San Diego Taxis

Consumers Aren’t Property, and Competition Isn’t Theft

In November 2014, San Diego joined a growing number of cities by lifting its decades-long cap on the number of cabs allowed on its streets. The cap, which was put in place in 1984, served no purpose other than enriching a small group of pre-existing taxi permit owners to the detriment of riders and drivers. By lifting the cap, San Diego has given hundreds of drivers—who currently lease permits at exorbitant rates—a shot at becoming their own boss.

For Abdi Abdisalan and Abdullahi Hassan, the dream of going into business for themselves is nearly a reality. They are in the process of applying for two of the newly available permits and are shopping for the low or zero emission vehicles they will drive. The only roadblock before them now is a baseless lawsuit brought by the city’s current permit owners. The owners’ suit argues, among other things, that they have a constitutional right to maintain their market dominance and keep San Diego’s taxi customers for themselves.

But consumers aren’t property, and competition isn’t theft. That is why Abdi and Abdullahi have partnered with the Institute for Justice to stand up for their right to earn an honest living. IJ has defeated protectionist transportation cartels and regulations in cities across the country and expects to swiftly defeat the owners’ frivolous lawsuit in San Diego.

San Diego Taxis

Date Filed

May 1, 2015

Original Court

Superior Court of the State of California, County of San Diego

Case Status

Closed

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Introduction

For three decades, San Diego limited the number of taxicab permits, forcing the vast majority of the city’s taxi drivers to either lease a cab or buy a permit on the secondary market. For cab consumers, the cap only served to make it harder to hail a cab.

The only people to benefit from the cap, in fact, were the handful of permit owners who made windfall profits by leasing or selling their permits for upwards of $140,000.

Consumers aren’t property, and competition isn’t theft.

Like an increasing number of cities, in 2014, San Diego lifted the cap. Already, hundreds of drivers who currently lease permits have applied for permits to go into business for themselves. The prospect of new competition doesn’t sit well with existing permit owners, who have sued San Diego’s taxi agency in a baseless and desperate attempt to maintain their dominance of the city’s taxi market. The owners claim that lifting the cap violates their property rights, and they demand that the government continue protecting them from competition.

But consumers aren’t property, and competition isn’t theft.

That’s why the Institute for Justice has teamed up with two taxi drivers to intervene in the lawsuit and vindicate their right to go into business for themselves.

San Diego’s Taxi Market

Until the 1970s, the San Diego City Council held a public hearing each time a would-be taxi operator requested a new permit. The system, which predicated taxi permits on certificates of public convenience and necessity, rightfully came to be seen as outdated, and in the late 1970s, the city abolished it. The result was a deregulated taxi market in which the number of taxi permits doubled to 928 over the next few years.[1]

In 1984, the City Council voted to impose a moratorium on issuing new taxi permits.[2] Over the next 30 years, the city added only 65 additional permits. During that same time, the city of San Diego saw its population increase by more than 300,000.[3] As a result, today the city is starkly underserved in comparison to a city like Denver, which has about the same number of cabs serving a population approximately half San Diego’s size.[4]

For decades, San Diego’s closed system has enriched the lucky few who hold taxi permits at the expense of the city’s many hardworking taxi drivers and their customers. A 2013 study found that because of the regulatory scheme, a staggering 90% of taxi drivers had to lease their taxicab and permit—often despite having the resources to buy their own.[5] According to the study, drivers median income was less than $5 an hour under this system. Drivers work at the mercy of permit owners, who sometimes required them to drive when sick, tired, or even when their vehicle was unsafe to drive.[6]

The city’s system of limited permits made taxi permits extremely valuable. Owners can sell their permits for upwards of $140,000 on the secondary market.[7] This system was based on two bad ideas: that bureaucrats should decide how many taxis San Diego needs and that the city should keep everyone else from competing with those taxis. This system has meant there are fewer cabs on the road than San Diego actually needs, and it has trampled on the rights of hardworking taxi drivers to earn an honest living.

