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Desoto Cab Co. v. Picker
Citations: 196 F. Supp. 3d 1107; 2016 U.S. Dist. LEXIS 94809; 2016 WL 3913643Docket: Case No. 15-cv-04375-EMC
Court: District Court, N.D. California; July 20, 2016; Federal District Court
The court denied the California Public Utilities Commission's (CPUC) motion to dismiss a lawsuit filed by Desoto Cab Company, operating as Flywheel Taxi, which seeks declaratory and injunctive relief against the CPUC. Flywheel, a traditional taxi service, claims a violation of equal protection under Section 1983, arguing that TNCs (Uber, Lyft, Sidecar) are effectively taxi companies and should be regulated similarly. Flywheel asserts that the CPUC's less stringent regulations for TNCs afford them an unfair advantage over traditional taxis, which are regulated by local entities like the San Francisco Municipal Transportation Agency (SFMTA). The court reviewed relevant sections of the California Public Utilities Code, noting that charter-party carriers must operate on a prearranged basis, contrasting with traditional taxis that can be hailed on-demand. The CPUC has the authority to regulate charter-party carriers but not traditional taxis, which are exempt from Chapter 8 of the Public Utilities Code if regulated by local municipalities. Additionally, California Government Code mandates localities to ensure public safety in taxi services. The court's denial of the motion indicates that Flywheel's claims will proceed, setting the stage for further examination of the regulatory landscape governing both traditional taxis and TNCs. In December 2012, the California Public Utilities Commission (CPUC) initiated rulemaking concerning Transportation Network Companies (TNCs) like Uber, Lyft, and Sidecar, expressing concerns regarding their impact on public safety. The CPUC sought feedback on issues such as safety, insurance, and the application of its jurisdiction to TNCs. By September 2013, the CPUC adopted initial regulations (Phase I decision) acknowledging that TNCs do not fit traditional categories of passenger transportation but still require regulatory oversight to ensure public safety. Key regulations mandated permits for TNCs, criminal background checks for drivers, driver training programs, a zero-tolerance policy for drugs and alcohol, and necessary insurance coverage. The Phase I decision also established a second phase to review existing regulations for limousines and charter-party carriers, considering legislative changes that may affect TNC regulation. In January 2016, the CPUC proposed decisions on Phase II issues, culminating in an April 2016 decision that required TNCs to certify their operational nature and fare calculation methods. The Phase II decision by the CPUC allowed fare splitting by Transportation Network Companies (TNCs), permitting such operations under specific conditions and clarifying that "fare splitting" is a more accurate term than "ride-sharing." The decision indicated that further matters would be explored in a Phase III proceeding. Flywheel, a regulated taxi company in San Francisco, contends in its first amended complaint that TNCs like UberX, Lyft, and Sidecar should be subject to the same regulations as traditional taxi services, as both provide on-demand transportation. Flywheel argues that the CPUC’s regulatory framework for TNCs is less stringent than local municipal regulations for taxi companies. Significant regulatory discrepancies highlighted by Flywheel include: 1. CPUC’s lower liability insurance requirements for TNCs compared to San Francisco taxi companies. 2. No requirement for TNCs to maintain workers' compensation insurance for their drivers, unlike taxi companies. 3. The CPUC's lower annual licensing fees for TNCs, unrelated to fleet size, contrasting with higher fees imposed on taxi companies tied to medallions and permits. 4. Unlimited operational vehicle numbers for TNCs, whereas San Francisco limits taxis to 1,900. 5. Freedom for TNCs to set their own rates, while taxi companies face rate restrictions. Overall, Flywheel asserts that these regulatory advantages for TNCs create an uneven playing field, warranting equal treatment under the law. Flywheel claims that the California Public Utilities Commission (CPUC) has created higher costs for San Francisco taxi companies and diminished public protection for users of transportation network companies (TNCs). It argues that the CPUC's selective jurisdiction over TNCs, while exempting taxi services, violates equal protection rights. Flywheel seeks a judicial ruling declaring the CPUC's September 2013 Phase I Decision unlawful, along with an injunction to prevent the CPUC from regulating TNCs or, alternatively, mandating it to regulate all taxi companies in California. The CPUC counters that the case should be dismissed due to lack of jurisdiction under the Johnson Act, which limits federal jurisdiction over