Appellate Court Ruling Favors Economic Freedom, Marketplace Competition

by LeClairRyan


On October 7, 2016, in Joe Sanfelippo Cabs, Inc. v. City of Milwaukee1, Judge Posner, writing for the unanimous United States Court of Appeals for the Seventh Circuit, held that the City of Milwaukee’s decision to allow new taxi services to compete with established taxi services does not effect a taking under the Fifth Amendment.

From 1992 to 2013, a Milwaukee city ordinance limited the number of taxicab permits to the number that were in existence on January 1, 1992. No new permits were available for issue after that date, but existing permits could be renewed or sold on the secondary market. Because some permit holders did not have their permits renewed, and no new permits could be issued to replace them, the number of permits declined over time. As a result, the value of a taxi permit on the secondary market, increased to as much as $150,000.

In 2013, a lawsuit successfully challenged the ordinance under the Wisconsin state constitution, and the cap was repealed, allowing any qualified applicant to obtain a taxi permit. The new ordinance allowed incumbent holders of taxi permits to continue doing business and continued to allow permit holders to transfer permits (both new and existing) to others.

Appellants, incumbent taxicab permit holders, filed suit against the city, alleging a taking under the Fifth Amendment because the value of their taxi permits on the secondary market fell when the artificial constraint on competition was repealed. The City responded, and the competitive taxicab drivers who had been the prevailing plaintiffs at the trial court, intervened in opposition. The Reason Foundation filed a brief as amicus curiae, in support of the City and competitive taxicab drivers, explaining that the “value of taxi operating licenses on the secondary market is not a compensable property right. Rather, it is an economic rent that represents the excess value taxi permit holders can extract from consumers by charging higher rates than a competitive market would bear.”2

The Court agreed, holding that “plaintiffs’ contention that the increased number of permits has taken property away from plaintiffs without compensation, in violation of the constitutional protection of property, borders on the absurd.”3 Thus, although the “taxi permits issued by the Milwaukee city government are property,” they “have not been ‘taken,’ as they do not confer on the holders a property right in, amounting to control over, all transportation by taxis and taxi substitutes (such as Uber) in Milwaukee.”4

In a parallel case, Illinois Transportation Trade Association v. City of Chicago,5 decided the same day, the Court likewise held that the property right inherent in taxi medallions “does not include a right to be free from competition,” from ridesharing services, such as Uber.6

LeClairRyan represented the Reason Foundation as amicus curiae in Joe Sanfelippo Cabs, Inc. v. City of Milwaukee.


 1 Joe Sanfelippo Cabs, Inc. v. City of Milwaukee, Case No. 16-1008 (7th Cir. 2016)
2 Case: 16-1008, Document: 20-2 at 12 of 27
3 Case: 16-1008, Document: 40 at 4
4 Id. at 6
5 Nos. 16-2009, 16-2077, & 16-2980
6 Illinois Transportation Trade Association v. City of Chicago, Case Nos. 16-2009, -2077, -2980 (7th Cir. 2016)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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