Flytenow.com’s Wings Clipped by FAA, DC Court of Appeals

Last December the U.S. Court of Appeals for the District of Columbia Circuit ruled in a case involving the flight-sharing service Flytenow.com.  

The website offered to match private pilots having planned itineraries with persons desiring air travel and willing to share their pilot’s expenses.  Pilots posting on Flytenow.com had final say on whether to accept a prospective passenger’s request, and the website helped facilitate the sharing of expenses on a pro rata basis between passengers and pilot.  The opinion notes that Flytenow.com was “designed to attract a broad segment of the public interested in transportation by air.”

Under current regulations, private pilots are only allowed to provide private carriage for hire service.  A Federal Aviation Administration “Advisory Circular” explains that private carriage for hire is carriage for one or several selected customers, generally on a long term basis.  As long as the private pilot does not hold himself or herself out to the public generally, and any compensation s/he receives does not exceed the passenger’s pro rata share of expenses, a private pilot may offer private carriage consistently with FAA regulations.

The Advisory Circular defines “holding out” as making representations to the public or to a segment of the public that a carrier is willing to furnish transportation within the limits of its facilities to any persons who wants it.  It can be done in many ways and it apparently does not matter how it is achieved.  Merely refraining from advertising does not automatically avoid a determination of holding out.

The FAA determined that pilots offering flight-sharing services on Flytenow.com were holding themselves out, and operating, as “common carriers,” transporting persons from place to place for compensation.  This meant the pilots would need a commercial pilot license to remain in compliance with FAA rules.

The review on appeal focused upon the FAA’s interpretation of “compensation” and “holding out,” the key factors in determining whether pilots are engaging in common carriage.  The panel found that the FAA had correctly concluded that even permissible expense-sharing constituted the payment of compensation to a pilot.  The court also found that pilots posting on Flytenow.com satisfied the “holding out” standard:

Flytenow.com is a flight-sharing website putatively limited to members, but membership requires nothing more than signing up.  Any prospective passenger searching for flights on the Internet could readily arrange for travel via Flytenow.com.

By receiving compensation and holding themselves out as providing services to the public, the panel agreed that participating pilots required commercial pilot licenses.  The decision proved to be a dealbreaker for Flytenow.com, which has since shut down.

Perhaps offering up tips to Flytenow.com and other aviation entrepreneurs on how to avoid common carriage regulation in the future, the panel added that

“[p]ilots communicating to defined and limited groups remain free to invite passengers for common purposes expense-sharing flights . . . posting on a bulletin board is permitted in certain circumstances. . . . Private pilots continue to enjoy the right to share expenses with their passengers, so long as they share a common purpose and do not hold themselves out as offering services to the public. . . . Other kinds of internet-based communications, such as e-mail among friends, for example, seem unlikely to be deemed ‘holding out’ under the FAA’s Interpretation.”

In other words, perhaps some subset of passengers who utilized Flytenow.com’s service and shared a common purpose with their pilot can be carefully targeted by a website, app or other online (or offline) service limited to such well-defined group.  By broadly referring to its former passenger base as “aviation enthusiasts,” Flytenow.com appears to concede that it was not reaching out to a discrete group of potential travelers.  Perhaps it will find a way to rectify this in the future.  Or maybe it won’t need to, if efforts in Congress to liberalize FAA regulations are successful.

Posted in FAA Regulations, Flight Sharing, Litigation

Uber’s Arbitration Clause Problem Part 1

As I mentioned in a recent post, I think it would be worthwhile to examine some of the previous orders in the O’Connor v. Uber class action litigation in California relating to Uber’s various arbitration provisions.  This post covers the first such ruling, issued by Judge Chen back in December 2013.

In 2012, before the O’Connor case was even filed, similar class action lawsuits against Uber were filed by some of its drivers in state courts: Massachusetts (Lavitman v. Uber) and Illinois (Ehret v. Uber).  The cases alleged Uber’s advertisements were misleading as to who retained gratuities collected from passengers.

The following year, while Lavitman and Ehret remained pending, Uber advised its drivers they would be receiving an electronic notification asking them to approve new agreements, and their continued use of the Uber app was conditioned on approval of same.  One of the agreements (“Software Licensing and Online Services Agreement”) contained an arbitration clause.  The agreement could easily be accepted by swiping a button on the driver’s phone.  To opt-out of the arbitration clause, though, required a letter hand-delivered or overnighted to Uber’s General Counsel within thirty days, notifying Uber of the driver’s desire to opt-out.

