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IN FOCUS |
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by Matthew W. Daus, Esq. |
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2015 LEGISLATIVE SESSION AND LITIGATION UPDATE
in recent months, the public opinion of Transportation Network Companies (“TNCs”) seems to be shifting. Stories discussing the weaknesses of the TNC business model are being reported almost as fast as TNC proliferation itself.
Allegations that TNCs are deceiving consumers, that TNC drivers are committing sexual assaults and discriminating against disabled passengers, and that TNC apps present privacy concerns, are now commonly seen in national news outlets. They are impacting the public image of TNCs and the manner in which they are being accepted, challenged and addressed by members of the public as well as by lawmakers.
However, the end of session developments throughout the country have brought newly passed TNC legislation in several jurisdictions. This suggests that there is still some resistance by lawmakers to curb the spread of TNC services.
Indeed, several states have passed legislation that carve out TNC services as a separate form of for-hire transportation subject to varying standards and licensing requirements than traditional taxicab and limousine companies. Notwithstanding the foregoing, lawsuits continue to be initiated against TNCs as concerns over passenger safety and consumer protection sweep the nation.
Legislative Overview
Seventeen (17) states have passed new TNC legislation in the past six (6) months. Most of these new laws require that TNCs obtain some form of license, that vehicles be inspected and meet certain standards, and that drivers undergo some degree of a background check. However, due to the rising number of criminal allegations being asserted against TNC drivers by passengers, the issue of background checks, and whether TNC drivers should be subject to biometric fingerprinting conducted by the government or some government approved agency, is now being revisited in many jurisdictions.
For example, in California, the first state to create TNC regulations (and the state which coined the term “TNC”), is now officially re-examining the regulations it passed in September 2013, particularly to determine whether they properly address public safety concerns. The California Public Utilities Commission (the “Commission”) has opened a Phase II of its rulemaking to specifically look at the issue of whether the driver vetting standards originally outlined in the Commissions’ regulatory framework are adequate.
Several of the newly passed TNC laws are cookie cutter versions of one another providing for modest standards with which TNCs must comply in the areas of:
(i) licensing;
(ii) insurance;
(iii) driver vetting;
(iv) vehicle standards; and
(v) accessibility.
Generally, the TNC laws require that all TNCs are licensed and that they pay a high licensing fee. For example, in Colorado the licensing fee to obtain the state TNC permit is over $100,000.00, a negotiated amount that allows for the state to collect significant revenue from TNC operation, and which also prevents other, smaller start-up companies from entering the TNC market and competing with the well funded incumbents Uber and Lyft.
The insurance requirements are virtually the same as well. Most TNC legislation breaks down the operation of TNC services into three (3) phases for purposes of setting insurance coverage limits:
(i) before the driver has turned on the app, but is in the vehicle;
(ii) when the driver is in the vehicle and has turned on the app but is waiting for a passenger match, and
(iii) when a match has been made and a driver is conducting TNC transportation services.
In general, the TNC must provide primary commercial insurance coverage in the amount of $1 million for phases two and three. However, in phase one, before the app is turned on but while the driver is cruising, the TNC and or the driver is allowed to have insurance coverage meeting modest limits, for example:
As will be discussed further below, many new TNC laws require that TNC drivers submit an application to be approved as a TNC driver and to undergo a background check which may be conducted by the TNC, e.g., the TNC laws in California and Washington, DC allow for TNCs to conduct the background check, or by the government, e.g. in Seattle, Washington, and Maryland. In turn, most TNC legislation require that vehicles used for the provision of TNC services meet outlined standards and/or undergo an inspection by a government approved mechanic, or sometimes by the TNC itself, e.g., Washington, DC.
Further, in nearly every jurisdiction that has passed TNC legislation, politicians have punted on the issue of accessibility by either:
(a) not addressing whether TNCs should meet any accessibility standards at all, e.g., Washington, DC;
(b) requiring that TNCs impose a surcharge and/or otherwise contribute to an accessibility fund to be used by the jurisdiction in the future to fund/incentivize the provision of accessible services, e.g. , Seattle and Chicago, Illinois; or
(c) charging the TNCs with the task of studying the accessibility demand for their services for a designated period of time, and/or
(d) setting a future date for rule makers to reconvene on how to address the issue (e.g., California and Maryland).
No real, tangible benchmarks have been established.
