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CAMPBELL v. CITY OF CHICAGO

September 22, 1983

JOHN H. CAMPBELL, ET AL., PLAINTIFFS,
v.
THE CITY OF CHICAGO, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Decker, District Judge.

MEMORANDUM OPINION AND ORDER

Plaintiffs, John H. Campbell ("Campbell"), Isadore Head ("Head"), and Cornelius E. Scott ("Scott"), have brought this action against defendants, the City of Chicago ("the City"), Yellow Cab Company ("Yellow") and Checker Taxi Company, Inc. ("Checker"), pursuant to Sections 1 and 2 of the Sherman Act, 15 U.S.C. § 1, 2. The action is brought on plaintiff's own behalf and on behalf of a class consisting of all persons who have held Public Vehicle Chauffeur's licenses issued by the City and who have leased or subleased taxicabs or licenses/medallions alone during the four-year period preceding the filing of the complaint. Currently pending are defendants' motions to dismiss the complaint for failure to state a claim upon which relief may be granted.*fn1

I. Factual Background.

In ruling on a motion to dismiss, the court must "take [the plaintiffs'] allegations to be true, and view them, together with reasonable inferences to be drawn therefrom, in the light most favorable to the plaintiff[s]." Powe v. City of Chicago, 664 F.2d 639, 642 (7th Cir. 1981). According to the complaint, each plaintiff holds a Public Chauffeur's license issued by the City, which entitles him to drive a taxicab in the City. Between 1976 and January, 1980, Campbell leased various taxicabs with City medallions from Yellow; between July, 1981 and January, 1983, he leased various taxicabs with medallions from other City taxicab licensees; and between January, 1983, and the present, he has owned his own taxicab but has leased a City medallion from a separate company. Between 1976 and the present, Head has leased various taxicabs with medallions from Yellow. Between 1976 and late 1982, Scott leased various taxicabs with City medallions from both Yellow and Checker. Between late 1982 and the present, he has leased various taxicabs with City medallions exclusively from Checker. Plaintiffs have periodically asked representatives of the City's Department of Consumer Services, Public Vehicle Division, if they could obtain a City taxicab license and medallion directly from the City by simply remitting the annual license fee of $200.00. On each occasion, the City informed them that all licenses had already been issued and that none was available.

Yellow, a Maine corporation, owns, operates and leases taxicabs in the City. It currently holds 2,166 taxicab licenses issued by the City, the same number it has held since at least 1963. Checker, a New York corporation, also owns, operates and leases taxicabs in the City. It holds 1,500 taxicab licenses issued by the City, the same number it has held since at least 1963. All of Yellow's stock is owned by Checker Motors Corp., 44.6% of whose stock is owned by defendant Checker.

The gravamen of plaintiffs' complaint is that Yellow and Checker have conspired with each other to restrict the number of taxicab licenses which may be issued each year, and that they have obtained the City's agreement to enact an ordinance implementing that restriction. To properly analyze this claim, the court finds it necessary to briefly review the facts giving rise to the ordinance in question.*fn2

The first comprehensive ordinance regulating the operation of taxicabs in Chicago was enacted in 1934. It provided for the issuance of licenses to operate taxicabs in the City for a term ending December 31, 1940, unless sooner terminated or revoked as provided in the ordinance. Pursuant to this ordinance, 4,108 licenses were issued, with Yellow receiving 2,166 and Checker receiving 1,500. Three years later, it was determined that a reduction in the number of taxicabs and an increase in the fares charged would further public convenience and necessity. Thus, in 1937, another ordinance was enacted by the Chicago City Council (the "Council"), providing for the voluntary surrender of licenses to reduce the total number of outstanding licenses from 4,108 to 3,000. Also included in this ordinance was a provision that those turning in their licenses would obtain priority rights on any new licenses that might subsequently be issued. That is, any new licenses would be issued in proportion to the number voluntarily surrendered by each licensee. The 1937 ordinance thus became effective when Yellow surrendered 571 licenses, Checker surrendered 500 and other licensees surrendered 37.

In 1945, the terms of the 1937 ordinance were extended until 1950. In 1946, the City proposed to issue additional licenses without regard to the above-noted priority provision. Yellow and Checker filed suit, and the Circuit Court of Cook County entered an injunction restraining the City from issuing any licenses in excess of 3,000 without first affording Yellow and Checker the opportunity to obtain such licenses in the manner set forth in the 1937 ordinance. One year later, the Illinois Supreme Court affirmed the Circuit Court's order, establishing the invalidity of licenses issued in violation of the priority provision of the 1937 ordinance. Yellow Cab Co. v. City of Chicago, 396 Ill. 388, 71 N.E.2d 652 (1947).

In 1952, Checker filed suit against the City in the Circuit Court of Cook County, No. 52 C 7331, and in 1957, Yellow brought a similar action, No. 57 C 11242. Both suits arose out of the same alleged violations of the priority provision at issue in the 1946 suit, and since the Illinois Supreme Court had already found in the equitable actions that the City had violated the 1937 ordinance, the only issue remaining in the new suits was the extent of damages for which the City was liable.

