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Vugo, Inc. v. City of New York

United States District Court, S.D. New York

February 22, 2018

VUGO, INC., Plaintiff,
CITY OF NEW YORK, Defendant.

          OPINION & ORDER


         Citing an interest in promoting and protecting passenger comfort, the New York City Taxi and Limousine Commission ("TLC") promulgated rules that prohibit the display of advertising in certain types of for-hire vehicles without prior authorization. Although the TLC's regulatory scheme permits advertising in medallion taxis and street-hail liveries, it is effectively banned in all other vehicles. Vugo, Inc., a Minnesota-based company that places digital content, including advertising, in rideshare vehicles such as those affiliated with Uber and Lyft across the country, has sought to expand its business into New York City. After the TLC refused Vugo authorization to do so, it brought this First Amendment challenge.

         Both Vugo and the City now move for summary judgment. Because the City is unable to justify the challenged regulations, even under the relaxed judicial scrutiny applied to restrictions on commercial speech first articulated in Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, Vugo's motion is granted and the City's motion is denied.


         The following facts, which are based on the parties' Rule 56.1 statements and supporting materials, are undisputed unless otherwise noted.[1] The TLC, a City agency, is responsible for the "regulation and supervision" of vehicles for hire in the City. N.Y.C. Charter § 2303(a). In connection with its obligation to establish a comprehensive transportation policy, it is tasked with considering, among other things, "the promotion and protection of the public comfort." Id. § 2300. Its authority extends to "[t]he regulation and supervision of standards and conditions of service, " id. § 2303(b)(2), and it is expressly empowered to establish "standards of.. . comfort... in the operation of vehicles and auxiliary equipment, " id. § 2303(b)(6). As of August 2016, the TLC oversaw more than 94, 000 vehicles, including medallion taxis and for-hire vehicles ("FHVs").[2]Def. 56.1 ¶¶ 3-4, ECF No. 47. The following vehicles are considered FHVs: community-based liveries, black cars, luxury limousines, and street-hail liveries ("SHLs").[3] Def. 56.1 ¶ 5.

         The TLC currently allows two types of regulated vehicles to display interior advertising: medallion taxis and SHLs. Pl.56.1 ¶¶ 10, 12, 14, ECF No. 39. Medallion taxis are New York City's ubiquitous "yellow cabs." Pl.56.1 ¶ 4. SHLs, which are commonly known as "green" or "borough" taxis, are a relatively new class of FHVs that are authorized to accept street hails in the Bronx, Brooklyn, Queens (with the exception of the airports), Staten Island, and in certain parts of Manhattan. Def. 56.1 ¶¶ 5, 30. In addition to being the only two types of regulated vehicles allowed to display interior advertising, medallion taxis and SHLs are also the only regulated vehicles that accept street hails. Def. 56, 1 ¶ 31.

         Before May 2005, no TLC-regulated vehicles were authorized to display interior advertising. See Def. 56.1 ¶ 13; Wanttaja Decl. ¶ 22, ECF No. 50. The rules being challenged in this action, which prohibit interior advertising in FHVs, were originally adopted as a single rule (the "Original Rule") on August 5, 1999. See Pl.56.1 ¶ 3. The Original Rule provided, in relevant part, that "[a]n owner may not display any advertising, either on the exterior or the interior of a for-hire vehicle, unless such advertising has been authorized by the Commission." Wanttaja Decl. Ex. B, at NYC0263. It was adopted "to establish consistency between TLC's regulation of advertising in medallion taxicabs and FHVs." Wanttaja Decl. ¶ 20. The rule governing interior advertising in medallion taxis at the time prohibited taxicab owners from "displaying] inside a taxicab any advertising or other notice not specifically authorized by [the Taxicab Owners Rules] or the Commission's Marking Specifications for Taxicabs unless approved by the Commission." Wanttaja Decl. Ex. A, at NYC0452.

         The Original Rule was codified at 35 R.C.N.Y. § 6-12(f)(2). Wanttaja Decl. Ex. B, at NYC0263. In 2010, the Original Rule was re-codified as 35 R.C.N.Y. § 59A-29(e)(1) as part of a reorganization of the TLC's rulebooks. Wanttaja Decl. ¶ 21 n.7. The TLC also adopted a parallel provision that applies to FHV owners, which is codified at 35 R.C.N.Y. § 59B-29(e)(1). Pl. 56.1 ¶ 6. The language in these provisions differs somewhat from the Original Rule, but the parties agree that the differences are not "substantive." Pl. 56.1 ¶ 4; Wanttaja Decl. ¶ 21 n.7. In its current form, 35 R.C.N.Y. § 59A-29(e)(1) provides that "[a]n Owner must not display any advertising on the exterior or the interior of a [FHV] unless the advertising has been authorized by the Commission and a License has been issued to the Owner following the provisions of the Administrative Code." Similarly, 35 R.C.N.Y. § 59B-29(e)(1) provides that "[a] Vehicle must not display advertising on the outside or the inside unless the Commission has authorized the advertising and has given the Vehicle Owner a permit specifying that the advertising complies with the Administrative Code."

         The TLC disfavors interior advertising in all of the vehicles that it licenses and regulates. Wanttaja Decl. ¶¶ 25, 28, 52. "Because the Commission had authorized no form of interior advertising in taxicabs or FHVs prior to 1999, passage of the rule did not alter the fundamental fact that advertising was not authorized in either taxicabs or FHVs at that time. Rather, the rule was intended to make clear that interior advertising was not permitted and inform licensees that they could not display interior advertising without prior TLC authorization." Wanttaja Decl. ¶ 22.

