Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_15-cv-04375/USCOURTS-cand-3_15-cv-04375-2/pdf.json

Nature of Suit Code: 440
Nature of Suit: Other Civil Rights
Cause of Action: 42:1983 Civil Rights Act

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

DESOTO CAB COMPANY, INC.,

Plaintiff,

v.

MICHAEL PICKER, et al.,

Defendants.

Case No. 15-cv-04375-EMC 

ORDER DENYING DEFENDANTS’

MOTION TO DISMISS

Docket No. 31

Plaintiff Desoto Cab Company, Inc., d/b/a Flywheel Taxi (“Flywheel”), has filed a suit for 

declaratory and injunctive relief against the Commissioners of the California Public Utilities 

Commission (“CPUC”), in their official capacities only. Flywheel, a “traditional” taxi company, 

asserts a § 1983 equal protection claim against the CPUC based on its assertion of jurisdiction 

over new transportation carriers such as Uber, Lyft, and Sidecar. Flywheel contends that these socalled transportation network carriers (“TNCs”)

1

are de facto taxi companies and therefore should 

be subject to the same rules and regulations as traditional taxi companies, which are governed not 

by the CPUC but rather by local municipalities such as the San Francisco Municipal 

Transportation Agency (“SFMTA”). The gist of Flywheel‟s complaint is that the CPUC‟s rules 

and regulations are less strict than the rules and regulations of, e.g., the SFMTA, so that, by 

exercising jurisdiction to regulate TNCs and freeing them of the more demanding regulatory 

requirements of the SFMTA, the CPUC is affording TNCs more favorable treatment than 

traditional taxi companies. According to Flywheel, because TNCs are taxi companies just like 

 

1 A TNC is “an organization . . . operating in California that provides prearranged transportation 

services for compensation using an online-enabled application or platform to connect passengers 

with drivers using a personal vehicle.” Cal. Pub. Util. Code § 5431(a). 

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 1 of 17
2

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

traditional taxi companies, all should be treated equally: all should be regulated by either local 

municipalities such as the SFMTA or the CPUC.

The CPUC moved to dismiss Flywheel‟s complaint based on ripeness, jurisdictional, and 

joinder grounds. Having considered the parties‟ briefs and accompanying submissions, the Court 

hereby DENIES the motion to dismiss.

I. FACTUAL & PROCEDURAL BACKGROUND

A. California Public Utilities Code and CPUC Orders and Decisions

Before reviewing the allegations in Flywheel‟s FAC, the Court first considers relevant 

sections from the California Public Utilities Code and then some of the orders/decisions issued by 

the CPUC regarding TNCs.2

Chapter 8 of the California Public Utilities Code governs “charter-party carriers of 

passengers.” “„[C]harter-party carrier of passengers‟ means every person engaged in the 

transportation of persons by motor vehicle for compensation, whether in common or contract 

carriage, over any public highway in this state.” Cal. Pub. Util. Code § 5360. Charter-party 

carriers of passengers are required to “operate on a prearranged basis”; “prearranged basis” means 

“the transportation of the prospective passenger was arranged with the carrier by the passenger, or 

a representative of the passenger, either by written contract or telephone.” Id. § 5360.5; see also 

id. § 5381.5(a) (providing that the CPUC must “ensure that every charter-party carrier of 

passengers operates on a prearranged basis within the state”). The distinction between charterparty carriers and traditional taxi companies seems to turn on this concept of “prearranged.” 

Traditional taxicabs can provide an on-demand service – i.e., they can be hailed in the street – and 

therefore there is no prearrangement. Charter-party carriers, in contrast, may not be hailed in the 

street.

The CPUC has the authority to “supervise and regulate every charter-party carrier of 

 

2

The CPUC has asked the Court to take judicial notice of certain orders and decisions issued by 

the CPUC. Flywheel does not object to the Court taking judicial notice of the existence of these 

documents and the statements contained therein but does object to the Court taking judicial notice 

of any purported facts contained therein. See Docket No. 36 (objections). Flywheel‟s objection is, 

in essence, moot because the Court can resolve the motion without taking judicial notice of any 

facts contained therein.

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 2 of 17
3

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

passengers in the State.” Id. § 5381; see also Cal. Const., art. XII, § 4 (providing that the CPUC 

“may fix rates and establish rules for the transportation of passengers”). Chapter 8, however, does 

not apply to “[t]axicab transportation service licensed and regulated by a city or county,” Cal. Pub. 

