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Piercing the Veil of Graves Amendment Protection

On Behalf of | Oct 29, 2014 | Firm News

The Case:

Stratton v. Wallace, No. 11-CV-74-A HKS, 2014 WL 3809479 (W.D.N.Y. Aug. 1, 2014)

Brief Facts:

Julie Stratton was traveling in western New York when she struck a deer, disabling her vehicle. As Stratton waited in her car for help to arrive, a tractor-trailer driven by Thomas Wallace ran into Stratton’s vehicle and killed her.

Thomas Wallace was an employee of Millis Transfer, Inc, which leased the tractor-trailer form Great River Leasing, LLC. Both Millis Transfer and Great River are subsidiaries of the parent company Midwest Holding Group. In its most essential terms, one subsidiary leased the tractor-trailer to another subsidiary.

Stratton’s surviving spouse filed a negligence suit and included Thomas Wallace, Millis Transfer, Great River, and Midwest Holding as parties. Great River, as lessor, moved for summary judgment on the grounds that the Graves Amendment shielded it from liability due to any negligence on the part of the lessee, Millis Transfer.

The Court’s Decision:

The Graves Amendment states, in pertinent part:

“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 court had to determine whether the parenthetical language “or an affiliate of the owner” is to be interpreted as a substitution for the owner or in addition to the owner. Based on a purely textual analysis, the court held that the language should be interpreted as in addition to the owner. This holding was based largely on the “rules of legislative drafting” which treat “parentheticals as commas.”

In addition, the court discussed the legislative intent of the Graves Amendment. The court concluded that the intent of the legislation was to protect lessors who could not prevent lessees from driving their vehicles into states with extensive vicarious liability for the lessees’ negligence. Since Great River and Millis Transfer were both under the control of the same entity, Midwest Holding, the facts of this case were not in accordance with the legislative intent of the Graves Amendment, according to the court.

What to Take Away:

Although this case was a relatively minor holding and may still be overturned, the legal issues presented would have a profound impact on the trucking industry if other courts began to follow suit. Essentially, the court has pierced the liability protection afforded by the Graves Amendment for circumstances in which the lessor and lessee are owned by a common parent company. If this were to become the norm, trucking companies would need to reevaluate their corporate structure and address any possibility for sibling-company liability.


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