SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK. ‘TRI-CITY, LLC; and ENDOR CAR AND Index No. DRIVER, iLC, Hon, Petitioners, VERIFIED ARTICLE 78 PETITION NEW YORK CITY TAXI AND LIMOUSINE COMMISSION and MEERA JOSHI, in her official capacity as Chair, Commissioner, and Chief Executive Officer of the New York City Taxi and Limousine Commission, Respondents, Petitioners Tri-City, LLC and Endor Car and Driver, LLC (collectively, “Petitioners”), by and through their undersigned attorneys, for their Verified Petition, allege as follows: INTRODUCTIO® 1. Petitioners bring tis nwsuit to challenge an arbitrary and eapsicious law passed by the New York City Taxi and Limousine Commission (“TLC") that threatens to harm drivers and riders alike by reducing driver eamings, ising rider prices, and undermining competition in the forhire vehicle (FHV) industry. 2. On August 8,2018, the New York City Council passed Local Law 150 of 2018, Which directed the TLC to pass rules establishing a “method for determining the minimum payment that must be made ta forire vehiele driver" In response to this directive, on December 4, 2018, the TLC passed a mle ihe “Minimum Payment Rule) requiring that FAV bases which on average dispatch te thousand or more trips per day must pay drivers a minimam amount or each trip based on.a formula set out in the ule. The Minimum Payment Rule applies to only four companies in New York City, all of which are technolo wy and ridesharing companies, including Petitioners” parent, Lyft, Ine. The formula codified in the Minimum Payment Rule gives the largest company an automatic and perpetual advantage over smaller companies. 3, The stated pupose of the rule—to increase overall driverearnings (and in part to reduce congestion) —is laudable. But the actual nile passed by the TLC eannot stand, because it is affected by an enor of law and lacks a rational basis inthe record. Asa threshold matter, the ‘requirement that driver earnings be ealeulated on a per-tip basis (the “Per-Trip Caleulation Requirement”)—to the exclusion of per-week ealeulation option—is in direct conflict with Local Law 150, Local Law 150 expressly provides that any FHV minimum earings rule passed by the TLC cannot prevent payments to FHV duivers from being caleulated on a weekly basis. ‘The Minimum Payment Rule does preeisely that, and should be vacated on that ground alone, 4. Furthermore, there is no support in the administrative record before the TLC for ‘requiring the caleulation of driver earings on a pet-tip basis to the exelusion of a per-week calculation option, The study published in July 2018 by Dr. James A. Parwottand Dr. Michael Reich (the “PAR Study”), the TLC’s sole purported support for the Minimum Payment Rule at the time the nule was passed, does not analyze the appropriate temporal period for ealeulation of minimum camings, and to the extent it even references such a period, the study contemplates that the appropriate temporal period for the ealeulation is a week ora month—nora tip. The Per. ‘Tuip Calculation Requirement was essentially plucked out of thin air by the TLC, with no support from Parrott and Reich and no analysis of is effects, 5S. On January 16, 2019—over six weeks afier the TLC passed the Minimum Payment Rule—the TLC issued a post-hoe supplemental report by Parrott and Reich (the ‘Supplemental Repor that makes some reference ta per-tip calculation method, But that report, apart fiom being outside the administrative word, does not provide any support forthe requirement either; in fact, Parrott and Reich continued to peg ther analysis to weekly numbers, not even incomporating the Per-Trip Caleulation Requitement they purported t analyze. 6 Further, both the PAR Snulyand the Supplemental Reportare plagued by deficiencies, mistakes, and incortect assumptions that render the analysis incapable of supporting ‘he Minimum Payment Rule oF ts Per-Tep Caleulation Requirement. As explained in detail in the reportsubmitted in connection with this petition by Dr. Catherine Tucker’, the Sloan Distinguished Professor of Management Science at MIT Sloan atthe Massachusets Institute of ‘Technology, Partott and Reieh’s analysis is not based on sound economic methodolow containing emors as fundamentals the ignoting of core tenets ofupply and demand, Ridaled as itis wit laws and inaccurate assumptions, Parot and Reich’ work is inherently unreliable and cannot