Greater Houston Transportation Co. v. Uber Technologies,
Inc., 2015 WL 1034254, No. 4:14–0941 (S.D. Tex. Mar. 10, 2015)
Taxi permit holders in Houston and San Antonio sued Uber and
Lyft for tortious interference with business relations, unfair competition, and
false advertising under the Lanham Act.
Uber and Lyft moved to dismiss.
The plaintiffs operate taxis that can be hailed conventionally on the
street or by phone; many also offered smartphone apps. Municipalities are required by Texas law to
license, control, and regulate taxi transportation service, and thus plaintiffs
were subject to various regulations, including (in Houston) medical exams for
operators, criminal history checks, mechanical upkeep of automobiles,
compliance with established taxi rates, insurance, and antidiscrimination
rules. San Antonio had similar
regulations.
Uber and Lyft claim to be ridesharing operations, not taxi
services, which connect passengers with third-party transportation
providers. In Houston and San Antonio,
Lyft represented that it operated on donations alone. “Lyft provides a
suggested donation to passengers, but claims that the decision to donate to the
driver belongs entirely to the passenger.”
The parties disagreed about the proper classification of defendants’
services, as well as their safety, insurance coverage, and their compliance or
need to comply with local ordinances related to vehicles for hire. As of April 2014, defendants had been cited
26 times by Houston for failure to register as a “mobile dispatch service”
under a since repealed portion of the city code, and at least ten times by San Antonio,
and the San Antonio Chief of Police sent a cease-and-desist letter to Lyft. In August 2014, Houston amended its law
creating permitting and other regulations for “transportation networked
companies” (TNCs), at which point Lyft suspended operations in Houston. In December, San Antonio adopted similar
amendments.
Currently, plaintiffs alleged that defendants used misleading
terminology to describe their businesses and misrepresented their insurance
coverage and compliance with local ordinances. In addition, plaintiffs alleged
common-law unfair competition, as well as tortious interference from
plaintiffs’ solicitation of independent contract drivers to drive for their
allegedly unlawful operations.
Defendants argued that plaintiffs failed to plead proximate
cause under the Lanham Act. Ordinarily,
harms to third parties are too remote to constitute proximate cause, but Lexmark explained that, given the Lanham
Act’s purpose, “the intervening step of consumer deception is not fatal to the
showing of proximate causation required by the statute.” Ordinarily, a plaintiff has to show economic
or reputational injury flowing directly from the deception perpetrated by the
defendant—usually withheld trade.
Defendants argued that plaintiffs couldn’t show that consumers would
have been influenced by the alleged misrepresentations or that they lost
business because of the misrepresentations instead of other market factors.
Plaintiffs pled numerous false or misleading statements,
such as misrepresentation of legality;
misrepresenation of the nature of the service through terms like “ridesharing,”
“partners,” and “donations;” misrepresentation of the scope of their insurance coverage;
comparisons to traditional taxi companies with regard to insurance coverage and
general safety. They further alleged
that this took business from them. They
didn’t need to disprove the effects of all other market factors to survive a
motion to dismiss; pleading that customers were induced by false advertising to
give business to defendants instead of plaintiffs was sufficient.
Defendants then argued that plaintiffs didn’t adequately
plead falsity. For these purposes,
neither the alleged illegality of defendants’ services, nor any
misrepresentations allegedly made to regulators, counted—only statements
directed at consumers.
Uber: Uber claimed on its website that “every driver meets
all local regulations,” and the assurance that the service is “LICENSED &
INSURED—From insurance to background checks, every driver meets all local
regulations.” Although Plaintiffs admited that Uber’s non-compliance with the
new Houston ordinance “remains to be seen,” they alleged that Uber failed to
comply with the new Houston ordinances or San Antonio requirements for
permit-holders. In addition, Uber allegedly discriminated by red-lining, in
violation of anti-discrimination ordinances in both Houston and San Antonio by
incentivizing its drivers to service primarily affluent white neighborhoods.
Uber argued that this was effectively an attempt to enforce
local ordinances. Misrepresentations
about legality are special because they could be used to create a private cause
of action where a law provides none. Thus, the court found that claims based on
Uber’s purported red-lining, failure to get properly licensed, and other
failures to comply with local ordinances or codes were illegitimate attempts to
use the Lanham Act to enforce plaintiffs’ preferred interpretation of local
ordinances. Citations and a C&D letter from the San Antonio chief of police
weren’t “clear and unambiguous statements” from the cities’ regulatory agencies
that defendants were in violation of local ordinances; they predated the recent
amendments.