Util. Code § 5353(g), or to “transportation service . . . rendered wholly within the corporate limits 

of a single city or city and county and licensed and regulated by ordinance.” Id. § 5353.5; see also 

id. § 5353(a) (providing the same); Cal. Gov‟t Code § 53075.5 (providing that, “[n]otwithstanding 

Chapter 8 (commencing with Section 5351) of Division 2 of the Public Utilities Code, every city 

or county shall protect the public health, safety, and welfare by adopting an ordinance or 

resolution in regard to taxicab transportation service rendered in vehicles designed for carrying not 

more than eight persons, excluding the driver, which is operated within the jurisdiction of the city 

or county”).

In December 2012, the CPUC issued an order instituting rulemaking related to TNCs. See 

generally Docket No. 22 (Ex. A) (order instituting rulemaking (“OIR”)). The CPUC‟s order took 

note of the new business model being used by TNCs such as Uber, Lyft, and Sidecar and 

expressed concern about the potential impact of these companies on public safety. The CPUC 

sought comment on various issues, including not only safety and insurance but also “how the 

Commission‟s existing jurisdiction . . . should be applied to businesses like Uber, Sidecar, and 

Lyft.” Docket No. 22 (Ex. A) (OIR at 6); see also Docket No. 22 (Ex. A) (OIR at 10) 

(summarizing issues for which comment was sought).

In September 2013, the CPUC issued a decision adopting rules and regulations related to 

TNCs. This decision shall hereinafter be referred to as the Phase I decision. See generally Docket 

No. 22 (Ex. B) (Phase I decision). 

With respect to the issue of the CPUC‟s jurisdiction over TNCs, the Phase I decision stated 

as follows:

California law currently recognizes and regulates three modes of 

passenger transportation for compensation: taxi services, regulated 

by cities and/or counties; and charter-party carrier services, and 

passenger-stage companies, regulated by the Commission. In recent 

years, the communications revolution in wireless service, 

smartphones, and on-line apps has further facilitated the 

development and adoption of passenger transportation for 

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 3 of 17
4

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

compensation to a point where passengers seeking rides can be 

readily connected with drivers willing to provide rides in private 

vehicles. This development in passenger transportation for 

compensation, referred to in this proceeding as TNCs and associated 

with companies including UberX, Lyft, and Sidecar, does not fit 

neatly into the conventional understandings of either taxis or 

limousines, but that does not mean that this Commission‟s 

responsibility to public safety in the transportation industry should 

be ignored and/or left for individual companies or the market place 

to control.

Docket No. 22 (Ex. B) (Phase I Decision at 11-12).

Accordingly, in the Phase I decision, the CPUC set certain rules and regulations for each 

TNC – e.g., “we require each TNC (not the individual drivers) to obtain a permit from the 

California Public Utilities Commission (Commission), require criminal background checks for 

each driver, establish a driver training program, implement a zero-tolerance policy on drugs and 

alcohol, and require insurance coverage.” Docket No. 22 (Ex. B) (Phase I Decision at 3). 

The Phase I decision, however, did not foreclose further rules and regulations applicable to 

TNCs. Indeed, the decision ordered

a second phase to this proceeding to review the Commission‟s 

existing regulations over limousines and other charter-party carriers 

to ensure that the public safety rules are up to date, and that the rules 

are responsive to the needs of today‟s transportation market. In 

addition, the second phase will consider the potential impact of any 

legislative changes that could affect our ability to regulate the TNC 

industry. When the second phase is complete, the Commission will 

initiate the Commission‟s resolution process to update the General 

Order (GO) 115 and 157 series to include the new regulations 

relating to the charter-party carrier subclass of TNC.

Docket No. 22 (Ex. B) (Phase I Decision at 3); see also Docket No. 22 (Ex. B) (Phase I Decision 

at 74) (discussing the same).

In January 2016, the CPUC issued a proposed decision on, inter alia, the Phase II issues 

identified in its Phase I decision. See generally Docket No. 22 (Ex. D) (Prop. Phase II Decision). 

Several months later, in April 2016 (i.e., after the Commissioners filed the motion to dismiss but 

before Flywheel filed its opposition thereto), the CPUC issued its Phase II decision. See generally

Docket No. 42 (Ex. J) (Phase II Decision). One of the CPUC‟s rulings was that “every TNC shall 

certify . . . the nature of their operations, and shall also certify how the fares are calculated.” 

Docket No. 42 (Ex. J) (CPUC Decision at 4). Also, the Phase II decision addressed fare splitting 

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 4 of 17
5

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

by TNCs. See Docket No. 42 (Ex. J) (Phase II Decision at 4, 45) (stating that such fare-splitting 

operations “are permitted, subject to certain conditions”); Docket No. 42 (Ex. J) (Phase II 

Decision at 9 n.3) (noting use of the term “fare splitting” instead of “ride-sharing” as it was a more 

accurate representation of the service). The CPUC also stated in its decision that additional issues 

would be considered in a Phase III proceeding. See Docket No. 42 (Ex. J) (Phase II Decision at 

5).

