Law­suit ac­cuses Uber’s ex-CEO of fraud

Early in­vestor’s fil­ing aims to pre­vent Travis Kalan­ick from re­turn­ing as chief.

Los Angeles Times - - BUSINESS - By David Pier­son and Tracey Lien

Ever since Uber co­founder Travis Kalan­ick re­signed as the com­pany’s chief ex­ec­u­tive in June, there were ru­mors that he was plot­ting his re­turn. On Thurs­day, Bench­mark Cap­i­tal Part­ners, one of the ear­li­est in­vestors in the ride-hail­ing com­pany, filed a law­suit against Kalan­ick with the hope of squash­ing any such plans.

In the suit filed in Delaware Chancery Court, the Menlo Park, Calif., ven­ture cap­i­tal firm al­leges Kalan­ick breached his fidu­ciary duty and con­trac­tual obli­ga­tions by stack­ing the com­pany’s board with al­lies to shield his con­duct from re­dress.

The suit con­tends this was done to “clear the path for his even­tual re­turn as CEO — all to the detri­ment of Uber’s stock­hold­ers, em­ploy­ees, driver-part­ners, and cus­tomers.”

The suit names both Kalan­ick and Uber, but it seeks dam­ages only from Kalan­ick him­self.

Bench­mark al­leges that in mid-2016, Kalan­ick com­mit­ted an act of fraud when he con­vinced the board to ap­prove three new board seats for which he would have ap­point­ment power, with­out first in­form­ing them of a se­ries of events he was al­legedly in­volved in or privy to that would later lead to his forced res­ig­na­tion.

Kalan­ick stepped down as Uber’s CEO in June af­ter those con­tro­ver­sies came to light. They in­cluded a law­suit by Google’s self-driv­ing-car sub­sidiary, Waymo, al­leg­ing theft of trade se­crets; an­other law­suit by a woman in In­dia who al­leged Uber ob­tained her med­i­cal records af­ter she was raped by one of the com­pany’s driv­ers; and wide­spread al­le­ga­tions of sex­ual ha­rass­ment at the firm.

Bench­mark, which led the charge in pres­sur­ing Kalan­ick to re­sign, cited all three cases in its suit as ex--

am­ples of Kalan­ick’s mis­man­age­ment.

“Kalan­ick knew Bench­mark never would have ap­proved … the three new board seats if Bench­mark had known the truth about Kalan­ick’s prior con­duct,” the suit reads. “Kalan­ick also un­der­stood that these mat­ters, once re­vealed, would likely force him to re­sign as Uber’s CEO, and thus sought to grant him­self a way to play an on­go­ing lead­er­ship role at Uber once the truth came out.”

Uber de­clined to com­ment. In a se­ries of tweets Mon­day, Bench­mark said that it was still bullish on Uber as a com­pany.

Waymo saw an op­por­tu­nity to fur­ther its own case against Uber and the ride­hail­ing com­pany's former self-driv­ing ve­hi­cle guru Anthony Le­vandowski, with a spokesper­son for the firm is­su­ing a state­ment say­ing, “there is sig­nif­i­cant and di­rect ev­i­dence that Uber is us­ing stolen Waymo trade se­crets. There is also sig­nif­i­cant ev­i­dence that Uber lead­er­ship knew about Le­vandowski’s mis­con­duct and, rather than do the right thing, tried to con­ceal it.”

Kalan­ick fur­thered Bench­mark’s sus­pi­cions that he was angling for a re­turn to power when, af­ter re­sign­ing as CEO and departing the board seat re­served for the CEO, as re­quired, he im­me­di­ately re-ap­pointed him­self to one of the three va­cant board seats. The law­suit al­leges that he then re­fused to sign an agree­ment that would en­sure the two va­cant board seats would be filled by can­di­dates who are “in­de­pen­dent, ex­pe­ri­enced, un­bi­ased, and di­verse, and sub­ject to the ap­proval of all then-cur­rent di­rec­tors other than one.”