California – Original Legal Framework Under Review
As a party to the California rulemaking proceeding, and on behalf of the International Association of Transportation Regulators (“IATR”), I submitted a report for the California Public Utilities Commission’s consideration which specifically addresses the issue of driver vetting amongst TNCs. The report is directly relevant to the Public Safety and Consumer Protection Inquiry that will be explored in Phase II of the state’s rulemaking proceeding.
The report, “One Standard for All: Criminal Background Checks for Taxicab, For-Hire, and Transportation Network Company (“TNC”) Drivers” (the “Report”), available at: http://mpa.jjconline.net/ProfessionalStudies/BackgroundCheckReport.pdf, was prepared by several persons with a wide variety of experience in law enforcement, government, law, and technology. The Report offers a comprehensive understanding of available background checks in use to vet for-hire drivers in a variety of jurisdictions.[1]
Since there are differing standards for the types of checks in use by jurisdictions, there are legitimate concerns as to how these varying standards put the riding public at risk. The report sets forth “best practices” for ensuring that those who drive the public meet basic requirements in the local jurisdictions.
The Report is based on the review of the litigation and legal questions that have been raised concerning current practices for examining the criminal histories of driver-applicants for TNCs. As well, it considers the potential for disparate reporting of arrests of licensees.
The report sets forth “best practices” for ensuring that those who drive the public meet basic requirements in the local jurisdictions .
Indeed, the criminal background check issue and the IATR’s report has been relied upon to defeat proposed TNC legislation in at least three states, Texas, Connecticut and Florida, and may be one of the biggest weaknesses of the TNCs’ self regulation/deregulation campaign.
Texas Throw-down in Austin
One of the most significant victories against TNCs was the failed legislative attempts to wrestle all regulatory control away from municipalities in Texas to the state, and to effectively de-and-self-regulate. I was personally involved in this showdown waiting ten (10) hours, in seating more cramped than coach, to testify 3 minutes and be cut off after Uber was able to command the microphone for almost an hour. The video of this testimony can be accessed at the following link. My testimony starts at 2:39:50:
http://tlchouse.granicus.com/MediaPlayer.php?view_id=37&clip_id=10616.
There was an unfortunate incident involving a sexual assault that occurred in Houston a few days before the critical Texas legislative hearings where an Uber driver was accused of sexually assaulting a female passenger. Duncan Eric Burton, 57, was arrested April 1, 2015 on suspicion of one count of sexual assault - a second-degree felony. [2]
According to the Houston Police Department, the victim, who was visiting from out of town, was picked up by the driver.[3] The woman said she woke up in bed in Burton's home after a night of drinking. Police say she was too drunk to tell the driver where she was staying, so he offered to take her to his home to sleep. That's when she alleges he raped her. A grand jury, however, has determined that the driver will not face charges.[4]
Burton, who did not have a required city license to drive for Uber but was still on the company's system and accepting rides, told investigators that the woman was unable to tell him where she lived. After three unsuccessful attempts to drop her off, Burton said he took her to his home where the two had consensual sex. Though the details of what information the grand jury heard are kept secret, Burton's lawyer said inconsistent witness statements weakened the claims against his client.
This incident set the stage for the hearing, and many concerned legislators peppered the Uber representative with questions, only to hear a response that information on why the driver’s background check did not catch a significant prior conviction was “proprietary!”
The failure to pass TNC legislation in one of the nation’s largest states was a major setback for TNC's because the Texas legislative session is held every two years. They will not be convening again until 2017. The fight now goes back to the local level. Things are already starting to heat up again in the San Antonio City Council as well as in Houston.
Connecticut – Politics meets University Study
I was personally involved, as well, in the Connecticut victory from the early stages. The Connecticut legislature charged the state’s Department of Transportation (“CTDOT”) with the commission of a study to examine the TNC issue. The CTDOT ultimately requested that Central Connecticut State University help to compile a panel of academics and researchers from throughout the state to prepare a report on the potential impact of the open market entry of TNCs in Connecticut.
After participating extensively in meetings, and supplying facts, research and materials to the researchers, it appeared that the University panel was preparing a solid report that would squarely address the uneven playing field and the history of the industry. However, once the legislature, who had been significantly lobbied by TNCs, got their hands on the draft report, the recommendations changed at the public hearing and a uniquely TNC friendly spin was placed on it.
Both co-chairs of the transportation committee of the legislature, as well as the CTDOT, were staunchly in favor of actively pursuing extremely liberal TNC legislation that would have allowed for TNCs to operate almost carte blanche throughout the state.