Weeks later, the O’Connor lawsuit was filed in California.  Shortly thereafter the O’Connor plaintiffs asked the Court for a protective order to strike the arbitration clauses, or, alternatively, to extend the opt-out period and provide notice of the pendency of the O’Connor putative class action.  Plaintiffs argued that because Uber drivers were not aware of the pendency of the O’Connor action before accepting the above Agreement (and its arbitration clauses), and because the opt-out procedure is unreasonably burdensome, such Agreement may deprive potential class members of their right to participate in the case.

Judge Chen ruled on December 6, 2013, for the most part not convinced by Uber’s argument that the Court cannot utilize FRCP 23(d) to assert control over communications by Uber with members of the putative class:

it would be particularly inappropriate to insulate the subject communications from review under Rule 23(d) where, as here, there is a distinct possibility that the arbitration provision and class waiver imposed by Uber was motivated at least in part by the pendency of class action lawsuits which preceded the new Licensing Agreement.  Suspicion that the new Licensing Agreement’s arbitration provision was intended by Uber as a means to thwart existing class action litigation is heightened by the misleading nature of the communication and the unusually onerous procedures for opting out discussed infra.

Judge Chen concluded that the focus of the Court’s analysis regarding the exercise of control over class communications should be on the effect of (Uber) interfering with the fair administration of a class action lawsuit.  Then he really let it rip:

Here, the risk of interfering with the pending class action and the need for a limitation on communication with the class that adversely affects their rights is palpable.  The communication which is the subject of this motion is likely to mislead potential class members about their right to join the current class action.  The arbitration provision at issue includes a class action waiver, purporting to contractually bar Uber drivers from participating and benefiting from any class actions.  Yet, the waivers were shrouded under the confusing title “How Arbitration Proceedings Are Conducted.”  Despite the title’s innocuous wording, only a single paragraph is devoted to discussing the what and how-to of arbitration.  The remaining four paragraphs set forth three waivers of substantive rights — class action, collection action, private attorney general action.  Furthermore, the arbitration provision is not conspicuous and was not presented as a stand alone agreement. Instead it is one of many provisions in the Licensing Agreement.

Uber drivers likely did not know the consequences of assenting to the Licensing Agreement.  Many likely were not aware they were losing the right to participate in this or any other lawsuit.  Indeed, Uber drivers have no meaningful way of learning of the current lawsuit since there has been no class notice.  Although Uber characterizes some of its drivers as large, sophisticated “transportation companies,” they do not dispute Plaintiffs’ factual contention that many, if not the majority of, Uber drivers are smaller outfits run by immigrants for whom English is not their native language. . . . Uber made no effort to inform drivers of the legal consequence of the arbitration provision barring them from participation in pending and future class action lawsuits brought on their behalf.  Moreover, Uber drivers who desired to continue using Uber’s mobile phone application, and as a consequence to continue receiving leads from Uber, were required to assent to the terms of the Licensing Agreement, including its arbitration provision.

…the opt-out provision is buried in the agreement.  It is part of the arbitration provision, which itself is part of the larger, overall Licensing Agreement. The opt-out clause itself is ensconced in the penultimate paragraph of a fourteen-page agreement presented to Uber drivers electronically in a mobile phone application interface.  In sum, it is an inconspicuous clause in an inconspicuous provision of the Licensing Agreement to which drivers were required to assent in order to continue operating under Uber.

Judge Chen continued, noting the ease of accepting the agreement via a finger swipe, versus the burden of delivering or overnighting a physical letter to Uber’s GC.  Adding it all up, he found a substantial risk of interfering with the rights of Uber drivers under Rule 23, and concluded the Court had the authority to assert control over (post-case-filing) class communications in a manner that is narrowly tailored, supported by the record, and balances the interests of all parties involved consistent with precedent.

What to do?  Judge Chen directed that Uber drivers must be given clear notice of the arbitration provision, the effect of assenting to arbitration on their participation in this lawsuit, and reasonable means of opting out of the arbitration provision within 30 days of the notice.  These requirements must apply to new drivers and past and current drivers.  As for arbitration provisions already distributed after the filing of the case to past and current drivers who accepted same without opting out, or still have the 30 day clock ticking, Uber must again seek approval of the arbitration provision for these drivers, giving them 30 days to accept or opt out from the date of the revised notice.  The Court instructed the parties to return with proposed language consistent with its order.

