THE CITY OF NEW YORK OFFICE OF ADMINISTRATIVE TRIALS AND HEARINGS. TAXI AND LIMOUSINE COMMISSION, : Index Nos. Petitioner, : 102, /94

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1 Taxi Limousine Comm n v. Gay Service Corp., OATH Index Nos. 102, /94 (Dec. 9, 1993), modified on penalty, Comm n Determination (May 19, 1994), rev d sub nom. Boiadjian v. NYC Taxi & Limousine Comm n, Index No /93 (Sup Ct. N.Y. Co. Mar. 20, 1995), rev d, 663 N.Y.S.2d 176 (1st Dep t 1997). ALJ had recommended a $50,000 fine be imposed upon respondent Fallek. The Commission imposed the penalty of forced divestiture of all of Fallek s medallions, including those not referred to in the petition. In the article 78 proceeding, the court found that Rule 1-58 only imposes strict liability on owners for operating conditions of taxicabs and had been misapplied. Thus, it found that there was no basis for the penalty of divestiture. On appeal, the court found that owners were strictly liable for violations of the TLC rules and that such liability was not limited to the operating conditions of taxicabs. As such, the divestiture was reinstated. See also, Taxi & Limousine Comm n v. King Victor Taxi Corp., OATH Index Nos /92, 900/92 (May 3, 1993), aff'd in part, rev'd in part, N.Y.L.J., Mar. 30, 1995, at 30, col 1, Sup Ct. Index No /94 (Sup. Ct. N.Y. Co.)(Lippmann, J.), aff d, 236 A.D.2d 325 (1st Dep t 1997). In King Victor the court held that respondent Fallek was not strictly liable for fraudulently acts committed by other - strict liability under Commission rules is limited to acts relating to the operating conditions of the taxicab.

2 2 THE CITY OF NEW YORK OFFICE OF ADMINISTRATIVE TRIALS AND HEARINGS X In the Matter of : TAXI AND LIMOUSINE COMMISSION, : Index Nos. Petitioner, : 102, /94 - against - : REPORT AND RECOMMENDATION GAY SERVICE CORP., RONIT TAXI CORP., : RESERVOIR HACKING CORP., V & F CAB CORP., ROGER CAB CORP., STUT CAB CORP.,: CHAZ CAB CORP., AYAL TAXI CORP., RIME CAB CORP., SVETLANA SANDLER, JACOB : SANDLER, JOY FALLEK, VICTOR FALLEK, GREGORY GIL, ARKADY MARSHAK, ZULICHA : ALIBAYOF, NAMAN ALIBAYOF and LEONID PISCHCHIKER, : Respondents. : X P R E S E N T: CHARLES R. FRASER Administrative Law Judge T O: FIDEL F. DEL VALLE Chairman A P P E A R A N C E S: CRAIG TESSLER, ESQ. Attorney for Petitioner Taxi and Limousine Commission 221 West 41st Street New York, NY BASS & BRENNAN, P.C. Attorneys for the Respondents John C. Brennan, Esq.,of counsel 1133 Avenue of the Americas New York, NY 10036

3 3 This is a medallion revocation proceeding against nine corporations and nine individuals, brought by the petitioner Taxi and Limousine Commission pursuant to section 2303(b) of the City Charter, section of the Administrative Code, and 35 RCNY 8-02(a)(1) (June 30, 1991). The nine individual respondents are alleged to be officers and shareholders of the respondent corporations. The petition, containing five charges, was originally brought against 12 corporations "and their Officers and Shareholders" (ALJ Ex. 1, p. 1). Before trial here, the charges against three of the corporations and their principals were severed, and only the remaining nine corporations and their principals were before me. Specifications 2 and 4 concerned two of the respondents severed from this case, and therefore those specifications are not relevant here. The Commission alleged that the vehicle identification number (VIN) tags had been tampered with on taxicabs operated with nine medallions, one medallion owned by each of the nine respondent corporations (ALJ Ex. 1, spec. 1). In addition, the Commission alleged that the medallion belonging to one of the corporate respondents had been improperly transferred from one car to another, without Commission authorization (ALJ Ex. 1, spec. 3). The Commission separately alleged that the individual respondents are "no longer fit to remain holders of taxicab licenses (medallions), or to be officers or shareholders of a corporation which holds a taxicab license (medallion)" (ALJ Ex. 1, spec. 5).

