Subrogation Division, Inc. v. Brown
Filing
62
ORDER granting 39 Motion for Summary Judgment and denying 47 Motion for Summary Judgment. Signed by U.S. District Judge Jeffrey L. Viken on 1/14/2020. (CLR)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
WESTERN DIVISION
SUBROGATION DIVISION INC.,
CIV. 16-5109-JLV
Plaintiff,
ORDER
vs.
STANLEY BROWN and
21ST CENTURY INDEMNITY
INSURANCE COMPANY,
Defendants.
INTRODUCTION
This case arises out of a 2013 rental vehicle accident in Rapid City, South
Dakota, which came to implicate the Graves Amendment,a federal law. Plaintiff
Subrogation Division, Inc. ("SDU), the assignee of causes of actions owned by
Overland West, Inc.("Overland"), brings this suit against defendants Stanley
Brown and 21st Century Indemnity Insurance Company ("21st Century")
seeking a declaratory judgment that the Amendment preempts South Dakota
law requiring it to pay the costs of the 2013 accident.'
(Docket 32). Plaintiff
also asks the court to enforce Overland's rental agreement by requiring
defendants to reimburse it for the costs of the accident and pay attorney's fees.
Id. . Now pending before the court are the parties' cross-motions for summary
judgment. (Dockets 39 85 47). Each party opposes the other's motion.
(Dockets 54 & 56). For the reasons given below, the court grants summary-
judgment to plaintiff and denies it to defendants.i
I.
Facts
This factual recitation is derived from each party's statement of
undisputed material facts, as well as defendants' response to plaintiffs
statement of undisputed material facts. (Dockets 40, 48 85 55). The facts in
this case are generally undisputed.
On May 3, 2013, Mr. Brown rented a vehicle from Overland in Rapid City,
South Dakota. (Docket 55 at T| 5). . Overland is the Hertz licensee in Rapid City
and is in the business of renting vehicles.
at
2-3. Mr. Brown entered
into a rental agreement with Overland. , Id. at I 4. In the rental agreement, Mr.
Brown agreed to indemnify Overland for "any and all loss, liability, claim,
demand,cause of action, attorneys'fees and expense of any kind .. .. arising from
[his] use or possession of the [rental vehicle] . . . including but not limited to
attorneys'fees incurred by Overland [] to enforce any of its rights].]" Id. at If 11.
The rental agreement also provided that Mr. Brown's "valid and collectible
automobile liability insurance" "will be primary" in the event of,an accident.
(Docket 48 at Tf 3).
Also on May 3, Mr. Brown collided with a vehicle owned by Dan Claymore.
(Docket 55 at Tf 8). Mr. Brown attempted to turn onto Interstate 90 from a
^Plaintiff and defendants each requested oral argument on their summary
judgment motions. The court does not find oral argument useful in resolving
this case.
non-turning lane and collided with Mr. Clayrnore's vehicle.^
at
7-8.
Defendants agree that Overland did not cause the accident through any
negligence or criminal wrongdoing.
at
12. The accident resulted in
$2,271.75 in damages to Mr. Claymore's vehicle.
at
9. Overland's
/
insurance carrier paid the Claymore damages and Overland reimbursed the
carrier because the amount did not exceed Overland's deductible.
at
10.
Mr. Brown carried liability insurance meeting South Dakota's minimum
liability coverage requirements from 21st Centuiy. (Docket 48 at 5). Neither
|
Mr. Brown nor 21st Centuiy reimbursed Overland or plaintiff for the Claymore
damages. (Docket 55 at
SDL
13). Overland assigned its rights in this action to
at K 1. SDI brought this action seeking to recover the Claymore
damages. (Docket 32).
II.
Jurisdiction
"Federal courts have an independent obligation to ensure that they do not
exceed the scope of their jurisdiction!.]" Henderson ex rel. Henderson v.
Shinseki, 562 U.S. 428, 434 (2011). This is true even when no party raises
jurisdiction as an issue.
Here, plaintiff alleges the court has federal
question jurisdiction over this case under 28 U.S.C. § 1331 because the case
^Defendants state "no legal determination" attributing fault to Mr. Brown
was ever made. (Docket 55 at 7). However, they admit Mr. Brown improperly
turned onto Interstate 90, incurring the collision, and he paid a citation for the
accident.
Id.
involves the Graves Amendment, a federal statute.^ (Docket 32 at 3)(citing
|
49 U.S.C.§ 30106). In their answer, defendants assert this case does not raise
a substantial federal question and the Amendment does not create a federal
cause of action. (Docket 36 at p. 3). Defendants do not develop this argument
in their summary judgment briefing. The court undertakes its own
jurisdictional inquiry and concludes federal question jurisdiction exists.
