Amusingly, two different media outlets that have been watching the Uber story each picked up only only one of two legal developments today on the Uber slugfest today. This is pretty peculiar since court dockets are public. This suggests that the media is dependent on publicist push in their reporting rather than doing basic gumshoe work.
A possible motivation for the Thursday filings by both sides is likely that there is a board meeting set for today, Friday on CEO finalists. From Recode:
Hewlett Packard Enterprise CEO Meg Whitman has tweeted firmly that she will not be Uber CEO…
In addition, according to sources, Whitman will also not appear at a board meeting tomorrow where two other candidates — former GE head front-runner Jeff Immelt and only one another dark-horse candidate — will present their visions for the future of Uber in the final stretch of the leadership selection process.
Hubert Horan’s reaction:
As things stand at the moment, my prediction from several weeks ago that this civil war could only be resolved with one side a clear winner and the other side a clear loser seems to be holding up.
It may be that Immelt has decided to come down on the pro-Kalanick side, forcing Benchmark to take a stand against his candidacy.
Thus each side having another go right before the board meeting might have been intended to play into the meeting dynamics, separate and apart from the legal fight as such.
To recap the state of play: in one corner, we have Benchmark, which sued CEO Travis Kalanick for a series of fraud allegations, most of which seemed very strained, as in it’s hard to think that Benchmark didn’t know plenty well what Kalanick wasn’t telling them, save maybe having colluded with former Google manager Anthony Levandowski to steal Google’s self-driving car intellectual property, as Google has alleged. Benchmark is also comically alleging that Kalanick didn’t sign an agreement he’d verbally promised to sign regarding who would get control of additional seats in a planned board expansion. Since when do VCs rely on verbal promises, and particularly with a rule-breaker like Kalanick?
Nevertheless, in America, the point of suing often is not to win but to inflict pain on the others side. Here, the pain would include getting to do lots of discovery on Kalanick, particularly deposing him, and generally throwing a money wrench in board operations at Uber. Part of Benchmark’s filing is a request for a status quo order, which would keep the board from being expanded and Kalanick getting control over additional board seats. If Benchmark prevails on the status quo order, Benchmark would need to be appeased, since it would be able to block fundraisings, among other things (note that I haven’t seen a clear report as to how much Benchmark would lose if Kalanick were to get those board seats. I’d imagine as one of the very first funders that Benchmark may also have veto power over certain issues).
The Kalanick side responded promptly, with a filing whose most important argument was that the Uber shareholder agreement has a very broad arbitration clause, and so the judge should either stay or dismiss the suit. That would seem to be a show-stopper. Arbitration would be a secret process, and the Benchmark side would also lose power of the court to force the Kalanick accept being deposed. My assumption is that an arbitrator would also not have the authority to impose a status quo order, so Benckmark’s ability to check the Kalanick side would be considerably reduced.
The two new legal developments Thursday were picked up at Recode and the Wall Street Journal. Recode reported that Benchmark made another filing (which it embedded in its article). It does not make new legal arguments on the key bone of contention, which is the scope of arbitration agreement. Benchmark reiterated its earlier arguments here, which is:
Benchmark’s Section 225 claims, which allege that the 2016 stockholder vote that amended Uber’s certificate of incorporation was tainted by Mr. Kalanick’s fraudulent nondisclosures, do not depend in any way on the Voting Agreement and are not within the sweep of its arbitration clause.
“Section 225” of Delaware law covers “Contested election of directors; proceedings to determine validity.” It is over my pay grade to determine whether Benchmark has successfully found terrain the arbitration agreement does not cover. However, generally speaking, courts, including the Supreme Court, have tended to give favorable readings to arguments that arbitration agreements should be upheld, and in this case, the arbitration language was broad and had a carveout only for intellectual property disputes.
Yesterday’s Benchmark filing mainly argued that the Kalanick response to its suit tacitly conceded many factual arguments made by the Benchmark side. It was also a tad screechy which is not a good look.
Given that Kalanick hired a highly respected litigator, Williams & Connolly, to make its case, and the linchpin issue is the relevance of the arbitration clause, where the Kalanick side would appear to have the winning argument, it was bizarre to read in the Wall Street Journal that two Kalanick allies, Shervin Pishevar and Steve Russell, petitioned the court on Thursday to intervene in the case. From the Wall Street Journal:
Mr. Pishevar and Mr. Russell are seeking to “intervene,” which—if a judge grants the motion—would allow them to submit legal arguments to the court in the case. The two men and Mr. Kalanick want the case dismissed so the dispute with Benchmark can be handled through private arbitration.
Procedural tactics are very important in litigation.
Bear in mind that the first hearing on the arbitration issue is set for August 30. Courts usually have deadlines for how close to a hearing each side is allowed to submit pleadings. Judges will sometimes accept them anyhow (in that not considering the arguments of one side could be used to argue for an appeal) but the flip side is that this sort of move runs the risk of annoying the judge. I would guess that the new Benchmark filing was close to if not on the day of the normal time limit for submitting pre-hearing motions so as to put the Kalanick side in an awkward position as to whether to file another motion.
Given that the Kalanick filing seems well argued, why are Pishevar and Russell intervening? Are they not 100% on the same page as Kalanick’s legal team? Is this alternatively a clever procedural gambit to allow for another set of filings before the hearing when the judge might normally be inclined not to allow them? Whether intentional or not, it creates the appearance that the Kalanick side isn’t fully cohesive, or that Pishevar and Russell are nervous about the Williams & Connolloy filings.
We’ll know a lot more after the board meeting tomorrow and the court hearing next week. Regardless, this fight over what is certain to be a wasting asset continues to be mighty entertaining.