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Melrose Credit Union v. City of New York

United States District Court, S.D. New York

March 30, 2017

MELROSE CREDIT UNION, PROGRESSIVE CREDIT UNION, LOMTO FEDERAL CREDIT UNION, TAXI MEDALLION OWNER DRIVER ASSOCIATION, INC., LEAGUE OF MUTUAL TAXI OWNERS, INC., KL MOTORS, INC., SAFINI TRANSPORT, INC., WHITE & BLUE GROUP CORP., FIMA SERVICE CO., INC., CARL GINSBERG, and JOSEPH ITZCHAKY, Plaintiffs,
v.
THE CITY OF NEW YORK; THE NEW YORK CITY TAXI & LIMOUSINE COMMISSION; and MEERA JOSHI, in her Official Capacity as the Chair of the New York City Taxi & Limousine Commission, Defendants.

          OPINION & ORDER

          ALISON J. NATHAN United States District Judge.

         Plaintiffs, a group of individuals, companies, credit unions, and trade associations affiliated with New York City's medallion taxicab industry, bring this action against the City of New York (the "City"), the New York City Taxi & Limousine Commission (the "TLC"), and TLC Chair Meera Joshi (collectively, "Defendants"), alleging that certain TLC regulations contravene the Equal Protection, Due Process, and Takings Clauses of the United States Constitution and analogous provisions of the New York State Constitution. Plaintiffs also assert a claim sounding in common law fraud. Before the Court is Defendants' motion to dismiss pursuant to Federal Rules of Procedure 12(b)(1) and 12(b)(6). For the reasons set forth below, the motion is GRANTED with respect to Plaintiffs' federal claims, and the Court declines to exercise supplemental jurisdiction over the remaining state law claims.

         I. BACKGROUND[1]

         A. The Parties

         Plaintiffs can be sorted into three groups. One group is composed of Melrose Credit Union, Progressive Credit Union, and LOMTO Federal Credit Union (the "Credit Union Plaintiffs"). Each of these entities is a federally insured, not-for-profit New York corporation that provides financing for taxicab medallions in New York City. See Amended Complaint, Dkt. No. 47 ("Compl."), ¶¶ 50, 56, 62. Together, the Credit Union Plaintiffs hold security interests in thousands of taxicab medallions. Id. ¶¶ 51, 57, 63.

         A second group consists of KL Motors, Inc., Safini Transport, Inc., FIMA Service Co., Inc., Carl Ginsberg, Joseph Itzchaky, and White & Blue Group Corp. (collectively, the "Medallion Plaintiffs"). These individuals and entities own TLC-issued taxicab medallions, which they often in turn lease to others. Id. ¶¶ 34, 38, 80-84, 105.

         A third group consists of the Taxi Medallion Owner Driver Association, Inc. and the League of Mutual Taxi Owners, Inc. These entities are not-for-profit New York corporations that represent the interests of hundreds of taxicab medallion owners in New York City, and engage in advocacy concerning taxicab regulation. Id. ¶¶ 70-76.

         Defendants, as noted, are the City; the TLC, which is the "charter-mandated agency, responsible for licensing and regulating [the City's] taxicabs and liveries, and implementing transportation initiatives in a manner consistent with law, " id. ¶ 122; and Meera Joshi, "the Chair and Chief Executive Officer of the TLC, " id. ¶ 123.

         B. Medallion Taxis and For-Hire Vehicles

         According to the Amended Complaint, the City's for-hire ground transportation industry consists primarily of two segments that are subject to different regulations and accorded different privileges. Id. ¶ 5. One consists of the "traditional New York City medallion yellow taxicabs." Id. ¶ 23. This group is defined by its ownership of a medallion, which is a license issued by the TLC that permits its owner to, inter alia, "operate a taxicab on the streets of New York, " "use the license as security for loans (which may include, but are not necessarily limited to purchase money loans), and lease the license to other operators for a fee." Id. ¶ 12.

         The second industry segment pertinent here is composed of for-hire vehicles without TLC-issued medallions that are permitted to transport passengers in the City so long as they do "not solicit or pick up [p]assengers other than by prearrangement" ("FHVs"). Id. ¶ 134 (quoting 35 R.C.N.Y. § 55-19(a) (2015)). This group includes well-known companies such as Uber, Lyft, and Gett. Compl. ¶¶ 23-24, 179.

