Greater Houston Transp. Co. v. Uber Techs., Inc.

GREATER HOUSTON TRANSPORTATION COMPANY, et al., Plaintiffs, v. UBER TECHNOLOGIES, INC. and LYFT INC., Defendants.

CIVIL ACTION NO. 4:14-0941

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

March 10, 2015

ORDER

Pending before the Court are Defendant Lyft Inc. ("Lyft")'s Motion to Dismiss Plaintiffs' Second Amended Complaint (Instrument No. 87), and Defendant Uber Technologies, Inc. ("Uber")'s Motion to Dismiss Second Amended Complaint. (Instrument No. 88).

I. FACTUAL SUMMARY & PROCEDURAL POSTURE

A. Statement of the Case

This is a suit for tortious interference with business relations, unfair competition, and false advertising under the Lanham Act, 15 U.S.C. § 1125(a), brought by taxicab permit-holders in Houston and San Antonio against Uber and Lyft. Uber and Lyft are self-described mobile-based transportation network companies ("TNCs"), which enable customers to use smartphone apps to connect with third party drivers for transportation. Plaintiffs are taxicab permit-holders in Houston and San Antonio, Texas, who claim that Uber and Lyft are unfairly competing with the taxicab industry by failing to comply with local regulations and misrepresenting the nature of their services to consumers. Defendants now move to dismiss Plaintiffs' claims, challenging this suit as an impermissible attempt by private parties to enforce local ordinances.

B. Factual Background

1. Taxis and Taxi Regulation in Houston and San Antonio

Plaintiffs, Greater Houston Transportation Authority ("GHTC"), Fiesta Cab Company ("Fiesta"), Houston Transportation Services, LLC ("HTS"), National Cab Co., Inc. ("National"), Pasadena Taxi Co., Inc. ("Pasadena"), Dawit Sahle ("Sahle"), Mersha Ayele ("Ayele"), Mohamed Didi ("Didi"), Greater San Antonio Transportation Company ("GSATC"), and Enterprise Transportation Inc. ("Enterprise") (collectively "Plaintiffs"), are licensed taxi operators in Houston and San Antonio. (Instrument No. 86 at 1-5). As in most markets, Plaintiffs' taxis can be hailed by customers on the street or requested via telephone or internet, to provide transportation to a desired location for a published rate. (Id. at 5). Many of the Plaintiffs also offer smartphone apps, which allow customers to locate, schedule, and track their vehicle service. (Id.).

In order to operate a taxi in Houston or San Antonio, Plaintiffs are required to comply with certain regulations. Municipalities are required by Texas law to license, control, and otherwise regulate taxi transportation service. Tex. Loc. Gov't Code Ann. § 215.004(a) (West, Westlaw through 2013 Third Called Session of the 83rd Legislature).

Vehicles for hire in Houston are regulated by Chapter 46 of the Houston Code of Ordinances ("HCO"). Prior to the amendments to the HCO, made on August 9, 2014, vehicle for hire was defined as:

A taxicab, pedicab, sightseeing and charter vehicle, chauffeured limousine, school vehicle, jitney, or low-speed shuttle used for the provision of transportation services for hire to the general public.

Houston, Tex., Code of Ordinances ch. 46, art. I, § 46-1 (2013) (amended 2014). Chapter 46 of the HCO provides that taxicabs must be licensed to operate in the city of Houston. Houston,Tex., Code of Ordinances ch. 46, art. II, § 46-62 (2015). Furthermore, Chapter 46 imposes significant additional requirements on taxicab operators related to medical exams, criminal history checks, mechanical upkeep of automobiles, compliance with established taxi rates, and insurance. Id. art. I, §§ 46-6, -7, art. II, §§ 46-20, -31, -67. With regard to insurance, taxicabs are required to have "commercial auto liability coverage in no less than the minimum coverage amounts specified in the Texas Motor Vehicle Safety Responsibility Act[.]" Id. art. II, § 46-67. Vehicles for hire are also forbidden from refusing service or charging additional fees to passengers based on race, color, religion, sex, national origin, age, or disability. Id. art. I, § 46-2.

Vehicles for hire are regulated in San Antonio by Chapter 33 of the San Antonio City Code of Ordinances ("SACCO"). The SACCO provides that ground transportation services and any other vehicle for hire must obtain a permit in order to operate in the city of San Antonio. San Antonio, Tex., City Code of Ordinances ch. 33, art. I, § 33-006 (2015). As in Houston, San Antonio requires that taxicabs follow numerous additional regulations, including following established rates, and requires that all vehicles for hire have insurance issued by an insurance company with a minimum A.M. Best rating of B+. Id. art. I, § 33-018, art. VIII, § 33-981. The SACCO also, like Houston, forbids discrimination in the provision of transportation services based on, among other things, race or disability. Id. art. I, § 33-030(b).

