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Certification hearing

A Judge is now deliberating whether a proposed class action lawsuit against the City of Toronto for $1.7 Billion can proceed.

A group of Toronto taxicab owners and operators led by Lawrence Eisenberg, Behrouz Hadjnourollah Khamza and Sukhvir Thethi alleges the city failed in its duty to protect the investments and potential pensions of taxicab owners who bought and sold taxi licenses with the full approval of the city for decades.

Called a Motion Hearing, it was held to decide whether the class action suit brought by the Association of Taxicab Owners and Operators Limited, can proceed, held in Osgoode Hall on November 19, 2019 Judge Perell presiding, can proceed.

The plaintiffs were represented by Michael I. Binetti and Annie (Qurrat-ul-ain) Tayyab. The city was represented by staff lawyers Michele A. Wright and Matthew Cornett.

After the hearing one of the main plaintiffs, Eisenberg, commented that the legal process is too long and very expensive.

“It takes too long. People are going bankrupt and we can thank the City of Toronto for what we get,” he said bitterly.

Thethi commented it was “Our lawyer against another lawyer.”

Throughout the one-day hearing lawyers for both sides were peppered with questions from the bench, where he challenged various aspects of the cases and arguments presented, or requiring further explanation of the arguments.

The Plaintiffs allege the city repeatedly gave assurances that these investments would be secure and in fact profited from each license sale or transfer.

In the owners’ statement of claim, or Factum, they allege the city failed “to take the necessary steps to protect their investment into the Toronto taxi industry, a system that was created, fostered and dominated by the City.”

The city, on the other hand in opposing the continuation of the lawsuit, utterly denies responsibility for what it calls, essentially, the bad luck of plate holders, who are victims of market conditions, and had and has no “duty of care” to protect these investments.

As well, the City argued, the city has the right to create policy, even though that policy may disadvantage one part of society.

Binetti argued, “The City handed out taxi plates and referred to them as “pensions” to plate owners. Participants in the industry invested significant sums of money, sometimes hundreds of thousands of dollars for a single taxi plate on the basis that it could be bought and sold, or the income relied upon as a pension. All the while, the City was an active regulator and participant in the market for taxi plates, having created that market in the first place.”

He further said, and provided documentation confirming “it was important to recognize and consider owners’ investment in the industry if changes were to be made to the taxi industry. “

He notes, “The City recognized that owners deserved to be paid a fair return on their investment. The City also proclaimed that it had a legitimate expectation that its taxi by-laws would be respected.”

However when the app-based dispatch company Uber came on the scene, Binetti says, “At first, the City feigned indignation in 2014 with how Uber flouted the City’s rules by operating an illegal taxi service where riders were connected with unlicensed, uninsured, and untrained drivers who would drive riders to places that had otherwise been served by taxis at new cutthroat rates.”

He alleges, “In reality, the City did nothing to prevent Uber’s proliferation of illegal ridesharing in Toronto that would meet its stated objective that its by-laws be respected, or commensurate with its acknowledgement that plate owners deserve to be paid a fair return on their investment.”

Instead, Binetti said, by-laws were “ that legalized Uber’s illegal operations in 2016.”

Over the next two years, he said, between 2014 and 2016, “the value of taxi plates plummeted as the City refused to meaningfully enforce its by-laws.”

He further noted “Halfway through this period, City Council even passed a by-law and directed City staff to take all measures to ensure Uber’s compliance with the then by-law, which forbade Uber to operate.“

He says, “But staff took no such measures. They vacillated until the eventual passing of the Uber by-law in 2016. By that point, the damage had been done to the taxi industry.”

The Factum states, “This lawsuit seeks to hold the City to account for the actions it did not take.”

Discussing the history of taxi regulation in Toronto

Binetti alleged the market “has existed because there has always been a scarcity of plates as a result of the City having limited the number of plates in circulation.

He said Plate Owners would never have invested in the taxi industry absent plates having market value, the City has always been fully aware of this, upon the sale, transfer, or lease of plates, the City requires Plate Owners to disclose the price paid, Toronto collects fees of between $3,000 and $5,000 for each sale or transfer along with other fees for the lease of plates.

In a 1998 review of the taxi industry council approved several “guiding principles for that review, including that: (a) taxi drivers have the right to expect and demand a fair return for their labor; (b) Plate Owners have the right to expect and demand a fair return for their investment; and (c) the City has the right to expect and demand that its by-laws be obeyed.”

In another review of the taxi industry in 2012 City Council directed that “the taxicab economic viability and sustainability of the taxi industry be added as a fourth key principle of the Taxicab Industry review” in addition to the three staff recommendations, namely consumer protection, health and safety, and City well-being.