The next chapter in the O’Conner v. Uber arbitration clause saga – Uber’s Motion to Reconsider Judge Chen’s order here – will be the subject of a future post.  In the meantime, if you are laboring away on an arbitration provision, you might give thought to the following, among other considerations:

  • Can the arbitration provision be offered as a separate agreement?  If not, how conspicuous is it in the context of the agreement as a whole?  Is it buried and unlikely to be noticed or carefully considered by a layperson?
  • How is the arbitration clause titled?  Must the reader delve into the guts of it to learn it includes a waiver of rights?
  • Can the arbitration provision be easily found/read on a mobile device?
  • Does the arbitration clause clearly explain the consequences of signing the agreement? the consequences, if applicable, of opting out of the arbitration clause?
  • Is the agreement/provision  available in languages besides English?  If so, is the reader meaningfully made aware of this option?
  • Is it burdensome to exercise any arbitration opt-out rights, in comparison to the method of accepting the agreement as a whole, or otherwise?
Posted in Arbitration, Class Action, Litigation, Ride Sharing

Chicago Cabbies and Livery Drivers Walk Away from Uber Lawsuit

I practice in Chicago and try to keep a close eye on Sharing Economy developments both locally and in Springfield.  I previously examined a federal court decision involving legal challenges by some of Uber’s competitors here, and as you might have guessed, it wasn’t the only case pending against the company in the Northern District of Illinois.

In Manzo v. Uber Technologies, Inc.,13-C-2407, (July 14, 2014), Judge Sara Ellis had another opportunity to rule on a motion to dismiss filed by Uber in a dispute involving area taxi and livery drivers.  This decision came just a few days after Judge Ellis ruled on another FRCP 12(b)(6) motion in Yellow Group LLC v. Uber Technologies.

Besides private vehicle owners, a prospective Uber passenger can use the company’s app to summon taxis and livery cars that also utilize the service.  In Manzo, taxi and livery drivers sued Uber and some of its drivers, alleging violations of Illinois’ Consumer Fraud and Deceptive Business Practices Act and its Uniform Deceptive Trade Practices Act by misrepresenting its rates, misidentifying itself as a transportation company, and illegally operating in violation of Chicago ordinances regulating the taxi and livery industries.  The court granted in part and denied in part Uber’s  motion to dismiss.  My overview here omits references to putative class allegations contained in plaintiffs’ complaint.

In Count I, plaintiff Miguel Manzo, a Chicago cab driver, alleges that Uber deceptively represented on its website that Uber taxis charge standard taxi rates when in fact they charged the meter rate plus a 20% gratuity, and that defendant taxi driver Ahmad Abudayeh (as an agent of Uber) concealed the fact that he split gratuities with Uber.  The Court found plaintiff Manzo’s allegations, which included claims defendants’ statements drew customers away from Manzo’s taxi service and toward Uber, sufficiently pled a claim.  The Court also concluded that allegations the defendants misrepresented that Uber provides transportation services, leading to confusion among customers as to the source or certification of taxi services procured via the Uber app, also adequately pled a cause of action.

In Count II, plaintiff Omar Alsubbah, a livery driver, alleges claims against Uber and Lucky Livery, Inc. (“Lucky”) as an agent of Uber.  Lucky is a limousine company, and its drivers subscribe to Uber and provide rides and accept payment via Uber.  Alsubbah alleges Uber violates the Chicago ordinances regulating taxi and livery services by using a smartphone to determine fares for Uber livery passengers (and representing to passengers that such method is legal).

Relying on the D.C. Circuit’s 1996 decision in Dial A Car, Inc. v. Transportation, Inc., Uber moved to dismiss this count, arguing plaintiff cannot use claims under the above fraud statutes to declare the defendant’s conduct unlawful under a local taxicab regulation when the taxicab commission has not yet done so.  The Court agreed that the ordinance violation allegations failed to state a cause of action, directing that plaintiff cannot use the statutory fraud claims as a “backdoor method” to claim Uber violates Chicago taxi and livery regulations.

Similar to Mr. Manzo’s claims in Count I, Plaintiff Alsubbah also alleges that Uber misrepresents its livery fares as being at or below fares charged by other livery services, and its status as a transportation provider. The Court found these allegations sufficiently pled a cause of action.

