Delaware court refuses to revive Uber shareholder lawsuit

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FILE – In this May 30, 2019, file photo, the logo for Uber appears above a trading post on the floor of the New York Stock Exchange. Ride-hailing giant Uber, along with delivery company Postmates, sued California over a new law that aims to reclassify their drivers and delivery workers as employees instead of contractors. The law, which went into effect last week, could upend the business models of the companies that shaped the so-called “gig economy,” where contract workers use smartphone apps to accept odd jobs driving or delivering goods as frequently as they wish. (AP Photo/Richard Drew, File)

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DOVER, Del. (AP) — Delaware’s Supreme Court has upheld a judge’s dismissal of a shareholder lawsuit against ride-hailing company Uber and its former CEO.

The court on Monday affirmed the judge’s April ruling that the suit must be dismissed because the shareholder had failed to demand that Uber’s board of directors take action itself before he filed his complaint.

The lawsuit challenged the Uber board’s approval in 2016 of former CEO Travis Kalanick’s plan to pay $680 million for a startup company created by former Google engineer Anthony Levandowski to develop self-driving cars.

Levandowski was indicted in August by a federal grand jury in California on charges of stealing self-driving car technology from Google spinoff Waymo before joining forces with Uber. His lawyers have maintained his innocence.

In the midst of a trial last year in a lawsuit filed by Waymo, Uber agreed to settle the case for $245 million.

Kalanick, who was ousted as CEO in 2017, announced last month that he was resigning from the board of Uber, which he co-founded a decade ago. Kalanick’s departure came after he sold more than $2.5 billion worth of shares in the company, more than 90% of his holdings.

In the Delaware lawsuit, Lenza McElrath III, an Uber shareholder and former employee, alleged that Uber’s board ignored the alleged theft of Google’s intellectual property and failed to conduct due diligence that would have revealed problems with the deal.

While noting that Uber directors approved “a flawed transaction,” a three-judge panel of the Supreme Court nevertheless said it was not deciding the merits of the claims. Instead, the justices agreed with a Chancery Court judge that the plaintiff failed to comply with Delaware corporation law in filing the lawsuit.

“Under Delaware law, the board of directors manages the business and affairs of the corporation, which includes deciding whether the corporation should pursue litigation against others,” the court noted.

A stockholder seeking to file a lawsuit on behalf of a company must first make a demand on the board to pursue the claim. If the board declines, the stockholder must try to demonstrate that the directors wrongfully refused the demand, or that asking them to take action would be “futile” because they were beholden to management or otherwise had conflicts of interest.

An attorney for the shareholder had argued last year that asking Uber directors to take legal action themselves would have been futile because of their personal and professional ties to Kalanick and because many of them faced liability themselves for breaching their fiduciary duties in approving the deal.

The Supreme Court panel disagreed, saying a majority of directors was disinterested because they had no real threat of personal liability, and that a majority of the board was also independent of Kalanick.

Copyright 2020 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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