SAN FRANCISCO (CBS SF) — Drivers who paid $250,000 apiece to buy taxi medallions to operate in the city of San Francisco will continue to get priority over other taxis servicing the San Francisco International Airport after a panel of the U.S. Court of Appeals for the 9th Circuit affirmed a favorable ruling Monday.

The disruption of the taxi industry by Uber and Lyft has caused hardship to most taxi drivers in San Francisco, but it has been particularly damaging to drivers who obtained their medallions after 2010. That group paid $250,000 to get permission to operate, only to see medallion values plummet as rideshare services gobbled up market share.

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The San Francisco Municipal Transportation Agency, the city agency with regulatory authority over the taxi industry, tried to help that group by giving them preference over other taxis servicing SFO.

That did not go down well with the drivers who held earlier-issued medallions, and a group of them sued the city and SFMTA claiming that the preference drivers violated the equal protection provisions of the California and U.S. constitutions.

The court disagreed.

In an opinion authored by Circuit Judge Kenneth K. Lee, the three-judge panel noted on Monday that SFMTA commissioned an analysis of the situation and the resulting report found that “purchased medallion holders faced severe financial hardship because of high debt loads joined with fare loss to ridesharing services.”

The report also found that there were significant delays at the airport with taxi drivers “clustering at SFO in search of high value fares, causing significant congestion.”

The SFMTA’s solution to both problems was to provide the post-2010 medallion holders a preference over the other drivers.

The other drivers claimed that the distinction between categories of drivers was discriminatory and violated their right to equal protection under the law.

In equal protection cases, the standard of review that a court applies to a challenged law is of great importance. Where a regulatory classification involves “suspect classes” like racial minorities, or “fundamental rights” like the right of privacy, courts apply a demanding standard of review.

However, in cases where only economic interests are affected, the review is more forgiving.

In such a case, the challenged law or regulation is acceptable if are “‘plausible,’ ‘arguable,’ or ‘conceivable’ reasons which may have been
the basis for the distinction,” the panel wrote, citing a number of prior
decisions of the U.S. Supreme Court.

Because SFMTA’s distinction only affected economic interests, the deferential standard of review was appropriate, the court concluded. Viewed in that light, SFMTA’s regulations were permissible because they advanced, in a rational way, legitimate governmental goals – eliminating congestion and cushioning the loses of the post-2010 drivers.

The latter purpose – softening the economic fallout for purchased medallion holders – “is a permissible state purpose and not a naked attempt to raise a fortress around them to insulate them from competition.”

The court concluded that mitigating the fallout “for those most affected by a shift in the market is a permissible state purpose, even if some may question its policy wisdom.”

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