Appeals court rules Kansas City cab laws promote favoritism, but can stay

FAIR FARES? Some cabbies in Kansas City claim the big companies have unfair advantages.

By John K. Ross | for Missouri Watchdog

Last month, a federal appeals court rejected a bid by a group of 250 taxicab drivers to open Kansas City’s market to more competition, saying that while the rules promote favoritism they aren’t unconstitutional.

The Kansas City Taxicab Drivers Association had argued the city’s permitting system unconstitutionally protects existing taxicab companies, resulting in increased fares and lower quality service.

FAIR FARES? Some cabbies in Kansas City claim the big companies have unfair advantages.

The nine companies that own all of the available taxi permits “have fiefdom-like control on the Kansas City taxicab market,” according to the cabbies’ suit. Two companies — Yellow Cab and City Cab — control almost 80 percent of the 547 permits.

The drivers sued the city in 2012 after unsuccessfully lobbying the city council for a change to the permitting system. “All we’re asking for is one permit for each individual driver,” Gammachu Mixicha, a U.S. citizen who emigrated from Ethiopia, told The Pitch at the time.

Currently, drivers have no choice but to work for a cab company, which impose weekly fees for the use of a permit. According to the lawsuit, many drivers would prefer to work for themselves and “have the financial means to start their own driver-owned taxicab companies; however, [the law prevents them] from doing so.”

City council members say there is no demand for new taxi services. During litigation, council members Melba Curls and Russell Johnson testified they had received no complaints about a lack of cabs in the city.

But Peter Klein, an economist at the University of Missouri, said city council members and transportation planners are not in the best position to know how much demand there is.

“The market can sort this out. That’s exactly what the market does: equilibrate supply and demand so that you have the amount of good or service offered for sale that meets the demand of the consumers,” he told Missouri Watchdog. It just doesn’t make any sense to put that kind of economic decision in the hands of city planners rather than entrepreneurs and consumers.”

Citing a lack of demand, the city council passed legislation in 2005 reducing the number of permits from 600 to 500 by attrition. When the number of active permits reaches 499, current permit holders may apply for the 500th permit. New applicants, however, must wait till the number of permits reaches 490.

The rule means existing companies are virtually assured of grabbing up any newly available permits before new applicants have a chance to purchase them. Such disparate treatment violates the U.S. Constitution’s guarantees of equal protection and due process, the cabbies argued.

In a five-page ruling, a three-judge panel of the Eighth U.S. Circuit Court of Appeals disagreed, however.

“While these provisions favor existing firms, they are constitutionally permissible,” wrote Judge Duane Benton, a George W. Bush appointee.

According to the court, rules that prevent new companies from entering the market give incumbent companies the security they need to rationalize investing in their businesses, which results in higher quality services.

But Robert McNamara, an attorney with the Institute for Justice, a nonprofit law firm that litigates taxi cases, argues that barring new competition does not yield better quality.

“When consumers have a choice to go to a different service provider, service improves,” McNamara told Watchdog. “The fact that many local transportation regulators disregard this basic truth in order to protect the economic interests of entrenched businesses is a tragedy for consumers and entrepreneurs alike.”

The cab drivers aren’t giving up the fight yet.

In an e-mail, Mark Goodman, the cab drivers’ attorney, told Watchdog that a motion for rehearing before the 8th Circuit has been filed.

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