4 4 Trial was held on August 11, Following post-trial submissions, I directed that the record be closed on October 1, As discussed below, I find the respondents guilty as charged in specifications 1 and 3, except that I find respondents Joy Fallek and Zulicha Alibayof not guilty. In addition, I find specification 5 to be duplicative of specification 1, and therefore the respondents other than Ms. Fallek and Zulicha Alibayof are guilty of specification 5 to the same extent that they are guilty of specification 1. I recommend that a fine be imposed upon each corporate respondent, varying in amount from $5,000 to $10,000, as specified below. ANALYSIS Collectively, the nine corporate respondents own 19 medallions, including the nine at issue here. In addition, the individual respondents own numerous medallions through corporations other than the nine corporations that are respondents here. None of the respondents operated any of their own medallions; instead, they leased their medallions to other corporations. Of the nine medallions at issue here, seven medallions were leased to Star Taxi Place Inc., which in turn leased them to a fleet manager, V.I.P. Management. The other two medallions were leased by their owners directly to V.I.P. V.I.P. engaged in some relationship with an entity known as Long Island City Management. The exact nature of the relationship was not detailed at trial, but two possibilities were suggested:

5 5 V.I.P. may have merged with LIC Management, and V.I.P. may have rented or used LIC Management's premises for operation of the V.I.P. taxi fleet. Based on information not revealed at trial, the Commission and the Police Department raided LIC Management's premises on May 5, The authorities determined that the nine medallions at issue here were among 78 yellow cabs on the premises which had VIN tags that had been tampered with. The rivets affixing each tag to the dashboard had been cut, enabling the tag to be removed. In some cases, the VIN tags were then glued back on, presumably with the broken rivet heads, to disguise the fact that the tags had been removed. In other cases, the VIN tags were not put back on the same cars, but were put on other cars. The Commission proved, and the respondents did not directly dispute, that the nine medallions at issue here were on taxicabs with altered VIN tags. In the following eight cases, the VIN tags had been reaffixed to the same cars: medallion 5Y15 (Ronit Taxi Corp.), 9K34 (Reservoir Hacking Corp.), 6N53 (V & F Cab Corp.), 1N14 (Roger Cab Corp.), 4H39 (Stut Cab Corp.), 9M99 (Chaz Cab Corp.), 3M54 (Ayal Taxi Corp.), and 4G59 (Rime Cab Corp.). In one case, medallion 3G85 (Gay Service Corp.), the VIN tag was removed and affixed to a different car. All of the evidence suggested that the VIN tag tampering was done by V.I.P. or LIC Management, rather than by the respondents or Star. Nor was there evidence that Star or any of the respondents

6 6 knew of the tampering, or had any information from which they could have suspected that tampering would occur or had occurred. It is extremely unlikely that the rivets on the VIN tags of 78 cabs were cut or broken by accident, and it is quite certain that the tags and broken rivets were not accidentally glued back on. Because the tampering with the tags was undoubtedly deliberate, the tampering constituted the class E felony of forgery of a vehicle identification number. Penal Law (McKinney 1988). Moreover, possession of the cars by a person who knew that the VIN tags had been altered constituted the separate class E felony of illegal possession of a vehicle identification number. Penal Law (2) (McKinney supp. 1993); see also id., (1) (McKinney 1988) (presumption of knowing possession where person possesses five or more vehicles with altered VIN tags). The Commission contended that the respondents must be held accountable for the tampering done by V.I.P. or LIC Management. The Commission's theory was that medallion owners are insurers or guarantors of the lawful operation of their medallions: in effect, medallion owners are strictly liable for rules violations for the taxicabs bearing their medallions. A second theory offered by the Commission was that the medallion owners are vicariously liable for the wrongdoing of their agents. The respondents contended that they were wholly innocent of the wrongdoing and that they may not be held liable for the wrongdoing of others. The respondents' argument was that the enabling statute does not permit the Commission to impose either

