Case: 10-20381 Document: 00511627735 Page: 1 Date Filed: 10/10/2011
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
October 10, 2011
No. 10-20381
Lyle W. Cayce
Clerk
GREATER HOUSTON SMALL TAXICAB COMPANY OWNERS
ASSOCIATION,
Plaintiff - Appellant
v.
CITY OF HOUSTON, TEXAS,
Defendant - Appellee
Appeal from the United States District Court
for the Southern District of Texas
Before JONES, Chief Judge, and KING and BARKSDALE, Circuit Judges.
EDITH H. JONES, Chief Judge:
The Greater Houston Small Taxicab Company Owners Association, a
group representing taxicab companies that hold only one to three permits for
cabs, asserts that the City of Houston’s plan to distribute new taxicab permits
violates the Equal Protection Clause of the Fourteenth Amendment. The district
court granted summary judgment to the City. We AFFIRM.
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I. BACKGROUND
A. The Ordinance at Issue
On December 12, 2007, the Houston City Council (“the City”) passed
Ordinance 2007-1419 (“the Ordinance”) authorizing 211 additional taxicab
permits to be allocated over the subsequent four-year period. New taxicab
permits had not been issued in Houston since 2001, and the City wanted to
expand its cab fleets. The ordinance planned to distribute new permits based on
the size of the taxi company. The size categories are:
Number of current permits Classification
80+ Large
25 - 79 Mid-large
4 - 24 Mid-small
1-3 Small
0 New entrant
The 211 permits would be issued over the course of four years as follows:
Year 1 Year 2 Year 3 Year 4
Large companies (4 total) 28 28 28 24
Mid-large companies (4 total) 12 12 8 8
Mid-small companies (12 total) 12 12 12 0
Small companies (117 total) 161 0 0 0
New entrants 11 0 0 0
TOTAL 79 52 48 32
1
The 16 were to be chosen by lottery from among the 117 existing small taxi
companies.
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As the chart illustrates, small companies would enter a lottery for 16 new
permits in the first year, and would have no opportunities for additional permits
in years 2-4.
The City developed this plan after consulting with a number of key
stakeholders. It formed a “Taxicab Working Group” comprising current taxi
permit holders, community leaders, and City Council members. The group,
which included three sub-committees, met over the course of several months to
develop the proposal that ultimately became the Ordinance.
Most of the reasoning behind this distribution scheme is explained in the
Ordinance’s preamble and in a memo to the City drafted by the City’s Finance
and Administration Director. The City viewed the four large companies as “full-
service taxicab companies” in that they offer, among other things, full 24-hour
radio dispatch services and complete on-site repair facilities for their vehicles.
The mid-large companies offer only “limited radio dispatch services.” Mid-small
and small companies, by contrast, generally do not offer 24-hour service; they
communicate by cell phone and tend to operate primarily at the airports. The
City concluded further that larger taxi companies are better able to provide
disabled access vehicles and more efficient, environmentally friendly taxicabs.
As a supplement to this distribution scheme, the Code of Ordinances for
the City authorizes additional permitting in limited circumstances. Under § 46-
66(d), “a qualified other applicant who meets the criteria set forth below may
petition the city council requesting that he be granted permits or additional
permits . . . .”2 Subsection 46-66(e) provides the “total number of additional
permits granted to all petitioners” under subsection (d) “may not exceed 25
2
Subsection 46-66(d) is already part of the City Code and pre-dates the Ordinance.
The parties agree that the Ordinance would not affect § 46-66(d).
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percent of the available permit number.” According to the City, this provision
acts as a safeguard to provide additional permit opportunities for smaller
companies that could, in fact, provide the same services as the larger taxi
companies.
B. Proceedings
Plaintiff-appellant, the Greater Houston Small Taxicab Company Owners
Association (“the Association”), represents approximately 60 of the 117 small
taxi companies that each hold one to three taxi permits with the City. The
Association filed an action under 42 U.S.C. § 1983 against the City in May 2008,
arguing that the distribution proposal in the Ordinance violated the Fourteenth
Amendment’s Equal Protection Clause. The Association first obtained a
temporary restraining order preventing the City from enforcing the distribution
plan. The Association then sought declaratory and injunctive relief.
The City moved to dismiss. Following limited discovery, the court
converted the motion to dismiss to a motion for summary judgment and held for
the City. The Association has timely appealed.
