## Facts

- Joseph Powell III, a Michigan resident, rented a Nissan Xterra from Budget in Michigan.
- Powell drove to New York, where he visited Nicole Chappell, a New York resident.
- The couple departed from New York to travel to Michigan, with Powell driving and Chappell as a passenger.
- In Pennsylvania, Powell fell asleep, the vehicle crossed lanes, struck a guardrail, and flipped; Chappell was ejected and suffered spinal injuries resulting in permanent paraplegia.
- Chappell received emergency treatment in Pennsylvania and then returned to New York for ongoing medical care, including assistance through a New York welfare program.
- Budget filed a federal declaratory-judgment action in the Eastern District of Pennsylvania seeking a ruling on which state’s law governed its potential vicarious liability as vehicle owner.
- Budget argued Michigan law applied (limiting owner liability to $20,000); Chappell argued New York law applied (imposing owner vicarious liability for permissive use).
- The district court applied Pennsylvania law (no vicarious owner liability on these facts) and granted summary judgment to Budget.
- Chappell appealed, challenging the choice-of-law determination.

## Issues

1. Under Pennsylvania choice-of-law rules in a diversity case, which state’s substantive law governs a rental-car owner’s vicarious liability for a permissive driver’s negligence: New York, Michigan, or Pennsylvania?
2. Whether the district court erred by applying Pennsylvania law rather than the law of a state with a stronger governmental interest in the dispute.

## Decision

- The Third Circuit reversed the summary judgment for Budget and remanded.
- Applying Pennsylvania’s interest-analysis conflicts methodology, the court held New York law governs Budget’s vicarious liability.
- The court concluded the dispute presented a true conflict among the states’ laws and that New York had the greatest interest in applying its policy to the parties and consequences of the accident.

## Legal Principles

- A federal court sitting in diversity applies the forum state’s choice-of-law rules.
- Pennsylvania employs a flexible interest-analysis approach that evaluates (1) whether a true conflict exists and (2) which jurisdiction has the greatest interest in applying its law, based on qualitative assessment of contacts and governmental policies rather than contact-counting.
- In multi-state tort cases, the accident location alone may be outweighed when another state has stronger interests tied to the injured party’s residency, compensation policy, and ongoing fiscal and medical consequences.
- When a state’s policy aims to ensure compensation for its residents and to reduce the likelihood that public programs bear long-term injury costs, that state may have the predominant interest even if the accident occurred elsewhere and the vehicle was rented in a different state.

## Conclusion

The Third Circuit held that, under Pennsylvania conflicts law, New York had the greatest interest in applying its owner-liability policy to a catastrophic injury suffered by a New York resident, and it therefore reversed the application of Pennsylvania’s no-vicarious-liability rule and remanded for further proceedings under New York law.


Budget Rent-a-Car Sys., Inc. v. Chappell, 407 F.3d 166 (3d Cir. 2005)