Joe Sanfelippo Cabs Inc et al v. City of Milwaukee

Filing 43

DECISION AND ORDER signed by Judge Lynn Adelman on 12/7/15 granting 33 Motion to Dismiss for Failure to State a Claim; granting 37 Motion for Judgment on the Pleadings. The Clerk shall enter judgment accordingly. (cc: all counsel) (dm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
_____________________________________________________________________
JOE SANFELIPPO CABS INC., et al.,
Plaintiffs,
v.

Case No. 14-cv-1036

CITY OF MILWAUKEE,
Defendant,
and JATINDER CHEEMA and SAAD MALIK,
Intervenor-defendants.
_____________________________________________________________________
DECISION AND ORDER
Plaintiffs, taxicab companies and owners of City of Milwaukee taxicab permits,
challenge the constitutionality of a 2014 City ordinance that removed the cap on the
number of permits that the City could issue. Several taxicab drivers have intervened on the
side of the City. The City and the intervenors now move to dismiss plaintiffs’ complaint.
I. Background
The City of Milwaukee has regulated the taxicab industry for decades. In 1992, it
enacted an ordinance barring the issuance of new permits but allowing transfer of
previously issued permits. M.C.O. § 100-50-3-a (1992). That ordinance created a
downward-floating cap; the cap could not increase because the City did not issue new
permits, but it decreased when a permittee chose not to renew or when a permit was
revoked. The ordinance thus created a market for permits, and since then the value of a
permit has risen steadily. Plaintiffs collectively own 162 permits, only 6 of which they
obtained directly from the City. Plaintiffs purchased the others, paying as much as
$150,000 for a permit.

In 2011, several individuals including the present intervenors successfully
challenged the cap under the state constitution in state court. In response, the City
increased the cap by 100 permits. Approximately 1,700 drivers applied for the 100 new
permits. In addition, rideshare companies like Uber and Lyft, which connect passengers
with drivers through a smartphone app, had begun to operate outside the permit system.
Faced with the state court decision, the great demand for permits, and the activity of the
rideshare companies, the City enacted the 2014 ordinance which both removed the cap
and established regulations governing the rideshare companies. The removal of the cap
allegedly destroyed the value of the permits in the commercial market.
Plaintiffs then commenced the present action. They originally argued that the new
ordinance violated substantive due process and equal protection but subsequently
amended their complaint and now allege that the ordinance violates the Takings Clause
of the Fifth Amendment. They also bring supplemental state law claims.
II. Discussion
I apply the same standard to defendant’s motion for judgment on the pleadings
under Fed. R. Civ. P. 12(c) and to intervenors’ motion to dismiss under Rule 12(b)(6).
Adams v. City of Indianapolis, 742 F.3d 720, 727–28 (7th Cir. 2014). To survive
defendants’ motions, plaintiffs must “state a claim to relief that is plausible on its face.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). I accept the complaint’s factual
allegations as true, but allegations in the form of legal conclusions are insufficient. Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009).
A. Takings Clause Claim

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The Fifth Amendment provides that “private property [shall not] be taken for public
use, without just compensation.” To allege a Takings Clause claim, plaintiffs must plead
that (1) they have a property interest protected by the Fifth Amendment, (2) the 2014
ordinance effected a taking of that interest, (3) the taking was for public use, and (4) the
state did not provide just compensation.1 See Ruckelshaus v. Monsanto Co., 467 U.S. 986,
1000–01 (1984).
I first ask whether plaintiffs possess a protected property interest. Property interests
“are created and their dimensions are defined by existing rules or understandings;” in other
words, plaintiffs must plead “rules or understandings that secure certain benefits and that
support claims of entitlement to those benefits.” Bd. of Regents of State Colls. v. Roth, 408
U.S. 564, 577 (1972). A protected interest can arise from state law or a mutually explicit
understanding. Dennis Melancon, Inc. v. City of New Orleans, 703 F.3d 262, 274 (5th Cir.
2012). Plaintiffs must show more than an abstract need or desire or a unilateral
expectation; rather, they must have a legitimate claim of entitlement. Roth, 408 U.S. at
577. Those with a legitimate claim of entitlement to property exercise certain rights of
control over such property. Members of Peanut Quota Holders Ass’n, Inc. v. U.S., 421 F.3d
1323, 1330 (Fed. Cir. 2005).
The issue presented is whether whatever interest plaintiffs have in their permits