Uber also allegedly misrepresented itself as a “ridesharing”
service, which is distinguished in the Houston ordinance from “for hire”
services by being defined as shared travel “to any location incidental to
another purpose of the driver, for which compensation is not accepted,
collected, encouraged, promoted, or requested.” Plaintiffs couldn’t rely on the
Houston ordinance’s definition of “ridesharing” for the same reasons they
couldn’t generally rely on the ordinance, and there was no plausible
misrepresentation. The dictionary definition of “ridesharing” didn’t exclude
ridesharing for a fee. And with no
literal falsity, plaintiffs didn’t plead misleadingness: Uber’s website openly provides
fare information. To find misleadingness, “one would have to presume a customer
who believes that ‘ridesharing; excludes fee-based arrangements, but is
careless enough to disregard the information actually provided by Uber about
fees.”
Uber also claimed on its website that its drivers were
“partners,” “driver partners,” or “partner drivers” of the Uber company, but
the Terms of Service indicated that they were “third party transportation
providers.” The court found that these
terms were not necessarily inconsistent.
However, a quote that “partnering with uberX is a safer
alternative to taxis” was different in kind.
“While statements that a product is better than the competition are
typically deemed to be nonactionable puffery, statements as to the comparative
safety of a product are specific and measurable, and thus frequently considered
actionable.” However, plaintiffs failed to plead that Uber’s service was not safer than taxi service.
Uber further claimed that it offered a minimum
million-dollar-per-incident insurance policy, while plaintiffs argued that in
fact Uber had an “excess and surplus lines policy,” rather than a more
carefully regulated taxi/livery or commercial auto insurance policy like those
held by taxi companies. Plaintiffs argued that this coverage was illusory, in that
the named insured was a third party subsidiary of Uber, Rasier LLC, and
coverage was available only if Rasier was found liable for injuries sustained
in the accident; and also Uber had no insurable interest in passengers, since
it claimed not to be a transportation company. Plaintiffs also alleged other
misleading statements about driver coverage under drivers’ personal insurance
policies, even though most of those policies excluded coverage for commercial
operations. Uber nonetheless claimed to have “best-in-class commercial
insurance,” with “almost 20x the requirements taxis have in Houston.” Moreover,
Uber’s Terms of Service stated that users waived any claims against Uber.
Uber responded that it only said “there will be a $1,000,000 per-incident insurance policy,” implying a
present intent for a future action, which couldn’t be literally false, and also
that it didn’t engage in any other literal falsity—it never claimed to carry
commercial auto insurance. According to
Uber, drivers were always covered by either their own personal insurance or
Uber’s insurance, and it denied that its disclaimers would limit coverage in
the way claimed by plaintiffs. (I sure hope Uber remembers that when it gets
sued by a passenger.)
Uber’s arguments went to literal falsity, but its claim to
carry insurance with “almost 20x the requirements taxis have in Houston” could
lead consumers to believe, wrongly, that the insurance policy is of the same
type as the cab companies’. Plaintiffs adequately pled that the statements were
materially misleading; determining the actual scope of Uber’s insurance was for
summary judgment or trial.
Lyft: mostly the same. Plaintiffs also alleged that Lyft
misrepresented its payment model by claiming that drivers collected only
“donations” in Houston and San Antonio. The city-specific webpages said that a
“suggested donation” was calculated based on a “base charge,” “cancel penalty,”
“cost minimum,” “cost per mile,” and “cost per minute.” Plaintiffs alleged that
Lyft automatically charged the full “suggested donation,” unless the rider
affirmatively opts out. Pressure to donate is exacerbated by Lyft drivers’
ability to screen passengers based on whether they have made donations, and the
mobile app’s warning to users that they are more likely to obtain a ride if
they consistently make donations. This
was adequate to plead that customers could believe that the service was
donation-based, when in fact less savvy customers would be automatically
charged and everyone would effectively have to pay to get picked up. The situation was similar to advertising
“free” services with hidden fees or mandatory action on the consumer’s part to
avoid being charged.
Tortious interference with contract claims failed for want
of an allegation of an actual existing contract between plaintiffs and any
independent drivers, or defendants’ awareness thereof. Tortious interference
with prospective business relations claims also failed for want of adequate
pleading of intentional interference, or of independently tortious conduct
performed with a desire to interfere, given that the alleged violations of
Houston and San Antonio ordinances were not actionable.
Unfair competition: the
same conduct remaining in the Lanham Act claims survived here under Texas law.
Defendants moved to dismiss plaintiffs’ request for a
permanent injunction, which seems weird to me at this stage. Although eBay casts doubt on prior presumptions
of irreparable injury in Lanham Act cases, the Fifth Circuit still accepts
them, and there was no clear directive from the Supreme Court that courts can’t
presume irreparable injury based on direct
comparative advertising; thus, plaintiffs adequately pleaded a claim for
permanent injunctive relief.
The court also rejected defendants’ request for Burford abstention, since it wasn’t
allowing claims based on city ordinances in the first place
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