A California judge has awarded the San Francisco Municipal Transportation Agency $6.3 million in attorney fees stemming from a four-year legal battle over the taxi medallion that the San Francisco Federal Credit Union lost.
The credit union sued the municipal agency alleging that it breached a lender agreement. But last October, after a three-week trial, a jury found that in five of the credit union’s six breach of contract claims, SFMTA had not breached the lender’s agreement.
However, the jury also found that in one of the breach of contract claims, the SFMTA barred the $1.3 billion San Francisco FCU from receiving the benefits of the lender agreement by not formally stating the end of the taxi medallion sales program. Nevertheless, the jury also determined that the agency did not act unfairly and in bad faith by not formally declaring the end of the medallion sales program.
The credit union is appealing the jury’s verdict and award of attorney’s fees to the San Francisco Court of Appeals.
San Francisco FCU President/CEO Jonathan Oliver said the credit union pursued the case in an effort to protect medallion loan holders, other credit unions who participated in the program from loan and members.
“Under the terms of our contract with the City of San Francisco, when the medallions, which were the security for the loans [and] were no longer transferable, the city was supposed to buy them back. After all, the city got all the money from the medallion purchases,” Oliver said. “Unfortunately, when the going got tough, the city chose not to do the right thing. The parties then fought in court and the jury concluded that the program was over. However, due to what we believe to be a faulty jury instruction, they did not find for the credit union. We are in the process of appealing the judgment, including the award of costs.
Although the credit union’s appeal could take up to a year to decide, Oliver said the San Francisco FCU continues to discuss with the city “potential avenues to resolve the situation.”
The jury’s verdict held the credit union responsible for paying SFMTA’s attorney fees and other costs.
On July 5, California Superior Court Judge Harold Kahn filed his decision to award $6,384,137 in legal fees to the SFMTA, but he denied awarding the municipal agency’s expert witness fees. and other non-statutory costs.
The SMFTA initially requested a price of $10,091,433.
However, the credit union countered in its legal papers that the award was patently unreasonable and accused the city agency of trying to add insult to injury by again using the San Francisco FCU to seek a exceptional profit for the city. The credit union argued that the maximum fee SFMTA should be entitled to is $1,589,776.
When San Francisco’s FCU originally filed its breach of contract lawsuit in 2018, suing SFMTA for more than $28 million, the credit union was handling $50 million in taxi medallion loans and another $35 million. in equity loans.
In 2010, the SFMTA launched a new transferable taxi medallion program for a purchase price of $250,000 per medallion, which are municipal licenses that give drivers the right to operate a taxicab in San Francisco. That same year, San Francisco’s FCU signed a loan agreement with the agency to sell $250,000 loans to taxi drivers.
Court documents showed the credit union underwrote and financed the purchase of more than 700 transferable medallions for its taxi driver members, representing more than $125 million in loans secured by the medallions. The FCU of San Francisco said the city generated about $64 million in revenue from the medallion program.
Beginning in 2012, however, taxi drivers saw their income drastically decline due to increasing competition from ride-sharing providers. In 2016, the medallion market collapsed as no one was willing to buy medallions and drivers were unable to repay their loans. Foreclosures skyrocketed from 0.07 per month to 6.3 per month. When the credit union filed its amended lawsuit against the SFMTA in May 2018, the FCU of San Francisco reported that it seized at least 118 medallion loans worth more than $20 million.
Currently, the credit union is handling about 295 seized taxi medallion loans worth about $51 million, and another 275 taxi medallion loans that are in progress, according to Oliver. Since last September, San Francisco’s FCU has had just one foreclosed medallion loan, indicating the market has normalized, Oliver said.
The FCU of San Francisco argued in its lawsuit that the SFMTA guaranteed its loans, with promises to regulate the transportation market to ensure there would always be willing buyers for taxi medallions, and with promises to buy back the medallions if there were no willing buyers to foreclose. medallions.
However, the SFMTA countered in court documents that no such warranty appears in the lender agreement that the credit union claims the agency breached.
Instead, the SFMTA said it made no promises to regulate taxi competitors and that the agency promised to redeem medallions in only one narrow circumstance that was entirely within its control: if the SFMTA made the regulatory decision to end the transferable medallion program. But the SFMTA said it never ended the program.
Although the market for taxi medallions has also collapsed in New York, many medallion owners got substantial relief last November when the city government announced a deal with the New York Taxi Workers’ Alliance and Marblegate Asset Management, the largest medallion lender. Marblegate has agreed to restructure all of its outstanding medallion loans down to a principal balance of $200,000. Each restructured loan had an interest rate of 5% and a monthly repayment cap of $1,122.
In February 2020, the NCUA announced a highly controversial decision to sell an undisclosed number of New York City taxi medallions to Marblegate for an undisclosed sum. The federal agency had thousands of taxi loans, largely due to the failure of two credit unions, Melrose Credit Union and LOMTO Federal Credit Union – which had a large concentration of loans to drivers and medallion owners .
For many drivers, restructuring their $200,000 loan meant writing off hundreds of thousands of dollars in debt, according to a comprehensive report released in March by the Columbia (University) Human Rights Law Review, which analyzed the crisis. taxi medallions.
Additionally, the City of New York has agreed to provide a guarantee on the principal and interest of these loans, which means that if a medallion owner is unable to make a monthly payment, the city would step in to ensure the owner is not defaulting, according to the report. .
Prior to the November 2021 deal, there were between 3,000 and 5,000 underwater taxi medallion loans, meaning the total debt held by medallion owners ranged between $2.1 billion and $3 billion. .5 billion, reported the Human Rights Law Review.