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Robert Panzenbeck Archives

Lyft v. Saint Louis
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Robert Panzenbeck
Legal Intern, Manhattan Institute Center for Legal Policy

On Monday, a Saint Louis Judge issued an injunction meant to stop the nationally popular Lyft ride share app from operating in the city and the county. The injunction came down two days after Lyft launched in Saint Louis, disregarding a cease and desist order from the Metropolitan Taxi Commission. On Friday, local police, in conjunction with MTC officers, issued summons and restraining orders to Lyft drivers, who were easily identified due to the conspicuous pink mustaches that adorn the front of their vehicles. Along with tickets, Lyft drivers were also given a list of licensed cab companies that were hiring.

Saint Louis is not the first city to confront ride share programs. Across the nation, regulators have expressed near unanimous concern that the growth of ride share programs might create a wild west scenario, where unknown, underinsured drivers flood the market, creating a public danger. Local governments, to be sure, have a vested interest in regulating the quantity and quality of drivers. Rideshare programs have often exacerbated the situation by refusing to play ball.

Apart from municipalities, taxi drivers have a bone to pick with ride share programs. In Chicago, cabbies have filed suit against the City for allowing Lyft and Uber to operate outside of the regulatory framework, alleging in their complaint that the states failure to enforce the taxi rules against these entities violates equal protection. The drivers also allege, quite reasonably, that allowing free riders like Uber and Lyft potentially devalues the 6800 cab permits in play in the Chicago market, whose aggregate value is estimated at 2.38 billion dollars. In states like New York, dual taxi medallions recently sold at auction for 2.5 million dollars.

Part of Lyft and similarly situated tech firms failure to comply with existing regulations stems from how these companies views themselves in the marketplace. Lyft maintains that they are not a traditional cab service, but a peer to peer ride sharing service, different from what's offered by a traditional cab. Instead of hailing, Lyft allows users to obtain a "Lyft" by connecting with drivers in the area via a mobile app. Users can track the driver on a map until they arrive; at the end of the ride, rather than charging a fare, Lyft suggests a donation. This is deducted from a credit card, and no cash is exchanged. At the end of the ride, both passenger and driver rate their experience. Riders that "under donate" are flagged by drivers and drivers that offer a low level of customer service will be disconnected from that particular passenger and less likely to pick up fares. Lyft drivers whose rating falls below a certain level are no longer permitted to provide "Lyfts," the equivalent of being fired.

Lyft and other ride share programs are part of what's being dubbed "the sharing economy," where individuals use internet applications like Lyft, Uber, and AirBnB to share excess goods and services. Rather than relying on professional cab drivers, Lyft and other sharing economy applications allow regular users to make optimal use of excess economic resources to serve a community need. In Saint Louis, the average Lyft driver is described as "someone who works during the day and drives at night to pay for beer or cover student loans." Advocates for such companies argue that the use of real time input by users incentivizes rigorous self-regulation, with real time feedback provides data that helps maximize the possibility of providing a positive customer experience. Lyft is a good example. Although it has so far refused to comply with the Saint Louis law that requires drivers to be vetted by the city, Lyft's website details its rigorous driver driver safety standards, including interviews, DMV and Criminal background checks, a zero tolerance drug and alcohol policy, and a robust insurance policy.

Whether or not this sort of self regulation will prove adequate, it's clear that applications like Lyft have been able to recognize what's important to their users, and adjusted their business model accordingly. In the process, they've sparked innovation in formerly stagnant marketplaces, placing regulators and existing firms at a disadvantage. Writing at Forbes about Lyft competitor Uber's struggles with regulators, Larry Downes sums it up rather well:

The benefits of closely overseeing ride services are obvious--or, at least, were obvious when rules went into widespread existence starting in the early 20th century. They include ensuring that drivers and their vehicles are safe and adequately insured, that passengers are charged reasonable and predictable fares, and that limits are placed to protect drivers and riders alike from having so many vehicles for hire on city streets that no traffic can actually move.

The costs of removing competitive pressures from industries are also significant. Chief among them: in the absence of market dynamics, there are few if any incentives to innovate. Why should the driver of my last cab ride spruce up his vehicle, when every taxi at the cab stand charges the same fare and goes whenever its turn comes up? When price is controlled and new entrants are prohibited, only a fool would spend money to differentiate their product or service.

