[February 06, 2014]

City of Chicago Hit with Federal Lawsuit over Unlicensed Taxis

The growing national battle to curb unlicensed and unregulated taxi providers took a new direction today when a group of Chicago taxi owners, drivers and the Illinois Transportation Trade Association (ITTA) filed a federal lawsuit against the City of Chicago. The lawsuit, the first in the nation against a city, claims that by failing to enforce its own rules for taxi services, Chicago is jeopardizing public health and safety and exposes the city to billion-dollar potential damages.

The suit, filed in the United States District Court for the Northern District of Illinois, alleges that the City has allowed unlicensed taxi companies such as UberX, Lyft, and Sidecar to create an unprecedented, discriminatory system for taxi services:

• Where only relatively affluent passengers with both smart phones and credit cards can obtain service, and then only if the driver chooses to serve their neighborhood;
• Where the unregulated companies can charge whatever rates they like, including so-called "surge pricing" of up to 8 times normal rates;
• Where safety rules - including requirements that drivers and companies be fully licensed, submit to a full city-administered criminal background check, carry commercial insurance to cover passengers and pedestrians, and drive only newer, city-inspected and regulated vehicles - do not apply.

According to the lawsuit, the City is allowing the unlicensed taxi companies to discriminate against vulnerable individuals and communities, slash City tax revenues and seriously damage individuals and businesses who have invested in purchasing the medallions required by law for taxi operations. The unregulated companies operate without complying with the hundreds of City regulations that apply to the icensed taxi industry and without paying the required taxes.

"We sued the City because it is discriminating against taxi owners who have played by the rules, paid their taxes and complied with safety and licensing requirements while the City allows the unregulated companies - who provide identical services - to make up their own rules," said noted Chicago attorney, Michael Shakman, who is representing the plaintiffs. "This lawsuit is about whether low-income areas and people with disabilities are going to be left without taxi services. Taxi companies welcome new technology and competition. Chicago taxi owners already have smart phone applications that connect customers with licensed, regulated drivers - while not ignoring those without them. But people providing identical services should be held accountable to the public under the same rules."

The unlicensed companies readily admit they do not comply with local laws and only enter marketplaces after a period of non-enforcement by authorities. Other cities including New Orleans, La., Portland, Ore., Miami, Fla. and Austin, Tex., have not allowed them to operate unless they comply with local consumer protection ordinances, licensing, and safety regulations. City officials in Dallas, Tex. and Seattle, Wash. have proposed regulations to bring the companies into compliance.

Unlike the requirements imposed on the taxi industry, the city currently allows the unlicensed taxi companies to:

• Operate without liability insurance coverage for drivers, passengers and pedestrians (including commercial public liability coverage, property damage coverage and workers compensation);
• Drive uninspected vehicles;
• Use vehicles with no age limitation and no regard to fuel efficiency;
• Use untrained drivers without criminal background checks or chauffeur licenses;
• Engage in price gouging with "surge pricing" rather than adhering to prices set by the city using sanctioned meters;
• Ignore calls from underserved and minority neighborhoods in the city;
• Not provide accessible vehicles for people with disabilities;
• Refuse to accept cash or Taxi Access Program (TAP) vouchers;
• Pay no taxes or annual registration fees;
• Operate without taxi-licensed medallions, which the city attempted to auction at a starting price of $360,000 each in October 2013.

The City of Chicago collects more than $24 million per year in taxes from the taxi industry. In contrast, the unlicensed taxi companies pay no taxes to the city, threatening a critical revenue stream at a time of ongoing economic recovery and budget deficits.

Yesterday, Mayor Emanuel introduced an ordinance in the Chicago City Council to impose some regulations on unlicensed taxi companies.

"The City's new proposal is bad policy and the City Council should reject it," Shakman said. "It would write into law an absolutely unnecessary, unfair and discriminatory separate taxi system created by these unlicensed companies. It does nothing to address major safety concerns, ignores the loss of millions in City tax revenues, and guarantees large liability to the City."

In 2012, several Chicago taxi companies filed a lawsuit directly against the unlicensed taxi companies. That case was also filed in the United States District Court for the Northern District of Illinois and is now in the discovery stage.

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