Taxicab 'Lease' Racket

San Francisco's Own Lawsuit Sellout


Part 2 in a series, published in the May 1998 edition of San Francisco Frontlines

Just as lawyers elsewhere have sold out the public through out-of-court settlement agreements instead of going for the reform at the heart of the litigation issues (for example, in the tobacco company cases), so have lawyers in San Francisco enriched themselves for taking more than a million dollars in fees in return for letting the major taxicab companies out of a court decision that would have curbed their lease racket.

Fred Macalester (real person, fake name to protect him from employer harassment) is a stubborn cuss who, unlike his co-plaintiffs in a class action lawsuit against the major taxicab companies of San Francisco, has refused to take a money offer and run.

The way Macalester sees it, the lawyers prosecuting the class action were supposed to take it to trial by jury for a decision on whether or not the "Taxicab Lease Agreement" that dominates the taxicab industry is a fraud. Instead, the lawyers drew up a compromise to toss a few tidbits to peon cab drivers ripped off in the past by their employers, while enabling the taxicab companies to perpetuate tbeir "lease" racket. Eleven of the twelve plaintiffs in the class action accepted the deal. Macalester refused, but the lawyers handled that problem by obtaining a court order releasing themselves from representing him.

Overriding Macalester's disapproval, the lawyers effected the sellout and, unless it is overturned by the California Court of Appeal or the California Supreme Court, it leaves the "lease" racket in place and gives the lawyers $1.3 million in fees for purportedly being on the "winning" side in the dispute.

Since I cannot assume that all readers saw my previous story in Frontlines (April), I must explain briefly what the "lease" racket is before relating the sordid details of what happened to the class action designed to outlaw it.

Under the racket, a cab driver hired to work for a taxicab company is forced, as a condition of work, to sign a standardized "Taxicab Lease Agreement" that identifies her/him as a "self-employed person" who is merely "leasing" a vehicle from a "leasing company" and therefore is not entitled to any statutory employee or union benefits. The racket has run the cab drivers union out of business and has deprofessionalized the trade and plunged a once decent service into a fetid operation while cheating the city, state, and federal governments out of tens of millions of dollars in lost taxes and contributions to unemployment, disability, and Social Security funds.

During a six-year legal attack on the racket, on my own and through an organization I directed, I succeeded in obtaining decisions from administrative law judges that drivers forced to sign the "agreement" are employees for purposes of unemployment, disability, and workers compensation laws, no matter what is stated to the contrary in the "lease agreement." In affirming such decisions, two divisions of the California Court of Appeal called the "lease agreement" a "subterfuge" designed to disguise the true work status of cab drivers: that of employees.

The appellate court rulings, however, were each confined to one driver signed to one "lease agreement." I was unable to persuade any judge of any court to broaden the rulings to cover all drivers, on the ground that the "lease agreement" is standardized and therefore what applies to one applies to alL

Though I am not a lawyer and I am entirely self-educated in every aspect of law, after six years I knew enough to be able to make use of the California Unfair (Busi- ness) Practices Act (Sections 17000 through 17500 of the Business & Professions Code). The Act enables a private citizen to sue any person or entity for illegal, fraudulent, unethical, or unfair business practices. I could only use the law to file an individual action because no one, not even a lawyer, is allowed to be both plaintiff and counsel in the representation of a group in a class action.

During my six-year battle against the taxicab companies, more than a hundred lawyers, law firms, and legal organizations had declined to represent me, cab drivers, and the public, in a lawsuit, except for a few who said they would do so if I provided a $25,000 advance, money to cover all costs, and fees of $200 an hour. So I wrote and filed a complaint myself. (You can find it in the San Francisco Superior Court files as Wolfe v. Yellow Cab Cooperative et al., Case no. 935179, filed August 5, 1991.)

When Cliff O'Neiil, coordinator of United Taxicab Workers (a division of Communications Workers of America), saw a copy of my complaint, he took it to John True, at that time chief staff counsel for the Employment Law Center, one of the organizations that had turned me down.

"This looks like a perfectly good complaint to me," O'Neill told True. "If Burton can file it, why can't you?"

Previously, True had told me that it was impossible to use tbe Unfair Practices Act to sue companies for law violations. Only the District Attorney or Attorney General can do that, True said. After reviewing my complaint and the statutes and decisional law on which it was based, however, be realized he had been wrong.

"You were right, Burton," True said over the phone. "You can use the Act in the way you said."

He invited me to his office for a talk that included O'Neill. We agreed that I would dismiss my complaint, True would rewrite it as a class action, and since I was not a cab driver, instead of myself I would obtain one cabbie or several hackers from each company sued to serve as typical plaintiffs. (In a class action, one person who is in the same situation as the rest of a group can serve as plaintiff representing all; or several such persons can be used as typical plaintiffs, as they are designated.)

