Drinkall v. Used Car Rentals, Inc., 94-1105

• Decision Date: 05 August 1994
• Docket Number: No. 94-1105,94-1105
• Citation: 32 F.3d 329
• Parties: Arthur DRINKALL, Conservator of Dawn Drinkall, Appellee, v. USED CAR RENTALS, INC., Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 329

32 F.3d 329

Arthur DRINKALL, Conservator of Dawn Drinkall, Appellee, v. USED CAR RENTALS, INC., Appellant.

No. 94-1105.

United States Court of Appeals,

Eighth Circuit.

Submitted June 16, 1994.

Decided Aug. 5, 1994.

Nathan A. Callahan, Waterloo, IA, argued (James E. Walsh, Jr. and Kellyann M. Lekar, on the brief), for appellant.

J. Bryan Schulte, Burlington, IA, argued, for appellee.

Before MORRIS SHEPPARD ARNOLD, Circuit Judge, HENLEY, Senior Circuit Judge, and JOHN R. GIBSON, Senior Circuit Judge.

HENLEY, Senior Circuit Judge.

In this diversity case, Used Car Rentals, Inc. (Used Car) appeals from a judgment of the district court ¹ entered upon a jury verdict in favor of Dawn Drinkall. We affirm.

Used Car, a Nebraska corporation with offices in Nebraska, Kansas and Iowa, is in the automobile rental business. On April 29, 1991, Dawn Drinkall, an Iowa resident, was injured in an accident in Iowa when Bernard Bayles, a Nebraska resident, was driving a car he had rented from a Used Car office in Nebraska. At the time of the accident Bayles, who had formerly lived in Iowa, did not have a valid driver's license; Iowa had suspended his license indefinitely in March 1991. The events leading up to the accident are as follows.

On Friday, April 19, 1991, Laura Wineinger drove Bayles to Stan Olsen Hyundai in Omaha, Nebraska so that he could pick up his car after a repair. Bayles was told that his car was not ready, but that the dealership had arranged for him to obtain a rental car from Used Car. James Kluna, a Used Car employee, drove to the dealership, picked up Wineinger and Bayles, and took them to the Used Car office a few blocks away. On returning to the office, Kluna began filling out the rental agreement. The back of the agreement provided that a rental car only could be operated by a licensed driver over the age of twenty-one, and that if a car was obtained by a misrepresentation "all use of the vehicle was without [Used Car's] permission." Kluna asked for Bayles' driver's license, but Bayles told him his license was in his car at the dealership. Wineinger, who was nineteen years old at the time, also told Kluna that her license was at the dealership, but that she knew her license number. Kluna asked his manager, Tom McCoy, whether he should go back to the dealership with Wineinger and Bayles, so they could retrieve their licenses, but McCoy told him to complete the rental agreement. Kluna listed Wineinger and Bayles as the customers and Bayles as an authorized driver. Both Wineinger and Bayles signed the agreement, which stated they had read the back of the agreement and agreed to all the terms and conditions therein. The front of the agreement stated it expired on April 25, 1991, that the car was to be returned in clean condition and with one-half tank of gasoline, and that the bill was to be sent to Stan Olsen Hyundai.

Kluna testified that he had never seen written policies or manuals concerning preparation of rental agreements and his only instruction regarding preparation was "watch and learn." He stated he was instructed not to rent to a person who did not have a valid driver's license or who was under twenty-one years of age. However, he testified that he did not inform customers about the conditions, but ordinarily asked to see a license to verify a customer's age, address, and the license's expiration date. Nor did Kluna inform customers about any other terms and conditions of the agreement, other than telling them that cars had to be returned in clean condition and with gasoline, or tell them to read the back of the agreement before signing it.

