DOVER, Del. — Attorneys for an Uber shareholder are asking Delaware’s Supreme Court to overturn a judge’s dismissal of a lawsuit against the ride-hailing company and its former CEO.
A three-judge panel heard arguments Wednesday regarding 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 challenges 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. Levandowski remains free on $2 million bail. 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. But the judge overseeing the civil action took the unusual step of recommending a criminal investigation and referring the case to federal prosecutors based on testimony and evidence.
Michael Barry, an attorney for the shareholder plaintiff, argued Wednesday that Uber’s purchase of Ottomotto LLC, the company formed by Levandowski, was “a thinly veiled raid on Google’s intellectual property.”
“What we’re talking about is criminal conduct,” said Barry, adding that Uber directors ignored a host of red flags that the deal with Levandowski could be problematic.
Barry noted that the risks were apparent enough for Uber to hire an outside firm to determine whether Levandowski had stolen Google’s intellectual property and trade secrets. The board nevertheless approved the deal before the investigation was complete and without seeing the firm’s preliminary findings, relying instead on a presentation from Kalanick. The merger agreement included provisions indemnifying Levandowski and his team from liability for prior “bad acts,” as long they had been disclosed to the investigators hired by Uber.
Barry said the decision by board members to allow the deal to close without informing themselves about the investigative findings and the extent of the indemnification provisions constitutes “bad faith” on the part of Uber directors and cost the company at least $245 million.
Mark Gimbel, an attorney for Uber, defended the directors’ actions, saying the board received a presentation on all key terms of the deal, including the indemnity provisions, discussed the investigative firm’s due diligence and voted only after being told that the due diligence was “OK.”
“At the end of the day, directors are entitled to rely on information provided by management,” Gimbel argued.
Gimbel also argued that the judge rightly dismissed the lawsuit because the plaintiff had failed to show that asking Uber directors to take action themselves before he filed his lawsuit, as required under Delaware law, would have been fruitless.
Barry, the shareholder attorney, said 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 court is expected to issue a ruling within 90 days.
Randall Chase, The Associated Press