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Metropolitan Taxicab Board of Trade v. City of New York

June 22, 2009

METROPOLITAN TAXICAB BOARD OF TRADE; MIDTOWN CAR LEASING CORP.; BATH CAB CORP.; RONART LEASING CORP.; GEID CAB CORP.; LINDEN MAINTENANCE CORP.; AND ANN TAXI INC, PLAINTIFFS,
v.
CITY OF NEW YORK; MICHAEL R. BLOOMBERG, IN HIS OFFICIAL CAPACITY AS MAYOR OF THE CITY OF NEW YORK; THE NEW YORK CITY TAXICAB & LIMOUSINE COMMISSION ("TLC"); MATTHEW W. DAUS, IN HIS OFFICIAL CAPACITY AS COMMISSIONER, CHAIR, AND CHIEF EXECUTIVE OFFICER OF THE TLC; PETER SCHENKMAN, IN HIS OFFICIAL CAPACITY AS ASSISTANT COMMISSIONER FOR SAFETY & EMISSIONS OF THE TLC; AND ANDREW SALKIN, IN HIS OFFICIAL CAPACITY AS FIRST DEPUTY COMMISSIONER OF THE TLC, DEFENDANTS.



The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge

OPINION & ORDER

This case involves a dispute between New York City taxicab fleet owners and the City's Taxicab & Limousine Commission ("TLC"), relating to new TLC regulations that promote the purchase of hybrid taxicabs by reducing the rates at which taxicab owners may lease their vehicles to taxi drivers-thus reducing the owners' overall profit-if the vehicle does not have a hybrid or clean-diesel engine. The questions in this case are whether the TLC's new rules are a mandate to taxicab owners to purchase only hybrid or clean-diesel vehicles, and whether such a mandate is preempted by federal law.

The history of this case is relevant: on October 31, 2008, the Court preliminarily enjoined New York City's requirement that all new taxicabs meet a specific miles-per-gallon ("mpg") rating. The mpg regulation required taxicab owners in New York City to purchase vehicles with hybrid or clean-diesel engines, or wheelchair-accessible vehicles. The Court found that the federal Energy Policy and Conservation Act ("EPCA") preempted the local imposition of mpg standards. The City immediately announced it would pursue an alternative strategy. Mayor Bloomberg stated that, "The courts are not the only way we can reach our goal of a cleaner fleet of taxi cabs. Greening the taxi fleet is a major priority, and we are going to use every mechanism at our disposal to make New York a cleaner, healthier city."*fn1

The City pursued a regulatory framework that would encourage taxicab fleet owners to buy hybrid taxicabs in increasing numbers and discourage them from purchasing long bodied, conventionally powered taxicabs, which the City had approved for use in 2001. Under the City's new rules, if an owner purchases a taxicab with a hybrid or clean-diesel engine (hereinafter, "hybrid"), the rate at which the vehicle can be leased to a driver for a 12-hour shift is increased by $3. By contrast, if an owner leases out a non-hybrid, non-wheelchair accessible vehicle (i.e. a Crown Victoria), the maximum lease rate an owner may charge a driver is reduced by $4 immediately, $8 in May 2010, and $12 in May 2011. The new rules substantially reduce profits for the owner who continues to choose non-hybrid taxicabs, and Plaintiffs challenge the disincentive aspect of the new regulations.

The City explained its desire for the new regulation:

Last month, we hit a speed bump in our efforts to turn New York City's yellow cabs green when the courts upheld an archaic law, preventing us from reducing greenhouse gases and improving air quality... By offering incentives that will encourage more taxi fleet owners to purchase hybrids, we have found another avenue to reach our goal of greening our yellow cabs, improving our air quality, and reducing our carbon emissions.

See Press Release, Office of the Mayor, Mayor Bloomberg Announces New Incentive/Disincentive Program to Reach Goal of Green Taxi Fleet (Nov. 14, 2008). The same press release quoted TLC Commissioner Matthew Daus as stating:

Our goal from the beginning was to get fuel efficient taxis on the road using whatever appropriate methods required to achieve our goal. The new program will incentivize the purchase of cleaner vehicles, while ensuring taxi drivers are not penalized because a taxicab owner is reluctant to make the wiser purchase of a hybrid vehicle. The 1,551 hybrid taxicabs already on the road have saved their drivers lots of money, while contributing to cleaner air. This incentive package will help us take these advances to the next level, and help our city become a cleaner, healthier place.

Id.

After several months of study, the TLC promulgated the new regulations. The regulations: (1) eliminated the prior requirement that determination of lease rates and changes thereof be based on costs, and substituted policy concerns as the key criterion for determining lease rates; (2) described the incentives for hybrids (higher lease rate) and the disincentives for conventionally powered taxicabs (lower lease rates, in increasing amounts over the next two years); and (3) did not grandfather taxis purchased by owners subsequent to 2001, when the City began mandating taxicabs with Crown Victoria dimensions.