Finally, in Count III, Mr. Manzo alleges the same claims against Lucky (as an agent of Uber) as Mr. Alsubbah made against it in Count II.  The ordinance violation allegations were dismissed for the same reasons as stated above, while his claims of rate misrepresentation were separately dismissed because Mr. Manzo did not allege any harm to his taxi business.

An examination of the court docket shows that between August 2014 and January 2015 both plaintiffs voluntarily dismissed all pending claims against the defendants before any consideration of their putative class allegations.  I did not find any reference to a settlement, and am unaware of whether either plaintiff has raised the smartphone issue with the Chicago Department of Business Affairs and Consumer Protection, or any other governing body.

Posted in Consumer Fraud/Unfair Competition, Labor Law, Litigation, Ordinances, Ride Sharing

Landlord’s Permission to List Unit on Airbnb Ruled Irrelevant (and Illegal)

Joelle Kraft lived in a rent-controlled one bedroom unit in Venice, California.  She had an agreement with her original landlord that permitted her to list the premises on Airbnb:

This Agreement is in addition to the existing lease agreement between LANDLORD and TENANT.  This agreement is strictly a written permission allowing Tenant the ability to host Guest(s) through the website airbnb.com at the Tenant’s discretion without violating any Rental Lease Restrictions that may exist in the effective Lease Agreement between Landlord and Tenant . . ..

Turns out though that a subsequent landlord – Louise Chen – wasn’t so keen to the home-sharing idea, and filed an unlawful detainer action against Ms. Kraft in Santa Monica Trial Court.  Plaintiff-landlord alleged Ms. Kraft illegally sublet the unit by allowing subtenants and or short term renters to reside there, and sought summary judgment on the grounds Ms. Kraft was operating an illegal bed and breakfast or transient occupancy structure.

Judgment was entered in favor of the landlord, Ms. Chen, and Ms. Kraft, unrepresented by counsel, appealed.  Earlier this month the Superior Court, Appellate Division, affirmed.

Plaintiff’s unlawful detainer claim was based upon the theory of illegal purpose, provided for in both the California Code of Civil Procedure and Los Angeles’ Rent Stabilization Ordinance, which permits an action in situations where the tenant is using or permitting premises to be used for any illegal purpose.

Landlord provided evidence (including Ms. Kraft’s deposition testimony) that (i) the unit was located in a zoning area where short term rentals are prohibited, (ii) Ms. Kraft was operating a bed and breakfast and/or a transient occupancy residential structure, and (iii) her use of the premises in this matter was illegal and violated zoning restrictions contained in the Los Angeles Municipal Code.  The appellate court determined the landlord consent quoted above was not dispositive because it constituted an illegal contract in violation of existing regulations, and thus was void and unenforceable.

As a tenant (landlords too), it is important to be familiar with applicable zoning laws before engaging in what may be unconventional use of rental property.  If you feel the need to request a separate side agreement permitting certain usage of the property, that’s a pretty good sign that local law might have something to say about the conduct too.  As demonstrated here, agreements contained in privately negotiated contracts (i.e., leases or ancillary documents) can be rendered void by municipal prohibitions.

Furthermore, and perhaps more importantly, had a loss occurred here involving a home-sharing guest, I suspect potentially applicable insurance policies (landlord’s and/or tenant’s) may have excluded coverage for resulting claims in light of the illegal acts described here.  From a risk management perspective, it would be prudent for prospective landlords and tenants to examine potentially applicable insurance policies in addition to local zoning laws before entering into any private agreements.

Posted in Home Sharing, Litigation, Zoning

Another Class Certified Against Uber. What’s in YOUR Arbitration Agreement?

So I’ve finally accepted the fact that the holidays are over and it’s time to get back to work.  Here we go!

One of my first posts here related to some of the litigation pending against Uber in the N.D. of California (no, this is not an Uber blog, or a ride sharing blog, per se.  Just so happens that a lot of the litigation action as of late has involved this company/segment of the Sharing Economy).  Last year in O’Connor v. Uber Technologies, Judge Chen denied Uber’s motion for summary judgment in a case filed by current and former drivers claiming they’d been misclassified by Uber as independent contractors and were entitled, among other things, to converted tips and expense reimbursements.  Judge Chen later certified a class to pursue the converted tips claim consisting of

All UberBlack, UberX, and UberSUV drivers who have driven for Uber in the state of California at any time since August 16, 2009, and who (1) signed up to drive directly with Uber or an Uber subsidiary under their individual name, and (2) are/were paid by Uber or an Uber subsidiary directly and in their individual name, and (3) did not electronically accept any contract with Uber or one of Uber’s subsidiaries which contain the notice and opt-out provisions previously ordered by this Court (including those contracts listed in the Appendix to this Order), unless the driver timely opted-out of that contract’s arbitration agreement. [“September 1, 2015 Class”]

Regarding prong (3) above, Uber drivers who accepted such contracts and did not opt-out were excluded from the class because the Court anticipated individualized inquiries on several issues in the course of considering whether the arbitration agreements were procedurally unconscionable, which would defeat FRCP 23’s predominance requirement.

