HOUSTON (CN) - Uber is operating legally in Houston and San Antonio, but may be misleading riders by comparing its insurance to policies held by taxi companies, a federal judge ruled Tuesday.
Cabbies and limo drivers in the two cities sued Uber and Lyft in Federal Court in April 2014, one of dozens of similar lawsuits against the ride-sharing companies across the country .
Uber partners with "third party transportation providers" and charges customers through their credit cards so no cash changes hands.
Lyft lets people who need a ride request one from its designated drivers, who do not charge fees, but accept "donations."
Uber and Lyft came to Houston in February 2014 and to San Antonio a month later. Both are based in San Francisco.
Lead plaintiff Dawit Sahle operates Adulis Cab Co. in Houston, and owns eight city-issued taxicab permits.
He claims the app providers skirt licensing requirements by holding themselves out as "ridesharing" services, and "skimming only the profitable trips" by encouraging their drivers to serve primarily affluent neighborhoods.
Uber and Lyft have had growing pains in both cities.
They were cited 36 times for noncompliance with Houston and San Antonio regulations, and San Antonio's police chief sent Lyft a cease-and-desist notice in March 2014 because it lacked a permit, Sahle claims.
He sued the companies for false advertising under the Lanham Act, and made state law claims of unfair competition and tortious interference.
Houston and San Antonio were forced to change their laws in 2014, after the lawsuit was filed, to establish permitting regimes for the rideshare providers.
In light of the cities' efforts to incorporate Uber and Lyft into their rules, U.S. District Judge Vanessa Gilmore dismissed most of Sahle's Lanham Act claims in a March 10 order.
Gilmore found the cabbies and limo drivers were simply trying to enforce their "preferred interpretation of local ordinances."
"The alleged citations from the cities of Houston and San Antonio, and the cease-and-desist letters from the San Antonio chief of police, do not amount to 'clear and unambiguous statements' from the cities' regulatory agencies that defendants are in violation of local ordinances," Gilmore wrote.
Most importantly, she said, the companies' citation issues "predate" the changes to the cities' rules.
Lyft pulled out of Houston in November 2014, stating in a letter that the city's new regulations that require drivers to undergo background checks and medical exams and install fire extinguishers in their cars were too burdensome.
Gilmore also tossed Sahle's claim that Uber and Lyft misrepresent their services as free "ridesharing."
Gilmore found that Sahle erred by citing a definition of ridesharing from The American Heritage Dictionary, which defines it as the "act or an instance of sharing motor vehicle transportation with another or others, especially among commuters."
She wrote: "The dictionary definition provided does not exclude ridesharing for a fee. Therefore, plaintiffs have not pleaded a literally false statement."
She did, however, find that Uber may have misled consumers by describing its insurance coverage as "almost 20x the requirements taxis have in Houston," though it does not maintain a commercial auto insurance policy like taxi and limo drivers and relies on drivers' personal insurance to cover them between trips and to fill gaps in its own coverage.
Uber and Lyft maintain liability disclaimers that may limit coverage for fares, Gilmore added, which could render their insurance claims misleading.
She also took issue with Lyft's assertion that its drivers accept only "donations" in certain cities such as San Antonio, while charging set fees elsewhere. She found Sahle was right to question the payment system, given that the company allegedly charges fares the "full donation" unless they decline it, and warns them they are more likely to be picked up if they regularly make donations.
"Courts have found violations of the Lanham Act where a business advertises a product or service as free, but charges hidden fees or requires that the customer cancel service to avoid being charged," Gilmore wrote in the 39-page order.
As for the cabbies' Texas law arguments, Gilmore tossed the tortious interference claim, but refused to dismiss their unfair competition claims and their request for a permanent injunction.
Plaintiffs' attorney Martyn Hill, with Pagel Davis and Hill in Houston, told Courthouse News he's disappointed Gilmore did not find more grounds for false advertising by Uber.
"Uber claims that an 'Uber Driver' serves as an 'Uber Partner' when transporting people as a 'Rideshare' experience," Hill wrote in an email. "Uber's terms of service directly contradict this 'partnership' aura, however, through boilerplate disclaimers of any responsibility whatsoever for the qualifications of the driver or of the vehicle. "How is this not a material misrepresentation intended to deceive the public?"
He added: "We are glad that the court is allowing us to pursue claims related to their fraudulent insurance, but this is only the tip of the iceberg."
Uber's attorney, Arthur Roberts with Quinn Emmanuel Urquhart Sullivan in San Francisco, said he was not authorized to comment.
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