I had to agree to eliminate one aspect of my complaint: tax law violations. All but one of tbe drivers to appear as typical plaintiffs, like around 90 percent of all hackers, had kept themselves out of the tax system. All but the one, Macalester, would have been unwilling to undertake the risk of being exposed. Along with typical plaintiffs I provided True with several hundred pages of court decisions and documents proving that the "lease agreement" is a fraud. Our understanding was that he would take that overall issue to trial by jury. We had the ideal situation for a jury triaL The taxicab company lawyer who drew up the standardized "lease agreement" avoided the term "independent contractor" because that is defined in the Labor Code and the drivers do not meet any of the legal tests for such status. Instead, the term "self-employed person" is used in the "lease agreement." Since that term is not defined in statutes, the test for fraud arises under Section 1644 of the Civil Code:

The words of a contract are to be understood in their ordinary and popular sense, rather tban according to their strict legal meaning, unless used by the parties in a technical sense, or unless a speciai meaning is given to them by usage, in which case the latter must be followed.

No matter how skilled the taxicab company lawyers may have been at voir dire (selection of jurors), they never would have found a jury to agree tbat a hired cab driver working on an assigned work shift, under control of cab company managers and dispatchers, is a "self-employed person" as that term is ordinarily understood. Nor could the lawyers have convinced a jury that "self-employed person" is given any special or technical meaning by the taxicab company bosses. All it means to them is that a driver, as a condition of employment, must agree to be called a "self-employed person" That is a fraud which violates contract law prohibiting persons from agreeing in writing to what they know to be fraudulent. It also violates provisions of the Labor Code, the Unemployment Insurance Code, the Workers Compensation Insurance Act, the National Labor Relations Act, the Social Security Act, and the Internal Revenue Code.

In the middle of the litigation, however, lead counsel John True decided to leave the Employment Law Center to go into private practice. "I have a wife and kids to support," True explained to me, "and I'm tired of doing public interest work at relatively low pay. From now on I'm looking to make money."

Having a reputation as a skilled, respected attorney, True had no trouble hooking up with a law firm that made him a partner; Rudy, Exelrod, Zieff & True. He continued as lead counsel in the taxicab case, retitled as Tracy el al. v. Yellow Cab Cooperative, et al. (San Francisco Superior Court Case no. 938786, filed November 25, 1991); he quickly however, began trying to water down the action and make a deal with the taxicab companies.

First True tried to induce me to drop all other efforts to bring about reform of the taxicab industry. Then he tried to induce each of the plaintiffs to agree to a settlement with the taxicab companies in return for payment to them of $5,000 each. But Fred Macalester and I squelched that bit of treachery by threatening to sue everybody involved, including True and the judge assigned to the case. We blisteringly told the other plaintiffs that we would not only take their $5,000 settlement money away from them, but also we would pursue punitive damages against them for acting in bad faith. That scared them off.

Forced to continue, True and the Employment Law Center staff betrayed us by using what is known as a motion for summary judgment in lieu of a jury trial. To lawyers, summary judgment is a procedure used to win or defeat a case by demonstrating that there are no material issues of fact in dispute and one side or the other is entitled by law to judgment without further ado. To a lay person, it is one of various kinds of flimflammery used to evade a jury trial, even when there is a legal or constitutional right to a jury trial.

In the motion for summary judgment, True and his colleagues asked only that cab drivers be construed as employees for purposes of unemployment and workers' compensation law. But I already had demonstrated that they were. What about being, construed as employees for all purposes, so that the drivers could unionize once again and be entitled to Social Security Fund contributions by their employers? No, True and company were not going that far.

Enraged, Fred Macalester and I wrote letters of protest to the judge hearing the case, to the lawyers, and to the 11 other plaintiffs. By this time, nearly five years after the litigation had begun, the other plaintiffs either had quit cab driving or, become disgusted and tired of fighting the lawyers on both sides. Except for Macalester, they dropped out of the proceedings and let tbe lawyers do whatever they wanted. And the lawyers did what they wanted, with the cooperation of Judge William CahilL

Before his appointment to the bench, Cahill was a partner in the big, business-advocate law firm of Bronson, Bronson & McKinnon. That firm represented part of the taxicab industry. So, there was a conflict of interest that would have caused Cahill to recuse himself from the case, had True moved to disqualify him, as I requested. But True declined to do so.

Though Cahill chided True and his colleagues for their lack of diligence in prosecuting the case, he granted the motion for summary judgment, leaving cab drivers without a union and Social Security benefits, Then came worse.

True and Chris Ho, who had replaced True as chief staff counsel of the Employment Law Center, arranged a post-judgment settlemcnt (rather unusual) wherein the judgment against the taxicab companies only would pertain to drivers hired up to the time of judgment. From then on, the cab companies are allowed to resume the "lease" racket, albeit in a somewhat modified form.

