Introduction

Uber is an internet-based service provider, found as an application on a mobile phone.  The service it provides: connecting ordinary people who need a car ride to a nearby location with ordinary people who are offering to provide a car ride in their own car.  Uber is intentional in describing itself as not being a taxi-service.  And in Uber’s five short years of existence, it has managed to provide what many deem as a radically better service than the traditional taxicab, leading to a detrimental effect on the business outlook of the taxicab industry.  In response, the taxicab industry is pointing out an unfairness: Uber provides a service that resembles a taxicab service, yet avoids having to comply with the very regulations that are meant to protect taxicabs from competition.  Instead of changing how they themselves conduct business in order to become competitive with their new competition, taxicab companies are taking Uber to court, going on strike, and petitioning legislatures and regulatory agencies to put an end to Uber, declaring Uber “illegal.”  This has lead Uber to fight back strong by reiterating that it is not a taxi-service, but is merely a platform that connects people to people.  This disagreement has escalated to the epitome of a modern day “war” between the political entrepreneur (those who use political capital to maintain the status quo) and the market entrepreneur (those threatening the status quo) and threatening the very existence of a sharing economy.[ref]See Nick Gillespie, The Government Is a Hit Man:  Uber, Telsa and Airbnb Are in Its Crosshairs, Time (Mar. 20, 2014), http://time.com/31828/the-government-is-a-hitman-uber-tesla-and-airbnb-are-in-its-crosshairs/ (introducing and explaining terms “market entrepreneurs” and “political entrepreneurs”).[/ref]

In Boston Taxi Owners Ass’n v. City of Boston the battle hit close to home when two Massachusetts taxicab owners and a Boston taxicab owner’s association filed suit against the City of Boston, the Boston police commissioner, the Commonwealth of Massachusetts, and the Massachusetts Department of Transportation (“MassDOT”), claiming the defendants were unfairly and illegally allowing Uber to operate.[ref]No. 15-10100, 2015 WL 505397 (D. Mass, Feb 5, 2015).[/ref]  Specifically, the taxi drivers argued that the defendants were infringing on their constitutional rights by allowing Uber to operate without the same stringent regulations imposed on taxis.[ref]Id. at *3.[/ref]  Because the uneven regulations make it easier for Uber to take away business from the taxicab business, the plaintiff’s argued, Uber was violating both the Takings Clause and the Fourteenth Amendment’s Equal Protection Clause.[ref]Id.[/ref]  In a February 2015 decision, the U.S. District Court for the District of Massachusetts denied the plaintiff’s motion for preliminary injunction.[ref]Id. at *8.[/ref]

