Uber's Kalanick Succeeds in Having Benchmark Suit Arbitrated

  • Benchmark claims Kalanick duped firm to get Uber board seats
  • Judge keeps case alive if independent stockholders complain

Uber's Kalanick Wants Benchmark Suit to Go to Arbitration

Uber Technologies Inc. co-founder Travis Kalanick succeeded in forcing a court fight over board appointments with venture capital firm Benchmark moved to private arbitration in the company’s latest attempt to keep disputes out of public view.

Delaware Chancery Judge Sam Glasscock III on Wednesday granted Kalanick’s request while rejecting his bid to have Benchmark’s lawsuit dismissed. Glasscock put the suit on hold pending the outcome of the arbitration.

The decision means that a single arbitrator -- not yet appointed -- will determine whether Kalanick remains on Uber’s board, and will do so after reviewing evidence that investors are unlikely to hear unless the case returns to court.

Benchmark took the unusual step earlier this month of waging a public battle with the founder of a startup it invested in, accusing Kalanick of duping the firm in order to gain control of three board seats. Kalanick is fighting back with claims that Benchmark pressured and threatened him into resigning as chief executive in June.

Forcing the suit into arbitration may also enable Kalanick to present evidence that might otherwise be barred at a trial. The case is one of several tests to force disputes involving Uber out of public courtrooms.

Uber is also trying to move its fight with Waymo LLC over trade secrets for driverless cars into arbitration. It won a battle in California last year when a federal appeals court ruled that most Uber drivers can be forced to resolve their disputes with Uber through arbitration.

Benchmark, which holds a 13 percent stake in Uber, sued Kalanick Aug. 10, saying he misled the firm about his performance as CEO and the reasons behind his request to expand the company’s board from eight to 11 seats. The firm claims Kalanick sought to pack the board with allies willing to keep him as a director after he resigned. Kalanick said the case should be governed by a mandatory arbitration provision tucked into Uber’s voting agreement.

Glasscock said he was concerned about how arbitration would affect the rights of shareholders who aren’t involved. About 30 percent of Uber’s shareholders aren’t represented on the board of directors and weren’t bound by the voting-rights contract.

“I am not going to dismiss the matter,” Glasscock said. “I am going to stay it and I will revisit the stay should a stockholder not affiliated with the voting rights agreement come forward.”

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A spokesman for Kalanick said the former CEO expects to win in arbitration and that Benchmark’s allegations have “unnecessarily harmed Uber and its shareholders.”

Benchmark said it looks forward to presenting the facts as the case proceeds.

“This case is fundamentally a question of integrity and values and the facts will fully support Benchmark’s position,” Reema Bahnasy, a Benchmark spokeswoman, said in an emailed statement.

Benchmark had blamed Kalanick for a slew of Uber scandals, including his involvement in trade-secret theft claims tied to a lawsuit by Alphabet Inc.’s self-driving car business and accusations of workplace hostility to women. The company claimed Kalanick’s interference was hampering a search for his successor.

Uber selected Expedia Inc.’s Dara Khosrowshahi to succeed Kalanick and help put the scandals behind it.

Kalanick and Khosrowshahi spoke to employees together at an all-hands meeting Tuesday at the company’s San Francisco offices. Khosrowshahi was complimentary of Kalanick’s time as CEO, according to two people who listened to the meeting. Khosrowshahi acknowledged the ongoing board conflict and the need to recruit a chairman, one person said. At the end of the meeting, the pair posed for a selfie taken by board member Ryan Graves, with dozens of Uber employees filling the frame. The message was clear: unity.

In Delaware, Kalanick’s attorney Donald Wolfe argued that the board’s conflicts don’t justify keeping the case in court.

“I think what we have here is a political battle that belongs in the boardroom, not the courtroom,” he said.

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Kalanick had dismissed Benchmark’s fraud claims as a “fabrication,” arguing that the firm was aware of all the events on which it based its suit.

Kalanick’s lawyers have also objected to Benchmark’s request for a so-called “status quo” order that would temporarily bar the former CEO from filling two open Uber board seats. Such a request is “drastic and unwarranted,” the lawyer said.

Benchmark argued the opposite, telling Glasscock that allowing Kalanick to fill the seats “and act as the decisive board vote would seriously damage Uber and its stockholders.”

Investor Shervin Pishevar, a friend of Kalanick, supported the arbitration request.

“We continue to believe that Benchmark filed this public lawsuit to vilify Travis Kalanick in the court of public opinion,” Shalanick said in an emailed statement. “Now that the matter, has been ordered to arbitration, and with the appointment of the CEO, we look forward to this company achieving even greater success."

The case is Benchmark Capital Partners VII LP v. Kalanick, CA 2017-0575, Delaware Chancery Court (Georgetown).

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— With assistance by Jef Feeley

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