Uber's Next Battleground: New York City

The next battleground over the controversial Uber car service is also likely to be the biggest: New York City.

The FOX Business Network has learned that Melrose Credit Union, the city’s biggest financier of taxi licenses, or “medallions,” has threatened Mayor Bill de Blasio with a multi-billion dollar lawsuit unless the ride-sharing company begins to comply with the city’s taxi laws.

The letter, obtained by FBN, explains under city law, only licensed taxis can pick up people on the street—a practice known as a street hail. But Uber drivers routinely violate that law by picking up passengers through its various smartphone based applications.

Melrose spokesman Arthur Schwartz, an executive at independent public relations firm MWW Group, said by allowing Uber to operate outside of the law, New York City is depriving medallion owners of countless fees that have gone illegally to Uber drivers. The city recently adopted new “e-hail” rules, which Melrose contends Uber drivers routinely violate when they pick up people in the same manner taxi drivers have done.

Industry experts say the market for medallions has begun to decline with prices falling below $1 million as Uber drivers eat into the traditional New York City taxi business. Melrose is contemplating what’s known as a “taking claim” against the city, meaning the company would sue the city on the grounds that the mayor’s office is allowing Uber to unlawfully deprive medallion owners of their right to pick up all street hails.

If successful the city could be on the hook for $15 billion in damages, Melrose said in its letter to de Blasio.

Taxis in New York City are regulated by the Taxi and Limousine Commission, and its spokesman Allan Fromberg said in a statement the city continues “to welcome and encourage innovation from both the yellow and FHV (for hire vehicles) industries.  At the TLC, we are working continuously to maintain a fair and level competitive field that serves the interests of all of New York City's riders and residents, even as new technologies change the nature of many segments of the transportation industry,” Fromberg said.

An Uber spokesman weighed in on the potential suit.

"Big taxi should spend more time focusing on improving service quality and expanding options for New Yorkers rather than protecting the status quo and stifling competition," the spokesperson said.

A Climate of Sharing-Economy Controversy

Uber has faced various challenges from taxi owners as well as lobby groups and unions in various cities. But the possible lawsuit by Melrose is considered one of the first, if the not the most important, assault against Uber in the nation’s largest city.

New York City has some of the strictest laws for cab drivers, enforced through the TLC, which according to its website “regulates over 50,000 vehicles and approximately 100,000 drivers, and performs safety and emissions inspections of the 13,637 medallion taxicabs three times each year, as well as biennial inspections of all TLC-licensed For-Hire vehicles, making it the most active taxi and limousine licensing regulatory agency in the United States.”

The lawsuit, if successful could also hamper Uber’s plans to become a public company. As such litigation picks up steam, investors may grow weary that mounting legal challenges to Uber might eat into the company’s revenues which are estimated between $1.5 billion and $2 billion a year. Uber is estimated to be worth about $40 billion.

With so much money at stake, Uber has hired its own army of lobbyists and lawyers to fight back legal challenges. Among the most prominent: David Plouffe, a former adviser to President Obama who is the car service’s senior vice president of policy and strategy.

In hiring MWW Group, Melrose is hitting back with its own political fire power; the public relations firm is headed by Michael Kempner, who is a well-known Democratic party fundraiser and operative.