Portland Sedans - Background

Litigation Backgrounder

Protectionism in Portland, Ore.:

City Threatened $895,000 in Fines For Limo Entrepreneurs Who Offered Groupon Discounts

 

The Issue in a Nutshell

Can the government bar entrepreneurs from offering competitive prices, online discounts and prompt service merely to protect politically powerful insiders from competition?

That is the question the Institute for Justice (IJ) and its clients seek to answer though a federal lawsuit they have filed challenging Portland, Oregon’s anticompetitive limousine and sedan regulations. To watch a brief video on this case, visit: www.ij.org/PortlandSedansVid.

In 2009, the Portland City Council passed two measures designed to protect the city’s taxicab companies from competition at the expense of both consumers and limousine and sedan services: first, limos and sedans must charge $50 minimum for rides to or from the airport and, second, limos and sedans must charge at least 35 percent more than taxicabs charge for any other trip. As if these regulations were not punishing enough, customers are required to wait a minimum of one hour before a limo or sedan can pick them up.

Not surprisingly, Portland’s taxicab companies requested these regulations. What is surprising is that Portland agreed to impose higher transportation costs on Portlanders and put strict limits on limo and sedan entrepreneurs, just to make it easier for the city’s taxicab companies to make more money. As IJ points out, that is hardly a wise or constitutional use of government power.

Recently, the city’s Revenue Bureau clamped down on Groupon.com promotions offered by two Portland limo and sedan companies, Towncar.com and Fiesta Limousine. When the companies offered discounted fares to their customers—$32 one-way trips to the airport or up to 30 miles elsewhere in Portland—city enforcers immediately threatened the companies with a combined $895,000 in fines and suspension of their operating permits. In response to the controversy, the city has publicly stated that its job is to protect taxicab companies from competition by enforcing anti-consumer rules.

Portland cannot constitutionally seek to protect taxicab businesses from competition at everyone else’s expense. On April 26, 2012, IJ teamed up with Towncar.com and Fiesta Limousine and filed a federal lawsuit in the U.S. District Court for the District of Oregon to vindicate the right of Portland’s limo and sedan operators to earn an honest living free from excessive government regulation.

 

Introduction

Portland, Ore., is an innovative city with a correspondingly innovative transportation industry.  So when two luxury car services—Towncar.com and Fiesta Limousine—recently offered Internet promotions for $32 rides, Portlanders quickly scooped up the deals.

The same day these promotions went online, however, city regulators forced the companies to cancel the deals and refund every one of their customers, threatening Towncar.com and Fiesta Limousine with a combined $895,000 in penalties and suspension of their operating permits.[1]  All of this for the “crime” of charging their customers prices that government deems are “too low.”

Portland requires limo and sedan operators to charge a minimum of $50 for trips from downtown to the airport and at least 35 percent more than the prevailing taxicab fare for trips anywhere else in the city.[2]  Additionally, car services (as limos and sedans are collectively called) must wait a minimum of 60 minutes between the time a customer calls and the time they are picked up.[3]  How does any of this help the public?  The truthful answer is, it doesn’t.

City regulators are surprisingly upfront about their motivations for passing these regulations.  Portland’s Revenue Bureau views its role as protecting taxicab companies—not consumers.  Asked to explain the city’s aggressive moves to halt promotional fares, the Bureau’s chief transportation enforcer told one reporter, “You don’t want the [t]own cars to take all of the best fares, which are to the airport, and not leave any for the taxi industry.  That’s why there’s a minimum fare and a one-hour wait requirement.”[4]

Portland’s car service regulations were designed to protect taxicabs’ profits at everyone else’s expense.  They have nothing to do with protecting public safety and everything to do with economic protectionism.

Now Towncar.com and Fiesta Limousine are fighting back.  With the help of the Institute for Justice, a national public interest law firm that represents entrepreneurs, the two companies are suing the city in federal court to put a stop to Portland’s minimum fares and minimum wait time.

The U.S. Constitution protects every American’s right to economic liberty—the right to practice one’s chosen occupation free from unreasonable government regulation.  In Portland, the government is inflating transportation prices and destroying small businesses just to help taxicab companies drive their competitors off the road.  That is not only wrong, it is unconstitutional.

 

A Law For Taxis, and No One Else

In 2009, the city of Portland passed regulations designed to quash innovation and competition in the transportation industry for the sole purpose of protecting the city’s taxicab companies and their profits.  Now, consumers and transportation entrepreneurs are paying the price.

Portland’s limos and sedans do not compete directly with taxicabs; they offer an entirely different level of service that enhances the City of Roses’ many transportation options.  The advantages of luxury car service over taxicabs include:

  1. Clean, classy vehicles;
  2. Prearranged services that are highly reliable;
  3. Drivers that are well-dressed and professional; combined with
  4. A competitive price.

