 |
IN FOCUS |
|
by Matthew W. Daus, Esq.
President, International Association of Transportation Regulators
Distinguished Lecturer, University Transportation
Research Center, Region 2
Contact: mdaus@windelsmarx.com
156 West 56th Street, New York, NY 10019
T. 212.237.1106 • F. 212.262.1215
and
Jasmine K. Le Veaux, Esq.
Associate, Windels Marx Lane & Mittendorf, LLP
Contact: jleveaux@windelsmarx.com
156 West 56th Street, New York, NY 10019
T. 212.237.1112 • F. 212.262.1215 |
 |
 |
PASSENGER TRANSPORTATION NETWORK COMPANIES (TNCS):
LITIGATION MARATHON OR LEGISLATIVE SPRINT TO DEREGULATION?
When examining transportation technology providers today, transportation apps, or transportation network companies (TNCs), no matter the term you use, it is safe to say that the advent of so called booking technology in the transportation digital vernacular has disrupted the industry. It does not seem to be slowing down.
Since 2011, when TNCs first introduced operations in the U.S., members of the public, passenger transportation industry, and the regulatory community reacted fiercely; some with excitement, some with apprehension, and others with disdain. The latter is a result of what many perceive to be a blatant disregard for regulations some TNCs employ as the modus operandi of their businesses.
A tremendous amount of resources are being expended on lobbyists, lawyers and public relations professionals by disruptive smartphone app companies to create new licensing categories known as TNCs or a similar variant. Some posit that it is an attempt to legitimize the deregulation of the taxicab and limousine industries by allowing open entry to the market with reduced licensing standards. This includes self regulation by the TNCs and not the government.
The initial attempt in one of the original California proceedings was to avoid any regulation. Once regulators at the Public Utilities Commission made it clear that regulations could not be avoided, TNCs begrudgingly portrayed the ruling as a victory. The TNCs then sought to use their subjective interpretation of the rulings as a new legal excuse to justify their existence claiming that they represented part of a new “sharing economy” movement or trend taking place in the United States.
As a result of relentless flouting of existing laws, media saturation and lobbying, this fiction has become a reality as public servants and elected officials have come under pressure to legally legitimize for-hire transportation being conducted by Silicon Valley financed technology outfits. These companies quickly figured out that the process of introducing and negotiating such legislation, and any administrative proceedings associated with them, must become part of a relentless media cycle to obtain public relations attention for their services and brands.
For some government entities, new TNC legislation was necessary for political reasons in light of mounting public criticism, litigation, deaths and alleged crimes being committed by and with TNC vehicles. However, in consideration and in spite of these issues, many jurisdictions supporting TNCs and involved with creating new TNC regulations are claiming political victory by touting their “innovation” in allowing these TNCs to exist.
The respective jurisdictions have introduced their very own model legislation which they represent benefits the TNCs on the one hand while serving the public on the other. Each is trying to set the trend including Colorado, Seattle, Chicago and California as described below. All are trying to outdo each other as the innovator of the new licensing standard.
IATR President Matthew Daus delivers a lecture on NYC TLC regulations to L'Union internationale des transports publics (UITP) delegates. The meeting took place at the Windels Marx offices during the UITP Study Tour hosted by the International Association of Transportation Regulators (IATR). The delegates participated in site visits and lectures concerning the taxi cab industry in New York, then did the same on the second leg of the trip in Chicago.
UITP and IATR delegates listen attentively to educational programs in a conference room at the law firm of Windels Marx.
On the other hand, many jurisdictions, such as Cambridge, Massachusetts, have adopted the International Association of Transportation Regulators’ (IATR’s) model regulations to allow technology to exist in an accountable,
safe and fair way. To review these model regulations, developed by
regulators, see:
http://www.windelsmarx.com/resources/documents
/IATR%20Model%20Regulations%20(10890808).pdf
In Illinois, the Senate and House recently passed House Bill 4075, a consumer protection oriented ridesharing law that will, inter alia:
(i) define commercial ridesharing;
(ii) require that drivers performing commercial ridesharing services more than 18 hours per week apply and obtain a chauffeur’s license;
(iii) place vehicle retirement requirements on commercial ridesharing vehicles; and
(iv) prohibit ridesharing services from charging more for a ride than a taxi would be allowed to charge for the same ride.
This bill is currently before Illinois Governor Pat Quinn, and requires his approval before it becomes final.[1]
In Colorado, Governor John Hickenlooper signed Senate Bill 14-125 into law which recognizes TNCs as a separate category of passenger carriers and which sets forth certain requirements with which they must comply. For example, the bill specifies that the insurance policies of TNCs must be in place so long as the driver is on the application even if he has no passengers and is not yet on his/her way to retrieve one.[2]
The bill also requires that TNCs:
(i) make such coverage “primary” by January 2015;
(ii) obtain a state permit to operate; and
(iii) that TNC drivers pass a criminal background and driving history check.[3]
The Colorado Public Utilities Commission has been charged with promulgating further regulations that comport with the bill’s effort to welcome TNCs into the for-hire transportation market in the state.