Federal question jurisdiction is easily found "when federal law creates the
cause of action asserted." Gunn v. Minton, 568 U.S. 251, 257 (2013). But the
1
Graves Amendment does not create a private cause of action. Nothing in the
Amendment expressly creates a cause of action. Nor can the court discern any
congressional intent to create an implied cause of action from the text of the
Arriendment. See Cort v. Ash, 422 U.S. 66, 78 (1975)(setting forth factors
courts use to determine whether to imply a private remedy). The text of the
Amendment makes clear it was enacted to create a preemption defense for rental
car companies in vicarious liability suits. 49 U.S.C. § 30106. Unsurprisingly,
^Despite the parties' apparently diverse citizenship, plaintiff does not
allege the court has diversity jurisdiction over this case,, perhaps because the
amount in controversy appears to only be $2,271.75. See 28 U.S.C. § 1332(a).
Graves Amendment cases appear to almost exclusively arise in state courts or in
federal courts sitting in diversity."^
The lack of a federal cause of action does not foreclose the possibility of
federal question jurisdiction. "[I]n certain cases[,] federal question jurisdiction
will lie over state-law claims that implicate significant federal issues." Grable 65
Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 312 (2005).
"[FJederal jurisdiction over a state law claim will lie if a federal issue is:
(1) necessarily raised,(2) actually disputed,(3) substantial, and (4) capable of
resolution in federal court without disrupting the federal-state balance approved
by Congress." Gunn, 568 U.S. at 258. The first, second, and fourth parts of
this test require little analysis, but the third prong raises difficult questions.
Plaintiff raised the Graves Amendment as the central theme of its
complaint and the parties vigorously dispute its application to this case,
satisfying the first and second prongs of the Grable test. As to the fourth
element, the court does not fear "disrupting the federal-state balance,approved
by Congress" by resolving this case because, as a preemption measure, the
^See, e.g.. Carton v. Gen. Motor Acceptance Corp., 611 F.3d 451 (8th Cir.
2010); Garcia v. Vanguard Car Rental USA,Inc., 540 F.3d 1242(11th Cir. 2008);
Green v. Toyota Motor CreditCorp, 605 F. Supp. 2d 430 (E.D.N.Y. 2009); Puerini
V. LaPierre, 208 A.3d 1157 (R.I. 2019); Martin v. Powers, 505 S.W.3d 512(Tenn.
2016); Rodriguez v. Testa, 993 A.2d 955 (Conn. 2010): Meyer v. Nwokedi, 777
N.W.2d 218 (Minn. 2010).
Amendment is designed to overrule contraiy state law.^
Congress no doubt
intended for federal courts to enforce the Amendment in an appropriate case.
Of. Empire Healthchoice Assur., Inc. v. McVeigh, 547 U.S,. 677, 697 (2006)
(finding no federal question jurisdiction where statute "render[ed] preemptive
contract terms in health insurance plans, not provisions enacted by Congress.");
see also Grable, 545 U.S. at 318 (noting lack of"preemption of state remedies"
weighed in favor of no federal question jurisdiction). Allowing plaintiff to raise
its Graves Amendment claim in a federal forum also does not disrupt the
federal-state balance because it would not"inevitably result in exclusive [federal]
jurisdictionf.]" Great Lakes Gas Transmission Ltd. P'ship v. Essar Steel Minn.
LLC, 843 F.3d 325, 334 (8th Cir. 2016)(finding no federal question jurisdiction
where statute would give, exclusive jurisdiction to federal courts).
The court is skeptical the federal interest in resolving plaintiffs claim is
substantial. "[I]t is not enough that the federal issue be significant to the
particular parties in the immediate suit;... [tjhe substantiality inquiry ,. .. looks
instead to the importance of the issue to the federal system as a whole." Gunn,
^The court notes the general rule that "the existence of a federal defense,
including a defense of preemption . .. , does not create federal-question
jurisdiction." Griffioen v. Cedar Rapids 65 Iowa City Rv. Co., 785 F.3d 1182,
1188 (8th Cir. 2015). But it is the plaintiffs complaint which is relevant for
purposes of determining whether federal question jurisdiction exists. See
Franchise Tax Bd. of State of Cal. v. Constr. Laborer Vacation Trust for S. Cal.,.
463 -U.S. 1, 10 (1983). Here, plaintiff asks the court to declare a Graves
Amendment preemption defense exists and enforce Mr. Brown's rental
agreement accordingly. Defendants are not raising a preemption defense as a
basis for federal question jurisdiction.