The City Lifts the Cap

A successful taxi business should require two things: a taxi and a solid work ethic—not special permission from the government. The United Taxi Workers of San Diego (UTWSD) realized this, and in recent years they spearheaded a lobbying and public relations campaign to lift the city’s arbitrary cap on the number of taxi permits.[8] IJ consulted with the city on numerous occasions, as well. Finally, on November 10, 2014, the UTWSD finally succeeded when the city removed the cap by an 8 to 1 vote.[9] The city’s decision is now being implemented by the Metropolitan Transit Service (MTS), which is in charge of the day-to-day administration of the city’s taxi policies.[10]

Two Men Driving for Success

The city’s removal of its permit cap will benefit IJ clients Abdikadir “Abdi” Abdisalan and Abdullahi Hassan, both of whom are longtime taxi drivers who want to go into business for themselves.

Both Abdi and Abdullahi immigrated to the United States in the 1990s, after fleeing the civil war in their native Somalia. Both Abdi and Abdullahi, who are U.S. Citizens, are married with children and work six or seven days a week to support them. Abdi’s wife is currently attending nursing school, while Abdullahi’s family lives abroad while he works to bring them to San Diego.

Abdi pays $400 per week to a permit owner, and Abdullahi pays $300 per week, just to lease a permit and car. Due to the cap, neither of them has ever had a realistic opportunity of owning their own permit. In effect, they are in debt to their permit owners the minute they start working each day, and they risk losing their leases if they take even a single day off of work. If that happens, it can take months to find a new lease.

Abdi and Abdullahi were overjoyed when the city voted to lift the permit cap. Both men filed letters of intent with MTS the first week that they could, in early March 2015. These letters of intent secured their place in line to receive new taxi permits once the MTS starts processing applications, which is expected to begin in June 2015 . They have both registered business names—Abdi will operate “Adam Cab,” and Abdullahi will operate “Kisima Cab”—and they have arranged financing to buy the low or zero emission vehicles that the city requires for new taxicabs. They are eager to receive the permits that they have applied for, and they are confident that they can earn a good living once the government lets them get to work for themselves.

Taxi Companies Ask for a Roadblock

Neither the Constitution nor California law require San Diego to enforce nineteenth-century regulations in a twenty-first century world. But those who dominate San Diego’s taxi industry want to preserve their dying market advantage at any cost. That is why they have filed a baseless lawsuit to stop the new permitting process from going forward.

On March 13, 2015, a group representing the owners of more than 60% of San Diego’s existing taxi permits sued the Metropolitan Transit Service (MTS) in San Diego County Superior Court. Their lawsuit is designed to do one thing: stop the new permitting process. The permit owners claim that the new permitting process constitutes a “taking” of their property, and they argue that MTS must perform an environmental-impact study before following through on the city’s decision to lift the permit cap—even though MTS will only issue new permits for low and zero emission vehicles, while it has grandfathered the permit owners’ older, gas-guzzling cabs.

The permit owners don’t care about the environment; they care about new competition, and that’s not what the California Environmental Quality Act (CQEA) was designed to address.[11]

The permit owners’ lawsuit is baseless. They argue that MTS, not the city, has control over taxi policy. But California law requires cities, not agencies, to set taxi policy,[12] and the agreement under which MTS enforces the city’s decisions is perfectly legal.[13] No California court has ever held that a simple administrative taxi regulation is subject to CEQA, and the California Public Utilities Commission has ruled that the state’s decision to allow an unlimited number of ridesharing vehicles like Uber and Lyft is not a decision subject to CEQA.[14]

As for the losing theory that the decision to lift the cap is a “taking,” the Institute for Justice—the leading law firm in the fight against eminent domain abuse—knows better. Neither the U.S. nor California constitution requires the government to deny others an occupational license—in this case, a taxi permit—that it has given to you.[15] That’s called protectionism. No one has the sole right to operate a taxi business. San Diego’s taxi reforms open the door to exactly the kind of entrepreneurial opportunities that cities should be welcoming, and there’s absolutely nothing unlawful about that.

Institute for Justice: Over Two Decades of Protecting Transportation Freedom

Founded in 1991, the Institute for Justice is the national law firm for liberty.

IJ engages in cutting-edge litigation and advocacy to defend individual rights nationwide. This challenge to defend transportation freedom in San Diego follows the Institute’s 2013 victory in Milwaukee, where the city’s ordinance imposing limits on the number of cabs was declared unconstitutional. IJ is currently defending against a nearly identical legal challenge brought by Milwaukee’s permit owners in an effort to reverse that the lifting of the city’s cap. The Institute is also representing transportation entrepreneurs against unreasonable regulations in Chicago, Portland and Tampa. In the past, IJ has defeated protectionist transportation cartels and regulations in Denver, Minneapolis, Las Vegas, New York and Nashville.