Binetti alleged in 2012 a similar app-based dispatch service, Hailo, got a municipal taxi brokerage license, operating until 2014.

But, he said, “Uber, on the other hand, did not obtain any licenses from the City and operated illegally.”

He notes, “In September 2014, Uber began operating a new service in Toronto called “UberX”. Binetti alleges “UberX connected passengers with unlicensed and uninsured vehicles for hire, rather than licensed taxis as Uber had previously done.”

So the allegation, in part, is that “The City was negligent in enforcing its bylaws, and in particular, Chapter 545, against the illegally-operating Uber. “

Further, “The City failed to take adequate measures to prevent UberX from expanding, failed to prosecute cases against UberX drivers or Uber for running the UberX service, and allowed the UberX service to operate with no oversight despite previous direction from City Council that its by-laws be enforced against Uber.”

The City applied for an injunction to stop Uber from operating in Toronto without a license in 2014, asking the court to prevent Uber from recruiting, contracting with, or registering drivers or vehicles that were not licensed.”

This application was dismissed by the court, saying Uber was not even required to be licensed under city bylaws.

The Factum states, “By that point, a year had passed and Uber continued to flourish.”

Calling it a “back-fill measure” Binetti said the bylaw was amended “to explicitly provide that technology-based brokerages such as Uber require a license and may only dispatch licensed taxis on September 30, 2015.”

Further, Council Municipal Licensing and Standards to “immediately implement and enforce Council’s decision, including if necessary, requesting City Council, through the City’s Budget Process, additional dedicated by-law officers to ensure adherence to this by-law”.

The allegation is that enforcement amounted to MLS “sending a letter to Uber asking it to stop operating, which Uber ignored by continuing to operate in Toronto illegally.”

The city, Binetti says, allocated “No meaningful resources” to implement Council’s decision.

This, he suggests, is “because MLS staff were always of the mind that the best way to deal with the problem was to licence, rather than resist, Uber.”

In July 2016, a new bylaw was passed to deal with vehicle-for-hire licensing, creating a new class of license for “Private Transportation Companies.”

This allowed Uber and other PTCs to operate legally in the Toronto for the first time.

The proposed representative plaintiffs are Lawrence Eisenberg, Behrouz Hadjnourollah Khamseh, and Sukhvir Thethi.

Eisenberg has been involved in the taxi industry in various capacities for over 55 years, including as a driver, agent, manager, and fleet operatorHe currently owns three taxi plates. He retired from driving taxis in 2010, and since then, has leased out his taxi plates.

Khamseh has been a taxi plate owner since 2002. He has two plates; he uses one plate to drive a taxi full time, and the other is rented out to a different person to drive.

Thethi has been a taxi driver since 1993. He received an Ambassador plate in May 2002, which was a class of license that the City offered between 1999 and 2016. In 2016, due to regulatory changes, Thethi’s Ambassador plate was converted to a standard plate. HE has one plate and drives it himself.

All three proposed representative plaintiffs are part of an organization called All Taxi Owners and Operators Ltd. (“ATOOL”).

The plaintiffs estimate that the proposed class consists of approximately 5,000 individuals, the approximate number of licensed taxis in Toronto.

Common issues are grouped into three categories: liability, causation, and damages.

In Ottawa Justice Smith of the Superior Court certified a similar class action on behalf of a class of Ottawa-based plate owners and taxi brokerages on January 16, 2018.

As in Toronto, Uber began operating illegally in Ottawa in 2014.

The Ottawa plaintiffs allege that the City of Ottawa is responsible for the loss of the value of their plates as a result of the “negligent” way Ottawa enforced its by-laws against Uber drivers.

The common issues listed above for the Ottawa action were reached by consent between the parties to that action. Initially, 18 common issues had been proposed, but in exchange for a narrowing of them, the City of Ottawa consented that a class proceeding was the preferable procedure for the action.

The Ottawa taxi lawyers tried to include Toronto in the action but were denied.

Binetti says, “The only issue on this motion is whether this action should be certified as a class proceeding. No other motions have been brought by the City.”

He then went into the certification as class action criteria arguing the filing meets legal requirements.

“There is clearly an identifiable class of two or more owners of taxi plates that would be represented by the proposed representative plaintiffs, “ he states.

The claims of the class members that the City was negligent raise common issues, it is the preferable procedure for the common issue resolution the plaintiffs would “fairly and adequately represent the interests of the class,” they have produced a workable work plan and do not have a conflict of interest with other class members.