Last month Judge Chen, ruling on a supplemental class motion and other briefs, certified a subclass of Uber drivers to pursue both the tips claim and an expense reimbursement claim for vehicle-related and phone expenses consisting of

All UberBlack, UberX, and UberSUV drivers who have driven for Uber in the state of California at any time since August 16, 2009, and meet all the following requirements: (1) who signed up to drive directly with Uber or an Uber subsidiary under their individual name, and (2) are/were paid by Uber or an Uber subsidiary directly and in their individual name, and (3) electronically accepted any contract with Uber or one of Uber’s subsidiaries which contain the notice and opt-out provisions previously ordered by this Court [e.g., the June 2014, November 2014, or April 2015 agreements], and did not timely opt out of that contract’s arbitration agreement. [“December 9, 2015 Subclass”]

The Court added that the September 1, 2015 Class could also pursue the aforementioned expense reimbursement claim.

So why can Uber drivers who accepted such contracts and did not timely opt out now pursue converted tips (and expense reimbursement) claims?  Because the Court, mindful of a recent 9th Circuit arbitration agreement decision, avoided the procedural unconscionability analysis altogether, and instead considered whether components of Uber’s arbitration agreements violate public policy.

The Court examined several of Uber’s 2014 and 2015 driver contracts, specifically a waiver of claims under California’s Private Attorney General Act (“PAGA”), and other arbitration-related language.  The Court determined that the PAGA waiver was unenforceable on public policy grounds, notwithstanding an opt-out provision.

Hoping to rescue the arbitration section as a whole, Uber argued the PAGA waiver was severable.  Yet Judge Chen found it “impossible to grammatically or linguistically sever the PAGA claims waiver without completely undermining arbitration itself.” Slip Op. at 15.   While Uber also pressed for severance under California Civil code section 1599, the Court determined “the arbitration agreement here is not divisible, with the illegal portion being easily separable from the legal portion.  The blanket PAGA waiver is instead an integral part of Uber’s goal of requiring individual arbitration of all claims.”  Slip Op. at 19.

Uber’s appeal to equity also fell short, given the Court’s determination that “[a]ny driver who reads the arbitration agreement will be misled into believing that they have no right to bring a PAGA claim, as the arbitration agreement not only outright prohibits representative actions, but requires that all disputes be arbitrated on an individual basis.”  Slip Op. at 20-21.

This left the Court to conclude that because the “blanket PAGA waiver is unenforceable as a matter of public policy . . . [it] cannot be severed from the remainder of the arbitration agreement. . . . [and] Because the PAGA waiver cannot be severed, the arbitration agreement  as a whole is unenforceable.” Slip Op. at 24 (emphasis added).  In other words, while plaintiffs did not bring a PAGA suit here, the unenforceable PAGA waiver contained in the driver contract renders the entire arbitration agreement unenforceable, allowing the plaintiffs to pursue their claims here – as a class no less.

I found it interesting that the Court certified a subclass of drivers here who accepted (and did not opt-out of) an agreement that was in part “ordered” by the Court itself (the notice and opt-out provisions).  I intend to devote future posts here to decisions involving arbitration clauses, including those that led up to Judge Chen’s certification order here.

In the meantime, as Samuel L. Jackson might put it to a Sharing Economy company that contracts with its service providers, what’s in YOUR arbitration agreement?   Will it hold up to judicial scrutiny under applicable federal and state laws?  Would it be vulnerable to the same arguments made by the plaintiffs here?  Are you going to wait until you’ve been served with a class action complaint before you take a closer look?

