Court Opinion

ID: 4584975
Source: CourtListenerOpinion
Date Created: 2020-11-09 18:00:18.829059+00
Date Added: 2024-06-11T13:46:46.672809
License: Public Domain

FOR PUBLICATION

    UNITED STATES COURT OF APPEALS
         FOR THE NINTH CIRCUIT

 SAN FRANCISCO TAXI COALITION;                      No. 19-16439
 PATRICK O’SULLIVAN; GEORGE
 HORBAL; ALLIANCE CAB; S.F. TOWN                      D.C. No.
 TAXI INC.; SAI LEE,                               3:19-cv-01972-
                 Plaintiffs-Appellants,                WHA

                      v.
                                                      OPINION
 CITY AND COUNTY OF SAN
 FRANCISCO; SAN FRANCISCO
 MUNICIPAL TRANSIT AGENCY;
 JEFFREY TUMLIN, Director of
 Transportation,
               Defendants-Appellees.

         Appeal from the United States District Court
           for the Northern District of California
          William Alsup, District Judge, Presiding

                    Submitted July 16, 2020 *
                    San Francisco, California

                     Filed November 9, 2020

    *
      The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
2         S.F. TAXI COALITION V. CITY & CTY. OF S.F.

    Before: Kenneth K. Lee and Patrick J. Bumatay, Circuit
        Judges, and Roslyn O. Silver, ** District Judge.

                      Opinion by Judge Lee

                          SUMMARY ***

                            Civil Rights

    The panel affirmed the district court’s judgment on the
pleadings in favor of defendants, but remanded for the
district court to consider whether plaintiffs should be given
leave to amend some of their state law claims in an action
challenging regulations adopted in 2018 by the San
Francisco Municipal Transportation Agency which favored
recent owners of taxi permits (called “medallions”) over
those who obtained their permits years ago.

    The 2018 regulations favored taxi drivers who recently
obtained medallions from the City of San Francisco for
$250,000—only to see ridership dry up in the face of Uber
and Lyft and other ride-sharing services. For example, the
2018 regulations gave priority for lucrative airport pick-up
rides to recent medallion owners. Several taxi drivers, as
well as groups representing them, challenged the 2018
regulations as violating equal protection, substantive due

     **
       The Honorable Roslyn O. Silver, United States District Judge for
the District of Arizona, sitting by designation.
    ***
        This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
       S.F. TAXI COALITION V. CITY & CTY. OF S.F.           3

process, the California Environmental Quality Act (CEQA),
and state anti-age discrimination law.

    The panel held that rational basis review applied to the
equal protection claim because this case did not implicate
suspect or quasi-suspect classifications. The panel held that
the 2018 regulations were rationally related to the legitimate
government interests of aiding beleaguered taxi drivers and
easing taxi congestion at the airport. The panel held that the
City’s attempt to mitigate the fallout for those most affected
by a shift in the taxi market was a permissible state purpose,
even if some questioned its policy wisdom. The panel also
rejected plaintiffs’ invocation of substantive due process to
strike down the 2018 regulations.

    The panel held that plaintiffs’ pleadings failed to
plausibly allege that the 2018 regulations qualified as a
project under CEQA. The panel further held that plaintiffs
failed to plausibly allege that the 2018 regulations were
governed by California Government Code section 11135,
forbidding state actions that discriminate based on age. The
panel remanded for the district court to consider granting
leave to amend those claims in the event the taxi drivers
could allege additional facts to support them.

                        COUNSEL

Kenneth A. Brunetti and Gregory A. Rougeau, Brunetti
Rougeau LLP, San Francisco, California, for Plaintiffs-
Appellants.
4      S.F. TAXI COALITION V. CITY & CTY. OF S.F.

Dennis J. Herrera, City Attorney; Wayne K. Snodgrass,
Aileen M. McGrath, and James M. Emery, Deputy City
Attorneys; City Attorney’s Office, San Francisco,
California; for Defendants-Appellees.

