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Fu v. Fu

July 26, 1999

LI FU AND XIAO KANG SU, WIFE & HUSBAND, PLAINTIFFS-APPELLANTS, AND DANIEL SU, AN INFANT, BY HIS PARENTS AND NATURAL GUARDIANS, LI FU AND XIAO KANG SU, AND LI FU AND XIAO KANG SU, INDIVIDUALLY AND KUIDE CHEN AND MICHELLE CHEN, AN INFANT, BY HER FATHER AND NATURAL GUARDIAN, KUIDE CHEN AND KUIDE CHEN, INDIVIDUALLY, PLAINTIFFS,
v.
HONG FU, DEFENDANT, AND FREEDOM RIVER INC., D/B/A BUDGET RENT-A-CAR OF PHILADELPHIA, ITS AGENTS, SERVANTS AND/OR EMPLOYEES, DEFENDANT-RESPONDENT.



On appeal from the Superior Court, Appellate Division, whose opinion is reported at 309 N.J. Super. 435 (1998).

The opinion of the court was delivered by: Stein, J.

"The world is composed of territorial states having separate and differing systems of law. Events and transactions occur, and issues arise, that may have a significant relationship to more than one state, making necessary a special body of rules and methods for their ordering and resolution." [Restatement (Second) of Conflict of Laws § 1 (1971).]

The choice-of-law issue before the Court requires us to decide which of the two involved states, New York or New Jersey, has the most significant relationship to the underlying occurrence, an automobile accident in New York involving only New Jersey residents. The narrow question presented is whether to invoke New Jersey's common law rule that shields an automobile owner from vicarious liability in the absence of an agency or employment relationship, or Section 388 New York Vehicle and Traffic Law, which imposes vicarious liability on automobile owners for the negligence of permissive users.

In resolving that question, we must consider whether a foreign state's interest in compensating a New Jersey plaintiff, combined with its interest in deterring irresponsible lending of automobiles, may outweigh New Jersey's interest in shielding a resident defendant from liability for events occurring in the foreign state and for which that state would hold the defendant liable.

I.

The facts of this case are virtually undisputed. On July 18, 1993, plaintiffs Xiao Kang Su and Kuide Chen rented a car in Lawrenceville, New Jersey from defendant Freedom River, Inc. of Philadelphia, doing business as Budget Rent-A-Car (Freedom River). Plaintiffs rented the car for a family trip to Cornell University in Ithaca, New York, to attend an academic seminar, after which they intended to go on, perhaps as far as Wisconsin, for further sightseeing. Su and his wife Li Fu, their child Daniel Su, and Chen and his wife defendant Hong Fu, and their child Michelle Chen, wanted to travel in one car. Although Su and Chen each owned a vehicle, neither car was large enough to comfortably accommodate six people on a long drive.

The rental contract identified Su and Chen as the individuals who would be driving the vehicle; however, the Freedom River agent assured the men that their wives were also permitted to drive the car. Chen, in particular, was concerned and sought the agent's assurance that the wives could drive because his friend Su was a poor driver who had been involved in three previous accidents. The rental agent assured Su and Chen that there was "no problem" and that the wives could drive. The agent offered Su and Chen extra property damage insurance, which they declined. The contract called for the car to be returned to Lawrenceville on July 27, 1993.

On July 19, 1993, having concluded an overnight visit to Cornell and while in transit to the Midwest, the group was involved in a one-car accident while passing through Hamburg, New York. Chen's wife, Hong Fu, was driving. According to the accident report, Hong Fu's view became distorted when it began to rain and Hong Fu, due to her unfamiliarity with the vehicle, could not locate the windshield wiper. As Hong Fu felt the vehicle beginning to leave the pavement and veer onto the left shoulder, she over-corrected to the right, crossed both lanes of traffic, rolled over once and struck an earthen embankment. All five passengers were severely injured and all were conveyed to area hospitals in the Hamburg vicinity. Chen and his daughter Michelle were released after receiving emergency room treatment. The other passengers were admitted for varying lengths of time in New York hospitals: Su remained hospitalized for eight days; Su's son Daniel for three days; and Su's wife Li Fu, who suffered the most serious injuries, remained in a New York hospital for thirty days.

The plaintiffs received personal injury protection through their personal insurance policies, but the amount available was insufficient to provide for all the injured claimants, particularly for Li Fu, the most seriously injured of the passengers. As a result of the accident, Li Fu suffered a severe traumatic brain injury. Li Fu was comatose upon her hospital admission and remained in a coma until August 1993. She continued to receive inpatient medical care through April 1994. She was unable to walk and suffered from impaired memory and cognitive functioning. For instance, despite having worked for ten years as a cardiologist in China, Li Fu could not recall the college she had gone to or the details of her medical training.