7 7 strict liability or vicarious liability, and that, even if the statute so permits, the Commission rules do not actually impose strict liability or vicarious liability. The parties here have briefed this issue as if it were not definitively resolved by our prior cases. However, in Taxi and Limousine Commission v. Rajapa, OATH Index Nos /91 (Jan. 23, 1991), Judge Fleischhacker held that a medallion owner was accountable for infractions committed by the driver, without proof of active wrongdoing or mens rea on the part of the owner. The respondents here argue that TLC v. Rajapa is distinguishable because the owner and driver there were siblings, and, therefore, attribution of the driver's wrongs to the owner was appropriate in a fashion not paralleled here. But the family relationship of the owner and driver was in no respect part of Judge Fleischhacker's analysis of their legal relationship; he held that a medallion owner is strictly liable for rules violations committed by the driver. See also Taxi and Limousine Commission v. Samra Cab Corp., OATH Index Nos /91 (July 26, 1991), report and recommendation at 12 (medallion owner strictly liable for driver's violations; alternative holding). Similarly, in Taxi and Limousine Commission v. V. B. Taxi Corp., OATH Index No. 705/93 (May 26, 1993), modified on other grounds, Comm'n Dec'n (Oct. 7, 1993), Judge Lewis held a medallion owner strictly liable for violations committed by a lessee - in that case, a fleet manager.

8 8 The respondents suggest that these precedents were founded upon concepts of vicarious liability, respondeat superior, and agency law. Neither TLC v. Rajapa nor TLC v. Samra Cab Corp. contains any such discussion. Although Judge Lewis noted in TLC v. V. B. Taxi Corp. that our decisions are "consistent with... agency law," she did not hold that agency law was applicable per se. TLC v. V. B. Taxi Corp., rep. and rec. at 8 n.2. The respondents argue that Judge Kramer relied on agency concepts in Taxi and Limousine Commission v. King Victor Taxi Corp., OATH Index Nos , 900/92 (May 3, 1993). There, he held that the rules violations and mens rea of corporate principals are attributable to corporate medallion owners. TLC v. King Victor Taxi Corp., rep. and rec. at A corporation is a fictive entity that acts through individuals; if the rules violations of those individuals were not attributable to the corporation, then corporate medallion owners would be immune from regulatory enforcement - a manifestly improper result. Reliance on vicarious liability as between corporate principals and the corporation itself does not require reliance on vicarious liability concepts generally. It might also be argued that our precedents establish only the rule that medallion owners are strictly liable for the rules violations of persons or entities with whom the owners deal directly. That is, it might be argued that the medallion owner is liable for rules violations by principals, lessees and employees of the owner, but not for rules violations of sublessees or others

9 9 similarly removed from the owner itself. I believe this argument is founded upon a misconception of the strict liability standard implicit in the Commission rules. Therefore, notwithstanding our prior precedents, a review of the Commission's enabling statute and rules in this area is useful. The enabling statute provides that the Commission may impose reasonable fines, suspend or revoke any driver's license or vehicle license where the holder has failed to comply with or has willfully or knowingly violated any of the provisions of this chapter or a rule or regulation of the Commission. Admin. Code (a) (N.Y. Legal Publishing Corp. 1991). The respondents argue that this provision precludes punishment of a medallion owner except where the owner has "willfully or knowingly violated" a Commission rule. The Commission argues that a medallion owner can also be punished where the owner has "failed to comply" with a Commission rule, even where that failure is inadvertent or innocent. The respondents rely on Dunn v. Kove, 92 Misc.2d 117, 399 N.Y.S.2d 564 (S. Ct. N.Y. Co. 1977), the only published case construing section (a). In that case, then-justice Alexander overturned a fine imposed by the Commission on a taxi driver for inadvertently failing to turn on the taxi meter immediately upon picking up a passenger. As Judge Christen points out, that case concerned a taxi driver's liability for his own inadvertent acts, not the liability of a medallion owner to ensure that his cab be operated in compliance with Commission rules. See Taxi and Limousine Commission v. Mellis, OATH Index Nos. 1086/93, 166/94,

10 10 report and recommendation at (Dec. 9, 1993). Therefore, that case is inapposite here. Even were Dunn v. Kove applicable here, I would respectfully decline to follow it, notwithstanding its estimable author. Judge Alexander quoted the enabling statute as follows: [Section (a)] provides that the Commission may impose fines or suspend drivers' licenses where the holder "has wilfully [sic] or knowingly violated any of the provisions of this chapter or a rule" promulgated by the Commission. Dunn v. Kove, 399 N.Y.S.2d at 565. From that quotation, Judge Alexander concluded that the Commission was without power to punish violations of its rules that were not "willfully or knowingly" committed. Judge Alexander did not quote the portion of the statute referring to punishment of a license holder who "has failed to comply" with Commission rules. Indeed, Judge Alexander's construction of the statute renders the "failed to comply" language superfluous. The respondents protest that the Commission's reading renders the "willfully or knowingly" language superfluous - that is, if all failures to comply with the Commission's rules are already punishable, then the statute's separate reference to willful and knowing violations is unnecessary. The respondents propose a construction that gives meaning to both parts of the statute: omissions, or failures to act, can be punished without regard to the medallion owner's state of mind; commissions, or acts of "affirmative misconduct," are punishable only if done intentionally or knowingly (Resp. Reply Mem. at 4).