                         OPINION

LEE, Circuit Judge:

    Uber, Lyft, and other ride-sharing services have been a
boon for commuters, but not so much for taxi drivers.
Particularly hard hit are taxi drivers who recently obtained
taxi permits (called “medallions”) from the City of San
Francisco for $250,000 — only to see ridership dry up in the
face of disruptive technology. In part to aid these taxi
drivers, the San Francisco Municipal Transportation Agency
(SFMTA) established several rules favoring recent owners
of taxi medallions over those who obtained theirs years ago.
So, for example, the new rules give priority for lucrative
airport pick-up rides to recent medallion owners.

    Several taxi drivers, as well as groups representing them,
challenged these new rules as violating equal protection,
substantive due process, the California Environmental
Quality Act (CEQA), and state anti-age discrimination law.
The district court granted the government’s motion for
judgment on the pleadings, ruling that the taxi drivers failed
to state plausible claims. We affirm. The rules are rationally
related to the legitimate government interests of aiding
beleaguered taxi drivers and easing taxi congestion at the
airport. We also affirm the judgment on the CEQA and age
discrimination claims, but we remand for the district court to
consider granting leave to amend those claims in the event
the taxi drivers can allege additional facts to support them.
       S.F. TAXI COALITION V. CITY & CTY. OF S.F.          5

                     BACKGROUND

I. San Francisco Enacts Rules Favoring Recent Taxi
   Medallion Owners.

    The SFMTA regulates taxis in San Francisco as well as
taxi traffic at San Francisco International Airport (SFO).
Importantly here, it issues taxi “medallions” to operate
within the City. In 1978, San Francisco voters approved
Proposition K, which established different rules depending
on whether the taxi driver acquired the medallion before or
after the passage of Proposition K (i.e., “Pre-K” or “Post-K”
medallions). In 2010, the SFMTA enacted regulations
further changing the medallion structure, resulting in three
classes: Pre-K (pre-1978), Post-K (1978 to 2010), and
Purchased medallions (post-2010). The precise differences
among the classes are not relevant here, other than that
Purchased medallion owners paid $250,000 to the City for
each medallion.

    Shortly after Purchased medallion owners began
ponying up a quarter-of-a-million dollars to buy taxi
medallions, ride-sharing services such as Uber and Lyft
disrupted the taxi industry. SFMTA retained consultants to
study the changing taxi market. The report found that
Purchased medallion holders faced severe financial hardship
because of high debt loads joined with fare loss to ride-
sharing services. It also determined that taxi drivers
clustered at SFO in search of high-value fares, causing
significant congestion and long wait times.

   In response to the consultants’ report, SFMTA adopted
numerous regulations (the “2018 Regulations”), some of
which are the focus of this litigation. Pre-K medallion
holders are now prohibited from picking up fares at SFO,
and Post-K medallion holders are disfavored from pickups
6       S.F. TAXI COALITION V. CITY & CTY. OF S.F.

with priority given at a fluctuating ratio to Purchased
medallion holders depending on demand.

II. Several Pre-K and Post-K Medallion Holders Sue the
    Government.

    The plaintiffs (the “Drivers”) sued San Francisco, the
SFMTA, and its director (collectively, the “City”) in state
court. The Drivers claimed, among other things, violations
of substantive due process and equal protection under both
state and federal constitutions, the California Environmental
Quality Act, and anti-age discrimination law under
California Government Code section 11135. The City
removed to federal court and filed a motion for judgment on
the pleadings. The district court granted the motion and
entered judgment dismissing the case. The district court held
that the challenged 2018 Regulations furthered three
legitimate state interests: decrease congestion at the airport,
increase taxi service within the city, and minimize financial
fallout for Purchased medallion holders “who have been
disproportionately crushed by the industry downturn.” The
court also held that the 2018 Regulations were not a
“project” under CEQA. Finally, the court found the
complaint lacked allegations sufficient to state a claim
sounding in state anti-age discrimination law.

