Judge Rules CU Must Pay $6.3 Million in Attorney Fees After It Lost Taxi Medallion Case

A California judge has awarded the San Francisco Municipal Transportation Agency $6.3 million in attorney fees stemming from a four-year taxi medallion legal battle that San Francisco Federal Credit Union lost.

The credit union sued the city agency alleging 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 breaches of contract claims, the SFMTA did not violate the lender agreement.

However, the jury also found that in one of the breaches of contract claims, the SFMTA did prevent the $1.3 billion San Francisco FCU from receiving the benefits of the lender agreement by not formally declaring an end to the taxi medallion sales program. Nevertheless, the jury also determined that the agency did not act unfairly and without good faith by not formally declaring an end to the medallion sales program.

The credit union is appealing the jury’s verdict and the attorney fees award to the San Francisco Court of Appeals.

San Francisco FCU President/CEO Jonathan Oliver said the credit union pursued this case in an effort to protect the medallion loan holders, the other credit unions who participated in the loan program and membership.

“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 received all of the money from the medallion purchases,” Oliver said. “Unfortunately, when push came to shove, the city chose not to do the right thing. The parties then battled it in litigation and the jury found that the program was over. However, due to what we believe was an erroneous jury instruction, they did not find for the credit union. We are in the process of appealing the judgment including the fee award.”

While the credit union’s appeal may take up to a year to be decided, Oliver said San Francisco FCU continues to speak with the city regarding “potential avenues to resolve the situation.”

The jury’s verdict held the credit union responsible for paying SFMTA 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 city agency’s expert witness fees and other non-statutory costs.

The SMFTA initially sought an award of $10,091,433.

However, the credit union countered in its legal filings that this award was patently unreasonable and charged that the city agency was trying to add insult to injury by again using San Francisco FCU to seek a windfall profit for the city. The credit union argued the maximum fee award to which the SFMTA should be entitled to is $1,589,776.

When San Francisco FCU initially filed its breach of contract lawsuit in 2018 suing the SFMTA for more than $28 million, the credit union was managing $50 million in taxi medallion loans and an additional $35 million in participation loans.

In 2010, the SFMTA launched a new program of transferable taxi medallions for a purchase price of $250,000 per medallion, which are city licenses that give drivers the right to operate a taxi in San Francisco. In that same year, San Francisco FCU signed a lending 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 transferrable medallions for its taxi driver members, which accounted for more than $125 million in loans secured by the medallions. San Francisco FCU said the city generated about $64 million in revenue from the medallion program.

Starting in 2012, however, taxi drivers saw their revenue substantially decline because of growing competition from ride-sharing providers. By 2016, the medallion marketplace collapsed because no one was willing to buy medallions and drivers were unable to repay their loans. Foreclosures skyrocketed from .07 per month to 6.3 per month. When the credit union filed its amended lawsuit against the SFMTA in May of 2018, San Francisco FCU reported it foreclosed on at least 118 medallion loans that represented more than $20 million.

Currently, the credit union is managing approximately 295 in foreclosed taxi medallion loans worth approximately $51 million, and an additional 275 taxi medallion loans that are current, according to Oliver. Since last September, San Francisco FCU has had only one foreclosed medallion loan, which indicates that the market has normalized, Oliver said.

San Francisco FCU argued in its lawsuit that the SFMTA guaranteed its loans, with promises to regulate the transportation market to ensure that there would always be willing purchasers for taxi medallions, and with promises to buy back the medallions if there were no willing buyers for foreclosed medallions.

However, the SFMTA countered in court documents that no such guarantee appears in the lender agreement the credit union claims that the agency breached.

Instead, the SFMTA said it made no promises to regulate taxi competitors, and that the agency promised to buy back medallions in only one narrow circumstance that was wholly within its control: If the SFMTA made the regulatory decision to end the transferable medallion program. But the SFMTA claimed it never ended the program.

Although the taxi medallion marketplace also collapsed in New York City, many medallion owners got substantial relief last November when the city’s government announced an agreement with the New York Taxi Workers’ Alliance and Marblegate Asset Management, the largest medallion lender. Marblegate agreed to restructure all of its outstanding medallion loans to a principal balance of $200,000. Each restructured loan had a 5% interest rate and a monthly payment ceiling 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 amount of money. 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, the restructuring of their loan to $200,000 meant forgiveness of hundreds of thousands of dollars of debt, according to a comprehensive report released in March by the Columbia (University) Human Rights Law Review, which analyzed the taxi medallion crisis.

Moreover, New York City agreed to provide a guarantee on the principal and interest for these loans, meaning that if a medallion owner is unable to make a monthly payment, the city would step in to ensure that the owner does not default, the report said.

Prior to the November 2021 agreement, there were between 3,000 and 5,000 taxi medallion loans underwater, meaning that the total debt held by medallion owners ranged between $2.1 billion and $3.5 billion, the Human Rights Law Review reported.