Wednesday, August 03, 2005

Congress Adopts $287B Transportation Bill. Incidentally, It Abolishes Vicarious Liability For Those Who Lease and Rent Automobiles, Something New Yo.

Congress Adopts $287B Transportation Bill.
Incidentally, It Abolishes Vicarious Liability
For Those Who Lease and Rent Automobiles,
Something New York State Had Failed to Do.

By Henry J. Stern
August 3, 2005

We have finally learned what it takes to overrule Assembly Speaker Sheldon Silver -- the pressure of more powerful lobbyists than his colleagues in the trial bar, the adoption of a massive piece of legislation by the Congress of the United States, to be followed by the signature of the President, and the subsequent concurrence of the Federal judiciary.

On June 17, we wrote an article, "See...Them Jump," pointing out that the New York State Assembly was the only state legislative body in the United States (out of 99, since the Nebraska legislature is unicameral) that adhered to the policy of vicarious liability for rented or leased motor vehicles. You should link to the article to get background on the issue, which illumines the Speaker's remarkable power to frustrate a legislative effort to conform New York's rule to that of the rest of America.

Simply put, New York State law has provided since 1924 that if a driver of a leased or rented car is involved in an accident and is sued for damages, not only is the driver liable, which is appropriate, but the company that leased or rented the car to him is also liable, even if they had nothing to do with the accident and had no reason to know that the renter was not a good driver.

New York's exceptional position was the result of the failure of the State Assembly, under the leadership of Speaker Silver, to bring to the floor multi-sponsored bills submitted by Democrats and Republicans to put an end to the practice. As nearly everyone knows by now, Mr. Silver's non-legislative employment is with a negligence law firm that represents plaintiffs. A ban on vicarious liability would relieve large companies who rent and lease cars from having to pay whatever damages a local jury might impose. This would injuriously impact the incomes of those lawyers who ply their trade by squeezing substantial defendants into significant settlements, to avoid the risk of mega-judgments. (Cf. Perelman v. Morgan Stanley.)

As a result of New York's unique law, many lessors and renters simply stopped doing business in the state, while others charged New Yorkers much higher prices to rent or lease cars or trucks. There are valid reasons why the 49 other states follow a different rule. They include common sense, fairness, and the ancient legal theory that liability should somehow be related to fault. The competitive needs of New York State's auto renters and lessors also come into the equation, as does the consumer's interest in lower renter fees.

We should protect injured victims from insolvent drivers. That can be done by mandating substantial insurance coverage for rented vehicles. Then people would be compensated for their losses without their tort lawyers and themselves sharing windfalls from sky-high judgments that may be awarded.

Newsday was first with the story, with Tom Incantalupo reporting yesterday, on pA36, that "AUTO LEASING MAY RETURN TO NY. Companies Would Resume Leasing if Bush Signs Bill Freeing Them from 1924 State Law on Accident Liability." This informative account is spread over five columns at the top of the page, although you will not see that display in the website version.

Incantalupo points out that "[t]he change was sought by the renting and leasing industry but opposed by trial lawyer groups and some consumer advocates." It is understandable that the industry supports the bill, and trial lawyers oppose it; it is in their economic interest.

The fact that some consumer advocates also oppose it is bizarre, but parts of the consumer movement are so under the thrall of political correctness and ideological piety that they welcome any lawsuit against big business, no matter what its effect on the economy or on other consumers. The nexus of professional consumerists and the plaintiffs bar is at least 45 years old, dating back to early Ralph Nader.

Three city dailies joined this morning in reporting the bill's passage. Brian McGuire, writing from Albany on pp 1 and 2 of the Sun, has the most comprehensive account of the new bill and its anticipated effects. It is headed: FEDERAL ACTION LIKELY TO BOOST N.Y. AUTO LEASES. The Sun points out that the leasing provision is a small part of a voluminous $287 billion piece of legislation.

The Post's Ian Bishop, writing from Washington on p17, reports that "Congress is putting the brakes on an antiquated New York law that critics said drove car-leasing companies out of the state." In the Daily News, Joe Mahoney, from Albany, writes on p3 that "New Yorkers who lease cars could soon save hundreds of dollars a year, thanks to a bill passed by Congress."

We note, a bit wryly, that this important provision (look at Section 1409) to protect consumers and prevent unjust enrichment made it through Congress in part because it served the purpose of a commercial interest, automobile manufacturers and lessors, and in part because of the efforts of New York State legislators of both parties, who lobbied Congress to adopt the provision and circumvent the one-man obstacle that had so effectively frustrated tort reform at the state level.

We are not certain exactly how the new law will supersede existing New York legislation. It is quite likely that whatever Congress provides will be challenged as unconstitutional by the plaintiff bar. After all, they won't have to hire counsel to do it for them.

The lawyers will ask how dare the Federal Elephant trample the laws of a sovereign state? Understanding the oversimplification, we mildly ask: wasn't that issue settled at Gettysburg?

Henry J. Stern
New York Civic
520 Eighth Avenue
22nd Floor
New York, NY 10018
(212) 564-4441
(212) 564-5588 (fax)

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