Dan’s City Used Cars, Inc. v. Pelkey

• [Questions Presented]
• [Issue(s)]
• [Facts]
• [Discussion]
• [Analysis]

Issue(s)

Are state law claims of negligence and consumer fraud against a towing company for having a car towed and eventually disposed of to pay towing and storage fees preempted by the Federal Aviation Administration Authorization Act (“FAAAA”)?

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Facts

The plaintiff, Robert Pelkey, owned a 2004 Honda Civic that he parked at his residence at Colonial Village. The Colonial Village’s parking policy required residents to move their vehicles during various weather conditions, such as snowstorms. When the plaintiff’s car was not moved according to this policy, his landlord had the defendant, Dan’s City Used Cars, tow his vehicle from the parking lot. At the time, Mr. Pelkey was suffering from severe medical issues that confined him to his bed and made him unable to leave his apartment or move his car. He was eventually admitted to the hospital where he required a surgery to amputate his left foot. Mr. Pelkey suffered a heart attack during the surgery, and apparently was not made aware that his car had been towed until he returned home to his apartment some time later, after recovering at the hospital. Once Mr. Pelkey realized his vehicle was missing, he employed his attorney to try to locate it. His attorney determined that the car had been towed and that it was scheduled to be sold in a few days to pay for the cost of the towing and storage of the car. When Mr. Pelkey’s attorney tried to get the car back for his client, Dan’s City Used Cars misrepresented facts and told Mr. Pelkey the car had already been sold. It appears they later disposed of the car, but Mr. Pelkey did not receive any money for the loss of his car.

Consequently, Mr. Pelkey filed a lawsuit in March 2009 against his landlord and the defendant for the loss of his car under various state law claims alleging that they had violated the New Hampshire Consumer Protection Act and on common law negligence for breaching the duties of a bailee, among other violations. In response, the defendants claimed that the Federal Aviation Administration Authorization Act (“FAAAA”) preempted these state law claims. At the trial court level, the judge held that the FAAAA did preempt Mr. Pelkey’s claims. Mr. Pelkey appealed the case before the Supreme Court of New Hampshire. The New Hampshire Supreme Court reversed the lower court’s finding of preemption. They held that these claims were too distantly related to the essential services of the towing company for the claims to be preempted by the law. The New Hampshire Supreme Court therefore remanded the case back down for further proceedings. In doing so, they created a split between their decision and the decision of other states that held similar claims to be preempted. The Supreme Court granted certiorari to resolve the dispute.

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Discussion

The dispute in this case is a question of how to interpret the interplay between the Federal Aviation Administration Authorization Act ("FAAAA"), which governs services and pricings of motor carriers, and state laws that touch upon the conduct of towing companies as motor carriers. The essential question is one of determining the scope of the FAAAA’s preemption over state laws related to motor carriers. Pelkey argues that the FAAAA does not intend to preempt all state legislation in this area. In particular, he believes the sale of his car was not part of the services of the towing company, but rather is a question of debt-collection and liens. He also highlights that it is unlikely Congress that intended to preempt all state law remedies without providing any remedies within the FAAAA. On the other hand, Dan’s City argues that precedent cases have indicated the preemption in the FAAAA is quite broad. Additionally, they argue the New Hampshire Supreme Court was incorrect in claiming their activities were not motor carrier services, as defined in the statute.

Important Implications for the Towing Industry

The first important policy implication this case has is for tow truck companies and the towing industry across the country. Dan's City emphasizes that exposing tow truck companies to negligence suits for failing to find the owners of seemingly abandoned vehicles adds a burdensome duty to tow truck companies and opens them up to serious risks of liability from a jury's negligence determination. The California Tow Truck Association highlights that many states, such as California, have numerous regulations set for the towing industry, and sometimes even have local town or county regulations as well. The California Tow Truck Association claims these potentially conflicting regulations can cause many problems for their members such as duplicated inspections, fee requirements, or conflicting licensing rules. These problems particularly may harm smaller family-owned towing operations. They believe a federal preemptive rule that brings uniformity and stability to the industry will greatly benefit towing companies and allow them to understand what is required of them to operate their businesses both profitably and in compliance with the laws. They believe that the cumulative effect of conflicting laws is quite harmful, causing many companies to alter routes to avoid onerous jurisdictions or limit levels of service to particular areas, and these requirements therefore warrant federal preemption.