Professor Daus (center right) receives a crystal taxi international friendship award from the UITP working group chairman, Abdullah Sultan Al Sabbagh from Abu Dhabi, UAE, on behalf of the IATR. The delegation, pictured here, includes representatives from Finland, Turkey, Malaysia, Singapore, Lebanon, and the UAE.
In California, the Commissioner of the state Public Utilities Commission (the “CPUC”) issued a proposed decision to modify Decision 13-09-045, entered in September 2013, which adopted rules and regulations for TNCs. These modifications specifically address the insurance issues that have arisen due to recent lawsuits in which a TNC driver has injured either a passenger or bystander during the course of TNC service.
The proposal to modify the Decision defines TNC services as whenever the TNC driver has the app open and/or available to accept rides from a subscribing TNC passenger. The proposed modifications also require that TNC permit holders:
(i) maintain $1 million commercial liability insurance;
(ii) medical payment coverage in the amount of $5,000;
(iii) comprehensive and collision coverage in the amount of $50,000; and
(iv) uninsured/underinsured motorist coverage in the amount of $1,000,000 per incident.
The proposed decision has no legal effect until it is heard and voted on as final before the CPUC. Although the earliest the decision could be heard was July 10, 2014, it is unlikely the CPUC will act before the California Legislature decides upon Assembly Bill 2293 – a proposed law that would require TNCs to provide commercial insurance once the driver activates the app. The bill has the support of insurance companies like Allstate, Geico, as well as the San Francisco International Airport, SF Municipal Transportation Agency and the Vice President of the Association of California Insurance Companies.
In Seattle, Washington, after months of negotiations with TNCs Lyft, Sidecar and Uber, as well as an intense mediation orchestrated by Seattle Mayor Ed Murray between the TNCs and the incumbent taxicab industry, the Mayor announced that the City had reached an agreement with the TNCs that will allow them to operate.[4]
Mayor Murray has also asked the Seattle City Council to repeal Ordinance No. 124441, a law that had been previously approved in order to regulate the TNC’s operations. Key provisions of the unofficial agreement that has been reached include:
(i) a requirement that TNCs and their drivers be licensed;
(ii) allowing for-hire drivers to have street hailing rights for the first time;
(iii) providing 200 new taxi licenses over the next four years and transitioning taxi and for-hire licenses into property rights similar to medallions in other cities; and
(iv) lifting the cap on the number of drivers and vehicles that a TNC may have affiliated with the company.
The agreement has been approved by the Seattle City Council and will soon go into effect.
Around the country the TNC movement involves:
- hiring practically every influential and high priced lobbyist and lawyer;
- making significant political campaign and other contributions; and
- using social media and grass roots political organizing efforts to inflate and exaggerate constituent support, all with the goal of both scaring and currying favor with elected officials who have the power to overrule professional government transportation regulators who secretly oppose these efforts.
This strategy plays into the hands of politicians who, by supporting innovation and technology and by attacking the incumbent taxicab industry, pretend:
- to be championing the consumer by helping improve the image of the city;
- appearing to be in sync with the times and the new generation of Millenial voters.
This political campaign type marketing strategy by the TNCs is embraced by elected officials who can solidify their political support, enhance their campaign coffers, and see their poll numbers rise until tragedy strikes or court rulings interfere with or change the course of public policy.
So what will happen next against this changing political, legal, and socio-economic landscape? The TNCs will most likely continue their efforts to deregulate the marketplace with new and evolving versions of these TNC laws.
With the clock ticking on the over 30 lawsuits that have been filed around the United States to date, and attempts to delay discovery and court proceedings reportedly taking place, it is just a matter of time before an unbiased judiciary may force evolution of the model in a different direction. These lawsuits include national class actions and have been commenced by every party possible:
- passengers,
- drivers,
- taxicab and limousine business owners,
- insurance companies, and
- government agencies and officials.
