San Diego Cab Company Lawsuit Asks Court for Economic Protectionism

Arlington, Va.—On March 13, 2015 a group of San Diego taxi companies and their supporters sued the city’s Metropolitan Transit System (MTS) to block the issuance of additional taxi permits to drivers. The company’s lawsuit challenges a recently passed city ordinance that eliminates the cap on the number of taxi permits. MTS plans to begin processing new permit applications on April 1, 2015.

“The taxi companies’ lawsuit is baseless,” said Wesley Hottot, an attorney at the Institute for Justice (IJ). “There is no constitutional right to shut out your competition.  The companies’ lawsuit should be seen for what it is: self-serving protectionism. We worked with drivers’ advocates to help pass the new law and we anticipate continuing to work in San Diego to ensure that the market for taxis is free and open to competition.”

On November 10, 2014, the San Diego City Council voted 8-1 to lift controls on the number of taxi permits. The vote marked the first time in 30 years that the number of taxi permits will not be subject to a cap. Proponents hailed the historic vote as giving drivers the opportunity to become small business owners.

Prior to these reforms, San Diego capped the number of permits, currently around 1,000. A significant number of the city’s permits are owned by a small number of companies who lease the permits to drivers for a fee. Many drivers are forced to pay hundreds of dollars a month to use a permit in addition to expenses like gas and credit card fees.

“Permit owners don’t have a right to maintain a regulatory monopoly,” said IJ Attorney Keith Diggs. “Yet, that is exactly what the cab companies’ lawsuit argues. The companies want to stifle innovation and freeze the current permitting system in place. They aren’t concerned about the riding public; they’re concerned about their own pocketbooks.”

California law is clear that taxi permit owners do not have any right to freeze the value of their permits. In a 2007 case in a California Appeals Court, the court wrote: “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.”

“The Institute for Justice has a long history of protecting transportation freedom in the courts,” concluded IJ President and General Counsel Chip Mellor.  “We are no stranger to lawsuits like the one recently filed in San Diego; we defeated a similar lawsuit in Minneapolis years ago and continue to battle similar suits in both Chicago and Milwaukee. It is no surprise that established companies have repeatedly turned to the courts to demand a constitutional right to economic protectionism–and it is equally unsurprising that no judge anywhere in the country has ever agreed with these demands.  We expect a similar result in San Diego.”

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