Sources close to Kalan­ick said he had re­gret­ted his de­ci­sion to re­sign, and that he was in­ter­ested in re­turn­ing to a lead­er­ship role at the com­pany, but it is un­clear if he had a plan to do so.

A spokesper­son for Kalan­ick dis­missed the claims in a pre­pared state­ment, say­ing that the law­suit was with­out merit and “rid­dled with lies.”

“This is con­tin­ued ev­i­dence of Bench­mark act­ing in its own best in­ter­ests con­trary to the in­ter­ests of Uber, its em­ploy­ees and its other share­hold­ers,” the spokesper­son said. “Bench­mark’s law­suit is a trans­par­ent at­tempt to de­prive Travis Kalan­ick of his rights as a founder and share­holder and to si­lence his voice re­gard­ing the man­age­ment of the com­pany he helped cre­ate. Travis will con­tinue to act in the in­ter­ests of Uber and all of its stake­hold­ers and is con­fi­dent that these en­tirely base­less claims will be rejected.”

The law­suit is, in essence, a fight for con­trol over Uber’s board, and such bat­tles are not un­usual, ac­cord­ing to le­gal ex­perts.

“But to make those ac­cu­sa­tions against the founder of a com­pany whose blood and sweat turned Uber into what it is to­day, yes, that is a bit pe­cu­liar,” said Dan Hand­man, an at­tor­ney with Hirschfeld Kramer.

Law­suits of this na­ture can take years to lit­i­gate, Hand­man said, and to se­cure even a pre­lim­i­nary in­junc­tion, the onus is on the plain­tiff to prove that they are likely to suc­ceed at trial, and that they would suf­fer some sort of ir­repara­ble harm un­less a pre­lim­i­nary in­junc­tion is granted.

“It’s fair for them to say [Kalan­ick] is try­ing to ex­ert his in­flu­ence on the com­pany, that he hasn’t sev­ered ties as com­pletely as he would have the com­pany be­lieve, but what hap­pens as a re­sult of that is en­tirely spec­u­la­tive,” Hand­man said.

In fraud­u­lent con­ceal­ment cases, plain­tiffs would also have to prove they did not know what was go­ing on.

“The amount that Bench­mark knew, what they knew, how they knew it, and what their re­sponse was, is all crit­i­cal,” Hand­man said. “If it turns out that Bench­mark was well aware of the very things they’re com­plain­ing about, their law­suit won’t get very far.”

If Bench­mark gets what it wants, the three board seats Kalan­ick al­legedly con­trols would be elim­i­nated, and Kalan­ick would be blocked from par­tic­i­pat­ing in any meet­ings, votes, or other ac­tiv­i­ties with Uber’s board. Kalan­ick — and not Uber — would also have to pay un­spec­i­fied dam­ages to Bench­mark.

And al­though the law­suit adds an­other bump in the road for Uber, Bench­mark must think it’s nec­es­sary to pro­tect its in­vest­ment in what’s con­sid­ered the world’s most valu­able startup. The law­suit al­leges that Kalan­ick’s “im­proper role on the board” has al­ready had a neg­a­tive ef­fect on the com­pany’s search for a new CEO, and that po­ten­tial can­di­dates have with­drawn from the process be­cause of his par­tic­i­pa­tion.

“Kalan­ick’s im­proper ac­tions, if al­lowed to con­tinue, would cause ir­repara­ble harm to Uber by ex­pos­ing it to rep­u­ta­tional, reg­u­la­tory and other risks,” the firm said.

VCG via Getty Images

BENCH­MARK Cap­i­tal Part­ners al­leges in its law­suit that Uber co-founder Travis Kalan­ick breached his fidu­ciary duty and con­trac­tual obli­ga­tions by stack­ing the com­pany’s board with al­lies to shield his con­duct from re­dress. Above, Kalan­ick at a Bei­jing con­fer­ence in 2015.

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