Conrado Medina bought a New York City taxicab medallion in 1990 for $135,000. The medallion permitted Medina to legally operate one of New York City’s iconic yellow taxicabs. Medina had driven his cab for over thirty years, until Melrose Credit Union (MCU) repossessed his medallion in April 2017. Medina owed MCU over $587,000. After the app-based dispatch transportation (“app-dispatch”) industry entered the market, Medina’s gross profits fell forty percent from their $10,000-a-month peak. Medina was now struggling “to meet his $3,586 monthly payment despite working 14-hour days,” so he needed to refinance. However, like many other medallion owners who drive their own taxicabs, Medina had borrowed against his medallion for years. Even though Medina had never once been late on a loan payment, MCU would only allow Medina to refinance if he put up his house as collateral.
MCU played hardball with Medina because taxicab medallion lending was its primary business, and unpaid loans and poor refinancing schemes with this clientele had resulted in serious financial losses. Despite taking the license that allowed Medina to operate his yellow taxicab, MCU continued to demand that Medina meet his payment obligation. In response, Medina filed for bankruptcy.
Unfortunately, Medina’s circumstance is not unique. Many other New York City medallion owners face similar debt issues because app-dispatch services disrupted the City’s taxicab market without any notice. Taxicab activists have long complained about app-dispatch services in New York City. Bhairavi Desai, Executive Director of the New York Taxi Workers Alliance, has argued that if “[app-dispatch services] hav[e] an unlimited number of cars[, then] no drivers—taxi or black car or livery—will earn a decent living.” Tragically, the economic stress on medallion owners became so crippling in 2018 that it led eight New York City taxicab drivers to commit suicide.
In response to the debt issue that many medallion owners are facing, the City Council passed legislation in August 2018 that placed a twelve-month moratorium on new app-dispatch licenses so that the City could study the app-dispatch industry’s impact on the taxicab market. This moratorium was the first cap that any jurisdiction had put on app-dispatch service providers in the United States, and it was extended for an additional year in June 2018. The City Council also waived $20 million in annual medallion-owner fees. City Council Members have introduced their own proposals aimed at addressing the medallion owners’ economic crisis.
So far, the City Council’s most significant step was to establish “a task force to study the devaluation of taxicab medallions in New York City.” The task force was instructed to examine “prices of taxicab medallions over the last 20 years and estimate[d] the impact of future sales on the city’s budget.” The resulting report recommended that the City implement a cap on the percentage of app-dispatch vehicles on the road during peak hours and a tighter regulation on the number of licensed app-dispatch vehicles.
This Article follows the City Council’s lead by considering how New York City might remedy the medallion owners’ situation through a property analysis. Specifically, this Article contemplates whether New York City owes medallion owners just compensation under a regulatory takings analysis for allowing app-dispatch services to operate in the marketplace alongside medallion taxicabs. After concluding that the present regulatory takings jurisprudence concerning taxicab medallions provides no remedy under traditional circumstances, this Article explores whether New York City’s responsibility to “[e]stablish and enforce standards to ensure all Licensees are and remain financially stable” provides a unique avenue to secure a takings judgment.
Long before the iconic yellow taxicabs sat bumper-to-bumper in Midtown traffic, horse-drawn carriages dominated New York City’s transit system. But as society transitioned into the twentieth century the City pursued an alternative to this “archaic” system. The first New York City taxicabs appeared in 1907. The unregulated taxicab business had a low overhead cost because it was an industry open to any entrepreneurial spirit with access to an automobile. By 1931, the City had over 21,000 taxicabs. Despite its early popularity, there were enough problems in the unregulated taxicab business that led to public distrust in the industry—a lack of service and safety standards, driver qualifications, and certification. Taxis also “contributed to a spike in car accidents and car-related fatalities.”
Eventually, the unregulated system reached a tipping point. By 1935, the Great Depression prompted New Yorkers to resort to less expensive transportation options, and “frustrated cabdrivers turned their anger into violent protest and the demands for industry regulation increased.”
