MILWAUKEE (CN) - Milwaukee created an unconstitutional, two-tiered system of taxis, with traditional cabs licensed and regulated, but "network companies" such as Lyft and Uber able to play by their own rules, five cab companies claim in Federal Court.
The five companies, which together own 162 of the city's 420 taxi permits, say they could lose $24 million if new city regulations take effect Sept. 1 as planned.
"A recently enacted Milwaukee City public passenger ordinance creates an irrational, two-tiered regulatory system that unconstitutionally harms the economic property interests of taxicab permit holders," the complaint states. "The ordinance, the second such change to taxicab regulations in a matter of months, allows 'network' based service providers to operate in an essentially free market system with little or no oversight, while continuing to subject traditional taxicab drivers to antiquated, economically oppressive regulations. In particular, the Milwaukee ordinance allows 'network' based drivers to use practically any vehicle and charge any fare while requiring taxicab drivers to use specific vehicles, charge City-set rates, and incur multiple City-mandated expenses. Thus, for example, a network-based driver, using a tablet or cell phone app, may pick up a rider at a downtown Milwaukee hotel using a private vehicle and charge practically any price. If a taxicab driver, using a similar app, picks up that same customer, the taxicab driver must be in a City-approved vehicle, with specific colors, markings and inspection. The taxicab driver must charge the passenger no more than a City-approved rate (often significantly less than what network-based drivers charge), regardless of supply or demand for such rides. This irrational economic disparity violates the Equal Protection Clause of the 14th Amendment of the United States Constitution."
The law also violates the Due Process clause of the Fifth Amendment, the cabbies say. "(U)nder the Due Process Clause, the new Ordinance impermissibly harms the taxicab property interests previously created by the City by eliminating entirely any cap on the number of taxicab permits and prohibiting the transfer of taxicab permits. Having previously limited the number of taxicab permits and required taxicab owners to go to a secondary market and spend thousands of dollars (sometimes tens or hundreds of thousands of dollars) to obtain a City permit, the City now has irrationally destroyed all value of those permits. This action was taken mere months after the Court upheld a 2013 Ordinance that said no further changes to the cap would be made without further study. The current Ordinance was enacted in arbitrary and capricious fashion, without further study, with specific intent to cause economic harm to current taxicab permit holders."
The cabbies add: "Elimination of the taxicab permit cap, coupled with prohibition against transferring such permits, has completely destroyed the value of taxicab permits, making their value plummet from approximately $150,000 to zero."
The new ordinance also is unconstitutionally vague, in violation of the 14th Amendment, according to the complaint.
The cabbies say the law does not explicitly state what qualifies a company as one sort or the other, and thus "operates as a trap for the unwary and gives the City improper discretion in imposing substantial fines against taxicab owners."
The cap on taxi permits was established in 1992, along with the provision that the permits could be transferred between drivers.
The advantages included giving taxi drivers a sellable asset to provide retirement funds, reducing traffic congestion, and giving an incentive for drivers to keep their vehicles in good condition lest their permit be revoked, according to the complaint.
It also created a quid pro quo system, whereby the city capped the number of permits available but regulated the fares those few drivers could charge.
In 2011, three taxi drivers filed suit in Milwaukee County Court, claiming the cap on taxi permits violated the Equal Protection Clause of the Fourteenth Amendment. The court found for the drivers, but stayed its injunction against the permit cap pending appeal.
While the case was before the Wisconsin Court of Appeals, the City of Milwaukee passed an ordinance allowing for 100 more taxi permits to be issued by Nov. 1, 2014, and directing the Common Council to review the number of taxi permits issued each year. Subsequently, the city dismissed its appeal of the 2011 lawsuit in February 2014.
Weeks later, the city began investigating app-based "rideshare" services, the complaint states. The city found that because drivers for Uber, Lyft and similar companies are not licensed by the city, they are operating illegally, according to the complaint.
The city's Public Transportation Review Board recommended the Common Council revise the ordinance to include provisions for app-based services, which it did by a unanimous vote on July 22. The ordinance is to take effect Sept. 1.
The new ordinance requires all public passenger vehicle drivers, including those working for app-based services, to be licensed and subject to inspection. However, it exempts app-based services from fare regulation by the city and from displaying a complaint procedures placard.
Not only does this "irrational, two-tiered regulatory system" harm existing permit holders, the complaint states, it upsets the quid pro quo of 1992 by expanding the public passenger vehicle market without allowing traditional taxis to control their fares.
"The effect of the new legislation is to do precisely what the City said it needed to avoid - it creates a decidedly unequal playing field between taxicab operators and app-based vehicle operators," the complaint states.
The cabbies seek declaratory judgment, damages and an injunction.
They are represented by Steven Biskupic with Biscupic & Jacobs, of Mequon, Wisc.