Cahill approved the settlement, which calls for True, Ho, and a few other lawyers who assisted them, to walk away with $1.3 million in fees.

For reasons too complex to explain in a brief article, two of the cab company defendants have appealed certain aspects of this settlement. Fred Macalester, left in the role of respondent (the appellate court equivalent of a defendant in the trial court), filed a motion asking the Court of Appeal to designate him as an appellant so that he could argue against the entire outcome of the case. He has also been trying to convince some legal group, such as Ralph Nader's, to file a suit in federal court against everyone involved in what he claims to be a conspiracy to let the cab companies continue an illegal scheme.

The wonder is that Macalester is willirig to continue, given the years of frustration and his current position. Though he earned his living as a cab driver for many years,. onerous conditions caused by the "lease" racket caused him to quit and he no longer has any direct interest in the taxicab industry. So why should he even want to continue?

"This is one of the crookedest industries in the country," Macalester said in answering my question. "It is ripping off the public. It has destroyed taxicab service. It has wiped out 50 years of progressive labor legislation in the taxicab industry. Somebody has to try to do something about it."

The Court of Appeal, however, has refused to let Macalester appear as an appellant. He therefore has only two recourses left to him: petition the California Supreme Court for review when the appeal is decided, or file suit in a federal court -- possi- bly under the RICO (racketeering) Act -- against everyone who is conspiring to allow the "lease" scam to continue. But he lacks the money and experience to uudertake such a task on his own, and he has. been unable to interest any lawyer, law firm, or legal organization to undertake a suit against the taxicab companies and their collaborators -- not without putting up a huge amount of money that he does not have, that is.

Meanwhile, the "lease" racket continues, and that is the reason why taxicab service is so rotten. No half-baked legislative measures will change the situation. The taxicab industry will continue to be the sordid operation it is now until the "lease" racket is broken.

Why The Taxicab Task Force
is a Task Farce

For the past six months Mayor Willie Brown's Taxicab Task Force, directed by Supervisor Gavin Newsom, has been wasting time and the taxpayers' money on hearings and proposals that offer no hope for reforming one of the most corrupt, fetid business operations in the country: the woeful taxicab service in San Francisco.

There is no need to repeat here the Task Force proposals for "reforming" the taxicab industry, since they have been publicized in the mass media. It is only necessary to point out that because the proposals fail to deal witb the underlying, cause of all major taxicab problems, the "lease" racket, the patchwork offered by Newsom and company will not work. In fact, minus outlawing the "lease" racket, the Task Force proposals will worsen a situation that is already horrible.

The "lease" racket was explained in Frontlines' article "How the Taxicab Industry Was Junked" (April), and it is summarized in the accompanying story about the aborted lawsuit designed to break the racket. Though the racket has been in operation more than 16 years, somehow or other no periodical other than Frontlines has managed to explain it to the public.

Newsom, who is either a brain-deficient fool or an impostor, proposes to "fix" the problems caused via the "lease" racket by freezing the shared commission charged to cab drivers at $90 a work shift. (The payment has been known in the industry for more than 50 years as a "gate," and now the taxicab company bosses describe it as a "lease payment," just as they call a work shift a "lease period." That is a bad joke, as is the Task Force.

The $90 is not all tbe cab driver has to pay under the "lease" racket. He/she must fork over a time payment on a required $1,000 security deposit, up to $25 a shift for gasoline, and $5 to $25 a shift in extortion money given to dispatchers and hotel people for a half-decent taxicab and a fair share of long runs such as those to the airport (where the driver must pay a $1.50 fee for each return fare). Many newcomers cannot learn the game quickly enough to be able to overcome the $135 average daily deficit that is faced before starting the shift, and they soon quit in disgust, adding to the 40 percent annual turnover that has deprofessionalized the taxicab trade.

Without ending the "lease" racket so that the drivers no longer have to pay exorbitant amounts of money to the taxicab company bosses and dispatchers and hotel people (and the airport), the addition of 300 to 400 more taxicabs will make it too difficult for many cab drivers to earn a living on many days when there is neither rain nor a big convention to provide steady fares. And raising the meter rate will drive away more natives. So, the turnover will increase, and now it will include some of the old pros who have provided the most efficient service.

That is why Mayor Brown's Taxicab Task Force is a Task Farce.

About the Author:

Burton H. Wolfe is the author of several hundred articles published in major magazines and newspapers. Among his published books are The Hippies (New American Library), Hitler and the Nazis (Putnam), and Pileup on Death Row (DoubleDay). As the principal director of the Homosapiens Educational and Legal Project (HELP) and as a technical consultant for the International Taxi Drivers' Safety Council, Wolfe has pursued taxi industry reform for the past 10 years, through proposed legislation, lawsuits, and administrative agency proceedings in which he acted as legal advocate for taxicab drivers.

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