Vugo, Inc. v. City of N.Y.

• Citation: 931 F.3d 42
• Decision Date: 16 July 2019
• Docket Number: Docket No. 18-807,August Term, 2018
• Parties: VUGO, INC., Plaintiff-Appellee, v. CITY OF NEW YORK, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

931 F.3d 42

VUGO, INC., Plaintiff-Appellee,

v.CITY OF NEW YORK, Defendant-Appellant.

Docket No. 18-807

August Term, 2018

United States Court of Appeals, Second Circuit.

Argued: February 28, 2019

Decided: July 16, 2019

Ronald J. Riccio (Steven J. Shanker, Eliott Berman, on the brief), McElroy, Deutsch, Mulvaney & Carpenter, LLP, New York, NY, for Plaintiff-Appellee.

Kathy Chang Park (Richard Dearing, Claude S. Platton, on the brief), for Zachary W. Carter, Corporation Counsel of the City of New York, New York, NY, for Defendant-Appellant.

Before: Katzmann, Chief Judge, Livingston and Droney, Circuit Judges.

Katzmann, Chief Judge:

This appeal concerns a First Amendment challenge to nearly twenty-year-old New York City rules that ban advertisements in for-hire vehicles ("FHVs") absent authorization from the Taxi and Limousine Commission (the "TLC" or the "City"). See 35 R.C.N.Y. §§ 59A-29(e)(1), 59B-29(e)(1). A similar rule has applied to yellow and green taxicabs (collectively, "taxicabs," "taxis," or "cabs") for over two decades. See 35 R.C.N.Y. § 58-32(f). The TLC originally enacted these bans because, as the record reflects, passengers find in-ride advertisements—particularly, as relevant here, video advertisements—extremely annoying. However, in 2005, the TLC permitted a limited category of advertisements in taxis: those displayed on the screens of new equipment that the TLC required taxis to install ("Taxi TV"). This new equipment allows taxi riders, inter alia , to track the progress of their metered fare and pay by credit card. The TLC authorized advertising on Taxi TV to offset the cost to the taxi owners of installing the newly mandated equipment.

Plaintiff-Appellee Vugo, Inc. ("Vugo") has challenged the rules banning advertisements in FHVs because it wants to sell an advertising software platform it developed for certain FHVs, including Ubers and Lyfts. Vugo primarily argues that the ban is impermissibly underinclusive under the First Amendment because the City’s interest in enacting the ban bears no relationship to the City’s justification for exempting Taxi TV advertising.

The parties agree that the prohibition on advertising in FHVs is a content-based restriction on commercial speech and, as such, is subject to intermediate scrutiny. See Central Hudson Gas & Elec. Corp. v. Public Servs. Comm’n , 447 U.S. 557, 100 S.Ct. 2343, 65 L.Ed.2d 341 (1980). Under Central Hudson , courts ask whether (1) the expression is protected by the First Amendment; (2) the asserted government interest is substantial; (3) the regulation directly advances the government interest asserted; and (4) the regulation is no more extensive than necessary to serve that interest. Id. at 566, 100 S.Ct. 2343. The district court concluded that the ban fails the third prong of this test because the City’s justification for the Taxi TV exception (compensating taxi owners for the cost of new equipment) "bears no relationship whatsoever" to the City’s asserted interest (protecting passengers from annoying advertisements). Special App. at 16. Considering the fourth prong in tandem with the third, the district court also concluded that the ban was more extensive than necessary to advance the City’s interest.

We respectfully disagree. First, we think there is a sufficient nexus here between the ban and its exception because both advance the City’s interest in improving the overall passenger experience. Second, the ban would be constitutional even if there were not such a relationship. The absence of a relationship between a government’s interest in a ban and its basis for any exceptions may render a ban unconstitutionally underinclusive. Most notably, it may demonstrate that the ban was motivated by bias or remains incapable of achieving its stated aims. Here, however, on the uncontroverted record, the exception neither reflects discriminatory intent nor renders the ban ineffective at improving the in-ride experience for millions of New York City residents and visitors. The Taxi TV exception reflects the City’s reasonable decision that the costs of permitting advertisements in taxicabs were outweighed by the benefits of compensating taxicab owners for the expense of installing new equipment that facilitated credit card payment and improved ride data collection. Vugo identifies no grounds for us to upset this policy judgment. See Metromedia, Inc. v. City of San Diego , 453 U.S. 490, 512, 101 S.Ct. 2882, 69 L.Ed.2d 800 (1981) (plurality opinion). Finally, we conclude that the City’s ban is not substantially more restrictive than necessary to achieve the City’s aims under the final prong of Central Hudson .

Accordingly, we REVERSE the judgment of the district court and direct the entry of judgment in favor of the City.

