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Taxilogoweb2014

August 2018

San Francisco credit union suing city for failure to protect taxi plate values

by Mike Beggs

With the Toronto taxi industry having just put the preliminary wheels in motion to file a class action suit against the City of Toronto, it’s a case that bears close scrutiny.

The San Francisco Federal Credit Union, which provided loans to taxi drivers towards the purchase of their $250,000 medallions, is suing the San Francisco Municipal Transportation Agency for, allegedly, failing to stand by its guarantee of protecting the value of medallions as Uber and Lyft devastated the cab business.

Filed in late March, the suit notes the Credit Union backed $125 million worth of loans for 700-plus medallions, and has since had to foreclose on more than 100 of these medallions, while hundreds more drivers are waiting to surrender theirs’.

As reported in the San Francisco Chronicle, the bank is seeking $28 million in damages, and wants the SFMTA to pay millions more to repurchase all of the medallions.

“The SFMTA elected to stick its head in the sand, while the Credit Union and hardworking taxi driver medallion owners are saddled with all the burden,” the suit reads.

The City’s legal team is reviewing the case, which will be heard in San Francisco Superior Court.

Historically, it has proven difficult to establish negligence on the part of a City against the taxi industry. But both the Credit Union and taxi interests made it loud and clear the less stringent regulations applied by the State to these Private Transportation Companies (PTC’s) have allowed them to virtually destroy the cab business over the past several years.

And, if the court does rule in favour of the Credit Union, it could be a game-changer in the Taxi-Uber wars.

“I think the entire world is waiting for any jurisdiction to establish this -- that plate owners are losing their plate values. Once one jurisdiction rules against them, it will be a disaster for them. Then, the rest of the cities will follow,” suggests iTaxiworkers Association president Sajid Mughal.

Ernie Grzincic, leasing manager at Co-op/Crown Taxi, agrees the case could have significant ramifications. And he feels the suit carries more weight coming from a banking institution.

“Nobody cares (if it’s taxi owners). A bank would get more credibility. They’d have to pay attention to that,” he offers. “But, it will probably take some time.”

Independent Toronto Taxi Inc. president Mike Tranquada believes the Credit Union has a good chance of winning.

“If the City is participating in it, they can’t turn around and destroy it,” he says, matter-of-factly.

The lawsuit notes the City raked in $64 million in revenues from the sale of these medallions, backed by the Credit Union.

San Francisco taxi medallions used to be issued for free from a waiting list, with a cap on the total number. They only became available when drivers died, became disabled, or lost their licenses. But in 2010, the City started selling medallions for $250,000 apiece, “to create a money-making machine to help address budget shortfalls”, the lawsuit alleges.

“The SFMTA created an expensive asset out of thin air,” it reads. “But the plan relied on finding a lender to finance medallion purchases, since most cabbies can’t afford $250,000.”

The City of San Francisco was rejected by several lenders, before the Credit Union eventually agreed to back these purchases -- while expressing concerns about the risks. To appease these worries, the SFMTA shared confidential data on driver incomes with the Credit Union, agreed to set up a system for drivers to resell their medallions, guaranteed the price would not fall below $250,000, and promised to retransfer foreclosed medallions.

While in 2012 taxi drivers with medallions could earn an average of $9,000 a month (by driving, and renting out their cabs for a second daily shift), by 2016 that number had plunged to $4,500. And as cab revenues declined, “it became nearly impossible to find a second driver.”

The suit claims that, “Some days a taxi driver was lucky to earn $50 after expenses for a 10-hour shift.”

As Uber and Lyft began taking market share in 2013, the Credit Union repeatedly called on the City to respond.

“We can’t fund taxi loans if the SFMTA are going to let the business erode away, Credit Union CEO Steven Stapp wrote to a colleague in a 2013 e-mail.

The suit states that throughout 2016, “the SFMTA repeatedly promised the Credit Union it would take steps to reinvigorate the cab industry”, through actions like reforming the transportation code, aggressively marketing medallions, and commissioning expert studies, but never mentioned them at board meetings.

