By Matthew W. Daus, Esq.
Partner & Chair, Transportation Practice Group, Windels, Marx

On June 1, 2012, Justice Arthur F. Engoron, of the NY State Supreme Court, threw a spoke into the wheels of New York City’s (NYC’s) street hail livery plan and yellow taxicab medallion sale. Justice Engoron, a former taxi driver himself who shared many of his driving experiences and stories during the court proceeding, is a fair jurist who I am confident will apply the facts to the law objectively and expeditiously.

I was present at the proceedings along with members of my law firm, and have studied and analyzed all the briefs in the case. I know the lawyers on all sides of the case, including both my former supervisor and mentor Randy Mastro (one of the top litigators in the country) representing the industry, and the City’s attorney Robin Binder, who formerly represented me in numerous lawsuits.

The future does not look bright in the courts for the City as the Judge issued a Temporary Restraining Order (“TRO”) prohibiting it from issuing street hail permits or “from implementing any aspect of the subject legislation” until a final decision is rendered.

The Judge found that the industry plaintiffs[2] showed a substantial likelihood of success that the entire law would be invalidated as the State Legislature passed the law without a “municipal home rule” message from the NYC Council. In the Judge’s decision, he referenced the “poison pill provision” in the law which states that if any part of the law is found to be invalid the entire law will be thrown out.

Our firm first discovered this “poison pill” provision that was inserted into the final draft of the legislation, and we informed the public in March 2012 via an article authored about the new law.[3]

It remains a mystery how and why the legislature inserted the language, and who was lobbying for it. This article will describe, in detail, the various aspects of these lawsuits, assess the strength of the various legal claims, and predict what will happen next as all of our industries are sitting on the edge of their seats watching and waiting.

The “Home Rule” law’s origin comes from the New York State Constitution,[4] which provides that the State legislature shall be allowed to pass laws that affect local matters at the request of 2/3 of the local legislature (here the NYC Council) or on request of the chief executive and a majority of the local legislature.[5] This claim is very strong as taxi and livery industry regulation and oversight has been a “City matter” for 75 years[6] and the Street Hail Livery Law was enacted without any input from the City Council.[7]

In order for the State to pass a law without local input or a home rule message as happened here, the State law must further and bear a “reasonable relationship to a substantial State wide concern.” The industry contends there is no substantial state interest to justify the State Legislature acting without a Home Rule message because, inter alia, the Street Hail Livery Law is not part of a comprehensive plan to affect NYC’s transportation system.[8]

In New York, government entities must conduct a thorough review of the impacts, environmental and otherwise, of proposed projects as set forth in the State Environmental Quality Review Act (“SEQRA”) and the City Environmental Quality Review (“CEQR”).[9] The issue here is that the TLC conducted an environmental review for the 2,000 accessible yellow taxicabs, but not for the 18,000 Street Hail Livery vehicles.

The City points to a section of the Street Hail Livery Law which states that the TLC will “not be required to engage in any review;” however, there is no mention of specifically dispensing with environmental assessments required by SEQRA or CEQR.

It is longstanding policy under SEQRA that environmental reviews should be upheld unless there is explicit language expressing the intention not to conduct such a review and there is no clear or express intention demonstrated in the Street Hail Livery Law.[10]

While there are arguments on both sides of this issue and it can go either way, I believe the major weakness for the City’s case is that it claims it does not need to conduct any review, yet it went ahead and did so for the sale of the 2,000 medallions. This may be viewed as an illegal “segmentation” under SEQRA. If we just step back and employ some basic common sense it does appear inconsistent to conduct an environmental review for a 15% increase in the taxi fleet, and not to do a review for a 40% or more conversion of FHV permits to street hail status.

Today’s efficient and direct point-to-point prearranged service is expected to change under the new law to allow up to 18,000 livery vehicles to clog congested areas of the other boroughs by cruising for fares in congested areas causing more traffic and emissions due to increased vehicle travel. Separate and apart from the statutory interpretation issue, the industry has a very strong argument under Article 78 that the failure to conduct said review for the livery vehicles is arbitrary and capricious.

Another inconsistency, which remained unmentioned by the lawyers in the case, is the fact that, for many years now, the TLC has required all new livery base applicants to conduct an environmental assessment in order to obtain a license.

From left to right, James Carroll (City Livery), Eric Pearlman (Universal Payments), Matthew Daus (Windels Marx, Partner), Tim Brogan (AssureNet), Chris Brogan (AssureNet), Erasmo Taveras (City Livery), and Larry Clake (City Livery) to celebrate the opening of City Livery's Brooklyn Office and the delivery of the first wheelchair accessible green boro taxi from Freedom Motors.