Following her discharge from the hospital in April 1994, Li Fu continued a course of outpatient treatment including occupational therapy three to five times a week, treatment with Ritalin to arouse cognitive function, and multiple nerve blocks to correct "a severely spastic gait." A progress report dated June 12, 1995, indicated that Li Fu continued to make slow progress but that "it is unlikely that the patient will ever become independent." Li Fu continues to require constant assistance with daily living and, although she is now able to ambulate with the aid of a cane, for the most part, she remains wheelchair bound.

Due to the severity of her injuries, Li Fu's $250,000 personal injury protection cap has long since been exhausted. She incurred medical expenses in excess of $150,000 in connection with her initial hospitalization alone and her total medical expenses to date are nearly $400,000, and continuing.

Freedom River, a Delaware corporation with its principal place of business in Philadelphia, is a sub-franchisee of Freedom River, Inc., a Delaware corporation with its principal place of business in Lisle, Illinois. Freedom River maintains offices in both Philadelphia, Pennsylvania, and Lawrenceville, New Jersey. The rental vehicle was registered in Pennsylvania. The driver, defendant Hong Fu, and all five passenger-plaintiffs are residents of New Jersey.

In July 1994, all the injured passengers filed a complaint for damages against the driver, Hong Fu, and the owner, Freedom River. In May 1997, all five plaintiffs' claims were arbitrated pursuant to Rule 4:21A-1, at which time Chen was awarded $15,000, Chen's daughter Michelle was awarded $7500, Su was awarded $100,000, Su's son Daniel was awarded $25,000 and Su's wife Li Fu was awarded $3,750,000. The arbitrators, as part of their award, found that Section 388 of the New York Vehicle and Traffic Law (Section 388) was the appropriate choice of law, and held Freedom River vicariously liable for the negligence of the driver, Hong Fu.

Because the award to Li Fu exceeded the individual $100,000 limit of the $100,000/$300,000 split limit coverage afforded Hong Fu through her personal policy with the Market Transition Facility (MTF), defendant Hong Fu moved for a trial de novo pursuant to Rule 4:21A-6(b)(1). Eventually, all plaintiffs except Li Fu agreed to settle with Hong Fu and their agreements were reduced to judgment. Thus, only Li Fu's claim and Su's derivative claim for loss of consortium remain outstanding. MTF, on behalf of its insured, Hong Fu, has offered its individual policy limit of $100,000 in settlement of Li Fu's claim. That offer has not been accepted. In August 1997, the trial court entered an order allowing MTF to deposit its policy with the court pursuant to Rule 4:47- 1.

In April 1997, Freedom River moved for summary judgment on the basis of New Jersey common law, which holds that the owner of a motor vehicle is not liable for the negligence of the vehicle's operator unless the operator is acting as the owner's agent or employee. Plaintiffs opposed the motion, contending that the matter was controlled by Section 388 of the New York Vehicle and Traffic Law. Section 388 imposes vicarious liability on a vehicle's owner for the negligence of the vehicle's operator:

"Every owner of a vehicle used or operated in this state shall be liable and responsible for death or injuries to person or property resulting from negligence in the use or operation of such vehicle, in the business of such owner or otherwise, by any person using or operating the same with the permission, expressed or implied, of such owner." [N.Y. Vehicle and Traffic Law § 388 (1) (McKinney 1996).]

The trial court initially granted Freedom River's motion, concluding that all of the significant relationships in this case were with New Jersey and that it was a "happenstance" that the accident occurred in New York. After hearing additional oral arguments on plaintiffs' motion for reconsideration, the trial court reversed its initial ruling, vacated the summary judgment granted in favor of Freedom River, and ordered that the matter proceed in accordance with New York law. The trial court then certified its judgment as final pursuant to Rule 4:42-2, allowing Freedom River to appeal as of right.

The Appellate Division reversed and held that New Jersey law applied. 309 N.J. Super. 435, 442-43 (App. Div. 1998). We granted plaintiffs' motion for leave to appeal.

II.

