Case Title: Fu v. Fu

Citation: 

Docket Number: a-209-97

State: new-jersey

Court: New Jersey Supreme Court

Date: 1999-07-26T00:00:00Z

Document:
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). STEIN, J., writing for a majority of the Court. This appeal raises a choice-of-law issue concerning a single-car accident in New York involving only New Jersey residents. The narrow question is whether to invoke New Jersey's common law rule that shields an automobile owner from vicarious liability absent an agency relationship, or Section 388 of the New York Vehicle and Traffic Law (Section 388), which imposes vicarious liability on automobile owners for the negligence of permissive users. On July 18, 1993, plaintiffs Xiao Kang Su and Kuide Chen rented a car in Lawrenceville, New Jersey from Freedom River, Inc. of Philadelphia, doing business as Budget Rent-A-Car (Freedom River). Su and Chen advised the Freedom River agent that they would be driving the car to Cornell University in Ithaca, New York, to attend an academic seminar, after which they would go on, perhaps to Wisconsin, for further sightseeing. Although the rental agreement identified Su and Chen as the drivers, the Freedom River agent assured the men that their wives were also permitted to drive the car. Traveling with Su and Chen were Su's wife Li Fu, their child, and Chen's wife, defendant Hong Fu, and their child. 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 in Hamburg, New York. Chen's wife, Hong Fu, was driving. All five passengers were injured and conveyed to area hospitals. The most seriously injured was Li Fu, who suffered a severe traumatic brain injury. She was comatose upon admission and remained in a coma until August 1993, when she was transferred to a New Jersey hospital. After 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. A progress report dated June 12, 1995, indicated that "it is unlikely that the patient will ever become independent." 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 is a Delaware corporation with its principal place of business in Philadelphia. It 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 and Lawrenceville, New Jersey. The rental vehicle was registered in Pennsylvania. In July 1994, the passengers filed a complaint for damages against Hong Fu and Freedom River. The claims were arbitrated pursuant to Rule 4:21A-1. The arbitrators awarded all plaintiffs damages. As to Li Fu, the award was $3,750,000. The arbitrators also found that the appropriate choice of law was New York. They therefore held Freedom River vicariously liable for the negligence of Hong Fu. Because the award to Li Fu exceeded the coverage limit afforded Hong Fu through her personal insurance policy, Hong Fu moved for a trial de novo. Eventually, all plaintiffs except Li Fu agreed to settle with Hong Fu. Hong Fu's insurer has offered its individual policy limit of $100,000 in settlement of Li Fu's claim. That offer has not been accepted. Freedom River moved for summary judgment on the basis of New Jersey common law. Plaintiffs opposed the motion, contending that the matter was controlled under New York law by Section 388. 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. On reconsideration, the trial court reversed its initial ruling, and ordered that the matter proceed in accordance with New York law. The Appellate Division reversed and held that New Jersey law applied. The Supreme Court granted plaintiffs' motion for leave to appeal. HELD: Under the facts of this case, New York's governmental interests are better served by application of New York law than New Jersey's interests are served by application of New Jersey law. This and other relevant factors require application of New York law to make the rental car company vicariously liable for the New Jersey driver's negligence in causing an accident in New York. 1. Under New Jersey's choice-of-law rules, a "governmental-interest" test is applied which seeks to apply the law of the state with the greatest interest in governing the specific issue in the underlying litigation. This requires the Court to identify the governmental policies underlying the law of each state and determine how those policies are affected by each state's contacts to the litigation and the parties. New York's policies underlying Section 388 are twofold: to ensure access by injured persons to a financially responsible insured person; and to discourage owners from lending vehicles to incompetent or irresponsible drivers. The latter policy of deterrence has been construed by New York as having particular application to car rental agencies. The principle underlying New Jersey's common law is that liability for automobile negligence should be allocated solely on the basis of fault. More recent legislation in New Jersey, however, such as the no-fault insurance law and the mandatory insurance law, indicates a shift from a purely