A plan that would have increased New York City's yellow-taxi fleet by 2,000 cabs, allowed people to hail livery cars outside Manhattan and pumped an estimated $1 billion or more into city coffers was struck down Friday by a state judge who ruled Mayor Michael Bloomberg had overstepped his bounds.

In a scathing decision, Manhattan Supreme Court Justice Arthur Engoron dismissed a state law creating the new borough taxi system as "14, single-spaced pages of legalese micro-managing the provision of taxicab service in New York...