B. Flywheel‟s Pleading

Having reviewed the CPUC orders and decisions, the Court now turns to Flywheel‟s 

pleading. In its first amended complaint (“FAC”), Flywheel alleges as follows.

Flywheel is “a taxi company that operates on-demand transportation services in the City 

and County of San Francisco.” FAC ¶ 13. As a traditional taxi company, Flywheel is regulated 

by the San Francisco Municipal Transportation Agency (“SFMTA”) and not the CPUC. See FAC 

¶¶ 11-12.

“In October 2012, the SFMTA exercised jurisdiction over UberX, Lyft and Sidecar and 

began to regulate them as taxi companies.” FAC ¶ 20. However, some two months later (i.e., in 

December 2012), the CPUC instituted a rulemaking process to assess how companies such as 

UberX, Lyft, and Sidecar should be regulated. See FAC ¶ 21. The exercise of authority by the 

CPUC appears to have removed the power of regulating TNCs from the SFMTA, and vested it in 

the CPUC. 

In September 2013, the CPUC issued its Phase I decision in which it adopted rules and 

regulations that govern TNCs specifically. See FAC ¶ 23. 

According to Flywheel, TNCs are just like traditional taxi companies because both offer 

“on-demand private ground transportation services.” FAC ¶ 27. Flywheel implicitly takes the 

position that hailing a TNC car through a smart phone is just like making an on-street hail. See 

FAC ¶ 27 (alleging that on-demand services are provided “with rides summoned through street or 

smart-phone hails”). Flywheel also points out that many traditional taxi companies, including 

itself, also provide transportation services through the use of smart phones. See FAC ¶ 28 (noting 

that traditional taxi companies also “arrange transportation services using smart phone 

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 5 of 17
6

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

applications on telecommunications hardware devices that rely on global positioning system 

location technology to offer transportation services”; adding that Flywheel “receives 30,000 

service requests per month through smart phone applications”).

Because, in Flywheel‟s view, there are no material differences between a traditional taxi 

company and a TNC, the same rules and regulations should apply to both, but the CPUC‟s rules 

and regulations which apply to TNCs are less strict than the rules and regulations promulgated by 

local municipalities for taxi companies. For example:

 “The CPUC requires liability insurance at levels far below the minimum requirements for 

taxi companies in San Francisco.” FAC ¶ 34.

 “The CPUC has never required [TNCs] to maintain workers‟ compensation insurance for 

drivers. In contrast, taxi companies in San Francisco are required to maintain workers 

compensation insurance for all drivers.” FAC ¶ 35.

 “The CPUC adopted an annual licensing fee for [TNCs] that is unrelated to the number of 

vehicles in the company‟s fleet and is far below the fees charged to taxi companies in San 

Francisco. San Francisco taxi companies are required to associate each and every taxi with 

a medallion, for which taxi companies must pay a monthly fee of approximately $1000 to 

$2000 per month. In additional, San Francisco taxi companies must pay annual permit 

fees of up to $17,000 per year and annual device registration fees of up to $30,000 

annually.” FAC ¶ 36.

 “The CPUC does not limit the number of vehicles that [TNCs] may operate in California, 

including within the city and count limits of San Francisco . . . . By contrast, the number of 

taxis in San Francisco is limited to 1,900.” FAC ¶ 37.

 “The CPUC does not establish or provide[] guidance as to the rates charged by [TNCs]. 

All [TNCs] are free to set their own rates . . . . In contrast, San Francisco taxi companies 

are restricted in the rates that passengers may be charged.” FAC ¶ 38.

More differences are identified in FAC ¶¶ 39-41. According to Flywheel, “[t]he result is 

significantly higher costs for tax companies in San Francisco” and/or “reduced protection for 

members of the public using [TNC] services.” FAC ¶ 34.

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 6 of 17
7

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

Flywheel asserts that, “by exercising jurisdiction over some, but not all, on-demand ground 

transportation services [i.e., services from TNCs but not services from taxi companies],” the 

CPUC has violated its right to equal protection. FAC ¶ 49. Flywheel “seeks a judicial declaration 

that the CPUC‟s September . . . 2013 Decision [i.e., the Phase I decision] is unlawful, an 

injunction enjoining the CPUC from exercising jurisdiction over [TNCs] or, in the alternative, 

requiring that the CPUC exercise jurisdiction over all taxi companies in California.” FAC ¶ 57.

