Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-16-02009/USCOURTS-ca7-16-02009-0/pdf.json

Nature of Suit Code: 440
Nature of Suit: Other Civil Rights
Cause of Action: 

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In the 

United States Court of Appeals 

For the Seventh Circuit ____________________

Nos. 16‐2009, ‐2077, & ‐2980

ILLINOIS TRANSPORTATION TRADE ASSOCIATION, et al.,

Plaintiffs‐Appellants,

v.

CITY OF CHICAGO,

Defendant‐Appellee,

and

DAN BURGESS, et al.,

Intervening Defendants‐Appellees.

____________________

Appeals from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 1:14‐cv‐00827 — Sharon Johnson Coleman, Judge.

____________________

ARGUED SEPTEMBER 19, 2016 — DECIDED OCTOBER 7, 2016

____________________

Before POSNER, WILLIAMS, and SYKES, Circuit Judges.

POSNER, Circuit Judge. This case, closely parallel to Joe

Sanfelippo Cabs, Inc. v. City of Milwaukee, No. 16‐1008, also de‐

cided today, involves constitutional challenges to the en‐

Case: 16-2009 Document: 75 Filed: 10/07/2016 Pages: 10
2 Nos. 16‐2009, ‐2077, ‐2980

deavor of a city (Chicago in this case, Milwaukee in the oth‐

er) to stimulate greater competition in the “for‐hire auto

transportation market.” That is the market composed of

owners of taxicabs that one hails on the street, of livery ser‐

vices, which are usually summoned by phone (as for that

matter taxis sometimes are), and of the newer auto‐transport

services for hire, of which the best known is Uber (the sec‐

ond best known is Lyft); generically these services are

known either as Transportation Network Providers (TNPs)

or as ridesharing services.

Because the acronym TNPs is not well known, nor the

term ridesharing services, but Uber is very well known,

we’ll focus on Uber, which “at its core ... is just an app that

you download to your smartphone and use to get a nearby

Uber driver to come pick you up. While some taxi services

are getting on board with these newfangled apps most for‐

rent cars still wait at the taxi stand or require you to give the

service dispatch center a call in advance. Uber doesn’t do

that. ... You can only hitch an Uber ride via the service’s

app.” Kristen Hall‐Geisler, “5 Ways Uber Is Really Different

from a Regular Taxi,” http://auto.howstuffworks.com/tech‐

transport/5‐ways‐uber‐really‐different‐from‐regular‐taxi1.ht

m (visited Oct. 6, 2016, as was the other website in this opin‐

ion). (However, Uber has now added a feature that allows

customers to schedule an Uber pickup in advance. See Ub‐

er.com, “Scheduled Ride for Extra Peace of Mind,”

www.uber.com/info/scheduled‐rides/.) There are other dif‐

ferences, which many consumers consider advantages of

Uber over taxis: the storage of payment information, so that

one does not need to be carrying cash or a credit card; the

ability to see a time estimate of how long a pickup will take

and also a driver’s rating by past users; and the ability to re‐

Case: 16-2009 Document: 75 Filed: 10/07/2016 Pages: 10
Nos. 16‐2009, ‐2077, ‐2980 3

quest a ride from wherever one is (e.g., from the comfort of

home, inside during the rain) rather than by hailing on a

street).

The plaintiffs are companies that own and operate either

taxicabs or livery vehicles in Chicago or that provide ser‐

vices to such companies, such as loans and insurance. Taxi

companies are tightly regulated by the City regarding driver

and vehicle qualifications, licensing, fares, and insurance;

livery companies are also tightly regulated, but we won’t

need to discuss them separately. Uber (which remember

we’re treating as representative of the TNPs) is less heavily

regulated than the taxi and livery companies (until 2014 it

wasn’t regulated at all) and has a different business model.

For example, you can’t hail an Uber vehicle on the street;

you must use a smartphone app to summon an Uber car.

