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BUDGET RENT-A-CAR SYSTEM, INC. v. CHAPPELL

February 2, 2004.

BUDGET RENT-A-CAR SYSTEM, INC.
v.
NICOLE CHAPPELL and JOSEPH POWELL, III



The opinion of the court was delivered by: STEWART DALZELL, District Judge

MEMORANDUM

Joseph Powell, III rented a car from Budget Rent-A-Car Systems, Inc. in Michigan and drove it to New York, where he picked up Nicole Chappell. While Powell was driving through Pennsylvania with Chappell, the car was involved in an accident, and Chappell suffered serious injuries. Budget brought this action for a declaratory judgment on the extent of its vicarious liability for Powell's negligence. The parties' cross-motions for summary judgment, which raise vexing and consequential choice of law problems, are now before us.*fn1 Page 2

[EDITORS NOTE: THIS PAGE IS BLANK.] Page 3

 Factual Background

  While visiting North Carolina in August of 2001, twenty-six year old Nicole Chappell of New York met Joseph Powell, III, a Michigan resident who had nearly reached his twenty-first birthday. Simon Decl. Ex. A ("Stip.") ¶ 1, Ex. B ("Chappell Decl.") ¶¶ 2-3. Even after returning to their homes, Chappell and Powell maintained a friendship through weekly telephone conversations and occasional reunions. Id. ¶ 3. As Valentine's Day, 2002, approached, Powell planned to surprise Chappell by driving from Michigan to New York to deliver roses and a bracelet. Simon Decl. Ex. D. ("Powell Dep.") at 10. Thus, in late January of 2002, he began his preparations by arranging for a one week rental of a Ford Explorer from Budget Rent-A-Car Systems, Inc. ("Budget Systems")*fn2 in Warren, Michigan. Stip. ¶ 11.

  For reasons that will become apparent later, we now consider at length minutiae that in any other context would be far too arcane to warrant mention.

  On January 30, 2002, Nissan North America, Inc. transferred a 2002 Nissan Xterra with Vehicle Identification Number 5N1ED28Y02C532670 (the "Xterra") to a Nissan dealership in Florida, and the dealership promptly transferred that vehicle to Budget Systems in Michigan. Simon Decl. Ex. J. Assuming that Page 4 Budget Systems followed its regular procedures, after the Xterra arrived in Romulus, Michigan, a Budget Systems fleet clerk obtained Michigan license plate NVQ532 and placed that plate on one of the Xterra's seats. Simon Decl. Ex. F ("Schenk Dep.") at 3, 5-19; Stip. ¶ 12.*fn3 A "lot person" later removed the plate from the Xterra's seat and affixed it to the vehicle.*fn4 Schenk Dep. at 14, 19. After placing the plate in the Xterra, the fleet clerk wrote license plate number "NVQ532" at the top of the vehicle's certificate of origin and took the certificate to the office of Michigan's Secretary of State. Schenk Dep. at 21-23; Simon Decl. Ex. J.*fn5 Someone unknown crossed out the fleet clerk's initial reference to "NVQ532" and wrote "PHS756" next to it. See Schenk Dep. at 37-38; Simon Decl. Ex. J. Page 5

  An employee at the Secretary of State's office used the certificate of origin, including the handwritten annotation for the license plate, to register the Xterra and to create an Application for Michigan Vehicle Title for it. Schenk Dep. at 21-29. Because someone had written "PHS756" on the certificate of origin, the Secretary of State's office registered the Xterra with Michigan license plate PHS756 and prepared a title application for the transfer of Michigan license plate PHS756 to the Xterra. See Simon Decl. Exs. E, K; Schenk Dep. at 39-40.

  After the lot person affixed Michigan license plate NVQ532 to the Xterra, but before the Secretary of State had registered the vehicle, Budget Systems transported it about thirty miles from Romulus, Michigan to Warren, Michigan.

  The morning of February 12, 2002, Powell arrived at Budget Systems's Warren, Michigan location to pick up the Ford Explorer that he had reserved a few weeks before. Because there were no Ford Explorers available at that time, a Budget Systems rental agent suggested that Powell take the Xterra instead. Stip. ¶ 13. Powell agreed to the substitution, signed a Rental Agreement,*fn6 and drove away with the Xterra. Stip. ¶ 12. As Page 6 Powell drove away from Budget Systems's Warren, Michigan location, the Xterra bore Michigan license plate NVQ532, id., and was not yet registered.

  After a short rest, Powell drove the Xterra for eight consecutive hours and reached Chappell's home around 11:00 p.m. on Tuesday, February 12, 2002. Simon Decl. Ex. D ("Powell Dep.") at 16; Chappell Decl. ¶ 5. Powell remained in New York for the rest of the week while Chappell worked. On the evening of Friday, February 15, after Chappell completed her work week, she and Powell left New York in the Xterra. They planned to spend the weekend together in Michigan. Chappell Decl. ¶¶ 5-6.