II. DISCUSSION

A. Johnson Act

In its motion, the CPUC argues first that dismissal is warranted because this Court lacks 

jurisdiction over the case, more specifically, based on the Johnson Act. “The Johnson Act 

withdraws state utility rate cases from federal jurisdiction when certain conditions are met.” US 

West, Inc. v. Nelson, 146 F.3d 718, 721 (9th Cir. 1998). The purposes underlying the Act include 

(1) “to prevent forum-shopping by utilities between State and Federal courts” and (2) “to effect a 

„general hands-off policy relative to state rate making.‟” Tennyson v. Gas Serv. Co., 506 F.2d 

1135, 1138 (10th Cir. 1974) (adding that “[b]ehind the Act were years of hostilities generated 

from jurisdiction in both the state and federal systems, removal of which was deemed desirable to 

the national policy”); see also Municipal Elec. Utils. v. Power Auth. of N.Y., No. 80 Civ. 1149 

(RLC), 1981 U.S. Dist. LEXIS 9617, at *5 (S.D.N.Y. Apr. 15, 1981) (stating that “[t]he legislative 

history surrounding passage of the Act in 1934 reveals that Congress was concerned with privately 

owned utilities challenging orders of separate governmental ratemaking authorities”).

The Johnson Act, codified at 28 U.S.C. § 1342, provides as follows:

The district courts shall not enjoin, suspend or restrain the operation 

of, or compliance with, any order affecting rates chargeable by a 

public utility and made by a State administrative agency or a ratemaking body of a State political subdivision, where:

(1) Jurisdiction is based solely on diversity of citizenship or 

repugnance of the order to the Federal Constitution; and,

(2) The order does not interfere with interstate commerce; 

and,

(3) The order has been made after reasonable notice and 

hearing; and,

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 7 of 17
8

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

(4) A plain, speedy and efficient remedy may be had in the 

courts of such State.

28 U.S.C. § 1342 (emphasis added). The language bolded above reflects the bases of Flywheel‟s 

arguments as to why the Johnson Act does not apply to the instant case. However, “[t]he burden 

of showing that the [above] conditions have been met is on the party invoking the Johnson Act,”

US West v. Nelson, 146 F.3d at 722 – here, the CPUC. 

As an initial matter, the Court notes that some of Flywheel‟s arguments are problematic. 

For example, Flywheel essentially conceded at the hearing that TNCs are, in fact, public utilities 

within the meaning of the Johnson Act. See Munn v. Illinois, 94 U.S. 113, 126, 129 (1876) (noting 

that the government‟s power to regulate private property arises when the private property “is 

„affected with a public interest‟”; adding that this principle is the source of “the power to regulate 

the charges of common carriers” – “[c]ommon carriers exercise a sort of public office, and have 

duties to perform in which the public is interested” and so “[t]heir business is . . . „affected with a 

public interest‟”). Cf. Terminal Taxicab Co., Inc. v. Kutz, 241 U.S. 252, 253-54 (1916) 

(considering a federal statute that created a public utilities commission for the District of 

Columbia; concluding that the plaintiff-taxicab company was a public utility and a common 

carrier within the meaning of the statute); Doe v. Uber Technologies, Inc., No. 15-cv-04670-SI, 

2016 U.S. Dist. LEXIS 60051 (N.D. Cal. May 4, 2016) (holding that Uber is a common carrier 

under California law). 

Flywheel‟s argument that the CPUC‟s Phase I decision interferes with interstate commerce 

is also problematic. Flywheel argues that there is interference with interstate commerce “due to 

the simple fact that the drivers of [TNCs] transport passengers across state lines” and “it is clear 

that [TNCs] regularly transport passengers from California to other states and, likely, passengers 

from other states back to California.” Opp‟n at 7 (asking the Court to take judicial notice of an 

Uber website showing that a ride can originate in Northstar (California) and end in Reno 

(Nevada)). But even if the Court could take judicial notice of the Uber website identified by 

Flywheel (and it is questionable whether the Court could, see Fed. R. Evid. 201(b)), that document 

simply shows that TNCs do engage in some interstate commerce. But the mere fact that TNCs 

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 8 of 17
9

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

engage in interstate commerce is not enough to establish interference with interstate commerce. 

As the Tenth Circuit noted in US West Inc. v. Tristani, 182 F.3d 1202 (10th Cir. 1999), there mere 

“fact that Yellow Pages publishing and advertising takes place in interstate commerce does not 

itself lead to the conclusion that the rate order interferes with interstate commerce”; “[i]nterference 

requires more than an incidental effect on interstate commerce” Id. at 1210-11; see also US West 

v. Nelson, 146 F.3d at 724 (stating that, “under the wording of the Johnson Act, it is not enough 

that an intra-state rate-making policy merely „affect‟ interstate commerce[;] [u]nless the effects of 

the policy amount to interference, the Johnson Act bars federal jurisdiction”). Compare, e.g., 

Public Utils., 317 U.S. at 469-70 (holding that the “the orders of the state Commission „interfere 

with interstate commerce‟ to the extent that they constitute an attempt to regulate matters in 

interstate commerce which Congress has lodged exclusively with the Federal Power 

Commission”); Tri-State Gen. & Trans. Ass’n v. Pub. Serv. Comm’n, 412 F.2d 115, 118 (10th Cir. 