Despite attending the legislative hearing regarding proposed TNC legislation, I never got the chance to testify though having been replaced on the legislative invite calendar. I was then basically entirely overlooked as not fitting with the agenda. However, due to the successful lobbying efforts by the taxi and limousine industry in the state who apparently shared with stakeholders our criminal background check report, the proposed legislation was ultimately defeated.
New York – Special Category for TNCs? “Fuggedaboutit!”
In New York City, Uber and Lyft have been operating under the laws and rules applicable to other for-hire vehicles, including fingerprinting for criminal background checks. This year, there was an attempt to enact legislation at the State level to create a separate category for TNCs. As it has in other states, Uber hired many of the influential lobbyists in the State to advocate for its agenda. One bill would create TNC group insurance for TNC drivers.[5]
This bill would require, among other things, $100,000 in insurance coverage when a driver is logged into the app, but not providing a prearranged ride, and $1 million in insurance coverage when the TNC driver is on a prearranged ride. The TNC insurance must be by an insurer approved in New York State.
This bill did not address criminal background checks. Towards the end of the legislative session, the legislature amended the TNC insurance bill three times and the legislature’s insurance committee voted to pass it.
A second, more comprehensive bill would have explicitly created a separate category for TNCs and created registration, operational and insurance requirements for them and allowed them to operate in upstate New York. [6]
This bill would have allowed TNCs to conduct criminal background checks by either obtaining them from the State’s Department of Criminal Justice or an equivalent third-party provider. The legislature also amended the more comprehensive TNC bill, but there were no votes on it. The State legislature did not enact either TNC bill before the end of the session.[7]
This result may be partly due to the confusion caused by a change in leadership in both legislative houses, as well as a significant lobbying effort by the NYC taxi and limousine industries. The TNC insurance legislation, known as the Seward bill, in my view, was intended to pull a fast one on the legislature by not having language exempting NYC while being portrayed as a bill just for TNCs to operate in upstate NY.
However, the language of the bill would have allowed Uber and Lyft, both licensed with drivers carrying full insurance coverage like everyone else, to offer a new and cheaper supplemental insurance product that other base companies may not be able to afford. Such new insurance could have led to further poaching of drivers from other for-hire companies with the promise of less insurance premiums and more take home revenue by allowing drivers to simply cancel their $100/300K policies. They would then turn them in for non-commercial policies of $25/50K, ostensibly backed up by supplemental TNC umbrella policies. This bait and switch was thwarted NY style. So, NY to TNCs - “Fuggedaboutit!”
Florida –Statewide TNC Legislation Twice Failed
In Florida, TNCs have twice lost the battle to introduce a state wide legislation that would transfer licensing and regulatory authority of chauffeured limousine services and drivers to the state, thereby overriding all local regulations of the for-hire industry. In 2014, a proposed state law attempted to prohibit any Florida county or district from restricting the use of certain chauffeured limousines by:
(i) requiring a minimum wait time or minimum fare;
(ii) restricting the number of permits issued to operate in the county;
(iii) restricting access across county lines, or
(iv) requiring chauffeured limousines to meet certain minimum financial responsibility requirements.” [8]
The Florida Limousine Association (“FLA”) started a petition in opposition to the proposed state law, arguing that the bill would only benefit a company like Uber and highlighting the bureaucratic bottlenecks that would be created.[9] As a result of the successful industry effort, the Florida state legislature failed to move the Bill to the floor for a vote before it went into recess for 2014.[10]
Then again, in early 2015, two (2) new bills were introduced in the Florida House and the Senate to pass state regulations that would allow Uber and Lyft to operate. The Senate version (SB 1326) [11] sought to impose state requirements for insurance, background checks for drivers, and minimum vehicle safety standards. The House version (HB 817) [12], included the same insurance and background check requirements, but would have preempted all local regulation of companies providing rides through phone applications or other software.
The Florida legislature adjourned the 2015 legislative session without passing either piece of TNC legislation. As a final attempt, Uber lobbied to have the bills included in Florida’s special session this past June, but legislatures declined to include ridesharing regulations.[13]
While there may have been political issues at play in Florida involving the manner by which the bill was presented, and possibly other unrelated political issues, there is no questions at all that the taxi and limo industries’ efforts and response played a significant role in defeating the TNC legislation.