fault-based system to ensuring financial protection for the innocent victims of motor vehicle accidents. (pp. 9-15) 3. Next, the Court must consider whether each state's policies will be furthered by applying its law to the multi-state situation. The Appellate Division found that New York had no interest in this transaction, because New York intended its law to apply only to New York owners and New York-licensed drivers. New York courts, however, have unwaveringly applied Section 388 to accidents within the state, regardless of the residency of a vehicle's owner or passengers. Those courts have referenced New York's substantial interests in highway safety, economic protection of New York hospitals and medical professionals, and State public fiscal interests. New Jersey's contacts are numerous, but of little relation to New Jersey's governmental interests. New Jersey's interest in compensating Li Fu, a State resident, is not related to the issue of Freedom River's vicarious liability, because New Jersey's vicarious liability law has no compensatory purpose. New Jersey does have a policy of shielding automobile owners from vicarious liability. That interest is diminished, however, by virtue of Freedom River's status as a Delaware corporation with its principal place of business in Pennsylvania. (pp. 15-34) 4. On balance, the relevant factors point toward application of New York law to determine the issue of vicarious liability. New Jersey's interest in protecting New Jersey automobile owners from vicarious liability are not significantly advanced by application of New Jersey law to shield a non-domiciliary lessor from liability arising from an accident in another state. By contrast, New York's goals of promoting highway safety and compensation for innocent victims is vindicated by application of New York's law. Concerning the interests of the parties, Freedom River's blanket reliance on this State's law as a defense to conduct occurring in a foreign jurisdiction is not justified. New Jersey car rental agencies reasonably should anticipate potential exposure to liability under New York's laws. The Court's disposition is influenced significantly by the specific facts of the case, especially in comparing the competing interests of the states. (pp. 35-43) The judgment of the Appellate Division is REVERSED and the matter is REMANDED for further proceedings consistent with this opinion. JUSTICE POLLOCK, dissenting, is of the view that New Jersey has the most significant relationship to these parties and to the accident, and would apply New Jersey law in this case. CHIEF JUSTICE PORITZ and JUSTICES HANDLER, O'HERN and COLEMAN join in JUSTICE STEIN'S opinion. JUSTICE POLLOCK has filed a separate dissenting opinion, in which JUSTICE GARIBALDI joins. SUPREME COURT OF NEW JERSEY A- 209 September Term 1997 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. Argued January 4, 1999 -- Decided July 26, 1999 On appeal from the Superior Court, Appellate Division, whose opinion is reported at 309 N.J. Super. 435 (1998). Benjamin N. Cittadino argued the cause for appellants (Devlin, Cittadino & Shaw, attorneys; Mr. Cittadino and John G. Devlin, on the brief). John M. Palm argued the cause for respondent (Garrigle, Palm and Thomasson, attorneys). 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. 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. SUPREME COURT OF NEW JERSEY A- 209 September Term 1997 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. This appeal concerns a choice between the law of New York and that of New Jersey. In a well-reasoned opinion, the Appellate Division held "that New Jersey's contacts with this matter, both in quality and in quantity, outweigh New York's and that, in consequence, the matter is governed by New Jersey's common law." 309 N.J. Super. 443, 442-43 (1998). The majority reverses. I would affirm. Plaintiff, Li Fu, was injured in a single-car accident while a passenger in a car rented in New Jersey by her husband, plaintiff Xiao Kang Su, and her brother-in-law, Kuide Chen. Fu, her husband, and her brother-in-law were all New Jersey domiciliaries. They rented the car from a New Jersey lessor, defendant Freedom River, Inc., doing business as Budget Rent-A Car of Philadelphia (Freedom River). The lessees intended to travel to several states and return the car to New Jersey. The operator of the car, Li Fu's sister Hong Fu, another New Jersey domiciliary, drove off the road in Hamburg, New York, seriously injuring Li Fu. Following admission to a New York hospital, Li Fu was transferred to JFK Medical Center in New Jersey, where she received most of her hospital care. Under the law of New York, plaintiffs may recover against Freedom River; under the law of New Jersey, they may not. Finding that New York has a more significant interest than New Jersey in the determination of Freedom River's liability to plaintiffs, the majority