    JURISDICTION AND STANDARD OF REVIEW

    We have jurisdiction under 28 U.S.C. § 1291, and review
judgments on the pleadings de novo. See Fajardo v. Cty. of
Los Angeles, 179 F.3d 698, 699 (9th Cir. 1999). This
analysis is “‘substantially identical’ to analysis under Rule
12(b)(6).” Chavez v. United States, 683 F.3d 1102, 1108 (9th
Cir. 2012) (internal citation omitted). Judgment “is properly
granted when, ‘taking all the allegations in the pleadings as
true, the moving party is entitled to judgment as a matter of
         S.F. TAXI COALITION V. CITY & CTY. OF S.F.                       7

law.’” Gregg v. Haw., Dep’t of Pub. Safety, 870 F.3d 883,
887 (9th Cir. 2017) (quoting Nelson v. City of Irvine,
143 F.3d 1196, 1200 (9th Cir. 1998)).

                             ANALYSIS

I. The Drivers’ Equal Protection and Substantive Due
   Process Claims Lack Merit.

   The Drivers have failed to plausibly allege that the 2018
Regulations violate equal protection or substantive due
process. 1

    Rational basis review applies to the equal protection
claim here because this case does not implicate suspect or
quasi-suspect classifications. See Ball v. Massanari,
254 F.3d 817, 823 (9th Cir. 2001). Under that standard, we
ask “whether the legislation bears a rational relationship to a
legitimate state interest.” Jackson Water Works, Inc. v. Pub.
Utils. Comm’n, 793 F.2d 1090, 1093–94 (9th Cir. 1986).
“Where a regulation or statute affects only economic . . .
interests,” as here, “the state is free to create any
classification scheme that does not invidiously
discriminate.” Id. at 1093. We must uphold the law if there

    1
        The Drivers brought claims under both federal and state
constitutional provisions. We analyze their claims in unison because
California law is functionally identical to federal law in this area. See,
e.g., Manduley v. Superior Court, 27 Cal. 4th 537, 571 (2002) (equating
state equal protection analysis to federal analysis); Love v. State Dep’t of
Educ., 29 Cal. App. 5th 980, 989 (2018) (applying federal law to a state
substantive due process claim); but see Barri v. Workers’ Comp. Appeals
Bd., 28 Cal. App. 5th 428, 462 (2018) (“Analysis under [the due process
clause of the California Constitution] differs from that conducted
pursuant to the federal due process clause in that the claimant need not
establish a property or liberty interest as a prerequisite to invoking due
process protection.”) (internal citations omitted).
8       S.F. TAXI COALITION V. CITY & CTY. OF S.F.

are “‘plausible,’ ‘arguable,’ or ‘conceivable’ reasons which
may have been the basis for the distinction.” Id. at 1094
(quoting Brandwein v. Cal. Bd. of Osteopathic Exam’rs,
708 F.2d 1466, 1472 (9th Cir. 1983)).

    Here, the 2018 Regulations rationally serve legitimate
purposes, and the Drivers fail to state a plausible claim
otherwise. The City provides three interests motivating the
2018 Regulations: (1) reducing traffic congestion at the
airport; (2) encouraging drivers to service the City; and
(3) mitigating economic fallout for Purchased medallion
owners.

    There can be no dispute that the first two interests are
legitimate. See, e.g., Sproles v. Binford, 286 U.S. 374, 394
(1932) (preservation and management of a state’s highway
system, including “fair distribution of traffic,” is a legitimate
interest). The Drivers concede that taxi operators cluster at
SFO because those riders offer high-value fares compared to
trips within the City. They also admit that an oversupply of
taxis at SFO leads to a shortage within the City.