He says law states the city has an “obligation not to provide assistance to a commercial enterprise such as Uber.”

He states “It is not “plain and obvious” that no claim exists, that no evidence this not admissible and the material facts pleaded by the plaintiffs are assumed to be true, “unless patently ridiculous or incapable of proof.”

Binetti says it is not “quite plain” that the alleged causes of action have “no chance of success.”

The fact is that the taxi position is “Quite the opposite, in light of the Ottawa decision” he states.

The Statement of Claim alleges that the City owed a private, or common law, duty of care to Plate Owners.

It says, the City initially made a decision to regulate the taxi industry in Toronto through Chapter 545, which limited the number of plates and imposed licensing requirements for Plate Owners.

MLS was then directed in 2015 to include Uber and other PTCs in its regulatory scheme by City Council. Subsequently, in 2016, the City decided to allow Uber and other PTCs to operate in Toronto.

“Once those decisions were made, the City owed a duty of care to those who may be injured by the negligent enforcement of the regulatory schemes,” the claim states.

Further it is alleged the City owes a duty of care, that it was in a relationship of sufficient foreseeability and proximity to establish a duty of care given its historical regulation and participation in the taxi industry; and there are no policy reasons why the duty of care should not be recognized against the City.

Supporting the claim of existence of this duty of care, are the existence of a long-standing regulatory scheme which limited the number of plates, while allowing the sale, transfer, or lease of those plates, the reliance of many taxi plate owners on the regulatory scheme and the City’s awareness of this reliance, and the City’s “knowledge, facilitation, and monitoring of, and at times benefit from, the secondary market for Plates.”

It is alleged “the City created conditions whereby a taxi plate became treated as both an investment and a form of security for retirement for Plate Owners, and it expressly acknowledged and adopted (in the 2012 taxi industry review) four principles – consumer protection, health and safety, City well-being, and the economic viability and sustainability of the taxi industry – for regulating the taxicab industry.”

He said the reason for limiting the number of plates “was to protect the reasonable earnings of Plate Owners.”

He said, “On a certification motion, the above facts must be accepted as being true. It was thus reasonably foreseeable that Plate Owners would suffer harm if the City did not enforce its own by-laws. It was also reasonably foreseeable that failing to enforce the regulatory scheme against Uber and other PTCs would impair the earnings of Plate Owners and depreciate the value of plates.”

The City was in a relationship of “proximity” with the Plate Owners in light of the “expectations, representations, reliance, and the property and other interests involved.”

Plate Owners reasonably expected the City to maintain, as it had for decades, the integrity of the regulatory scheme by enforcing its by-laws against PTCs and non-compliant persons offering vehicles for hire.

Plate Owners relied on the regulatory scheme to invest and grow their taxicab businesses.

“At worst, Plate Owners relied on the City to enforce its by-laws,” Binetti argued.

City staff knew that Plate Owners were relying on the value of the plates and the income derived therefrom for their present and future financial well-being.

Historically, the argument goes, City staff referred to plates as a “pension” for the Plate Owner’s retirement.

But when Uber came to town, City staff wanted to legalize its operations.

Together, these factors created the “close and direct relationship” between the City and Plate Owners that grounds the proximity necessary for a duty of care.

Whether or not the City had the discretion to enact a regulatory regime for taxis, once it chose to do so, it was responsible to enforce that regime, Binetti’s argument says,

He said Canadian courts have found that the voluntary assumption of responsibility by a governmental authority enhances proximity.

Binetti said, “The City failed spectacularly to enforce its own by-laws, despite Council having made an explicit and public decision to do so. “

He said, “The City cannot thus rely on any policy reasons to negate its prima facie duty of care.”

He argues, “The City erroneously pleads that it has no duty of care because the City “exercised its discretion to enact new regulations on the basis of political, social, and economic considerations that are not justifiable and any duty of care owed to the plaintiffs would be in conflict with the City’s duty to the public interest.”

But, Binetti said, the Ontario Court of Appeal “recently rejected the argument that discretion over law enforcement negates the existence of a duty of care.”

He says the case law makes it clear “ that once a government agency makes a policy decision to inspect, in certain circumstances, it owes a duty of care to all who may be injured by the negligent implementation of that policy.”

Further “The City was required to enforce the by-law that outlawed Uber “reasonably and in good faith” but failed to do so.”

The claim says two types of damage flow from the City’s alleged negligence.

First, Plate Owners lost value associated with the sale, transfer, or lease of their plates. Second, Plate Owners have lost revenue from the operation of their taxis.