11 11 However, I doubt that the line between omissions and commissions is so clear. In Dunn v. Kove, for instance, the cab driver's failure to turn on the meter would seem to be an omission, not a commission. On the respondents' analysis, therefore, the cab driver could be punished for his inadvertence; yet Dunn v. Kove required a showing of knowing or intentional failure. The Commission correctly notes that its regulatory power is broad (Pet. Mem. at 10-12, citing City Charter 2300, 2303 (N.Y. Legal Publishing Corp. 1989), Admin. Code (N.Y. Legal Publishing Corp. 1991)). The Commission has acted on the premise that it has the authority "to hold the medallion owner strictly responsible for the operating condition of his taxicab" (The City Record, Dec. 8, 1989, p. 3348, col. 3). The Commission's view of its regulatory authority is entitled to great weight. See, e.g., Shoreham-Wading River Central School District v. Town of Brookhaven, 107 A.D.2d 219, 486 N.Y.S.2d 277, (2d Dept.), app. dism., 65 N.Y.2d 990, 494 N.Y.S.2d 299 (1985). In short, I conclude that the Commission has the statutory power to promulgate rules imposing strict liability on medallion owners for rules violations, whether those violations result from acts of omission or commission. The next question to be considered is whether the Commission's rules actually impose such liability. The nine corporate and nine individual respondents are charged with violating three rules (ALJ Ex. 1, spec. 1), which provide: An owner shall comply with the commission's taxicab specifications, the marking specifications for taxicabs, all pertinent provisions of the

12 12 Administrative Code and other laws, rules or regulations governing taxicab owners. 35 RCNY 1-60(a) (July 31, 1992). An owner, while performing his duties and responsibilities as a taxicab owner, shall not commit or attempt to commit, alone or in concert with another, any act of fraud, misrepresentation or larceny or perform any willful act of omission or commission which is against the best interests of the public, although not specifically prescribed in these rules. 35 RCNY 1-60(b) (July 31, 1992). An owner shall not use or permit any other person to use his taxicab, garage or office of record for any unlawful purpose. 35 RCNY 1-61(a) (July 31, 1992). Standing alone, these rules do not impose a strict liability standard. Section 1-60(a) requires a medallion owner to comply with applicable laws and rules. It does not obligate an owner to ensure that any other person or entity complies with applicable laws and rules. Similarly, section 1-60(b) prohibits certain willful acts by owners, but does not hold an owner responsible for the willful acts of others. Section 1-61(a) prohibits an owner from using her taxicabs for unlawful purposes, but no illegal use by the respondents is alleged here. The section also prohibits an owner to "permit any other person to use" the cab for unlawful purposes. Ordinarily, the word "permit" connotes active authorization or consent (Webster's New World Dictionary (3d Coll. Ed. 1988) at 1006), and therefore I construe the term "permit" in section 1-61(a) to mean authorization, consent, or acquiescence.

13 13 The Commission cites two of its rules as a source of a medallion owner's strict liability for acts or omissions of others concerning the owner's medallion: An owner may lease a taxicab to a licensed taxicab driver, or to licensed drivers working different shifts or days, if the owner is in compliance with the provisions of this rule. Regardless of the terms of the lease, the owner is responsible for complying with all laws, rules and regulations governing owners. 35 RCNY 1-50(b) (May 31, 1992). An owner may designate an agent to act on his behalf to meet the requirements of these rules. The designation of an agent shall not relieve the owner of any obligations under these rules. 35 RCNY 1-58(a) (July 31, 1992). As the Commission notes, sections 1-50(b) and 1-58(a) were adopted as part of a package of rules amendments explicitly intended "to hold the medallion owner strictly responsible for the operating condition of his taxicab." The City Record, Dec. 8, 1989, p. 3348, col. 3 (final rules, statement of basis and purpose); see The City Record, Oct. 17, 1989, p. 2807, col. 3 (proposed rules, statement of basis and purpose). The problem the Commission sought to remedy by these rules amendments arose from the leasing of medallions: "The practice of leasing has led in numerous cases to owners disclaiming knowledge of who is driving the taxicab, or disclaiming responsibility for the taxicab's operation." The City Record, Dec. 8, 1989, p. 3347, col. 3; The City Record, Oct. 17, 1989, p. 2807, col. 2. Plainly, the rules amendments were intended to make a medallion owner responsible for