state utility rate cases. The Act aims to prevent forum shopping and maintain a hands-off policy regarding state rate-making. It prohibits federal courts from interfering with state orders affecting utility rates if certain conditions are met, including that the order does not disrupt interstate commerce and provides a state remedy. Flywheel argues that the Johnson Act does not apply, but the burden of proof lies with the CPUC to demonstrate that the conditions are fulfilled. The court notes that Flywheel has conceded that TNCs qualify as public utilities under the Johnson Act. Additionally, Flywheel’s assertion that the CPUC's decision interferes with interstate commerce is seen as problematic by the court. Flywheel contends that the activities of Transportation Network Companies (TNCs) interfere with interstate commerce since drivers transport passengers across state lines, as evidenced by an Uber website showing rides from California to Nevada. However, the mere involvement of TNCs in interstate commerce does not suffice to demonstrate actual interference. Citing Tenth Circuit precedent, it emphasizes that incidental effects on interstate commerce do not equate to interference. For interference to be established, it must show that regulatory actions significantly disrupt interstate commerce, as outlined in case law including US West Inc. v. Tristani and related cases. Despite these arguments, the court ultimately finds in favor of Flywheel based on another requirement under the Johnson Act, which necessitates that the agency action in question be an "order affecting rates." Flywheel clarifies it is not challenging the California Public Utilities Commission’s (CPUC) Phase II decision, which does address rates, but rather the Phase I decision, which does not directly impact rates. The court notes that Flywheel's claims regarding the CPUC's Phase I decision fail to qualify as an order affecting rates since it does not establish or guide TNC rates, allowing TNCs to set their own rates freely. The CPUC's inaction concerning rates in Phase I does not transform it into an order affecting rates, as it cannot be deemed such merely based on the agency's potential authority to regulate rates. The CPUC contends that the Phase I decision indirectly affects rates, asserting that its rules on insurance and workers' compensation impose costs on Transportation Network Companies (TNCs) or alter their cost recovery, implying that any utility's costs influence its rates. However, this broad interpretation risks categorizing nearly any administrative order as affecting rates, as it could encompass various operational costs like wages and taxes. The Ninth Circuit has indicated a broad interpretation of the Johnson Act, aimed at protecting state authority in rate supervision from federal interference, suggesting that even remote impacts on consumer prices could be insulated from federal court review. The CPUC acknowledged that its stance is on the fringes of the Johnson Act's applicability. In contrast, the Tenth Circuit's ruling in Hill v. Kansas Gas Service Co. determined that state agency orders affecting the distribution of refunds to customers constituted orders affecting rates under the Johnson Act, as they influenced the costs transferred to consumers. This differs from the current case, where the operational costs of a TNC do not have a direct link to the rates charged, suggesting that any impact on rates is merely indirect and remote. Similar reasoning applies in the case of Wheelabrator Lisbon, Inc. v. Conn. Dep’t of Pub. Util. Control, where indirect effects on rates were acknowledged. Overall, the TNC's operational costs lack a direct correlation to its pricing structure, distinguishing it from the precedent set in Hill. The CPUC argues that its Phase I decision should be classified as an order affecting rates since the Phase II decision, which Flywheel acknowledges as affecting rates, is contingent upon the validity of the Phase I decision. If Phase I is invalidated, Phase II follows suit. However, the Court does not accept this argument, noting that Flywheel's challenge targets the CPUC's broader jurisdiction over Transportation Network Companies (TNCs), which impacts various regulations beyond rate-setting, such as background checks and insurance. This jurisdictional challenge is distinguished from specific rate-setting issues under the Johnson Act, as exemplified by the Eighth Circuit’s ruling in Minnesota Gas Co., where a challenge to regulatory authority, rather than a specific rate order, fell outside the Johnson Act’s scope. The CPUC’s authority over TNCs stems from a California statute, further supporting this distinction. Additionally, Flywheel’s complaint seeks alternative relief that does not necessarily aim to invalidate the Phase I decision, which allows the case to proceed without being barred by the Johnson Act. The Court concludes that the Phase I