California CU Loses Appeal Over Multimillion Dollar Taxi Medallion Lawsuit

A California Court of Appeal affirmed last week a lower court’s jury verdict that the San Francisco Metropolitan Transportation Authority (SFMTA) did not breach its taxi medallion lender agreement that led to millions of dollars in losses for the $1.4 billion San Francisco Federal Credit Union (SFFCU).

“We are pleased the court affirmed that the City did not break its contract and acted in good faith,” San Francisco City Attorney David Chiu said. “We are hopeful the credit union will engage with the city on ways we can improve the taxi medallion program.”

SFFCU COO Kirsten Madsen said that while the credit union is disappointed in the court’s ruling, it does not impact the credit union’s financial health, operations or member services.

“As a thriving and well capitalized credit union, we remain focused on our strategic plan to meet the needs of our members today and into the future,” she said.

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, and again in 2013, SFFCU signed a lender agreement with the city agency to sell $250,000 loans to taxi drivers.

Starting in 2012, however, taxi drivers saw their revenue substantially decline because of growing competition from Uber, Lyft and other transportation providers. By 2016, the taxi medallion marketplace collapsed because no one was willing to buy medallions and drivers were unable to repay their loans and foreclosures skyrocketed.

When the credit union filed its amended lawsuit against the SFMTA in May of 2018 that was seeking more than $31 million in damages, SFFCU reported it foreclosed on at least 118 medallion loans that represented more than $20 million. At that time, the credit union was managing $50 million in taxi medallion loans and an additional $35 million in participation loans.

SFFCU argued in its lawsuit that 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, SFMTA countered in court documents that no such guarantee appears in the lender agreement. The city agency 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 SFMTA made the regulatory decision to end the transferable medallion program. But the city agency said it never ended the program.

After a 15-day trial held in San Francisco Superior Court, a jury found in October 2021 that the SFMTA did not breach a lender agreement with the SFFCU. California Superior Court Judge Harold E. Kahn, who presided over the trial, awarded SFMTA $6.3 million in attorney fees and $135,680 in statutory costs, according to court filings.

When SFFCU filed its appeal in February 2022 it claimed the lower court’s jury verdict should be overturned because the trial court made several errors including that the jury instruction and special verdict form contained misstatements of the law.

But after reviewing the trial proceedings and hearing oral arguments last month the Appeal Court ruled in favor of upholding the San Francisco Superior Court jury’s verdict.