Posted in Arbitration, Class Action, Litigation, Ride Sharing

Uber Email Leads to Certification of Class Action

Last week brought another ruling in putative class action litigation pending against Uber in federal court in California.  This time it was Ehret v. Uber Technologies, Inc., 14-cv-113 (N.D. Cal 2015), wherein plaintiff alleged Uber misrepresented an automatic 20% charge on taxi rides (Uber’s uberTAXI service allowed users to request a ride in a traditional taxi cab) as purely a gratuity when it in fact retained a substantial portion for itself, violating California’s Unfair Competition Law and Consumers Legal Remedies Act.

District Judge Edward M. Chen certified as a class individuals who received an Uber email with the representation that the 20% charge would be a gratuity only, and who then arranged and paid for taxi rides through Uber’s service from April 20, 2012 to March 25, 2013.  Uber narrowly dodged a much broader class composed of persons who may have viewed Uber’s website or blog posts, which also allegedly advertised the 20% automatic charge solely as a gratuity for drivers.  However, as explained below, Uber’s website and blog posts figured into the Court’s certification decision.

Uber may have avoided class certification altogether here had it allowed a previous email to plaintiff (and presumably others), which stated that a 20% charge to cover gratuity and service fees will automatically be added to the fare, to stand uncontradicted.  This case would appear to offer another example of a platform’s own electronic copy exposing it to liability.  Were contradictory messages contained on/in the website, blog posts, emails, app and customer receipts intended? 

Elaborating upon the email that triggered certification here, the Court noted that

“Unlike the website, the e-mail specifically and heavily promoted the uberTAXI service; its focus only on uberTAXI was not diluted by information about UberBLACK and UberSUV. The email featured three bullet points expressly stating that “the metered fare + 20% gratuity will be charged” to the rider. Those customers who received the email were highly likely to have seen and been exposed to the alleged misrepresentation about the 20% tip. That likelihood is enhanced by the potential additional exposure to the website and blog posts (which while alone do not create sufficient exposure, adds to the exposure by email recipients).”  Slip Op. at 21.

So while the website and blog posts could not form an independent basis for certifying an even broader class, the Court found they offered further support for its decision to certify a class consisting of persons who received the subject email.

Posted in Class Action, Consumer Fraud/Unfair Competition, Litigation, Ride Sharing

Chicago Gives Ride Sharing Firms Green Light for Airport Pick-ups

Several weeks back – just in time for the holidays – the Chicago City Council’s recent amendments to its Airports ordinance took effect, permitting for the first time pick-ups by licensed ride sharing providers at Chicago area airports (O’Hare and Midway).  Among other things, the new law requires drivers making pick-ups to register with the City, display specific signage as provided by rule, enter designated staging areas, and pick-up passengers only from designated curbside transportation network provider pick-up locations.  Violators are subject to fines, which for providers can reach as high as $40,000 per offense.

While the amendments do not require drivers making airport pick-ups to obtain a chauffeur’s license, studies were authorized to assess whether such licensure should be required in the future.

Pertinent city departments promulgated rules shortly after the new provisions took effect (see pages 17-18 for signage requirements).  While the new rules primarily pertain to pick-ups, several provisions address drop-offs (drivers arriving on airport grounds with passengers).  Perhaps not surprisingly, the rules also require providers to”record all pick-ups and drop-offs of rides performed through the licensee’s Internet-enabled application or digital platform.”

Posted in Airports, Ordinances, Ride Sharing

Zoning Restrictions Strictly Construed Against Town, Keeps Home Renter in Business

Score one for a happy homeowner in Hurley, NY.

The Appellate Division of New York’s Supreme Court recently reversed the judgment of a lower court that had dismissed a Hurley homeowner’s petition seeking to overturn a Zoning Board of Appeals determination that the homeowner had essentially turned his residence into a hotel or bed and breakfast and thus required a special use permit.  The case is Fruchter v. Zoning Board of Appeals of the Town of Hurley, 2015 NY Slip Op. 8689 (N.Y. App. Div. Nov. 25, 2015).

Since 2012 the homeowner has been renting out his entire two-bedroom single-family residence for varying periods of time, listing it on one or more websites.   Noting that his “activity does not fit neatly into the definitions in the Town Code,” the Appellate Court examined whether “the rentals removed the property from the definition of residential one-family dwellings and whether such activity fits under another definition in the Town Code.”  It easily concluded the Code’s definitions of the terms ‘hotels,’ ‘bed and breakfasts,’ ‘dwellings,’ ‘residences,’ ‘transient,’ and activities requiring a special use permit were inapplicable, and coupled with the absence of any express prohibitions, meant the homeowner did not need a special use permit to rent out his home.