reverses. I respectfully dissent. New Jersey's interest so far exceeds New York's that the majority opinion can be understood only as an attempt to reach Freedom River's insurance policy, a consideration that until now has not been dispositive with respect to a choice of law. The award to Li Fu, however, exceeded the individual limit of the $100,000/$300,000 split-limit coverage afforded Hong Fu by her personal insurance policy with the Market Transition Facility (MTF). Hong Fu therefore moved for a trial de novo pursuant to Rule 4:21A-6(b)(1). Michelle Chen, Xiao Kang Su and Daniel Su settled their claims against Hong Fu for the amount awarded by the arbitrator. Kuide Chen settled his claim for $12,500. Only Li Fu's personal injury claim and Xiao Kang 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 to plaintiffs as settlement. Plaintiffs have rejected this offer. In August 1997, the trial court entered an order allowing MTF to deposit its policy into court pursuant to Rule 4:47-1. In April 1997, Freedom River moved for summary judgment, arguing that New Jersey law, not New York law, governed its liability as owner of the rental car. Under New Jersey law, the owner of a motor vehicle is not liable for the negligence arising out of the permissive operation of the vehicle, unless the operator was the owner's agent or employee. Doran v. Thomsen, 76 N.J.L. 754, 756-57 (E. & A. 1908). Although an owner may be directly liable for negligently permitting an operator to use the vehicle, id. at 760, plaintiffs do not contend that Freedom River was negligent in permitting Hong Fu to drive the car. Initially, the Law Division concluded that all significant relationships were with New Jersey, and the accident's occurrence in New York was a mere "happenstance." The court then reversed itself and held that New York law applied. The Appellate Division reversed. 309 N.J. Super. 435 (App. Div. 1998). It reasoned that "New York has no interest in the application of 388 to this matter, which does not involve New York residents, New York vehicles, New York owners, or a New York rental agreement. Nor does the statute implicate a standard of care for drivers using New York roadways." Id. at 442. Here, plaintiffs' domicile and Freedom River's place of business are grouped in New Jersey. Additionally, Freedom River's conduct, the rental transaction, occurred in New Jersey. For the purpose of this action, the place of the injury is a mere fortuity that bears no other connection to the parties. The Restatement further recognizes the importance of a state's contact as the parties' domicile when a court must decide whether to apply a law shielding one party from liability: The local law of the state where the parties are domiciled, rather than the local law of the state of conduct and injury, may be applied to determine whether one party is immune from tort liability to the other . . . . [For example,] the circumstances under which a guest passenger has a right of action against the driver of an automobile for injuries suffered as a result of the latter's negligence may be determined by the local law of their common domicil, if at least this is the state from which they departed on their trip and that to which they intended to return, rather than by the local law of the state where the injury occurred. Rules that regulate the host's liability to his guest are similar to those that relate to an owner's liability for the negligence of a permissive user. Both are loss-allocating rules. Here, plaintiffs and Freedom River share a common residence in New Jersey. The Restatement's preference for the application of the law of the state where the parties reside reflects that state's interest in enforcing the decision of its domiciliaries to accept the burdens as well as the benefits of [its] loss distribution tort rules. Schultz, supra, 480 N.E.2d at 687. Applying New Jersey's common-law rule ensures that the loss in a dispute between New Jersey residents will be governed in accordance with New Jersey's sense of fairness and justice. See Joseph William Singer, A Pragmatic Guide to Conflicts, 70 B.U. L. Rev. 731, 749 (1990) (identifying a state's sense of justice or fairness in particular social relationships as one type of substantive policy underlying law); ante at _ (slip op. at 32) (citing Aboud v. Budget Rent A Car Corp., 29 F. Supp. 2d 178, 182 (S.D.N.Y. 1998) ( New Jersey has an interest in . . . assur[ing] that victims of automobile accidents 'are treated fairly and that some of those victims not be granted extraordinary rights and preferences.' ) (citation omitted). Until today, New Jersey has deemed it unfair to burden financially an innocent automobile owner: New Jersey's common law rule regarding owner liability 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 injuries is based on fault. NO. A-209 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. DECIDED