Shearman & Sterling LLP | Antitrust Blog | Eastern District Of Pennsylvania Court Rules In Favor Of Philadelphia Parking Authority In Taxicabs’ Suit Alleging Failure To Regulate Emerging Competitors <br >  
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  • Eastern District Of Pennsylvania Court Rules In Favor Of Philadelphia Parking Authority In Taxicabs’ Suit Alleging Failure To Regulate Emerging Competitors 

    On January 29, 2018, Judge Michael M. Baylson of the United States District Court for the Eastern District of Pennsylvania granted summary judgment in favor of the Philadelphia Parking Authority (“PPA”) and turned down the damage claims filed by Checker Cab Philadelphia, Inc. and several other medallion-holding taxicab companies (collectively “Checker”) against PPA for their alleged failure to adequately regulate alternative transportation network companies like Uber and Lyft (collectively, “TNCs”).  Checker Cab Philadelphia Inc. v. Philadelphia Parking Authority, 2:16-cv-04669 (E.D. Pa. 2018).  Judge Baylson held that TNCs and taxicab companies are not similarly situated, and that PPA should not be responsible for the taxicab companies’ alleged losses caused by increased competition in the transportation industry.  The Court summarized its holding as follows:  “A court is not suited to protect market participants from competition, or from changing consumer preferences.  The marketplace still speaks loudly, probably louder than a court can, and the resolution of competitive combatants must take place in the marketplace, rather than in a courtroom.”
    On August 29, 2016, Checker filed an action seeking damages and injunctive relief against the PPA and its former executive director for failing to properly regulate the TNCs while the TNCs, as Checker claimed, destroyed the taxicab companies’ business.  At that time, the parties agreed that the TNCs had operated illegally in Philadelphia for several years.  After the lawsuit was filed, in November 2016, Pennsylvania enacted Act 164, which expressly authorized the TNCs to operate legally in Philadelphia.  The plaintiffs alleged that the defendant’s alleged inaction toward TNCs violated the U.S. Constitution in two ways:  (1) PPA’s failure to apply taxicab regulations to or otherwise regulate TNCs violated the Equal Protection Clause; and (2) the diminution in value of their taxi medallions was caused by the failure to regulate TNCs and, thus, constituted a taking of Checker’s property without just compensation of law in violation of the Fifth and Fourteenth Amendments.
    For the equal protection claim to succeed, TNCs and taxicabs would need to be similarly situated.  The Court concluded that they are not similarly situated classes for five reasons:  (1) the two have substantially different business models, in light of TNCs’ strong reliance on “smartphone” as the service interface and their different payment methods; (2) before Act 164 was enacted in November 2016, TNCs were operating illegally while taxicab companies were operating legally; (3) Act 164, which separates TNCs and taxicabs into separate statutory chapters with separate legal requirements, reflects the legislature’s intent to treat TNCs and taxicabs differently; (4) the taxicab companies failed to prove a legal participant in a regulated market is “similarly situated” to an illegal participant in the same market; and (5) there was various precedential support to enforce the finding that TNCs and taxicabs are not similarly situated.  The Court also found that even if TNCs and taxicabs were similarly situated, the PPA could not be liable for damages because its action (and inaction) was within its discretion, and that it was reasonable for the PPA to defer action until the Pennsylvania legislature provided statutory guidance in the form of legislation expressly regulating TNCs.  The passage of Act 164, the Court found, justified the PPA’s expectations.  Further, the regulatory oversight of legal participants, in absence of legislative guidance, should not be the benchmark for how stringently regulators attempt to regulate illegal market competitors.
    For the takings claim, the Court held that the property rights in a medallion are distinct from property rights in the transportation market, and that the Pennsylvania legislature only conferred the former.  While recognizing the severe hardship to medallion holders caused by new competition from TNCs, the Court nonetheless ruled that the plaintiffs had demonstrated no legal basis to recover damages from PPA for loss in value of their assets caused by market competition.
    As the Court recognized, and is clear in any number of industries that have been transformed by the digital technologies, firms pursuing well-established business models can experience severe disruption and hardships when faced with competition from new and unanticipated paradigms. Attempts by firms who had relied on regulation to limit competition to obtain recompense from the regulator for their losses caused by competition, however, have generally been, as in this case, unsuccessful.