The City states that the new regulations correct a structural disincentive that prevented many taxicab owners from switching their fleets to hybrid vehicles, while also meeting the goal of improving taxicab fuel efficiency and minimizing the effect of taxicab emissions on the environment.

The Mayor announced the new regulations:

We have never let roadblocks prevent us from achieving our goals. So when the courts prohibited New York City from taking forward-looking actions that would create cleaner air and a healthier place to live, we said we would find another way to continue to green the City's yellow cabs -- and we have. Today's actions by the Taxi and Limousine Commission provide financial incentives for the purchase of fuel efficient taxis and will speed up the phase-out of older, inefficient vehicles. Taxi fleet owners will have more reason to purchase cleaner vehicles and taxi drivers will be held financially harmless for the vehicle purchase decisions of fleet owners. The result will be more clean taxis on City streets. Turning yellow cabs green will be another step towards improving our air quality, reducing the use of fossil fuels and lowering our carbon emissions.

See Press Release, Office of the Mayor, Statement of Mayor Bloomberg on Passage of Green Taxi Incentives by the Taxi and Limousine Commission Board of Commissioners (Mar. 26, 2009).

The TLC Commissioner echoed and amplified the Mayor's remarks:

It is good public policy to incentivize the purchase of vehicles that will help us to clean our environment, while equalizing the playing field for drivers who have no say in the kinds of vehicles they drive, and how big a role fuel costs play in their income. With more than 15% of the city's taxi fleet already clean-fueled, this was the right thing to do, and it was the right time to do it.

See Press Release, TLC, NYC Taxi and Limousine Commission Approves Hybrid Incentive Plan (Mar. 26, 2009).

Plaintiffs filed an Amended Complaint challenging the City's revised regulations and now bring a motion for a preliminary injunction, pursuant to Rule 65 of the Federal Rules of Civil Procedure, to enjoin the City's enforcement of the rules.

At the beginning it is appropriate to point out what this case is not about. No one questions the desirability of fuel efficient and environmentally "clean" vehicles; all parties agree that the City's pursuit of these goals is laudable. Nor is there a question whether New York City can incentivize the purchase of certain types of taxicabs. Several years ago the City issued new taxi medallions which were limited to hybrid vehicles. See N.Y. City Administrative Code § 19-532(b) (2003). There was no challenge to the incentive. Recently the City extended the service life of hybrid vehicles from three to five years. Id. § 19-535(b) (2006). Again, there was no challenge to this incentive. Similarly, in the present case, Plaintiffs do not challenge the $3 per shift "incentive" increase in lease rates for hybrid taxicabs.

On the other hand, there is no doubt that the City could not demand that new motor vehicles purchased, sold, or operated in New York City meet certain mileage or emission standards. The City does not contend otherwise. The issue in this case is more limited and the question is more focused: do the new lease cap regulations have the preempted effect of mandating that taxicab owners purchase only taxicabs with hybrid or clean diesel engines.

The Court's purpose is not to interfere with government officials taking actions in the public interest. Increasing the number of hybrid taxicabs is an appropriate and important governmental priority. Congress, however, has exercised its powers and imposed both national fuel efficiency and engine emissions standards. Congress also directed that the federal standards controlled and preempted state and local governments from acting where Congress has already spoken. If the new rules are in fact a mandate, the Court must determine whether the City's program interferes with the Congressional intent to preserve exclusive jurisdiction. This involves two questions.

The Court first must determine whether the City's new lease cap regulations are a mandate to purchase hybrid vehicles. Plaintiff taxi owners say that they have no real choice under the proposed rules; they will be forced to buy only hybrid vehicles to sustain economic viability. The City maintains that the new lease cap rules permit owners to continue to make a profit, and, therefore, taxicab owners still have a choice. Second, the Court must determine whether the new rules, if they are in fact a mandate, are "related to" mileage or emission standards so that the City's law is preempted by federal law governing those two issues.

The Court finds that Congress intended to retain control over those two federal interests. The effect of the new regulations is to mandate taxicab owners to buy only hybrid vehicles. The requirement is preempted in the same way as the City's earlier attempt to impose mpg requirements. Plaintiffs have demonstrated a likelihood of success in showing that: (1) the new regulations are preempted by federal law because they are a de facto mandate to purchase hybrid taxicabs; and (2) these requirements are related to fuel economy standards under the EPCA and the control of emissions under the federal Clean Air Act ("CAA"). Accordingly, the Plaintiffs' motion for a preliminary injunction is GRANTED.