. 6
568 U.S. at 260. As a general rule, state law primarily governs motor vehicle
insurance. The court would ordinarily not hesitate to dismiss a case alleging
federal question jurisdiction but implicating only state insurance law for lack of
substantiality. On its face, this dispute appears to bear little importance to "the
federal system as a whole." Id.
However, Congress'intent in enacting the Graves Amendment weighs
heavily in favor of federal question jurisdiction. Congress intended to preempt
state laws imposing vicarious liability on commercial rental vehicle owners.
Garcia, 540 F.3d at 1246; Green, 605 F. Supp. 2d at 434.. By doing so through
federal law. Congress intended to replace the hodgepodge of state laws with a
uniform rule barring vicarious liability suits. Congress'-intent to undermine
state tort law implicates the availability of a federal forum to enforce
preemption.^
Great Lakes, 843 F.3d at 333 (finding no federal question
jurisdiction when lack of"federal interest in national uniformity" is evident).
Resolving plaintiffs claim will be a matter of enforcing federal law and giving
effect to Congress'intent, tasks calling upon the expertise of federal courts.
Plaintiff also presents a "nearly pure issue of law" that, once settled, will be
useful to courts throughout South Dakota. McVeigh, 547 U.S. at 700.
^The court acknowledges there is no reason why a South Dakota court
could not competently apply the Graves Amendment in this case. Indeed, the
eourt cannot fathom why plaintiff brought its claims to federal court on such
shaky jurisdictional grounds. Nevertheless, the court concludes it has
jurisdiction over this case and must exercise it. Matav. Lvnch, 135 S. Ct. 2150,
2156 (2015)("[W]hen a federal court has jurisdiction, it also has a virtually
unflagging obligation to exercise that authority.")(internal quotation and citation
omitted).
7
,
Resolving plaintiffs claim primarily requires interpreting the Graves Amendment
and its preemptive effect; it requires less analysis of South Dakota law. See
Great Lakes, 843 F.Sd at 332-33 (finding no federal question jurisdiction where
resolving case required interpreting state instead of federal law). To the extent
the court will have to interpret the parties' rental contract—"ordinarily a matter
of state law"—this is an unexceptional exercise of the court's supplemental
jurisdiction. Id. at 334 (internal quotation omitted).
The court finds it has subject matter jurisdiction over this case as part of
its federal question jurisdiction. Accordingly, the court hasjurisdiction to make
any necessary declaratoryjudgments. 28 U.S.C. § 2201(a). The court also has
supplementaljurisdiction over plaintiffs request that the court enforce its rental
contract with Mr. Brown. Id. at § 1367(a).
111.
Summary Judgment Standard
Under Federal Rule of Civil Procedure 56(a), a movant is entitled to
summary judgment if the movant can "show that there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of law."
Fed. R. Civ. P. 56(a). -Once the moving party meets its burden, the nonmoving
party rnay not rest on the allegations or denials in the pleadings, but rather must
produce affirmative evidence setting forth specific facts showing that a genuine
issue of material fact exists. Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 256
(1986). Only disputes over facts which might affect the outcome of the case
under the governing substantive law will properly preclude summary judgment.
8
Id. at 248. "[T]he mere existence of some alleged factual dispute between the
parties will not defeat an otherwise properly supported motion for summary
judgment; the requirement is that there be no genuine issue of material fact."
Id. at 247-48 (emphasis in original).
If a dispute about a material fact is genuine, that is, if the evidence is such
that a reasonable jury could return a verdict for the nonmoving party, then
summary judgment is not appropriate. I^ However, the moving party is
entitled to judgment as a matter of law if the nonmoving party failed to "make a
sufficient showing on an essential element of her case with respect to which she
has the burden of proof." Celotex Corx). v. Catrett. 477 U.S. 317, 323 (1986).
In such a case, "there can be 'no genuine issue as to any material fact,' since a
complete failure of proof concerning an essential element of the nonmoving
party's case necessarily renders all other facts immaterial." I^ at 323.
In determining whether summary judgment should issue, the facts and
inferences from those facts must be viewed in the light most favorable to the
nonmoving party. Matsushita Elec. Indus. Co.. Ltd. v. Zenith Radio Corp., 475
U.S. 574, 587-88 (1986). The key inquiiy is "whether the evidence presents a
sufficient disagreement to require submission to a jury or whether it is so
one-sided that one party must prevail as a matter of law." Anderson, 477 U.S.
at 251-52.
IV.