Since 2014 Uber and the other TNPs have been governed by

an ordinance, but it is different from the ordinances govern‐

ing taxi and livery services and more permissive; for exam‐

ple, it allows the companies to set their own fares, and in this

and other ways allows them to do by contract some of the

things that Chicago ordinances require taxi and livery com‐

panies to do.

The plaintiffs challenge the ordinance on seven grounds,

of which four are based on the U.S. Constitution and the

other three on Illinois law. The district judge dismissed all

but the two claims that accuse the City of denying the equal

protection of the laws by allowing the TNPs to compete with

taxi and livery services without being subject to all the regu‐

lations governing those services. The plaintiffs appeal the

district judge’s dismissal of five of their claims and the City

appeals the judge’s refusal to dismiss the other two as well.

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4 Nos. 16‐2009, ‐2077, ‐2980

All seven of the plaintiffs’ claims are weak. The first is

that allowing the TNPs into the taxi and livery markets has

taken away the plaintiffs’ property for a public use without

compensating them. A variant of such a claim would have

merit had the City confiscated taxi medallions, which are the

licenses that authorize the use of an automobile as a taxi.

Confiscation of the medallions would amount to confiscation

of the taxis: no medallion, no right to own a taxi, Boonstra v.

City of Chicago, 574 N.E.2d 689, 694–95 (Ill. App. 1991),

though the company might be able to convert the vehicle to

another use. Anyway the City is not confiscating any taxi

medallions; it is merely exposing the taxicab companies to

new competition—competition from Uber and the other

TNPs.

“Property” does not include a right to be free from com‐

petition. A license to operate a coffee shop doesn’t authorize

the licensee to enjoin a tea shop from opening. When proper‐

ty consists of a license to operate in a market in a particular

way, it does not carry with it a right to be free from competi‐

tion in that market. A patent confers an exclusive right to

make and sell the patented product, but no right to prevent a

competitor from inventing a noninfringing substitute prod‐

uct that erodes the patentee’s profits. Indeed when new

technologies, or new business methods, appear, a common

result is the decline or even disappearance of the old. Were

the old deemed to have a constitutional right to preclude the

entry of the new into the markets of the old, economic pro‐

gress might grind to a halt. Instead of taxis we might have

horse and buggies; instead of the telephone, the telegraph;

instead of computers, slide rules. Obsolescence would equal

entitlement.

Case: 16-2009 Document: 75 Filed: 10/07/2016 Pages: 10
Nos. 16‐2009, ‐2077, ‐2980 5

Taxi medallions authorize the owners to own and oper‐

ate taxis, not to exclude competing transportation services.

The plaintiffs in this case cannot exclude competition from

buses or trains or bicycles or liveries or chartered sight‐

seeing vehicles or jitney buses or walking; indeed they can‐

not exclude competition from taxicab newcomers, for the

City has reserved the right (which the plaintiffs don’t chal‐

lenge) to issue additional tax medallions. Why then should

the plaintiffs be allowed to exclude competition from Uber?

To this question they offer no answer.

All that the City gives taxi‐medallion owners is the right

to operate taxicabs in Chicago, see Municipal Code of Chica‐

go § 9‐112‐020(b) (a parallel provision, § 9‐114‐020(b), gov‐

erns liveries). That isn’t a right to exclude competitive pro‐

viders of transportation. As pointed out in Boston Taxi Own‐

ers Ass’n, Inc. v. City of Boston, 2016 WL 1274531, at *5 (D.

Mass. March 31, 2016), “if a person who wishes to operate a

taxicab without a medallion is prevented from doing so, it is

because he or she would violate municipal regulations, not

because he or she would violate medallion owners’ property

rights.” Section 9‐112‐020(b) of the Municipal Code, cited

above, which has been on the books since 1963, entitles the

medallion owners to be the exclusive providers of taxi ser‐

vice, but not to exclude alternatives to the service they offer.

