Excessive Taxicab Regulations: Running Roughshod over Economic Liberty


Nov 29th, 2012
by Staff Writer

this report.

Excessive Taxicab Regulations:

Running Roughshod over Economic Liberty

North Carolina Institute for Constitutional Law[1]

November 27, 2012

Cities and towns across North Carolina subject taxicab companies and drivers to a litany of regulations. Many people assume those regulations are legitimate, but a closer look reveals that taxicab regulations are often not only unnecessary but also unconstitutional. This paper considers, for example, the regulations imposed by the City of High Point.

High Point’s Regulations

             High Point’s regulations may be narrowed to two categories: (1) requirements for obtaining a certificate to operate; and (2) regulations concerning company and driver operations. These regulations function as a restriction on entering the taxicab business and staying in the business. Ultimately, this limits the supply of cab services available to the public. Moreover, the regulations run afoul of federal and state constitutional guarantees.

             Before diving into a discussion of the constitutional infirmities of High Point’s excessive cab regulations, it is important to understand what the regulations are. It is also important to understand that violations of any cab regulation can result in not only a $75 per offense civil penalty but also criminal charges subjecting the offender to up to a $500 fine and 30 days in jail pursuant to N.C. Gen. Stat. § 14-4 and the High Point Code of Ordinances §§ 11-2-1, -3, -4, -10.

             Now that the consequences of violating a cab regulation are clear, you must be wondering what the regulations are. First are regulations regarding a certificate to operate—what a person needs to start a cab business. Second are regulations governing cab drivers and the ongoing operation of a cab business.

 1. Regulations Concerning a Certificate to Operate

 All applicants for certificates to operate a cab company in High Point must satisfy the following seven eligibility requirements:

 

(1)            Maintain a fleet of at least seven cabs;

(2)            Serve the entire city area;

(3)            Operate 24 hours a day, seven days a week;

(4)            Operate a dispatch service 24 hours a day, seven days a week;

(5)            Offer accessibility through a toll free number for callers within High Point 24 hours a day, seven days per week;

(6)            Maintain a cab operations office inside the city limits; and

(7)            Obtain approval from city council as to responsibility and willingness to comply with all cab regulations.

High Point Code of Ordinances § 11-2-10.

 Applications have to be filed in November but are considered by the city council in February or March of the following year. Id. § 11-2-11. Before making a final decision on whether to issue a certificate to operate, the city council conducts a public hearing after giving notice to all current certificate holders and all applicants from the previous November. Id. § 11-2-12. In short, that means the city tells a prospective cab company’s competitors that someone wants to compete with their business. Worse than that, in deciding whether to issue new certificates, the city must consider the adequacy of existing transportation services. So, if the city council thinks—or is persuaded by existing cab companies— that existing companies are adequate, a new company might not be allowed to start. Instead of the needs of customers driving whether new cab companies enter the market and offer competitive services, city officials pick who wins and who loses in the approval process.

The city has to consider alongside the application of a prospective cab company:

(1)            Adequacy of existing transportation services (public and private);

(2)            Probable permanence and quality of applicant’s services;

(3)            Adequacy of applicant’s insurance;

(4)            Number and condition of the vehicles and terminals;

(5)            Applicant’s experience in the taxicab industry; and

(6)            Applicant’s character.

Id. § 11-2-13.

             One of the above listed criteria—the adequacy of the applicant’s insurance—warrants extra attention because High Point’s liability insurance requirement is significantly higher than the state-mandated amount for all cab operations in North Carolina. See N.C. Gen. Stat. 20-280. North Carolina requires liability limits of $30,000 for one person, $60,000 for two or more persons, and $25,000 property damage, but High Point increases the requirement to $50,000 per person, $100,000 per accident, and $50,000 property damage. Interestingly, High Point’s requirements used to be even higher, but due to pressure from current cab companies, the taxicab inspector and the city council lowered the rates.[2] Companies had complained that they could not afford to stay in business at the current price/mileage rates because of the insurance requirement. Importantly, High Point’s taxicab inspector admitted that taxicabs are no more likely to be involved in an accident than any other vehicle.[3]

The city council can grant a certificate for the number of taxicabs requested or for a lesser number of taxicabs, or the city can simply deny the application in its discretion. Id. § 11-2-14. If awarded a certificate to operate, a cab company is still subject to the city council’s discretion because the city council still has discretion to revoke the certificate. Id. § 11-2-16(a). Also, the city manager may suspend a certificate for up to thirty days without the city council’s approval. Id. A certificate holder is entitled to only five days notice before suspension or revocation. Id. § 11-2-16(b).

2. Regulations Concerning Driver and Company Operations

            Drivers must independently obtain a permit from the city to work for a cab company. This permit is in addition to the driver’s license they must obtain from the state. High Point Code of Ordinances § 11-2-47; N.C. Gen. Stat. § 20-37.12. Cab drivers must abide by several regulations including rules about the rates they may charge. Drivers and cab companies may not charge more than the rates allowed by the taxicab inspector as set in an approved taximeter installed in the vehicle. Id. § 11-2-57. Drivers must charge a flat rate, agreed upon with the passenger, for trips to a destination outside the High Point city limits. Id.