Merits Analysis
The parties' cross-motions for summary judgment raise three distinct
issues. First, whether the Graves.Amendment preempts South Dakota.law
requiring the rental company's insurance to primarily pay claims incurred by a
renter. Second, if the Amendment does preempt South Dakota law, whether
that statute is a valid exercise of Congress' Commerce Clause authority. And
finally, whether the rental agreement's requirement that Mr. Brown indemnify
Overland is enforceable. The court finds the answer to each of these questions
is yes and grants summary judgment to plaintiff.
A.
South Dakota rental insurance law & the Graves Amendment
In South Dakota,"[a]n ovmer's policy of liability insurance ... shall insure
the person named therein and any other person as insured, using any insured
vehicle or vehicles with the express or implied permission of the named
insured[.]'' SDCL§ 32-35-70. "This statute clearly requires that an automobile
owner provide coverage for those who use the vehicle with either express or
implied permission." Auto Owners Ins. Co. v. Enterprise Rent-A-Car
Co.-Midwest, 663 N.W.2d 208, 210 (S.D. 2003). In Auto Owners, the South
Dakota Supreme Court held a rental car company, like other vehicle owners,"is
responsible for insuring its rental vehicles" and "must provide primary liability
coverage for its vehicles . .. up to the mandatory minimum amounts." I^ at
211-12(emphasis added).
10
The Graves Amendment also regulates rental car insurance^ The
Amendment's preemption clause provides:
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).
49 U.S.C. § 30106(a). The Amendment also contains a savings clause, which
provides:
Nothing in this section supersedes the law of any State or political
subdivision thereof—
(1) imposing financial responsibility or insurance standards
on the owner of a motor vehicle for the privilege of registering
and operating a motor vehicle; or
(2) imposing liability on business entities engaged in the trade
or business of renting or leasing motor vehicles for failure to
meet the financial responsibility or liability insurance
requirements under State law.
Id. at § 30106(b). The Amendment does not define "financial responsibility."
"^The Graves Amendment was enacted as part of the S^e, Accountable,
Flexible, Efficient Transportation Equity Act of 2005. Pub. L. No. 109-59,
§ 10208, 119 Stat. 1144,,1935 (2005). Itis.so named because Representative
Sam Graves of Missouri proposed the amendment. 151 Cong. Rec. 1199(Mm.
9, 2005).
11
B.
Preemption
"Congress may withdraw specified powers from the States by enacting,a
statute containing an express preemption provision." Arizona v. United States,
567 U.S. 387, 399 (2012). When "the statute contains an express pre-emption
clause," applying the clause "must in the first instance focus on the plain
wording of the clause, which necessarily contains the best evidence of Congress'
pre-emptive intent." CSXTrans.. Inc. v. Easterwood. 507 U.S. 658,664 (1993).
State law is also preempted "when [it] conflictfs] with federal law."
Arizona, 567 U.S. at 399. "Conflict preemption occurs when compliance with
both federal and state laws is impossible, and when a state law 'stands as an
obstacle to the accomplishment and execution of the full purposes and objectives
of Congress.' Keller v. City of Fremont, 719 F.3d 931, 940 (8th Cir. 2013)
"
(quoting Arizona, 567 U.S. at 399. "What is a sufficient obstacle is a matter of
judgment, to be informed by examining the federal statute as a whole and
identifying its purpose and intended effectsf.j" Crosby v. Natl. Foreign Trade
Council, 530 U.S. 363, 373 (2000). "In preemption analysis, courts should
assume that the historic police powers of the States are not superseded unless
that was the clear and manifest purpose of Congress." Arizona. 567 U.S. at 400
(internal quotations omitted).
The Graves Amendment contains an express preemption clause. No
corrimercial rental vehicle owner can be held "liable under the law of any State
... by reason of being the owner of the vehicle" for damages "aris[ing] out of the
12
use, operation, or possession of the vehicle during the period of the rentalf-.]"^
49 U.S.C.§ 30106(a). There is no doubt this clause acts to preempt any attempt
to hold Overland liable under South Dakota law for the Claymore damages.
Defendants more or less concede a plain reading of the Amendment's preemption
clause b^s liability against Overland. Instead, they argue the Amendment's
savings clause protects the South Dakota law announced in Auto Owners from
preemption. (Docket 49 at pp. 4-9).
As noted above. Congress did not define what it meant by the term
"financial responsibility" it used in the savings clause. 49 U.S.C. § 30106(b).
Defendants argue SDCL § 32-35-70 and Auto Owners represent South Dakota
law on financial responsibility and are saved from preemption. s But their
argument merely consists of an analysis of the law promulgated by Auto Owners
and a bare declaration that § 32-35-70 is a law setting "either a financial
responsibility or a minimum insurance requirement." (Docket 49 at p. 9).