suppor the TLC’s rulemaking 7. The Minimum Pasment Rule and is Per-Trip Caleulation Requirement are abo not tionally relate the TLC’s stated purpose in passingthe mle, Indo, the rl likely will result in decreased overllyross driver compensation, an outcome predicted even by Parottand Reich’s own report when the deficiencies initare coreted. In short, while increasing river camings is a worthy objective (and one Petitioners do not challenge), the rule the TLC aetualy ssi not reasonably designed t achieve that gal, The ul, moreover, likely © encourage shorter tips in ates of high demand, thus increasing congestion inthe City and defeating the purported secondary purpose of the rule "The Expert Report of Dr. Tucker (the “Tucker Report” is attached tothe Affirmation of Sara LL. Shudotsky In Support of Petitioners’ Article 78 Petition and Application For A Temporary Restraining Order and Preliminary Injunction (“Shudofsky Af”) as Exhibit EX”) A. 5. Finally, the rule passed by the TLC arbitrary meas companies diferent based on how often drivers onthe platform havea rider in their vehicle (teferred bas the “utilization rate), Instead of seting an industye wide wilizaton rate that wll tll ines ply equally to cach ofthe four riesharing companies, the rule allows any company use its ovm company. specific utilization rate. That approach vas adopted without any tidy or analysis by the TLC of itsikely effects. Inthe TLC’s hast to pss the Minimum Payment Rule, itadopte an approach that will give the largestcom pany with the biggest marketshare builtin and perpen advantage over companies with lower utlizations, helping tha company undereut is competitors on price, withthe inequality compounding over ime. The wilization rte componentof the driver poy formula adopted without any study of these potently devastaingant-competitive effects, was the product of arbitrary rulemaking 9. Because the Minimum Payment Rue dre conflicts with local law, is based on a deficient study that does not suppor the mle its Per-Trip Caleulation Requirement, ois utlizaton mt component, and is not reasonably related to the goal it purpors to achieve, the Courtshould, forall he resons discussed below, declare thatthe mle was affected by error of Jaw and pase arbitarily and capriciously and vacate it PARTIES 10, Petioners Tri-City, LLC and Endor Car and Driver, LLCare wholly owned subsidiaries of Ly, Ine, Lyf), technology company headquartered in San Faneiso, California, Pettioners re each licensed as «black ear base by the TLC, but they operate under the same publi-fucing trade, business, or operating name—Lyft—and collectively dispatch over the ten thousand tips per day required to come under the Minimum Payment Rule 11, Respondent New York City Taxi and Limousine Commission isan administrative agency ofthe City of New York created and operating pursuant to Chapter 65 ofthe New Youk City Charter. See NYC Charter§ 2300. The TLC's principal office is located at 33 Beaver Sweet, New York, New York 10004. 12, Respondent Meera Joshi is the Chair of the TLC, as well asa Commissioner and its Chief Executive Officer, and was so atthe time the TLC promulgated the Minimum Payment Rule, Chair Josh's principal office is located at 33 Beaver Steet, New York, New York 10008, JURISDICTION AND VENUE 13, This court has subject matter jursdition to decide tis petition pursuant to CPLR § 7803, s the Minimum Payment Rule was a fina determination of the TLC and this Petition challenges that determination as arbitrary and capricious and as affected by enor of aw. 14, Venue is proper in New York County Supreme Court pursuant to CPLR §§ 506(b) and 7804(b) because the challen ged determination occurred in New York Countyand Respondents” principal offices are in New Youk County. FACTS ‘THE PHY INDUSTRY GENERALLY 15, The TLC regulates the taxi and FHV industries in New York City, which largely consistof the following segnents: medallion axis or yellow cabs; test hall ivetis or green cabs; and FHVs, Althoughall segment are regulated by the TLC, each must comply witha ‘uigue set of regulatory requirement. 