Insurance misrepresentations could ground claims against Uber/Lyft

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defendants had been cited 26 times by Houston for failure to register as a “mobile dispatch service” under a since repealed portion of the city code, and at least ten times by San Antonio, and the San Antonio Chief of Police sent a cease-and-desist letter to Lyft.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