Defendants did not offer any statutoiy interpretation of either the savings clause
or South Dakota law.
South Dakota's rental insurance laws do not wholly fit within the savings
clause. To begin, the savings clause applies only to two distinct and narrow
categories of state,law. First, state laws "imposing financial responsibility or
.^Defendants concede the two conditions necessary to activate the
preemption clause. Overland—the original owner of the claim—"is engaged in
the trade or business of renting or leasing motor vehicles" and was not negligent
or otherwise involved in criminal wrongdoing connected to the accident.
49 U.S.C. §§ 30106(a)(l)-(2); s^ also Docket 55 at
3, 12.
. 13
insurance standards on the owner of a motor vehicle for the privilege of
registering and operating a motor vehicle" are not preempted. 49 U.S.C.
§ ,30106(b)(l). Second, state laws "imposing liability on [rental companies] for
failure to meet the financial responsibility or liability insurance requirements"
are not preempted.
at § 30106(b)(2).
The terms "insurance standards" and "liability insurance requirements"
are clear and straightforward. They refer to state laws requiring vehicle owners
to maintain certain types of insurance, generally liability insurance. The term
"financial responsibility" used in the savings clause may seem at first glance to
be more ambiguous than its compatriots. However, common principles of
statutoiy interpretation lead the court to conclude financial responsibility is best
understood as describing liability insurance and analogous forms of
insurance-like financial instruments designed to compensate for injuries and
satisfy judgments.
Congress'choice to juxtapose financial responsibility with terms like
"insurance standards" and "liability insurance requirements" indicates an
affiliation between these concepts. See S.D. Warren Co. v. Maine Bd. of Envtl.
Prot, 547 U.S. 370,378(2006)("The canon[] noscitur a sociis[] reminds us that a
word is known by the company it keeps[.]") (internal quotations and citations
omitted). Black's Law Dictionary defines a financial responsibility act as a
"state statute conditioning license,and registration of motor vehicles on proof of
insurance or other financial accountability." Black's Law Dictionary at 706 (9th
14
ed. 2009); see Taniguchi v. Kan Pacific Saipan, Ltd., 566 U.S. 560, 566-67(2012)
(Noting "[w]hen a term goes undefined in a statute, we give the term its ordinary
meaning[,]" then consulting Black's Law Dictionaiy). South Dakota law likewise
considers liability insurance, bonds or self-insurance as "forms of financial
responsibility[.]" SDCL § 32-35-113. It is clear Congress included the term
"financial responsibility" in the savings clause to exempt state statutes requiring
liability insurance-like instruments from preemption.^
Section 32-35-70, which requires vehicle owners to maintain certain levels
of liability insurance covering both the owner and any other driver of a vehicle, is
a statute "imposing financial responsibility or insurance standards" on a vehicle
owner. 49 U.S.C. § 30106fb)flh see also SDCL S 32-35-113 (requiring "[e]veiy
driver or owner of a motor vehicle" to maintain "liability insurance" or other
forms of"financial responsibility"). It fits squarely within the savings clause..
The Graves Amendment does hot prevent South Dakota from requiring vehicle
owners—including rental car companies—from maintaining liability insurance
or an equivalent form of insurance. Section 32-35-70 is not preernpted;
However, the South Dakota Supreme Court's construction of§ 32-35-70 in
Auto Owners is preempted to the extent it forces rental companies to be
vicariously liable for the torts of renters. Auto Owners requires, a rental
company like Overland to "provide primary liability coverage" for the vehicles it
rents out to customers like Mr. Brown. 663 N.W.2d at 211 (emphasis added).
^Other courts have reached the same conclusion. See, e.g., Garcia, 540
F.3d at 1246-48; Testa, 993 A.2d at 963; Nwokedi, 777 N.W.2d at 224.
15
Defendants argue Auto Owners forbids plaintiff from "shift[ing] its financial
responsibility obligations" to defendants. (Docket 58 at p. 5). Defendants'
characterization of Auto Owners' holding on this point is correct, which is why
the Graves Amendment preempts it. Recall that Overland ultimately paid the
Claymore damages because they fell within its insurance deductible. (Docket
55 at Tf 10). By requiring Overland's insurance—and ultimately Overland—to
primarily cover the Claymore damages. Auto Owners forces Overland to be
vicariously liable for Mr. Brown's torts.
This is the precise result barred by the Graves Amendment. The
Amendment states rental companies like Overland "shall not be liable under
state law for damages incurred by renters. 49 U.S.C. § 30106(a)(emphasis
added). The form in which South Dakota law attempts to achieve this outcome
does not matter. It is true Auto Owners is an interpretation of a financial
responsibility law undoubtedly protected by the Amendment's savings clause.