A third claim is that the Street Hail Livery Law violates the Takings and Due Process Clauses of the New York State Constitution[11] because the addition of 18,000 hail permits will deprive medallion owners and lenders of the exclusive right for which medallions were purchased and of the value of such property rights.

Case law states that it does not matter whether medallion owners have been entirely deprived of an economically viable use.[12] Rather, to constitute a taking, it is sufficient to show that any one of those rights has been impaired “without regard to its comparative value in relation to the whole.”[13] When the government makes certain promises, such as representations as to a medallion’s value or exclusivity, it must provide just compensation when it alters such rights.[14]

However, the City has a good argument that at this point, the industry’s potential losses are speculative, and that even if medallion values were to drop, this would not be sufficient to demonstrate a facial takings claim. This argument requires a showing that the law would render the industry entirely unprofitable and result in defaults by most medallion owners on their loans. In short, an economic injury has yet to occur as medallion values have not plummeted since the passage of the Hail law.

While the claim is not yet ripe for determination at this time, if the TLC does not effectively enforce the law if and when it is implemented, a regulatory takings claim may have legs if cash flow for medallion owners suffers due to lost revenue and shifts.

Another claim is that the proposed Street Hail Livery Law violates the Exclusive Privileges provision of the New York State Constitution,[15] which provides that the “legislature shall not pass a private or local bill granting any private corporation, association or individual any exclusive privilege…” Only certain existing livery vehicle owners, drivers and bases in good standing may participate in the Street Hail Livery program.

Several medallion owners claim that they want to purchase a Street Hail Livery license but are precluded from doing so because they are not current livery drivers or livery vehicle owners. This constitutional provision was intended to guard against the possibility that the legislature might pass a law to benefit an individual rather than a class of individuals. Thus, while the policy of prior licensure and limited street hail permit ownership may be misguided, it is doubtful that the policy would be deemed illegal for this reason.

The first ever graduate course in for-hire transportation policy was offered at City College of the City University of New York this year taught by Distinguished Lecturer Matthew Daus. Above, students participate in a mock Taxi and Limousine Commission (TLC) public hearing held at the Grove School of Engineering to debate the current issues involving the livery street hail plan.

Left to right are: Professor Daus, TLC Commissioner LaShann DeArcy, TLC Deputy Commissioner for Public Affairs Allan Fromberg (who served as honorary TLC Chair), and former TLC Chief of Staff and Black Car Fund Executive Director Ira Goldstein.

The City has numerous arguments that some of the industry plaintiffs do not have “standing” or affected rights to bring their lawsuits or certain claims asserted therein. The City claims that the City Council, not private fleet owners or lenders, may assert a “home rule” claim; however, Council Member Lew Fidler has joined one of the lawsuits. Likewise, the City argues that only medallion owners and not lenders have standing to assert the environmental claims, and that neither can do so because their harms are speculative, purely economic and lack evidence of environmental harm.

This threshold issue was sidestepped by the Judge in his TRO decision which indicates to me that standing will probably not be an issue among the many overlapping parties and claims to this proceeding.

The doctrine of “laches” or “unclean hands” is often asserted where the party requesting an injunction did not act swiftly but waited until the last moment to prejudice the opposing party. Here, after hearing arguments, the Judge stated from the bench that he would “not worry about the laches” argument presupposing that he is going to rule that the industry was simply waiting for the TLC to implement the plan by starting to accept street hail applications before seeking a TRO.

Justice Engoron has issued a schedule for the Plaintiffs and Defendants to submit additional legal briefs which were all finally due by June 19, 2012. There will be no additional oral argument, and a decision will be issued “with all deliberate speed” according to the Judge. It is anticipated that by late June or early July, there will be a final decision. Currently, it appears as though the City is issuing conflicting statements as to its next steps in the litigation. On the one hand, we have heard the City state that it would not appeal the order. Yet subsequent statements made by Mayor Bloomberg indicate that the city would in fact pursue an appeal.

It appears that the tide is against the City in this lawsuit. The bad news for the City is that when a party prevails on a TRO application, that party also usually wins the preliminary injunction. In this case, the “home rule” claim is very strong, so much so that the Judge, rather than taking more time to decide, halted the implementation of the law based on a combination of this claim and the “poison pill” provision although one could argue that the entire law, if passed in a flawed manner, did not need the “poison pill” to fail.

It is hard to say how the Judge will rule on the environmental claims; however, I believe, irrespective of whether an environmental study is required, the Judge may find the use of such studies for medallions and not street hail livery permits to be inconsistent. Because they are supposed to be operating exactly the same way, meters, GPS, same fares, etc., the Judge may find such actions to be arbitrary and capricious, and the City is likely to lose on that point.

