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Second Circuit upheld Southern Districts Preliminary Injunction barring application of the NYC Taxi Lease Cap Regulations

The Second Circuit recently ruled that the District Court for the Southern District of New York properly issued a preliminary injunction banning the City of New York ("City") from enforcing its new "lease cap" rules with regard to the maximum lease rates for taxi cabs. See Metropolitan Taxicab Board of Trade v. City of New York, Docket No. 09-2901-cv, 2010 U.S. App. LEXIS 15303 (2d Cir. July 27, 2010).

Essentially, the City's rules, promulgated March 26, 2009 (after a prior rule that also sought to impose stricter fuel emission standards on the taxi fleet was struck down), set the per shift lease rate that taxi fleet owners can charge to cabbies such that owners of hybrid taxis can charge a higher lease rate than can owners of vehicles that are less fuel efficient. The City's justification for these rules is that "the rules correct a structural problem with the standard vehicle lease arrangement that artificially insulates the taxi owners from fuel costs." 2010 U.S. App. LEXIS 15303, at * 13.

Nobody disputes that the purpose of the rules is laudable. However, taxi owners argue that the rule forces them to purchase hybrid vehicles and have challenged the rules on the grounds that federal laws, the Energy Policy and Conservation Act, 49 U.S.C. § 32919(a), ("EPCA") and the Clear Air Act, 42 U.S.C. § 7543(a), ("CAA"), preempt the new rules.

The test for whether a preliminary injunction ("PI") should issue is: (1) whether the plaintiffs would be irreparably harmed if defendant's conduct were not enjoined; (2) whether the plaintiffs are likely to succeed on their claim; and (3) whether the public interest weighs in favor of issuing the preliminary injunction.

On appeal, the City conceded that the plaintiffs would be irreparably harmed, and also did not contest the District Court's balancing of interests and determination that it was in the public interest to issue the PI. Therefore, the sole issue before the Circuit Court addressed the second prong of this test: whether the plaintiffs were likely to succeed on their preemption claim against the City of New York.

The Second Circuit cited the Supreme Court's instruction in analyzing whether a statute or regulation is preempted: the court must examine "whether the challenged law contains a reference to the preempted subject matter or makes the existence of the preempted subject matter 'essential to the law's operation.'" 2010 U.S. App. LEXIS 15303, at * 9-10 (citing Cal.Div. of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 324-25 (1997)).

Applying this test, the appeals court determined the new rules, indeed, contain a reference to fuel economy standards in the EPCA and make fuel economy standards essential to the operation of the new rules. The Court said: "The requirement that a taxi be a hybrid in order to qualify for the upwardly adjusted lease cap does nothing more than draw a distinction between vehicles with greater or lesser fuel-efficiency." 2010 U.S. App. LEXIS 15303, at *12. The Second Circuit further reasoned that imposition of the lease caps based on whether a taxi has a hybrid engine has no purpose other than to improve the fuel economy standards of the NYC taxi fleet. Id., at *13. Therefore, the law is preempted by the EPCA.

The Second Circuit did not consider whether the Clean Air Act preempted this rule. It noted that it need not do so since the EPCA already preempts the rules and the likelihood of plaintiffs succeeding on their claim is virtually guaranteed.

One distinction between the District Court's decision and the Second Circuit's decision is that the District Court first determined that the new rule was indeed a mandate that all taxi owner purchase hybrid vehicles, but the Second Circuit did not consider that issue. The District Court seemed to say that only once it is determined that the rules are a mandate can the Court then analyze whether the rules are preempted. The Second Circuit did not, on the other hand, engage in the threshold inquiry regarding whether the new rule was a mandate, finding the District Court's conclusion "irrelevant to [its] analysis." Nonetheless, the Circuit Court came out with the same result: the City is enjoined from enforcing its lease cap rules.

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