Conversely, the Towing and Recovery Association of America urges that allowing preemption would invalidate the underlying state law rules across the country for routine procedures such as disposing of unclaimed vehicles and fee collection. They argue this would create a "legal gap" that would significantly interfere with the orderly conducting of towing services in almost every state. They therefore argue, instead, against preemption and suggest a presumption that state laws relating to disposal of towed vehicles are generally not preempted. Similarly, the United States argues that the result of preemption would be to entirely deregulate the sale of towed vehicles across the states. They argue this could not have been the intention of Congress nor is it a desirable result, leaving towing companies across the country without express legal authorization to dispose of unclaimed cars.

Protecting Consumers and Vehicle Owners

On the other side of the issue, this case has similarly large implications for consumers of towing services and vehicle owners in general, particularly when it comes to non-consensual towing. Pelkey argues that states need the ability to protect vehicle owners’ property rights, as well as create a smooth system to transfer title of abandoned vehicles that have been towed. This will both protect vehicle owners from abusive or improper towing and allow for purchasers of abandoned vehicles to be sure they have acquired proper title to the vehicle. Similarly, the Towing and Recovery Association of America emphasize that preempting these state laws would leave consumers with little or no avenues to challenge such injustices by towing companies. The United States echoes these same concerns and goes even farther contending that preempting these state consumer protection laws in an area where there is no applicable federal law remedy would make towing companies completely immune from liability for any wrongful disposition of vehicles. Finally, twenty-two states make a related policy claim that the states themselves have an interest in being able to protect their own citizens from such injustices under the inherent police power and ability to enforce laws. They contend that preemption should not be allowed because it will wrongfully hurt the states as a whole by upsetting the delicate balance of power between the federal government and the states.

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Analysis

The Supreme Court’s ruling will focus on a preemption clause relating to motor carriers in the 1994 Federal Aviation Administration Authorization Act (“FAAAA”). The clause preempts enforcement of those state laws “related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” The purpose behind this language was to ensure competitive market forces were not displaced by state regulation. The parties’ dispute here turns on whether the FAAAA’s preemption clause extends to bar claims brought under the New Hampshire Consumer Protection Act and on state negligence grounds against a tow truck company that allegedly breached duties to the owner of a car where that car was towed to allow for snow removal, later tried to be sold, and was finally traded away. Dan’s City argues that the language of the statute is encompassing enough in scope to preempt Pelkey’s claims. In particular, that the language of “related to” broadens the preemptive reach of the statue and that the claims Pelkey asserts are “with respect to the transportation of property,” i.e. claims incidental to the towing of his vehicle. Pelkey responds that his claims in no way relate to the towing of his vehicle, but rather the alleged attempted sale and later trade of his vehicle after he attempted to retrieve it from the towing company. Therefore, according to Pelkey, the preemption language of the FAAAA is not triggered and his claims are not preempted.

PREEMPTION: BROAD OR NARROW?

Petitioner, Dan’s City, argues that Respondent Pelkey’s claims are preempted by the language in the FAAAA. Dan’s City first points to Supreme Court precedent in Rowe v. New Hampshire Motor Transportation Association where the Court noted the “breadth of [the] preemption language” in the FAAAA. Dan’s City, citing to a House Conference Report discussing the broad preemptive scope of the FAAAA, argues this understanding was affirmed by Congress. Dan’s City asserts that Congress did create five exceptions to this broad mandate, allowing for state regulation in areas that Dan’s City argues are not relevant in this case. Dan’s City highlights two of the exceptions which do apply to tow truck companies, but that they only deal with pricing and owner notification in cases of non-consensual tows, issues not on point here. Dan’s City notes that prior case law in Pauley v. Bethenergy Mines, Inc. held that where Congress delineates certain exceptions to a legislative mandate, no further exceptions are intended absent other evidence. Dan’s City therefore argues for the proposition that the FAAAA preempts Pelkey’s claims because no exception to the broad preemptive scope of the statute applies in this situation. According to Dan’s City, Congress expressly valued free market forces in regulating motor carriers over the competing patchwork of varying state designs and so Courts should be wary of disrupting that balancing process.

Pelkey argues that his state law claims are not based on the transportation of his vehicle, but rather the way in which Dan’s City attempted to sell and finally traded away his car. Pelkey cites to Supreme Court precedent that has tempered the bounds of preemption, noting that the Court has not allowed preemption to reach indeterminately. Pelkey uses the Supreme Court case Morales v. Trans World Airlines to further the argument that, where only a tenuous connection exists between the state law claim and any alleged effect upon the prices, routes, or services of a motor carrier, no preemption occurs. Pelkey contends that the status of Dan’s City as a tow truck company is irrelevant; the claims Pelkey is making relate to the improper dispossession of Pelkey’s vehicle by an entity or person with custody of his property. Pelkey concludes his argument by elaborating on the purpose behind the preemption clause in the FAAAA, which was mainly to ensure competitive market forces in the motor carrier industry, not to prevent the kinds of state law claims he has asserted against Dan’s City for the alleged illegal disposal of his vehicle.