II. DISCUSSION
“This court reviews the district court’s grant of summary judgment de
novo, applying the same standards as the district court. Summary judgment is
warranted if the pleadings, the discovery and disclosure materials on file, and
any affidavits show that there is no genuine [dispute] as to any material fact and
that the movant is entitled to judgment as a matter of law.” DePree v. Saunders,
588 F.3d 282, 286 (5th Cir. 2009) (internal citations and quotations omitted); see
also FED. R. CIV. P. 56(a).
On appeal, the Association contends that the Ordinance violates equal
protection by drawing impermissible distinctions between taxi companies based
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on their size.3 The Association claims that because there is no meaningful
distinction in the level of service provided by mid-small taxi companies and
small taxi companies, the City cannot permissibly guarantee the growth of the
mid-small companies by awarding them many new permits while essentially
preventing the growth of 101 out of the 117 small taxi companies that offer the
same service.4 The Association argues further that the City’s real motivation is
economic favoritism.
The parties agree that the constitutional challenge at issue is reviewed
according to the rational basis test. Under this standard, a legislative
classification will be upheld “if there is a rational relationship between the
disparity of treatment and some legitimate governmental purpose.” Heller v.
Doe, 509 U.S. 312, 320 (1993). Because all legislation classifies its objects,
differential treatment is justified by “any reasonably conceivable state of facts.”
Id. Legislation need not pursue its permissible goal by using the least restrictive
means of classification; consequently, the Equal Protection Clause is not violated
“merely because the classifications made . . . are imperfect.” Johnson v.
3
The Association appears to accept that the City may enact some basis to regulate
entry into the taxi market. The Association has not argued that quotas on taxi permits are
per se impermissible; it quarrels only with the particulars of this Ordinance. Our opinion is
limited to the Association’s arguments.
4
The City argues that the Association did not raise this argument before the district
court, and we therefore should consider it waived. We disagree. We have noted that “an
argument is not waived on appeal if the argument on the issue before the district court was
sufficient to permit the district court to rule on it.” In re Liljeberg Enters., Inc., 304 F.3d 410,
428 n.29 (5th Cir. 2002) (citing Brown v. Ames, 201 F.3d 654, 663 (5th Cir. 2000)). That is the
case here. The record contains numerous references in the proceedings below, by the parties
and by the magistrate judge, to the small/medium and full-service/non-full-service distinctions.
More important, the district court’s order denying the Association’s motion for an injunction
pending appeal noted that on appeal, the “Association essentially advances the same points
and authorities as those in its response to the City’s motion for summary judgment.” To be
sure, the Association might have raised the argument “more specifically,” but it plainly did
enough to avoid waiver.
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Rodriguez, 110 F.3d 299, 306 (5th Cir.), cert. denied, 522 U.S. 995 (1997)
(quotation omitted). Despite its deference, however, the rational basis test “is
not a toothless one.” Schweiker v. Wilson, 450 U.S. 221, 234 (1981). A
“necessary corollary to and implication of rationality as a test is that there will
be situations where proffered reasons are not rational.” Doe v. Pa. Bd. of
Prob. & Parole, 513 F.3d 95, 112 n.9 (3d Cir. 2008). We consider each of those
prongs – legitimate purpose and rational relationship – in turn.
A. Legitimate Purpose
The Association argues that the Ordinance represents a desire to prefer
one or two classes of taxi companies over similarly situated competitors with no
resulting public benefit. This, the Association claims, is not a legitimate purpose
for a city ordinance.
The Association directs us to a number of cases in which federal courts
have invalidated (much different) state and local laws under the rational basis
test, but it relies most heavily on Craigmiles v. Giles, 312 F.3d 220 (6th Cir.
2002). In Craigmiles, the Sixth Circuit overturned a Tennessee law requiring
all casket sellers, including those who provided no funeral services, to obtain a
funeral director’s license. The Sixth Circuit held that the law bore no rational
relationship to the goals advocated by the government, which included, inter
alia, a desire to make businesses that deal with bereaved clients more attuned
to the grieving process. Id. at 228. The court found that the law advanced an
“obvious illegitimate purpose” by imposing “a significant barrier to competition
in the casket market.” Id. The legislature’s stated goals were also “pretextual,”
a “naked attempt to raise a fortress protecting the monopoly rents that funeral
directors extract from consumers.” Id. at 229. The Association interprets
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Craigmiles and similar cases to mean that the Equal Protection Clause requires
ordinances to further a public goal rather than isolated private interests.
