Benchmark's lawsuit against ousted Uber CEO Travis Kalanick will go to arbitration

An Uber driver picks up a passenger at LaGuardia Airport in New York on March 15, 2017.

By Tracey Lien

Aug. 30, 2017 2:10 PM PT

Reporting from San Francisco — It must have been a bittersweet day for Travis Kalanick, the co-founder and former chief executive of Uber.

Hours after watching his replacement, incoming CEO Dara Khosrowshahi, address employees for the first time at an all-hands meeting, Kalanick, who was pressured to resign from the company in June, was handed a win: A fraud lawsuit filed against him by Uber investor Benchmark was sent to arbitration.

“Mr. Kalanick is pleased that the court has ruled in his favor today and remains confident that he will prevail in the arbitration process,” a spokesman for Kalanick said in a statement. “Benchmark’s false allegations are wholly without merit and have unnecessarily harmed Uber and its shareholders.”

A Benchmark representative said the firm is looking forward to “presenting the facts” as the case proceeds. “This case is fundamentally a question of integrity and values, and the facts will fully support Benchmark’s position,” the representative said in a statement.

Benchmark, an early Uber investor and major shareholder that controls a board seat, filed the suit against Kalanick in mid-August alleging that the former CEO defrauded the firm into approving three additional board seats and giving Kalanick appointment powers.

The lawsuit sought to void three board seats created last year, one of which Kalanick currently occupies, which would in effect remove Kalanick as a company director.

Benchmark filed the lawsuit in Delaware Chancery Court. In his own court filing, Kalanick had sought to have the case moved to arbitration. When cases go to arbitration, an independent arbitrator settles the dispute and both parties avoid public depositions. Details uncovered during arbitration often remain private, whereas court proceedings typically go on the public record.

The lawsuit alleges that Kalanick withheld information from Benchmark in 2016 when the three new board seats were being approved. Had Benchmark known about certain events — such as the mishandling by Uber executives of a rape victim’s medical files, a forthcoming lawsuit from Waymo alleging theft and use of trade secrets, and accusations of sexism and discrimination inside the company — it would not have approved of those seats, the lawsuit said.

Kalanick hit back days later, calling the lawsuit a “smear campaign,” alleging that Benchmark knew of those events and that the lawsuit was petty political maneuvering.

The contentious lawsuit has divided Uber investors, some of whom believe the move is extreme but necessary, while others have vocally criticized Benchmark for adding to the strain on a company already in crisis.

In an impassioned note that was shared with reporters Wednesday, Uber investor Shervin Pishevar described Benchmark’s litigation as callous and opportunistic, noting that the firm pressured Kalanick to resign from Uber mere weeks after Kalanick’s mother was killed in a boating accident.

“We write with the spirit of Bonnie Kalanick, who raised her son with deep unconditional love and unfading faith in his ability to do good for the world. Whose tragic and untimely death was used against her son at his most vulnerable, unspeakable time of pain,” Pishevar wrote. “They chose to strike at a moment of a devoted son’s retreat and leave of absence to mourn the absence of the inviolable love of his mother. In doing so, they join the very corruption her son had devoted such a fervent passion to fight.”

Pishevar went on to describe Benchmark’s actions as an “unholy alliance of perfidious greed devolving rapidly into the audacity of vituperative unparalleled predatory rapacity.”

Investors who support the lawsuit, but didn’t want to be quoted commenting on active litigation, said the legal action was likely a last resort to create a clean slate for Khosrowshahi, who will be tasked with cleaning up the company’s culture and guiding it toward profitability and a much-anticipated initial public offering.

Khosrowshahi starts Tuesday, according to a tweet from Uber board member Arianna Huffington. Despite reports that Kalanick cried during the company all-hands meeting, he was all smiles by the end of it, a photo posted by Huffington with the exiting and incoming CEOs shows.