LOS ANGELES (CN) – A federal judge on Monday tentatively advanced claims by car-sharing app Turo that Los Angeles misclassifies it as a rental car company and charges “unconstitutional” fees for connecting drivers at Los Angeles International Airport.
In a tentative ruling, U.S District Judge Christina Snyder denied Los Angeles’ motion to dismiss Turo’s lawsuit. Snyder said there is enough in Turo’s claims that LA’s misclassification prevents it from fully operating its business for the lawsuit to advance.
An attorney for the city, Steven Rosenthal of the firm Loeb and Loeb, urged Snyder to dismiss the claims because no injury has taken place since the city has only threatened to impose the fees.
“Essentially, the question is, ‘Can LAX regulate Turo and on what basis,’” Snyder said. “I’m not persuaded by the argument that Turo has no standing.”
Snyder said she would consider all arguments before issuing a final ruling.
Attorneys for both parties declined to comment outside the courtroom.
The Turo app creates a marketplace where users can rent privately owned cars, but says it isn’t a rental car company since it doesn’t operate its own fleet.
At the airport, car owners exchange keys with renters at the curb outside their gate or somewhere else near the airport.
But the city and LAX say Turo is a rental car company and must pay 10 percent of its gross receipts plus a $7.50 daily facility charge fee.
In a 28-page complaint filed July 12, Turo said the fees are “unconstitutional because they are unapproved taxes” prohibited by Proposition 26, which California voters approved in 2010.
The so-called “Stop Hidden Taxes Initiative” amended the California Constitution to require that any fee charged by a government entity “bear reasonable relation to the cost of the service covered by the fee.”
Turo says its drivers are exempt from paying fees since they don’t use any of the airport rental car facilities the fees are meant to cover.
“Any ‘fee’ that fails this reasonable relation test is not legally a fee, but a tax that California voters are entitled to approve or reject,” Turo says in its complaint, adding the fees also violate the equal protection and commerce clauses of the U.S. and California constitutions.
Turo attorney Matthew Brown of the Cooley firm said the company sued after a public records request revealed February 2018 emails between city officials and representatives from rental car giant Enterprise showing collaboration to undermine Turo.
A city official told Enterprise “the Los Angeles City Attorney is pursuing litigation against Turo” after Turo requested a list of entities without LAX rental car permits.
“These emails show that LAX officials treat Enterprise not as a permitted entity under their regulatory purview but instead as a patron LAX takes instructions from and actively attempts to protect from competition,” the complaint says.
Turo says “hundreds of thousands of Californians are Turo users and more than 10,000 California car owners” list their vehicles for rent on the app.
The company says it has tried to negotiate directly with LAX officials to create a fee structure but has been turned down.
An LAX spokesperson did not respond to a request for comment.