Both the taxi and limousine sides came together early and often in every significant municipality and county, and then at the state level. They held numerous media events, driver protests, and hired not an army of lobbyists, but a few of the best and most strategic lobbyists with the right messaging all around coordinating with other lobbyists and media consultants as well. The Florida industry and trade groups are a true example of the “Little Train that Could” stop the TNC political apparatus and spin machine.
The failure to obtain state wide TNC legislation has forced TNCs to work with local regulators in many Florida counties and to adapt to regulations that are currently in place. In other counties, the passage of passenger centered legislation has forced TNCs to stop operation. In Broward County, for example, Uber and Lyft have both announced that they will cease operations complaining that new county laws regulating TNCs are too burdensome.[14]
Litigation Update – TNC Delays & New Cases
Last year, we reported on the nearly forty (40) cases involving TNCs and/or TNC legislation which are being litigated in lawsuits across the nation. The panoply of claims are varied and include the following:
(i) personal injury litigation and insurance coverage issues;
(ii) labor law violations and worker misclassification claims;
(iii) contractual claims;
(iv) false advertising, unfair business practices and consumer protection lawsuits;
(v) racketeering;
(vi) antitrust violations;
(vii) disability discrimination;
(viii) tortious interference with business;
(ix) government actions;
(x) constitutional challenges;
(xi) environmental law violations; and
(xii) other legal claims and forms of relief such as requests for injunctions and/or temporary restraining orders.
Notwithstanding the diversity of claims asserted, the lawsuits fall into three main categories:
(1) injured passenger/bystander suits;
(2) driver/industry suits, and
(3) government actions.
I co-authored a report summarizing these cases entitled “The Disruptive Transportation Technology Movement – A Litigation Primer & Roadmap”, referred to herein as the “Litigation Report”, which is available at the following link for download and distribution:
http://www.windelsmarx.com/resources/documents/The%20Disruptive
%20Transportation%20Technology%20Movement%20(10990519).pdf. [15]
Many of those cases are still pending, however, a few of the significant cases have been resolved.
More Cases, Little Movement, and Orchestrated Delays
Just this past May, the complaint filed by Yellow Group, LLC, et al v. Uber Technologies, Inc., October 4, 2012, was voluntarily dismissed by Plaintiffs.[16]
In Yellow Group, LLC, Plaintiffs, Chicago taxi company Yellow Group, and its subsidiaries and affiliates, filed a claim against Uber for false advertising under Section 43(a) of the Lanham Act and its state law corollary, the Illinois Fraud and Deceptive Practices Act, alleging that the company misrepresents its vetting of “fleet partners” and advertises a false association with “fleet partners.” The civil case is now terminated despite plaintiffs’ complaint surviving a motion to dismiss last year.
Also, earlier this year, Plaintiffs’ claim for unfair competition in Boston Cab Dispatch et al v. Uber Technologies, Inc. was dismissed when the court granted defendant’s motion to dismiss, in part.[17] However, the remaining claims alleging RICO violations, False Advertising and tortious interference survived Uber’s Motion to dismiss and are still pending. Mediation has been scheduled for October 2015.
The discrimination suit pending in a federal court in Texas may soon settle.[18] In Ramos, et al. v. Uber Technologies, Inc., and Lyft Inc., the parties advised the court just last week that they are close to reaching a settlement and that a stipulation to dismiss the suit will soon be filed.
The Plaintiffs in Ramos alleged that Uber and Lyft are violating the Americans with Disabilities Act (“ADA”) by, inter alia,
(i) failing to provide wheelchair accessible transportation vehicles for their transportation needs and other accommodating services such as storage of wheelchairs;
(ii) allowing their vehicles-for-hire to deny service to the disabled; and
(iii) not offering any training or guidance to vehicles-for-hire that use their service so that they will lawfully meet the needs of the disabled.
Notwithstanding the foregoing, since my firm published the Litigation Report last year an additional fourteen (14) cases have been filed involving TNCs increasing the number of cases to approximately forty-five (45). The breakdown of what types of claims are asserted in the new lawsuits is as follows:
• seven lawsuits primarily pursuing false advertising and unfair business practices claims;
• two new government actions in which governments are pursuing legal action against TNCs;
• two new lawsuits asserting personal injury claims;
• two lawsuits alleging that TNCs have breached privacy laws; and
• one lawsuit asserting a tortious interference with business causes of action.