But to conclude the savings clause protects Auto Owners'requirement that
Overland assume responsibility for Mr. Brown's accident would swallow the
16
preemption clause and negate the Amendment's primaiy purpose
The court
cannot endorse this outcome.
Auto Owners'requirement that Overland pay the Claymore damages is
preempted by the Graves Amendment. However, the Amendment does not
,
otherwise preempt the law announced in Auto Owners. The savings clause
protects South Dakota's power to require rental companies to carry insurance.
South Dakota law simply may not require rental companies to be vicariously
liable for damages incurred solely by renters through insurance law or otherwise.
C.
Constitutionality
Defendants challenge the Graves Amendment's constitutionality.
(Docket 49 at pp. 10-12). They argue Congress lacked the power under the
Commerce Clause to enact the Amendment. Id. However, they offer little
original constitutional analysis. Instead, they merely restate the discredited
analysis of a Florida district court. I^(citing Vanguard Car Rental USA. Inc. v.
Huchon, 532 F. Supp. 2d 1371 (S.D. Fla. 2007)). As plaintiff notes, the United
States Court of Appe^s for the Eleventh Circuit fatally undermined Huchon's
analysis in a thorough opinion concluding the-Graves Amendment is
lOQther courts have reached the same conclusion. See Garcia, 540 F.3d
at 1248 ("If we construe the Graves Amendment's savings clause" to allow for a
vicarious liability suit under a state financial responsibility law,"it would render
the preemption clause a nullity."); Enter. Rent-A-Car Co. of Boston, LLC v.
Mavnard, No. 2;ll-CV-00047, 2012 WL 1681970 at *9 (D. Me. May 14, 2012)
("Why would Congress expressly preempt state laws that imposed ... liability on
car rental companies in one part of[the Graves Amendment] only to allow
continued . . . liability in the guise of state financial responsibility statutes in
another? The answer is that Congress did not.").
17
constitutional. (Docket 56 at pp. 1-2) (citing Garcia, 540 F.3d at 1249-53).
Nevertheless, defendants correctly respond that Garcia is not controlling law in
this district. (Docket 58 at p. 9). The court undertakes the requisite
constitutional analysis and concludes, like the vast majority of courts to confront
this question, that the Graves Amendment is constitutional. See, e.g., Garcia,
540 F.3d at 1249-53; Green, 605 F. Supp. 2d at 434-36 (collecting cases); Testa,
993 A.2d at 967-69.
There are "three broad categories of activity that Congress may regulate
under its commerce power." United States v. Lopez, 514 U.S. 549, 558 (1995);
see also U.S. Const, art. I, § 8, cl. 3.
Congress may regulate the use of the channels of interstate
commerce. Second, Congress is empowered to regulate and protect
the instrumentalities of interstate commerce, or persons or things in
^
interstate commerce, even though the threat may come only from
intrastate activities.
Finally, Congress' commerce authority
includes the power to regulate those activities having a substantial
relation to interstate commerce, i.e.,
substantially affect interstate commerce.
those
activities
that
Id. at 558-59 (internal citations omitted). The Graves Amendment does not
implicate channels of interstate commerce, which primarily concern "interstate
transportation routes through which persons and goods move." United States
V. Morrison, 529 U.S. 598, 613 n,5 (2000)(internal quotation omitted).
However, the Amendment concerns both "persons [and] things in
interstate commerce" and "activities that substantially affect interstate
commerce." Lopez, 514 U.S. at 558-59. "Instrumentalities of interstate
commerce .. . are the people and things themselves moving in commerce,
18
including automobiles, airplanes, boats, and shipments of goods." United
States V. Ballinger, 395 F.3d 1218, 1226 (11th Cir. 2005). Rental vehicles are
instrumentalities of interstate commerce in that they often move in interstate
commerce themselves—for example, frorn the manufacturer to the rental agency
and between rental agencies—and in that they frequently transport individuals
from state to state. The Amendment protects rental companies by lessening
their tort liability, thereby lowering the cost of providing rental vehicles to the
public. The Amendment is a valid exercise of Congress' power to regulate the '
instrumentalities of iriterstate commerce.