14 14 the lawful operation of her cab, regardless of who actually drives the cab, and regardless of whether she knows who actually drives the cab. Cf. 35 RCNY 1-49 (July 31, 1992) (permissible to lease to "unspecified drivers," presumably by leasing to a fleet manager); see 35 RCNY 1-47(b) (July 31, 1992) (medallion subleasing prohibited). If these rules amendments were not construed consistent with the Commission's expressed intention in promulgating them, they would be altogether superfluous. That is, if sections 1-50(b) and 1-58(a) meant only that an owner may not personally violate applicable laws or rules, then they merely restated pre-existing obligations and had no new effect. I reject such a construction, and hold that sections 1-50(b) and 1-58(a) require an owner not only to comply with applicable laws and rules but also to ensure that those laws and rules are complied with by the actual operator and manager of the cab. I reach this conclusion without resort to the common law of agency. The Commission argues for a general incorporation of agency law into its rules (Pet. Mem. at 3-4). However, my conclusion is that this case does not turn on whether the active wrongdoer was an agent (or sub-agent) of the respondents. See TLC v. Mellis, rep. and rec. at 9-10 (Dec. 9, 1993). The Commission's rules applicable to medallion owners impose upon those owners a non-delegable duty to ensure that their medallions are operated in compliance with applicable rules and laws.

15 15 My reliance upon non-delegable duty doctrine instead of agency law is critical in this case. Here, although the Commission asserts "that a principal is responsible for the fraudulent behavior of an agent acting within the scope of his/her duties" (Pet. Mem. at 3, citations omitted), the Commission failed to prove that agency relationships existed between the respondents and the active wrongdoer or wrongdoers. It is doubtful that any of the owners' leases created agency relationships, as opposed to independent contractor relationships. See generally 3 N.Y.Jur.2d, Agency and Independent Contractors, (1980 & Supp. 1993). More critically, the Commission did not allege or prove agency relationships between the owners and the actual wrongdoers. On the present record I cannot determine whether V.I.P. or LIC Management was the active wrongdoer. Nor can I determine the nature of the relationship between V.I.P. and LIC Management - specifically, whether they were a single entity or two contracting entities. The Commission did not allege or prove that any of the respondents consented to have their medallions operated by LIC Management, and agency relationships can only be created by mutual consent, like contracts. E.g., Boro Associates, Inc. v. Levy, 44 Misc.2d 269, 253 N.Y.S.2d 592, 594 (N.Y.C. Civ. Ct. 1964); In re Zacoum's Estate, 115 N.Y.S.2d 42, 46 (Surr. Ct. Kings Co. 1952). Because I conclude that the proper analysis of the Commission's rules does not involve agency principles, the respondents' liability is not affected by their argument that they

16 16 leased to independent contractors, or by their argument that they did not know of or consent to operation of their medallions by the active wrongdoer here. The respondents owned their medallions subject to a non-delegable duty to see that the medallions were operated in compliance with applicable rules and laws. Stated differently, the respondents' "privilege to farm out work has its limits." Kleeman v. Rheingold, 81 N.Y.2d 270, 275, 598 N.Y.S.2d 149, 153 (1993) (quotation omitted). Therefore, the liability imposed upon the respondents in this case "is not an instance of respondeat superior. It is the case of the nonperformance of a nondelegable duty." People v. Sheffield Farms-Slawson-Decker Co., 225 N.Y. 25, 30, 121 N.E. 474 (1918) (Cardozo, J.; citation omitted). The Commission proved that one medallion owned by each of the respondent corporations had a damaged VIN tag, in violation of the Penal Law. The person or persons who altered the VIN tags committed crimes and misrepresentations, in violation of sections 1-60(a), 1-60(b), and 1-61(a) of the Commission rules. The corporate medallion owners are liable for those violations under sections 1-50(b) and 1-58(a) of the rules. Therefore, the nine corporate respondents are guilty of specification 1. The Commission further proved that the medallion owned by Gay Service Corp. was found to be affixed to a vehicle other than the one authorized by the Commission. Transfer of a medallion to a new or replacement car without Commission authorization violates 35 RCNY 1-31 (Mar. 31, 1993), for which the corporate medallion