Ontario law, Binetti argues, “prohibits the City from obviously favoring” any company.

The alternative to a class action suit would be for individual plate owners to individually sue the city, clogging the courts with this litigation.

If the plaintiffs succeed in their suit, Binetti argued, “It would certainly send the message that when City Council directs staff to take a particular action, that staff actually take that action (especially in light of the fact that staff was telling the public that it was indeed enforcing the by-law when the allegation is that they were not).”

Finally he suggested the city’s arguments and defenses are “irrelevant” at this stage of the proceeding.

THE CITY DISAGREES

On the other hand city lawyers argue the ATOOL case “does not meet the test” set out in legislation.

First, City attorney Michelle Wright said that the claim that “it is plain and obvious” the city “failed to enforce its licensing by-laws against Uber at various periods in time does not disclose a valid cause of action.”

She argued the plaintiffs' participation in the taxi industry and its dealings with the City “are not enough to create the "special relationship" required to establish a duty of care.”

Wright notes, “The City licenses many businesses and it does not owe a duty to enforce its bylaws to any of them.”

Second, she said, that “The City had no duty to guard its existing (taxi plate value and business interests of plate holders) scheme indefinitely or, in effect, to protect the plaintiffs' businesses from regulatory changes and competition that might reduce their income.”

She said, “This cause of action has no chance of success because any requirement to protect an existing regulatory regime would fetter the City's exercise of its legislative discretion, which is not permitted in law.”

Further, the city’s “obligation is always to legislate in the public interest” and if it did recognize a duty to private individuals it would conflict with its duty to legislate in the public interest.

In addition, she argued, the plaintiffs do not meet the "common issues" requirement for certification.

“Critical parts of the plaintiffs' claim to establish a duty of care are underpinned by allegations that the City misrepresented it would protect the "pension" of taxicab owners,” she said and that owners relied on any statements to that effect.

She said these statements “are incapable of proof on a class-wide basis and require individual assessments,” so do not “raise common issues.”

Overall, she said, a class proceeding is not the preferable procedure as “the plaintiffs cannot prove a cause of action, the proceeding would be overwhelmed by individual assessments, and the plaintiffs had or have the alternatives of bringing individual or joint actions against the City, claiming directly against Uber, or challenging the legality of the City's licensing by-laws.”

Under the City of Toronto Act the city has the power to license taxis and “establish the rates or fares to be charged, provide for the collection of the rates or fares, and limit the number of taxicabs or any class of them that may be licensed.”

She said while the bylaws governing taxis were periodically changed “the core elements of taxicab licensing regime remained substantively unchanged.”

Under the law, “no taxicab owner had a right to the continuance of their licence and at all times the licence remained the property of the City. No one to whom a taxicab owner sold their vehicle had a right to be issued a new taxicab owner licence.”

She said, “The plaintiffs are not "Plate Owners", and should be described as holders of taxicab owner licences.“

Uber came to Toronto in 2012, and expanded its operations in September 2014 by allowing non-City licensed drivers to provide transportation service, she noted.

Wright said, “The City strongly disagrees with the plaintiffs' characterization of the facts regarding the City's enforcement action against Uber and its drivers, as the City laid numerous charges and, in November, 2014, commenced a court application that sought an injunction against Uber. The City's application for an injunction restraining all of Uber's activities was dismissed in July, 2015.”

(It should be noted that after being stalled for years in the city’s bylaw courts, all, or virtually all charges laid during the much publicized “operation Snowball” targeting Uber drivers allegedly operating illegally, were dropped by the city earlier this year.)

Wright noted that after numerous consultations with the taxi industry and the public about whether and how Uber should be licensed to operate. This resulted in reducing some rules governing taxis and expanding “permissions for taxicab owners to lease or sell their taxicabs.”

Uber and subsequently other PTCs got city licenses to operate. The legality of granting these licenses was not challenged by the taxi industry.

The court-approved Ottawa taxi industry class action lawsuit, Wright argued, does not apply to this case. She said different questions were asked by the plaintiffs in Ottawa and the city of Ottawa did not challenge some of the some aspect of certification.

In this case, she argued, ATOOL is seeking certification based on two questions: Was the city “negligent” in enforcing (the bylaw) from September 1, 2014 to July 14, 2016? And was it “negligent” in enforcing from July 15, 2016 to the present?

Wright stated “There is no generalized duty of care on the part of municipalities to enforce their by-laws.”

She argued “To establish a cause of action, the plaintiffs must be able to show that the City owed a private, as opposed to public law, duty of care to them to enforce its licensing by-laws. This the plaintiffs have failed to do.”