Of course the Town of Hurley may eventually act to amend its zoning ordinance to prohibit such rentals, but if so it will presumably be as a result of a more democratic process than what played out here.  A single code enforcement officer, who himself apparently couldn’t determine if the residence should be treated as a hotel or bed and breakfast, should not unilaterally be making significant policy decisions for a municipality, or imposing increased regulatory burdens upon its citizens – especially when only relying upon a vague, outdated ordinance.

Posted in Home Sharing, Litigation, Zoning

Chicago Taxi Dispatchers and Medallion Owners Take On Uber

Here in Chicago, the first court decision involving a ride sharing business came down last summer.  In Yellow Group LLC v. Uber Technologies Inc., 12-cv-7967 (July 10, 2014), Judge Sara L. Ellis of the U.S. District Court for the Northern District of Illinois ruled on Uber’s motion to dismiss the plaintiffs’ second amended complaint.  Plaintiffs included multiple Chicago taxi medallion owners, taxi affiliations (dispatch service operators) and a livery service (YPL).  Together they alleged “Uber competes unfairly by misrepresenting certain features of its service, misleading customers as to an association between Uber and Plaintiffs, and encouraging taxi drivers to breach their agreements with Plaintiffs.”

Plaintiffs’ statutory claims alleged violations of the Lanham Act and Illinois’ Consumer Fraud and Deceptive Business Practices Act.  As a preliminary matter, Uber asked the Court to dismiss certain misrepresentation claims, arguing the plaintiffs’ lacked standing.  But citing a recent U.S. Supreme Court decision considering standing in the context of Lanham Act claims, Judge Ellis explained that

plaintiff “need not directly compete with the defendant, but must allege an injury to a commercial interest in reputation or sales, and that the injury must flow directly from the deception wrought by the defendant’s advertising, such that the false advertising directly caused consumers to divert their business from the plaintiff.”

The Court concluded that plaintiff dispatch services and YPL satisfied the above standard at this stage, but that the medallion owners could not, “as they do not allege that Uber’s false advertising causes them a direct injury.”

On the sufficiency of the rate and licensure allegations themselves, the Court concluded plaintiffs adequately alleged claims of misrepresentation relating to Uber taxi rates which appeared on Uber’s website (reference to “standard taxi rates”) and licensure status which appeared in an Uber blog post.  Other statutory claims alleged Uber “misrepresented an association by occasionally referring to its “fleet partners”, using a yellow colored SUV in one of its advertisements, and allowing a vehicle bearing taxi affiliation plaintiffs’ trademarks to arrive to pick up a fare (some of Uber’s Chicago drivers are associated with the plaintiff dispatch services, meaning when they pick up a passenger, they may arrive in a vehicle with non-Uber trademarks).  The Court found that the taxi dispatch plaintiffs adequately alleged claims for misrepresentation of association, while the medallion owners did not.

Uber raised the U.S. Court of Appeals for the D.C. Circuit’s 1996 decision in Dial A Car, Inc. v. Transportation, Inc., 82 F.3d 484 (D.C. Cir. 1996), wherein the panel held that a limousine service could not pursue Lanham Act claims against a competing cab company solely for purpose of enforcing alleged violations of local taxicab ordinances and regulations.  Plaintiff was instead redirected to the D.C. Taxicab Commission.  To the extent the instant plaintiffs’ claims alleged misrepresentation, Dial A Car is inapplicable.  However, Judge Ellis also ruled that

“[t]o the extent that the Second Amended Complaint alleges that Uber violated the Lanham Act or its Illinois equivalents by simply operating illegally or by misrepresenting the legality of its service, those allegations fail under the rationale in” Dial A Car.

Plaintiffs also alleged claims of tortious interference with contractual relations, asserting Uber “intentionally and knowingly encouraged individual taxi drivers to breach their agreements with” the taxi dispatch services.  The alleged breaches include (i) encouraging drivers to violate the trademark clause in the drivers’ contract by providing them  with Uber branded “handtags” to suspend from the cabs’ interior rearview mirrors; (ii) encouraging drivers to use their cell phones while driving and requiring drivers to process credit card transactions via the Uber app, violations of local laws which are incorporated by reference into the drivers’ contracts; and (iii) allegations that by subscribing to Uber, drivers violate their agreements with the dispatch services that they will not use competing dispatch services.  Again the Court concluded that while the dispatch services adequately pled a cause of action, the medallion owners and YPL failed to do so.