17 17 owner is liable under sections 1-50(b) and 1-58(a) of the rules. Therefore, Gay Service Corp. is guilty of specification 3. The nine individual respondents, alleged to be shareholders and officers of the corporate respondents, were charged in specification 1 with liability for the altered VIN tags. (The principals of Gay Service Corp., Svetlana Sandler and Jacob Sandler, were not charged in specification 3, concerning the transfer of Gay's medallion to a replacement car without Commission authorization.) Also, in specification 5, the Commission alleged that, by virtue of the corporate respondents' violations, the individual respondents are "no longer fit to remain holders of taxicab licenses (medallions), or to be officers or shareholders of a corporation which holds a taxicab license (medallion)" (ALJ Ex. 1, spec. 5). Under 35 RCNY 1-03(e) (July 31, 1992), A stockholder in a closed corporation that owns a medallion will be personally accountable for adherence to TLC regulations and relevant law directly and uniquely pertaining to medallion ownership. In other words, a stockholder is liable for rules violations of a corporate medallion owner. The Commission also relied on 35 RCNY 1-02(b) (July 31, 1992). However, that provision pertains to the fitness of a medallion owner, and therefore does not pertain to officers and shareholders of a medallion owner. (The Commission did not cite 35 RCNY 1-03(b) (July 31, 1992), which apparently holds corporate officers to the same standards imposed on shareholders by section

18 (e). The omission is of no importance here, since the evidence did not indicate that any of the individual respondents was a corporate officer but not a corporate shareholder.) The evidence showed that, as alleged, the respondents Svetlana Sandler and Jacob Sandler are each half-owner of the respondent Gay Service Corp.; the respondent Victor Fallek is the principal shareholder and an officer of the respondents Ronit Taxi Corp., Reservoir Hacking Corp., V & F Cab Corp., Stut Cab Corp., and Chaz Cab Corp.; the respondents Gregory Gil and Arkady Marshak are coowners of the respondent Roger Cab Corp.; the respondent Naman Alibayof is an officer and shareholder of the respondent Ayal Taxi Corp.; and the respondent Leonid Pischchiker is the owner of Rime Cab Corp. The evidence did not support the allegations that the respondent Joy Fallek is a shareholder or officer of the respondent Ronit Taxi Corp., and that the respondent Zulicha Alibayof is an officer or shareholder of Ayal Taxi Corp. (Mr. Alibayof testified that his wife is a shareholder, but there was no evidence that Ms. Alibayof is that person.) Therefore, Ms. and Mr. Sandler, Mr. Fallek, Mr. Gil, Mr. Marshak, Mr. Alibayof and Mr. Pischchiker are guilty of specification 1; Ms. Fallek and Ms. Alibayof are not guilty. Specification 5 alleged no misconduct separate from specifications 1 and 3. Instead, it alleged that the individual respondents "are, by virtue of the violations described in the above charges, no longer fit to remain... officers or shareholders of a corporation which holds a taxicab license

19 19 (medallion)" (ALJ Ex. 1, spec. 5). This allegation pertains primarily to penalty; to the extent that it pertains to liability, it is duplicative of the prior charges. Therefore, the seven individual respondents other than Ms. Fallek and Ms. Alibayof are guilty of specification 5 to the same extent that they are guilty of specification 1. In addition, Mr. Sandler and Ms. Sandler are guilty of specification 5 to the extent that their corporate medallion owner, Gay Service Corp., is guilty of specification 3. FINDINGS AND CONCLUSIONS Pursuant to 35 RCNY 8-02(b) (June 30, 1991), I make the following final findings of fact and final conclusions of law: 1. The Commission proved by a fair preponderance of the credible evidence the following correlation of medallions, corporate medallion owners, and corporate principals: medallion 3G85, Gay Service Corp., Svetlana Sandler and Jacob Sandler; 5Y15, Ronit Taxi Corp., Victor Fallek; 9K34, Reservoir Hacking Corp., Mr. Fallek; 6N53, V & F Cab Corp., Mr. Fallek; 1N14, Roger Cab Corp., Gregory Gil and Arkady Marshak; 4H39, Stut Cab Corp., Mr. Fallek; 9M99, Chaz Cab Corp., Mr. Fallek; 3M54, Ayal Taxi Corp., Naman Alibayof; and 4G59, Rime Cab Corp., Leonid Pischchiker. 2. The Commission failed to prove that Joy Fallek or Zulicha Alibayof is an officer or shareholder of any of the corporate respondents. 3. The Commission proved that all nine of the medallions at issue were found on May 5, 1993, to be affixed to taxicabs with altered VIN tags, in violation of Commission rules. 4. The nine corporate respondents and their principals (the seven individual respondents other than Ms. Fallek and Ms. Alibayof) are liable for the violation found in paragraph 3.

