October 31, 2016 Practice Points

Livery Cabs vs. Lyfts: Recent Litigation Challenges to the Ride-Sharing Frontier

By Sathima H. Jones

Recent litigation in cities throughout the United States have drawn attention to the question of how our nation’s laws can regulate the burgeoning sharing industry that is becoming entrenched in the American economy.

Particularly, with respect to the popular ride-sharing services, Uber and Lyft, consumers flock to the convenience and efficiency of hailing a ride with the simple touch of a button on a handheld device as well as the comparatively lower price than a traditional taxicab. Similarly, the drivers welcome the boost in income without the time-commitment and hassle of a full-time job. But, there are only so many riders to go around. Meanwhile, opposite these ride-sharing fans lies a highly-regulated industry of taxi drivers that is watching their income and profit margins rapidly drop, while their outlay of investments in medallions and training are steadily devalued by consumer-choice, which favors ride-sharing. Somewhere in the middle is our court system, without a clear set of regulations to govern new technology, as the taxicab industry grasps for creative ways to hinder the growth of ride-sharing.

In the Seventh Circuit, Posner recently issued a decision in a case brought by the Illinois Trade Transportation Association (ITTA). The ITTA attempted to challenge ordinances passed by the City of Chicago that effectively regulates the livery taxicab industry more heavily than the ride-sharing industry. The ITTA claimed that the city regulations deny the livery companies equal protection under Constitution by allowing ride-sharing to compete without heavy regulation.

Harking back to the deregulation of American markets that began in the 1970s to increase market competition and consumer choice, Posner struck down a number of constitutional challenges the ITTA brought. Of note, the ITTA argued that by allowing ride-sharing without regulation while requiring medallions for livery cabs, the city equivocally deprived livery companies of property with compensation. Citing a decision in the District Court of Massachusetts, Posner reasoned that ownership of a medallion did not give its owner a right to exclude competition. “[I]f a person who wishes to operate a taxicab without a medallion is prevented from doing so, it is because he or she would violate municipal regulations, not because he or she would violate medallion owners’ property rights.” The city’s Municipal Code, which has been on the books since 1963, entitles the medallion owners to be the exclusive providers of taxi service, but not to exclude alternatives to the service they offer.

The ITTA further argued that the city discriminated against them by subjecting them to regulations without requiring the same regulations across the board. In response, Posner posited an interesting analogy, comparing the city’s regulation of taxicabs to the differential regulation of cats and dogs. In many cities, dogs are required to have licenses, while cats are not, because dogs are bigger, stronger, and faster than cats. Although many dog owners dislike cats and would prefer that cats be required to have similar licenses, pet owners cannot compel the government to regulate a “competing animal,” based merely on personal preference. Posner thus equates consumer choice to download the app to hail a ride or hail a taxi on the street as a question of personal preference and recognized the necessity for differential regulation across the industry.

Meanwhile, in Philadelphia, a judge recently issued injunctions against Uber and Lyft after repeated protests from the taxicab industry. In the suit filed by Ron Blount, president of the Taxi Workers Alliance of Philadelphia, and others, including a member of an advocacy group for people with disabilities against the Philadelphia Parking Authority (PPA), challenges are brought under the Americans with Disabilities Act (ADA). The suit argues the PPA is failing to provide equal protection to all the providers of car services in the city. It also alleges the city's disabled population is underserved by Uber and Lyft because the firms do not have to comply with the ADA as taxi companies do.

The Philadelphia suit has yet to be decided, but practitioners in this burgeoning sharing economy must remain apprised of the trend that equal protection challenges based on discrimination and equal protection are largely untenable. It remains to be seen whether the recent challenge under the ADA will be successful, but it is an area to watch as our economy becomes more inundated with technology-based sharing services.

Sathima H. Jones is an associate at Wade Clark Mulcahy in Philadelphia, Pennsylvania.

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