Plaintiffs’ remaining common law claims were for unfair competition.  Such claims by the dispatch services and YPL, which each had surviving Lanham Act claims, were sufficient, while the taxi medallion owner’s claim, which did not contain any additional material allegations, was dismissed.

It would seem Uber could have avoided further litigation (discovery) on even more of the statutory claims here had it more heavily scrutinized its own website and blog copy, and other word choices discussed in the opinion.  Such contents were presumably vetted, and consistent with the company’s business plan, and Uber may end up prevailing on all related claims.  However, alternative but equally effective language/phrasing may have reduced Uber’s exposure here to liability under the unfair competition statutes, which in some cases provide for attorneys’ fees to the prevailing party.

UPDATE:  Five months after the above order was entered, the Court granted plaintiffs’ motion to compel Uber to respond to interrogatories and produce documents.  Earlier this year, after Uber was to have provided such responses, the Court granted plaintiffs’ oral motion to voluntarily dismiss the case.

Posted in Consumer Fraud/Unfair Competition, Lanham Act, Litigation, Ride Sharing

HomeAway Defeats Alleged Scrapers’ “Procedural Fencing”

In one of the first federal appellate court decisions involving a “Sharing Economy” company, the United States Court of Appeals for the Fourth Circuit, back in 2013, issued what largely amounts to a civil procedure opinion in VRCompliance LLC v. HomeAway, Inc., 715 F.3d 570 (4th Cir. 2013).  HomeAway, Inc. operates HomeAway.com, VRBO.com and other websites that allow travelers to rent private residences rather than conventional hotel rooms. The websites, which display information about available properties, include terms of use providing for Texas venue and Texas law.

Eye Street Solutions LLC created (and licensed to VRCompliance) a software product that helps municipalities determine whether they are receiving all tax revenues due them for room rentals.  The program “uses various data to identify the owners of properties advertised on websites like HomeAway’s and then determines whether the owners have paid the requisite local rental taxes.”

HomeAway concluded that Eye Street’s software was accessing and scraping data from its websites, a violation of applicable terms of use.  Unable to resolve the matter with cease and desist letters, HomeAway filed suit in Travis County, Texas against Eye Street, VRCompliance, and one of the latter’s clients, alleging breach of contract, misappropriation of trade secrets, violations of the Texas Theft Liability Act, conversion and constructive trust.

After getting sued in Travis County, Eye Street made no attempt to remove the case to federal court.  Instead, it later filed a federal lawsuit in the Eastern District of Virginia, seeking various declaratory relief under federal law (much of which was not presented in the Texas litigation) as well as non-declaratory, Virginia state-law claims.  The District Court stayed the federal lawsuit pending the resolution of the Texas litigation, and Eye Street appealed.

The Fourth Circuit affirmed, noting in part the District Court’s recognition of Texas’ “strong interest in having its courts take a first stab at resolving this question,” as well as Eye Street having been put on notice of likely claims against it in HomeAway’s final cease and desist letter.

In the end, the panel saw Eye Street’s posturing for what it was:

“Eye Street thus desired not a federal forum per se, but one that would approach the dispute on its terms and potentially preempt HomeAway’s alternative framing of the issues in the Texas suit.  This, of course, is precisely the kind of ‘procedural fencing’ that federal case law aims to forestall. . . District Courts enjoy discretion to consider a litigant’s deliberate decision to forego removal as a reason to stay its federal declaratory action. . . . A party should not be heard to complain that it lacks a federal forum when such deprivation stems from its own apparent procedural gamesmanship.”

While the federal judiciary’s distaste for forum-shopping and established case law guidelines helped seal Eye Street’s fate here, HomeAway very much helped itself by including choice of law/choice of venue provisions in its websites’ terms of use, and promptly giving notice to relevant parties of its scraping allegations and intent to litigate if necessary.  Both figured into the District Court’s decision to stay the federal litigation, which the panel had little trouble concluding was not an abuse of discretion.

UPDATE:  On December 27, 2013 the parties’ “consent motion to dismiss,” which advised the Court that a confidential settlement agreement had been reached, was granted in the case pending (stayed) before the Eastern District of Virginia.  Travis County, Texas court records are not readily available to confirm the state court litigation was also dismissed.

Posted in Civil Procedure, Home Sharing, Litigation, Terms of Use

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