There are a plethora of legal claims under Federal and State laws that include:
(1) negligence and other torts, wrongful death and insurance coverage disputes involving personal injuries sustained by TNC passengers or pedestrians;
(2) labor law violations including the alleged conversion of driver gratuities, worker misclassification, and wage and hour violations asserted by TNC drivers;
(3) unfair competition, business practices and interference with business relations cases commenced by industry businesses who must be licensed and regulated;
(4) consumer protection and disability discrimination lawsuits commenced by government officials and the industry for illegal overcharging consumers;
(5) false and misleading advertising claims commenced by government officials and the industry;
(6) constitutional challenges to TNC legislation for violating the “Equal Protection” clause due to unfair and unexplained new TNC licensing category requirements, as well as “Regulatory Takings” of private property without “just compensation” (the effect of TNCs on taxi medallion property interest and other business property right devaluation or loss); and
(7) racketeering and other criminal or related civil actions based on corrupt business practices.
These theories are just the tip of the iceberg among many varied and proliferating lawsuits which will continue to be commenced in the future.
The goal of the TNC companies is to enter as many markets, big and small, and to obtain as many new customers and app downloads as possible, while also signing up as many vehicles and drivers for their networks that they can whether licensed or not. It is a mad race to establish a dominant market share until the TNCs are forced to stop by the courts or by a change in policy making by elected officials.
A common sense approach to TNC regulation is the most appropriate way to assess the outcome of these important regulatory issues. This might be accomplished by attempting to place one’s self in the objective and unbiased shoes of a judge, who is deliberating on legal theories and facts presented by everyone involved, with no stake in the outcome or attention being paid to media spin.
At the end of the day, with all the legal theories, briefs and legislation, the underlying facts being regulated are essentially the same: a passenger, getting into a vehicle, either pre-arranged or hailed by a smartphone app, and being transported from point A to B. There are no other variants or differences between traditional taxicab and limousine companies and the new breed of TNCs other than a smartphone app which is also being used by the traditional taxi/car service industry in a legal manner.
If laws that apply to taxicab and limousine companies, drivers and vehicles require:
- insurance,
- safety vetting, i.e., background checks, drug testing, driving record review, and other regulatory requirements such as
- fare regulation,
- permit limitations,
- emissions compliance,
- overcharging safeguards, and
- requirements to serve disabled individuals and under served communities,
then there must be an underlying public policy rationale that justifies having two sets of standards for transportation companies to include a second standard for TNCs. The second must be an equal standard or greater standard but not a lesser standard. Other than vague references to “innovation” and “sharing economies”, no logical rational basis for creating two classes of licenses has emerged.
Ultimately, this could serve as the legal fate of so called ridesharing companies who are really not sharing rides between old and new friends and colleagues, but co-opting the “ridesharing” parlance as a blatant marketing ploy for drivers to work for-hire without licenses. I believe it is highly unlikely the TNCs and disruptive app companies will win all or most of the dozens of lawsuits. Instead, while the wheels of justice turn slowly, there will come a day where final rulings either strike various provisions of the new TNC legislation or invalidate them entirely.
That will not be, however, the end of the issue. These companies have too many resources and investments at stake to stop and give up. They will return to the political and legislative process to attempt to comply with or evade such rulings. Even one or more rulings adverse to TNC legislation or companies could have a legal ripple effect on TNCs. Legal doctrines allow for facts and legal rulings, especially in federal claims, to be used as evidence or to resolve issues in other cases with similar parties, legal theories and facts. So, a cascading or snowball effect could occur quickly around the country with one or more strong or definitive case rulings against TNCs. However, remember, the appeals process is likely to be used by the TNC companies to further tie matters up in the courts for a while to come.
TNC legislation will likely be adjusted and tweaked with court rulings. If TNC legislation is invalidated, legislators may positively respond to lobbying efforts to reduce licensing standards for everyone. This includes incumbent industries and the new transportation network companies alike, thereby resulting in a form of deregulation which could be catastrophic.
Deregulation generally has not worked to improve safety or customer service around the world including efforts by the Reagan Administration in the United States, the Netherlands, New Zealand, Ireland and many other examples. How and to what extent deregulation happens will, unfortunately, be due partly to media events and politics. As well, future tragedies such as driver crimes and traffic fatalities, political events such as government inquiries, labor actions and other matters affecting public and political opinion will influence TNC legislation.
Meanwhile, government regulators amid this chaos will seek to continue to do their jobs as best they can with limited resources and support. One may view the current landscape as a for-hire transportation track and field event with basically two races going on, a long marathon of litigation and a short sprint of lobbying efforts to deregulate and pass TNC legislation. At some point both races will be over. It is unclear who will win or how spectators will feel about the results when they return home from the main event. Only time will tell.
3. Id.
Matthew Daus present award to his good friend NYC Human Rights Commissioner Patricia Gatling, as Woman of the Year.
Board Chair Matthew Daus (left) joins this good government group's President John Orlando (right) in presenting Pat Russo (center), Sr. Special Counsel at Windels Marx., with the NED Public Service Award.
© 2014 TLC Magazine Online, Inc. |