    The parties focus mainly on the third proffered interest
— alleviating economic harm for Purchased medallion
holders. The Drivers claim that the 2018 Regulations are
pretext for impermissibly propping up the Purchased
medallion market. But the only case cited in support is City
of Cleburne v. Cleburne Living Center, 473 U.S. 432 (1985).
That case involved “an irrational prejudice against the
mentally retarded.” Id. at 450. The Drivers, however, do not
allege any similar irrational prejudices. Instead, their claim
boils down to simple disagreement with the City’s efforts to
balance the economic benefits and burdens of a regulated
industry.
        S.F. TAXI COALITION V. CITY & CTY. OF S.F.           9

    The Drivers also claim that the City’s actions amount to
impermissible economic favoritism. For this, the Drivers cite
our court’s opinion in Merrifield v. Lockyer, 547 F.3d 978,
991 (9th Cir. 2008). Merrifield involved a state law requiring
controllers of non-vertebrate animals to obtain a pesticide
license but did not require it for those controlling vertebrate
animals. See id. at 988–89. The appellant there claimed that
the distinction based on the type of pest controlled violated
equal protection. See id. The Merrifield court held that the
law failed rational basis review because there simply was no
reasonable basis for the difference in treatment: the licensing
scheme “specifically singles out pest controllers like
Merrifield,” and was supported by “a rationale so weak that
it undercuts the principle of non-contradiction.” Id. at 991.
The court favorably cited a Sixth Circuit decision holding
that “the singling out of a particular economic group, with
no rational or logical reason for doing so, was strong
evidence of an economic animus with no relation to public
health, morals or safety.” Id. at 989 (citing Craigmiles v.
Giles, 312 F.3d 220, 227–29 (6th Cir. 2002)). The Drivers
latch onto a single footnote in Merrifield to argue that the
City’s taxi rules do not pass muster under rational basis
review: “[M]ere economic protectionism for the sake of
economic protectionism is irrational with respect to
determining if a classification survives rational basis
review.” Id. at 991 n.15.

    Not so here. Softening the economic fallout for
Purchased medallion holders is a permissible state purpose
and not a “naked attempt to raise a fortress” around them to
insulate them from competition. Craigmiles, 312 F.3d
at 229. The regulations do not single out Purchased
medallion holders for favorable treatment with “no rational
or logical reason for doing so.” Merrifield, 547 F.3d at 989.
Rather, the rational reason is plain: Purchased medallion
10      S.F. TAXI COALITION V. CITY & CTY. OF S.F.

holders bought or financed expensive permits from the City
only to have the rug pulled out from under them by an
unexpected disruptive technology. That the City would try
to mitigate the fallout for those most affected by a shift in
the market is a permissible state purpose, even if some may
question its policy wisdom.

    Merrifield stands for the unremarkable proposition that
no rational basis exists if the law lacks any legitimate reason
for its adoption. The Drivers ask us to read Merrifield to
mean something much more. For better or for worse,
governmental regulations today typically benefit some
groups and burden others. So long as there are other
legitimate reasons for the economic distinction, we must
uphold the state action. In short, Merrifield provides an outer
limit to the state’s authority if the state’s action borders on
corruption, pure spite, or naked favoritism lacking any
legitimate purpose. This case, however, does not come close
to that outer bound.

    The Drivers also claim that the 2018 Regulations fail to
advance the stated interests because they do not increase taxi
service within the City or decrease congestion at SFO. The
record suggests otherwise. Taxis routinely circle the airport
waiting for a ride, while riders in the City experience long
wait times because hundreds of taxis sit idle at the airport.
Moreover, the Drivers do not appear to argue that the 2018
Regulations fail to advance the goal of minimizing economic
fallout to Purchased medallion holders. That concession
alone is enough to end the inquiry. See Armour v. City of
Indianapolis, 566 U.S. 673, 681 (2012) (the burden is on the
challenging party to “negative every conceivable basis
which might support it”) (internal quotations and citation
omitted).
         S.F. TAXI COALITION V. CITY & CTY. OF S.F.                 11