In 1937, Alderman Lew Haas proposed a bill—later referred to as the Haas Act—that limited the number of taxis to 13,595 through a medallion system and placed an indefinite moratorium on issuing additional medallions. The Haas Act established a distinction in the medallions which still exists today: one for corporate fleets, and one for individual ownership. As owners failed to renew their medallions, the number quickly fell to 11,787. “As anticipated, this reduction brought the supply of taxicabs closer to the level of service the public demanded, thus calming the fierce competition for customers.”
After this major reform in 1937, some important changes took place in the City’s taxicab industry before app-dispatch services entered the marketplace. In 1971, the City Council established the New York City Taxi & Limousine Commission (TLC). This nine-member commission was designed “to continue, further develop, and improve taxi and limousine service in New York City.” The TLC is charged with issuing medallions, as well as adopting and enforcing rules that regulate the for-hire transportation industry.
The TLC oversaw various reforms to the taxicab industry. In the 1960s, for-hire vehicles (FHVs) known as “gypsy cabs” began roaming the City’s streets. Gypsy cabs, and sometimes unlicensed vehicles, illegally picked up street-hail passengers. Gypsy cabs focused on underserved neighborhoods that traditional yellow taxicabs did not service because those neighborhoods were not as profitable as traversing Manhattan’s business district. The TLC began regulating gypsy cabs in the 1980s so that yellow taxicabs could continue to exclusively collect street-hail passengers while gypsy cabs—paving the way for an FHV industry—were permitted to collect passengers through telephone calls.
The TLC also oversaw the first growth in the number of medallions in nearly sixty years. In 1996, the TLC auctioned off 400 new medallions, and then an additional 1,050 medallions from 2004 to 2008. In the mid-2010s, the TLC implemented the Boro Taxi initiative which licensed thousands of new taxis—albeit a granny-apple green rather than the recognizable canary yellow—to service those neighborhoods outside Manhattan’s central business district. Although well-intentioned, this reform unwittingly emerged on the cusp of the biggest change to the New York City taxi industry since the Haas Act.
Before reviewing app-dispatch companies’ impact on the taxicab market, it is important to understand both the New York City taxicab industry’s size and how the City regulates it. The TLC permits several different vehicle types to operate in New York City, and each serves a unique purpose. Yellow taxicabs, or medallion taxicabs, have the sole authority to accept street hails from passengers anywhere in the five boroughs. Green taxicabs, otherwise known as street-hail liveries or borough taxis, may accept both street hails and prearranged trips throughout New York City except in lower Manhattan (they may operate north of 110th Street on the west side and 96th Street on the east side) and New York City airports. Commuter vans offer rides through a prearranged service and may only collect passengers in specific communities, usually those lacking other public transit options. Paratransit is another prearranged service option, but it is only available to disabled passengers. Finally, there are three types of FHVs: black cars, liveries, and luxury limousines. FHVs may only offer rides as a prearranged service, and this service can be arranged through telephone calls, smartphone apps, or contracts with corporate clients.
TLC-licensed vehicles deliver approximately one million passengers each day. There are 179,529 TLC-licensed drivers in New York City, and 121,840 TLC-licensed vehicles. While there are approximately 107,000 TLC-licensed vehicles that serve customers through radio or app-based dispatch, there are only 13,587 medallion taxicabs.
This Article focuses on a comparison between medallion taxicabs and FHVs—specifically those operated by app-dispatch companies. Their differences extend well beyond how they are permitted to collect passengers. A medallion may be owned or leased, but anyone involved in operating the associated vehicle as a profitable taxicab must be registered with the TLC. If medallion ownership transfers, the TLC must approve the transaction. The TLC seemingly regulates everything about medallion taxicabs, from fares to vehicle specifications. As for FHVs, there is much less oversight. FHV drivers must be registered with the TLC, but there is not a medallion system that limits the number of drivers. The TLC does not regulate precise details like FHV fares or vehicle specifications.
Uber arrived to New York City in 2012 and was soon followed by other major app-dispatch services like Via in 2013, Lyft in 2014, and Juno in 2016. The table below demonstrates how this industry rapidly grew over a short period of time.