The issue before the Court is whether to apply New Jersey's common- law vicarious liability rule or Section 388 of the New York Vehicle and Traffic Law. Because New Jersey is the forum state, the issue must be determined in accordance with this State's choice-of-law rules. Gantes v. Kason Corp., 145 N.J. 478, 484 (1996). In tort cases, New Jersey has rejected the traditional rule of lex loci delicti, pursuant to which the local law of the place where the wrong occurred governed all substantive issues. Veazey v. Doremus, 103 N.J. 244, 247 (1986). Instead, we now apply a more flexible "governmental-interest" test that seeks to apply the law of the state with the greatest interest in governing the specific issue in the underlying litigation. Id. at 247-48; Gantes, supra, 145 N.J. at 484.

A.

The first prong of the governmental-interest analysis requires a determination that an actual conflict exists between the laws of New York and New Jersey. Gantes, supra, 145 N.J. at 484. That inquiry is conducted on an issue-by-issue basis. Ibid. Indisputably, the two states' laws governing the issue to be resolved in this case -- whether an automobile owner is vicariously liable for negligent permissive use of that owner's vehicle -- are fundamentally different. New Jersey adheres to the common-law rule that the owner of a motor vehicle is not liable for the negligence of a permissive user unless the driver is acting as the owner's agent or employee. Haggerty v. Cedeno, 279 N.J. Super. 607, 609 (App. Div.), certif. denied, 141 N.J. 1995); Doran v. Thomsen, 76 N.J.L. 754 (E. & A. 1908); Mauren v. Brown, 106 N.J.L. 284 (Sup. Ct. 1930)). That plaintiffs' action against Freedom River is precluded by virtue of an owner's immunity for vicarious liability under New Jersey law is not contested.

New York, in contrast, has by statute abrogated the common law in its enactment of Section 388 of the Vehicle and Traffic Law, which imposes liability on an automobile owner for injuries resulting from a permissive driver's negligent use or operation of that owner's car. Under that rule, Freedom River's liability would be co-extensive with that of the driver, Hong Fu.

B.

The second prong of the governmental-interest analysis requires the Court to determine which state has the most significant relationship to the occurrence and the parties with respect to the issue of vicarious liability. Veazey, supra, 103 N.J. at 248. In doing so, we must "identify the governmental policies underlying the law of each state and how those policies are affected by each state's contacts to the litigation and to the parties." Ibid. The relevant factors set forth in sections 6, 145 and 174 of the Restatement (Second) of Conflict of Laws (1971) guide our evaluation of the governmental interests at stake.

1.

New York has a well-articulated, two-fold policy underlying Section 388. First, the statute was designed to "ensure access by injured persons to a financially responsible insured person against whom to recover for injuries." Morris v. Snappy Car Rental, Inc., 637 N.E.2d 253, 255 (N.Y. 1994) (internal quotations omitted). Section 388 achieves that compensatory purpose by "remov[ing] the hardship which the common-law rule visited upon innocent persons by preventing an owner from escaping liability" because of the lack of an employment or agency relationship with the driver. Ibid. Although New York's compensatory purpose is especially strong when the victim is a New Yorker, see Aboud v. Budget Rent A Car Corp., 29 F. Supp. 2d 178, 182 (S.D.N.Y. 1998), the "innocent victim class has not been limited to New Yorkers." Haggerty, supra, 279 N.J. Super. at 610 (quoting Klippel v. U-Haul Co. 759 F.2d 1176, 1180 (4th Cir. 1985)). When the accident occurs in New York, the compensation of the victim serves a related governmental interest in "assuring that New York vendors who furnish medical and hospital care to injured parties are compensated." Bray v. Cox, 333 N.Y.S.2d 783, 785 (App. Div. 1972).

In enacting Section 388 New York also intended to regulate the conduct of automobile owners by "discourag[ing] owners from lending their vehicles to incompetent or irresponsible drivers." Haggerty, supra, 279 N.J. Super. at 609 (quoting Report of the New York Law Revision Commission at 593 (1958)). We note that despite Section 388's explicitly stated purpose to deter irresponsible lending, the Appellate Division characterized Section 388 solely as a loss-allocating rule because it "does not purport to regulate the conduct of the operator on the road." 309 N.J. Super. at 441-42 (citing Buglioli v. Enterprise Rent-A-Car, 811 F. Supp. 105, 108 (E.D.N.Y.), aff'd, 999 F.2d 536 (2d Cir. 1993)). At the same time, that court acknowledged that Section 388 was intended to operate "as an incentive to lessors of motor vehicles to lease only to competent individuals." 309 N.J. Super. at 442. That deterrent policy has been construed by New York as having particular application to car rental agencies, "who clearly make no investigation of the capacity or sense of responsibility of the lessee other than the production of the driver's license." Platt v. Hertz Corp., 315 N.Y.S.2d 780, 784 (Civ. Ct. 1970), rev'd on other grounds, 321 N.Y.S.2d 613 (App. Term. 1971).

