Investor Suit Against Former Uber CEO Moved to Arbitration

A Delaware judge ruled Wednesday that an investor lawsuit targeting Uber Technologies' former CEO must be moved to private arbitration.

The judge granted former CEO Travis Kalanick's request to put the lawsuit on hold while an arbitrator considers claims raised by venture capital firm Benchmark Capital Partners.

The ruling came one day after Uber confirmed in a note to employees of the San Francisco-based ride-hailing company that former Expedia CEO Dara Khosrowshahi had agreed to become Uber's new chief executive. Uber's board voted unanimously to offer him the job on Sunday.

Benchmark, which holds more than a third of Uber's preferred stock voting power, claims Kalanick concealed material information regarding internal problems and external litigation threats facing the company last year when investors granted him authority to fill three new board seats.

Kalanick has said the lawsuit is a baseless attempt to slander him with false allegations, and that Benchmark's claims are subject to mandatory arbitration.

Kalanick resigned under pressure in June but quickly appointed himself to one of the three board seats. Benchmark, which says Kalanick is attempting to entrench himself on Uber's board and increase his power over the company "for his own selfish ends," is trying to prevent him from filling the two other seats.

"I think what we have here is a political battle that belongs in the boardroom, not the courtroom," Donald Wolfe Jr., an attorney representing Kalanick, told Vice Chancellor Sam Glasscock III at Wednesday's hearing.

The dispute involves Kalanick's successful effort last year to expand Uber's board from eight members to 11 members, with authority given to him to designate the individuals who would fill the three new board seats. The change required an amendment to an existing voting rights agreement among Kalanick, Benchmark and other investors, as well as an amendment to Uber's certificate of incorporation.

Benchmark said it would not have voted to create the new board seats had it known about the information they said Kalanick concealed, including his "gross mismanagement and other misconduct."

"Knowing what we know now, we never would have agreed to give him that influence and dilute our board position," Benchmark attorney Gregory Joseph argued Wednesday.

The key issue for the judge was whether a mandatory arbitration provision in the voting rights agreement extended more broadly to the related change in the company's certificate of incorporation.

Glasscock concluded that the change in the certificate of incorporation was done to facilitate the voting agreement, and that Kalanick had put forth a nonfrivolous argument that the two documents were sufficiently intertwined to make the arbitration clause apply.

The judge nevertheless agreed only to stay the lawsuit, not dismiss it. Glasscock noted that he may have to revisit the dispute if stockholders who are not subject to the voting agreement and therefore unable to intervene in the arbitration come forward and seek to enforce their rights under the company's corporate charter.

Benchmark says Kalanick knew, but failed to disclose, that Uber might be accused of stealing trade secrets from a Google spin-off, Waymo, to build self-driving cars. Waymo sued Uber earlier this year. More broadly, Benchmark has accused Kalanick of allowing a pervasive culture of sexism, discrimination and harassment to fester at Uber, which led to the company retaining former attorney general Eric Holder and his law firm to conduct an internal investigation of Uber's workplace culture. Among the recommendations included in Holder's report, which was released in June, was reallocating Kalanick's responsibilities.

Other board members and investors have criticised Benchmark's decision to sue Kalanick.

"This was a bilateral dispute between Benchmark and Travis Kalanick and it should never have been brought in the court," said Shervin Pishevar, an early investor in Uber who intervened in the lawsuit, accusing Benchmark of unscrupulously trying to gain control of Uber at the expense of other investors. "We continue to believe that Benchmark filed this to vilify Travis Kalanick in the court of public opinion."