On the takings claim, I believe the Judge will find for the City, as imminent harm is speculative given the strength of medallion prices since the law was passed, as well as the fact that a medallion fare increase appears imminent. The standing and laches arguments I believe will be overlooked. In sum, it is highly unlikely the City will prevail in the lower court, or on any subsequent appeal.

I believe the loss in this case is just one battle in the war between the government and the industry where the industry bought more time and gained significant leverage. The war is far from over, and it is possible a peace treaty or truce can result. There is a $1 Billion budget pothole which the Governor, the Mayor, the State and Local Legislature are now faced with which needs to be filled. That is the impetus for action on the political and legislative front.

First, one must realize that at least for now, the lawsuit victory the industry won by stopping the law’s implementation may be rendered moot by the government taking subsequent remedial actions, such as:

If a new State law is sought, it is very possible it will not look identical to the first law. The federal litigation involving the Americans with Disabilities Act (ADA) still looms large and it is highly likely that any revised version of the bill will require more or all livery permits and medallions to be wheelchair accessible. There are also pending proposals for fare increases and leasing rule changes before the TLC which cannot be realistically viewed separate and independent from the lawsuits.[16]

In my view, having seen similar issues play out over my 14 years at the New York City Taxi Limousine Commission where I served for over 8 years as Commissioner/Chair and for over 5 years as TLC chief legal counsel, it is possible that the lawsuit and the fare increase will be dealt with together. So, in exchange for withdrawal of the lawsuit, the medallion owners and lenders could obtain an appropriate lease cap increase, a fair rate of fare increase for the drivers, and specific enforcement commitments or other changes.

The leverage the government has is to correct the deficiencies by passing a new law and conducting an environmental study to make the primary lawsuit claims moot. The industry’s leverage is to refuse to give in under any circumstances as they have bought more time and are in the driver’s seat right now. Either way, something is bound to happen as part of the political process as it has to. The stakes are too high, and the Mayor is now threatening city worker layoffs. Let’s watch and see what happens next.

Certainly, one opportunity for the public to ask questions directly of the various legislative stakeholders on what will or should happen next was on June 26th, when our firm sponsored a Legislative Forum on these and other issues which was held at Baruch College Conference Center, 151 East 25th Street, 7th Floor, NY, NY from 9:30 am to Noon. I moderated a panel discussion with the street hail law’s original sponsor, NY State Senator Marty Golden, accessibility trailblazer Assemblyman Micah Kellner and NY City Council Transportation Committee Chair James Vacca.

1. Disclaimer: These comments are intended to be for information purposes only and should not be taken as legal advice. Prior results do not guarantee a similar outcome.

2. There are three lawsuits that were commenced in State court and which all were assigned to Justice Engoron: (1) the Metropolitan Taxicab Board of Trade (the “MTBOT”) on behalf of medallion owners and NYC Councilman Lewis Fidler; (2) the Taxicab Service Association (the “TSA”) on behalf of various credit unions; and (3) the Greater New York Taxi Association (the “GNYTA”) representing medallion owners, many of whom own accessible medallions. In essence, many of the legal arguments in all three lawsuits overlap.

4. The New York Constitution Art. IX, §2(b)(2) stands for the proposition that the State Legislature may infringe on New York City’s government, affairs, or property through the enactment of a “special” law (a law directed at New York City alone) only if (1) the City Council issues a home rule message calling for such action, or (2) the Legislature’s enactment “bears a reasonable relationship to a legitimate, substantial, statewide concern.”

7. The Plaintiffs also note that the State has also imposed an unfunded mandate on the City to fund and provide financial support for Accessible Street Hail Livery vehicles. In fact, the TLC has requested an additional $54 million in its proposed Fiscal Year 2013 budget to provide up to $15,000 for each Accessible Street Hail Livery vehicle as required by the State law.

10. See County of Cortland v. Comm’n for Siting Low-Level Radioactive Waste Disposal Facilities, 552 N.Y.S.2d 511, 513 (Sup.Ct. Albany County 1990).

12. Seawall Assocs. V. City of New York, 74 N.Y.2d 92 (1989). The plaintiffs claim the statute is also invalid as applied to medallion owners because it will greatly reduce the value of their interest in yellow taxicab medallions (estimated to reduce value anywhere from 29% to 54%. Investment-backed expectations will be thwarted by the Hail Law, such expectations are the result of the City’s multiple and continuous representations with respect to medallion value and promised exclusivity.

16. The TLC has already heard testimony concerning fare increases and changes to the lease caps at its meeting on May 31, 2012. The TLC has just published its proposed changes on its website and has announced that these items will be on its agenda for the meeting scheduled on July 9, 2012. Along with fare increases, the proposals also include a 6 cent per trip allocation for driver health care and disability insurance, authorize a lease cap surcharge for gas, and create a new class of lease: the Standard Medallion Lease.