November/December 2016 Issue

Also in this issue: Federal Court Upholds a Provision in Wisconsin’s Right-To-Work Law     |     Responding to Requests for Records under the Public Records Law     |     Supreme Court To Hear Case on Whether Internal Management Committee Meetings Are Subject to Open Records Law     |     WERC Announces Revised CPI-U

Seventh Circuit Sides with Cities on Taxicab Deregulation

Julia Potter | 11.01.16

Last month, the Seventh Circuit Court of Appeals (whose rulings create binding precedent in Wisconsin) issued two related decisions upholding a city’s right to allow for increased competition in the taxicab industry.

The last clause of the Fifth Amendment to the U.S. Constitution prohibits the taking of private property for public use without just compensation. This is commonly referred to as the ​“takings clause.” At issue in the two cases was whether the takings clause prohibited cities from allowing competition with established taxi services in the city, whether from new taxi companies (in Milwaukee) or from ride sharing services like Uber (in Chicago). 

In Joe Sanfelippo Cabs, Inc. v. City of Milwaukee, No. 16 – 1008 (7th Cir. Oct. 7, 2016), the court concluded that the City of Milwaukee could dramatically increase the number of taxicab permits it issued without running afoul of the takings clause. From 1992 to 2013, a Milwaukee ordinance had capped the number of taxicab permits to the number that were in existence on January 1, 1992 and that were renewed. The City refused to issue new permits, although existing permits could be sold on the open market. Over time, by virtue of non-renewals, this resulted in the number of taxicab permits in Milwaukee falling from 370 to 320, which caused the price of a permit on the open market to climb as high as $150,000.

A 2013 lawsuit successfully challenged this permit-cap ordinance as a violation of the equal protection and substantive due process clauses of the Wisconsin Constitution. In response, Milwaukee began issuing a new permit to every qualified applicant. This diminished the profitability of existing taxi companies, which had faced very little competition under the old, limited-permit regime. 

The existing taxicab companies sued, arguing that by increasing the number of permits available, the City had taken property away from them without compensation. The Seventh Circuit upheld Milwaukee’s new permitting ordinance and soundly rejected the existing taxicab companies’ takings clause argument, declaring that the argument ​“borders on the absurd.” 

The court observed that, while property can sometimes take an intangible form (e.g., patents), a taxicab permit merely grants the right to operate a taxi, not to exclude others from doing so. As such, the existing companies were not deprived of any property right when the city decided to begin issuing new permits. The city did not enter into any contract with the taxi companies to freeze permits for a certain period of time, and the companies were on notice that there was no guarantee that the ordinance would remain in force indefinitely. The court acknowledged that the city’s decision to free up entry into the taxi business would reduce the revenues of individual taxicab companies, but it observed that that is simply the normal consequence of replacing a cartelized market with a competitive one.

In a companion lawsuit, Illinois Transp. Trade Ass’n v. City of Chicago, No. 16 – 2009 (7th Cir. Oct. 7, 2016), the court came to a similar conclusion with respect to taxicabs operating in Chicago. In that case, taxicab companies sued the city of Chicago arguing, among other things, that allowing ride-sharing companies such as Uber and Lyft to operate in the City violated the takings clause. The Seventh Circuit rejected that argument, observing that “’Property’ does not include a right to be free from competition. A license to operate a coffee shop doesn’t authorize the licensee to enjoin a tea shop from opening.” Because the city did not take away existing companies’ taxi permits, but merely granted other similar companies the right to compete in the same market, no property had been taken. 

The existing companies also argued that the City discriminated against them by allowing Uber and other ride- sharing services to operate in the City without requiring them to comply with the same rules about licensing and fares as taxicabs. The court rejected this argument as well, pointing out that different products or services do not, as a matter of constitutional law, always require identical regulatory rules, so long as the differences in the regulatory schemes are not arbitrary. For example, the City pointed to the fact that ride- sharing users generally enter into a contractual relationship with the ride-sharing company that specifies terms such as fares, driver qualifications, and insurance. In contrast, someone hailing a taxi has no pre-existing contract with the taxicab company so it makes sense to have these terms set forth in regulations. In the end, the court concluded that the City had convincingly argued that there were enough differences between taxi service and ridesharing programs to justify different regulatory schemes. 

While neither of these 7th Circuit cases requires that municipalities take steps to deregulate their taxicab markets, the Seventh Circuit has made clear that simply allowing for increased competition, whether by issuing more taxi permits or allowing ride-sharing companies to operate, does not give rise to constitutional takings clause claims against the municipality by existing taxicab companies. 

— Julia Potter