Subrogation Div. Inc. v. Stanley Brown & 21ST Century Indem. Ins. Co., CIV. 16-5109-JLV

• Decision Date: 14 January 2020
• Docket Number: CIV. 16-5109-JLV
• Citation: 446 F.Supp.3d 542
• Parties: SUBROGATION DIVISION INC., Plaintiff, v. Stanley BROWN and 21st Century Indemnity Insurance Company, Defendants.
• Court: U.S. District Court — District of South Dakota

446 F.Supp.3d 542

SUBROGATION DIVISION INC., Plaintiff,

v.Stanley BROWN and 21st Century Indemnity Insurance Company, Defendants.

CIV. 16-5109-JLV

United States District Court, D. South Dakota, Western Division.

Signed January 14, 2020

Jay C. Shultz, Shultz Law Firm, Prof. LLC, Rapid City, SD, Stephen K. Christiansen, Pro Hac Vice, Christiansen Law, PLLC, Salt Lake City, UT, for Plaintiff.

Jennifer L. Wosje, Woods, Fuller, Shultz & Smith, PC, Sioux Falls, SD, for Defendants.

ORDER

JEFFREY L. VIKEN, UNITED STATES DISTRICT JUDGE

INTRODUCTION

This 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.¹

I. Facts

This factual recitation is derived from each party's statement of undisputed material facts, as well as defendants' response to plaintiff's statement of undisputed material facts. (Dockets 40, 48 & 55). The facts in this case are generally undisputed.

On May 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).

Also on 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.² 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.

Mr. 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 32).

II. Jurisdiction

"Federal 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, 131 S.Ct. 1197, 179 L.Ed.2d 159 (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.³ (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.

Federal question jurisdiction is easily found "when federal law creates the cause of action asserted." Gunn v. Minton, 568 U.S. 251, 257, 133 S.Ct. 1059, 185 L.Ed.2d 72 (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, 95 S.Ct. 2080, 45 L.Ed.2d 26 (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.⁴

The 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, 125 S.Ct. 2363, 162 L.Ed.2d 257 (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, 133 S.Ct. 1059. The first, second, and fourth parts of this test require little analysis, but the third prong raises difficult questions.

Plaintiff 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.⁵ 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, 126 S.Ct. 2121, 165 L.Ed.2d 131 (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, 125 S.Ct. 2363 (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 courts).

The court is skeptical the federal interest in resolving plaintiff's 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, 133 S.Ct. 1059. 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 whole." Id.

However, 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.⁶ See Great Lakes, 843 F.3d at 333 (finding no federal question jurisdiction when lack of "federal interest in national uniformity" is evident). Resolving plaintiff's claim will be a matter of enforcing federal law and giving effect to Congress' intent, tasks calling upon the expertise of federal courts.

Plaintiff 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, 126 S.Ct. 2121. Resolving plaintiff's 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. Id. 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 plaintiff's request that the court enforce its rental contract with Mr....