DO PELKEY’S STATE LAW CLAIMS RELATE TO MOTOR CARRIER SERVICES WITH RESPECT TO THE TRANSPORTATION OF PROPERTY?

Focusing on the language in the FAAAA, Dan’s City formulates a three part test to evaluate whether federal law preempts state law, as introduced by the Seventh Circuit: “(1) a state must ‘enact or enforce’ a law, regulation or other provision that (2) ‘relates to’ motor carrier prices, routes or services either (i) by expressly referring to them or (ii) by having a significant economic effect upon them.” Thirdly, the state action must be “with respect to the transportation of the property” as required by the FAAAA. Dan’s City argues that the substantial inquiry here revolves around the second and third prongs. Dan’s City posits that Pelkey’s negligence claim and consumer fraud claim both relate to Dan’s City conduct as a provider of towing services in that both establish liability for improper application of those services; here, allegedly impermissibly selling a towed vehicle. In Data Manufacturing v. United Parcel, the Eighth Circuit held that the billing practices of UPS were inseparable from the company’s services so that the FAAAA preempted state tort law claims. According to Dan’s City, this reasoning similarly applies here, where the company sought payment from Pelkey before they would return his car. Dan’s City notes that most courts have interpreted ‘services’ broadly so that the term covers incidental matters related to the transportation itself.

Dan’s City next turns to prong (2)(ii), arguing that state laws that even indirectly affect the services of tow truck companies are preempted by federal law because such laws would have a significant impact upon them. States can already regulate price limits on non-consensual tows. Dan’s City argues that adding state negligence law claims to the mix, where a jury decides whether reasonable care was used in locating the owner of a towed vehicle, would subject tow truck companies to the infinitesimal variations of state and municipal law; this is what the preemption clause in the FAAAA was intended to avoid. Dan’s City notes that the economic effect of coming out on the losing side of a consumer protection claim in New Hampshire is triple damages and payment of legal fees. Dan’s City rounds out the test by focusing on prong (3), pointing to the statutory definition of transportation, which includes services related to transportation, like arranging for storage or delivery of property.

Pelkey’s main argument is that his claims against Dan’s City are not related to the price, route, or service of a tow truck company. First, citing to Rowe, Pelkey notes that his state law claims of consumer fraud and negligence do not affect the operation of tow truck companies; rather, they arise out of the dispossession of his car by Dan’s City upon their efforts to sell and later trade his vehicle. Second, Pelkey asserts neither the New Hampshire Consumer Fraud Act nor the negligence claim reference towing services but merely, in this case, relate to trade and commerce generally. Third, Pelkey argues that complying with the Consumer Fraud Act and using reasonable care to identify the owner of a towed vehicle would not significantly impact the way towing companies like Dan’s City operates. Presumably, according to Pelkey, these companies are in fact complying with these requirements in the first place. In addition, Pelkey contends that the mere fact that Dan’s City attempted to collect payment does not make what the towing company did ‘services.’ Pelkey argues that if the Court held otherwise, a person would have no legal recourse against an abusive debt collector who is seeking repayment from a towing debt.

Pelkey disagrees also with Dan’s City expansive definition of the word ‘services’ found in the FAAAA. Pelkey argues that services should be interpreted to includes those things contractually bargained for to the benefit of the recipient, pointing to Fifth Circuit and Eleventh Circuit precedent Pelkey asserts that Dan’s City, in attempting to sell and later trading away Pelkey’s vehicle, did not provide a service for the benefit of a customer; rather, it was to obtain payment for the original tow. In addition, Pelkey notes that the word ‘transportation’ in the phrase “with respect to the transportation of property” is statutorily defined. Pelkey contends that nowhere in that definition does it include the sale or trade of property which occurs after the transportation of the property is completed.

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Conclusion

The Supreme Court’s decision here will resolve a circuit split and decide the preemptive scope of the FAAAA on state law remedies for non-consensual towing and disposal of towed vehicles. If the Court agrees with Mr. Pelkey and the New Hampshire Supreme Court, the FAAAA will not preempt state statutory or common law remedies and this result will favor vehicle owners in protecting them against potentially abusive towing. On the other hand, if the Court agrees with Dan’s City, this area will be preempted by the FAAAA and limit the amount states may regulate the towing industry, potentially bringing some clarity to the industry and allowing towing companies to operate under a clear mandate.

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