16, Petitioners, though wholly owned subsidiaries of a technology company, ae both regulated by the TLCas partof the FHV industry, which consist of for-hite bases for-hite vehicles, and forhite drivers. See 35 R.CN.Y. § 59B-03. V7. For Hire Basecan be anyof the following: (1) A Black Car Base, 2) A Liv Base (or Base Station), (3) A Luxury Limousine Base.” See 35R.CNY. § 598-030) 18, Petionersare licensed to operate in New York City as black car bases 19, _Allrides provided by the FH industy “must be arranged through a TLC- licensed base and performed by TLC-icensed drivers in TLC-Hiensed vehicles.” Current Licenses, NYC.Cov, hitp/ww nye gov/hnl le hun industry current licensees sh 20, Unlike the medallion tax segment, FHV rides must be pre-atranged, sce 35 R.CNN. §§ 59B-03(), (in), (p) and FHV bases have the discretion ose their owm rates of fare 21, Revenly, the FH industry has been further segmented by the creation of anew licensing category for High Volume For-Hite Services, While the TLC has yet ise any High Volume For-Hie Service licenses, any business “tha facilitates orotherwise connects passengers to for hire vehicles by pre-arrangemtent, including trough one or more iensed For Hite Vehicle Bases, using a passenger-facing booking tool and that dispatches ot fcitates the dispatching of ten-thousand (10,000) or more tips in the City per day” wil be required to obtain a High Volume For-Hie Service license from the TLC, See 35 R.CNY. § 51-03, 22, Currently, the only businesses that will be required obmin such license are four technology and ridesharing companies operating in New York City, including Petitioners" parent, Lyf. 23, These technology and ridesharing businesses have enjoyed an enormous amount of popularity since entering the New York City market and now account for more than 80% of all FHV tips, approximately 50% of which serve rider in the outer boroughs—aeas of the City almost completely neglected by the medallion taxi industry, See NYC TAXI & LIMOUSINE Coniston, 2018 TLCFACTBOOK 1, 5 (2018), np. www nye gov/html/He‘downloads/pd/2018_tle_factbook. pat 24, Further, approximately 25% 6 of des flied by FH bases ait with these technology and idesharing companies ae shared rides—a form of carpooling in which multiple riders heading in the same ditection share the same vehicle, 1d, 9 25, Since entesing the New York City market, rdeshasing businesses, such as Lyf, hve provided tens of thousands of New Vorkers with eaming opportunities and access transportation that otherwise would not have been available to them, B, PETITIONERS’ BUSINESS MODEL 26, Petitioners, ass typical of any black car bse, operate under a business model pursuant to which ther afiiated drivers own, leas, or rent the vehicles the drivers us, and the drivers ate independent conttactors—not employees 27. Asindependent contactors, drives have the flexibility to set their own work schedules, choose whete to drive, decide which rides to accept, choose their owm cars, and contrat with other companies, including as drivers affliated with other rideshare companies. Indeed, approximately half of all divers are mult-app users that network with riders using more than one rdesharing platform, P&R Study at 21, 17 (atached to Shudofsky Aff. as Ex. B). 28, Drivers dispatched by Petitioners” bases ulize the Lyft Platform, an online smartphone application platform that connects users seeking rides with independent contactor drivers seeking to provide ides. 29, Ascontmetually agreed upon, drivers using the Lyft Platform are entitled to a Driver Fare, Soe Lyft Diver Addendum J 1, LYPY (Nov. 28, 2018), hnps:www.lyft.com terms /driver-addendum. The Driver Faw for a completed ride consists ofa tase fare amount pls ineremental amounts based on the acta! time and distane ofthe ride (cespoctively herein, the “time rate" and the “distance rate"), as measured by Lyf. 30. The “base fare is the initial fare paid toa driver when a ride sts, The base fare for Lyft in New York City for standard vehicle types varies based on when a driver applied tothe platform: $1,832 for divers who applied before 12.am January 1,2016 and $1.7175 for drivers ‘whe applied after that date 31. The “time ate"is the fare paid t a dhver per minute ofthe ride, The time rate for Lyft in New York City for standard vehicle types varies based on when a driver applied tothe platform: $0.256 per minute for drivers who applied before 12 am January 1,2016 and $0.24 per minute for drivers who applied aftr that dat. 32, The “stance rate” the fae pid to a driver per mile ofthe ride, The distance rate for Lyft in New York City for standaud vehicle types varies based on when a driver applied tp the platform: $1,268 per mile for drivers