City OK to regulate Uber, Lyft differently; license doesn't entitle cabs to no competition, appeals judge says

By Jonathan Bilyk | Oct 11, 2016

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 from Uber?”

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 taxi business.

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 claims “weak.”

“’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.

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City of Chicago Miller Shakman and Beem LLP U.S. Court of Appeals for the Seventh Circuit

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