, Liberty’s insured, struck the CEVA trailer while operating his pick-up truck. The police investigation and report raise some factual issues of possible fault on Jerinsky’s part. Liberty Mutul made a claim against CEVA for its PIP payments for Jerinsky, and CEVA denied the claim. Liberty sued to compel arbitration, and lost in the lower court. Liberty appealed.

The Appellate Division sided with Liberty. The court reviewed the history and case law regarding the New Jersey No Fault Law, and determined that its clear wording compelled that the issue of CEVA’s liability must be submitted to arbitration. CEVA’s status as a self-insured trucker does not change the conclusion. The Appellate Division endorsed the wording of Liberty’s position that –

. . . CEVA is required to arbitrate the issue of whether Kika was negligent and, therefore, a “tortfeasor,” to determine whether Liberty is “legally entitled” [another statutory phrase] to reimbursement of PIP benefits paid on behalf of Jerinsky

Unless overruled by the New Jersey Supreme Court or the Legislature, the Liberty Mutual decision will now require self-insured commercial vehicle operators to submit to arbitration of PIP carriers’ reimbursement claims.

A Reminder about PIP “Subrogation” in New York and New Jersey

We are often asked in trucking cases whether we can settle a personal injury claim and also have the claimant release the “PIP Subrogation” claim, or the “PIP Lien.” In these states, the answer is “No.”

It really isn’t subrogation, or even a “lien.” And it makes a difference. In both states, the right of the PIP carrier to be reimbursed for its payments of medical expenses and lost earnings arises from statute. The right of reimbursement takes life when the first payment is made. Only the PIP carrier has the right of reimbursement, and only the PIP carrier can release the claim. That right of reimbursement is enforced, generally, through arbitration mandated by statute. In this regard, the PIP reimbursement claim is substantively and procedurally different from a worker’s compensation lien, or a physical damage subrogation claim.

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Supreme Court Resolves Maritime Product Duty-to-Warn Issue

The United States Supreme Court is the final arbiter of the Maritime Law, a unique and large body of federal common law, tempered by any controlling Congressional enactments. So, in recently decided Air & Liquid Sys. Corp. v. DeVries, the Court addressed the scope of the duty of a marine product manufacturer to warn of a potential harm from a part that is required to be incorporated into its product. Here, the part to be added contained asbestos, and it allegedly led to the deaths of two Navy sailors. Their families sued the manufacturer of pumps, blowers, and turbines, but not the manufacturer of the asbestos-containing added part that actually caused the harm. The Supreme Court sided with the families.

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Forum Selection Clause Alive and Well in the Second Circuit

by John C. Lane

This case involves an on-line retailer, E-Commerce China, and the plan of its majority shareholders to buy out the minority owners in a “going private merger.” The company is incorporated in the Cayman Islands. The minority shareholders brought suit in Manhattan federal court, urging that the purchase price was below market value and grossly unfair. The defendants moved to dismiss on the ground of forum non conveniens, claiming that the case should properly be brought in the Cayman Islands, the company’s home of incorporation.

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