June 22 (Bloomberg) -- A New York City rule encouraging taxicab owners to purchase hybrid or clean-diesel vehicles was blocked by a judge who said federal law doesn’t allow the city to mandate that they do so.

U.S. District Judge Paul Crotty in Manhattan said today that federal law on mileage and emission standards preempts the city’s effort. He issued a preliminary order blocking the rule from taking effect.

Crotty said in October that a rule requiring the city’s taxicabs to get at least 25 miles per gallon ran afoul of federal law. The city issued a new regulation reducing the rates at which taxicab owners may lease their cars to drivers if the vehicle doesn’t have hybrid or clean-diesel technology.

The new regulations “have the preempted effect of mandating that taxicab owners purchase only taxicabs with hybrid or clean-diesel engines,” Crotty said in today’s ruling.

“The requirement is preempted in the same way as the city’s earlier attempt to impose mpg requirements,” the judge said.

Michael Cardozo, the top lawyer for New York City, said in a statement that he was disappointed with the ruling and was exploring legal options.

“We do not believe that Congress intended to prohibit local governments from implementing incentive programs,” he said.

Case Continues

The Metropolitan Taxicab Board of Trade praised the decision.

“The court decision acknowledges that the severe penalties sought against non-hybrid taxi owners not only violated federal law but were unprecedented,” said Michael Woloz, a spokesman for the industry group.

The preliminary ruling doesn’t end the lawsuit brought by cab owners and drivers. The city may continue to press its arguments in the case.

Crotty said in a 37-page opinion that the federal Energy Policy and Conservation Act of 1975 sets the law on fuel economy standards and preempts the city’s rule. He issued the preliminary injunction after finding that the drivers will probably win their suit.

“Increasing the number of hybrid taxicabs is an appropriate and important governmental priority,” Crotty wrote. “Congress, however, has exercised its powers and imposed both national fuel efficiency and engine emissions standards. Congress also directed that the federal standards controlled and preempted state and local governments from acting where Congress has already spoken.”

Crown Victorias

As of November 2007, more than 90 percent of all taxis in New York City were Ford Crown Victoria models, non-hybrid cars that don’t meet the fuel-efficiency requirement, Crotty said in his prior ruling. Only 700 cabs were hybrids, he said.

New York Mayor Michael Bloomberg is founder and majority owner of Bloomberg News parent Bloomberg LP.

The case is Metropolitan Taxicab Board of Trade v. New York, 08-cv-7837, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in U.S. District Court in New York at dglovin@bloomberg.net.

Last Updated: June 22, 2009 15:57 EDT