Tuesday, April 3, 2012

Nashville limo owners want to stop enforcement of $45-per-trip minimum fare

A group of budget limousine and sedan service companies urged a federal judge Monday to temporarily bar Metro government from enforcing a $45-per-trip minimum fare.

The companies sought the preliminary injunction until the court can decide the merits of a lawsuit calling Nashville’s new limo regulations anti-competitive and unconstitutional. read more

This is another step in the on-going battle to overturn Metro's mandatory livery service price-fixing scheme. At the heart of the battle is a Metro requirement that a "limo" charge a $45 minimum fee for a fare even if the fare is a 5 mile, 10 minute ride.

Until June 2010, limousine service was largely unregulated and limo's were a luxury service. However, a new service appeared on the scene a few years ago which was not a taxi but was cheaper than a limo. This new service did not use the stretch limousine vehicle but used black sedans.

This service was started by Ali Bokhari, who emigrated from Pakistan in 2000, and ended up in Nashville.  He saw an opportunity for a new kind of livery service and he developed a successful business model. From starting with one car, his business has grown to a fleet of 20 cars plus 15 independent owner-operators who work for him. Seeing his success, others started providing the same service. This new type of service was popular. Instead of paying $45 or more for a limo to take one from the airport to a downtown hotel, this new service only charged $25. Also, a lot of clients preferred the less ostentatious black sedan over a stretch limousine.

There was problem however.  The big well-connected limo companies were losing customers to the sedan companies so they went to Metro and got a bill passed that essentially would put the sedan companies out of business and made them operate like limo companies. The regulation they drafted established a minimum $45 fee for a limo ride.  The Metro Council passed their anti-competitive bill in June 2010 and no one in the Council, even the self-identified constitution-loving, free-market advocating conservatives, opposed the bill.

In addition to the new minimum fare requirement, the new law did a lot of other things designed to restrict the ability of the sedan companies to provide the service they were providing. The new law did such things as permit only one fare per hour; require a central dispatch office, which has the effect of prohibiting clients from directly contacted the driver by cell phone and thus prohibiting the single-car, owner-operator; established discriminatory vehicle age and mileage requirements on sedans which are more restrictive than those on the limo body type vehicle; and more. 

It seems regulators do not like innovation or deviation from the way things have always been done.  They want all services to fit in neat little well-defined boxes so they can more easily be regulated. Innovation and regulations just do not go well together. Also, well established firms do not like to lose business to innovators and those who can successfully compete for their customers. With friends in high places, many successful businesses are not above using the power of government to squash the competition. The fact is, a lot of businessmen are not advocates of free markets. They like government favors and protection from competition.

In April 2011, Metro Livery and two other economy limo companies filed a federal lawsuit challenging challenging the constitutionality of the new regulation and the minimum fee. The Institute for Justice, a libertarian public-interest law firm, is representing the livery companies. Metro sued to dismiss the law suit.

On January 20th, 2012 the motion to dismiss was heard in the U.S. District Court for the Middle District of Tennessee and the court denied the motion to dismiss. That ruling emphasized that “Courts have repeatedly recognized that protecting a discrete interest group from economic competition is not a legitimate governmental purpose,” quoting Craigmiles v. Giles, a 2002 case that the Institute for Justice won on behalf of some casket retailers in Tennessee. The casket retailers in that case were being locked out of the marketplace by a group of well-connected companies. The casket retailers won their case.  In dismissing Metro’s motion to dismiss, the court recognized precedent in holding that legislating for no other purpose than protecting industry insiders is illegitimate.
This latest action is a motion to prohibit the city from enforcing the $45 fee until the constitutional issue is decided.  I am hopeful the court will not allow the city to enforce what may very well be ruled an unconstitutional law.

For more on this issue click here.

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  1. Nashville limo owners want to stop $45 minimum rate for all trips. Useful information