             Several regulations govern taxicab company operations. Companies must keep all their cars in sufficient working condition—which they would be inclined to do anyway since inoperable cabs do not produce revenue for the cab company— and each cab must bear the appropriate color and marking scheme representing the particular company. Id. § 11-2-30, -31, -32. Every year companies must have all of their cabs inspected by the taxicab inspector and pay the fees associated with such inspection. Id. § 11-2-36. This inspection is in addition to annual state vehicle inspections.

Constitutional Flaws

1. United States Constitution

            The Fourteenth Amendment guarantees that every American will enjoy due process of law and equal protection of the law. Excessive regulations like the taxicab regulations imposed by High Point violate those guarantees and are ripe for a lawsuit. For a plaintiff to win, he or she must prove either 1) that the state has no valid interest, or 2) that the state chose a means of achieving a valid interest that is not rationally related to that interest.

     The main factual grounds for such litigation are the seven-car minimum, the once-a-year application window, the local office requirement, and the 24 hour a day, seven day a week operation requirement. All of these, when combined with the fact that very few cab companies operate in High Point, suggest that the city council’s true justification for blocking a small cab company from entering the market is cronyism and economic protectionism of established business interests, not public safety.

          Although the Tenth Circuit has held that economic protectionism alone is a valid state interest under the Fourteenth Amendment, see Powers v. Harris, 379 F.3d. 1208 (10th Cir. 2004), other courts have taken a decidedly different view. The Sixth Circuit held just the opposite of the Tenth Circuit explaining that economic protection is not a valid state interest. Craigmiles v. Giles, 312 F.3d 220, 224 (6th Cir. 2002). Recently, the U.S. District Court of the Eastern District of Louisiana held consistent with the Sixth Circuit. Saint Joseph Abbey v. Castille, 835 F.Supp. 2d 149 (2011). The state appealed the case and the Fifth Circuit decided that if Louisiana’s Supreme Court determines that the regulatory board has acted pursuant to state law, then the law is in violation of the United States’ Constitution. See St. Joseph Abbey v. Castille, Slip. Op. 11-30756 at 10, 22-23(5th Cir. 2012) (“As we see it, neither precedent nor broader principles suggest that mere economic protection of a pet industry is a legitimate governmental purpose . . . .”); Craigmiles, 312 F.3d at 224 (“Courts have repeatedly recognized that protecting a discrete interest group from economic competition is not a legitimate governmental purpose.”). The United States Supreme Court has suggested the same principle. See City of Phila. v. New Jersey, 437 U.S. 617, 624 (1978) (“Thus, where simple economic protectionism is effected by state legislation, a virtually per se rule of invalidity has been erected.”); see also Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 411 (1983); H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 537-38 (1949)).

2. North Carolina State Constitution

            The North Carolina State Constitution provides: “Perpetuities and monopolies are contrary to the genius of a free state and shall not be allowed.” N.C. Const. Art. I § 34.    In excluding whole categories of taxicab companies—those that cannot operate 24 hours a day, seven days a week and/or provide at least seven cars—High Point in essence encourages monopolization. This runs afoul of the state constitution’s prohibition against perpetuities and monopolies.

             A taxicab cap does not create a monopoly in one company in the traditional sense of the term but rather in a group of bigger companies.  Case law suggests that the courts will find violations of the anti-monopoly clause as a result of regulations of particular industries. See State v. Balance, 229 N.C. 764, 772 (1949) (“A state cannot under the guise of protecting the public arbitrarily interfere with private business or prohibit lawful occupations or impose unreasonable and unnecessary restrictions on them”); See also State v. Harris, 216 N.C. 746, 761 (1940). In striking down licensing requirements for tile contractors, the North Carolina Supreme Court explained the challenged law “has as its main and controlling purpose not health, not safety, not morals, not welfare, but a tight control of tile contracting in perpetuity by those already in the business. … It tends to promote a monopoly in what is essentially a private business.” Roller v. Allen, 245 N.C. 516, 525-526 (1957).

Conclusion

Excessive regulations stifle entrepreneurship, drive up the cost of services and goods for consumers, and frequently violate constitutional guarantees. Taxicab regulations are no different. Using High Point’s taxicab regulations as an example, this paper highlights both the commonsense absurdity and the constitutional flaws of excessive regulation. In the months and years to come, regulatory reform at the state and local level can ensure economic liberty for small businesses while protecting public safety and complying with the Constitution.



[1] For more information about this or related topics, please see NCICL’s website, www.ncicl.org, or contact Executive Director Jeanette Doran at doran@ncicl.org.

[2] See Pat Kimbrough, Local Taxi Companies Get Break From City, High Point Enterprise, www.hpe.com, at http://www.hpe.com/view/full_story/15144665/article-Local-taxi-companies-get-break-from-city.

[3] “Officer Tad Kramp, city taxi inspector, said it’s been his experience that cabs are no more likely to be involved in a crash or cause more damage in an accident than any other vehicle.” Pat Kimbrough, Local Taxi Companies Get Break From City, High Point Enterprise, www.hpe.com, at http://www.hpe.com/view/full_story/15144665/article-Local-taxi-companies-get-break-from-city.