  While driving through Pennsylvania early the next morning, Powell fell asleep at the wheel of the Xterra. The car drifted from the left lane of Interstate 80, across the right lane, and into the right guardrail, causing it to roll over. Simon Decl. Ex. H ("Accident Report") at 8. Powell escaped the crash largely unscathed, but the force of impact ejected Chappell from the Xterra. Id. at 4. A helicopter transported her from the scene of the accident to Mercy Hospital in Pittsburgh, where doctors diagnosed, among other injuries, a broken femur, broken ribs, and spinal injuries. Simon Decl. Ex. P ("Carfi Decl."). These injuries have rendered Chappell permanently paraplegic. Id.

  Budget Systems initiated this action for a declaratory judgment against Powell and Chappell and asks us to determine which state's law governs the extent of its vicarious liability Page 7 for Powell's negligence. Compl. at 4. Chappell brought two counterclaims against Budget Systems*fn7 and a cross-claim against Powell.

  Even before this suit began, Budget Group and several of its subsidiaries, including Budget Systems, had filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Stip. ¶ 5. With Budget Group unable to reorganize itself successfully, United States Bankruptcy Judge Mary F. Walrath approved an agreement in which, among other things, Cherokee Acquisition Corporation ("Cherokee") assumed Budget Systems's liability in this case. Simon Decl. Ex. M §§ 2.2(ii), 2.5(a)(iv). Soon after the transfer, Cherokee changed its name to Budget Rent-A-Car System, Inc. ("Budget").*fn8 Stip. ¶ 8. We allowed this case to proceed with Budget as a substitute plaintiff for Budget Systems, and Budget and Chappell have filed cross-motions for summary judgment on Budget's claim for a declaratory judgment.

 Analysis

  As noted, the parties seek a declaratory judgment as to whether the law of New York or Michigan governs the extent of Budget's vicarious liability to Chappell for Powell's negligence. Page 8

  Like any federal court faced with a choice of law issue, we apply the choice-of-law rules of the state in which we sit. See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496 (1941). Thus, Pennsylvania choice-of-law rules will determine whether New York or Michigan substantive law controls the disposition of the declaratory judgment action.

  A. Choice of Law Framework

  In Griffith v. United Air Lines, Inc., 203 A.2d 796, 805, 416 Pa. 1, 21 (1964), the Pennsylvania Supreme Court abandoned the traditional lex loci delicti rule*fn9 "in favor of a more flexible rule which permits analysis of the policies and interests underlying the particular issue before the court." Our Court of Appeals has explained that the Griffith "methodology combines the approaches of both Restatement II (contacts establishing significant relationships) and `interest analysis' (qualitative appraisal of the relevant States' policies with respect to the controversy)." Melville v. American Home Assurance Co., 584 F.2d 1306, 1311 (3d Cir. 1978).

  In applying Griffith's "hybrid" approach, we begin with an "interest analysis" of the policies of all interested states and then — based on the results of that analysis — proceed to characterize the case as a true conflict, false conflict, or Page 9 unprovided-for case. Lacey v. Cessna Aircraft Co., 932 F.2d 170, 187 & n.15 (3d Cir. 1991); See also LeJeune v. Bliss-Salem, Inc., 85 F.3d 1069, 1071 (3d Cir. 1996). A true conflict exists "when the governmental interests of both jurisdictions would be impaired if their law were not applied." Lacey, 932 F.2d at 187 n.15. On the other hand, there is a false conflict "if only one jurisdiction's governmental interests would be impaired by the application of the other jurisdiction's law." Id., at 187. An unprovided-for case arises when neither jurisdiction's interests would be impaired if their law were not applied.

  When interest analysis identifies a false conflict or an unprovided-for case, resolving the choice-of-law issues becomes relatively straightforward. In false conflicts, the Court applies the law of the only interested jurisdiction. See e.g., Kuchinic v. McCrory, 222 A.2d 897, 899-900, 422 Pa. 620, 623-24 (1966) (applying Pennsylvania law when Georgia was not a "concerned jurisdiction"); Griffith v. United Air Lines, Inc., 203 A.2d 796, 807, 416 Pa. 1, 25 (1964) (applying Pennsylvania law when Pennsylvania had an interest in having its law applied but Colorado had no such interest). Lex loci delicti, however, continues to govern unprovided-for cases. See, e.g., Miller v. Gay, 470 A.2d 1353, 1355-56 (Pa. Super. 1983) (applying Delaware law ...


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