         Plaintiffs allege that medallion owners who operate taxis must comply with a number of regulations imposed by the TLC regarding, among other things: fare rates, 35 Rules of the City of NY. ("R.C.N.Y.") § 58-26 (2017); surcharges, id. §§ 58-16(g), 58-03(x), 58-26(a)(3); and vehicle attributes, such as model, paint, finish, lighting, upholstery, seats, windows, air conditioner, roof lights, taximeters, partitions, camera systems, placement of credentials, and payment systems, id. §§ 67-04 to 67-15. See Compl. ¶ 15. Moreover, Plaintiffs allege, if a medallion owner leases out its taxicab, it must do so within the strictures of TLC-mandated "lease caps" and "shift change time limitations, " which together regulate the amount of time and money for which a medallion can be leased. Id. ¶ 257; see also 35 R.C.N.Y. § 58-21. Collectively, these regulations are hereafter referred to as the "Medallion Specific Rules."

         According to Plaintiffs, in exchange for operating under these allegedly "burdensome" regulations, medallion taxicabs are accorded, by statute, the "exclusive right to accept [street hails.]" Compl. ¶ 5. As defined by TLC regulation, a "hail" is

[a] request, either through a verbal (audio) action such as calling out, yelling, or whistling, and/or a visible physical action such as raising one's hand or arm, or through an electronic method such as an E-Hail App, for on-demand Taxicab or Street Hail Livery service at the metered rate of fare as set forth in § 58-26 and § 82-26 of these Rules by a person who is currently ready to travel.

35 R.C.N.Y.§ 51-03 (2017). The exclusivity of this right is currently protected by, inter alia, the New York City Administrative Code, which provides in pertinent part that "[n]o motor vehicle other than a duly licensed taxicab shall be permitted to accept hails from passengers in the street." N.Y.C. Admin. Code tit. 19 § 504(a)(1) (2017); see also Id . § 502(1) ("'Taxi, ' 'taxicab, ' or 'cab' means motor vehicle carrying passengers for hire in the city, designed to carry a maximum of five passengers, duly licensed as a taxi cab by the commission and permitted to accept hails from passengers in the street.").

         By contrast, Plaintiffs allege, FHVs may not accept street hails, but, correspondingly, are free from many of the regulatory burdens imposed on medallion owners, such as the Medallion Specific Taxicab Rules. FHVs are not, for example, subject to mandated fare rates, but instead file a rate schedule with the TLC. Compl. ¶¶ 136-37. Similarly, FHVs are not limited to particular vehicle models dictated by the TLC. Id. ¶¶ 141-42.

         C. Promulgation of "E-Hail Rules" and the Alleged "Evisceration" of Hail Exclusivity

         Plaintiffs allege that, notwithstanding the framework set forth above, there has been a "collapse of the regulatory structure governing for-hire transportation in New York City, brought about by the government-sanctioned proliferation of smartphone technology being used by companies like Uber to bypass taxicab medallions and allow passengers to electronically hail a parallel network of unlicensed vehicles." Id. ¶ 1. Plaintiffs aver that the key event in this purported "collapse" was the TLC's promulgation of the "E-Hail Rules" on January 29, 2015. Id. ¶ 167; New York City Taxi And Limousine Commission, E-Hail Rules (2015), available at http://www.nyc.gov/html/tlc/downloads/pdf/newlypassedrules ehail.pdf. In relevant part, these rules permit passengers, in sum and substance, to arrange immediate ground transportation service through an electronic request sent via smartphone-based application, of the sort maintained by Uber and its competitors. Compl. ¶¶ 23-24 167-72, 179.[2]

         According to Plaintiffs, the result of allowing FHVs to engage in e-hailing is that "[m]edallion taxicabs and companies such as Uber, Lyft and Gett clearly now operate on business models that are the same [as medallion taxicabs in] all material respects." Compl. ¶ 187. Specifically, Plaintiffs allege that medallion taxicabs and FHVs using e-hail (1) serve the same "on demand travel" costumers, id. ¶ 185; (2) "create the same value for those customers, " id., as demonstrated by the fact that "passenger wait times" for e-hailing "have all but disappeared, " id. ¶ 218; (3) "transact sales in the same manner" - i.e., often through smartphones using credit card payments, id. ¶¶ 185, 193, 218; and (4) compete for the same drivers to operate their vehicles, id. ¶¶ 237, 279. Plaintiffs further allege that these developments have decreased the average medallion's market value, id. ¶¶ 222-23, leasing value, see, e.g., Id . ¶ 241, and meter revenue, id. ¶¶ 224-26.

         To buttress these allegations, Plaintiffs marshal statements purportedly made by Defendants that suggest, according to Plaintiffs, that they too believe that there is no material difference between a traditional street hail and an e-hail. For example, Plaintiffs allege that the City stated in a study that the "once-distinct regulatory categories are now blurring, and causing more direct competition for [medallion drivers]." Id. ¶ 191. Similarly, Plaintiffs allege that the Assistant General Counsel to the TLC stated in connection with the adoption of the E-Hail Rules that "[f]or those of you who might be unfamiliar, e-hailing allows a passenger to make a taxi-pickup request through his or her smart phone. Basically it extends a hand hail allowing taxi drivers to see around corners and increases fare opportunities." Id. ¶ 167; see also Id . ¶ 164 (alleging that the TLC stated in an unrelated court proceeding that "e-hail apps are just that; they're hails. It's somebody indicating that they want to be picked up ... within a prescribed area, without saying where they're going, without saying their race or gender or color, without saying what the fare will be and how much it will be."); id. ¶ 236 (alleging that the TLC stated that "[differential regulations for taxis compared to other categories of for-hire vehicles limit traditional yellow taxis' ability to compete effectively with e-dispatch services.").