BACKGROUND

I. The Court's Prior Decision

In September 2008 the Plaintiffs*fn2 moved to enjoin TLC Rule § 3.03(c)(10)-(11), which required all new taxicabs in New York City to be either wheelchair accessible or to have a minimum city rating of 25 mpg by October 1, 2008,*fn3 and a minimum city rating of 30 mpg by October 1, 2009 (hereinafter, the "25/30 Rules"). (See Declaration of Elizabeth Saylor ("Saylor Decl.") Ex. 1 (containing enjoined TLC Rule § 3-03(c)(10)-(11)).) The only vehicles that met the 25/30 Rules contained hybrid or clean-diesel engines. Plaintiffs argued that the 25/30 Rules were preempted by the EPCA and the CAA.*fn4 Plaintiffs claimed irreparable injury because the EPCA and CAA provided no private right of action, and accordingly they would be unable to recover their financial damages under 42 U.S.C. § 1983, unless the Court issued an injunction.

On October 31, 2008, the Court found that the EPCA preempted the 25/30 Rules because the rules, by their own language, clearly related to fuel economy standards by setting fuel economy standards for taxicabs. See Metro. Taxicab Bd. of Trade v. City of New York, No. 08 Civ. 7837 (PAC), 2008 WL 4866021, at *9 (S.D.N.Y. Oct. 31, 2008). The Court rejected the City's argument that the 25/30 Rules were not preempted because they did not actually interfere with the goals of the EPCA. The Court, relying on Engine Manufacturers Association v. South Coast Air Quality, 541 U.S. 246 (2004), found that allowing one municipality to affect fuel economy standards could have an unwanted aggregate affect, if other states or municipalities followed suit. See Metro. Taxicab, 2008 WL 4866021, at *10 (citing Engine Mfrs., 541 U.S. at 255.) The Court found that the CAA did not preempt the 25/30 Rules, however, because the rules were silent concerning emissions. The Court examined two cases that discussed the interplay between the EPCA and the CAA, and determined that even if emissions reduction was a secondary consequence of the rules, it did not follow that the rules were automatically preempted. Id. at *13-14 (analyzing Green Mountain Chrysler Plymouth Dodge Jeep v. Crombie, 508 F. Supp. 2d 295 (D. Vt. 2007), and Central Valley Chrysler-Jeep, Inc. v. Goldstene, 529 F. Supp. 2d 1151 (E.D. Cal. 2007)). Because the EPCA preempted the 25/30 Rules and Plaintiffs would suffer irreparable harm, the Court issued a preliminary injunction.

II. The New Regulations

On March 26, 2009, the TLC repealed the 25/30 Rules and enacted new regulations. The new regulations, TLC Rule § 1-78(a)(3), created incentives to increase taxi owners' use of hybrid vehicles and disincentives to decrease their use of Crown Victoria model taxicabs. When fully implemented the regulations weighted the disincentives four times greater than the incentive. The Crown Victoria Long Wheel Base model ("Crown Victoria") has been the dominant model for New York City taxicabs since the TLC approved it for use in 2001. From 2001 to 2005, it was the sole vehicle that complied with TLC specifications for taxicabs. (See Declaration of Andrew Salkin ("Salkin Decl.") ¶ 5.) Of the more than 13,000 yellow taxicabs, approximately 2,060 (16%) are either hybrid or clean-diesel vehicles, while the balance of the remainder are Crown Victorias. (Id. ¶¶ 4, 8.)

The new regulations affect the maximum lease rate that vehicle owners may charge drivers leasing a taxicab per 12-hour shift. The prior rules set a maximum lease rate of: $105 for all day shifts; $115 for the night shift on Sunday, Monday, and Tuesday; $120 for the night shift on Wednesday; and $129 for the night shifts on Thursday, Friday, and Saturday. See TLC Rule § 1-78(a)(1). The standard lease cap for one shift for a week period is a maximum of $666. Id. § 1-78(a)(2).

The challenged regulation, TLC Rule § 1-78(a)(3)(ii) (hereinafter, "Lease Cap Rules" or "Rules"), reduces the maximum lease cap for all taxis not hybrid or clean diesel, or wheelchair accessible.*fn5 The first reduction of $4 per shift was to go into effect on May 1, 2009.*fn6 The reduction is increased to $8 per shift on May 1, 2010; and to $12 per shift on May 1, 2011. Id. § 1-78(a)(3)(ii). The Rules also reward use of hybrid vehicles by increasing the maximum lease cap for hybrid taxicabs by $3 per shift. Id. § 1-78(a)(3)(i). As indicated, Plaintiffs do not challenge the incentive aspect of the Lease Cap Rules, which have taken effect.