who applied before 12 am January 1,2016 and 1.185 per mile fordrivers who appli after that date. 33. Inaddition, drivers on the Lyft Platform have the opportunity to arn various incentives, Incentives available in the New Vouk City matketinchude the following: Prime ‘Time; Power Zones; Ride Challenges; Ride Stteaks; and Eamings Guarantees 34. Prime Timeadds a percentage to the Driver Fare (the base fare + the time rate + the distance rate) when the demand for rides is higher than the number of available divers on the road ina particular area. This serves to rebalance the make, by increasing supply and redueing demand, through temporarily higher fares. Prime Time applies on a per-rip basis based upon real ime matket conditions. See Prime Time for Drivers, LYF, http: help Ivfteom helen. uslartieles/115012926467-Prime-Time-for-drivers, 35, Power Zones, similar to Prime Time, adds a percentage tthe Driver Fareon a per tip bass, but unlike Prime Time, Power Zones isnot based on realtime market conditions Instead, Power Zones i ativated by Lyft for certain areas at Ly’ discretion and can be used > encourage additional drivers to service particular ateas and at particular times. See Power Zones, LLyPr, lps elp 1 com Mhelen-ysaticle/115012926507-Power Zones, 36, Ride Challenges allows a driver to eam an addtional amount by completing cert amount of rides ina setamountof ime, Both the amount of rides and the amount of ime ‘vary depending on the incentive as does the amount that can be earned for completing the challenge. See Ride Challenges, LYPT,hnps:lhelp ft com len-s/anicles/360001983867- Ride-Challenges 37. Ride Steaks rewards drivers for completing a certain numberof tip quests in a row, Completion ofthe required steak result in the payment ofa bonus t the driver. See Sreak Bonus, LPT, htps/IelpIftconvelen-s/ariles/115015748908-Steak- Bonus 38, Famings Guarantees allows drivers ear a guaranteed amount for completing a setamountof tides ina set amount time, If he guaranteed amounts not eated dusing the set time period despite the driver achieving the equited numberof rides, Lyft pass the diver the ditference benveen the uamntecd amount and the amount actually cared by the driver. See Earnings Guarantee Promotions, LYET, hips dhelp Ivf.com Melen-wsailes/115012927287- Eamings-Guarantee-promotions 39. Riders are charged for applicable tolls, ainpor fees, state or local fees, surcharges, or es roquted by law or agreements with thinl partes, Drivers do not pay these amounts, See Lyft Driver Addendum at $4. 40, Inexchange for thet use of the LyftPlatfoom, two fees are subacted from the per-tipamount paid by riders, These two fees are a Service Fee and a Platform Fee (collectively referred as.a “commission” by Partottand Reich), The Service Fee is a set amount retained by Lyfiforcach ride that helps finance Lyft’s operational ost, Se Lyfi Driver Addendum at 95; How Your Pay Is Caleulted, LYFT, hups:/thehub Iyfecom/pay-breakdown, The Platform Fee is a variable amount equal othe difference between the fees charged to the ide (¢., the rider fare) and the sum ofthe Driver Fate any applicable bonuses or incentives, any applicable ols, surcharges taxes or othe hid panty fees, and the Service Fee, 1d. 41, Inadklton, the Lyft Platform provides riders withthe ability tip drivers, 100% of tips ate passed on the driver, Lyi Drier Addendum at 4 42, Drivereammings pertide therefore are equal o Driver Fare + incentives + tip. The tote rides a driver completes, the more the driver cars overall 43, Lyftfacilitates payment to drivers through a thixt-pary payment processor, collecting ees from both the rider and diver. Soe Zyft Diver Addendum at 3. Lyft emits 0 ‘he drivers the amount they are owed weekly; however, eligible dives ean op into Express Pay, Which allows them to cash out certain earings before thet usual weekly deposi fora $0.50 transaction fee, up to five times a day. Soe Express Pay, LYF, hp: elplvfcom lene slrtiles/115012923167-Express-Pav, C. THE NEW YORK CITY COUNCIL REQUIRES THE TLCTO PERMIT ‘THE CALCULATION OF DRIVER MINIMUM EARNINGS ON A PER- WEEK BASIS 44, On April 30, 2018, the NYC Council Committee on For-Hite Vehicles held a hating consider the adoption of a munberof bills including It. No, 890, which would dnset the TLC to establish a method for determining a minimum payment rule for FAV drivers dispatched bya high volume for-hite service, 10