1969) (expressing concern over “the directives and orders of the Commission which have 

effectively prevented the Wyoming utilities from paying their contract obligations to [the plaintiff] 

Tri-State[;] [t]his Commission action patently had the potential of interfering with interstate 

commerce and supports jurisdiction under 28 U.S.C. § 1342(2)”). 

Notwithstanding the above, the Court ultimately rules in Flywheel‟s favor because of 

another Johnson Act requirement – i.e., the requirement that the challenged agency action be an 

order affecting rates. As Flywheel contends, here, it is not challenging an “order affecting rates”

as that phrase is used in the Johnson Act.

In so ruling, the Court begins by taking note that Flywheel is not challenging the CPUC‟s 

Phase II decision. Flywheel expressly disavowed such a challenge at the hearing on the motion to 

dismiss, which is not surprising given there is a much stronger argument that the Phase II decision 

is such an order – e.g., the Phase II decision requires TNCs to “certify how the fares are 

calculated.” Docket No. 42 (Ex. J) (CPUC Decision at 4). Also, the Phase II decision addresses

fare splitting by TNCs.

3

 

3

The Court, however, does not pass on the question whether Phase II is sufficiently directed to 

rates as to fall under the Johnson Act.

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 9 of 17
10

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

But just because the Phase II decision is or may be an order affecting rates does not mean 

that the Phase I decision is such an order. Indeed, Phase I does not have any direct bearing on 

rates at all. 

Admittedly, Flywheel has alleged that, in the Phase I decision, “[t]he CPUC does not 

establish or provide[] guidance as to the rates charged by [TNCs]. All [TNCs] are free to set their 

own rates.” FAC ¶ 38. But this allegation does not transform Phase I into an order affecting rates. 

The CPUC‟s failure to set or address rates in the Phase I decision cannot fairly be deemed an 

“order affecting rates.” Lack of action regarding rates cannot be deemed an order affecting rates 

simply because the agency asserting jurisdiction might have the potential power to set or regulate 

rates. At least, the CPUC has cited no case so holding.4 

The CPUC argues still that the Phase I decision has an indirect impact on rates which make 

it an order affecting rates. More specifically, the CPUC asserts that the Phase I decision‟s rules 

on, e.g., insurance and workers‟ compensation “necessarily affect the TNCs‟ rates, because they 

all either impose costs on the TNCs or shift their recovery. It is axiomatic that a utility‟s costs are 

reflected in its rates . . . .” Mot. at 10. But, similar to above, such an argument has no limits; 

under this construction, practically any administrative agency order could be deemed an order 

affecting rates by affecting the cost of operating, be it setting workers compensation requirements 

and/or gas prices, wages, or income tax rates. Although the Ninth Circuit has noted that the 

 

4

The CPUC has pointed to US West, where the Ninth Circuit used language referring to 

encroachment on rate-setting authority. See US West, 146 F.3d at 722 (“The threshold inquiry is 

whether the complaint challenges any Commission „order affecting rates.‟ It does not do so if the 

US West companies can state a federal claim – and be entitled to relief – without encroaching on 

the Commission‟s orders and rate-setting authority.) But US West must be read based on the 

specific facts animating that decision. There, 

[b]y appellants‟ own allegations, imputation is an accounting 

practice that the Commission uses to derive intrastate 

telecommunications rates. As such, it is “an integral part of the rate 

structures” that may not be attacked in federal court under the 

Johnson Act. Because imputation is a Commission procedure that 

cannot be separated from its substantive expression in rate orders, 

the US West companies‟ challenge to imputation – however phrased 

– is a challenge to “any order affecting rates” as a matter of law.

Id. at 722-23 (emphasis added).

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 10 of 17
11

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

legislative history of the Johnson Act “supports a broad interpretation,” Brooks v. Sulphur Springs 

Valley Elec. Coop., 951 F.2d 1050, 1054 (9th Cir. 1991) (stating that, “[a]lthough the primary evil 

the Act sought to remedy was the issuance of injunctions by federal courts against enforcement of 

state rate orders, legislators were also more generally concerned with protecting the authority of 

states „to perform their proper functions in the supervision and fixing of rates, without interference 

of Federal law‟”), the Johnson Act should be so broadly construed that its application would be 

virtually unlimited, insulating nearly any agency action – even those with a remote and indirect 

effect on ultimate consumer prices – from federal court review. Implicitly recognizing such, the 

CPUC conceded, at the hearing, that its position was, at best, on the outer limits of the Johnson 

Act‟s applicability.

Hill v. Kansas Gas Service Co., 323 F.3d 858 (10th Cir. 2003), is not to the contrary. 

