Los Angeles shocks Uber, Sidecar, and Lyft with Cease & Desist orders despite state authorization (Updated)

By Michael Carney , written on June 25, 2013

From The News Desk

If recent evidence is any indication, the battle between transportation regulators and ride-sharing startups is a rite of passage for major American cities. To the extent that this is the case, Los Angeles is about to be bar mitzvahed. Yesterday, the city sent near-identical cease and desist letters to Uber, Sidecar, and Lyft demanding that each cease operating an “automobile-for-hire” business without a permit.

Uber recently celebrated its one year anniversary in LA, while Lyft entered the market in January, and Sidecar followed suit in February. All three companies have faced similar challenges in other markets, the most notable of which has been Uber’s dust ups with New York, Washington DC, and San Francisco. Sidecar and Lyft have faced similar bureaucratic conflicts in Philadelphia, Austin, and other markets.

In LA, the crux of the city’s objection boils down to the question of whether these services are in fact in the livery business or whether they are simply digital marketplaces facilitating connections between independent drivers and riders. The startups themselves, often argue that transportation needs to be disrupted and that they are providing a superior service preferred by consumers – for Uber founder Travis Kalanick, this has become a Randian philosophical crusade.

Incumbent taxi and limo companies and drivers, on the other hand, are quick to point out that without proper licensing and insurance, ride-sharing and car service startups aren’t subject to the same safety regulations put in place to protect consumers. A group of these drivers organized a protest at LA City Hall earlier this morning

A related issue is that each service employs everyday consumers, rather than licensed livery drivers, to pick up and transport its riders. For Uber, this represents only a fraction of its business, while for Sidecar and Lyft, it’s an overwhelming majority. To the extent that these companies is ultimately subjected to livery law, this could prove to be a major sticking point in their business models.

Earlier this year, Uber, Sidecar, and Lyft each entered into agreements with the California Public Utilities Commission (CPUC) granting them permission to “operate while the CPUC’s ridesharing rulemaking is underway.” The agreement came after the commission fined each company $20,000 each for "operating as passenger carriers without evidence of public liability and property damage insurance coverage in effect and on file with the CPUC."

“We were surpised by the news, in light of our agreement with the CPUC,” Sidecar co-founder Nick Allen said today when reached by telephone. “The agreement gives us authority to operate statewide, so we really didn’t see this coming. We will absolutely continue to operate in LA for the time being.”

An interesting wrinkle in the LA conflict will be the impact of the city’s new mayor, Eric Garcetti, who won a very public election on a technology and business-forward platform and will take office on July 1. Before even unpacking his office, many local residents will expect Garcetti to make good on his campaign promises and act in favor of innovation and disruption in this case.

This is surely not the last word in this matter. If history holds, Uber can be expected to put up the biggest fight, while Sidecar and Lyft are more likely to engaging in a dialogue with regulators. Notably, startup hotbed Santa Monica is not within the City of Los Angeles and is not subject to these cease and desist orders.

Stay tuned for more on this evolving situation.

Read each Cease and Desist letter below, courtesy of Inside Social.

UPDATE: In an email response to this article, an Uber spokesperson provided the following comment:
We already signed an agreement with the California Public Utilities Commission explicitly stating that Uber services, including the eco-friendly uberX, are authorized to operate statewide...The first line of Los Angeles Municipal Code Sec. 71.00 cited by the LADOT letter: 'The provisions of this chapter apply when the provisions are not in conflict with any paramount regulations by the state or nation.' In this case, it's the state PUC who has jurisdiction, and the PUC has explicitly given the authority for these drivers to operate.
[Image source: Blogdowntown]