Progressive Credit Union v. City of New York

          Argued October 24, 2017

          Appeal from the United States District Court for the Southern District of New York No. 15 Civ. 9042 (AJN), Alison J. Nathan, District Judge, Presiding.

         Plaintiffs, various entities and individuals associated with the New York City medallion taxicab industry, brought this action under 42 U.S.C. § 1983 against the City of New York, the New York City Taxi & Limousine Commission, and the Commission's Chair, Meera Joshi, asserting violations of various federal constitutional rights. Plaintiffs alleged that defendants' regulatory scheme applicable to the ground transportation market in New York City violated their equal protection and due process rights and that they suffered a taking. The district court granted defendants' motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), on the ground that plaintiffs did not adequately allege that defendants' regulatory scheme failed rational basis review or that they suffered a deprivation of a constitutionally-cognizable property right without adequate procedural protections. The district court also dismissed plaintiffs' takings claim without prejudice, concluding it was unripe for review in federal court because plaintiffs failed to avail themselves of state procedures for seeking compensation. We affirm.

          Todd A. Higgins, Crosby & Higgins LLP, New York, N.Y., for appellants Progressive 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.

          MacKenzie Fillow (Scott Shorr, Richard Dearing, on the brief), for Zachary W. Carter, Corporation Counsel of the City of New York, New York, N.Y., for appellees City of New York, New York City Taxi & Limousine Commission, and Chair Meera Joshi, in her official capacity as the Chair of the New York City Taxi & Limousine Commission.

          Before: JACOBS, SACK, and PARKER, Circuit Judges.

          BARRINGTON D. PARKER, CIRCUIT JUDGE.

         This appeal requires us to decide whether New York City's regulatory regime for the for-hire ground transportation industry violates the United States Constitution by subjecting yellow medallion taxicabs to different regulatory requirements than those imposed upon "for-hire vehicles, "such as services like Uber and Lyft.

         Plaintiffs, credit unions, trade associations, and individuals affiliated with the medallion taxi industry in New York City, brought this lawsuit against defendants the City of New York, the New York City Taxi & Limousine Commission (the "TLC"), and the Chair of the TLC, Meera Joshi. As relevant to this appeal, plaintiffs brought, under 42 U.S.C. § 1983, three constitutional claims. They alleged: (1) that the City violates the Equal Protection Clause by imposing disparate regulatory requirements on medallion taxicabs and for-hire vehicles because the two categories of transportation are similarly situated; (2) that the City's manner of formulating and imposing regulations regarding taxicab and for-hire vehicle accessibility for persons with disabilities violated procedural due process by severely diminishing the value of plaintiffs' medallions without affording them notice and an opportunity to be heard; and (3) that the City's regulatory framework resulted in a taking of their property interests in their medallions without just compensation.

         The United States District Court for the Southern District of New York (Alison J. Nathan, District Judge) granted defendants' motion under Federal Rule of Civil Procedure 12(b)(6), dismissing plaintiffs' federal claims on various grounds and declined to exercise supplemental jurisdiction over their state-law claims. See Melrose Credit Union v. City of New York, 247 F.Supp.3d 356 (S.D.N.Y. 2017). Plaintiffs appeal and we affirm.

         BACKGROUND

         This lawsuit arises out of the technology-driven changes to the for-hire ground transportation market brought about by the entry into that market of companies such as Uber and Lyft, and the regulatory regime that the City has put in place in response to these changes. This regulatory framework generally divides the City's for-hire ground transportation industry into two groups. One group consists of the holders of traditional New York City taxicab medallions for yellow taxicabs. A medallion is a license issued by the TLC that permits the holder to operate a yellow taxicab in New York City, use the medallion as security for loans, and lease the medallion to other taxicab operators. Medallion taxicabs are the only vehicles that may pick up passengers who hail a vehicle, and may do so anywhere on the streets of the City.^[1]

         The other group of industry participants is for-hire vehicles ("FHVs"), which the N.Y.C. Administrative Code defines in § 19-502(g) as vehicles "other than a taxicab." This group includes car services and carriers such as Uber and Lyft that do not possess TLC medallions but are permitted to transport passengers so long as they do so "only on the basis of telephone contract or prearrangement." N.Y.C. Admin. Code § 19-516(a); see also 35 R.C.N.Y. § 51-03 (Definitions) (defining "For-Hire Vehicle" as "a motor Vehicle licensed by the [TLC] to carry Passengers for-hire in the City, which: . . . (3) is not a Taxicab").

