BOSTON (CN) — A group of Boston taxi operators found some passing room Monday trying to persuade the First Circuit that Uber had illegally competed with them by running an unlicensed cab company.
“Why don’t you think Uber falls within the definition” of a taxi business, U.S. Circuit Judge O. Rogeriee Thompson demanded of Uber’s lawyer.
“The taxi rules had never been applied to any sort of prearranged ride as opposed to what a taxi offers, which is street hails,” replied Karen Dunn of Paul Weiss in Washington, D.C.
But Thompson didn’t buy it. “That’s not all that taxis do. People can call ahead for a taxi. People call ahead for a taxi to the airport all the time,” she said.
“That’s an exception,” Dunn replied, insisting that the city’s cab rules existed not to keep out high-tech competitors but because “there’s a public danger when two strangers meet in a car to exchange cash.”
Massachusetts adopted a law in 2016 to regulate ride-sharing services such as Uber and Lyft, but in the years before that the taxi industry was devastated by competition that it viewed as illegal. Like most cities, Boston had authorized a limited number of taxi medallions and prohibited anyone from offering ride-for-hire services who didn’t have a medallion — and Uber drivers didn’t have one.
In 2012 there were some 14.6 million taxi rides in Boston, but by 2016 that number had fallen to just under 8 million.
Thirty-four Boston cab companies — all of which are owned and operated by the Tutunjian family, which controls 362 of the city’s 1,825 medallions — brought the lawsuit here, claiming their revenue dropped 38% over that period. They also said the average value of a medallion plummeted from close to $700,000 to about $250,000.
In asserting that licensed cab operators were getting the short end of the proverbial stick, the plaintiffs said that Uber drivers avoided paying about $26,000 a year to lease a medallion, dispatch fees of up to $88 a week and the $3,600 cost of converting a car into a compliant vehicle.
A federal judge last year had found that Uber had skated close to the line but that it couldn’t be sued because it didn’t act egregiously and it relied in good faith on the actions of city officials in tacitly approving its operations prior to the 2016 statute.
Local officials “welcomed Uber into the city,” Dunn bragged, citing comments from the mayor and governor about how the service offered a diversity of options, greater availability and lower prices. Although city police did start ticketing some Uber drivers for operating illegally, it happened on a relatively small number of occasions.
But “regardless of the benefits of competition, Uber had to operate within the law,” argued the plaintiffs’ lawyer, Michelle Blauner of Shapiro Haber in Boston.
“Uber violated the clear terms of Boston’s licensing laws” and “government officials had no actual or apparent authority to excuse its illegal activities,” Blauner said.
That argument seemed to interest the judges. “Can government officials permit violations of clearly written laws?” asked Judge Gary Katzmann, who participated in the panel although he usually sits on the Court of International Trade.
Thompson, an Obama appointee, pressed the issue. “Do we take lack of enforcement to mean the law doesn’t mean what it says?” she asked. And if so, “what’s the point of the medallions?”
“The point of getting a medallion is to allow you to drive under the medallion but not to sue new market entrants,” Dunn claimed. She said the suit required a showing of “anticompetitive effects,” which meant an injury to the market or to consumers, not just to a competitor.
The medallion system was pioneered in New York City under the LaGuardia administration as a way to reduce congestion, provide stable pricing for consumers and avoid a “race to the bottom” in fares that would hurt drivers, said Brian Callaci, an economist at the Data and Society think tank in New York.
“Uber claims the rules don’t apply to it because it’s a technology company, not a taxi company,” Callaci said in an interview, “but really it’s the same old industry.”
While Uber might have some benefits, he said the company often recreates the very problems the medallion system was designed to solve, including rock-bottom revenues for drivers and unstable consumer costs due to “surge” pricing.
And while the Uber app for arranging rides is innovative, it’s not revolutionary, he said. “You can have the app and still have the same regulated taxi industry.”
U.S. Circuit Chief Judge Jeffrey Howard, a George W. Bush appointee, rounded out the panel.
The argument was held remotely with several interruptions caused by technical glitches and once by Thompson leaving momentarily to let her cats outside. “They’re driving me crazy with all their scratching,” she explained.
“Cats take precedence on this court,” Howard observed.