Judge Rejects $28.5M Uber Safe Rides Fee Settlement, Says Company Made $449M from These Charges

Another Uber Settlement Rejected, This Time Over Riders' Fee

Judge Rejects $28.5M Uber Safe Rides Fee Settlement, Says Company Made $449M from These Charges
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September 1, 2016

Not even two weeks after a court rejected a $100 million class action settlement in a dispute between Uber and its drivers, a federal judge has denied a second huge settlement in a legal battle over the nearly half a billion dollars in "Safe Rides" fees collected by the ride-hailing service.

In April 2014, amid multiple reports of attacks on Uber passengers and inadequate background checks, Uber began charging flat $1 "Safe Rides" fees, with the company claiming that this additional revenue would go to fund background checks, motor vehicle checks, driver safety education, and insurance. Nearly a year ago, Uber began charging the fee at different rates in different cities — up to $2.30 a ride in some markets.

One lawsuit filed by Uber passengers accused the company of misleading consumers about these fees, arguing Uber was profiting off the fees. The complaint alleged that Uber failed to institute practices like confirming drivers' identity via fingerprint, that some drivers were continuing to go out of pocket for vehicle inspections, and that the "driver education" offered by Uber is "minimal."

In Feb. 2016, Uber announced it had reached a $28.5 million settlement in this case, agreeing to rename the fee a "booking fee" and return some money to around 25 million Uber passengers included in the class action. However, settlements like these need a judge's approval, and after District Court judge Jon Tigar looked under the hood at Uber's financials, he decided that the $28.5 million payout was too small compared to the amount of money Uber raked in from these fees. While Tigar found no indications of collusion in the settlement, he did conclude that the amount of the settlement is too low to merit approval and that certain class members receive preferential treatment.

To determine if a settlement is reasonable, the judge has to consider how much the plaintiff class could have been awarded if it had prevailed at trial. The payout to each class member would come out to $.82 per class member, which plaintiffs say is pretty good when you consider the average Safe Rides fee came out to $1.12. However, notes Tigar, this assumes that each class member only paid the fee once.

More importantly, the judge questions the plaintiffs' claim that the maximum damages they could have received in a successful case would be $132 million. The publicly released version of Judge Tigar's order redacts the full amount of revenue generated by Uber from these fees, but Bloomberg reports that the actual figure is $448,598,018, around 16 times the settlement amount.

Lawyers supporting the settlement had argued that plaintiffs couldn't expect to receive that full $449 million in collected fees because Uber had provided some value for passengers' money. However, the judge has doubts about some of their arguments. For example, they claim that some of the fee money was spent on insurance, but not the "industry-leading" insurance the fees had promised.

Tigar says if he accepts the argument that spending on basic insurance policies merits a tacked-on fee, then "any corporation could charge a similar 'Safe Product Fee' simply for maintaining corporate insurance policies that most people would consider an ordinary cost of doing business." Tigar admits that it's "highly improbable" the plaintiffs would get the full $449 million at trial, the $28.5 is nevertheless not "fair, adequate, and reasonable compared to what class members paid Uber for safety."

Regardless of the total amount, the judge also found that the way the settlement payout is currently structured treats class members unfairly. As proposed, the settlement would divide up the $28.5 million (minus attorney fees and other costs) equally between the 25 million class members, regardless of how many times each class member was charged this fee. So, a passenger who took a single Uber ride during the time in question would get the same refund as an Uber passenger who used the service frequently.

"Plaintiffs do not justify this discrepancy, and it does not withstand scrutiny," writes Tigar, "if the claimed injury is the payment of a fee, it stands to reason that the appropriate compensation for each injured party would depend on the number of fees that party paid."

The judge says there's no reason to insist on the equal distribution of the settlement money, since Uber has records that would clearly indicate how many times each class member was charged the fee.