Three years ago the city of Portland, Oregon, enacted regulations requiring car services to charge at least $50 for airport trips and at least 35 percent more than taxicabs for other trips. The city also requires that car services (limos and sedans) make customers wait at least an hour before picking them up. These consumer-unfriendly rules were expressly designed to shield taxicab companies from competition. In a federal lawsuit filed today, the Institute for Justice argues that such protectionism is not just unwise and unfair but also unconstitutional. The suit is part of I.J.'s effort to protect "the right to earn an honest living free from excessive government regulation." Toward that end, I.J. is trying to put some teeth into the "rational basis" test, the highly deferential standard by which courts assess the validity of economic regulations under the 14th Amendment's Due Process and Equal Protection clauses. I.J. argues that Portland's regulations do not have a legitimate public purpose, which is one requirement of the rational basis test:
Portland's car service regulations were designed to protect taxicabs' profits at everyone else's expense. They have nothing to do with protecting public safety and everything to do with economic protectionism….
The U.S. Constitution protects every American's right to economic liberty—the right to practice one's chosen occupation free from unreasonable government regulation. In Portland, the government is inflating transportation prices and destroying small businesses just to help taxicab companies drive their competitors off the road.
The plaintiffs in this case, Towncar.com and Fiesta Limousine, were both hit with whopping fines last fall because they dared to offer Groupon discounts that made their prices lower than than the legal minimum. The city assessed a fine of $500 for the first Groupon sold and $1,000 for each subsequent one, making the total $635,500 for Towncar.com and $259,500 for Fiesta. Both agreed to rescind their offers and refund their customers' money to avoid the fines.
I.J. says price controls like Portland's are rare. "Of all the cities and counties in this country," it says, "only nine others impose minimum fares on car services and their customers." (One of them is Hillsborough County, Florida, whose regulations I discussed in a 2003 column.) Last month a Portland official candidly explained the rationale for the regulations to Huffington Post reporter J.L. Greene: "You don't want the Town Cars to take all of the best fares, which are to the airport, and not leave any for the taxi industry. That's why there's a minimum fare and a one-hour wait requirement."
I.J. notes that two federal appeals courts have ruled that protectionism alone is not an adequate justification for economic regulations. In 2002 the U.S. Court of Appeals for the 6th Circuit overturned Tennessee's requirement that all casket sellers be licensed as funeral directors, saying it violated the Due Process and Equal Protection clauses because it served merely "to prevent economic competition." In 2008 the U.S. Court of Appeals for the 9th Circuit (which includes Oregon) ruled that California's licensing scheme for pest controllers violated the Equal Protection Clause because it irrationally exempted some nonchemical methods but not others. The plaintiff argued that the licensing requirements "have no legitimate purpose for persons engaged in structural pest control without pesticides, and simply inhibit competition in the marketplace." By contrast, in a 2004 case involving an Oklahoma casket regulation similar to Tennessee's, the U.S. Court of Appeals for the 10th Circuit rejected "the contention that intrastate economic protectionism…is an illegitimate state interest." In light of the circuit split, I.J.. says, "The question will one day have to be decided by the U.S. Supreme Court."