Credit union sues S.F. over financing of taxi medallions
A $155 million lawsuit seeking to hold San Francisco financially accountable for selling pricey taxi medallions that have plummeted in value is slated for a court hearing on Friday.
If a judge lets the case proceed to a jury trial, the San Francisco Federal Credit Union, which made loans to cabbies to buy $250,000 medallions, will argue that the city let the taxi industry collapse — in part by turning a blind eye as Uber and Lyft ravaged the market — and now must make good on about 620 medallion loans.
No one has purchased a San Francisco medal
lion, the permit allowing a taxi to operate, since April 2016. Meanwhile hundreds of drivers, who say they are swamped by the debt on their loans, are seeking to sell their medallions and 172 drivers have had their loans foreclosed.
But the city says the medallion market is still operating.
The San Francisco Municipal Transportation Agency “has not ended the program,” the city wrote in a motion seeking to dismiss the credit union’s case. “SFMTA has continued its efforts to revive demand for both taxis and medallions.”
“They just don’t want to say they’ve ended the program because if they do, they have to write a very large check to medallion holders and to the credit union,” said Dan Bailey, the credit union lawyer.
If a San Francisco Superior Court judge denies the city’s request for summary judgment, the case is slated for trial April 20.
The credit union says it has several “smoking gun” pieces of evidence bolstering its claims that the Municipal Transportation Agency guaranteed to back the loans, and that the agency now must concede that the medallion market is kaput.
“The city and the credit union have a contract,” said John Coté, a spokesman for City Attorney Dennis Herrera. “The city has not broken that contract, so San Francisco taxpayers should not be forced to bail out this financial institution. Certainly the taxi industry landscape has dramatically changed in ways that were impossible to foresee, but the city has worked in good faith and met its obligations under the contract.”
Items cited by the credit union include:
An email from Mariam Morley, a San Francisco deputy city attorney, to agency staffers written in March 2010 just as the city was seeking lenders to finance its thennew plan to start selling medallions. Previously they were given free to drivers after years on a waiting list.
“As we discussed, if the market price of the Medallions falls precipitously, i.e, no one is willing to buy for the price paid previously in a deal that a Qualified Lender loaned on, SFMTA will end up making up the gap,” Morley wrote.
The credit union said the email was circulated to it and other prospective lenders before it decided to become a medallion lender. The city said in a brief that the communication was “confidential attorneyclient privileged email” that is “irrelevant” and inadmissible, and that it did not know the credit union had seen it and was relying on it as a guarantee.
A private report from taxi industry experts hired by the city in 2017, which said the “current program is not viable,” referring to medallion sales. The same experts produced a report that was released publicly referring to the program as being “stalled,” with the implication that it could be restarted.
Municipal Transportation Agency correspondence, depositions and declarations showing that it previously ended two other medallion programs within the past few years without a vote by its board of directors. In the lawsuit, the agency contends that the medallion sales program remains operational unless the board votes to end it.
Coté said the city argued in a brief filed Friday that the “credit union’s opposition is based entirely on irrelevant and inadmissible evidence.”
In cities where market forces determine medallion prices, they have plummeted since the advent of Uber and Lyft.
Average New York medallion prices fell 67%, from $602,917 in 2010 to $199,418 in 2019, while those in Chicago fell 82%, from $178,428 in 2010 to $31,573 in 2019, according to a declaration from taxi industry expert Matthew Daus. In Philadelphia and Miami, medallion prices fell 93% and 92%, respectively.
But in San Francisco, the Municipal Transportation Agency has not changed the price, even as taxi drivers saw their business dwindle in the face of cheaper, more nimble ridehailing rivals — who had fewer regulatory hurdles. Chris Sweis, CEO of Yellow Cab, the city’s largest cab company, said that he thinks the medallions are worth less than $75,000.
“By keeping it at a ludicrous price of $250,000, (the agency) decided to end the program,” Bailey said.
But the city attorney’s office says its agreement with the credit union prohibited it from lowering the price without the bank’s OK — and that the bank rebuffed the city when it sought to discuss cutting the price. The credit union lawyers there’s no express requirement for the bank to consent to the Municipal Transportation Agency lowering the price.
Many drivers say they are desperate to get free of their medallion loans. They point to city code that says that if the agency ends the medallion program, it shall repurchase medallions for their original price at the holders’ request. But because the transit agency maintains it has not ended the program, the drivers can’t collect.
While the lawsuit focuses only on the credit union, a win for the credit union might help drivers in their quest to offload their medallion debt. That’s because if a jury finds that the agency has ended the medallion program, the drivers could force the city to pay them back under the municipal code.
“I’m rooting for the credit union; there’s no doubt about that,” said Marcelo Fonseca, a longtime cab driver, who has one of the free medallions. “Medallion holders can only hope that a favorable ruling will bring them social justice and put an end to a decade of neglect, conflicts of interest and exploitative policies by the regulators.”
But driver Ejaz Ahmed, who says the burden of his paid medallion causes him depression and anxiety, was not hopeful.
“They are suing for their own money; they are not fighting for us,” he said of the credit union.