The Amendment is also constitutional as a regulation of activities
substantially affecting interstate commerce. "Where economic activity
substantially affects interstate commerce, legislation regulating that activity will
be sustained." Lopez, 514 U.S. at 560. Supreme Court "case law firmly
establishes Congress' power to regulate purely local activities that are part of an
economic 'class of activities' that have a substantial effect on interstate
commerce." Gonzales v. Raich, 545 U.S. 1, 17 (2005):
In assessing the scope of Congress' authority under the Commerce
Clause . . . the task before [a court] is a modest one. [The court]
need not determine whether [the] activities, taken in the aggregate,
substantially affect interstate commerce in fact, but only whether a
rational basis exists for so concluding.
Id. at 22 (internal quotation omitted).
Rental vehicle tort claims are an economic activity substantially affecting
interstate commerce. There is a rational basis for Congress to conclude
19
vicarious liability tort claims brought against rental companies drive up the price
of renting a vehicle. Congress could have rationally found that rental
companies will pass the price of tortjudgments on to consumers in the form of
higher rental prices. Congress also could have rationally found that rental
companies would be reluctant to operate in jurisdictions allowing vicarious
liability suits, affecting the national market: In short, "[t]here is no question
that the commercial leasing of cars is, in the aggregate, an economic activity with
substantial effects on interstate commerce."
Garcia, 540 F.3d at 1252.
Finally, the court agrees with those courts which have rejected the
distinction, posited by defendants, between regulation of tort liability and
regulation of the commerce in rental vehicles. (Docket 49 at pp. 11-12). The
Eleventh Circuit succinctly identified the flaw in this argument:
This is a distinction without a difference, as the state tort law
preempted by the' statute regulates the rental car market; in other
words, the effect of the statute is to deregulate the rental car market.
And it has long been understood that the commerce power includes
not only the ability to regulate interstate markets, but the ability to
facilitate interstate commerce by removing intrastate burdens and
obstructions to it.
Garcia, 540 F.3d at 1252; see also Testa, 993 A.2d at 968-69 (same). The court
would also note that tort law—which allocates economic resources, producing
costs and benefits—can itself be commercial regulation in some respects and
therefore subject to federal authority. Defendants identified no reason
Congress could not preempt state tort laws having substantial effects on
interstate commerce.
20
The court concludes Congress constitutionally enacted the Graves
Amendment using its Commerce Clause authority.
D.
Enforceability of indemnification provision
Having determined the Graves Amendment preempts South Dakota law
and is constitutional, the court next finds the rental agreement between
Overland and Mr. Brown is enforceable. The parties did not file the complete
rental agreement in the record of this case. However, they did provide the
agreement's indemnification provision:
You and all operators will indemnify and hold Overland West, its
agents, employees and affiliates harmlessTrom and against any and
all loss, liability^ claim, demand, cause of action, attorneys',fees and
expense of any kind ("a loss") in excess of the limits stated herein or
beyond the scope of the protection provided for herein, if any, arising
from the use or possession of the car by you, any authorized
operator or any other operator(s) with your, his or her permission,
including but not limited to attorneys' fees incurred by Overland
West to enforce any of its rights hereunder, unless such loss arises
out of Overland West's sole negligence.
(Docket 55 at K 11). Plaintiff argues this provision of the agreement plainly
requires defendants to reimburse the Claymore damages and that the provision
is enforceable because the Graves Amendment preempts contrary South Dakota
law. (Docket 41 at pp. 13-14). Defendants argue Auto Owners invalidates the
indemnification provision. (Docket 54 at pp. 5-6). They also assert the
anti-subrogation rule prevents plaintiff from recovering the Claymore damages.
(Docket 58 at p. 3).
21
In resolving this supplemental state law claim, the court relies on South
Dakota law. The parties raise both subrogation and reimbursement arguments.
In South Dakota,
[s]ubrogation is a time-honored theory in which insurers who pay a
loss for insureds are entitled, within the limits of the subrogation
doctrine, to pursue the actual wrongdoer. By subrogating a claim,
the insurer is allowed to stand in the shoes of the insured to sue the
tortfeasor to recover the payments it made. One limitation to the
doctrine of subrogation, however, is the anti-subrogation rule, a
defense that prohibits insurers from suing their own insureds to
recover a loss. .. .
Reimbursement, on the other hand, often differs factually from
subrogation because rather than seeking recoveiy from a third
party, it allows the insurer to recover policy payments directly from
its own insured or beneficiary upon that party's recoveiy of the same
loss from a third party. Therefore, although the mechanisms of
recovery are different, the effect of subrogation and reimbursement
are essentially the same.
James v. State Farm Mut. Auto. Ins. Co., 929 N.W.2d 541, 543 (S.D. 2019) .
(internal quotations and citations omitted).
