San Francisco, CA — On March 27, 2018, Joseph & Cohen, Professional Corporation, filed a lawsuit in the San Francisco Superior Court on behalf of San Francisco Federal Credit Union (the “Credit Union” or “SFFCU”) against the San Francisco Municipal Transportation Agency (“SFMTA”), seeking $28 million in compensatory damages from defaulted taxi medallion loans.
As alleged in the complaint, in 2010, then-Mayor Gavin Newsom was facing a large budget shortfall and instructed the SFMTA to monetize the City’s taxi medallions. The price was subsequently set at $250,000 each. Taxi medallions are city-issued permits that authorize taxi drivers to operate a taxi in San Francisco. Until 2010, medallions were free and were awarded to taxi drivers based on seniority. While drivers often had to wait 10 to 15 years to receive their medallion, the free medallions permitted drivers to earn a good livelihood. A medallion holder could also rent it out to other licensed taxi drivers to earn passive income when they weren’t driving. This meant that drivers could live in or around San Francisco and raise families with their earnings.
The SFMTA was aware that monetizing and selling “transferable” medallions to drivers for $250,000 was a steep price, so they marketed the medallions as “investments” that could be resold in a marketplace created and managed by the SFMTA. In search of a solution to enable drivers to finance their purchases, the SFMTA asked SFFCU to partner with it to offer affordable loans to help drivers pay for the medallions. Based on significant assurances, City regulations, and promises in written contracts between the Credit Union and the SFMTA, SFFCU agreed to provide reduced rate loans to the drivers since City officials had agreed they would ensure the viability of the medallion market.
The City sold or retransferred approximately 700 medallions resulting in revenues of over $63 million. But once San Francisco allowed Uber and Lyft to operate in San Francisco without subjecting them to enforcement, safety and other reasonable regulations thousands of Uber and Lyft cars poured into the City. City officials claimed they were unable to regulate Uber and Lyft based on the CPUC’s statewide regulations, but this isn’t accurate. As alleged in the complaint, the City has the legal authority under California law to regulate Uber and Lyft on a side-by-side basis with CPUC rules. Despite having a contractual obligation to take any steps necessary to protect their own transferable medallion market, the City and the SFMTA failed to take meaningful actions to protect the medallion market, the taxi drivers and the Credit Union.
As Uber and Lyft grew, taxi earnings fell precipitously and many non-medallion owning drivers left the industry. Some began driving for Uber and Lyft since all they needed to do was download an app to sign up. These days, after expenses, a medallion owner may be lucky to earn $50 during a ten-hour shift. Medallion owners started struggling to make loan payments and around one hundred drivers have defaulted. By early 2017, due to the SFMTA’s failure to uphold its stated mission to “promote a vibrant taxi industry through intelligent regulation, enforcement and partnership,” the medallion market had completely failed and the hard-working taxi drivers and Credit Union were left holding toxic assets.
The Credit Union’s lawsuit claims, among other things, the SFMTA failed to satisfy its promises under written contracts with the Credit Union and the San Francisco Transportation Code, misled the Credit Union and reneged on its promise to repurchase the medallions as outlined in the complaint, which is available at the link below. The lawsuit states causes of action for breach of contract, breach of mandatory duties under the San Francisco Transportation Code, breach of the implied warranty of good faith and fair dealing, breach of fiduciary duty and negligent misrepresentation.
Since inception of the Credit Union’s agreement to provide financing for the SFMTA’s program, SFFCU ended up originating $125 million in medallion loans for more than 700 medallion purchases. Now, as result of the City’s failures, it has had to foreclose on 99 medallions while over four hundred other drivers seek to surrender their medallions. As a remedy, among other things, the lawsuit seeks compensatory damages of $28 million.
To learn more, click here to read the lawsuit filed by Joseph & Cohen.