The Litigation Team

CASE TEAM

Abdi and Abdullahi’s case is being led by Wesley Hottot, an attorney based in IJ’s Washington office. He is joined by Keith Diggs, from IJ’s Arizona office, and by local counsel Julie Hamilton, an experienced environmental attorney from San Diego.

For more information, please contact:

 J. Justin Wilson
Director of Communications
Institute for Justice
(703) 682-9320 ext. 206
jwilson@ij.org

[1] Removing the Current Limitation on the Number of Taxicab Permits 1 (Office of the City Attorney of San Diego Aug. 26, 2014), http://docs.sandiego.gov/memooflaw/ML-2014-9.pdf.

[2] Id.

[3] See San Diego QuickFacts, U.S. Census Bureau, http://quickfacts.census.gov/qfd/states/06/0666000.html (last updated Mar. 31, 2015) (showing current population of approximately 1.356 million); San Diego City and County Population, San Diego History Ctr., http://www.sandiegohistory.org/links/sandiegopopulation.htm (last visited May 6, 2015) (showing historical population).

[4] See Denver QuickFacts, U.S. Census Bureau, http://quickfacts.census.gov/qfd/states/08/0820000.html (last updated Mar. 31, 2015); Bruce M. Schaller, Entry Controls in Taxi Regulation, 14 Transport Pol’y 490, tbl.2 (2007), available at http://www.schallerconsult.com/taxi/entrycontrol.pdf.

[5] Jill Esbenshade et al., San Diego State Univ. & Ctr. on Policy Initiatives, Driven to Despair: A Survey of San Diego Taxi Drivers 2 (2013), available at http://onlinecpi.org/driven_to_despair.

[6] Id. at 6–7.

[7] Id. at 8.

[8] Lift the Cap Archives, United Taxi Workers of San Diego, http://utwsd.org/category/lift-the-cap. Lee McGrath, IJ’s Legislative Counsel, advised the UTWSD and the City on the legality of lifting the cap.

[9] San Diego City Council Eliminates Cap on Number of Taxi Permits Issued, KPBS (Nov. 10, 2014), http://www.kpbs.org/news/2014/nov/06/protests-expected-city-council-taxi-permit-plan.

[10] David Garrick, MTS Oks End of Cab Permit Limit, Union Trib. San Diego (Feb. 12, 2015), http://www.utsandiego.com/news/2015/feb/12/taxi-cap-limit-lift-medallion-cab-regulate.

[11] Cal. Pub. Res. Code §§ 21000 et seq.

[12] Cal. Gov’t Code § 53075.5.

[13] Cal. Pub Util. Code § 120266.

[14] Order Instituting Rulemaking on Regulations Relating to Passenger Carriers, Ridesharing, and New Online-Enabled Transportation Services, No. 14-04-022, at 2–4 (Cal. Pub. Util. Comm’n Apr. 14, 2014), available at http://sfcda.org/CPUC/CPUC_Order_Granting_Limited_Rehearing4.10.14.pdf.

[15] See Minneapolis Taxi Owners Coal., Inc. v. City of Minneapolis, 572 F.3d 502, 506–09 (8th Cir. 2008) (holding that there is no property interest in “the closed nature of the City’s taxicab market”); Rogers Truck Line, Inc. v. United States, 14 Cl. Ct. 108, 111 (holding that a common carrier designation “d[oes] not give plaintiffs a constitutionally protected freedom from competition”); (“California courts have consistently held that taxicab drivers do not obtain any vested right in the grant of permission to operate taxicabs on the public roadways.”); Luxor Cab Co. v. Cahill, 21 Cal. App. 3d 551, 558 (Ct. App. 1971) (holding that the issuance of new taxi permits does not impair any vested right of existing permit holders), cited with approval in Cotta v. City & Cnty. of S.F., 157 Cal. App. 4th 1550, 1560 (Ct. App. 2007). The Institute for Justice represented the intervening taxi drivers in Minneapolis Taxi Owners.

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