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The battle over the future of Uber heads today to a courtroom in Delaware, where an unprecedented lawsuit of founder versus venture firm could either be placed on a fast track or thrown out entirely.
In what is likely to be a heated argument over the legacy of Uber’s lightning rod of a founder and former CEO, attorneys for both Travis Kalanick and one of the car-hailing company’s largest investors, Benchmark Capital, will square off in the first oral argument in the month-old case.
Kalanick is trying to get the lawsuit, initiated by Benchmark, thrown into arbitration, while the firm is asking for an order that would hinder any new moves by Kalanick.
Among the possible scenarios: Judge Samuel Glasscock of Delaware’s Court of Chancery could decide to send the dispute to arbitration. If granted, it would be seen as a victory for Kalanick, who would avoid a possibly damaging public deposition, allowing a third-party mediator to quietly settle what has quickly become an ugly Silicon Valley soap opera.
But Glasscock could also choose to issue the Benchmark-requested “status quo” order, which means that Kalanick might be temporarily siloed off from the rest of the company until a trial happens.
That would be dramatic, since Kalanick, despite being ousted as CEO in a Benchmark-led coup earlier this summer, remains a powerful member of the company’s board of directors. Fearing a counterattack, Benchmark is suing to remove Kalanick from that perch and is also trying to forbid him from filling the open board seats that he was awarded — by, among others, Benchmark — last year.
A decision might not come Wednesday. And if both motions are denied, then this lawsuit will proceed, with more oral arguments scheduled.
Whatever happens, the case has already shaken and divided loyalists and advisers to the high-valued Uber.
Some think Benchmark’s lawsuit as sensational but neccessary, given the stranglehold that Kalanick has tried to retain on Uber, applauding the venture capital firm for not sitting silently as a series of scandals cascaded. Others argue that Benchmark’s suit has thrown lighter fluid on an already fragile working relationship, and is yet another example of greedy investors looking out for their bottom line instead of the founder’s vision.
Bart Friedman, a corporate lawyer at Cahill Gordon & Reindel, said he viewed Benchmark’s case as weak, given the “extraordinarily high hurdle” they must clear to show that they were defrauded, one of their most potent allegations. But he speculated that Benchmark’s objective may not be merely to win the lawsuit — but to force Kalanick on the record in a deposition, or to use the case as a barganing chip in a grander deal.
“If I were representing him, I would be always concerned about what is out there,” Friedman told Recode earlier this month. As for Benchmark? “They probably have enough to file a lawsuit. It may not be enough to win.”
What Benchmark wants
Benchmark wants the judge to deny the motion that would dismiss the case and move it to arbitration, and to approve the motion for the status quo order that would temporarily bar Kalanick from filling the empty seats on Uber’s board of directors.
The expansion of the board is at the heart of the lawsuit: Benchmark says Kalanick committed fraud by pitching a board expansion while not informing them of the true crises the company was managing under his leadership. Benchmark has expressed worry that Kalanick could try to effectively take over company affairs by filling those vacant slots — essentially de-ousting himself.
Some of the urgency, though, has been deflated by the vote to offer the job of CEO to Expedia CEO Dara Khosrowshahi. Part of Benchmark’s argument in legal filings has revolved around the search for a top leader, asserting that the board was impeded from choosing a successor by Kalanick’s continuing negative influence.
According to sources familiar with Benchmark’s thinking, it believes strongly Khosrowshahi is in danger of falling under Kalanick’s control and wants to stay in the lawsuit to protect his ability to do his job — a CEO in name only under the heavy thumb of the pugnacious entrepreneur. Sources said this is why the firm is still pushing for a status quo order, despite a buzzsaw of public criticism in Silicon Valley for waging and also continuing it.
How would Kalanick do that? Benchmark worries he will try to make appointments to the open board slots, even after Khosrowshahi has been named, to further solidify his power.
Sources said that Benchmark now concedes that the firm’s partners did not handle Kalanick well, and understands that it has taken a big hit from competitors and the industry at large, as well as the media, due to the lawsuit.
But the firm is likely to argue that public litigation and not arbitration is the most transparent way to solve the current fracas. That’s because sources said that Benchmark believes that some of the allegations in the still-under-wraps Holder report — which has chronicled pervasive sexism and other management misdeeds at Uber under Kalanick’s rule — need airing, which can only happen if this case is heard in an open court.
What Kalanick wants
That is probably why Kalanick — who will not appear in person tomorrow in Delaware — wants this case to go more quietly away.
His attorneys have argued that this is a malicious lawsuit meant to slander him, brought by a firm that manipulated Kalanick at a time when he was grieving the death of his mother. So, let’s assume his team will try to present him as a sympathetic figure — in what will perhaps be a herculean legal effort — who had his company stolen from him.
Kalanick’s primary motive seems to be to move this case to arbitration as quickly as possible. His lawyers have said that they are not opposed to an expedited hearing schedule, and have told the court that they are willing to see a decision on both the status quo order and the motion to dismiss promptly.
Their primary objective, though, seems to be avoiding a public deposition. They’ll argue that the board’s voting agreement means this case must be sent to an arbiter, and are alleging that Benchmark’s claims — which relies heavily on media coverage, as opposed to primary documents — will melt away under private scrutiny.
Even if they do succeed in sending the case to arbitration, Kalanick could very well lose on the merits. His team has also signaled that they are unwilling to horse-trade the lawsuit as part of a grand bargain. They feel the suit must be dealt with independently.
What Uber wants
Not surprisingly, Uber — which is nominally named in the lawsuit but is not a defendant — wants to avoid more chaos.
Attorneys for the company said in a court filing Tuesday that Uber “does not oppose arbitration of the present dispute,” although they were not “addressing the merits of the case or the parties’ respective positions.”
Uber would definitely avoid a PR mess if Kalanick is victorious and this case moves out of the public eye and into arbitration. If the case does go to trial, there is also the potential that the Holder report — which came out of an investigation into the company’s overall cultural and workplace issues — will become public as part of discovery.
That’s why Uber is not protesting a move that brings this suit away from the glare of reporters.
In other words, the media is the real problem — and where have you heard that before?
This article originally appeared on Recode.net.