Table footnotes:
| Vehicle Type | 2014 | 2015 | 2016 | 2017 | 2018 | Vehicles Lost/Gained (Total) |
Vehicles
|
| Yellow Taxis | 13,587 | 13,587 | 13,587 | 13,587 | 13,587 | +/− 0 | +/− 0 |
| Green Taxis | 7,159 | 7,676 | 5,573 | 4,245 | 3,579 | − 3,580 | − 50 |
| Commuter Van | 534 | 584 | 584 | 437 | 297 | − 237 | − 44 |
| Paratransit | 1,716 | 1,123 | 1,123 | 659 | 425 | − 1,291 | − 75 |
| FHVs | 52,558 | 66,604 | 67,484 | 82,794 | 107,435 | + 54,877 | + 104 |
With more app-dispatch vehicles on the City’s streets, these companies started to collect more of the market share. February 2017 was the first month when app-dispatch services made more trips than yellow and green taxicabs combined, and by December 2017 app-dispatch services made sixty-five percent more pickups than taxis. By February 2018, the number of monthly app-dispatch trips doubled medallion-taxicab trips. As of March 2018, app-dispatch services made “more pickups per month than taxis did in any month since the dataset began in 2009.” Meanwhile, medallion taxicab trip numbers steadily declined during this period, which resulted in less revenue. For example, the taxicab industry’s average daily revenue dropped forty-one percent in November 2017 compared to the same period in 2016.
Less trips, and thus less revenue, devalued the medallions themselves. To understand how significant an effect that app-dispatch companies had on medallion valuation, its meteoric rise must be examined.
When New York City established the medallion system in the late 1930s, the City charged $10 per medallion. But “[w]hen the City failed to expand the taxi industry despite post-World War II economic growth, taxicab licenses developed a trading value in the open market.” The initial price was around $2,500, but the value quickly rose to $50,000 by the mid-1970s. “[D]ecades of often-explosive increases” continued as individual medallions traded near $200,000 in the late 1990s.
Then, suddenly, the medallion market reached an unfathomable peak. In August 2011, a medallion was valued at $705,000. Then in October 2011, two medallions sold at auction for $1,000,000 each. This amount was “the highest recorded sale since the city’s modern livery service began.” To put this valuation in perspective: “The Dow Jones industrial average ha[d] risen 1,100 percent in the [previous] 30 years. In that same period, the value of a taxi medallion [went] up 1,900 percent. That return [on investment] beat[] gold, oil, and the American house.” A taxi-financing specialist involved in the deal noted that “[n]obody ever thought the medallion would get to [that] point.”
A simple cost-benefit analysis explains how the medallion’s value skyrocketed to this magnitude. In 2011, a New York City medallion netted $75,000 in profits. After estimating the cost of maintenance, insurance, worker’s compensation, and the driver’s paycheck, the medallion owner would still take home about $50,000—or a five percent profit margin. And this margin would only increase if the buyer was also the driver.
Although risk exists in any investment, buyers had reason to be confident. History demonstrated that New York City medallion owners regularly succeeded at using their significant political clout to their advantage. Buyers were also in a fruitful market, and the City had been reluctant to present additional medallions in a government-controlled market for over eighty years. As Professor Ed Rogoff noted, “There’s nothing like having a monopoly to keep you profitable.”
At the time of the 2011 sale, Professor Graham Hodges, a taxi industry historian, remarked: “No one is very good at forecasting the economic future right now, but . . . [a medallion] will always make good money and pay for itself. There are certain things that are just gilt-edged assets, and this is one of them.” Unfortunately, not even Professor Hodges could have foreseen what was on the horizon. When Uber entered the City’s marketplace in 2012, it opened the door for many to follow. App-dispatch services effectively forced competition into this government-controlled market and disrupted it forever. By January 2018, no New York City taxicab medallion bids neared even $200,000—over an eighty percent drop in just six years.
The Fifth Amendment of the United States Constitution dictates that “private property [shall not] be taken for public use, without just compensation.” This provision, popularly referred to as the Takings Clause, “does not prohibit the taking of private property, but instead places a condition on the exercise of that power.” It is a court’s role to award just compensation to the property owner “if the taking is for public use and comports with other applicable constitutional provisions, statutes, and regulations.” The government’s action in a takings case may be categorized in two ways: a physical taking wherein the government tangibly seizes or acquires property, and a regulatory taking in which the government imposes a restriction on the property owner that either limits or prohibits the owner’s property use. This part summarizes the regulatory takings doctrine, and reviews regulatory takings jurisprudence as it pertains to app-dispatch services disrupting the taxicab industry.