    Finally, while the Drivers (for good reason) do not
explicitly raise the revival of Lochner, they allude to the
specter of substantive due process. See Lochner v. New York,
198 U.S. 45 (1905). 2 They implicitly invite this court to
engage in a free-wheeling policy judgment and invoke
substantive due process to strike down a law that they
believe is inequitable and ill-advised. But the Lochner
Monster submerged decades ago and should not resurface.
See, e.g., Stop the Beach Ren., Inc. v. Fla. Dep’t of Envtl.
Prot., 560 U.S. 702, 721 (2010) (warning against reasoning
that “propels us back to . . . ‘the Lochner era’”). 3

II. The 2018 Regulations Do Not Qualify as a “Project”
    Under CEQA.

    The district court properly held that, based on the
allegations in the complaint, the 2018 Regulations do not
qualify as a “project” under CEQA. CEQA sets forth a
three-tiered system to evaluate agency action for
environmental effects:

        First, the agency must determine whether the
        proposed activity is subject to CEQA at all.
        Second, assuming CEQA is found to apply,
        the agency must decide whether the activity
        qualifies for one of the many exemptions that

    2
     The complaint included a substantive due process claim, and the
Drivers’ briefing references “substantive due process” several times,
though it never articulates an argument based on it.
    3
        But see David E. Bernstein, Rehabilitating Lochner (2011)
(arguing that the Supreme Court correctly decided Lochner and that it
has been unfairly maligned); cf. also Loch Ness Monster ‘might be real’
after scientists make ‘surprising’ discovery, BBC (June 3, 2019),
https://www.bbc.co.uk/newsround/48499253.
12      S.F. TAXI COALITION V. CITY & CTY. OF S.F.

        excuse otherwise covered activities from
        CEQA’s environmental review. Finally,
        assuming no applicable exemption, the
        agency must undertake environmental review
        of the activity[.]

Union of Med. Marijuana Patients, Inc. v. City of San Diego,
7 Cal. 5th 1171, 1185 (2019).

    Relevant to this appeal is the first tier, which requires the
agency to “conduct a preliminary review to determine
whether the proposed activity constitutes a ‘project’ for
purposes of CEQA.” Id. To do this, an agency looks to the
“general nature” of a proposed action to determine whether
“the activity is capable of causing a direct or reasonably
foreseeable indirect physical change in the environment.” Id.
at 1197. “[A]n indirect effect is not reasonably foreseeable
if . . . the postulated causal mechanism connecting the
activity and the effect is so attenuated as to be ‘speculative.’”
Id. If the activity is not a project under CEQA, then the
action is not subject to CEQA at all. See Muzzy Ranch Co. v.
Solano Cty. Airport Land Use Comm’n, 41 Cal. 4th 372, 380
(2007).

    The nub of the Drivers’ argument is that the 2018
Regulations potentially impact the environment by
increasing “deadhead” trips to and from SFO. They argue
that Pre-K and Post-K medallion holders will still transport
passengers to the airport, but now they will be inclined or
required to return to the City without passengers. Similarly,
Purchased medallion holders with priority at SFO will make
trips without passengers to the airport to secure high-paying
fares shuttling riders back into the City. This, the Drivers
claim, “will encourage and promote hundreds of additional
trips on Highway 101 [daily].”
         S.F. TAXI COALITION V. CITY & CTY. OF S.F.                   13

    But the complaint has not plausibly alleged that the 2018
Regulations increase the number of taxis in circulation or
authorize more fares. Instead, they merely allocate existing
fares among classes of medallion holders. Put another way,
the taxis will continue to operate — and produce emissions
and traffic — no matter if they are driving to and from SFO
or within the City. At least based on the complaint, the
assertion of significant environmental change appears to rest
on speculation. Thus, the 2018 Regulations are not a project
per CEQA, and the Drivers pleadings fail to plausibly claim
otherwise. 4