         D. The "Accessible Conversion Rules"

         In addition to the Medallion Specific Taxicab Rules and the E-Hail rules, Plaintiffs' claims also implicate certain recently promulgated TLC regulations concerning the handicap accessibility of medallion taxicabs. Specifically, Plaintiffs allege that in 2015 the TLC adopted 35 R.C.N.Y. § 58-50 (2015) (the "Accessible Conversion Rules"), which provides that, by 2020, 50% of all medallion taxicabs in the City shall be made accessible to passengers with disabilities, in part pursuant to an ongoing multi-tiered lottery selection process conducted by the TLC. Compl. ¶¶ 16, 145.[3] According to Plaintiffs, the Accessible Conversion Rules "effectively convert the unrestricted medallion - i.e., a medallion that was never required to be placed on accessible vehicle - into a restricted medallion - i.e., a medallion that is required to be placed on accessible vehicle, " on at least an "alternating basis." Id. ¶ 147-48. These "accessible medallions, " it is alleged, are "far less valuable than unrestricted medallions" for several reasons, including the increased operating costs associated with handicap-accessible vehicles, certain call response obligations assumed by those driving such vehicles, and, correspondingly, the "extreme[] difficulty]" of leasing such vehicles. Id. ¶¶ 148, 157-58. Indeed, individual Plaintiffs Ginsberg and Itzchaky were, according to the Amended Complaint, "both selected by the TLC to convert their previously unrestricted medallions into accessible medallions as part of the first such lottery held pursuant to the Accessible Conversion Rules, " id. ¶ 34, and "as a result of the forced conversion, both of them have been dropped by their leasing agents." Id.

         Plaintiffs also allege that the TLC implemented the Accessible Conversion Rules pursuant to a rulemaking that was initiated in connection with the settlement of a class action civil rights lawsuit brought against it under a the Americans with Disabilities Act and the New York City Human Rights Law: Noel v. N. Y.C. Taxi & Limousine Comm 'n, 837 F.Supp.2d 268 (S.D.N.Y. 2011), vacated, 687 F.3d 63 (2d Cir. 2012). Compl. ¶ 145; see also Id . ¶ 145 n.8 ("[TLC] entered into a settlement agreement, which stated that the TLC would begin rulemaking within 30 days of the execution of the settlement that would require medallion owners to progressively utilize accessible vehicles."). Other than the assertion that the Accessible Conversion Rules effectively "arose out of the Noel settlement, " Compl. ¶ 145, the complaint contains no allegations concerning either the rulemaking process by which the TLC promulgated those Rules and or the specific terms of that settlement.

         II. PROCEDURAL POSTURE

         Plaintiffs filed this suit on November 17, 2015. Dkt. No. 1. On December 29, 2015, Plaintiffs moved for a preliminary injunction, arguing principally that the Medallion Specific Rules and the Accessible Conversion Rules violate the Equal Protection Clause. Dkt. Nos. 19, 31. The Court denied that motion on the record during a hearing held on January 26, 2016. See Dkt. No. 43 (memorializing denial). Plaintiffs moved for reconsideration, Dkt. No. 48, and the Court denied that application, as well. Dkt. No. 57.

         On March 7, 2016, Plaintiffs filed an Amended Complaint asserting three federal causes of action pursuant to 42 U.S.C. §§ 1983 and 1988 and seeking both injunctive and declaratory relief as well as compensatory, exemplary, and punitive damages. Comp. ¶¶ 310-27, 342-48, 368-77. First, Plaintiffs assert that the TLC rules and regulations discussed above, including the Medallion Specific Rules, contravene the Equal Protection Clause by imposing disparate burdens on participants in the medallion taxicab industry relative to purportedly similarly situated FHV companies, such as Uber and its competitors. Compl. ¶¶ 310-17. Second, Plaintiffs aver that the current TLC regulatory structure effects a taking without just compensation of their statutory right to hail exclusivity in violation of the Takings Clause of the Fifth Amendment. Compl. ¶¶ 318-19. And third, Plaintiffs allege that the TLC's adoption of the Accessible Conversion Rules runs afoul of the Fourteenth Amendment's Due Process Clause in purportedly "forcing" medallion owners to "convert" unrestricted ...


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