The regulatory takings doctrine provides property owners assurance that “certain exercises of government power have such a dramatic impact on private property that [those actions] are the functional equivalent of an affirmative exercise of eminent domain, and the government should either back off the regulation, or compensate the property owner.” As the Supreme Court once infamously phrased it, “The general [regulatory takings] rule, at least, is that, while property may be regulated to a certain extent, if regulation goes too far, it will be recognized as a taking.”
These cases are analyzed under a test that the Supreme Court presented in Penn Central Transportation Co. v. City of New York. This test has three factors: (1) the “character of the government action,” (2) the regulation’s economic impact, and (3) how much the regulation interferes with the property owner’s “investment-backed expectations.” No single Penn Central factor is dispositive, and thus “judges . . . throw [these factors] into a blender and somehow try to balance one versus the rest.”
The Court recognizes two compensable regulatory takings categories. “First, where government requires an owner to suffer a permanent physical invasion of her property—however minor. . . . A second categorical rule applies to regulations that completely deprive an owner of ‘all economically beneficial us[e]’ of her property.” These categories are commonly referred to as the per se rules. Notably, in the context of the second per se rule, if the owner did not have the proscribed-use interest when the owner obtained title, then a regulatory taking does not occur even when there is a total loss of property value. Thus, when a regulation affects property ownership but does not result in the property’s total loss of value, then the government has not committed a taking. The “mere diminution in the value of property, however serious, is insufficient to demonstrate a taking.”
The standard regulatory takings case concerning app-dispatch services disrupting the medallion owners’ functional monopoly follows one basic path. A perfect example in the context of this Article is Progressive Credit Union v. City of New York. Here, the plaintiffs were credit unions, trade associations, and individuals associated with New York City’s medallion taxicabs. Plaintiffs asserted that the TLC’s regulatory scheme regarding medallion taxis and FHVs caused them to suffer a taking. The district court granted the City’s motion to dismiss the case, and it denied to exercise supplemental jurisdiction over the underlying state-law claims. On appeal, Plaintiffs alleged that “no material differences now exist[ed] between a traditional street hail and an [app-dispatch service] . . . rendering [the] medallion holders’ right to ‘hail exclusively’ meaningless. . . .”
But this case took an unusual turn. Unlike the other notable federal court decisions in this area, the Second Circuit did not answer the regulatory takings question because Plaintiffs had yet to exhaust state-court remedies.
Those federal courts that have answered this question on the merits have consistently held that no regulatory taking occurred. In the Seventh Circuit, the court held that Milwaukee’s medallion “confere[d] only a right to operate a taxicab,” rather than a “right to exclude others from operating taxis.” In a companion case, the Seventh Circuit also found that Chicago’s medallion did not “include a right to be free from competition.” The Eleventh Circuit was the next to hear a regulatory takings case on this matter. The court relied on the Seventh Circuit’s reasoning when it concluded that Miami-Dade County medallion owners could not “reasonably rely on a competition-free marketplace.” Finally, the Third Circuit also used the aforementioned precedent to find that medallion holders did “not have the right to be the exclusive provider of ride-for-hire services in Newark.”
At first glance, the relevant regulatory takings jurisprudence makes it appear that New York City taxicab medallion owners have little chance to pursue a successful claim under a property analysis. So far, the courts have found no wiggle room to work around the medallion owner’s investment-backed expectations—the third Penn Central factor. The courts have framed this issue as the medallion owners relying on regulation to maintain a monopoly and thus having no reasonable justification to believe that the market would forever remain the same. Furthermore, it is difficult to classify New York City medallion owners’ circumstance in either per se regulatory takings category since the City’s regulatory scheme has neither physically taken the medallions nor deprived medallion owners of “all economic benefit.” Although app-dispatch services have taken a considerable market share, and medallion valuation has plummeted as a result, medallion owners still service thousands of passengers every day. Unfortunately for medallion owners, less profit is still profit within a regulatory takings analysis.
