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Subrogation Division, Inc. v. Brown

United States District Court, D. South Dakota, Western Division

January 14, 2020





         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. ("SDI"), 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 & 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.[1]

         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 6s 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 ¶ 5)., Overland is the Hertz licensee in Rapid City and is in the business of renting vehicles. Id. at ¶¶ 2-3. Mr. Brown entered into a rental agreement with Overland. . Id. at ¶ 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 ¶ 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 ¶ 3).

         Also on May 3,' Mr. Brown collided with a vehicle owned by Dan Claymore. (Docket 55 at ¶ 8). Mr. Brown attempted to turn onto Interstate 90 from a non-turning lane and collided with Mr. Claymore's vehicle.[2] Id. at ¶¶ 7-8. Defendants agree that Overland did not cause the accident through any negligence or criminal wrongdoing. Id. at ¶ 12. The accident resulted in $2, 271.75 in damages to Mr. Claymore's vehicle. Id. at ¶ 9. Overland's insurance carrier paid the Claymore damages and Overland reimbursed the carrier because the amount did not exceed Overland's deductible. Id. at ¶ 10.

         Mr. Brown carried liability insurance meeting South Dakota's minimum liability coverage requirements from 21st Century. (Docket 48 at ¶ 5). Neither Mr. Brown nor 21st Century reimbursed Overland or plaintiff for the Claymore damages. (Docket 55 at ¶ 13). Overland assigned its rights in this action to SDI. Id. at ¶ 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. Id. Here, plaintiff alleges the court has federal question jurisdiction over this case under 28 U.S.C. § 1331 because the case involves the Graves Amendment, a federal statute.[3] (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, 2.57 (2013). But the 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 Amendment. 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, Graves Amendment cases appear to almost exclusively arise in state courts or in federal courts sitting in diversity.[4]

         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 & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 312 (2005). "[F]ederal 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 Amendment is designed to overrule contrary state law.[5] Id. Congress no doubt intended for federal courts to enforce the Amendment in an appropriate case. Cf. 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] jurisdiction[.]" 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; . . . [t]he substantiality inquiry.. . . looks instead to the importance of the issue to the federal system as a whole." Gunn, 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.[6] See 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. 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.3d at 332-33 (finding no federal question jurisdiction where 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. IcL 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 has jurisdiction to make any necessary declaratory judgments. 28 U.S.C. § 2201(a). The court also has supplemental jurisdiction over plaintiffs request that the court enforce its rental contract with Mr. Brown. Id. at § 1367(a).

         III. 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 may 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. 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. Id. However, the moving parry 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 Corp. 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 parry's case necessarily renders all other facts immaterial." Id. 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 inquiry 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 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 owner'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[.f 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." Id. at 211-12 (emphasis added), The Graves Amendment also regulates rental car insurance.[7]

         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 ...

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