The city of Chicago doesn’t need to burden Uber, Lyft and other
ridesharing services with the same costly regulations applied to cab drivers, a
federal appeals court has ruled, declaring the city did not infringe cab
companies’ constitutional rights by allowing the alternative transportation
companies to operate and compete for passengers in the city.
On Oct. 7, a three judge panel of the U.S. Seventh Circuit Court
of Appeals came down strongly on the side of Chicago City Hall and, by
extension, so-called ridesharing companies like Uber, declaring a federal judge
was correct in dismissing the bulk of the cab companies’ lawsuit against the
city over claims the city’s differing regulation of cabs vs. ridesharing companies
amounted to an unconstitutional taking of the cab operators’ property, and further
declaring the judge wrong to allow the cab companies to proceed under claims City
Hall had violated the cab operators’ constitutional rights to equal protection
by applying more stringent rules to taxis.
The decision was authored by Seventh Circuit Judge Richard Posner,
who heard the case along with judges Williams and Sykes.
“Taxi medallions authorize the owners to own and operate taxis,
not to exclude competing transportation services,” Posner wrote. “The
plaintiffs in this case cannot exclude competition from buses or trains or
bicycles or liveries or chartered sight?seeing vehicles or jitney buses or
walking; indeed they cannot exclude competition from taxicab newcomers, for the
City has reserved the right (which the plaintiffs don’t challenge) to issue
additional tax medallions.
“Why then should the plaintiffs be allowed to exclude competition
The lawsuit was first brought in 2014 by the Illinois
Transportation Trade Association and its associated Chicago taxi and livery
service operators, to challenge a city ordinance to regulate the ridesharing
services, legally known as “transportation network providers.” The cab
operators said the ordinance should be illegal because it unfairly holds the
TNPs to a lesser regulatory standard than their competitors in the traditional
The taxi groups noted, for instance, that the city
requires taxi operators to purchase and maintain taxi license medallions, while
also limited the number of medallions available, making the medallions worth
potentially hundreds of thousands of dollars.
They also noted taxi drivers must pay the city
$1,200 annually, while taxi affiliations must pay $500 each year, plus $15 for
each affiliated medallion.
The city also regulates how much taxi drivers can
charge in fares, while drivers must undergo background checks and other
screenings, and their vehicles must undergo city inspections.
By contrast, TNPs need only pay the city $10,000
annually, no matter how many vehicles it operates on city streets; are required
to carry less insurance; and are not subject to city driver screenings or
vehicle inspections, among other differences.
The taxi and livery drivers asserted the regulatory
differences amount to an unconstitutional taking of their property by the city
and an equal protection violation.
In April, U.S. District Judge Sharon Johnson Coleman shot down
much of the lawsuit, but allowed the cab companies to continue to press their
equal protection claims.
This decision prompted appeals from both sides, with the cab
operators asking the Seventh Circuit to overturn the decision to dismiss its
first five counts, and the city asking the appeals court to overrule Judge
Coleman’s decision to allow the equal protection counts to stand.
Posner agreed completely with the city’s position, saying City
Hall is within its rights to regulate Uber and Lyft differently because he
believed the evidence showed the product offered by the TNPs is different in
many respects from the services offered by traditional taxis.
He noted Uber and Lyft drivers cannot be hailed from the street,
but must be requested solely from a proprietary smartphone app. He said rates
for the rides are set by the TNPs and are known to customers, via the app. And
he said customers of Uber and Lyft enter into a contractual relationship,
subject to various terms and conditions for both parties, with the TNPs before
they can ever even request a ride, meaning Uber and Lyft share more responsibility
for various associated tasks, including screening and paying drivers.
Absent city regulation, Posner said cab operators would face no
such constraints, making the city’s regulatory burden, including licensing fees
and regulation of rates, appropriate, and the cab operators’ constitutional
“’Property’ does not include a right to be free from competition,”
Posner said. “A license to operate a coffee shop doesn’t authorize the licensee
to enjoin a tea shop from opening. When property consists of a license to
operate in a market in a particular way, it does not carry with it a right to
be free from competition in that market.”
And Posner said Coleman had erred in her ruling on the equal
protection question because she presumed ridesharing operations and cab companies
are similar enough to allow the cab operators to argue the point. But Posner
said the evidence says that is not the case, likening the city’s handling of
the two to the way the city regulates the ownership of dogs vs cats, requiring
certain licenses for one, and not for the other.
Further, he said consumer perception is key, as well – and customers
see the two services differently, the judge said.
“There are enough differences between taxi service and TNP service
to justify different regulatory schemes, and the existence of such
justification dissolves the plaintiffs’ equal protection claim,” Posner wrote. “Different
products or services do not as a matter of constitutional law, and indeed of
common sense, always require identical regulatory rules.”
Posner directed Coleman to dismiss the equal protection claims
with prejudice, effectively ending the litigation against the city.
The taxi drivers and the Illinois Transportation
Trade Association is represented in the action by attorneys with the firm of
Miller Shakman & Beem, of Chicago.
The city is represented by its in-house lawyers in
the City of Chicago Department of Law.