Regulation of the Taxi Industry

Regulation of the American Taxicab dates back to the Great Depression.  In the 1930s, as more individuals became unemployed, those who owned a car quickly turned to the—then unregulated—taxicab industry to make a living.[ref]See Paul Stephen Dempsey, Taxi Industry Regulation, Deregulation & Reregulation: The Paradox of Market Failure, 24 Transp. L. J. 73, 76-77 (1996) (citing increased unemployment leading to increase in number of taxicabs); Robert M. Hardaway, Taxi and Limousines: The Last Bastion of Economic Regulation, 21 Hamline J. Pub. L. & Pol’y 319, 331 (2000)(citing taxicab industry as “easy entry” for unemployed); Aaron Sankin, Why New York Taxis are Powerless Against Uber’s Price War, The Daily Dot (July 8, 2014), http://www.dailydot.com/technology/uber-nyc-taxi-cheaper-price-war/ (crediting Great Depression as catalyst for regulation and noting unemployed car-owners turned to taxi industry).[/ref]  The number of taxicabs roaming the streets drastically increased, while the number of Americans able to afford a taxicab drastically decreased.[ref]See Dempsey, supra note 6, at 77 (noting supply and demand “moving in opposite directions”).[/ref]  The tension between the contradicting supply and demand led to high levels of competition between the overabundance of taxicabs, leading most drivers to work sixteen hour days just to support their families.[ref]See Dempsey, supra note 6, at 76-77 (discussing effects of “cut-throat” competition); Sankin, supra note 6 (discussing effects of “high degree of competition”).[/ref]  These drivers were overtired, untrained, and uninsured, which increased the accident rate and caused them to engage in a game of chaos and survival-of-the-fittest just to find a paying customer.  When a taxicab would get in an accident–an all too often occurrence–those who were harmed were forced to bear the loss.[ref]See Dempsey, supra note 6, at 77 (discussing effect of lack of liability insurance).[/ref]  Taxicabs were causing more harm than good, leading many U.S. cities to begin regulating the industry.[ref]See Dempsey, supra note 6, at 77 (citing municipal regulations of fares, licenses, insurance); Sankin, supra note 6 (citing cities’ initiation of regulations).[/ref]  The most common regulation merely limited the number of taxicabs allowed to operate within a given city.  Doing so decreased competition, meaning those who were allowed to drive could depend on a more stable and consistent income.  Simultaneously, restricting the number of taxicabs on the street gave cities the opportunity to impose and monitor insurance requirements and background checks on drivers.  Cities also began controlling the rates taxicabs were allowed to charge, since the industry was quickly becoming an oligopoly.  By 1934, forty-three out of ninety-three of the country’s largest cities had begun regulating the industry.[ref]See Hardaway, supra note 6, at 331-32 (discussing extent of regulation in 1930s).[/ref]

Today, there are about 6,300 taxi companies operating 171,000 taxicabs and employing 350,000 people.[ref]See Taxicab, Limousine & Paratransit Association, Taxicab Industry, http://www.tlpa.org/about/taxicab.cfm (last visited Jan. 7, 2014) (providing statistics on taxi industry).[/ref]  These companies transport 1.4 billion passengers each year, more passengers in the United States than all mass transportation systems combined.[ref]See Taxicab, Limousine & Paratransit Association, supra note 12 (declaring industry transports 1.4 billion passengers annually); Dempsey, supra note 6, at 87 (explaining industry transports more passengers than mass transportation).[/ref]  Furthermore, nearly all communities regulate their taxicabs by restricting the number of taxicabs allowed in the community, setting fares, enforcing service standards, and requiring insurance.[ref]See Dempsey, supra note 6, at 75 (summarizing today’s taxicab regulations).  This type of regulation occurs through state legislation alongside the state’s police power, and while some argue such regulation is unconstitutional, no challenge has ever been successful.  Id. at 77.  A municipality’s regulatory power over taxicabs is given “extreme deference” by courts.  Id.[/ref]  Most significantly, almost every major city across the world has a medallion system in place: a medallion being a license attached to a particular vehicle—symbolizing that the particular vehicle is authorized to act as a taxicab—and serving as the primary method of limiting the number of taxicabs in a given city.[ref]See Sankin, supra note 6, (implying medallion’s existence in major cities); Katrina Miriam Wyman, Problematic Private Property: The Case of New York Taxicab Medallions, 30 Yale J. on Reg. 125, 127-28 (explaining applicability to other cities across the world).[/ref]  Cities across America limit the number of medallions permitted at any given time, making a medallion one of the most sought-after commodities in almost any city.  For example, in what many consider the largest taxicab city in the world, New York City has a cap of 13,237 medallions, leading the current medallion rate to cost just over $1,000,000.[ref]Wyman, supra note 15, 127.[/ref]  Without a medallion, or, in other words, without a $1,000,000 to spare, someone in New York City cannot operate a vehicle as a taxicab.  Furthermore, even if someone does have a $1,000,000 to spare and she wishes to use a vehicle as a taxicab, if there are already 13,237 active medallions roaming the street, she must find someone willing to sell their medallion.