The City counters that its purpose is not economic favoritism, but rather
encompasses the goals articulated in Houston’s Taxicab Code, “(i) to foster
enhanced competition within the taxicab industry, (ii) to increase the level and
quality of taxicab service available to the public for other than city airport
departure trips, and (iii) to promote more efficient utilization of taxicabs, which
purposes should enhance the public satisfaction and generate operating cost and
fare savings.” Further, the City contends, small and mid-small taxi companies
are neither identical nor even similarly situated to each other. The majority of
the small companies are solo operators, while mid-small companies operate
several vehicles and are far more likely to fulfill the City’s purposes.
We believe the City has the stronger argument. First, Craigmiles is not
helpful to the Association. That case involved a statute that treated very
different businesses as though they were the same. We confront the inverse
situation: an ordinance that treats similar businesses differently. In Craigmiles,
there was no logical reason to require casket sellers to obtain funeral director
licenses because the types of services at issue were fundamentally different.
Here, however, the City has offered a reasonable explanation for the disparate
distribution of permits: the larger the taxi company, the more likely it is to offer
a broader range of services that better serve consumer needs.
Moreover, even if the City is motivated in part by economic protectionism,
there is no real dispute that promoting full-service taxi operations is a legitimate
government purpose under the rational basis test. Craigmiles and other cases
confirm that naked economic preferences are impermissible to the extent that
they harm consumers. The record here provides no reason to believe that
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consumers will suffer harm under the Ordinance. The Association has not
demonstrated that the Ordinance has no legitimate purpose.
B. Rational Relationship
The Association contends that even if the City’s objective was legitimate,
the Ordinance is nevertheless not rationally related to that objective because the
Ordinance will not expand full-service taxi operations. But the rationality
standard is a low threshold; to be valid, the Ordinance need only “find some
footing in the realities of the subject addressed by the legislation.” Heller v. Doe,
509 U.S. at 321. Because the fit between means and ends need not be
mathematically tight, there was no need for further factual development of the
rational relationship in this case.
The Association challenges the award of three new permits to each of the
12 companies in the small mid-size category because such a measure will not
induce them to begin offering 24-hour dispatch service or other preferred
services. Thus, the City’s decision to enable those companies to expand, while
severely limiting the growth opportunities of the Association’s members, was
irrational and arbitrary. The Association further asserts that there were several
simpler means for the City to achieve its purported goal. For example, the City
could have required that a business provide 24-hour dispatch service and/or full
on-site repair facilities as conditions for some or all new permits. That the City
did not pursue such alternatives, the Association contends, demonstrates a lack
of rationality.
These arguments do not persuade us that the Ordinance bears no rational
relationship to the City’s legitimate goals. The Supreme Court has noted
repeatedly that as long as an Ordinance “has some reasonable basis, it does not
offend the Constitution simply because the classification is not made with
mathematical nicety or because in practice it results in some inequality.”
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Dandridge v. Williams, 397 U.S. 471, 485 (1970). The City might have found
better methods for distributing new permits, but the Fourteenth Amendment did
not require it to do so. The Association’s proffered alternative means, in fact,
would harm its members far more – by denying them any new permits – than
the Ordinance itself. Nor is the distinction between small-midsize and small
companies irrational, as the Association contends. Because small-midsize
companies may hold up to 24 permits, while the majority of the small companies
are solo-operated taxis, there is a greater likelihood that the small-midsize
companies will further the City’s purposes by offering better, more efficient
transportation for the public.
Two other considerations fortify the conclusion that the Ordinance passes
constitutional muster. First, Code § 46-66(d) provides that “a qualified other
applicant who meets the criteria set forth below may petition the city council
requesting that he be granted permits or additional permits . . . .” That a solo
taxi operator who fails to win the permit lottery may petition for additional
permits acts as a safeguard for any victims of the Ordinance’s imperfect
distribution scheme and mitigates fears of raw economic favoritism.
Second, the record reflects that the Ordinance will not significantly alter
the current market share that small taxi companies enjoy. Before the
Ordinance, the small companies held a 6.83% market share; post-Ordinance,
after the grant of new permits, their market share will be 6.81% – virtually
unchanged. The Ordinance simply preserves the competitive status quo.
The City has done enough to illustrate a rational relationship between its
purpose and the Ordinance’s means. To be sure, the distribution plan is not
narrowly tailored, and there might have been more effective ways of promoting
the City’s goals. But the Ordinance provides more permits for all operators; it
preserves the current market share for solo operators; and there is a mechanism
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to convey additional permits to small taxi companies. That is enough to survive
rational basis review.
III. CONCLUSION
The Association has not demonstrated that the Ordinance violates the
Equal Protection Clause by treating taxi companies differently based on their
size. The judgment of the district court is AFFIRMED.
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