Transportation Freedom Wins in Federal Court

J. Justin Wilson
J. Justin Wilson · October 7, 2016

Chicago—Today, the 7th U.S. Circuit Court of Appeals issued two groundbreaking decisions that serve to solidify the ability of cities to sweep aside outdated protectionist transportation regulations in order to make way for new entrepreneurs. Both cases were brought by taxicab companies upset that new regulations governing ridesharing and medallions allowed greater competition and disrupted their longstanding monopoly power.

“These cases clear the way for transportation freedom across the country,” said Institute for Justice Senior Attorney Anthony Sanders, who represented drivers and entrepreneurs in both cases who intervened to defend their economic liberty. “In city after city, we are seeing lawsuits like these filed by incumbent businesses that want to freeze the current regulatory environment in amber. For too long, cities across the country have embraced an outdated mode of transportation regulation that says competition is to be feared and that freedom for taxi drivers or other transportation entrepreneurs is unthinkable. Today’s rulings confirm that there is absolutely no legal barrier to other cities’ joining the rising wave of cities embracing transportation freedom.”

Writing for the Court in a case challenging Milwaukee’s removal of a cap on taxicab medallions, Judge Richard Posner opines:

The plaintiffs’ contention that the increased number of permits has taken property away from the plaintiffs without compensation, in violation of the constitutional protection of property, borders on the absurd. Property can take a variety of forms, some of them intangible, such as patents. But a taxi permit confers only a right to operate a taxicab (a right which, in Milwaukee, may be sold). It does not create a right to be an oligopolist, and thus confers no right to exclude others from operating taxis.

The first case originated in Milwaukee, where Joe Sanfelippo Cabs, long the largest taxicab operator in the city, filed suit claiming that the city violated both the U.S. Constitution and Wisconsin state law when it lifted a longstanding cap on the number of taxicabs it would allow to operate. The removal of the cap—which came about after a court declared the cap unconstitutional in response to a lawsuit brought by several local taxicab drivers represented by the Institute for Justice (IJ)—sparked a huge influx of new cabs, revealing long-suppressed demand for greater transportation options in the city. The second case comes out of Chicago, where incumbent taxicab operators sued the city for permitting ridesharing services like Uber and Lyft to operate; in that case, the plaintiffs asserted that city officials’ failure to go out and arrest ridesharing drivers violated the taxicab owners’ rights under federal and state law.

In both cases, IJ represented drivers and entrepreneurs who challenged the existing monopolies and intervened in these two resulting suits to make sure that their competitors did not succeed in using the courts to roll back these new expansions of economic liberty. And both cases came down to essentially the same legal question: Are cities allowed to remove outdated barriers to entry without first paying off an incumbent monopolist? And in both cases, the answer was a resounding yes.

In recent years, cities across the country—from San Diego, California, to Sarasota, Florida—have removed outdated protectionist laws. That wave of pro-freedom reform should only increase now that its legality has been validated by a federal appellate court.

“Today’s decision is a pivotal moment for transportation freedom,” said IJ Senior Attorney Robert McNamara. “It builds on a landmark victory IJ won more than 10 years ago in Minneapolis, and it represents the first time a federal appellate court has weighed in on the ridesharing revolution. With similar cases brought by entrenched interests in New York, Boston and elsewhere, we’re confident that today’s decision will lead the way toward greater economic liberty for transportation entrepreneurs across the country.”