Dispatch Taxi Affiliation, Inc. v. City of Chicago Department of Business and Consumer Protection
Filing
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MEMORANDUM Opinion and Order Signed by the Honorable John W. Darrah on 6/11/2014.Mailed notice(mjc, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
EVGENY FRIEDMAN;
DISPATCH TAXI AFFILIATION, INC.; and
GREATER CHICAGO TAXI ASSOCIATION,
Plaintiffs,
v.
CITY OF CHICAGO DEPARTMENT OF
BUSINESS AND CONSUMER PROTECTION
and OPEN DOORS ORGANIZATION,
Defendants.
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Case No. 13-cv-07622
Judge John W. Darrah
MEMORANDUM OPINION AND ORDER
Plaintiffs have brought this action, purportedly on behalf of various taxicab medallion
owners, licensed managers of taxicab medallions and taxicab affiliations that own or manage
wheelchair accessible vehicle (“WAV”) medallions, against Defendants, 1 seeking monetary
damages and injunctive relief against the enforcement of recent regulations and fees. In their
Complaint, Plaintiffs assert Constitutional violations of the Contracts Clause (Count I), the
Commerce Clause (Count III), and the Privileges and Immunities Clause (Count IV), as well as a
pendant state law claim for breach of contract (Count II). Defendants have moved, pursuant to
Federal Rule of Civil Procedure (12)(b)(6), to dismiss the Complaint for failure to state a claim. 2
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On December 13, 2013, Plaintiffs voluntarily dismissed Defendant
Driven Solutions LLC.
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Defendant Open Doors Organization has adopted Co-Defendant City of Chicago’s
Motion to Dismiss, pursuant to Federal Rule of Civil Procedure 10(c), and has not filed a
separate brief.
BACKGROUND
The following is taken from the Complaint, which is assumed to be true for purposes of a
motion to dismiss. See Reger Dev., LLC v. Nat’l City Bank, 592 F.3d 759, 763 (7th Cir. 2010).
Plaintiff Evgeny Friedman is a resident of New York and an individual owner of one or more
WAV medallions issued by the City of Chicago (“the City”). Plaintiff Dispatch Taxi Affiliation,
Inc. (“DTA”) is an Illinois corporation and a licensed medallion manager, managing one or more
WAV medallions. Plaintiff Greater Chicago Taxi Association is an Illinois member-based
advocacy group that represents several City medallion owners, licensed managers and taxicab
affiliations, including DTA, Top Cab Association, and 24 Seven Taxi Association, all of which
own or manage one or more WAV medallions issued by the City. (Compl. ¶¶ 1-3.) Defendant,
the City of Chicago Department of Business and Consumer Protection (“BACP”), is a
department of the City that regulates the public taxicab industry in Chicago. Defendant Open
Doors Organization (“Open Doors”) is a disability advocacy 501(c)(3) non-profit organization
based in Chicago and a member of the “Open Taxis” program in Chicago. (Id. ¶¶ 4-5; Ex. C-1 at
6.)
Prior to January 2013, Flash Cab Company, a private third-party entity, operated the
centralized dispatch services for WAV taxicabs. (Compl. ¶¶ 9-10.) Starting in January 2013,
however, the Commissioner of BACP was authorized, pursuant to Section 9-112-570 of the
Municipal Code of Chicago, to institute a centralized dispatch system for WAV taxicabs. In late
2012, BACP issued a written request for proposals from third-party entities interested in taking
over the task of operating the centralized dispatch service for all WAV taxicabs operating in
Chicago. (Id. ¶ 13.) DTA submitted a proposal to BACP to operate the centralized dispatch
system, but was not chosen. (Id. Ex. B ¶ 2.)
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In March 2013, BACP made a preliminary determination to award the work to Open
Doors. (Id. ¶ 14.) DTA then filed suit in the Circuit Court of Cook County seeking to enjoin the
City from going forward with the selection of Open Doors. (Id. ¶ 15; Ex. B.) In June 2013, the
City Council approved an ordinance permitting BACP to enter into a contract with Open Doors
for the WAV dispatch system. (Id. ¶ 18.) On June 26, 2013, Open Doors sent a letter to the
WAV medallion owners with a related equipment and installation agreement. (Id. ¶ 22; Ex. E.)
In the letter, Open Doors stated that it would use the traditional phone dispatch system, but also
would use the “Snag app” technology to permit customers to order cabs. Open Doors also stated
that it required WAV medallion owners to purchase electronic tablets with the Snag app for a
one-time fee of $700 per vehicle and that the tablets had to be installed by August 1, 2013. (Id.
