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Melissa Callahan, On Behalf of Herself and All Others Similarly v. City of Chicago

November 29, 2012


The opinion of the court was delivered by: Matthew F. Kennelly, District Judge:


Melissa Callahan, representing a putative class of taxicab drivers, has sue the City of Chicago under 42 U.S.C. § 1983; the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. § 206 and the Illinois Minimum Wage Law (IMWL), 820 ILCS 105/4. In her five-count complaint, Callahan alleges claims of: (1) unconstitutional taking of property; (2) violation of procedural due process; (3) unjust enrichment; (4) violation of the FLSA; and (5) violation of the IMWL. All of Callahan's claims involve the City's taxicab regulations, which set the maximum rate that medallion owners may charge to lease a taxicab and the meter rate a driver must charge a passenger. The City has moved to dismiss Callahan's complaint. For the reasons stated below, the Court dismisses Callahan's constitutional claims and her unjust enrichment claim but declines to dismiss her FLSA and IMWL claims.


Callahan is a formerly full-time, now part-time cab driver in the City of Chicago.

Since January 1, 2010, she has been leasing her taxicab from a taxi medallion owner -- an individual with a license to operate cabs in the City -- who is affiliated with American United Taxi Affiliation, Inc.

The City sets the maximum rate that medallion owners may charge to lease a taxicab. It also sets the fare that Callahan or any other cab driver may collect. In addition, the City has in place regulations that govern various aspects of a cab driver's work. For instance, the City enforces a rule of "courtesy" between cab drivers and passengers, requires cab drivers to respond to assigned radio calls, determines the manner in which drivers may receive compensation, and prohibits cab drivers from refusing a fare to any destination irrespective of the hour. First Am. Compl. (FAC) ¶ 15. The City also requires cab drivers to dress in "proper attire," sets the maximum number of hours a cab driver may work, and provides that any violation of its rules may subject a cab driver to a fine or suspension of the cab driver's license. Id. ¶ 28.

Callahan alleges that by setting a high maximum medallion lease rate and a low taxi fare rate, the City has deprived her of a reasonable opportunity to make a fair wage. Specifically, Callahan alleges that while she was a full-time driver, she earned, on average, less than $8.25 an hour, the minimum legal wage in Illinois. She claims that, the City's actions in this regard amount to an unlawful taking of her property without just compensation, violate her constitutional right to procedural due process, and unjustly enrich the City to her detriment. Callahan also alleges that the control the City exerts over the manner in which she performs her work makes the City her employer under the FLSA and IMWL and that the City's failure to set rates that allow her to make minimum wage is therefore a violation of both statutes. The City has moved to dismiss the complaint in its entirety for failure to state a claim.


On a motion to dismiss under Rule 12(b)(6), the Court accepts the facts alleged in the complaint as true and draws reasonable inferences in favor of the plaintiff. Cole v. Milwaukee Area Tech. Coll. Dist., 634 F.3d 901, 903 (7th Cir. 2011). To avoid dismissal for failure to state a claim, a complaint must describe the claim sufficiently to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). In addition, a plaintiff must allege "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009).

1. Unconstitutional taking

Count 1 of the complaint states that the City's lease and meter rate regulations amount to an unconstitutional taking of Callahan's property without just compensation violative of the Fifth Amendment. Specifically, Callahan alleges that by setting a high maximum lease rate and low meter rate, the City has deprived her of a reasonable opportunity to earn a living and has thereby confiscated the reasonable value of her taxicab lease.

The Supreme Court has recognized two types of unconstitutional takings of property that can occur without physical occupation of the property at issue. The first takes place when a governmental rate regulation imposed upon a regulated industry is so low as to be "confiscatory." Covington & Lexington Tpk. Rd. Co. v. Sandford, 164 U.S. 578, 597 (1896). The second occurs when the government's regulation "goes too far" in limiting the owner's use of his or her property. Pa. Coal Co. v. Mahon, 260 U.S. 393, 415 (1922); see Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978).

Callahan argues that because the taxicab industry is a regulated industry, the Court must apply the standard used in confiscatory rate-regulation cases to evaluate the constitutionality of the City's rate regulation. In doing so, Callahan relies primarily on Duquesne Light Co. v. Barasch, 488 U.S. 299, 302 (1989). In that case, a power company challenged a state law that precluded it from recovering the cost of power plants that were not in service even though the decision to build them was "reasonable and prudent" at the time of construction. Id. at 303. In analyzing whether the rates set by the state amounted to an unconstitutional taking, the Supreme Court explained that precedent had established that the Constitution "protects utilities from being limited to a charge for their property serving the public which is so unjust as to be confiscatory." Id. at 307 (internal citation and quotation marks omitted). The reason for this is that although such companies are operated by private investors, their assets are employed to serve the public interest. Id. The Court further stated that this "creates its own set of questions under the Takings Clause of the Fifth Amendment." Id. With the power company's "partly public, partly private status" in mind, the Court evaluated whether the rates set by the state were "confiscatory." Id.

The discussion in Duquesne makes clear that rates imposed on public utilities are evaluated under a separate standard because the involve a quasi-public industry that is highly capital-intensive. The standard used in rate-making cases has not been applied by the Supreme Court outside the public utility context. Even the rate-making cases upon which Callahan relies deal with the constitutionality of government rate-setting for public utilities. See Permian Basin Area Rate Cases, 390 U.S. 747, 790 (1968) (determining whether rates imposed on natural gas companies were constitutional); Federal Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591 (1944) (establishing ...

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