Taxis Face Tough Slog in Ride-Hail Regulatory Spat

SAN FRANCISCO (CN) – A Ninth Circuit panel on Monday indicated it would rule against a San Francisco cab company seeking to hold ride-hails like Uber and Lyft to the same strict regulations as taxicabs.

But while the three-judge panel said a ruling in Desoto Cab Company’s favor would be of little use in its lawsuit against the California Public Utilities Commission, it acknowledged such a ruling would make it easier for Desoto to win damages in an antitrust suit against Uber pending in Oakland federal court.

“You get the declaratory judgment in Case One and then based on that declaration of what the law is, you get damages in Case Two. If they have to be in one case, consolidate them,” said Senior Circuit Judge Andrew Kleinfeld.

Desoto Cab Company, doing business as Flywheel Taxi, claims the public utilities commission favored ride-hails over traditional taxis when it approved regulations for ride-hails in 2013. It says the regulations are less stringent than those for taxis, making it costlier for taxis to operate.

Unlike ride-hails, cab companies are regulated by cities and counties. Flywheel, regulated by the San Francisco Municipal Transportation Agency, is required to carry $1 million in liability insurance, provide ADA-accessible vehicles for riders and workers’ compensation for drivers, and limit the number of vehicles on the road.

But ride-hails aren’t held to those standards under the state’s rules. Nor does the state limit the number of ride-hail vehicles, according to Flywheel.

At its core, the case is about who should regulate the two car services. California’s Constitution and Public Utilities Code give the utilities commission jurisdiction over most transportation companies in the state, including a kind of passenger transportation service called a charter-party carrier. But the commission does not have jurisdiction over taxicabs, which are regulated at the local level.

The key legal difference between the two services, according to the commission, is that taxicabs take street-hails, while charter-party carriers like Uber and Lyft operate on a “prearranged basis”: to book them, a rider must download an app to their smartphone and tell the app where they are and where they want to go. The app then connects them with a driver.

The commission found ride-hails are more like charter-party carriers than taxicabs because they work on a prearranged basis, leading to its decision to regulate them.

But Flywheel argues taxis and ride-hails are the same; its customers also prearrange rides through an app. It claims the disparity between state and local regulations violates its right to equal protection, and wants both services to be regulated either at the state or local level.

Nonetheless, U.S. District Judge Edward Chen in San Francisco dismissed the 2015 case with prejudice last year, ruling the state’s regulatory regime does not violate Flywheel’s equal protection rights,

Following a number of decisions in other circuits, Chen found the fact that ride-hails operate on a “prearranged basis” justifies treating them differently than taxis.

Seeking reversal on Monday, Flywheel attorney Shannon Seibert with Seibert & Bautista called the commission’s decision unconstitutional. But she acknowledged a ruling for Flywheel would allow it to recover damages in Desoto Cab Company, Inc. v. Uber Technologies, Inc. for the 15 months between the time the commission asserted jurisdiction over ride-hails in September 2013 and when the California Legislature enacted laws codifying its jurisdiction over them in January 2015. Seibert is representing Flywheel in its suit against Uber.

“For that 15-month period of time, Uber and Lyft were essentially able to claim the protections of having been under the PUC’s [public utilities commission] jurisdiction,” she said.

According to her, taxis and ride-hails were identical in 2013 because Uber drivers were encouraged to take street-hails then, an allegation the panel seemed to reject because Uber wouldn’t make money from such a scheme.

“They did do it, they were. They’re trying to destroy the taxi industry, that’s why. It was stated by Mr. [Travis] Kalanick,” Seibert countered, referring to Uber’s former chief executive.

Seibert also said Uber may have paid off the commission to regulate ride-hails under its looser standards, an allegation Flywheel raised only on appeal.

U.S. District Judge Janis Graham Jack, sitting by designation from the Southern District of Texas, said the panel could not consider the allegation, in what would be a blow to Flywheel’s case.

“It’s a vague allusion,” Jack concluded.

Utilities commission attorney Jonathan Koltz rebuffed Flywheel’s attempt to use its suit against the commission to recover damages from Uber. He argued Flywheel doesn’t have standing to sue because it didn’t challenge the California laws codifying the commission’s jurisdiction over ride-hails, an argument with which the panel seemed to agree.

“I’m not sure you can hang Article III standing on the possibility you’ll maybe get damages against another party in another case if everything goes your way,”  he said.

The commission wants the Ninth Circuit to throw out Chen’s order dismissing the case on the pleadings, and to order him to instead dismiss it for lack of jurisdiction.

Flywheel wants the commission’s decision to regulate ride-hails declared unconstitutional and thrown out. But Circuit Judge Richard Tallman suggested that would be a tall order to fill.

“How can we enter an order in violation of the California Constitution?” he asked.

 

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