20 20 5. The Commission proved that medallion 3G85 was found on May 5, 1993, to have been transferred from one taxicab to another without Commission authorization, in violation of Commission rules. 6. The nine corporate respondents are liable for the violation found in paragraph 5. Therefore, the nine corporate respondents and the seven individual respondents other than Ms. Fallek and Ms. Alibayof are guilty of specification 1; Gay Service Corp. is guilty of specification 3; and the seven individual respondents other than Ms. Fallek and Ms. Alibayof are guilty of specification 5 to the extent that it is duplicative of specifications 1 and 3. RECOMMENDATION Having made these findings and conclusions, I requested abstracts of the respondents' medallion records. The petitioner forwarded to me "a representative sampling of the most recent violations" for the 19 medallions owned by the nine corporate respondents. The summary, which runs 28 pages, was accompanied by voluminous encoded computer printouts, which I have not attempted to compare to the summary. The medallion records appear to be unremarkable. The summary provided to me lists an average of about a dozen violations per medallion over three to four years. The violations appear to be routine. The penalties imposed for those violations were no more severe than $150 fines, and most were substantially lesser fines. My statement that these medallion records are unremarkable requires qualification. The records appear to be quite typical of

21 21 medallion records reviewed by this tribunal. What is remarkable is that medallion records containing so many violations are so common. No doubt a good portion of the explanation for this sad state of affairs is the fact that passive investment in taxicabs is so widespread. That is, notwithstanding the Commission's 1989 rulemaking imposing strict liability on medallion owners, medallion owners commonly, if not universally, still believe that they are entitled to invest in medallions without taking any active role whatever in their medallions' management. Indeed, the respondents here, through their lawyer, regarded their passivity as a defense to the charges - the less involved they were in the management of their medallions, the respondents believed, the less their liability for the mismanagement of those medallions. The individual respondents here are without doubt basically good people, honest people who would not ignore obligations they knew about. It bears emphasis that the respondents here are guilty solely because the wrongdoing of others is attributable to them, not because they participated in, knew of, or reasonably could have known of the wrongdoing. The Commission's argument that the respondents could have put an end to the VIN tag tampering had they "actively monitored the operation of their taxicabs" is not supported by the record (Pet. Mem. at 14). On the contrary, the record indicates that even Commission inspectors routinely failed to detect the tampering, and that the tampering was detected only by specially trained personnel following tip-offs not disclosed at trial. The petitioner did not adduce any evidence whatever

22 22 suggesting how the respondents might have detected, much less prevented, the VIN tag tampering. This does not vindicate the respondents' conduct, however. Even absent proof that the respondents' passivity of ownership was a cause of the wrongdoing that occurred, the fact remains that the respondents were all passive owners. They are liable for the VIN tag tampering as completely as they were liable for the more minor violations which are legion in all of these medallion owners' records. This violation, unlike those myriad minor violations, is one that seriously threatened the public welfare and safety; this violation is a felony. Plainly, small fines are not in order here. The Commission asked that I recommend revocation or forfeiture of medallions. There is some ambiguity whether the Commission sought action against all 19 medallions owned by the corporate respondents, or only the nine medallions proved to be in violation of the Commission's rules. Although I directed the Commission to resolve that ambiguity in its post-trial submission (Tr. 134), the Commission failed to do so. What was clear was that the Commission was not proceeding against medallions owned by the individual respondents through corporations other than the nine corporate respondents. This is important primarily for Mr. Fallek, who owns 71 medallions (Resp. Ex. A, pp ), but only 11 through corporations that are respondents here. I do not resist the notion, in the abstract, that medallions are not available for passive investment, and that owners who act as passive investors should be removed from the industry. However,