There, the plaintiffs asserted that certain refunds that the public utilities received from natural gas 

producers and/or interstate pipelines (after a federal agency ruling regarding taxes) should have 

been refunded to them and to other customers of the public utilities. The utilities had instead –

pursuant to a state agency order – distributed the refunds to low-income customers only via bill 

credits to their accounts. See id. at 862. The plaintiffs argued that the challenged orders of the 

state agency were not “orders affecting rates” for purposes of the Johnson Act because 

“„there was no change made or sought to tariffs and there was no 

increase or decrease ordered or sought in the rates that the 

defendants charge their customers. . . . There was merely a 

mechanism established outside the rates and tariffs to credit[] select 

low income customers‟ bills [i.e., rather than refund the money to all 

customers] . . . . The rates for utility service were not modified at 

all.‟”

Id. at 864. The Tenth Circuit disagreed, stating that “[c]onsideration of how the refunds would 

have been distributed in the absence of the challenged orders makes it clear that the [state 

agency‟s] order affected rates for purposes of § 1342.” Id. That is, “[h]ad the [state agency] not 

elected to alter the manner in which the refunds would be distributed under the PGA [Purchased 

Gas Adjustment] clauses, Defendants‟ cost of gas would have decreased due to the refund-based 

negative adjustment, which would have translated into a decrease in the per unit price of gas paid 

by Defendants‟ retail customers.” Id. at 865. The state agency order thus directly impacted rates 

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 11 of 17
12

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

payable by the utilities‟ consumers. See also Wheelabrator Lisbon, Inc. v. Conn. Dep’t of Pub. 

Util. Conn. Dep’t of Pub. Util. Control, 526 F. Supp. 2d 295, 302 (D. Conn. 2006) (noting that the 

revenue that Connecticut Light & Power received from the sale of certain renewable energy 

certificates would be credited to customers through the Competitive Transition Assessment 

component of the customers‟ bills; stating that, “[a]lthough the Competitive Transition 

Assessment component of a customer‟s bill is not strictly the „rate‟ charged by CL&P, the Johnson 

Act‟s bar extends to such indirect effects on rates”). 

The instant case is distinguishable from Hill because, here, the costs of operating a TNC

have no direct connection to the rates a TNC charges. Unlike a refund to customer, a TNC‟s

operational costs have only a remote, indirect impact on rates.

The CPUC contends still that the Phase I decision must be considered an order affecting 

rates because the Phase II decision is (as Flywheel seems to concede) an order affecting rates and, 

if the CPUC‟s Phase I decision to exercise jurisdiction is invalidated by Flywheel, then that 

necessarily invalidates the Phase II decision. Cf. US West, 146 F.3d at 723 (stating that, “[e]ven if 

the complaint accurately could be characterized as seeking to enjoin the Commission only from 

calculating future rate orders using the imputation accounting method, future rate orders are a 

subset of the larger set comprising „any order affecting rates‟”) (emphasis in original). The Court, 

however, is not persuaded by this argument. 

First, to the extent Flywheel is challenging the larger act of the CPUC‟s exercise of 

jurisdiction over TNCs but not taxi companies, that challenged act affects a wide range of 

regulations that do not pertain to the setting of rates (such as requirements for background checks

and insurance coverage). In effect, Flywheel is challenging the general jurisdictional reach of the 

CPUC which is a “procedure that exists apart from the rate-making system.” US West v. Nelson, 

146 F.3d at 722. Such a general challenge vastly transcends the kind of agency rate-setting that 

was the specific focus of the Johnson Act.

Moreover, since the CPUC‟s exercise of jurisdiction over TNCs, but not taxi companies, is 

based on a California statute, see Cal. Pub. Util. Code § 5381 (providing that the CPUC has the 

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 12 of 17
13

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

authority to “supervise and regulate every charter-party carrier of passengers in the State”),

5

the 

Eighth Circuit‟s decision in Minnesota Gas Co. v. Public Service Commission, 523 F.2d 581 (8th 

Cir. 1975), is instructive. In Minnesota Gas, a local gas company filed a lawsuit seeking a 

declaration that “a recently enacted Minnesota statute is unconstitutional as it purports to permit a 

state agency to prescribe utility rates different from those set out in a preexisting utility franchise 

contract between [the plaintiff] and the City of Minneapolis.” Id. at 582. In a footnote, the Eighth 

Circuit explained that the Johnson Act was not a concern because the plaintiff was not

challenging a particular administrative order affecting rates but 

rather a Minnesota statute asserting the power to regulate in general. 

Where the constitutional challenge is to the State‟s power to regulate 

per se rather than to the procedural and substantive fairness of an 

administrative order, the Johnson Act has been held inapplicable.