By the fall of 2016, 485 medallion holders were on a waiting list to surrender their medallions -- with the SFMTA supposed to pay them $200,000 each, so they could, in turn, repay their loans to the Credit Union.

Mississauga plate owner Peter Pellier observes, “The Credit Union had no choice but to take (legal) action, given its considerable exposure.”

But he notes the scenario in San Francisco is “vastly different” than in Toronto -- first and foremost, because the City of San Francisco sold these medallions for $250,000 each, while Toronto issued plates from a waiting list for a municipal issuance fee.

“(Secondly), ridesharing companies are regulated by the State of California, and not local municipalities,” he adds. “This will complicate matters for the plaintiff.”

Nevertheless, veteran Toronto owner/operator Gerry Manley cites numerous similarities between the two cases.

He believes by issuing the taxi owners licenses for a $5,000 transfer fee and charging approximately $1,000 in annual licensing fees, the City of Toronto has created a social contract with these taxi operators, it has since violated – just like in San Francisco. (He notes the City’s obligation is to provide consumer protection and passenger safety, while allowing cab operators to earn a livable wage for their families) And he alleges the City of Toronto has reneged on the promise made to every recipient of a plate, that he or she had just been handed their taxi driver’s pension.

Manley claims plate-holders are entitled to compensation on both these grounds.

While the taxi industry is regulated at different levels in San Francisco and Toronto, Oakville owner/operator Al Prior maintains, “they bear similarities in how social justice has been carried out.”

He claims a fundamental premise of social justice is that it allows for both Success and Failure, Advantage or Disadvantage, Profit or Loss, consistent with the free market system. And on top of the social contract, he suggests you can add social responsibility, “which is the main function of our elected officials”. (Taxi operators, the world over, claim their regulators have created a dangerous race to the bottom, by lowering driver, vehicle, and safety standards to accommodate Uber, Lyft and the like in their bylaws).

“The lawsuit filed by The San Francisco Federal Credit Union versus The San Francisco Municipal Transportation Agency represents much more than only the profit or loss of the bank, but possibly more importantly, the advantage or disadvantage of the social contract,” he observes.

“The case before the court, as well as the claims of Medallion owners in the State of California, should make an excellent test of the promise that distinguishes democracy from autocracy.”

And he asserts that while judges in any jurisdiction are reluctant to rule against decisions of government, “it is more important to pronounce with respect to the consequences of Failure and Reorganization of Statutes, in other words, the failure and bankruptcy of the taxi industry.”

From his perspective, former long-time Toronto shift driver Peter McSherry feels, “they have a good case (in San Francisco).”

“The actions on the part of the City are clearly an attack on the livelihood of these drivers. It’s the same thing in Toronto,” he maintains.

McSherry agrees, if successful, the San Francisco case could set a precedent, encouraging the taxi industry to take legal action in countless other cities.

“A big part of the trouble in Toronto is, the taxi owners and drivers are so used to losing all the time. It’s a long time since they won anything,” he continues.

“They have to get on the same page and get legal help and they can win, because the City, they stole money from all of them,” he alleges. “And it’s the plan of the City to steal their last cent. It’s just a rip-off.”

Mississauga-based legal consultant Gerald Jutsun agrees, “If you have a regulatory process and everybody follows it, you can’t just dismiss the process midstream. That’s breach of a contract.”

“Imagine if it was the airline industry and they (suddenly) said, ‘Planes don’t need this, they don’t need that.’ Wait a minute, we just invested millions of dollars. That’s what they did with Uber.”

Jutsun suggests, on the face of it, the Credit Union should win on the grounds of breach of process, and detrimental reliance.

“You can’t impose regulatory compliance, and then change the rules,” he continues. “The City of San Francisco told the Credit Union it was endorsing them and didn’t say, ‘Tread with caution we’re going to change the rules’.”

“The Credit Union relied to its detriment on the City of San Francisco.”

 

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