Ex. E.) Furthermore, WAV medallion owners were required to pay monthly dispatch fees
ranging from $50 to $215 depending on the number of vehicles, plus a monthly fee of $20 for
data usage. (Id.)
On July 15, 2013, BACP also informed the WAV medallion owners that they were
required to participate in the new centralized dispatch service, called “Open Taxis” and operated
by Open Doors. (Id. ¶ 24.) On July 16, 2013, DTA’s complaint was dismissed with prejudice
for failure to state a claim; DTA did not appeal that decision. (Id. ¶¶ 20-21.)
Plaintiffs allege that there are several problems with the Open Taxis dispatch system.
The required tablets do not work, and as a result, the entire Open Taxis dispatch system has not
been functional since the day it was supposed to go into effect, August 1, 2013. (Id. ¶ 38.) In
response, Open Doors has implemented an ad hoc patchwork system that violates its own
contractual obligations and requires the WAV operators to use their own personal handheld
devices while driving, in violation of Illinois state law. (Id. ¶ 39.)
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Furthermore, the Municipal Code requires that every licensed taxicab participate in and
comply with the Chicago Taxi Access Program (“T.A.P.”) or similar programs, such as the
PACE Mobility Direct card. (Id. ¶ 40.) Unlike the equipment previously provided by Flash
Cab, the Open Taxis system does not enable WAV taxicab drivers to obtain preauthorization of
payment through the T.A.P. card or the PACE Mobility Direct card, and as a result, many current
WAV drivers who have completed installation of the dispatch equipment are unable to secure
payment from members of the disabled community who use WAV taxicab vehicles for public
transportation. (Id.¶¶ 43-44.) Plaintiffs also state that some WAV medallion owners have not
completed installation of the dispatch equipment because they are concerned that having the
tablets in taxicabs will encourage thieves to break into the WAV vehicles and that losses
connected to the new equipment may not be covered by existing insurance coverage. (Id. ¶¶ 4547.)
In September 2013, the general manager of DTA emailed Open Doors, protesting the fees
and raising the issue that Open Doors required driver communication via text messages on the
tablets installed in the cars. (Id. ¶ 31.) Counsel for Plaintiffs sent a follow-up letter to Open
Doors and BACP, expressing concern that the Open Taxis system exposed WAV vehicle
operators and owners to traffic violations. (Id. ¶ 33.) On September 11, 2013, BACP issued an
administrative hearing notice to DTA, alleging a violation of the Municipal Code of Chicago for
failing to follow the WAV dispatch system. (Id. ¶ 34.)
Plaintiffs filed this action on October 24, 2013, requesting injunctive and monetary relief.
On October 31, 2013, this Court entered a temporary restraining order that prohibited BACP
from prosecuting violations of Section 9-112-650 of the Municipal Code of Chicago for failure
to comply with the rules governing the Centralized Dispatch System for WAV Taxicabs (Rule
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TX7.06d). On January 16, 2014, Plaintiffs moved for a temporary restraining order against Open
Doors, which this Court denied on January 21, 2014, based on Plaintiffs’ lack of standing.
LEGAL STANDARD
A Rule 12(b)(6) motion tests the legal sufficiency of the complaint. Christensen v.
County of Boone, 483 F.3d 454, 458 (7th Cir. 2007). A complaint must set forth a “‘short and
plain statement of the claim showing that the pleader is entitled to relief,’ sufficient to provide
the defendant with ‘fair notice’ of the claim and its basis.” Tamayo, 526 F.3d at 1081 (quoting
Fed. R. Civ. P. 8(a)(2) and Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Although
detailed factual allegations are not required, the complaint must allege sufficient facts “to state a
claim to relief that is plausible on its face” and which “allows the court to draw the reasonable
inference that the defendant is liable for the misconduct.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Twombly, 550 U.S. at 570 (2007)). Accordingly, “[t]hreadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal,
556 U.S. at 678.
ANALYSIS
Count I: Contracts Clause
The Contracts Clause of the U.S. Constitution prohibits a state from passing “any . . . law
impairing the Obligation of Contract.” U.S. Const. Art. I, § 10, cl. 1. The Supreme Court has
outlined a three-part test for determining whether a law violates the Contracts Clause: first, the
court must determine whether the law operates as a substantial impairment of an existing
contractual relationship; second, it must determine whether a “significant and legitimate
purpose” justifies the law; and, third, the effect of the law on contracts must be reasonable and
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appropriate in light of the public purpose. Chicago Bd. of Realtors, Inc. v. City of Chi., 819 F.2d
732, 736 (7th Cir. 1987) (citing Energy Reserves Grp., Inc. v. Kansas Power & Light Co., 459
U.S. 400, 411-12 (1983)). A city ordinance can violate the Contracts Clause. Yellow Cab Co. v.