Id. at 582 n.1 (emphasis in original; citing Public Util. Comm’n v. United States, 355 U.S. 534, 

540 (1958)); see also Public Utils., 355 U.S. at 536, 540 (noting that the United States asked that a 

provision in the California Public Utilities Code “be declared unconstitutional insofar as it 

prohibits carriers from transporting government property at rates other than those approved by the 

Commission”; stating that “[t]he United States wants to be rid of the system that subjects its 

procurement services to that form of state supervision”). 

Finally, Flywheel‟s challenge and relief sought is phrased in the alternative. Its complaint 

seeks as an alternative to have the CPUC exercise jurisdiction over taxi companies as wells as 

TNCs. See FAC ¶ 57 (seeking an alternative relief CPUC‟s exercise of jurisdiction over all taxi 

companies in California). Thus, Flywheel does not necessarily seek to invalidate Phase I decision 

(and as a consequence, the Phase II decision).

Accordingly, for the reasons stated above, the Court concludes that the Johnson Act is not 

a bar to Flywheel‟s lawsuit, because the CPUC‟s Phase I decision is not an “order affecting rates”

as that phrase is used in the Johnson Act.

B. Ripeness

The CPUC asserts that, aside from jurisdiction, there is another problem with Flywheel‟s 

 

5

See also Cal. Const., art. XII, § 4 (providing that the CPUC “may fix rates and establish rules for 

the transportation of passengers”). 

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 13 of 17
14

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

case, namely, it is not ripe for review because “[a]ll of the substantive regulations about which 

[Flywheel] complains remain in play before the CPUC and are subject to change”; the regulations 

“are not yet „at an administrative resting place.‟” Mot. at 13 (quoting Citizens for Better Forestry 

v. U.S. Dep’t of Agric., 341 F.3d 961, 977 (9th Cir. 2003)).

It is not clear from its papers whether the CPUC‟s ripeness argument is predicated on 

Article III or prudential considerations. See Guatay Christian Fellowship v. County of San Diego, 

670 F.3d 957, 980 (9th Cir. 2011) (noting that ripeness is drawn both from Article III limitations 

on judicial power and from prudential reasons for refusing to exercise jurisdiction; Article III is a 

jurisdictional matter while prudential concerns are discretionary). Nevertheless, in either situation,

the ripeness requirement is designed to prevent the courts, through 

avoidance of premature adjudication, from entangling themselves in 

abstract disagreements over administrative policies, and also to 

protect the agencies from judicial interference until an 

administrative decision has been formalized and its effects felt in a 

concrete way by the challenging parties.

In deciding whether an agency‟s decision is, or is not, ripe for 

judicial review, the [Supreme] Court has examined both the “fitness 

of the issues for judicial decision” and the “hardship to the parties of 

withholding court consideration.” 

Ohio Forestry Ass’n v. Sierra Club, 523 U.S. 726, 732-33 (1998) (internal quotation marks 

omitted). Consideration of fitness of the issues for judicial decision includes consideration of

“whether judicial intervention would inappropriately interfere with further administrative action; 

and . . . whether the courts would benefit from further factual development of the issues 

presented.” Id. at 733.

Given the above standard, the CPUC‟s position is weak. Even if all of the regulations have 

not been hammered out as of yet, it is not clear why Flywheel cannot move forward with its 

challenge to what has been done so far – including, e.g., insurance rules – especially as there is no 

indication that the CPUC will backtrack on any regulations regarding TNCs that it has 

promulgated so far. Moreover, under the CPUC‟s position, it would appear that the agency would 

have to have finalized all regulations on TNCs before it would be appropriate for Flywheel to 

bring suit. There is increased hardship to Flywheel the longer it has to wait for all regulations to 

be finalized, and nothing in the record indicates how quickly the CPUC will move on finalizing all 

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 14 of 17
15

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

TNC regulations (e.g., Phase III seems to be currently under consideration). Finally, the Court 

notes that, ultimately, what Flywheel is contesting here is an overall scheme that differentiates 

between regulations governing TNCs and those governing traditional taxi companies. The 

disparities between the two regulatory regimes are sufficiently concrete so as to permit an 

adjudication of Flywheel‟s equal protection claim. The precise details of further phases of 

regulation is not likely to be material to Flywheel‟s constitutional claim.

The Court thus rejects the CPUC‟s ripeness argument.

B. Joinder

The final argument raised by the CPUC is that dismissal is appropriate because Flywheel 

has failed to join necessary parties – namely, all TNCs, all traditional taxicab companies, and all 

municipalities that regulate traditional taxicab companies. See Mot. at 17. The CPUC argues that 

inclusion of all these parties is necessary (in spite of the potential unwieldiness of such a lawsuit) 

in light of the specific relief requested by Flywheel – i.e., either vesting jurisdiction over TNCs 

with the municipalities (who already regulate traditional taxi companies) or vesting jurisdiction 

over both TNCs and taxi companies with the CPUC.

