Federal Court Greenlights Car Sharing Company's Challenge to LAX Fees

The City of Los Angeles has failed in its bid for dismissal of the lawsuit filed last summer by Turo Inc. (formerly RelayRides), a peer-to-peer car-sharing company that objects to being taxed and otherwise treated like a traditional car-rental company for car-sharing transactions at or near Los Angeles International Airport (LAX). On January 14, 2019, the U.S. District Court for the Central District of California denied most of the city's motion to dismiss Turo Inc. v. City of Los Angeles, Case No. 2:18-cv-06055-CAS (GJSx) (Jan. 14, 2019).

What Uber and Lyft are to taxis, Turo aims to be for car rental companies. Turo does not have a fleet of cars but rather facilitates the exchange of cars between its users by allowing private car owners to rent out their cars via an online and mobile interface.

The court ruling—which clears Turo's path to seek a judgment outlawing the LAX charges—represents an important development in the continuing saga of how airports are reacting to technological advancements that are upending long-standing airport practices and revenue-generating schemes. New technology companies and their customers want to avoid charges for airport facilities and services they do not actually use. Airports, which frequently wield monopoly power, have long enjoyed practically unchecked powers in demanding high tolls from non-aeronautical companies (such as rental car companies, taxis, catering entities and other businesses at or near the airport). But airports may have met their match in new technology companies that rely on apps and users, rather than a physical airport presence, to sell their price competitive services.

Background

After Los Angeles learned about Turo's operations, it sent Turo a cease-and-desist letter, demanding that it obtain an "LAX rental car company permit," pursuant to which the city would charge Turo and its users exchanging cars near or at LAX 10 percent of each booking (the gross receipts charge). The city also attempted to impose an "LAX Facilities Charge," which is collected to finance the LAX "Consolidated Rent-a-Car Facility," in the amount of $7.50 per day of the first five days of a car rental.

Turo sued the city, claiming that the fees are unlawful and explaining that it was prepared to submit to a permitting regime appropriate for its business model as a personal vehicle sharing program. LAX has refused even to engage with the idea of developing an appropriate permit for Turo and other personal vehicle programs, instead arbitrarily insisting that Turo is a car rental company and must be licensed as one.

The Court's Findings

In its recent order denying in large part the city's motion to dismiss the case, the court ruled that Turo could proceed on its claims that the fees improperly treat Turo as a "rental car company." California Government Code § 50474.3 authorizes the city to impose the LAX facilities charge on rental companies but does not define "rental company." The court decided that it needed to allow the parties to engage in discovery and additional arguments before it could decide whether Turo is a "car rental company."

The court also refused to dismiss Turo's claim that the fees are unapproved taxes. The city asserted the charges are not taxes because they are not "imposed" on anyone, but are rather a contractual obligation agreed to by entities seeking to engage in commercial activity at LAX. However, the court found that "Turo has sufficiently alleged a claim based on illegal taxation under the California Constitution."

In addition, the court denied the city's motion to dismiss Turo's claim for violation of the dormant commerce clause of the U.S. Constitution. This was because Turo plausibly alleged that the disputed charges are not based on a fair approximation of Turo's use of the facilities and the disputed charges are excessive in relation to the benefits that LAX confers. The court also concluded that the city's "arguments about whether the disputed charges are justified by the City's costs for roads and airport facilities, or the benefits that Turo and its users derive from indirect use of the entire LAX facility and its services, are better decided on a more developed record." The court also denied the city's motion to dismiss the equal protection claim because Turo and its car-sharing customers are being treated less favorably than Uber, Lyft and their customers.

Finally, the court dismissed Turo's claim for violation of the Communications Decency Act (CDA). The CDA states that "[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider." 47 U.S.C. § 230(c)(1). A party is shielded from liability under the CDA if the party is: (1) a provider or user of an interactive computer service (2) whom a plaintiff seeks to treat, under a state law cause of action, as a publisher or speaker (3) of information provided by another information content provider.

The issue of whether an entity is immune under the CDA depends on the nature of the activity that is the subject of the action. For example, in different cases Airbnb has been found to be immune or not immune under the CDA. The dismissal of Turo's CDA claim was not on the merits. Rather, the court held that the issue was not yet ripe "because the City has not yet taken any enforcement action against Turo."

Determining the Reaching of Airports and Local Governments

As a result of the ruling, discovery will proceed on Turo's claims and we may know more definitively in the future whether Los Angeles will succeed in its efforts to treat ecommerce car sharing services like car rental companies.

The Turo case is important because it will help inform airports, local governments and airport businesses as to whether airport operators will succeed in their efforts to regulate and tax ecommerce companies like their traditional counterparts. Stay tuned for the next phase of this important case which pits airport revenue demands against the new ecommerce marketplace.