United States District Court, D. South Dakota, Western Division
JEFFREY L. VIKEN, UNITED STATES DISTRICT JUDGE
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.
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
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).
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. 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.
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
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. (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.
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.
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
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. 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
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
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. 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.
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 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. 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).
Summary Judgment Standard
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).
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.
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.
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.
South Dakota rental insurance law & the Graves
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
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;
(2) there is no negligence or criminal wrongdoing on the part
of the owner (or an ...