The new Rules provide that taxi owners receive the $3 lease cap upward adjustment if they "hack up," or transform, their taxicab pursuant to the specifications in TLC Rule § 3-03.1, which describes hybrid electric taxicab specifications. The Rules define a hybrid vehicle as a "commercially available mass production vehicle originally equipped by the manufacturer with a combustion engine system together with an electric propulsion system that operates in an integrated manner." Id. § 3-03.1(b). The only vehicles that meet the new requirement are in fact the same hybrid vehicles that met the City's now abandoned 25/30 Rules. The City recognizes that its new regulatory mechanism "operates within the same universe of approved vehicles." (See Defendants' Letter Brief of May 22, 2009 ("Def. May 22, 2009 Letter") 5.)

III. Promulgation and Stated Purpose of the Lease Cap Rules

At the same time that it enacted the Lease Cap Rules, the TLC also rescinded a rule, in place since 1997, prohibiting the TLC from reducing the maximum lease rate unless the TLC found "substantial evidence of reduced operating expenses of the affected medallion owners." Id. § 1-78(e).*fn7 After eliminating the requirement for a cost-based rate determination, the TLC substituted "the Commission's assessment of appropriate policy considerations" for determining lease rates. Id. § 1-78.1(b). These two rule changes rescinded the TLC's longstanding "cost-based" approach for enacting lease cap adjustments and permitted a "policy-based" approach.

As anticipated by the City's press releases of November 2008 and March 2009,*fn8 the TLC's "Statement of Basis and Purpose" for the new Lease Cap Rules is to replace the enjoined rules in order to "create incentives for taxicab owners to buy cleaner vehicles." (See Declaration of Ramin Pejan ("Pejan Decl.") Ex. J.) The statement continues by noting that the Rules "are intended to place gasoline costs on the owner who chooses the vehicle," rather than on the driver, who pays gasoline costs but "may have no voice in the owner's choice of vehicles." Id. Under the new Rules the costs to the driver will be roughly equal between driving a hybrid and non-hybrid vehicle, while the lease income to owners of non-hybrid taxis will be reduced, according to the TLC.*fn9 Id.

The Lease Cap Rules create a $15 spread by 2011 between what owners of hybrid taxicabs and owners of Crown Victorias may charge in maximum lease rates per vehicle per shift. The City states that the Lease Cap Rules correct a structural disincentive in the current rules that prevented many taxi owners from transitioning to hybrid vehicles. (See Salkin Decl. ¶ 32.) This disincentive existed because taxi drivers, not owners, pay for gasoline, and it costs more to transform a hybrid vehicle into a taxi. Accordingly, because the gas costs are irrelevant to taxi owners, many owners choose the cheaper and time-tested option of hacking up Crown Victorias.

The TLC determined that the incentive rate for hybrids should be based on Plaintiffs' representations in the prior Metropolitan Taxicab case that it costs approximately $6,000 more to purchase and hack up a hybrid vehicle as compared to a Crown Victoria. (Salkin Decl. ¶ 26.) Dividing $6,000 by three years, the statutory life of a taxicab, is $2,000. That figure divided by the maximum number of shifts per year, 730, equals approximately $2.75 per shift, which the TLC rounded up to $3. (Id.) By allowing hybrid taxi owners to charge this extra $3 per shift, those owners would recoup the additional cost of changing to hybrid cars, according to the TLC. (Id.)*fn10

To calculate the $12 reduction in lease rates, the TLC shifted from the capital cost of "hacking up" a vehicle to the cost of gasoline in New York City during a two-year period from December 11, 2006, to December 8, 2008, which was $3.05 a gallon. The TLC then compared the expected costs of gasoline per shift for a Crown Victoria and for the Ford Escape, the most popular brand of hybrid taxicab. Based on averages of 15 miles per gallon and driving 135 miles per shift, the costs in gasoline per shift would be $27.45 for the Crown Victoria. In the Ford Escape, which averages 34 miles per gallon, the gasoline cost is $12.11 per shift. The TLC rounded the price differential to $15, and then offset the $15 from the $3 incentive, resulting in a $12 downward adjustment. (Id. ¶¶ 28-29.)

Under the new regulations, the TLC did not consider the operating costs of the medallion owners. Instead, the TLC calibrated a cost which the owner had never borne and reduced the lease rate by that calculated value. The TLC's justification for this new regulation: to "green" the taxi fleet with cleaner and more efficient taxicabs. The new lease cap regulations would not have been possible under the prior regulatory framework.

The TLC considered other regulatory options before enacting the Lease Cap Rules. The TLC considered requiring taxicab owners who lease their vehicles to pay for the cost of fuel, either through direct reimbursement of gas costs to drivers or by requiring Fleet Owners to deliver a vehicle with a full tank of gas at the start of each shift. (Id. ΒΆ 33.) The TLC states that it did ...


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