23 23 the Commission has no rule making passive investment itself an offense. Passive investment brings penalties on medallion owners only when the medallions are found to be in violation of other Commission rules, and the Commission did not seek the respondents' removal from the industry as a penalty for any of the many previous rules violations committed with those medallions. The Commission's rules hold medallion owners strictly liable for the acts and omissions of others, and such strict liability creates a steep downside to passive investment. Nonetheless, it appears that passive investment is virtually the norm in the industry, and it does not appear that the Commission has given medallion owners any clear and unambiguous notice that it wishes to prohibit passive investment outright. Given that the respondents were wholly innocent of the actual VIN tag tampering, absent proof that the respondents could reasonably have prevented the tampering even had they not been passive investors, and absent any clear notice to medallion owners that their medallion ownership would be placed at risk by serious violations of which they were themselves innocent, I cannot recommend the drastic penalties of forfeiture or revocation sought by the Commission. My conclusion is underscored by the fact that the Commission has proceeded against only a small minority of the medallions owned by the respondents here. The Commission contends that the respondents are "no longer fit" to be in the taxicab industry (ALJ Ex. 5, p. 2; see Tr. 9). Directly contradicting that contention,

24 24 the Commission proposes to leave Mr. Fallek, for instance, in ownership of either 60 or 66 medallions. When the Commission seeks to persuade this tribunal that an individual should be ousted from the taxi business, it should proceed in a fashion that would achieve that result. I believe that a base fine of $5,000 per corporate respondent is the appropriate penalty in the circumstances of this case. I so recommend for Gay Service Corp. and Rime Cab Corp. This penalty will convey to the respondents the seriousness of the Commission's intention to hold medallion owners responsible for the conduct of their medallions, yet this penalty should not work undue hardship on the respondents. The remaining seven corporate respondents and their officers and shareholders are in a different situation. All seven leased their medallions to Star, which sublet them. Subleasing of medallions is prohibited by Commission rules in unmistakable language: An owner shall not authorize or allow a lessee of a taxicab to sublease the taxicab to another party. 35 RCNY 1-47(b) (July 31, 1992). Although Star bills itself as a taxi broker, a broker does not lease and sublease - a broker brings together the lessor and lessee, but is not itself party to the lease contract. In any event, it was clear at trial that Star does not operate any taxicabs, and I conclude that the same was clear to those who leased to Star. Therefore any medallion owner who leased to Star

25 25 must have known that Star would sublease. As problematic as passive investment is when the medallion is managed or operated by someone other than the owner, passive investment is all the more problematic when the owner has no direct relationship with the medallion manager or operator. Because the principals of Roger Cab Corp. and Ayal Taxi Corp. must have known that their medallions would be subleased, they were in active and willful violation of the Commission's rules against subleasing. This exacerbated their failure to participate actively in the management of their medallions, especially since they did not even know who the sublessees were. Therefore, Roger Cab Corp. and Ayal Taxi Corp. deserve enhanced fines, and I recommend that they be fined $7,500 each. The five respondent corporations owned by Mr. Fallek are still differently situated. Mr. Fallek's lease agreement with Star did not merely fail to preclude subleasing; it explicitly authorized subleasing (Resp. Ex. A, p. 1). Mr. Fallek then made no effort to oversee, or even learn about, that subleasing. As a former fleet manager and as an owner of 71 medallions, Mr. Fallek should be especially well versed in the requirements of medallion ownership. Although all medallion owners are required to know their obligations under the Commission's rules, an owner of 71 medallions is fairly held to the strictest standards, since the size of his holdings may considerably magnify the effect of rules violations on the public.

26 26 For these reasons, I recommend that a $10,000 fine be imposed for each of Mr. Fallek's five medallions. These penalties, in the event that the Commission accepts my recommendations, will serve clear notice upon the respondents that they remain passive investors at their own risk. They should either restructure their medallion operations, taking an active role in the management of their medallions and assuring that further violations do not occur, or, if they are unable or unwilling to take such an active role, they should sell their medallions and find other investments. The respondents should clearly understand that any further violations will very probably result in forfeiture or revocation of their medallions. December 9, 1993 Charles R. Fraser Administrative Law Judge