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Before a Takings Clause claim is ripe, plaintiffs must seek and be denied
compensation from the state. Rockstead v. City of Crystal Lake, 486 F.3d 963, 965 (7th
Cir. 2007). A Wisconsin claimant must file a notice of claim pursuant to Wis. Stat. §
893.80(1d)(a). Similarly, plaintiffs had to file notice of their state law claims. Plaintiffs
may not have strictly complied with the statute, but defendant had actual notice of the
claims and declined to pay them. Thus, I will address the claims’ merits. See Bostco
LLC v. Milwaukee Metro. Sewage Dist., 350 Wis. 2d 554, 608 (2013).
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includes a property interest in the value of the permits in the commercial market. See
Minneapolis Taxi Owners Coal., Inc. v. City of Minneapolis, 572 F.3d 502, 507 (8th Cir.
2009) (noting that plaintiffs’ claim is that “removing the cap on the number of licenses
destroyed the market value of the licenses”). Plaintiffs contend that they have such an
interest because the City guaranteed that the cap created by the 1992 ordinance would
never be removed. Plaintiffs cite the phrase in the ordinance that “no new passenger
vehicle permits for taxicabs may be issued,” 1992 statements by aldermen that the
ordinance was intended to create “a property right in a public sense,” and City employees’
representations that the City would no longer issue permits. Plaintiffs contend that the
above language, statements and representations created an understanding with the City
that they had a protected property right in the value of the permits. Am. Compl. at 1–2
(ECF No. 22).
I conclude that plaintiffs’ allegations fail to support the proposition that a property
interest in the value of the permits was created. See Minneapolis Tax Owners Coal., 572
F.3d at 509 (“[A]ny property interest that [ ] taxicab-license holders’ may possess does not
extend to the market value of the taxicab licenses derived through the closed nature of the
City’s taxicab market.”). Plaintiffs voluntarily entered the taxicab market, a highly regulated
industry, knowing that their ability to operate a taxicab was subject to government control.
See Dennis Melancon, 703 F.3d at 272 (“[A] protected property interest simply cannot arise
in an area voluntarily entered into . . . which, from the start, is subject to pervasive
Government control, because the government’s ability to regulate the area means an
individual cannot be said to possess the right to exclude.”); see also Goodpaster v. City of

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Indianapolis, 736 F.3d 1060, 1074 (7th Cir. 2013) (stating that those involved in regulated
businesses should not be surprised when ordinances change and negatively affect their
business); Minneapolis Taxi Owners Coal., 572 F.3d at 509 (noting that “in the case of
personal property, by reason of the State’s traditionally high degree of control over
commercial dealings, [a property owner] ought to be aware of the possibility that new
regulation might even render his property economically worthless” and that this is
especially true in highly regulated markets) (quoting Lucas v. S.C. Coastal Council, 505
U.S. 1003, 1029 (1992)).
Whatever interest plaintiffs have in their permits is the product of a regulatory
scheme that vested the City with broad discretion to control and even extinguish that
interest, see, e.g., M.C.O. § 100-50-9 (1992) (permitting the City to deny permits under
certain circumstances); § 100-50-15 (vesting the common council with authority to revoke
or suspend permits for cause); § 100-51.5-1 (outlining vehicle standards and equipment
requirements for vehicles operated under a taxicab permit), including the discretion to
change the regulatory framework. Dennis Melancon, 703 F.3d at 274. Thus, because the
City has always maintained control over the permits, plaintiffs at best had a unilateral
expectation that the City would not diminish the market value of the permits. Id.
The argument that the language of the ordinance together with selected statements
of City representatives amounted to an irrevocable promise that the City would never issue
another taxicab permit or amend its transportation regulations so as to devalue taxicab
permits in the commercial market is without merit. “A statute is not a commitment by the
legislature never to repeal the statute.” Pittman v. Chi. Bd. of Educ., 64 F.3d 1098, 1104

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(7th Cir. 1995); see also Olson v. State Conservation Comm’n, 235 Wis. 473 (1940)
(explaining that the power to legislate “carries with it the further power to change existing
laws, including regulation and prohibition, to meet changing conditions, and this power is
not lost simply because those affected have been licensed to operate under and by virtue
of the conditions of prior laws”). “To treat statutes as contracts would enormously curtail
the operation of democratic government. Statutes would be ratchets, creating rights that
could never be retracted or modified without buying off the groups upon which these rights
had been conferred.” Pittman, 64 F.3d at 1104.
Nothing in plaintiffs’ complaint indicates that the City intended the 1992 ordinance
to be anything more than a typical ordinance, subject to amendment or repeal at any time.
The ordinance did not state that the City could never modify or repeal it, and plaintiffs point
to no statements by a City representative to that effect.2 Dennis Melancon, 703 F.3d at 274
(concluding that “isolated . . . evidence that purportedly suggests the development of
custom by which the City treated [taxicab permits] as property . . . is insufficient to establish
the type of mutually explicit understanding necessary to create a protectable property right