The court first finds Auto Owners is distinguishable from the present
claim. As noted above. Auto Owners holds that a rental company must provide
primary insurance coverage for its vehicles. 663 N.W.2d at 211-12. The South
Dakota Supreme Court, noting that the rental company at issue in that case was
self-insured, feared the company would "contract itself out of providing
insurance for the vehicles that it rents" and concluded "South Dakota has made
clear that those who choose to self-insure are held to the same duties as those
Who do not." Id at 211-. Auto Owners, in large part, seemed animated by the
22
concern that self-insiired rental companies acting,in essence, as insurers would
shirk their obligations to renters, the insured.
That is simply not the situation in this case. Overland is not self-insured.
It carries liability insurance satisfying Sputh Dakota law with a commercial
insurer. (Docket 57 at ][ 3). In compliance with South Dakota law, Overland
provided insurance to Mr. Brown, see Auto Owners. 663 N.W.2d at 210, but,
unlike a self-insured rental company. Overland did not itself become Mr. Brown's
insurer. Overland and Mr. Brown are not akin to an insurer and insured,
distinguishing this case from Auto Owners. Auto Owners may have been
applicable had Overland's insurer sought reimbursement or subrogation against
Mr. Brown.
In the circumstances of this case, however, the court concludes
Auto Owners does not bar indemnification.
The court next concludes that the anti-subrogation rule does not apply.
Plaintiff, standing in Overland's shoes, is not Mr. Brown's insurer and is
therefore not suing its insured. See James, 929 N."W".2d at-543. The
indemnification provision is not barred by either Auto Owners or the
anti-subrogation rule. Defendants do not contend the provision is
unenforceable for other reasons. The court finds the provision is enforceable.
iiThe court expresses no view regarding the interplay between the Graves
Amendment and Auto Owners in a situation where an insurer seeks
reimbursement or subrogation from an insured for a claim the Amendment
would have barred if brought in court.
23
Because the portion of the rental agreement at issue does not implicate
insurance, the court turns to South Dakota law on ordinary contract
interpretation.
In determining the proper interpretation of a contract[,] the court
must seek to ascertain and give effect to the intention of the parties.
In order to ascertain the terms and conditions of a contract, we must
examine the contract as a whole and give words their plain and
ordinary meaning... . When the meaning of contractual language is
plain and unambiguous, construction is not necessary.
Coffey V. Coffev, 888 N.W.2d 805, 808-09 (S.D. 2016)(internal quotations and
citations.omitted). : Given the parties'failure to file the full rental agreement, the
court can only conclude they intended to waive any argument based on any part
of the agreement's text other than the snippets they provided to the court. The
court only evaluates the indemnification provision.
The indemnification provision is not ambiguous. The parties clearly
agreed Mr. Brown would indemnify Overland "against any and all loss, liability,
claim, demand, cause of action, attorneys'fees and expense of any kind . . .
arising from the use or possession of the car[,]" (Docket 55 at ][ 11). Mr. Brown
incurred a loss by damaging Mr. Claymore's vehicle and Overland subsequently
paid the loss. Under the indemnification provision, plaintiff, standing in
Overland's shoes, has.a right to recover for the Claymore damages and the
V
attorney's fees associated with this action. Defendants, having argued only that
the indemnification provision is not enforceable, do not contest that a plain
reading of the provision requires Mr. Brown to indemnify; Overland for the
Claymore damages and attorney's fees.
24
The court will enforce the indemnification provision and require Mr. Brown
to pay the Claymore damages and attomey^s fees associated with this case to
plaintiff. The court notes Mr. Brown—not defendant 21st Century—entered
into the rental agreement -with Overland. (Docket 55 at ^ 6). No party asked
the court to determine whether 21st Centuiy must pay Mr. Brown's costs in this
regard. The court's finding that Mr. Brown is liable for these costs should not be
construed as precluding 21st Century from paying the costs, if payment is
appropriate under the insurance contract between 21st Centuiy and Mr. Brown.
ORDER
For the reasons given above, it is
ORDERED that plaintiffs motion for summary judgment(Docket 39) is
granted.
IT IS FURTHER ORDERED that defendants' motion for summary
judgment(Docket 47) is denied.
IT IS FURTHER ORDERED that defendant Stanley Brown shall pay
$2,271.75 to plaintiff within 60 days of the date of this order. Interest on this
judgment shall accrue pursuant to 28 U.S.C. § 1961.
IT IS FURTHER ORDERED that plaintiff shall file a motion for attorney's
fees setting forth a detailed accounting of the reasonable fees it expended on this
matter -within 60 days of the date of this order.
Dated January 14, 2020.
BY THE COURT;
JEFFREY
UNITED STATES DISTRICT JUDGE
25
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?