Even though these opinions are based on substantial logic and reason, the outcome just feels wrong. The courts’ analysis likens buying a medallion to any other marketplace, but this analysis fails to recognize that the “market would not would not exist but for the government.”
Additionally, courts have significantly relied on the distinction that medallion taxicabs have an exclusive right to collect street hail passengers while app-dispatch companies may only service prearranged rides. But this distinction is a legal fiction. As New York City Council Member Ydanis Rodriguez noted, “We, as a city, say that [medallion owners] will have exclusive rights to pick up and drop off [passengers] in all five boroughs, but that hasn’t been happening in the last few years.” Although there is a technical difference in how these services operate, data shows that app-dispatch companies are in direct competition with traditional taxicabs. Thus, in relying on this distinction, the courts’ regulatory takings jurisprudence concerning taxicab medallions and app-dispatch services has a confusing result: “Because Uber and Lyft are not taxicabs, allowing them to drive people around the city for money doesn’t interfere with the rights of taxicabs to drive people around the city for money.”
Luckily for New York City medallion owners, their situation has a unique wrinkle that courts have not addressed in the relevant regulatory takings cases. Under Title 35 of the Rules of the City of New York (“Rules”), Section 52-04 directs the TLC to “[e]stablish and enforce standards to ensure all Licensees are and remain financially stable.” The provision was added to the Rules on September 2, 2010, and went into effect on April 1, 2011.
This final part serves two purposes: it examines the relevant statute to determine whether it pertains to medallions, and it explains why the medallion buyer-owner’s reliance on this provision provides an avenue to win a regulatory takings claim on the merits.
The weight of this provision in the regulatory takings context comes down to what the word “License” entails. If the term can be interpreted as to include the City’s taxicab medallions, then medallion owners have a much stronger argument in a regulatory takings case.
The word “License” is capitalized in § 52-04 when it would not be under normal circumstances. The Rules state that capitalization is used to signal that a term has a specific definition. The terms are generally defined within each chapter of Title 35. But “[c]ertain general terms (Driver, License, Owner, for example) . . . have a more specific meaning in individual Chapters,” and thus “[t]hose definitions . . . appear in the relevant Chapters.”
Unfortunately, the Rules do not define “License” in Chapter 52, where this provision appears. Thus, interpreting “License” as employed in § 52-04 can be informed by how this term is used in other relevant contexts within Title 35.
In the chapter on FHV owners, “License” is defined as “a License for a[n FHV].” In the chapter dedicated to medallion taxicab services, “License” is “the authority granted by the Commission for an Applicant to own and operate a designated vehicle as a Taxicab within the Commission’s jurisdiction, and is evidenced by the Medallion affixed to the hood of the vehicle.” In the chapter that establishes procedures to issue and regulate TLC driver’s licenses, “License” means “a TLC License to drive a Taxicab, Street Hail Livery and [FHV].”
Without a clear and consistent statutory definition, the analysis must consider a generally accepted definition. In the 2010 version of the New Oxford American Dictionary, “license” is defined as “a permit from an authority to own or use something, do a particular thing, or carry on a trade.”
Based on this definition, the medallion owner’s worst-case scenario is that “License” in § 52-04 refers to the license to operate a public transportation vehicle in New York City. This is supported by the preceding statute, § 52-03, which lists all of the licenses that the TLC issues as a regulatory body.
But this interpretation conflicts with the remainder of the provision. Again, § 52-04 states that the TLC must “[e]stablish and enforce standards to ensure all Licensees are and remain financially stable.” If the aforementioned definition is adopted, then the licenses listed in § 52-03 must have value so that the TLC has a “License” to keep “financially stable.” But unlike a medallion which can be sold on a secondary market, these licenses cannot be transferred. For example, an FHV license cannot be “transferred or assigned.” These licenses are, by design, particular to the driver. The City confers these licenses to applicants that demonstrate ability and competency to operate a transportation vehicle in New York City.
