Uber Hit with Preliminary Injunction in Nevada

Uber is a ride-sharing company based in San Francisco that has been operating in major cities worldwide since its inception. Uber’s growing market presence has been met with much controversy. At the forefront of this resistance are livery companies along with the state and local regulatory bodies that govern them. While the opposition insists that Uber is a transportation company subject to all the same rules and regulations as a taxi or limousine company, Uber maintains that it is a “technology company that facilitates communication between a contracted driver and a person seeking a ride through a smartphone app.”

The State of Nevada is the first to respond favorably to Uber’s naysayers. On November 25, 2014, a district court judge in Washoe County issued a preliminary injunction requested by the Nevada Transportation Authority against Uber. Uber suspended all operations within the state of Nevada, referring to the injunction as a “temporary legal setback,” estimating that this would cost nearly 1,000 jobs. 

In general, there are four elements that must be met for a court to grant a preliminary injunction:  1) a likelihood of irreparable harm with no adequate remedy at law; 2) the balance of harm favors the movant; 3) the likelihood of success on the merits of the case; and 4) the public interest favors the granting of the injunction.

Notably, the Nevada Transportation Authority emphasized the public interest element in its request for the preliminary injunction, arguing that passenger safety was at risk since Uber was an unregulated transportation service. Uber does require its drivers to undergo a background check and hold up to $1 million in insurance. However, recent incidents—including the death of a 6-year old girl who was struck and killed by an Uber driver in San Francisco—have made public safety a potent question for Uber.

Despite the emphasis on public interest and safety concerns, Uber is still backed by many supporters. Shortly after the preliminary injunction was issued, Uber started an online petition in support of its continued service in Nevada. The petition has since gained over 18,000 signatures.

The preliminary injunction (or temporary restraining order) is a powerful tool in business litigation. A resourceful business litigation attorney will know how to effectively utilize a preliminary injunction or temporary restraining order to serve his or her client’s needs.

The Nevada Transportation Authority filed suit and sought its preliminary injunction against Uber just one month after Uber began operating in the state. Strategically intentional or not, the timing is favorable for the NTA’s case against Uber. The NTA’s position would much likely be weaker if Uber were allowed to continue expanding into the Nevada market, gaining an even more notable foothold than it currently holds (as evidenced by its online petition), as this case continues. Uber’s more established presence in other markets may be a large part of the reason why the legal battles in other states have not yet resulted in favorable outcomes for the livery companies/regulatory bodies. Among other things, the preliminary injunction will prevent Uber from bolstering its position as a safe and necessary market participant in Nevada, which may ultimately lead to a favorable outcome for the NTA in its suit. 

When Do You Need A Preliminary Injunction In An Illinois Corporate Shareholder Dispute?

Illinois is supposed to be more shareholder friendly than Delaware. Its Business Corporation Act provides minority shareholders protections if the majority shareholders are

  1. committing waste;
  2. practicing fraud;
  3. acting illegally; or
  4. oppressing minority shareholders. 

There was an article in Business Law Today a while ago that contended that minority shares of stock are worthless apart from whatever rights were provided in a shareholders’ agreement, but I disagree: minority shareholders in Illinois--without any shareholders’ agreement-- have the rights given them by the Illinois Business Corporation Act (and this Act influenced the drafting of the Model Business Corporation Act). If they sue to vindicate these rights, the majority shareholders can elect to buy them out, and their buy out price is the fair value (not the fair market value) of their shares. 

Listing the rights given by statute begins to answer the question posed. If you are a minority shareholder, you need a preliminary injunction if the majority shareholders are doing one or more of the above acts and you or the corporation is going to be immediately irreparably harmed as a result. Waste of corporate assets might not be recoverable absent immediate action; an illegal act may cause the corporation to be sanctioned by law enforcement officials. Oppression is an elastic concept, but the standard is the reasonable expectation of the shareholders.   Most of these defalcations will diminish the goodwill of the corporation, a harm that is difficult to quantify, justifying a preliminary injunction.

In the midst of the ill-will that accompanies actions that necessitate shareholder actions, actual or threatened improper withdrawals from the corporation may require a preliminary injunction or temporary restraining order. Minority shareholders need to be vigilant in guarding the corporate purse. A preliminary injunction can be justified on a constructive trust theory (corporate money is a res that is the subject of dispute over whether the payment is proper). The Illinois Business Corporation Act codifies the court’s power to issue injunctions as well. And the Act provides panoply of remedies available to the court: appointment of a receiver or director, for example, and, more broadly, any order necessary.

Ten Reasons Your Company Should Not File a Lawsuit To Resolve a Business Dispute

While I make my living suing people, I think all clients should be advised of the top ten reasons not to file a lawsuit. I offer this list:

  1. You owe your opponent more money than he or she owes you.
  2. You don’t want to turn over relevant documents to your opponent’s lawyer or they are already shredded.
  3. You fired all of your employees who are knowledgeable about the dispute.
  4. You lack the time to educate your lawyer about the dispute, retrieve relevant documents, or give a deposition.
  5. You think that all witnesses tell the truth.
  6. You regard yourself as superior to jurors or the Judge.
  7. You believe that just by filing the lawsuit, you will get a settlement.
  8. Your opponent has no money to pay a judgment.
  9. Your company or key witnesses must continue to do business with your opponent or his or her allies. 
  10. The cost of the lawsuit is more than you would benefit with total victory.

If none of your clients are now contemplating a lawsuit, print and save.

Injunctive Relief--Use the four-factor test to make your case

A few days after the Court granted the Bank of America’s motion for an ex parte TRO, the Federal Deposit Insurance Corporation (“FDIC”), in its capacity as receiver for Colonial Bank, was substituted as the real party in the case, and moved the court to dissolve the TRO. The FDIC argued that, pursuant to 12 U.S.C. § 1821 (j), the Court lacked subject matter jurisdiction to restrain the FDIC in exercising its powers and functions as a receiver. Because the Court determined that the sale proceeds and loan agreements, which the Bank seeks the return of, are outside the receivership estate, it denied the FDIC’s jurisdiction argument.

Of interest to me today, however, is the fact that the FDIC admitted, in its motion to dissolve the TRO, that the Court properly issued the injunction. While declining to torture the FDIC with this admission, the Court noted that there may have been “public interest considerations contemplated by the injunctive-relief analysis,” in light of Colonial Bank’s collapse and subsequent involvement of the FDIC, but the FDIC’s failed to raise the issue. The FDIC could have strengthen its motion if it demonstrated how the four factor test weighed against the issuance of an injunction, emphasizing the public interest in supporting the FDIC in its role as receiver.