Taxi owners take fight over now-worthless medallions to top New York court

ALBANY (CN) — New York City is home to the nation’s largest taxi industry, with more than 13,000 medallions, the numbered metal plate that allows New York City taxi drivers to ply their trade.

Just before the medallion bubble burst in 2014, these medallions were going for around $1 million at auction. The shift was accelerated in large part by competition from the emerging ridehailing industry, which has made it so that now just about any private vehicle can operate as a taxi by way of smartphone apps like Uber and Lyft.

New York City's Taxi and Limousine Commission faced a wave of litigation after is first ridehail rules were codified in 2015. The class action that made its way to Albany on Tuesday comes from medallion owners who say the commission, as a regulator, had a duty to intervene to thwart the growth of the nonconforming e-hailing apps ahead of the medallion sales, and neglected to preserve or enhance the value of those medallions.

A trial judge threw out the case, and an intermediate appeals court — the Appellate Division, Second Department — affirmed.

Jesse Townsend, senior counsel at New York City Law Department, told the Court of Appeals, New York's highest judicial authority, to rule as the lower courts did, saying the cab operator in this case “got the medallions he paid for.”

“Taxis have a monopoly on street hails,” he said, differentiating the yellow taxis from the prearranged rides offered by so-called “black cars.”

Judge Rowan Wilson interjected: “You do understand why they feel duped, no?”

“I mean, you think they walked into this with their eyes open, that it was their fault,” the judge asked. “You don’t think if that they had known what they know now, they would have struck the same deal?”

“I think that they’re disappointed and that’s fair, your honor,” Townsend replied. “Certainly Uber entering the NYC market, and markets globally, had a huge impact but that wasn’t covered the implied covenant here."

In a brief, the city argued the TLC “expressly warned that it made no representations or warranties about the data; that the data could be misleading due to the exclusion of transactions that were not arms-length; and that the data ‘should not be relied upon’ as an indication of future medallion prices or for the suitability of medallions for investment or business purposes.”

Represented by Mark Rifkin at Wolf Haldenstein, the medallion owners seek a reversal so that they can sue the city for breach of contract and violations of New York’s General Business law. Rifkin told the high court Tuesday that the Taxi and Limousine Commission “radically changed the landscape” by allowing “non-conforming black cars primarily owned by Uber and Lyft to flood the city streets” into the market to compete against the yellow cabs for which they just sold those medallions.

“The 2014 factbook that the city published didn’t even mention Uber, didn’t even mention Lyft, didn’t even mention e-hailing, none of this," he told the panel of six. "None of this was even considered by anyone to be market conditions as they existed at the time city set the upset price for medallions that were sold.

“This was a radical change," Rifkin continued. "It was not within the history of the parties. It was not within the regulatory prerogative of the TLC to do it. And if we’re going to leap to the conclusion that it was, it certainly requires that the issue be explored factually and be developed — not appropriate for a motion to dismiss.”

Rifkin said the city failed to abide by its own regulations on the taxi industry. “Specifically, the TLC never disclosed that it would permit the market to be flooded by tens of thousands of Uber and Lyft vehicles, or that it would license black cars and bases even if they did not qualify for licensure,” he wrote in a brief for the taxi owners.

The panel did not immediately rule on the appeal on Tuesday afternoon.

In October 2018, after a spate of driver suicides, the Taxi and Limousine Commissioner waived nearly $20 million in fees owed by taxicab owners in an effort to ease their financial burden caused by the ride-hailing apps.

The City Council had approved a one-year moratorium two months earlier on new licenses for for-hire vehicles while the city studied the rapidly changing industry.

In February 2020, New York Attorney General Letitia James sent a notice of claim to the City of New York for $810 million, saying it had falsely advertised the value of the now-worthless taxi medallions. James quietly backed down from bringing a suit the following year.

Last year, the city announced a debt relief program that would restructure loan burdens for 3,000 drivers who owe an average of $550,000 down to a maximum of $200,000.

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