The City has created a property right in taxi medallions; it

has not created a property right in all commercial transpor‐

tation of persons by automobile in Chicago.

The plaintiffs continue to receive some insulation from

competition, because they alone are permitted to operate

taxicabs in Chicago. Taxicabs are preferred to Uber and oth‐

er TNPs by many riders, because you don’t have to use an

Case: 16-2009 Document: 75 Filed: 10/07/2016 Pages: 10
6 Nos. 16‐2009, ‐2077, ‐2980

app to summon them—you just wave at one that drives to‐

ward you on the street—and also because the fares are fixed

by the City.

The plaintiffs argue that the City has discriminated

against them by failing to subject Uber and the other TNPs

to the same rules about licensing and fares (remember that

taxi fares are set by the City) that the taxi ordinance subjects

the plaintiffs to. That is an anticompetitive argument. Its

premise is that every new entrant into a market should be

forced to comply with every regulation applicable to incum‐

bents in the market with whom the new entrant will be

competing.

Here’s an analogy: Most cities and towns require dogs

but not cats to be licensed. There are differences between the

animals. Dogs on average are bigger, stronger, and more ag‐

gressive than cats, are feared by more people, can give peo‐

ple serious bites, and make a lot of noise outdoors, barking

and howling. Feral cats generally are innocuous, and many

pet cats are confined indoors. Dog owners, other than those

who own cats as well, would like cats to have to be licensed,

but do not argue that the failure of government to require

that the “competing” animal be licensed deprives the dog

owners of a constitutionally protected property right, or al‐

ternatively that it subjects them to unconstitutional discrimi‐

nation. The plaintiffs in the present case have no stronger

argument for requiring that Uber and the other TNPs be

subjected to the same licensure scheme as the taxi owners.

Just as some people prefer cats to dogs, some people prefer

Uber to Yellow Cab, Flash Cab, Checker Cab, et al. They pre‐

fer one business model to another. The City wants to en‐

Case: 16-2009 Document: 75 Filed: 10/07/2016 Pages: 10
Nos. 16‐2009, ‐2077, ‐2980 7

courage this competition, rather than stifle it as urged by the

plaintiffs, who are taxi owners.

So there is no merit to the plaintiffs’ claim that the City

has taken property from them without compensation, and

there is also no need to discuss four of their six other claims,

which whether based on the Constitution or on Illinois

common law add nothing to the takings claim. The two ad‐

ditional claims we do need to discuss are the equal protec‐

tion claims, because those are the claims that the district

judge thought had sufficient potential merit to survive a mo‐

tion to dismiss. She ruled that the City, by failing to place as

many regulatory burdens on the TNPs as on the taxicab

companies, might have denied the latter the equal protection

of the law. But this was taking equal protection literally, and

it should not be taken so. Otherwise prospective entrants to

a market who had lower costs than incumbent firms would

not be allowed to enter the market unless some regulatory

entity burdened the new entrants with regulations, whether

or not necessary or even appropriate, that eliminated any

cost advantage the new entrants would otherwise have in

competing with the incumbent firms. The imposition of such

an impediment to competition and disservice to consumers

would be absurd.

The proper question to ask regarding equal protection is

whether the regulatory differences between Chicago taxicabs

and Chicago TNPs are arbitrary or defensible, and the City

makes a compelling case that they’re the latter. Taxis but not

TNPs are permitted to take on as passengers persons who

hail them on the street. Rarely will the passenger have a pri‐

or relationship with the driver, and often not with the taxi‐

cab company either; and it makes sense therefore for the

Case: 16-2009 Document: 75 Filed: 10/07/2016 Pages: 10
8 Nos. 16‐2009, ‐2077, ‐2980

City to try to protect passengers by screening the taxi drivers

to assure that they’re competent and by imposing a uniform

system of rates based on time or distance or both. So taxi

service is regulated by the City of Chicago, but so is TNP

service, though differently because the service is different

from taxi service. A major difference is that customers, ra‐

ther than being able to hail an Uber car, must sign up with

Uber before being able to summon it, and the sign up creates

a contractual relationship specifying such terms as fares,

driver qualifications, insurance, and any special need of the

potential customer owing to his or her having a disability.