2. The Emergence of Transportation Network Companies

Defendants Uber and Lyft describe themselves as transportation network companies ("TNCs"). Plaintiffs claim they began operating in Houston on or about February 20, 2014, and in San Antonio, on or about March 24 and 28, 2014. (Instrument No. 86 at 25-26).

Uber is a software company based in San Francisco, California. (Id. at 4). Unlike traditional ground transportation services, Uber does not own vehicles or employ drivers. (Instrument No. 10 at 5). Instead, Uber offers a smartphone app, which allows a passenger to request paid transportation from third-party transportation providers. (Id. at 5).

Lyft, also a software company based in San Francisco, describes itself as a mobile-based ridesharing platform. (Instrument No. 9 at 8). Passengers who download Lyft's smartphone app can connect with other community members and get a ride to a desired location. (Id.). Although Lyft operates a paid service in other cities, in Houston and San Antonio, Lyft represents that it operates on donations alone. (Id.). Lyft provides a suggested donation to passengers, but claims that the decision to donate to the driver belongs entirely to the passenger. (Id.).

The parties generally agree about the nature of the service provided by Uber and Lyft. Plaintiffs, however, disagree with Defendants' characterizations of their companies as "ridesharing" operations and with Lyft's claimed "donations-based" model. Furthermore, the parties disagree about Defendants' safety, insurance coverage, and their compliance or need to comply with local ordinances related to vehicles for hire.

According to Plaintiffs, as of April 2, 2014, Uber and Lyft had been cited a total of 26 times by the Houston Administration and Regulatory Affairs Department (the "ARA") for failure to register as a "mobile dispatch service" under the since repealed Section 46-11.1 of the HCO. (Instrument No. 86 at 6, 25-26). Plaintiffs claim that Defendants have also been cited at least 10 times in San Antonio for failure to comply with Chapter 33 of SACCO. (Id. at 26-27). Plaintiffs further claim that on March 26, 2014, the San Antonio Chief of Police sent a cease-and-desistletter to Lyft, informing them that they needed to obtain a permit through the Ground Transportation Unit. (Id. at 26).

The emergence of TNCs ultimately forced Houston and San Antonio to adapt their city codes' provisions on vehicles for hire. On August 9, 2014, Houston enacted Ordinance No. 2014-754, which amended Chapter 46 of the HCO. (Instrument No. 88-2). The ordinance created a new classification for TNCs and provided permitting and other regulations for such entities. Houston, Tex., Code of Ordinances ch. 46, art. IX, § 46-503 (2015). Following this action, Lyft in fact suspended operations in Houston. (Instrument No. 90 at 6). On December 11, 2014, San Antonio's City Council adopted similar amendments to Chapter 33 of the SACCO. Ordinance No. 2013-12-11-1002 included numerous amendments to the SACCO provisions on vehicles for hire, most notably adding provisions for TNCs. See San Antonio, Tex. City Code of Ordinances ch. 33, art. IX (2015).

C. Procedural Posture

On April 8, 2014, Plaintiffs filed a complaint and application for temporary restraining order, preliminary injunction, and permanent injunction against Defendants in the United States District Court for the Southern District of Texas. (Instrument No. 1).¹ Plaintiffs sought declaratory judgment that Defendants violated the relevant city ordinances in Houston and San Antonio. (Id. at 36-37). Plaintiffs further brought a Texas state claim of unfair competition and claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1964, and the Lanham Act, 15 U.S.C. § 1125(a)(1)(B), related to alleged mail fraud and false advertising. (Id. at 37-38). Plaintiffs claimed that by avoiding permitting fees, Defendants had obtained illicit profits that otherwise would have gone to Plaintiffs. (Id. at 35-36).

On April 21, 2014, the Court held a hearing on Plaintiffs' motion for a temporary restraining order. The Court denied Plaintiffs' motion, citing concerns about the then pending amendments to the HCO, Plaintiffs standing to enforce the cities' ordinance, and the likelihood of permanent injury.

On May 5, 2014, Uber and Lyft each filed motions to dismiss all of Plaintiffs' claims. (Instrument Nos. 28; 29; 36). Plaintiffs filed an amended complaint on May 12, 2014, and the Court terminated both motions to dismiss. (Instrument No. 39).

On July 10, 2014, Uber and Lyft each filed new motions to dismiss all claims in Plaintiffs' first amended complaint. (Instrument Nos. 50; 51). On August 9, 2014, Houston amended Chapter 46 of the HCO as described above, and the Court denied Defendants' motions to dismiss without prejudice on October 2, 2014. (Instrument No. 83).

On October 3, 2014, Plaintiffs filed a second amended complaint with leave of the Court. (Instrument No. 86). Plaintiffs now allege that Defendants violated the Lanham Act, 15 U.S.C. § 1125(a)(1)(B), by using misleading terminology to describe their businesses, and by misrepresenting their insurance coverage...