The issue of joinder is governed by Federal Rule of Civil Procedure 19. The CPUC 

invokes Rule 19(a)(1)(B), asserting that “[t]he TNCs, the taxicabs, and the local regulators . . . 

plainly have at least a „claim‟ to an interest in the outcome of this proceeding.” Mot. at 17. But 

Rule 19(a)(1)(B) requires this Court to consider not only whether a person “claims an interest 

relating to the subject of the action” but also whether that person “is so situated that disposing of 

the action in the person‟s absence may . . . as a practical matter impair or impede the person‟s 

ability to protect the interest.” Fed. R. Civ. P. 19(a)(1)(B)(i). 

The CPUC has the burden of showing Rule 19 requires joinder. See Brum v. Cty. of 

Merced, No. 1:12-cv-01636-AWI-KSO, 2013 U.S. Dist. LEXIS 77026, at *11 (E.D. Cal. May 31, 

2013) (stating that, “based on the authority in the Ninth Circuit that has analyzed the standard of 

persuasion for a Rule 19 motion, it is Defendants‟ burden of persuasion, as the moving parties, to 

establish that it is necessary to join MCSEA pursuant to Rule 19, and not Plaintiffs‟ burden to 

show that MCSEA should not be joined”). The CPUC has not shown that the TNCs, traditional 

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 15 of 17
16

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

taxi companies, and local municipalities are so situated that disposing of this action in their 

absence would impair or impede their ability to protect their interests. 

There is in, in effect, a binary question posed for the Court: should the CPUC regulate the 

TNCs or should regulation of TNCs be within the jurisdiction of local municipalities? The TNCs, 

traditional taxi companies, and local municipalities will come down on one side of the issue or the 

other; but there is nothing to show that that side cannot be adequately represented by Flywheel or 

the CPUC, respectively. Flywheel and CPUC take opposing positions on this issue. The positions 

of the allegedly missing parties are represented by the parties hereto; there has been no showing to 

the contrary.

White v. University of California, 765 F.3d 1010 (9th Cir. 2014), the main case on which 

the CPUC relies, is not to the contrary. There, there was a dispute over the custody of two human 

skeletons found at a burial site located on university property. Native American tribes claimed the 

right to compel repatriation of the remains to a certain tribe. Repatriation was opposed by 

university professors who wanted to study the remains. The university professors sued the 

university after the university determined that it would repatriate. The university moved to 

dismiss, asserting that, inter alia, the Native American tribes were necessary and indispensable 

parties to the litigation and that their joinder was not feasible because they had immunity from 

suit. 

On appeal, the professors argued that the university could adequately represent the tribes‟

interests. The Ninth Circuit disagreed:

At present, their interests are aligned. There is some reason to 

believe that they will not necessarily remain aligned. However, as 

the district court pointed out, the University “has a broad obligation 

to serve the interests of the people of California, rather than any 

particular subset, such as the people of the Kumeyaay tribes.” Thus, 

the different motivations of the two parties could lead to a later 

divergence of interests. For example, if a court were to determine 

that the La Jolla remains should not be transferred to the Kumeyaay 

under [the Native American Graves Protection and Repatriation 

Act], it is questionable whether – perhaps even unlikely that – the 

University and the Kumeyaay would pursue the same next course of 

action.

Id. at 1027.

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 16 of 17
17

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

White is distinguishable from the instant case because, in White, the Ninth Circuit 

identified different motivations for the university and the tribes that could lead them to act in 

different ways. But here, the CPUC has not adequately identified motivations of the allegedly 

necessary and indispensable parties (i.e., the TNCs, the traditional taxi companies, and the local 

municipalities) which might diverge from both Flywheel and the CPUC which would lead them to 

conduct themselves differently from the litigants. For instance, the traditional taxi companies are 

more than likely to have the same exact motivations as Flywheel. In the absence of such identified 

different motivations, the Court concludes that it is too speculative to say that the TNCs, 

traditional taxi companies, and local municipalities cannot be adequately represented by Flywheel 

and/or the CPUC. Of course, should circumstances change, the CPUC may renew its motion to 

dismiss based on Rule 19 but, at least at this juncture, CPUC has not met its burden to support a 

dismissal based on failure to join necessary and indispensable parties.

III. CONCLUSION

For the foregoing reasons, the Court DENIES the CPUC‟s motion to dismiss.

This order disposes of Docket No. 31.

IT IS SO ORDERED.

Dated: July 20, 2016

______________________________________

EDWARD M. CHEN

United States District Judge

Case 3:15-cv-04375-EMC Document 46 Filed 07/20/16 Page 17 of 17