Unlike taxicab service Uber assumes primary responsibility

for screening potential drivers and hiring only those found

to be qualified, and the passengers receive more information

in advance about their prospective rides—information that

includes not only the driver’s name but also pictures of him

(or her) and of the car. Furthermore, the TNPs use part‐time

drivers extensively, and it is believed that these part‐timers

drive their cars fewer miles on average than taxicab drivers,

who are constantly patrolling the streets in hope of being

hailed; and the fewer miles driven the less likely a vehicle is

to experience wear and tear that may impair the comfort of a

ride in it and even increase the risk of an accident or a

breakdown.

There are enough differences between taxi service and

TNP service to justify different regulatory schemes, and the

existence of such justification dissolves the plaintiffs’ equal

protection claim. Different products or services do not as a

matter of constitutional law, and indeed of common sense,

always require identical regulatory rules. The fallacy in the

district judge’s equal protection analysis is her equating her

personal belief that there are no significant differences be‐

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Nos. 16‐2009, ‐2077, ‐2980 9

tween taxi and TNP service with the perception of many

consumers that there are such differences—a perception

based on commonplace concerns with convenience, rather

than on discriminatory or otherwise invidious hostility to

taxicabs or their drivers. If all consumers thought the ser‐

vices were identical and that there was therefore no ad‐

vantage to having a choice between them, TNPs could never

have gotten established in Chicago.

Suppose the district judge happened to think dogs and

cats interchangeable, and on that ground ruled that requir‐

ing dogs but not cats to be licensed (the law in Chicago) was

a violation of equal protection. The proper response would

be that she is entitled to her opinion but not entitled to im‐

pose it when the market perceives, and as we noted earlier

has reasonable and nondiscriminatory grounds for perceiv‐

ing, a rational difference between the competing animals

that she does not perceive. Her belief that taxis and TNPs are

interchangeable is similarly not shared by the entire relevant

consumer market.

A “legislature, having created a statutory entitlement, is

not precluded from altering or even eliminating the entitle‐

ment by later legislation. Were the rule otherwise, ‘statutes

would be ratchets, creating rights that could never be re‐

tracted or even modified without buying off the groups up‐

on which the rights had been conferred.’” Dibble v. Quinn,

793 F.3d 803, 809 (7th Cir. 2015), quoting Pittman v. Chicago

Board of Education, 64 F.3d 1098, 1104 (7th Cir. 1995); see also

Wisconsin & Michigan Ry. Co. v. Powers, 191 U.S. 379, 387

(1903) (“the legislature is not making promises, but framing

a scheme of public revenue and public improvement”).

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10 Nos. 16‐2009, ‐2077, ‐2980

Beginning in the 1970s a deregulation movement swept

the country, powered by the belief that competition is often a

superior alternative to regulation. Entire agencies vanished,

such as the Civil Aeronautics Board, which had greatly lim‐

ited competition in the airline industry. Many cities loosened

the regulatory limitations on taxi services—and this well be‐

fore there were any TNPs. See Adrian T. Moore & Ted Ba‐

laker, “Do Economists Reach a Conclusion on Taxi Deregu‐

lation?” 3 Econ Journal Watch 109, 111 (2006). The deregula‐

tion movement has surged with the advent of the TNPs.

Chicago, like Milwaukee in our companion Sanfelippo case,

has chosen the side of deregulation, and thus of competition,

over preserving the traditional taxicab monopolies. That is a

legally permissible choice.

The judgment of the district court is affirmed in all but

that court’s ruling on the plaintiffs’ equal protection claims;

that ruling is reversed with instructions to dismiss those

claims with prejudice.

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