BACKGROUND

I. Factual History

The material facts are undisputed. "[T]ransporting passengers for hire by motor vehicle in the city of New York is affected with a public interest, is a vital and integral part of the transportation system of the city, and must therefore be supervised, regulated and controlled by the city." N.Y.C. Admin. Code § 19-501 (legislative findings). The New York City Council has tasked the TLC with regulating this critical component of the City’s transportation system, which includes both taxis and FHVs. N.Y.C. Charter §§ 2300, 2303(a).

The term "taxicab" refers to yellow cabs and green cabs, which are the only vehicles the TLC allows to pick up passengers by street hail in New York City. See N.Y.C. Admin. Code § 19-504(1).¹ FHVs, by contrast, are vehicles "other than a taxicab" that "carr[y] passengers for hire in the city." N.Y.C. Admin. Code § 19-502(g). FHV rides are prearranged through businesses licensed by the TLC, such as limousine companies and, more common today, companies like Uber and Lyft. See N.Y.C. Admin. Code § 19-516(a) ("For-hire vehicles ... may accept passengers only on the basis of telephone contract or prearrangement."). FHVs comprise a growing share of the passenger vehicle market. As of August 2016, the TLC regulated 94,000 vehicles. More than seventy-five percent of these were FHVs. Around that same time, riders took approximately 370,000 daily trips in yellow taxis and 213,000 daily trips in Uber and Lyft vehicles.

One of the TLC’s statutory mandates is to "promot[e] and protect[ ] ... public comfort and convenience." N.Y.C. Charter § 2300. Consistent with this mandate, the TLC sets comprehensive standards for driver licensing, vehicle equipment, and vehicle markings in both taxis and FHVs. For example, the TLC can deny an applicant a license if the applicant has assaulted a passenger or unlawfully denied a passenger service in the past two years, 35 R.C.N.Y. § 58-08 (d); the TLC mandates that taxis be equipped with a partition, 35 R.C.NY. § 58-35(a); and the TLC requires taxi owners to "apply to the exterior of the Taxicab markings approved by the Commission," such as an emblem identifying the owner of the vehicle, while prohibiting the application of other emblems and markings on the exterior of taxicabs. See 35 R.C.N.Y. § 58-32(a). Similar regulations apply to FHVs. See 58 R.C.N.Y. § 59B-09(b)(5); 58 R.C.N.Y. § 59A-32(a); 58 R.C.N.Y. § 59A-29.

Also in furtherance of this mandate to promote passenger comfort, the TLC—for more than two decades—has prohibited any advertising inside taxicabs except as specifically authorized by the Commission. See App. at 288, 303-04 (original prohibition, March 1, 1996) ("An owner shall not display inside a taxicab any advertising or other notice not specifically authorized by these [taxicab owner] rules or the Commission’s Marking Specifications for Taxicabs unless approved by the Commission."); 35 R.C.N.Y. § 58-32(f) (current prohibition) ("An Owner must not display inside a Taxicab any advertising or other notice not specifically authorized by these rules or the Commission’s Marking Specifications for Taxicabs unless approved by the Commission.").

The TLC codified similar rules for FHVs in 1999, which are at issue in this case. 35 R.C.N.Y. §§ 59A-29(e)(1), 59B-29(e)(1).² Section 59A-29(e) provides that an "[o]wner must not display any advertising on the exterior or the interior of a For-Hire Vehicle unless the advertising has been authorized by the Commission." Section 59B-29(e)(1), which applies to owners of for-hire base stations—central facilities that manage, organize, and/or dispatch FHVs—contains essentially the same restriction. See 35 R.C.N.Y. § 59B-29(e)(1) ("A Vehicle must not display advertising on the outside or the inside unless the Commission has authorized the advertising and has given the Vehicle Owner a permit specifying that the advertising complies with the Administrative Code."). Violation of either section subjects the violator to a $50 fine. See 35 R.C.N.Y. §§ 59A-29(3), 59B-29(e)(1). The City’s position throughout this litigation has been that "[t]he Challenged Rules govern advertising on posters, stickers, or any other format in which one could promote a product or service." City’s Reply Mem. of Law in Support of Cross-Motion for Summary Judgment at 10, ECF No. 53, Vugo, Inc. v. City of New York , No. 1:15-cv-8253 (S.D.N.Y. Sept. 30, 2016).

The City’s prohibition on in-ride advertising has only one exception: advertisements on Taxi TV. TLC authorized this limited form of interior advertising in taxis in May 2005 to allow taxi owners to offset the cost of a new technology system that TLC had recently required vehicle owners to purchase and install. See App. at 95 (deposition testimony of Ryan Wanttaja, Deputy General Counsel for the TLC) (the TLC permits interior advertising in yellow and green taxis "principally because of the—or solely because they offset the cost of these mandatory pieces of equipment that provide the additional functionality that the TLC requires").

This new hardware and software system, referred to as the Technology Passenger Enhancements Program ("TPEP") for yellow taxis and the Livery Passenger Enhancements...