Writing at nextSTL, Alex Ihnen notes that although Lyft is not complying with the current regulatory model, it hopes to work with Saint Louis supervisors to shape regulations that it believes are more suitable to its business model. However, Ihnen notes that the MTC has had problems reaching agreements with other ride share programs in the past. Uber departed the marktplace after dubbing the conditions unsuitable to their business model. New York based Carmel is currently the only mobile app driven service operating in compliance with MTC regulations.

One thing is certain: the popularity of these firms will force regulators and market participants to work together to establish a new regulatory framework that can keep pace with these rapidly developing technologies. Janelle Orsi, an Oakland based attorney and director of the Sustainable Economies Law Center, sums up the legal quandary that is the sharing economy quite well. Writing at Post Growth, she notes:

...for now, the sharing economy exists almost entirely in legal grey areas. Zoning, securities, public utilities, health and safety, and employment laws aren't usually barriers to feeding, housing, lending a hand, and giving a ride to our family and friends. But they are barriers when we engage in the same activities as commercial businesses, such as restaurants, hotels, or taxis. Everything happening in the sharing economy lands somewhere on a spectrum between what is regulated and what is not. I love that about the sharing economy. The fact that it defies legal classification is proof that the sharing economy is new and different

Robert Panzenbeck
Legal Intern, Manhattan Institute Center for Legal Policy

Last week, the NLRB issued a ruling that could potentially transform the landscape of college sports. In a 24 page opinion, NLRB regional director Peter Orh recognized Northwestern football players as employees of the university with the right to form a union and collectively bargain. Ohr imposed a three-part test that considered the amount of time players spend on non-academic pursuits, the nature of control exerted by non-academic coaches over the players, and the non-academic nature of the scholarships themselves. If the decision is upheld by the NLRB in Washington, it would mean that players could choose a union to bargain with the university on their behalf. That union would likely be the College Athletes Players Association, a labor organization founded with a focus on allowing college athletes to bargain for basic scholarship and injury protections. Kain Colter, the former Northwestern quarterback who initiated the petition, is a founding member.

The media response has been mixed. During the hearings, Northwestern cited its rigorous focus on academics, and its 97 percent football player graduation rate as indicative of a commitment to student athlete education. Bloomberg economist Allison Schrager has defended the current model, noting in her recent piece "In Defense of the NCAA", that from an economic perspective, the current system is preferable to a minor league for most athletes, providing them with an education and the opportunity to earn a degree that is far more valuable than any compensation they would likely get participating in any minor league. NCAA President Mark Emmerich somewhat echoed this sentiment recently on CNBC, noting that while a change might benefit 3 or 4 percent of the players who make it to the NBA, the opportunity for an all-expenses paid degree provides a greater incentive than a paycheck to the vast majority of players.

Even those who criticize the NCAA model are quick to point out the shortcomings of this ruling. Writing at Bloomberg, Megan McArdle writes that "given the realities, it's hard not to cheer the NLRB, but it isn't clear how much allowing football players to unionize will accomplish, as long as the NCAA is still allowed to make rules against paying them. Point of Law contributor Richard Epstein, who has in the past argued that "the NCAA enforces a cartel that denies earned benefits to college athletes," criticized the decision, noting Ohr's failure to examine the absence of the application of the common law standard for "employees" in any other labor related context, and takes Ohr's opinion to task for its notable vagary on issues like who is covered, the extent of negotiations, the conflict between choosing individual schools as bargaining agents and the coherent obligations of a league, and the chaos that might ensue.

Over the last decade, the NCAA has grown s to become a multi-billion dollar cash cow, driven primarily by lucrative television contracts related to BCS Football and March Madness. As the pot has grown without accompanying reform in the realm of player compensation, many have taken notice, and suits have been filed calling into question amateurism policies. The Northwestern ruling is the first to suggest a sea change is afoot. In February, U.S. District Court Judge Claudia Wilken allowed allowed a case brought by former UCLA player Ed O'Bannon challenging the NCAA's ability to profit off the likeness of current and former players without just compensation to move forward. Last week, anti-trust attorney Jeffrey Kessler filed suit against the NCAA seeking an injunction against enforcement of limits on financial aid available to athletes, which if successful would allow players to be paid for their performances. Even if NLRB in Washington should reverse the ruling, as some have suggested is likely, one thing is clear: this is just the beginning.

