Gratuitous promises: Uber class action continues

Ehret v. Uber Technologies, Inc., No. C-14-0113 (N.D. Cal. Sept. 17, 2014) 

Ehret’s putative nationwide class action alleged that Uber customers had been charged a 20% fee above the metered fare for each ride, misrepresented as a “gratuity” automatically added “for the driver.”  Instead, a substantial portion was allegedly retained by Uber for its own benefit. Ehret alleged that this was deceptive, misrepresenting the actual fare.  Ehret, who took an Uber trip in Chicago, sued under the California UCL and CLRA, and for breach of contract.  Uber managed to kick out the breach of contract claims, but not the statutory consumer protection claims.

Rule 9(b): because Ehret alleged when and where she took a ride, and that she relied on the “gratuity” representation, she’d done enough. She didn’t have to allege the precise web pages she viewed or the precise date she viewed the representation, since she alleged the date she relied on it.  “To so require would be unrealistic and needlessly impede access to an important remedial statute.” Though she didn’t allege how much was “substantial” in terms of what Uber kept for itself, her allegations were sufficient on a motion to dismiss; they were specific enough to give Uber notice of the alleged misconduct.

Uber argued that she failed to state a claim because (1) the UCL does not apply to non-California residents alleging non-California conduct; and (2) she failed to allege standing under either statute.

However, the court found that Ehret’s claims didn’t require extraterritorial application of the UCL or CLRA.  It’s true that those statutes don’t apply to conduct outside California, but multiple courts—including the California Supreme Court—have found the statutes implicated where the plaintiffs’ claims were based on alleged misrepresentations disseminated from California, as was the case here. This is also consistent with Tobacco II, in which the Supreme Court instructed that the UCL’s focus is on the defendant’s conduct, not the plaintiff’s damages, “in service of the statute’s larger purpose of protecting the general public against unscrupulous business practices.”  Ehret alleged that Uber, a Delaware corporation, had its headquarters in San Francisco, and that the deceptive practices alleged were “conceived, reviewed, approved and otherwise controlled from Defendant’s headquarters.”  Moreover, the misrepresentations were contained on Uber’s website and app, maintained in California.  The billing and payment for Uber’s services were processed in California. These allegations, if true, created a sufficient nexus between California and the misrepresentations.

Standing: Uber argued that Ehret suffered no economic harm (lost money or property) because she’d pay the “gratuity” anyway: she received a taxi ride at the stated price. How Uber distributed the “gratuity” was a matter of mere curiosity to Ehret, according to Uber.  Under Kwikset, however, it sufficed to allege that she wouldn’t have agreed to or paid Uber the full amount Uber charged her if the truth had been disclosed.  If the misrepresentation was material, then she didn’t get the benefit of her bargain.  And materiality is generally a question of fact. 

The court cited Kasky v. Nike, Inc., 27 Cal. 4th 939 (2002): “For a significant segment of the buying public, labor practices do matter in making consumer choices.”  (I know this will make many eyes roll, but there is good evidence that consumers engage in mental accounting that is not purely additive and would see a tip differently from a base charge in determining whether to take an offer.  And certainly whether Uber helps or furthers the immiseration of drivers is a hotly debated issue, which the amount of the gratuity might reasonably seem relevant to.)  Materiality under the UCL doesn’t require but-for causation; it merely requires that a reasonable person would attach importance to the fact at issue.  It didn’t matter that the “gratuity” was mandatory.  There’s a “longstanding rule that under the UCL even a mandatory charge can be deceptive if it is labeled as something it is not.” 

Nor did Ehret have to allege that she wouldn’t have engaged in the transaction at all if not for the representation.  Otherwise, many people who didn’t get the benefit of their bargains would be unable to recover.  “Allowing standing in the case at bar – where a false representation is made to raise the price of a service which the plaintiff would not have agreed to pay had the truth been told, does not frustrate the purpose of Proposition 64; rather, it furthers it.”  The court commented that “it is also plausible that had Uber not made the alleged misrepresentation, the total fee it charged would have been less than what it charged with the misrepresentation.”  So, plausibly, consumers paid more than they would have but for the misrepresentation.  (Mental accounting again: consumers will pay more if you tell them the money is going somewhere they approve of.)

Ehret also stated a claim under the UCL’s fraud and unfairness prongs.  Given that Uber allegedly advertises that there’s no need to tip the driver, reasonable consumers plausibly would expect drivers to receive the whole gratuity, making its representations misleading. As for unfairness, California balances “the ‘impact on the its alleged victim’ against ‘the reasons, justifications, and motives of the alleged wrongdoer.’” At the pleading stage, the court couldn’t conclude that the costs of the alleged misrepresentation were justified.  The “unlawful” prong of the UCL also applied: see the immediately forthcoming CLRA analysis.

If Uber represented that it remitted a 20% gratuity to drivers and didn’t, then plausibly its service was advertised as having a characteristic it didn’t have within the meaning of the CLRA’s prohibition on such conduct.  California law also bars a defendant from “[r]epresenting that a transaction confers or involves rights , remedies, or obligations which it does not have or involve, or which are prohibited by law.”  Ehret sufficiently alleged a violation of this provision as well, since Uber allegedly misrepresented the “obligation” arising from the charged fee. However, Ehret didn’t state a claim based on the statute’s prohibition of “false or misleading statements of fact concerning reasons for, existence of, or amounts of price reductions.” 

Ehret did fail to state a breach of contract claim because she wasn’t contractually bound to leave the driver any tip, and so as to customers, drivers were donee beneficiaries with no legal rights. She didn’t suffer any damages for contract purposes (aimed at placing plaintiffs in the position they’d have been in had defendants performed their contractual obligations). 

The UCL, by contrast, isn’t so limited. “Stated another way, the breach of contract claim looks at the 20% gratuity statement and asks how Plaintiffs can be put in the same situation they would be in had Defendants performed.  The UCL claim looks at the 20% gratuity statement and asks how Plaintiffs would be positioned had the misrepresentation not been made.”