Because Bayles did not have his license, Kluna told Bayles to call on Monday with the number. McCoy explained that if a dealership was paying for the rental, as in this case, Used Car did not demand that a customer show a license, but did so if a person was paying for the rental so that Used Car would have sufficient information about the customer if it needed to retrieve the car. Bayles did not call on Monday and Kluna did not call Bayles. In addition, no one at Used Car called Bayles or Wineinger at the expiration of the agreement. Instead, McCoy testified that Used Car "automatically" extended the agreement because the dealership informed Used Car that Bayles' car had not been repaired.

After the accident, Bayles and Wineinger went back to the rental office to fill out an accident report. No one at the office asked to see their licenses.

Drinkall's father, Arthur Drinkall, as Dawn's conservator, filed this action against Used Car, alleging vicarious liability under Iowa Code Sec. 321.493, which provides "where damage is done by any motor vehicle by reason of negligence of the driver, and driven with the consent of the owner, the owner of the motor vehicle shall be liable for such damage." Before trial, Used Car conceded that Bayles was negligent, but argued that as a matter of law it was not liable. It first argued that Nebraska law, which does not provide for owner liability, applied. The district court disagreed and held that Iowa law applied. The court characterized the case as a tort with which Iowa had the most significant relationships. Alternatively, Used Car argued that it had not consented to Bayles' use of the car. It asserted that the rental agreement was void because Bayles misrepresented that he had a license and that the agreement was the only basis upon which a jury could find consent. Again, the court disagreed, noting that under Iowa law misrepresentation alone was not enough to establish non-consent.

At trial, the court instructed the jury that in order to find Used Car liable it had to find that Used Car "consented to Bernard Bayles' use of the vehicle at the time of the accident." The court further instructed the jury that Used Car "claim[ed] that the rental contract allowing Bernard Bayles to operate its vehicle is invalid because Bernard Bayles made material misrepresentations at the time of the lease." Bayles objected to the court's refusal to give his proffered instructions and interrogatories concerning consent. The jury found that Used Car had consented to Bayles' use at the time of the accident and awarded Drinkall $650,000.00 in damages, before an adjustment for comparative fault. Bayles then filed motions under Fed.R.Civ.P. 50, renewing his choice-of-law, consent, and instruction arguments. The court denied the motions.

On appeal, Used Car argues that the district court erred in applying Iowa law. "A district court, sitting in diversity, must follow the choice-of-law approach prevailing in the state in which it sits." Dorman v. Emerson Elec. Co., 23 F.3d 1354, 1358 (8th Cir.1994). In both contract and tort cases, Iowa courts apply the most-significant-relationships test. Cameron v. Hardisty, 407 N.W.2d 595, 597 (Iowa 1987) (tort); Cole v. State Auto. & Cas. Underwriters, 296 N.W.2d 779, 781 (Iowa 1980) (contract). "The basic premise of the most significant relationships theory is that the court of the forum should apply the policy of the state with the most interest in the litigants and the outcome of the litigation." Fuerste v. Bemis, 156 N.W.2d 831, 834 (Iowa 1968).

Used Car correctly recognizes that "[t]he first step in determining whose law is to govern in a conflict situation is the characterization of what kind of case in involved." O'Neal v. Kennamer, 958 F.2d 1044, 1046 (11th Cir.1992). "The law of the forum controls this[,]" as well. Id. Used Car argues that the district court erred in characterizing the case as a tort action and that the court should have characterized it as a contract action, reasoning that its liability is premised on the rental agreement. Alternatively, Used Car argues that even if the court's characterization is correct, the court erred in concluding that Iowa had the most significant relationships with the controversy. We disagree on both grounds. In characterizing the case as a tort, the district court noted that the complaint alleged negligence and sought damages for personal injuries arising from the negligence. The court also noted that the complaint did not allege a breach of contract and the lack of a contractual relationship between Drinkall and Used Car. In concluding that Iowa had the most significant relationships to the tort, the court noted that the accident occurred in Iowa, Drinkall was an Iowa resident, Used Car had rented the car to Wineinger, an Iowa resident, Bayles had been an Iowa resident, and that Iowa had suspended his license. The court believed that Iowa had an interest in...