III.     The Drivers’ Age Discrimination Claim Fails.

    The Drivers argue that the 2018 Regulations violate state
anti-age discrimination law. But the Drivers fail to plausibly
allege in their complaint that the 2018 Regulations are
governed by California Government Code section 11135
forbidding state actions that discriminate based on age.
California law provides in relevant part: “No person in the
State of California shall, on the basis of . . . age . . . be
unlawfully denied full and equal access to the benefits of, or
be unlawfully subjected to discrimination under, any
program or activity that is . . . administered by the state . . . ,
is funded directly by the state, or receives any financial

     4
       The California Supreme Court’s recent decision, Union of Medical
Marijuana Patients, Inc. v. City of San Diego, 7 Cal. 5th 1171 (Cal.
2019), is not to the contrary. The court there acknowledged that potential
increased traffic arising from 30 new marijuana dispensaries may
implicate CEQA, but that was in large part because those marijuana
establishments may “result in retail construction to accommodate the
businesses.” See id. at 1199. Cf. also Harold & Kumar Go to White
Castle (2004) (the two protagonists in the film embark on a long journey
to find sustenance after partaking in certain recreational activity). The
complaint here does not allege such compounding traffic problems.
14      S.F. TAXI COALITION V. CITY & CTY. OF S.F.

assistance from the state.” Cal. Gov’t Code § 11135(a). The
relevant “hook” here is whether the state has provided
funding or financial assistance. The Drivers allege in their
pleadings only one fact on the matter: “The SFMTA receives
state funding, including but [not] limited to, State Transit
Assistance funds, for a variety of its transportation programs
and activities.”

    The Drivers essentially argue in their pleadings that
because the SFMTA receives state funding for various
programs, every subsequent action by the SFMTA triggers
section 11135’s prohibitions. The City counters that the
state funding must be directed to the program challenged —
the taxi medallion program in this case.

     Comunidad en Accion v. L.A. City Council is instructive
here. 219 Cal. App. 4th 1116 (2013). There, a local
community group challenged Los Angeles’s siting decision
for a solid waste processing facility under section 11135. See
id. at 1121. The City’s Planning Department ultimately made
the siting decision. See id. at 1121–22. The community
group asserted that section 11135 applied because one of the
City’s governmental units, the Local Enforcement Agency
(LEA), received state funding for inspections of solid waste
facilities. See id. at 1122–23. The Comunidad en Accion
court held that for purposes of summary judgment, “the state
grants made to the LEA do not raise a triable issue of
material fact indicating that the alleged violations of section
11135 were part of a City program receiving state funding.”
Id. at 1124. This was so despite the LEA being “housed in
the City Department of Building and Safety” and staffed by
City employees. Id. at 1122. The court reasoned that because
the LEA had an “independent legal existence” from the City,
receipt of state funds by the LEA did not provide a nexus for
section 11135 to cover the rest of the City’s actions. Id. at
       S.F. TAXI COALITION V. CITY & CTY. OF S.F.       15

1128. The court noted that to hold otherwise would be
“inconsistent with section 11135” because it would require
finding that state funds directed to any number of city
departments (including the library, police, and parks and
recreation, among others) “would constitute funding of the
waste management program.” Id. at 1128–29. Put another
way, the state’s infusion of money into one arm of local
government does not necessarily reach all limbs and digits
of that government and thus it does not extend the state’s
anti-discrimination law to every local government activity.

    Returning to San Francisco and taxis, the Drivers make
only the bare assertion that because the SFMTA generally
receives some unknown quantity of state funding, section
11135 applies to the taxi medallion program. Based on that
cursory allegation in the complaint, the Drivers have not
plausibly alleged that section 11135 governs the taxi
medallion system.

                     CONCLUSION

    We AFFIRM the district court’s grant of the City’s
motion for judgment on the pleadings. We remand,
however, for the district court to consider whether the
plaintiffs should be given leave to amend their state law
claims.