The city cites a number of cases setting out how to establish duty of care.

The city argues “In this case, however, neither COTA nor the Toronto Municipal Code required the City to weigh or protect the interests of taxicab owners specifically as part of its mandate, nor did those laws create a positive duty to enforce Chapter 545 or Chapter 546 to achieve set health and safety outcomes.”

Wright went on, “Furthermore, the plaintiffs have not alleged, and at no time did the City adopt, a policy to enforce Chapter 545 or Chapter 546 using specific procedures, for a specific purpose, to a particular standard, or for the specific benefit of the plaintiffs.“

One of the tests applying to this situation is whether a failure to enforce “might foreseeably cause loss to the plaintiff. If this is established, a prima facie duty of care arises and the analysis proceeds to the second stage, which asks whether there are policy reasons to not recognize this duty of care.”

She argued, “In this case, the plaintiffs' claim cannot satisfy the requirement for proximity. Even if it did, there are policy reasons not to recognize a duty of care in enforcement.”

In one case decided by the Supreme Court it was stressed, "mere foreseeability is not enough.” There must also be a "close and direct" relationship of proximity such that it is fair to impose a duty of care.

In the city’s analysis of the ATOOL case, it says core allegations were made: the City knew taxi owners were relying on the value of their taxicabs and the income derived for their financial wellbeing: that for years “decades,” City staff or prior licensing commission staff congratulated taxicab owners on being given their "pension" for their retirement: that city staff wrote in reports that they would consider the investments of taxicab owners and, later, the overall economic viability of the taxicab industry; that to plate owners, this meant that they held something of value that could be sold, leased, or used for income; that owners came to expect that the City would consider their interests in the enforcement and adoption of by-laws related to the taxicab industry; and they would not have invested in the taxicab industry absent the above circumstances.

The city argues, “These allegations demonstrate that their cause of action is, in fact, about a claim of “negligent misrepresentation.”

Wright said, “The fact that the plaintiffs applied for and obtained licences, obeyed detailed regulations, or interacted with the City in its capacity as regulator, even extensively, is insufficient to create a private duty of care. Therefore, the court should find that the City does not owe any private duty of care to taxicab owners based on or arising from COTA or the City's licensing regime.”

She further argued that a duty of care is owed to them based on any series of "specific interactions" between the City and taxicab owners that is sufficient to establish a "special relationship."

Even if the allegations of ATOOL are true, they are not enough to build the required close or special relationship between regulator and regulated.

Even if the plaintiffs could establish proximity, there are policy reasons not to recognize such a duty of care. IT would expose the city to “indeterminate liability,” or liability for its actions that it would have no control over.

“The City had and has no control over the market value for the sale or lease of taxicabs, the amount of money invested by individual taxicab owners in their businesses, or the preference of consumers for competing products, such as UberX, that might have lowered taxicab income. The City was not in control of the extent of its potential liability,” she argued.

Plus the claims are for “pure economic loss.”

If a duty exists, the standard of care to be applied is indeterminate, “as it is incapable of having any predictable or objective content.”

She asked, “How much enforcement would have been reasonable given resource limitations and competing priorities public authorities face when discharging their responsibilities? Would that have been enough to protect the investment and income of taxicab owners? There is no objective answer to those questions.”

If found to be valid, the ATOOL arguments would “also conflict with the City's broader public duty to enforce aspects of its licensing by-laws designed to promote safety or consumer protection and could compromise the City's broader public duty to consider the enforcement of by-laws governing other activities.”

As well, she pointed out “it has been settled that municipalities cannot be liable in negligence for their policy decisions due to the inability to establish a special relationship of proximity and residual policy concerns. The scope of what have been defined as "policy decisions" includes the adoption of by-laws within their powers.“

Plus, courts are not the decisions makers over public policy decisions make by elected bodies and there is a “broad sphere of immunity” set out in COTA.

Noting plaintiffs have claimed $1.7 billion from the City, “which represents approximately $340,000 for each of the proposed class members. There is nothing to suggest that any of the taxicab owners are unable to individually prosecute their own claims or form a small group to advance a collective claim and share the costs of doing so.”

Wright finally argued the plaintiffs “had and have the ability to bring a claim or an injunction application against Uber if they feel the company was or is operating in violation of the City's by-law in a manner that has damaged their business interests.”

She said that indeed one of the plaintiffs did bring such an application forward, but abandoned it.

She asked the court to deny certification of the class action suit.

The Judge reserved his decision, and it is unknown when it will be delivered.

 

 

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