 

Nationwide, minimum fares for car service are rare because they are unnecessary and anti-consumer.[5]  Of all the cities and counties in this country, only ten others impose minimum fares on car services and their customers: Atlanta, Ga., ($25),[6] Austin, Texas, ($45),[7] Houston, Texas, ($70),[8] Hot Springs, Ark., ($90 for limos, $35 for sedans),[9] Little Rock, Ark., ($100 for limos, $30 for sedans and SUVs),[10] Medford, Ore., ($25),[11] Miami-Dade County, Fla., (at least 3.33 times the hourly taxi rate),[12] Hillsborough County, Fla., ($50 for limos, $40 for sedans and SUVs),[13] Nashville, Tenn., ($45)[14] and New Orleans, La., ($120 for limos, $105 for sedans).[15]

So who supported imposing a minimum fare and minimum wait time on Portland’s limo and sedan market?  It was the city’s oldest and largest taxicab company, Broadway Cab, which asked the City Council to come up with “more penalties” for car services in 2009, including impounding car service vehicles, because “they continue to poach taxi fares out of downtown.”[16]  The director of the city’s Revenue Bureau explained that the laws were drafted to place a hurdle in front of limos and sedans, in order to “make it more difficult for them to take the taxi rides, the lucrative rides from the hotels to the airport” and “to pay for enforcement.”[17]  But the government has no business picking winners and losers in the transportation industry, especially when the losers are consumers and the winners are established taxicab businesses that only want to protect their own profits.  What taxi companies call “poaching,” after all, is nothing less than honest competition.

 

The Plaintiffs and Their “Illegal” Groupon.com Promotions 

On April 26, 2012, Towncar.com and Fiesta Limousine joined with the Institute for Justice and filed a federal lawsuit in the U.S. District Court for the District of Oregon to vindicate their right to earn an honest living free from excessive government regulation.

Michael Porter operates Towncar.com, the largest sedan service in Portland with 15 employees and 10 vehicles.  Towncar.com is the new brand for Pacific Cascade Towncar, which has been operating in Portland since 2005.  The company is headquartered on the eastern end of the Hawthorne Bridge and Mike strives to provide his customers with prompt, affordable service everywhere in and around Portland.

To help rebrand Towncar.com in September 2011, Mike ran a promotion on the daily-deal site Groupon.com.  The company’s promotion offered one-way chauffeur service for just $32—a 64 percent discount on the normal fare—and was designed to show the superiority of Towncar.com’s services to new customers.

Mike’s Groupon.com promotion was a big success, while it lasted.  Before noon on the first day, Towncar.com had sold 636 “deals” to Portlanders eager to experience the luxury of a sedan at an affordable rate.  But the very same day, the city sent the company a penalty letter assessing $500 for the first deal sold and $1,000 for each subsequent deal, for a total penalty of $635,500.  The letter also threatened suspension of the company’s and vehicle’s permits if the deal was not immediately canceled and all customers refunded.  Faced with the bankruptcy and destruction of his business, Mike agreed to cancel the deal and refunded all 636 customers.

Fiesta Limousine is a small limousine and sedan company owned by Tom White and Ron Simmons that is headquartered in Hillsboro, Ore.  Fiesta received the same treatment from the city of Portland when, in October 2011, the company ran a Groupon.com promotion for their single sedan, offering a one-way ride to or from Portland International Airport for $32—a 50 percent discount on the company’s normal fare.

Portlanders flocked to Fiesta’s online promotion, just as they had flocked to Towncar.com’s promotion a month earlier.  Before noon on the first day, Fiesta had sold 260 “deals.”  But the very same day, a regulator from the Port of Portland complained that the deal was just too good to be legal, and once again the city sprang into action to protect the profits of Portland’s taxicab companies.  Fiesta received a penalty letter assessing $259,500 in fines and threatening suspension of its permits.  Tom and Ron reluctantly agreed to pull their deal from Groupon.com to avoid these fines and keep their company operational.

Both Towncar.com and Fiesta have been hit hard by the economic downturn and now both companies want to attract new customers through innovative promotions and marketing.  Just when they thought they had found a way out of the downturn, however, the government moved in to enforce the turf of Portland’s taxicab companies.  Threatened with ruinous fines, both companies fear they will go out of business if they attempt to again promote their companies and expose new customers to their service.

 

The Defendants

The defendants in this case are the city of Portland, Ore., the city’s Revenue Bureau and its Private For-Hire Transportation Board of Review, which is responsible for setting the specific dollar amount of the minimum fares and for establishing the one-hour minimum wait time.

 

Legal Claims:  The Right to Earn an Honest Living 

Portland cannot constitutionally set transportation prices and make limo and sedan customers wait merely to protect taxis from competition.  The plaintiffs in this case, like all Americans, have a right to economic liberty—the right to earn an honest living free from unreasonable government regulation.  The Fourteenth Amendment to the U.S. Constitution protects that right.[18]  Under its Equal Protection and Due Process Clauses, the government may limit a person’s economic liberty only when there is some “rational basis” for doing so.  To meet the “rational basis” test, the government must have a legitimate public purpose for a law—not including shielding one industry from competition—and the government must use a rational means of accomplishing its purpose.[19]

The “rational basis” test is one of the most important topics in constitutional law today because courts use it to decide what economic liberties will be recognized, and consequently, what market innovations the government will allow.  Two federal Circuit Courts—including the 9th U.S. Circuit Court of Appeals, which governs Oregon—have ruled that the government cannot pass laws just to stop one industry from competing with another industry.[20]  Only one federal appeals court, the 10th, has held the opposite.[21]  The question will one day have to be decided by the U.S. Supreme Court.