The policy supporting New Jersey's common-law vicarious liability law was described in Haggerty, supra, 279 N.J. Super. at 611-12:

"New Jersey's common law rule regarding owner liability is not designed to protect the injured party. . . or to protect the driver. It is designed to shield an owner from liability in cases in which the owner has not been negligent and in which the culpable driver is not related to the owner in a way that will justify the imposition of vicarious liability under traditional principles of the law of agency or master servant. That shield is consistent with the principle that tort liability in the context of automobile- related personal injuries is based on fault."

New Jersey's rule serves neither a deterrent nor a compensatory purpose. Rather, it simply adheres to the well-established, common-law principle that liability for automobile negligence should be allocated solely on the basis of fault.

Plaintiffs suggest that New York's law, because it exists by affirmative legislation, demonstrates a stronger policy than does New Jersey's law, which continues only by legislative default. That New Jersey's common-law vicarious liability law exists without implementing legislation does not, in itself, dilute the importance of the law's underlying goals. See Restatement, supra, § 6(2) comment e (noting that in resolving a conflict of laws courts consider purpose of each state's local law "whether embodied in a statute or a common law rule").

Where, however, the purpose of a longstanding common-law rule appears to be at odds with the aim of more recent affirmative acts by the legislature governing the same field of law, it may be reasonable to conclude that the historical rule has lost some of its vitality as a statement of public policy.

In the field of automobile negligence law, this State's method of allocating liability has shifted in recent years from a purely fault- based system, whereby compensation for injuries is obtained through tort remedies and/or third party insurance, toward a system of first-party coverage. Specifically, the no-fault insurance law has partially removed the fault system from New Jersey's automobile negligence law by requiring every automobile insurance policy issued in this state to provide "for the payment of [medical] benefits without regard to negligence, liability or fault of any kind," N.J.S.A. 39:6A-4, to the named insured, family members, and other persons injured as a result of an automobile accident. See also Newcomb Hosp. v. Fountain, 141 N.J. Super. 291, 294 (Law Div. 1976) ("`No fault' legislation was designed to partially remove the fault system from automobile negligence law.").

In addition, N.J.S.A. 39:6B-1, the mandatory insurance law, requires this State's individual automobile owners to carry insurance coverage consistent with requirements imposed by the Commissioner of Insurance that includes the obligation to provide coverage for liability arising out of the permissive use of their vehicles. That requirement obviously reflects a legislative purpose to ameliorate the effect of New Jersey's common-law rule against vicarious liability by requiring car owners to pay the cost of liability coverage for permissive users to assure that compensation is available for their injured victims. Insofar as N.J.S.A. 39:6B-1 aims to effectuate the overriding legislative policy of assuring financial protection for the innocent victims of motor vehicle accidents, in part by requiring coverage for injuries arising out of permissive automobile use, that policy would appear to be congruent with New York's direct imposition of vicarious liability on automobile owners arising out of the negligent permissive use of their vehicles.

2.

With each state's domestic policies in mind, we must next consider "whether those concerns will be furthered by applying that law to the multi-state situation." Pfizer, Inc. v. Employers Ins. of Wausau, 154 N.J. 187, 198 (1998). Section 6 of the Restatement identifies the general considerations germane to our governmental-interest analysis:

"(a) the needs of the interstate and international systems,

(b) the relevant policies of the forum,

(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,

(d) the protection of justified expectations,

(e) the basic policies underlying the particular field of law,

(f) certainty, predictability and uniformity of result, and

(g) ease in the determination and application of the law to be applied." [Restatement, supra, § 6; see also Gilbert Spruance v. Pennsylvania Manufacturers' Ass'n, 134 N.J. 96, 103 (1993).]

For purposes of an issue arising out of tort law, those factors may be grouped into five categories of interests: (1) the interests of interstate comity; (2) the interests of the parties; (3) the interests underlying the field of tort law; (4) the interests of judicial administration; and (5) the competing interests of the states. See Restatement, supra, § 145 comment b; cf. Pfizer, supra, 154 N.J. at 197- 98 (adopting similar grouping of interests for purposes of issue in contract).

(1) The interests of interstate comity require courts to consider whether application of a competing state's law would frustrate the policies of other interested states. Restatement, supra, ยง 145(1) comment b. "If a strong state policy or interest will be neither fostered by applying that state's law, nor frustrated by the failure to apply it, it is highly unlikely that that state has any interest ...


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