Overall, there has been little movement and the wheels of justice turn slow with TNCs trying to put a spoke in the wheels at every opportunity. At every turn, it appears that TNC lawyers are finding new ways to bring every motion possible to delay discovery and resolution of legal claims. They are seeking to kick the liability can down the road, and the TNCs are hoping that expected lawsuit liabilities will outweigh anticipated revenue or inflated valuations.
It is possible though that several victories against the TNCs in court could derail the business model, including the TNC legislation discussed herein. It is a waiting game, and in the next year expect more of the same – “delay, obstruct and deny!”
The TNC Achilles Heel – Labor Violations & Worker Misclassification
Recent developments in TNC litigation suggest that the TNC business model of classifying drivers as independent contractors may be another defect in the TNC machine. Just last month, attorneys for Uber filed a notice of appeal of a decision issued by the Commissioner of the California Department of Industrial Relations, Division of Labor Standards Enforcement (the “Labor Decision”).[19]
The Labor Decision was issued in the matter Berwick v. Uber [20] in which a former Uber driver sought reimbursement for business expenses she claimed she incurred while “employed” by Uber. The company asserted the defense that such expenses, such as parking tickets incurred and bridge tolls paid, were not reimbursable because Berwick, like all other Uber drivers, was an independent contractor and not an employee. The Commissioner of Labor disagreed and ruled that the driver was an employee due to the facts that, inter alia:
(i) Uber is involved in every aspect of the operation;
(ii) Uber controls the tools the driver used, i.e., registration of cars used and the app used;
(iii) Uber monitors the ratings of drivers and will terminate a driver if ratings fall below a specific level; and
(iv) Uber pays drivers a non-negotiable service fee and discourages drivers from accepting tips. The Commissioner of Labor awarded Berwick a total of $4,152.20.
This ruling is telling with respect to the potential outcomes of O’Connor, et al. v. Uber [21] and Cotter, et al. v. Lyft, Inc., [22] the two (2) driver class actions currently pending in California which again address the issue of whether TNC drivers are employees or independent contractors.
Requiring TNCs to classify drivers as employees, and pay the associated costs of that classification, including minimum wage, unemployment insurance, health care, and overtime pay, may have a significant impact on the current business model of TNCs by increasing the costs of business, potentially curbing their ability to further expand.
In addition to challenges against the manner in which TNC’s classify their drivers, additional lawsuits persist alleging, inter alia, that TNCs engage in:
(i) negligent hiring of drivers who have been involved in car accidents and alleged assaults during the course of providing TNC services; [23]
(ii) that TNCs and their associated platforms have breached privacy laws, [24] and
(iii) that TNCs are violating consumer protection statutes asserted by governments on behalf of citizens[25] as well as by private individuals themselves. [26]
They do this by misrepresenting to the public the nature of TNC conducted background checks of drivers which fall well short of industry standards, despite the defendant TNC referring to its practices as “industry leading”.
Thus, the debate for and against the current TNC business model is taking place in the halls of the courthouse in addition to state capitals.
Indeed, in spite of some progress that has been made by TNCs on the legislative front, the Achilles heel of the TNC model is being further exposed. These are still interesting times and the battle between responsible regulations that promote innovation versus deregulation continues.
However, as quickly as the TNC movement speeds up, it could as easily rebound in the opposite direction and wind down, or, alternatively, branch out into some new, and hopefully safer and more accountable direction. There are clearly many Ghosts in the TNC machine that may cause significant malfunctions or a complete breakdown of the business model. Only time will tell.
(1) the Government must make the licensing decision;
(2) the Government (directly or through a certified channeling agency) should be responsible for fingerprinting;
(3) biometric fingerprints are preferred
(4) A grand jury, however, has determined that the driver will not face charges. Burton, who did not have a required city license to drive for Uber but was still on the company's system and accepting rides, told investigators that the woman was unable to tell him where she lived. After three unsuccessful attempts to drop her off, Burton said he took her to his home where the two had consensual sex. Though the details of what information the grand jury heard are kept secret, Burton's lawyer said inconsistent witness statements weakened the claims against his client.
(5) specific criminal convictions can be a bar to licensure;
(6) licensing decisions should be based on specific standards that may apply to any misdemeanor or felony conviction;
(7) compliance with anti-discrimination laws must take place;
(8) drivers should have the opportunity to be heard and present evidence as part of licensing procedures evaluating criminal convictions;
(9) rap-back service preferred to monitor licensed driver conduct; and
(10) “one standard for all drivers” should be applied in the conducting and evaluating the criminal backgrounds of taxi, limo and TNCs applicants.