Portland’s minimum fares and one-hour minimum wait time are unconstitutional because they are not designed to protect the riding public; they go beyond reasonable regulation for the public’s safety and they are irrational because they only serve the illegitimate purpose of economic protectionism.  What Portland has set out to accomplish is the protection of taxicab companies from competition at the expense not only of would-be competitors, but of consumers, too, who are being needlessly forced to pay higher fares and wait longer to be picked up.  That is not just wrong.  It is unconstitutional.[22]

 

Litigation Team

The lead attorney in this case is Wesley Hottot from the Institute for Justice’s Texas Chapter in Austin.  He is joined in the litigation by Attorney Jeanette Petersen from IJ’s Washington Chapter in Seattle.  Hottot and Petersen have litigated cases involving economic liberty, freedom of speech and property rights in state and federal courts across the country, including a pending challenge to limousine and sedan regulations in Nashville, Tenn.[23]  Local counsel for the case is Melinda Davison of the Portland law firm, Davison Van Cleve, PC.

 

The Institute for Justice:  A History of Protecting Economic Liberty

The Institute for Justice is a public interest law firm that advances a rule of law under which individuals can control their destinies as free and responsible members of society.  Through litigation, communication, outreach and strategic research, IJ secures protection for individual liberty and extends the benefits of freedom to those whose full enjoyment of their rights has been denied by the government.

The Institute for Justice is headquartered in Arlington, Va., and has state chapters in Arizona, Florida, Minnesota, Texas and Washington, as well as the Institute for Justice Clinic on Entrepreneurship at the University of Chicago Law School.

The Institute for Justice has scored numerous victories for entrepreneurs nationwide, including:

 

  • Craigmiles v. Giles—This IJ lawsuit led a federal court to strike down Tennessee’s casket sales licensing scheme as unconstitutional, a decision that was upheld unanimously by the 6th U.S. Circuit Court of Appeals in 2002 and not appealed by the government.  This marked the first federal appeals court victory for economic liberty under the 14th Amendment since the New Deal. 
  • Ricketts v. City of New York—In 1999, IJ helped commuter van operators fight a public bus monopoly that would not allow vans to provide their service in underserved metropolitan neighborhoods in New York City.
  • Jones v. Temmer—In 1995, IJ helped three entrepreneurs overcome Colorado’s protectionist taxicab monopoly to open Denver’s first new cab company in nearly 50 years.  This IJ victory inspired other municipalities to break open their government-sanctioned taxicab monopolies in Indianapolis, Cincinnati and Minneapolis.

 

For more information, please contact:

 

John Kramer
Vice President for Communications
Institute for Justice
901 N. Glebe Rd., Suite 900
Arlington, VA 22203

(703) 682-9320 ext. 205

jkramer@ij.org

 



[1] City of Portland’s response to open records request of December 15, 2011, on file with the Institute for Justice.

[2] Portland, Ore., Code § 16.40.480.  The airport rate is currently $50 per Portland ARB-LIC-8.35.

[3] Portland, Ore., Code § 16.40.460(A); Portland ARB-LIC-8.33 (defining “prearrangement” as requiring a 60-minute wait time). 

[4] J.L. Greene, “Portland Livery Car Companies: Portland Taxi Laws Crippling, Don’t Protect Customers,” Huffington Post, March 25, 2012 (quoting Frank Dufay, Regulatory Program Administrator for the Bureau’s for-hire transportation program).

[5] See generally Robert M. Hardaway, Taxi and Limousines: The Last Bastion of Economic Regulation, 21 Hamline J. Pub. L. & Pol’y 319, 351-60 (2000) (“there is little justification for regulating fare and prices in the limousine industry and few commissions or jurisdictions attempt to do so”).

[6] Atlanta, Ga. Code of Ordinances § 162-133.  Limo services to and from Hartsfield Airport must charge a minimum fare of $50; sedans and vans must charge at least $40 for airport trips.

[10] Little Rock, Ark. Transp. Code § 34-43(d)-(e).  Sedans and SUVs are “luxury vehicles” per § 34-4.

[16] City of Portland, Ore., Official City Council Minutes, May 6, 2009, at 46; see also www.broadwaycab.com.

[17] City of Portland, Ore., Official City Council Minutes, May 13, 2009, at 15; see also May 6, 2009 Minutes, n.16 above, at 54 (Revenue Bureau director argues that allowing limos and sedans to pick their customers up in less than one hour “has a negative impact on the taxi’s ability to obtain the more lucrative rides, if you will, to the airport”).

[18] See Truax v. Raich, 239 U.S. 33 (1915).

[19] See Merrifield v. Lockyer, 547 F.3d 978 (9th Cir. 2008).

[20] Craigmiles v. Giles, 312 F.3d 220 (6th Cir. 2002); Merrifield, n.19 above.

[21] Powers v. Harris, 379 F.3d 1208 (10th Cir. 2004).

[22] See n.20 above.


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