Despite these medallions being almost as old as the industry itself, economists and legal theorists insist that the medallion system has little purpose other than to protect political entrepreneurs.[ref]See Wyman, supra note 15 at 128-29 (labeling medallions “sustained by political decision-making processes subject to pressures from powerful interest groups”) .[/ref]  Many argue that the taxicab industry should be deregulated, just as the railroad and airline system were deregulated.[ref]See Hardaway, supra note 6, at 372 (explaining regulation and subsequent deregulation of railroad and airline industry).[/ref]  Economists project that deregulating the taxi industry would save $800,000,000 and create 38,000 new jobs.[ref]See Hardaway, supra note 6 at 335, (citing United States Transportation Study).[/ref]  Furthermore, deregulation would finally provide the taxicab industry with incentive to focus on customer satisfaction, because the current lack of competition (at least prior to the age of Uber) provides no incentive to provide clean cabs, efficient services, or low fares.

The Boston Police Department (“BPD”) regulates the Boston taxi industry and currently enforces a limit of 1,825 medallions, making a single medallion in Boston worth a little over $700,000.[ref]Bos. Mass., Bos. Police Dep’t Rules and Procedures, Rule 403 (Aug. 29, 2008); See Dante Ramos, Uber, Boston Taxi Drivers’ Unlikely Ally, Boston Globe (Mar. 13, 2015), https://www.bostonglobe.com/opinion/2015/03/13/uber-boston-taxi-drivers-unlikely-ally/BI5It9N3hPTsRyekrgR1hP/story.html (providing Boston taxicab figures) .[/ref]  While the Boston Police Department has a plethora of rules governing taxicabs, it has yet to enforce those same rules on Uber.  MassDOT also has its own set of regulations for taxicabs and defines a taxicab as “any vehicle which carries passengers for hire, and which is licensed by a [local] municipality.”[ref]540 Mass. Code Regs. 2.05 (2015).[/ref]

Regulation of Transportation Network Companies

For as long as Uber has existed, taxicabs have asserted an unfair playing field between Uber and taxicabs. Why should taxicabs have to adhere to the lengthy list of BPD and MassDOT requirements, while Uber does not?

In response, in January of 2015, MassDOT revised its regulations to create a new classification—and an associated set of regulations—directly aimed at Uber.  This new classification labels Uber as a “Transportation Network Company” (“TNC”) and defines TNCs as “entit[ies] operating in Massachusetts that, for consideration, will arrange for a passenger to be transported by a driver between points chosen by the passenger.”[ref]Id.[/ref]  While TNC regulations are silent on whether a TNC driver must purchase a medallion, TNCs are required to adhere to a specific insurance, licensing, and background check policies.[ref]Id.[/ref]  By creating this new classification, MassDOT chose to officially recognize Uber and its like as legal entities.

Court Gives Uber Major Victory

The same day the MassDOT amendments went into effect, the Boston Taxi Owners Association filed a motion for preliminary injunction with the U.S. District Court.  The motion asserted that the amendments violate the due process and equal protection clauses since they recognize TNCs as “de facto taxis” without requiring TNCs to adhere to the same regulations expected of taxi drivers.[ref]Boston Taxi Owners Ass’n, 2015 WL 505397, at *3.[/ref]  Furthermore, the plaintiffs sought an affirmative injunction asserting that the BPD violates their equal protection rights and is engaging in an unconstitutional taking of their property.[ref]Id.[/ref]  Standing up for all the TNCs of the world, however, the court refused to show deference to the constitutional arguments and denied the taxi cab owners requests for injunction, stating that such arguments were unlikely to succeed on the merits.

