Photographer: Andrew Harrer/Bloomberg

Another Uber Settlement Rejected, This Time Over Riders’ Fee

  • Judge says $28.5 million payout isn’t enough for customers
  • Court filing shows company’s revenue from fee was $449 million

Uber Technologies Inc. was dealt a second rejection of a legal settlement, this time in a case over claims the company misled riders when it charged them a $1 “safe rides fee” that earned the company almost half a billion dollars.

U.S. District Judge Jon Tigar in San Francisco said the proposed $28.5 million payout wasn’t enough for customers, considering how much Uber took in from the fees. That revenue was $448,598,018, almost almost three times the sum Uber was thought to have collected from the fees and close to 16 times the amount of the settlement fund, according to what appears to be an improperly redacted version of the court’s order.

As part of an effort to assure passenger safety, Uber introduced the safe rides fee in April 2014 to cover costs such as background checks of drivers and insurance and vehicle checks. The fee started at $1 per trip, but the company had raised it to as much as $2.50 in some cities.

Consumers alleged in the class action that driver checks weren’t as rigorous as the company advertised. In April, the company paid $10 million to settle similar claims filed by California prosecutors, who had alleged in their case that Uber’s background checks had missed thieves, burglars, a kidnapper and a convicted murderer.

It’s the second rejection in two weeks by a federal judge overseeing Uber’s attempt to dispose of lawsuits. On Aug. 18, U.S. District Edward Chen in the same courthouse rejected Uber’s $100 million settlement with drivers over claims they deserve to be treated as employees and are owed reimbursement for expenses and tips.

Uber’s net revenue was about $960 million in the first quarter of this year, and about $1.1 billion in the second quarter, with losses of more than $1.27 billion in the first half of 2016, according to people familiar with the figures.

‘Rings Hollow’

Uber announced its $28.5 million settlement in February, saying it would be split evenly among about 25 million riders after attorneys’ fees. In rejecting the deal, Tigar said a favorable comparison between the expected 82 cents recovery per class member and the average Safe Rides Fee of $1.12 “rings hollow,” because a significant portion of the group paid multiple fees over the course of multiple rides, while some passengers weren’t charged any fees.

More importantly, Uber’s total revenue from the fees was almost three times the $132 million the plaintiffs’ lawyers estimated they would recover if they won the lawsuit, Tigar said in the improperly redacted filing.

“In sum, the proposed settlement does not fairly and reasonably protect the class,” Tigar wrote. The judge also said that at this stage of the settlement the public should know how much Uber made from the fees. He gave lawyers five days to argue why the revenue information should continue to be sealed.

Tigar’s rejection of the settlement echoes concerns voiced by other federal judges in San Francisco when they concluded that accords Uber and rival ride-hailing company Lyft Inc. reached with their drivers let the companies off too easily.

Labor Code

Chen rejected Uber’s driver settlement in large part because it undervalued potential labor code violations under California’s unique bounty-hunter law, the Private Attorneys General Act. U.S. District Judge Vince Chhabria in April found that a proposed $12.5 million payout to resolve similar claims against Lyft shortchanged drivers because it didn’t properly account for the company’s rapid growth. In June, Chhabria granted preliminary approval after the deal was more than doubled to $27 million.

Uber spokesman Matt Kallman declined to comment on Tigar’s ruling on Tuesday. Lawyers for the plaintiffs, Alfredo Torrijos, Theodore Walter Maya and Tina Wolfson, didn’t immediately return calls and e-mails Wednesday seeking comment.

When the settlement was announced, Uber said the "safe rides fee" would be called a "booking fee."

San Francisco District Attorney George Gascon agrees with Tigar that the ride fee settlement is “woefully inadequate,” according to a statement by the prosecutor’s spokesman, Max Szabo. Once the settlement was reached in federal court, Gascon was prohibited from seeking restitution for California Uber passengers in the state court case he filed jointly with the district attorney of Los Angeles, Szabo said.

The case is Philliben v. Uber Technologies Inc., 3:14-cv-05615, U.S. District Court, Northern District of California (San Francisco).

Before it's here, it's on the Bloomberg Terminal. LEARN MORE