City of Chi., 3 F. Supp. 2d 919, 922 (N.D. Ill. 1998).
In Count I, Plaintiffs allege that the June 15, 2013 Ordinance (“the Ordinance”), enacted
by the City Council authorizing BACP to enter into a contract with Open Doors, violates their
rights under the Contracts Clause of the Constitution. Plaintiffs allege that the Ordinance has
impaired three contractual relationships – with drivers, with Flash Cab, and with third-party
insurance companies – because it forces Plaintiffs to comply with a non-functioning dispatch
system.
First, Plaintiffs allege that the Ordinance has impaired their contractual relationship with
their drivers. They cite to a uniform taxicab lease agreement (the “Taxicab Lease”) that is
prescribed by the City; however, they do not cite to any specific contractual provisions in that
agreement. (Compl. ¶ 48, Ex. R.) Instead, they cite to the Municipal Code of Chicago, which
requires owners to provide drivers with two-way dispatch equipment. They allege that under the
new Open Taxis systems, owners cannot provide a functioning two-way dispatch system, and
that owners and drivers bear the risk that a T.A.P. or PACE card will not have funds for payment
at the end of a ride. Defendants argue that Plaintiffs have not identified any contractual rights
under the Taxicab Lease or how the Ordinance impairs those rights.
Construing the allegations liberally in their favor, Plaintiffs have failed to establish that
the Ordinance has substantially impaired their contractual relationship with their drivers. As
Defendants point out, the Complaint lacks any allegations regarding Plaintiffs’ contractual rights
under the Taxicab Lease or how the Ordinance obstructs that agreement. Indeed, in their
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response brief, Plaintiffs admit that “the Taxicab Lease does not set forth extensive obligations”
and cite again to the Municipal Code. (Pl.’s Resp. Br. at 6.) Such conclusory allegations are
insufficient to state a claim under the Contracts Clause. See, e.g., Peoria Tazewell
Pathology Grp., S.C. v. Messmore, No. 11-CV-4317, 2011 WL 4498937, at *7 (N.D. Ill.
Sept. 23, 2011) (plaintiffs failed to state a claim under the Contracts Clause because, among
other reasons, plaintiffs did “not allege any specific contractual rights or obligations in their
Complaint” and instead made only “conclusory allegations”); Active Disposal Inc. v. City of
Darien, No. 09 C 2930, 2010 WL 1416461, at *2 (N.D. Ill. Mar. 31, 2010) (dismissing
conclusory Contracts Clause claim).
Plaintiffs also do not cite to any existing contracts with their insurers. Rather, they allege
only that they are required by BACP to provide a certificate of insurance and that now they must
obtain additional insurance to cover any losses connected with the new Open Taxis system.
(Compl. ¶¶ 51-52.) Plaintiffs have not alleged that the Ordinance has substantially impaired
their contractual relationships with insurance contracts and, therefore, have failed to state a claim
on that basis as well.
Likewise, Plaintiffs have failed to state a claim with respect to their contractual
relationship with Flash Cab. Plaintiffs allege only that they had a standard dispatch equipment
lease agreement when Flash Cab operated the WAV dispatch system. (Compl. ¶ 54.) However,
there are no allegations that their contractual rights were impaired when the City replaced
Flash Cab with the new operator, Open Doors. Rather, they allege that the existing Open Taxis
program does not work; this is insufficient to demonstrate an impairment of their contractual
rights vis-à-vis Flash Cab.
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Plaintiffs have failed to allege that their contractual rights were substantially impaired by
the City’s Ordinance in order to state a claim under the Contracts Clause. Consequently, Count I
is dismissed without prejudice.
Count III: Dormant Commerce Clause
The Commerce Clause of the U.S. Constitution gives Congress the power to “regulate
Commerce with foreign Nations, and among the several States.” U.S. Const. Art. I, § 8, cl. 3.
As a corollary, this Clause has been interpreted to limit the ability of the States to burden or
discriminate against interstate commerce. “This ‘negative’ aspect of the Commerce Clause is
often referred to as the ‘Dormant Commerce Clause’ and is invoked to invalidate overreaching
provisions of state regulation of commerce.” Alliant Energy Corp. v. Bie, 330 F.3d 904, 911 (7th
Cir. 2003); see also Am. Trucking Ass’ns, Inc. v. Mich. Pub. Serv. Comm’n, 545 U.S. 429, 433
(2005).
In National Paint & Coatings Association v. City of Chicago, 45 F.3d 1124 (7th Cir.