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In fact, aldermen warned that the legislation could be changed in the future.
See Laing Decl. Ex. B at 14 (ECF No. 4-2) (Alderman Nardelli stating “The passage of
this substitute ordinance would not preclude [new permits from being issued in the
future]. Anything can happen with regard to legislation.”); id. at 22 (Alderman Nardelli
stating “And, again, it’s not something that we could not revisit. It just provides right now
try this out.”); id. at 35 (Alderman Kalwitz stating “And we’re creating something that
may not be permanent . . . we say we’re going to give this a try for a year or two, . . . I
would sell those permits in the next year or two, because after that . . . it’s not going to
be worth anything.”). I may consider the above-cited statements. Bogie v. Rosenberg,
705 F.3d 603, 609 (7th Cir. 2013) (“In considering a motion to dismiss under Rule
12(b)(6), district courts are free to consider . . . exhibits attached to the complaint, Fed.
R. Civ. P. 10(c), or documents referenced in the pleadings if they are central to the
claim.”).
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under the Takings Clause”). Thus, I conclude that plaintiffs plead no more than a unilateral
expectation that the market value of their permits would be maintained. They do not plead
the existence of a protected property interest and thus fail to state a Takings Clause claim.
Even assuming that plaintiffs have a property interest in their permits, to survive the
motions to dismiss, plaintiffs must also plead that a taking occurred. The Takings Clause
encompasses four categories of takings claims: permanent physical invasion, deprivation
of all beneficial economic use, exactions, and partial regulatory takings. Goodpaster, 736
F.3d at 1073–74 (citing Lingle v. Chevron U.S.A., Inc., 544 U.S. 528, 538–39 (2005)). The
present case falls into the partial regulatory takings category, and thus, I consider: (1) the
nature of the government action, (2) the economic impact of the regulation, and (3) the
degree of interference with plaintiffs’ reasonable investment-backed expectations. Id. at
1074. There is no “set formula” for determining whether a taking has occurred; rather,
these factors are “designed to bar Government from forcing some people alone to bear
public burdens which, in fairness and justice, should be borne by the public as a whole.”
Penn Cent. Transp. Co. v. City of N.Y., 438 U.S. 104, 123–34 (1978).
I conclude that plaintiffs also fail to plausibly plead that they have been subject to
a taking. Contrary to plaintiffs’ assertion, the ordinance did not completely destroy all
beneficial economic use of their permits. While it eliminated the commercial value of the
permits, it did not interfere with plaintiffs’ right to use the permits to operate taxis or to
transfer the permits. Also, the ordinance was at least in part designed to enable the City
to continue to effectively regulate the industry. See Lingle, 544 U.S. at 539 (stating that
“whether [the government action] amounts to a physical invasion or instead merely affects
property interests through some public program adjusting the benefits and burdens of
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economic life to promote the common good” is relevant to determining whether a taking
occurred); see also Lucas, 505 U.S. at 1014 (noting that property may be regulated and
that a regulation only constitutes a taking if it “goes too far”) (internal quotations and
citation omitted). These facts weigh “heavily against finding a taking.” Goodpaster, 736
F.3d at 1074–75. And as noted above, the highly-regulated nature of the taxicab industry
and the fact that plaintiffs should have been aware of the possibility of future changes to
the regulations make any expectation that the City would not remove the taxicab permit
cap unreasonable and one-sided. See Bos. Taxi Owners Ass’n, Inc. v. City of Bos., 84 F.
Supp. 3d 72, 79–80 (D. Mass. 2015).
Therefore, plaintiffs fail to plausibly plead both that they have a protected property
interest in the market value of their permits and that the 2014 ordinance went so far as to
constitute a taking. Thus, I will dismiss plaintiffs’ Takings Clause claim.
B. State Law Claims
Plaintiffs also allege supplemental state law breach of contract, promissory estoppel,
and equitable estoppel claims. Because I have dismissed plaintiffs’ only federal cause of
action, I need not retain jurisdiction over plaintiffs’ state law claims. See 28 U.S.C. §
1367(c)(3) (“The district court[] may decline to exercise supplemental jurisdiction over a
claim . . . if . . . [it] has dismissed all claims over which it has original jurisdiction.”). In the
present case, however, it appears that my analysis of plaintiffs’ Takings Clause claim
disposes of plaintiffs’ state law claims as well. Therefore, in the interest of efficiency, I will
address them.
First, plaintiffs fail to plead a breach of contract claim. Plaintiffs allege that the

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ordinance constituted a contract between the City and plaintiffs. However, as noted above,
an ordinance is not a contract, and the isolated statements plaintiffs cite in support of their
assertion that the 2014 ordinance constituted an agreement between the City and permitholders are insufficient to turn the ordinance into some sort of forever-binding agreement.
Pittman, 64 F.3d at 1104; Olson, 235 Wis. 473.
Plaintiffs’ promissory and equitable estoppel claims fail for the same reason.
Plaintiffs allege that the ordinance together with statements by City representatives
constituted a promise to maintain the cap system in perpetuity, and that this promise
induced plaintiffs to pay market rate for the permits. As noted, however, ordinances, even
if accompanied by statements from City officials, cannot bind future legislatures from
amending or repealing them in reaction to economic and social changes. Flynn v. Dep’t of
Admin., 216 Wis. 2d 521, 556 (1998) (“Because one legislature may not bind future
legislatures, it is fully within the legislature’s power to change an appropriation put into
place by a previous legislative session.”). And plaintiffs should have been aware that, in
such a heavily-regulated industry, the ordinances would be subject to future change.
III. Conclusion
THEREFORE, IT IS ORDERED that intervenor’s motion to dismiss (ECF No. 33)
and defendant’s motion for judgment on the pleadings (ECF No. 37) are GRANTED. The
Clerk shall enter judgment accordingly.
Dated at Milwaukee, Wisconsin, this 7th day of December, 2015.
s/ Lynn Adelman
_____________________
LYNN ADELMAN
District Judge
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