Taxi Companies Asked Georgia for a Bailout and Got Laughed Out of Court

Taxi companies that sued the state of Georgia over a 2015 law allowing ride-sharing services to operate in the state got laughed out of the Georgia Supreme Court this week.

Their case, such as it was, went like this. Back in 2015, the Georgia state legislature enacted changes to the state's laws governing taxi companies, allowing ride-sharing services like Uber and Lyft to operate for the first time. Prior to that, taxis had enjoyed a pretty sweet monopoly in Atlanta, where the number of taxi medallions had been capped at 1,600 for more than two decades. That artificial limit on the number of taxis, naturally, had caused the value of those medallions to skyrocket, making them valuable investments. One medallion was sold for $80,000 (and that's actually cheap compared to the value of taxi medallions in bigger cities like New York, where they can be worth more than $1 million).

Then, Uber and Lyft came along. Since the new ride-sharing services effectively removed the artificial cap on taxis in Atlanta, the value of those taxi medallions—technically known as "Certificates of Public Necessity and Convenience" or CPNCs—fell.

In court, the taxi companies claimed that by legalizing the new competitors, the state legislature had deprived them of their "exclusive right to provide rides origination in the city limits," and that the 2015 law had damaged the value of their medallions. As such, they argued that the state government must compensate them for the lost value—this is known as a "takings claim," along the lines of what happens when governments seize property through eminent domain.

Lower courts disagreed with the taxi companies, but they pushed the case all the way to the Georgia Supreme Court, where Justice Carol Hunstein issued a scathing, and unanimous, nine-page decision that tears through every part of the taxi companies' claim.

"Though it may be true that an occupational or business license – once secured – can become a protected property right," Hunstein writes, "there is no argument here that the [new law] deprives appellants of their CPNCs or of their right to engage in the taxicab business; indeed, a CPNC is still necessary to operate a taxicab in the City of Atlanta."

So the government didn't take anything away from the taxi companies. That seems pretty clear, but what about the claim that the taxis had lost their "exclusive right" to operate in Atlanta, and that it was that exclusivity which created value? Nonsense, says Hunstein. "Appellants have pointed to no law that would have prevented the city of Atlanta or the legislature from increasing the CPNC limit (and thus, the number of drivers)."

In short, the new law "does not take business property for a public use, it merely requires an already regulated business to adjust its property to the new law," Hunstein concludes.

This is all exactly right. It's unfortunate that taxi companies have seen the value of their medallions fall because of new competition, but some investments succeed and others fail. Atlanta's taxi medallions had an inflated value because of government-imposed caps on the taxi market, but those caps, as Hunstein points out, could have been increased or removed at any time. The medallions' value was based on little more than the expectation that the government would continue to protect a privileged monopoly.

Atlanta is hardly the only place where this is happening. As Nick Sibilla points out in Forbes, federal courts have rejected similar arguments from taxi companies looking for bailouts in Boston, Chicago, Miami, Milwaukee, Minneapolis, and New York City. Courts elsewhere should do the same.

If taxi medallion owners made a bad investments because they wrongly believed they could use the government to restrict competition and inflate the value of those investments, well, they were wrong. And there's no good reason why the taxpayers of Georgia should have to bail them out for making a bad investment.