Dealerships that Loan Cars to Customers Protected from Vicarious Liability, Mass. Court Rules

Massachusetts car dealerships that provide customers with a courtesy vehicle to use while their car is being repaired are protected by federal law from liability should the courtesy car be in an accident, despite a state law that presumes the car owner is vicariously liable.

A federal law governing the rental car industry, called the Graves Amendment, generally protects rental and leasing car companies from being held vicariously liable for torts committed by customers driving their vehicles. The Massachusetts Supreme Judicial Court ruled Tuesday that in the case of a dealership offering a courtesy vehicle, this federal law pre-empts a state law (§ 85A) that sets forth a rebuttable presumption that the owner of a vehicle is vicariously liable for injuries caused by the driver of the vehicle.

The SJC found that the auto dealership is protected from vicarious liability even though it did not separately charge the customer for use of the vehicle.

In the case decided by the court, a New Jersey-based automobile dealership provided a courtesy vehicle to a customer, Kolawole Oke, because the service work on his automobile was expected to take more than three hours. The courtesy vehicle was owned by and registered to MBF Auto, and was one of about 125 vehicles in the “loaner car fleet” maintained by the dealership.

Oke signed documents representing that he had a valid driver’s license; would be the only driver of the car; understood that the vehicle was limited to operation within 100 mile radius of the dealership; and would be responsible for all third-party claims arising from his use of the courtesy vehicle.

Contrary to the terms of the courtesy vehicle agreements that he signed, Oke drove the vehicle beyond the permitted 100-mile radius of travel and into Massachusetts. While in Boston, he left the vehicle illegally parked in a crosswalk with the key in the ignition and the engine running as he conducted an errand. His then-wife, Shanitqua Steele, who did not have a driver’s license and was not an authorized driver under the courtesy vehicle agreements, remained in the vehicle. When a parking officer required that the illegally parked vehicle be moved, Steele, who understood that she did not have permission to drive the vehicle, nonetheless moved into the driver’s seat. She pressed a button ostensibly to deactivate the turn signal; instead, the car rolled forward through a red traffic light and struck the plaintiff Maria Blanca Elena Garcia, who was walking in the crosswalk. Garcia suffered severe injuries.

Garcia and her husband sued MBF Auto, Oke, and Steele, alleging negligence as to Steele and the dealership and negligent entrustment as to Oke.

A Superior Court judge granted summary judgment in favor of both the dealership and Oke. The plaintiffs appealed and the SJC took up the case.

The SJC has now affirmed the summary judgment for MBF Auto, finding it was protected by the federal Graves Amendment, but reversed the summary judgment for Oke, finding a jury could find he was negligent in entrusting the vehicle to Steele.

The Graves Amendment provides, in 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).”

The plaintiffs never maintained that MBF Auto engaged in any criminal wrongdoing that would disqualify it under the Graves Amendment.

Instead, they argued that the federal law did not apply because MBF Auto was negligent in several ways including by failing to take extra steps to verify that Oke’s driver’s license was valid beyond accepting his word that it was, and by failing to orally instruct Oke that he could only use the vehicle within a 100-mile radius and that he was the only authorized driver.

The plaintiffs also argued that the Graves Amendment did not protect the dealer because MBF Auto was not really in the car rental business and never charged Oke for the car.

The plaintiffs contended that since the Graves Amendment did not apply, the state law did and under this law, as the owner of the courtesy vehicle, the dealership was presumptively vicariously liable for the tortious conduct of Steele and the injuries caused by the customer’s wife.

The SJC rejected the arguments that MBF Auto was negligent and was not entitled to protection under the Graves Amendment. The court held that the Graves Amendment did indeed apply because MBF Auto had a fleet of 125 cars. Also, to accommodate its customers and induce more business, MBF Auto regularly made these vehicles available to customers as part of its full service transaction package. That sufficed to place the dealership in the car rental business where the consideration it received, while not separately charged, was the opportunity to service Oke’s car and to be paid for that repair work.

As for the claims of negligence against MBF Auto, the court said that regardless of whether MBF Auto should or could verify the validity of Oke’s driver’s license, or issue oral instructions beyond the written, no rational view of the record supported a finding that either of these alleged failures caused the accident in which the plaintiff was injured.

“The plaintiffs have not raised a genuine dispute of material fact that MBF Auto negligently caused the accident and thus was not protected by the Graves Amendment,” and, accordingly, MBF Auto is entitled to summary judgment, the SJC concluded.

At the same time, the court said the negligent entrustment claim against Oke could move forward. Oke knew that Steele lacked a driver’s license and he left the courtesy vehicle running with the key in the ignition while it was illegally parked while Steele remained in the vehicle. “This conduct, a rational finder of fact could reasonably conclude, constituted implicit permission or knowing consent for Steele to move the illegally parked vehicle if needed,” the court found in denying summary judgment for Oke.