A federal appeals court on Tuesday affirmed the dismissal of a lawsuit filed by drivers of Minneapolis' largest cab companies who challenged the city's move to increase the number of taxi licenses it issues.

The unanimous ruling by a panel of the Eighth Circuit Court of Appeals "is yet another victory for both aspiring taxi entrepreneurs and for Minneapolis consumers," said Scott Bullock, a senior attorney at the Institute for Justice, who argued the case on behalf of smaller cab operators. "The appellate court made it clear that the law cannot be used to cut off competition and to close down the market to new taxi companies."

In December 2007, U.S. District Judge James Rosenbaum dismissed the case based on a recommendation by U.S. Magistrate Judge Franklin Noel two months earlier.

A group called the Minneapolis Taxi Owners Coalition Inc. had sued the city, arguing that the change, which essentially allows for more cabdrivers and competition, was unconstitutional. The group claims most of its drivers bought their transferable taxi licenses from other drivers for as much as $25,000.

Under the new rules, a taxi driver pays $475 for a license.

Coalition attorney Lawrence Crosby said Tuesday afternoon that he was disappointed by the three-judge panel's ruling and pledged to appeal to the full appeals court.

When the district court threw out the suit, Crosby said that "you can't change the rules without reimbursing the drivers, and the city balked. These drivers feel misled because the licenses have lost absolutely all of their value."

The City Council lifted the city's longstanding cap on the number of taxis that can legally operate in city limits. In 2006, there were about 343 taxis operating in the city. Now, the change allows 45 more cabs on the street each year until 2010 and then scraps the cap after that.

The Institute for Justice, based in Arlington, Va., and with a chapter in Minnesota, is a self-described libertarian law firm that has repeatedly taken legal action in pursuit of what it calls "economic liberty." The institute previously has won suits in Minnesota, for example overturning a state ban on Internet wine sales.

Paul Walsh • 612-673-4482