         The TLC imposes different regulatory requirements on the two groups. Medallion taxicab operators must comply with regulations regarding fare rates and surcharges, see, e.g., 35 R.C.N.Y. §§ 58-26 (Operations-Rates and Tolls), 58-16(g) (Taxicab Improvement Fund), and must follow numerous rules covering such matters as car model, color, roof lights, distress signal lights, and rooftop advertising, id. at §§ 67-04 to 67-19.^[2] The regulations also control other matters such as the amount of time and money for which a medallion can be leased. Id. at § 58-21 (Leasing a Taxicab or Medallion).

         While the City imposes these and certain other regulatory burdens only on medallion taxicabs, the City also provides them significant benefits, most importantly the exclusive right to pick up passengers by street hail anywhere in the City. The New York City Administrative Code provides 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 § 19-504(a)(1).

         Notwithstanding these benefits, plaintiffs alleged in their amended complaint that FHVs are subjected to far fewer regulatory burdens than those imposed on medallion taxicabs. For example, while medallion taxicabs must charge fare rates set by the TLC, FHVs must instead only file a rate schedule with the TLC. Joint Appendix ("App'x") at A-620. And, plaintiffs alleged, while medallion taxis must use a vehicle approved by the TLC, FHVs "are not limited to any particular vehicle model set by the TLC, thereby unfairly allowing companies such as Uber to permit drivers to use newer and higher quality vehicles, giving riders a better overall experience." Id. at A-621. FHVs are also not required to comply with numerous other regulations applicable to medallion taxicabs, such as those requiring partitions or that the vehicle be painted a particular shade of yellow.

         Although the City's regulations permit only medallion taxicabs to pick up passengers who hail a taxi from the street, plaintiffs alleged that recent regulations promulgated by the TLC have had the effect of rendering medallion holders' right to "hail exclusivity" meaningless because they permit the use of "e-hail" technology. An "e-hail" is when a passenger uses a smartphone app, such as Uber or Lyft, to arrange transportation. Through this technology, plaintiffs alleged, rides in FHVs can be obtained by a passenger in functionally the same way as a traditional hail.

         Around 2011, the City determined that the use of a smartphone app to arrange transportation fits within the TLC's regulations' existing definition of a "prearrangement" and that FHVs could use smartphone apps to arrange rides for passengers so long as they complied with TLC regulations. In January 2015, the TLC promulgated the "E-Hail Rules, " which, according to plaintiffs, enable companies to furnish passengers with electronic, smartphone-based applications that enable them to arrange ground transportation through companies such as Uber and Lyft. See, e.g., App'x at A-629-30.

         Because the City permits FHVs to use e-hail smartphone applications, plaintiffs alleged that no material differences now exist between a traditional street hail and an e-hail. Consequently, plaintiffs alleged, a significant benefit medallion holders once enjoyed-the exclusive ability to pick up customers who hail a taxi on the street-has effectively disappeared. The result is that medallion taxicabs and companies like Uber or Lyft operate on the same business models, and serve the same "on demand transportation" passengers, and compete for the same drivers. Id. at A-635, 648. These developments mean that "passenger wait times for Uber E-Hails have all but disappeared" and that soon "response times to Uber's E-Hails" will be "virtually instantaneous." Id. at A-643. In the end, plaintiffs alleged, the effect of these market changes has been to dramatically decrease medallions' market value, leasing value, and the number of trips taken by passengers in medallion taxicabs and the corresponding meter revenue. Id. at A-644-45, A-649. Plaintiffs plausibly alleged that these developments have resulted in "catastrophic harm" to the New York City taxicab industry. Id. at A-589.

         Another important regulatory difference that plaintiffs emphasize arises from recently promulgated regulations, known as the "Accessible Conversion Rules, " 35 R.C.N.Y. § 58-50 (Accessible Vehicle Conversion). These Rules, which are the focus of plaintiffs' due process claim, were intended to increase significantly the availability of vehicles accessible to persons with disabilities, especially those who use wheelchairs. In 2015, the TLC adopted the Accessible Conversion Rules, which apply exclusively to medallion taxicabs and not to FHVs. The City's goal in formulating the Rules is to make at least 50% of medallion taxicabs accessible to persons with disabilities by the year 2020. This goal is to be achieved through a multi-tiered lottery process administered by the TLC, under ...