Robert Panzenbeck
Legal Intern, Manhattan Institute's Center for Legal Policy

The Wall Street Journal notes a particularly interesting case out of federal bankruptcy court in North Carolina, where Judge Roy Hodges handed down a decision that strikes a blow against deceptive practices in asbestos litigation.

Garlock Sealing Technologies,a manufacturer of gaskets and packing,entered into bankruptcy in 2010 under the weight of pending and future asbestos claims. When manufacturers like Garlock file Chapter 11 in the face of asbestos claims, these firms are granted immunity on the condition that they meet a number of requirements. Among these requirements is the establishment of an asbestos trust, which establishes payments to be made to past and future victims based on the severity of their illness.

In this case, plaintiff's attorneys demanded that Garlock set aside 1.3 billion dollars for the settlement of mesothelioma related claims. Garlock believed the figure should be much lower, and earlier this month, federal judge Roy Hodges agreed, reducing their liability 90 percent, to 125 million dollars. This is significant, because for years, critics of this system have pointed out an exploitable information gap between the legal system and the trusts. In his opinion, Judge Hodges criticized the plaintiff's attorneys and their methods, noting that the larger number of 1.3 billion dollars was based on various forms of deceit by plaintiff's lawyers and clients, including the deliberate concealment of evidence that might suggest that plaintiff's injuries were the result of exposure to products other than Garlock's asbestos lined gaskets. The Journal notes one particularly poignant incident illustrating the extent of plaintiff misconduct:

Garlock had paid $9 million dollars in a California case involving a former Navy machinist mate. Garlock had attempted to show that the plaintiff had been exposed to asbestos-containing insulation, Unibestos, made by Pittsburgh Corning. The plaintiff denied exposure to insulation products, while his lawyer told the jury there was no Unibestos insulation on the ship. But Judge Hodges found that after the $9 million dollar verdict, the lawyers for the machinist filed 14 claims with other asbestos trusts, including several against insulation manufacturers. The same lawyers who told the Garlock jury there was no Unibestos exposure had claimed in the Pittsburgh Corning bankruptcy that the same plaintiff had been exposed to Unibestos. Judge Hodges wrote that the plaintiffs lawyers "failed to disclose" in court that their client had been exposed to 22 other asbestos products.

The Garlock case is a textbook instance of double dipping, a practice common in the asbestos litigation world. For years, critics of the system have alleged that plaintiff's attorneys "double dip," making claims to multiple asbestos trusts for the same injury. In this case, plaintiff's attorneys distorted or withheld facts while making claims with multiple asbestos trusts, even making allegations that were, as noted above, wholly inconsistent with the basis for rewards in prior decisions. As expected, companies forced into bankruptcy have decided to take action. Prior to this decision, EnPro Industries, Garlock's parent company, filed suit against four prominent asbestos law firms alleging they had concealed evidence about exposure to other products in litigation against Garlock. Judge Hodges' opinion provides significant ammunition for this claim.

The verdict is viewed as a major victory for Garlock, and is not without its critics. Paul Barrett of Bloomberg notes that the decision "obfuscates the long term wrongdoing by companies that didn't swiftly own up to the unintended harm caused by asbestos," while acknowledging that the circumstances present evidence that "influential members of the plaintiff's bar have lost their moral bearings."

It's not just companies like Garlock who have taken note. Congress, in an effort to solve the double dipping problem recently moved on the issue. In November, the House passed H.R. 982, the Furthering Asbestos Claim Transparency (FACT) Act, by a vote of 221 to 191. As BusinessWeek notes, the bill would require asbestos trusts around the country to file quarterly reports about who receives payments and how much they get. The bill is specifically designed to limit double dipping, and ensure that funds set aside for legitimate claims aren't unjustly dispersed to fraudulent claimants.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.