Adding to a growing number of lawsuits around the country, a Memphis taxi company has filed a class action against Uber and Lyft for unlawfully interfering with its business.[1] The plaintiffs, Southern Transportation, Inc. and George Abraham, claim Uber and Lyft have gained an unfair competitive advantage over traditional taxi services by ignoring costly state statutes and city ordinances regulating for-hire transportation companies.

Southern Transportation claims that unlike traditional for-hire companies, Uber and Lyft do not (1) conduct background checks on its drivers, (2) pay various fees imposed on for-hire transportation companies, (3) participate in a unified carrier registration system, (4) carry adequate liability insurance, and (5) require its drivers to have appropriate drivers licenses. By ignoring these legal requirements, plaintiffs claim, Uber and Lyft avoid costly startup and operating costs paid by traditional taxi companies, allowing them to charge lower, more competitive rates.

As Ralph Patino, an attorney representing similar for-hire transportation companies in a Florida class action, is reported to have said, “the traditional drivers for-hire — can’t compete with the ride-sharing apps because they have county licensing, insurance and inspection costs that Uber and Lyft drivers do not.”[2]

As a result of their alleged illegal conduct, Southern Transportation claims, Uber and Lyft have gained an unfair competitive advantage and have intentionally and unlawfully interfered with the plaintiffs’ business. We discussed this business tort in a previous post, When Competition Goes Too Far – Limits on Advancing Business Interests. That post examined how the court in Tennison Brothers, Inc. v. Thomas[3] recognized the need for competition in the marketplace, but prohibited a business from using illegal means to advance its own interest.

Southern Transportation makes a similar argument, stating Uber and Lyft “have intentionally engaged in an ongoing pattern of conduct that is disruptive to the Plaintiffs’ lawful participation in the commercial enterprise of taxi services, limousine services, and transportation services that have been a part of the Shelby County economy for many years;” and that Uber and Lyft’s “unlawful conduct in deliberately refusing to abide by the recognized statutes and ordinances in effect in Memphis and Shelby County” has cost it customers.

This case is one of many recent suits filed against Uber and Lyft. Similar suits have been filed in Houston, Texas[4]; Philadelphia, Pennsylvania[5]; Miami-Dade County, Florida[6]; and Atlanta, Georgia[7]. The Los Angeles and San Francisco District Attorney’s office have filed civil consumer protection and unlawful business practices lawsuits against Uber for violating for-hire transportation regulatory requirements, and settled a similar case against Lyft.[8] Taxi drivers in Boston, Massachusetts[9] and Chicago, Illinois[10] have sued their cities for allowing Uber and Lyft to operate in violation of similar regulations.

Some commentators have observed that Uber and Lyft mark the start of the travel industry’s Napster era. “Napster took a flippant devil-may-care attitude to the legal complexities”[11] involved in sharing music. Though Napster was eventually shut down, it changed the landscape of music consumption. “The parallels between Uber and Napster are strong. Napster fought the entrenched interests of the recording industry. Uber is fighting the entrenched interests of the taxi industry. Both businesses used leading edge technology to tackle the entrenched interests. Consumers loved both technologies and both technologies benefited from the publicity caused by their opponents.”[12]

It remains to be seen whether recent suits against Uber and Lyft will have the same effect as those against Napster. Even if Uber and Lyft are required to comply with for-hire transportation laws, they may be able retain their competitive advantage over traditional taxi companies due to their app-based interface which puts passengers in much quicker contact with the nearest driver and makes payment and tips much easier.