Oct. 11, 2016 – A taxi company with operations in Milwaukee argued that a new ordinance removing caps on the number of taxi permits available is a taking of private property requiring just compensation. A federal appeals court recently disagreed.
In Joe Sanfelippo Cabs Inc. v. City of Milwaukee, No. 16-1008 (Oct. 7, 2016), a three-judge panel for the U.S. Court of Appeals for the Seventh Circuit concluded that capping permits “created an oligopoly of taxi service in Milwaukee.”
“The theory of oligopoly teaches that the fewer the number of competitors in a market, the less vigorously they are likely to compete, preferring to share the profits than to fight with each other,” Judge Posner wrote. “In other words, they collude. …”
The suggestion that increasing the number of taxi permits available violates constitutional protections on private property, Posner wrote, “borders on the absurd.”
Taxi Permitting in Milwaukee
A Milwaukee ordinance, from 1992 to 2013, capped the number of taxi permits available by limiting renewals and prohibiting the issuance of new permits. Permits could be sold on the market, but the ordinance effectively reduced the number of operational cabs.
In 2013, two taxi cab drivers sued Milwaukee in state court, and the court held that the ordinance cap was unconstitutional on equal protection and due process grounds.
Plaintiff cab companies, including ones operating in Chicago, then filed a lawsuit in federal court under the Takings Clause of the Fifth Amendment. They sought “just compensation” for what they viewed as a “regulatory taking” of their property.
Before the cap was lifted, Milwaukee had a taxi cab shortage and taxi permits were selling for up to $150,000. The new ordinance allowed any qualified applicant to obtain a taxi cab permit, including drivers from ridesharing companies such as Uber and Lyft.
But allowing other competitors to enter the market did not amount to a taking of property (permit value) the three-judge appeals court panel concluded.
“The taxi permits issued by the Milwaukee city government are property, but have not been ‘taken,’ as they do not confer on the holders a property right in, amounting to control over, all transportation by taxis and taxi substitutes (such as Uber) in Milwaukee,” Judge Posner wrote.
“Undoubtedly by freeing up entry into the taxi business the new ordinance will reduce the revenues of individual taxicab companies; that is simply the normal consequence of replacing a cartelized with a competitive market,” wrote Judge Posner.
Judge Posner said the plaintiff, Joe Sanfelippo Cabs Inc., exaggerated claims that their business will be completely ruined if they have no right to derive value from taxi permits.
Buses, subways, bicycles, and taxi cab substitutes have not destroyed the taxi cab industry, Posner said. “Taxi cabs will not go the way of the horse and buggy – at least for some time,” he wrote.