These damage actions were still pending in 1963. In a letter dated June 25, 1963, the presidents of Yellow and Checker jointly notified John C. Melaniphy, the City's Corporation Counsel, that the suits against the City would be dismissed if the Counsel enacted an ordinance amending Chapter 28 of the Municipal Code. The letter included stipulations to dismiss the damage actions, a stipulation to dissolve the injunction that had been affirmed by the Illinois Supreme Court in 1947 and a copy of a draft ordinance. The stipulations were to be filed in the Circuit Court of Cook County if and when the enclosed ordinance was passed by the Council, signed by the Mayor and rendered effective in all respects.

Pursuant to the proposal set forth in the June 25, 1963 letter, the Council amended Chapter 28 of the Municipal Code on July 1, 1963, and Yellow and Checker dismissed their respective damage suits. The ordinance proffered by Yellow and Checker and adopted by the Council authorizes the issuance of 4,600 licenses, Chicago Mun. Code, Public Passenger Vehicles § 28-22.1(a), 2,666 of which are held by Yellow and 1,500 of which are held by Checker. It also provides that the Council, "at the request of the holders of a majority of the licenses at any time outstanding[,]" shall within 60 days after such request "hold hearings . . . to determine whether public convenience and necessity may require additional taxicab service." Id. at § 28-22.1(c). Furthermore, holders of taxicab licenses under the ordinance enjoy protection from the issuance of additional licenses. New licenses, if issued at all, must be issued to holders of present licenses in proportion to the number they now retain. Id. at § 28-22.1(d)(I).*fn3 Finally, the ordinance provides that

  "[n]othing in this ordinance shall be construed to
  limit the City in the exercise of its police powers
  and the City hereby expressly reserves the right to
  pass all reasonable ordinances and regulations
  affecting the licensees which may be necessary to
  promote or secure health, safety, morals, comfort,
  and general welfare; provided, however, that no
  ordinance or regulations shall hereafter authorize
  the issuance of any license for a taxicab nor shall
  any such license hereafter be issued except upon
  transfer or to permit replacement of a taxicab or in
  the annual renewal of such license and except as
  provided in Section 28-22.1 hereof."

Id. at § 28-31.1.

Plaintiffs contend that these provisions have been actively enforced since 1963. They note that while there are 4,600 licensed taxicabs, there are approximately 11,000 licensed taxidrivers in the City. Since at least 1975, Yellow and Checker have leased their taxicabs to independent drivers such as plaintiffs and the class they purport to represent on a daily or weekly basis. According to the complaint, both Yellow and Checker currently charge a daily rental fee of approximately $55 for the use of both the City license and taxicab, approximately $24 of which is attributable to the lease cost of the City license. The driver pays an additional amount for automobile liability insurance and fuel. Alternatively, both Yellow and Checker currently charge a driver who owns his own taxicab approximately $165 per week for leasing the license, which results in an average daily lease cost of approximately $24 for a City license. Plaintiffs assert that because the defendant companies hold 80% of the total number of licenses, other competing taxicab companies are able to charge comparable lease rates.

Any person who for the past several years wished to compete in the taxicab market and operate a taxicab service without leasing a City license has had to purchase that license from an existing license holder. As a result, the City licenses held by Yellow, Checker and other cab companies maintain a market value of $12,500.00 to $15,000.00. Plaintiffs cite as an example Checker's August 9, 1982, agreement to sell and transfer 85 of its City licenses to independent cab drivers or other cab companies at an average price of $13,841.00 per license. They also rely on Yellow's July, 1982 agreement to sell and transfer 13 of its City licenses at an average price of $13,000.00 per license. Plaintiffs charge that they and members of the class they seek to represent find these prices to be prohibitive, and that they are therefore precluded from entering the taxicab market.

Defendants' agreement to restrict the number of taxicab licenses is designed, according to plaintiffs, to eliminate competitors of Yellow and Checker from the Chicago taxicab market; to prevent additional competitors from entering this market; to further the acquisition of artificially high profits; and to maintain artificially high passenger fares. They assert that the free market entry of their purported class through elimination of the City's license restriction would lead to a reduction in passenger waiting time; the implementation of better overall service; a vast increase in service to lower income neighborhoods and non-congested downtown areas; a reduction in periodic fare increases; an increase in the kinds of taxicab service available; and an increase in supplemental employment for drivers.

II. Defendants' Motions to Dismiss.

In support of their motion to dismiss, defendants Yellow and Checker assert that the alleged concerted activity of which plaintiffs complain is beyond the scope of the federal antitrust laws under the "state action exemption" originally promulgated in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). Relying on the so-called Noerr-Pennington doctrine, the cab companies also claim that the antitrust laws cannot be applied to prohibit them from exercising their First Amendment rights by petitioning the City to enact or amend municipal ordinances. ...


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