Minneapolis Taxi Entrepreneur Wins Appeal

August 11, 2009

In July, the Institute for Justice scored yet another victory for both aspiring Minneapolis taxi entrepreneurs and their consumers. In that victory, a federal appellate court unanimously affirmed a district court’s dismissal of a lawsuit brought by members of the taxi cartel who sought to overturn Minneapolis’ free market reforms. The appellate court made it clear that the law cannot be used to cut off competition and to protect the cartel’s monopoly profits. This appeals court victory was especially important because if IJ’s views had not prevailed, the adverse decision could have been used to thwart free market reforms in other industries.

The Institute for Justice Minnesota Chapter intervened in this case on the side of the city of Minneapolis to defend its reforms that removed a cap on the number of taxis allowed to operate within city limits. The reforms, finalized in 2007, opened the market to entrepreneurs who are fit, willing and able to serve the public, increased the number of cabs by 180 in the coming years, and eliminated completely the cap on the number of cabs in Minneapolis by 2011.

IJ’s Minnesota Chapter drafted the initial proposed changes to the law, arranged for expert and grassroots testimony, and was the leading proponent of the 2007 reforms adopted by the city council to open up the taxi market to competition.

In response to the market-oriented and consumer-friendly reforms, the established taxicab cartel sued the city, demanding reversal of the reforms and arguing that its owners should be able to keep the spoils of the old law that excluded new competitors from the taxi market in Minneapolis for more than 10 years.

The cartel’s argument, if accepted by the Court, would have worked a radical change in American law. Under its theory, any time the government sought to ease entry into an occupation or profession, it would face financial liability to those entities that once profited from the artificial barriers erected to that industry. As a result, the regulatory status quo would forever be maintained, no matter how onerous or irrational the scheme had become.

Fortunately, the 8th U.S. Circuit Court of Appeals rejected this anti-freedom notion. It ruled that taxi licenses do not “provide an unalterable monopoly over the Minneapolis taxi market.” In rejecting the cartel’s “takings” argument, the Court further held that the “property interest that the taxicab-license holders may possess does not extend to the market value of the taxicab licenses derived through the closed nature of the City’s taxicab market.”

The Court recognized that the taxi cartel does not have a constitutional right to keep others out of the market so that the cartel’s members can maintain long-term profits arising from an artificially restricted markets. In contrast, if the Court had overturned the new law and re-imposed the old regime, entrepreneurs’ right to pursue a lawful occupation would have been violated.

Throughout this case, the Institute represented taxi entrepreneur Luis Paucar, who tried for nearly four years to provide service in Minneapolis. He received 22 licenses under the new law. All Luis ever wanted to do was to enter the market and compete. This appeals court victory ensures he will be able to keep and expand his start-up business even as it opens the doors for other entrepreneurs to compete. This victory also demonstrates the important difference between the principled pro-free-enterprise reforms that IJ advocates versus the pro-business protectionism existing companies often seek from the government.

Scott Bullock is an Institute senior attorney.

Subscribe to get Liberty & Law magazine direct to your mailbox!

Sign up to receive IJ's bimonthly magazine, Liberty & Law, along with breaking news updates about the Institute for Justice's fight to protect the rights of all Americans.