1995), the Seventh Circuit addressed whether Chicago’s ban on spray paint violated the Dormant
Commerce Clause. The court explained that state and local laws could be categorized in three
ways for their effects on commerce. The first category consists of laws that explicitly
discriminate against interstate commerce, causing “disparate treatment” ; the second are laws
that are facially neutral but have a discriminatory effect on other states, causing “disparate
impact”; and a third category are laws that affect commerce but do not discriminate against outof-state firms or give local companies a competitive advantage. Id. at 1131. With respect to the
third category, the court explained that the “normal rational-basis standard” governed those types
of cases. Id. The court ultimately concluded that Chicago’s spray paint ban did not discriminate
against interstate commerce in either terms or effects and, as such, did not violate the Dormant
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Commerce Clause. Id. at 1132. The court summed up the case as follows: “[n]o disparate
treatment, no disparate impact, no problem under the dormant commerce clause.” Id.
Here, Plaintiffs do not allege that the Ordinance discriminates against interstate
commerce in either its terms or effects and, in their Response Brief, concede that there is no
disparate treatment or impact caused by the Ordinance. Rather, Plaintiffs argue that the City has
violated the Commerce Clause because it lacks a rational basis for contracting with Open Doors.
However, in the same breath, Plaintiffs acknowledge that the City does have a reason for
implementing the Open Taxis system, namely to provide ready access to taxicabs for the
disabled community. (Pl.’s Resp. Br. at 12.) Faced with this obstacle, Plaintiffs argue that the
implementation of the Open Taxis system by the City has been irrational because Open Doors
has not fulfilled its contractual obligations, and that, as a result, taxicab drivers and owners are
being punished.
The allegations of the Complaint do not plausibly demonstrate that the City lacked a
rational basis in contracting with Open Doors. Plaintiffs contend that a rational basis here is
lacking as if the City mandated that all owners of WAV taxicabs do an Irish jig in Daley Plaza.
(Pl.’s Resp. at 13.) However, this attempted analogy is not persuasive. It is clear from the
allegations of the Complaint that the City has not enacted such an irrational, unrelated law. The
City has not required taxicab drivers or owners dance in front of City Hall; rather, the City has
contracted with a disability advocacy organization to provide dispatch services for wheelchairaccessible taxicabs.
Plaintiffs also apparently misunderstand the Seventh Circuit when they argue the City’s
“reasoning is flawed, as was the case in National Paint.” (Pl.’s Resp. Br. at 13.) In
National Paint, Judge Easterbrook stressed that even though a law might be overbroad or “folly,”
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it can still be constitutional: “No more than the equal protection clause does the dormant
commerce clause protect people against injuring themselves by overestimating the power of law
to alter human events for good.” 45 F.3d at 1132. Likewise, Plaintiffs’ allegations that Open
Doors has not fulfilled its contractual obligations fail to state a plausible claim that the
Commerce Clause has been violated.
Plaintiffs have failed to state a claim under the Commerce Clause, and, therefore, Count
III is dismissed without prejudice.
Count IV: Privileges and Immunities Clause
In Count IV, Plaintiffs allege a violation of the Privileges and Immunities Clause.
However, their allegations do not suggest that the Ordinance impacts out-of-state WAV
medallion owners differently than medallion owners who reside in Illinois. In their Response
Brief, Plaintiffs do not respond to Defendants’ arguments and implicitly concede that they have
failed to state a claim under this Count. Count IV is dismissed without prejudice.
CONCLUSION
For the reasons set forth above, Defendants’ Motions to Dismiss [19, 23] are granted.
Plaintiffs are granted leave to amend their claims, if they can do so in accordance with Rule 11,
within thirty days of this Order.
Plaintiffs’ remaining claim is a state law claim for breach of contract, contained in
Count II. “[T]he general rule is that, when all federal claims are dismissed before trial, the
district court should relinquish jurisdiction over pendent state-law claims rather than resolving
them on the merits.’” Kennedy v. Schoenberg, Fisher & Newman, Ltd., 140 F.3d 716, 727 (7th
Cir. 1998) (quoting Wright v. Associated Ins. Cos., 29 F.3d 1244, 1251 (7th Cir. 1994)).
Consequently, because Plaintiffs’ claims arising under federal law are dismissed without
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prejudice, if Plaintiffs fail to file amended federal claims, as required above, the Court exercises
its discretion to decline supplemental jurisdiction over the remaining state law claim, and
Count II is dismissed without prejudice to refile in state court.
Date:
June 11, 2014
______________________________
JOHN W. DARRAH
United States District Court Judge
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