So if the “financially stable” language in § 52-04 has any purpose—and courts typically find that statutory language has meaning since it assumes legislatures do not needlessly use words—then the term “License” in § 52-04 has to include something for the TLC to regulate. Thus, the definition of “License” in this context must include the taxicab medallion since it is a transferable asset that the TLC was designed to protect and regulate.
If New York City taxicab medallions are incorporated under § 52-04 of the Rules, then medallion owners could argue that the City created a vested property right in the medallions. A vested right is “a right which the law recognizes as having accrued to an individual by virtue of certain circumstances and that as a matter of constitutional law cannot be arbitrarily taken away from that individual.” Various tests exist to determine whether there is a vested right, but New York relies on the Proportionate Test: “a property owner obtains a vested right when ‘pursuant to a legally issued permit, the landowner demonstrates a commitment to the purpose for which the permit was granted by effecting substantial changes and incurring substantial expenses to further the development.’”
This rule appears a bit specific, but that is because the vested-rights argument is often used in zoning cases. In a typical case, a land developer buys land with the reasonable expectation to develop that land, and then a government action (or lack of government action) causes the property owner to be unable to develop that land. A successful argument in the takings context requires the plaintiff to demonstrate both the vested property right and how the challenged government action failed to “substantially advance [a] legitimate state interest” or denied the plaintiff “economically viable use” of the property. When the plaintiff’s claim focuses on the latter, the plaintiff may still receive just compensation based on “the extent to which the regulation has interfered with distinct investment-back expectations.”
In the New York City taxicab medallion context, Plaintiffs (taxicab medallion owners) could use the vested right analysis within a regulatory takings argument to their advantage. Under New York’s Proportionate Test, Plaintiffs would show a commitment to their medallion through evidence like substantial debt that they took on to buy the medallion, or their City-mandated trip records which detail how much time they invested into their occupation. Plaintiffs could even produce their City-mandated vehicle expenditures to show regular expenditures that Plaintiffs must make just to stay in operation. Any of these examples, or similar evidence, would demonstrate that Plaintiffs are committed to owning and operating their medallions.
After establishing the vested right, Plaintiffs would have to show “the extent to which the regulation has interfered with [their] distinct investment-backed expectations.” On this point, many potential plaintiffs will be lost due to a crucial technicality. Section 52-04 was added to the Rules on September 2, 2010, and became effective on April 1, 2011. In relying on this particular statute, only those who bought their medallions on or after the day of enactment would likely be eligible to make this claim. There may be some room to argue that those who bought medallions in the window between September 2, 2010, and April 1, 2011, still had a reasonable investment-backed expectation at the time of purchase, but any medallion owners who acted before September 2, 2010 could not reasonably argue that they relied on this statue since it had not even yet been added to the Rules.
But for those who are eligible, they would argue that the City infringed on their reasonable expectation that medallions would remain “financially stable” when the City let app-dispatch companies enter the market in 2012. Plaintiffs could show that ride frequency started to decline after app-dispatch services arrived to New York City, in contrast to their business plans at the time of medallion purchase which projected a feasible way to repay their purchase loans over time.
If New York City taxicab medallion owners can demonstrate that the City established a vested property right in the medallions through § 52-04, then Plaintiffs can shift the investment-backed expectations analysis that courts have exercised to their detriment in other jurisdictions to find a desirable judgement in New York City.
This Article reviewed New York City’s taxicab medallion history, the City’s taxicab industry regulation, and how the introduction of app-dispatch services negatively affected medallion valuation. Then this Article summarized the regulatory takings doctrine, and the recent cases that considered a regulatory takings claim in regards to taxicab medallions and app-dispatch services. After recognizing that the jurisprudence in this area weighs against the New York City taxicab medallion owner’s regulatory takings claim, this Article identified § 52-04 of the Rules of the City of New York and explained how a potential plaintiff could use this statute to assert a vested right to seek just compensation in this context.
The Supreme Court has signaled before that society is “in danger of forgetting that a strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for the change.” App-dispatch companies may serve a public demand in the market, but it comes at the economic expense of medallion owners. If New York City promised to keep these medallions “financially stable,” then medallion owners deserve a path to recourse as wide as Fifth Avenue.