         The TLC allows advertising in medallion taxicabs and SHLs for one reason: to offset the costs associated with the technology systems that must be installed in those vehicles. See Def. 56.1 ¶ 28; Wanttaja Decl. ¶ 47. In 2004, the TLC

promulgated rules requiring [medallion] taxicabs ... to install equipment capable of performing the following functions: (1) electronic receipt and collection of trip data; (2) acceptance of debit cards and credit cards for payment; (3) driver receipt of text messages; and (4) display of route guidance and other important information to passengers via passenger information monitors ["PIMs"].

         Wanttaja Decl. ¶ 30. The new equipment was intended to serve a variety of policy objectives. The goal of the electronic receipt and collection of trip data was to establish "an efficient and accurate method of maintaining information regarding the date, time, and location of passenger pick-ups and drop-offs, duration of the trip, the number of passengers, and the metered fare paid by the passenger(s), among other data." Wanttaja Decl. ¶ 31. This electronic collection of data was intended to allow the TLC to "more efficiently synthesize and analyze this enormous volume of data so as to guide the agency in its day-to-day operations and larger policy decisions." Wanttaja Decl. ¶ 31. The acceptance of debit and credit cards was intended to provide a convenience for passengers and improve the safety of drivers, as they would presumably carry less cash. Wanttaja Decl. ¶ 32. The purpose behind the text messaging system was threefold: (1) "to communicate public service announcements and emergency notifications to taxicab drivers"; (2) "to assist in the recovery of lost property"; and (3) "to inform drivers of fare opportunities, which [would] improve[ ] overall customer service." Wanttaja Decl. ¶ 33. The PIM was intended "to display the total fare at the end of every trip, communicate public service announcements to passengers, allow passengers to track their route, and allow passengers to complete credit card payments." Wanttaja Decl. ¶ 34. The purpose of these features was to prevent customers from being overcharged by providing them with greater transparency with respect to their fare and route. Wanttaja Decl. ¶ 34.

         The equipment contemplated by these rules came to be known as the Taxicab Passenger Enhancement Program ("TPEP"), which is now required to be installed in all medallion taxis. Def. 56.1 ¶¶ 8-9; Wanttaja Decl. ¶ 13. A similar system called the Street Hail Livery Technology System ("LPEP") must be installed in SHLs. Wanttaja Decl. ¶ 44. The TPEP and LPEP requirements "added a significant new cost to vehicle owners without any expectation of increased business." Wanttaja Decl. ¶ 47. "[A]s a means by which owners could offset the new costs, " the TLC crafted an exception to its ban on interior advertising and promulgated new rules authorizing interior advertising on the PIMs of medallion taxis and SHLs. Wanttaja Decl. ¶ 47; see also PI. 56.1 ¶¶ 10, 12-13.[4] Consequently, as of August 2016, interior advertising was permitted in about twenty-two percent of the vehicles licensed and regulated by the TLC. Def. 56.1 ¶ 27.[5]

         Formed in 2015, Vugo is a media distribution company headquartered in Minneapolis, Minnesota that distributes advertisements, entertainment content, and public service announcements. Pl.56.1 ¶¶ 16-17. Vugo partners with rideshare drivers affiliated with companies such as Uber and Lyft. Pl.56.1 ¶ 18. Drivers download Vugo's software onto tablets that are mounted in their vehicles in a manner that allows passengers to view and interact with the tablets. Pl.56.1 ¶ 18. Approximately seventy-five percent of the screen displays primary content-typically video-while the remaining portion is a static display related to the main content, the Vugo logo, and volume controls. Pl.56.1 ¶ 27. Passengers cannot turn off the display, but they can reduce the volume to a "near-mute" level. Pl.56.1 ¶ 30. Advertisers pay Vugo to display their content and Vugo provides the drivers with sixty percent of the advertising revenue. Pl.56.1 ¶ 32.

         In the spring of 2015, Vugo launched its beta program, making the platform available to ride-share drivers across the country. Pl.56.1 ¶ 33. During the beta period, a driver from New York City informed Vugo that TLC rules banned advertising in for-hire vehicles. Pl.56.1 ¶ 34. Vugo contacted the TLC about entering the New York market and was informed that its product was prohibited because FHVs are not permitted to display advertisements. Pl.56.1 ¶¶ 35-37.[6]


         On October 20, 2015, Vugo filed a Complaint alleging that the TLC's ban on advertising in FHVs violates the First Amendment. ECF No. 1. Before the Court are the parties' cross-motions for summary judgment. ECF Nos. 38, 45, STANDARD OF REVIEW

         A party is entitled to summary judgment if it "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). "A fact is material if it might affect the outcome of the suit under the governing law, and a dispute is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Baldwin v. EMI Feist Catalog, Inc., 805 F.3d 18, 25 (2d Cir. 2015) (citation and internal quotation marks omitted). "[T]he moving party bears the burden of demonstrating the absence of a material factual question, and in making this determination, the court must view all facts 'in the light most favorable' to the non-moving party." VW Credit, Inc. v. Big Apple Volkswagen, LLC, No. 11-CV-1950 (PAE), 2012 WL 5964393, at *2 (S.D.N.Y. Nov. 29, 2012) (quoting Dickerson v. Napolitano, 604 F.3d 732, 740 (2d Cir. 2010)).

         "When cross motions for summary judgment are made, the standard is the same for that of individual motions." JPMorgan Chase Bank, N.A. v. Freyberg,171 F.Supp.3d 178, 184 (S.D.N.Y. 2016). "[N]either side is barred from asserting that there are issues of fact, sufficient to prevent the entry of judgment, as a matter of law, against it." Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir. 1993). "[E]ach party's motion must be examined on its own merits, and in each case all reasonable inferences must be drawn against ...

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