decision is not an "order affecting rates" under the Johnson Act. Furthermore, the CPUC contends that Flywheel's case is not ripe for review since the regulations in question are still under consideration and subject to change. The CPUC's argument regarding ripeness lacks clarity on whether it is based on Article III judicial limitations or prudential considerations, as established in Guatay Christian Fellowship v. County of San Diego. Ripeness aims to prevent premature judicial involvement in administrative policy disputes and protects agencies from court interference until decisions are finalized. The Supreme Court assesses ripeness based on the fitness of issues for judicial review and the hardship to parties awaiting court consideration, as noted in Ohio Forestry Ass’n v. Sierra Club. The CPUC's position appears weak, as Flywheel could challenge existing regulations, such as insurance rules, despite incomplete regulatory frameworks. The CPUC's stance suggests that Flywheel must wait for all TNC regulations to be finalized before proceeding with its lawsuit, which increases hardship for Flywheel without a clear timeline for regulatory completion. Flywheel's challenge involves a regulatory scheme that distinguishes between TNCs and traditional taxi companies, and the disparities are sufficiently concrete for adjudication of Flywheel’s equal protection claim. Consequently, the Court rejects the CPUC's ripeness argument. Regarding joinder, the CPUC contends that Flywheel failed to include necessary parties, such as all TNCs, traditional taxi companies, and municipalities regulating taxis, asserting that their inclusion is essential due to the specific relief Flywheel seeks. The CPUC cites Federal Rule of Civil Procedure 19(a)(1)(B), emphasizing that these parties have a claim to an interest in the case's outcome. However, Rule 19(a) requires consideration of whether absent parties can protect their interests if the case proceeds without them. The CPUC bears the burden of proving that Rule 19 necessitates the joinder of MCSEA. The court cites Brum v. County of Merced, establishing that the moving party (here, CPUC) must demonstrate the necessity of joining the parties in question, rather than requiring the plaintiffs to prove the opposite. The CPUC failed to show that the absence of TNCs, traditional taxi companies, and local municipalities would impair their ability to protect their interests. The court presents a binary question regarding whether the CPUC or local municipalities should regulate TNCs, indicating that the interests of the absent parties can be adequately represented by Flywheel and the CPUC, both of which have opposing views. The CPUC's reliance on White v. University of California is deemed inapposite, as that case involved distinct motivations between the university and the tribes, which could lead to divergent interests. In contrast, the CPUC has not identified any differing motivations among the parties involved that would prevent adequate representation. Consequently, the court finds it speculative to assert that the absent parties cannot be adequately represented. The CPUC's motion to dismiss is denied, allowing for the possibility of a renewed motion if circumstances change. The order disposes of Docket No. 31. A Transportation Network Company (TNC) in California is defined as an organization that offers prearranged transportation services for compensation, utilizing an online application to connect passengers with drivers using personal vehicles (Cal. Pub. Util. Code § 5431(a)). The California Public Utilities Commission (CPUC) has requested the Court to take judicial notice of certain orders and decisions it has issued. While Flywheel does not contest the existence of these documents or their statements, it objects to the judicial notice of any purported facts within them. However, this objection is considered moot, as the Court can adjudicate the motion without relying on the facts from those documents. The Court has not determined whether Phase II is sufficiently aimed at rates to invoke the Johnson Act. The CPUC referenced the US West case, where the Ninth Circuit discussed the limitations on rate-setting authority. The key issue is whether the complaint challenges any Commission order that affects rates. If the US West companies can assert a federal claim without infringing on Commission orders, then the complaint does not challenge rate-setting authority. The US West case's specifics are crucial, as it involved imputation, an accounting method used by the Commission to set intrastate telecommunications rates, which is considered an inseparable part of rate structures. Consequently, any challenge to imputation is legally viewed as a challenge to an order affecting rates, as established in the US West decision. The California Constitution also affirms that the CPUC has the authority to set rates and establish transportation rules.