Arguing for their takings claim, the taxi owners asserted that the City of Boston was reducing the market value of their medallions by allowing TNCs to operate without purchasing medallions.  In response, the court explained that the plaintiffs do not have a constitutionally protected property interest in the market value of their medallions since, at its more inherent level, a medallion provides a privilege to voluntarily engage in a governmental regulatory scheme (and that a market value resulting merely from government regulation cannot constitute a protected property interest).[ref]Id. at *5.[/ref]  Furthermore, a medallion does not guarantee its purchaser a monopoly over the taxicab industry, so taxi drivers should expect certain situations to affect the market value of their medallions.

Arguing for their equal protection claim, the taxi owners next asserted that there was an unfair difference between the treatment of taxicabs and TNCs under the new MassDOT amendments, since taxicabs and TNCs are “similarly situated” and, thus any difference in treatment must be subject to a rational governmental interest.  The court, however, explained that taxicabs and TNCs are not “similarly situated,” as TNCs are merely companies that connect people needing a ride with people willing to provide a ride.  Perhaps most celebratory—in the eyes of Uber—is that the court went on to say that even if the two entities were similarly situated, Boston does have a rational basis for treating TNCs differently: TNCs challenge the status quo and increase the quality and quantity of transportation options available to Bostonians.[ref]Id. at *7.[/ref]  As the court stated, “the public interest is best served by the existence of a diverse and competitive market for transportation services, including both traditional taxicabs and TNCs.  Restricting the development of that market at this early stage of the litigation would not be in the public interest.”[ref]Boston Taxi Owners Ass’n, 2015 WL 505397, at *8.[/ref]

But . . . It’s Not the End of the Road for Uber

One can imagine the celebrations among Uber executives upon reading this decision. A U.S. District Court had publically stated the unlikeliness that Uber could be considered a constitutional threat.

Nonetheless, the fight does not stop with this one denial of preliminary injunction.  First and foremost, the court stated its blunt expectation that the BPD continues to explore the best ways to regulate TNCs.[ref]Id.[/ref]  The city’s failure to continue the process of designing TNC regulations could potentially lead a future court to determine that there is disparate treatment between the two entities.  And secondly, while preliminary injunctions were denied, litigation on this case—and other similar constitutional cases—will likely continue until higher courts provide a final resting place for the argument.

And while the constitutional argument against Uber may be weak, there are still plenty of other legal predicaments facing Uber.  There is an intense fight underway in France, with the Constitutional Council in France upholding the country’s ban on Uber.[ref]See Sam Schechner and Inti Landauro, France Plans to Block Uber ‘Ride-Sharing’ Service, Wall Street Journal (Dec. 15, 2014), http://www.wsj.com/articles/france-blocks-uber-ride-sharing-service-1418634182 (explaining France’s law against Uber); Sam Schechner, Uber Executives Detained by Police in Paris, Wall Street Journal (June 29, 2015), http://www.wsj.com/articles/uber-executives-detained-by-police-in-paris-1435595947 (explaining battle Uber still fighting in France).[/ref]  Domestically, Uber faces a major class action suit alleging that Uber is misclassifying its employees as independent contractors, creating the potential for an unfavorable ruling to completely disrupt the company’s business model.[ref]See Douglas MacMillan, Uber Drivers Suit Granted Class-Action Status, Wall Street Journal (Sept. 1, 2015), http://www.wsj.com/articles/uber-drivers-suit-granted-class-action-status-1441141539 (explaining court’s approval of class action status in suit against Uber’s employment classification system).[/ref]  Not to mention the hundreds of other fierce law suits occurring against Uber across the country.  At the end of the day, while Uber is clearly making strides against eliminating its legal threats, it still has many battles yet to fight.


Preferred Citation:

B. Tyler Blair, Commentary, U.S. District Court in Boston Taxi Owners Says Uber can Continue to be Treated Independently from Taxicabs . . . At Least for Now, 4 Suffolk U. L. Rev. Online 1 (Mar. 17, 2016), http://suffolklawreview.org/u-s-district-court-in-boston-taxi-owners-says-uber-can-continue-to-be-treated-independently-from-taxicabs-at-least-for-now


 

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