Reverse auctions are part of Uber, Lyft settlements, some plaintiffs claim

Before the passage of Proposition 22 last week, representative actions alleging Uber and Lyft misclassified drivers were a reliable source of work for plaintiffs' attorneys in California.

The vast numbers of drivers, combined with what plaintiffs' attorneys say were especially egregious violations, made the cases attractive to take on.

But the large number of these cases could also work to these attorneys' disadvantage. Some said the fact many have overlapping claims but are not coordinated with each other fostered an environment in which Uber and Lyft could easily engineer "reverse auctions" with some plaintiffs' attorneys to drive down settlement values. That scenario benefits the companies and the settling attorney, who gets to collect the attorney fees, but could hurt other plaintiffs with identical claims, which could be dismissed as a result of the settlement.

Some of the attorneys who agreed to these settlements have a different take on the matter. Recently accused of colluding with Uber and Lyft to negotiate reverse auctions, they said other plaintiffs' attorneys have a financial incentive to make such allegations. In a case where a reverse auction accusation was made by the state Labor and Workforce Development Agency, the settling attorneys contend they were merely caught in the middle of the state's long-standing battle with the rideshare companies.

No matter which side of the reverse auction allegations these attorneys are on, though, all agree on one thing: Uber and Lyft are no longer their only adversaries.

Recent reverse auction allegations have a common thread: Jahan C. Sagafi, a partner at Outten & Golden LLP who is involved in at least three Private Attorney General Act cases that accused another plaintiffs' attorney of working with Uber or Lyft on a reverse auction. Sagafi's firm lodged these allegations along with attorneys at Olivier Schreiber & Chao LLP.

Sagafi and Christian Schreiber, a founding partner at the latter firm, helped develop a policy against reverse auctions for the California Employment Lawyers Association, which the plaintiffs' attorneys organization published on Oct. 8. "We believe there has been an increase in this phenomenon for PAGA cases in particular," Schreiber said last week. "For example, multiple plaintiffs' firms have filed cases against Lyft, and our contention is that the class of drivers and the group of aggrieved employees that we represent have been victimized by this phenomenon of reverse auctions."

Here's how the scenario described by Schreiber works: Different plaintiffs, represented by different attorneys, file overlapping PAGA claims. Because a judgment in one of these cases could arguably wipe out the other claims, and because plaintiffs' attorneys do not always coordinate with one another and may not even be aware they are filing similar cases against the same employer, the defendant's bargaining power is high: The company could theoretically choose to settle with the plaintiffs willing to accept the lowest price.

"The danger is if you have one plaintiffs' lawyer who has invested less time in the case, or has less confidence about their ability to actually achieve a good result in the case, then they're going to be tempted to agree to a heavily discounted price," Sagafi said.

While reverse auctioning in representative actions has been an issue for decades, Sagafi said, "We've seen a burst of activity in this area ... because of the increase in PAGA litigation where we have more plaintiffs' lawyers filing more cases. Which is not at all necessarily a bad thing, because there's a lot of wage theft by companies, so there's a huge need for these cases to be filed. But more different lawyers filing more cases, and then coupled with the fact that PAGA is a relatively new statute ... means that it's kind of a wild West."

"I would say Uber and Lyft ... are a prime area for this to happen," Sagafi continued. "It's a huge number of workers and so therefore it's easy to find clients. They're incredibly egregious violations so they're really strong cases."

Earlier this year, Sagafi and Schreiber alleged another plaintiffs' attorney in two misclassification cases against Lyft, Allen Graves of the Graves Firm APC, participated in a reverse auction with the rideshare company when he agreed to settlements. In one of these cases, the attorneys filed an opposition to the proposed settlement. Turrieta v. Lyft Inc., B304701 (Cal. App. 2nd Dist., filed March 3, 2020). In the second, the attorneys filed a motion to intervene in the case, alleging collusion between Graves and Lyft. Los Angeles County Superior Court Judge Elihu M. Berle granted the motion to intervene Friday. LaBorde v. Lyft Inc., BC707667 (L.A. Super. Ct., filed May 30, 2018).

Schreiber said Friday he believed Berle's "decision to grant intervention is an indication of what the court may feel about the quality of the proposed settlement."

In a brief opposing Sagafi and Schreiber's motion in LaBorde, Jacqueline Treu, an attorney at Graves' firm, rejected the allegations. Their "speculation about a 'reverse auction' is just wrong," Treu wrote, adding Sagafi and Schreiber "provided zero evidence or even suggestion of collusion between plaintiff and defendant in this case. ... In fact, the parties in the instant matter were unable to come to agreement."

She added, "Instead, an independent and well-respected mediator, Antonio Piazza, had to make a mediator's proposal based on his own valuation of the case after negotiations between the parties came to an impasse."

In an interview last week, Graves noted Sagafi was involved in another case that involved similar claims to those made in LaBorde. Last June, the Judicial Council issued an order rejecting Sagafi's and Schreiber's request to coordinate LaBorde, Turrieta, one of Sagafi's cases, as well as two others involving Shannon Liss-Riordan of Lichten & Liss-Riordan, PC, who is known for her cases against the ride-share industry. The order reasoned there was no benefit to coordination, because all the cases except LaBorde had been stayed.

"When my client settled he was the only litigant who had an active case representing these people," Graves said, explaining why he reached the settlement with Lyft. "There were no other litigants. These people lost their cases, they were all stuck, stayed, unable to put any pressure on the defendant."

"It's common for lawyers to object to a settlement in the hope of receiving a payment in exchange for withdrawing the objection," he added, clarifying he was not necessarily accusing Sagafi and Schreiber of this.

On Oct. 8, the state labor commissioner on behalf of the Labor and Workforce Development Agency, lodged its own reverse auction allegations in another PAGA action. Sagafi represents one of the plaintiffs and also alleged a reverse auction scenario earlier this year. Attorneys at San Francisco firm Klein Law Group LLP had reached the settlement with Uber.

"The PAGA does not prohibit overlapping PAGA actions proceeding concurrently. However, any judgment ultimately entered arguably has res judicata effect as to all other claims," according to the labor commissioner, in the opposition to the settling parties' settlement application. "This creates a risk that PAGA plaintiffs may engage in 'reverse auctions' in which defendant employers are able to choose among competing plaintiffs and seek settlement for the lowest amount possible." Tabola v. Uber, CGC16550992 (S.F. Super. Ct., filed March 16, 2016).

"The last minute addition of multiple claims which are being released, hefty attorneys' fees, a low-ball settlement of claims and extinguishing of claims brought by many others against defendants, are red flags suggesting that this settlement is designed primarily to benefit defendants and extricate them from the other current and anticipated lawsuits," the labor commissioner added. "This court should carefully scrutinize the settled claims for fairness, adequacy, and reasonableness in light of the purposes of the PAGA."

Attorneys at Klein Law Group, William P. Klein and Alexei Kuchinsky, rejected these allegations. Like Graves, the attorneys also said they used a mediator to reach the settlement. The opposition brief "mentioned that there were red flags, but they didn't say what the red flags were," Klein said in an interview last week. "Here nothing was even alleged as a reverse auction, other than the scope of the settlement was very broad and it wasn't enough money.

"I could understand the state saying that the state wants more money, and if the state wanted to participate in this case, we would have welcomed it at any point," he added.

Kuchinsky said Uber likely chose to settle Tabola because theirs was the first claim filed within a group of similar claims. "In the class action context when there are multiple actions filed against the same defendant for the same claims, quite often the court will stay all later filed actions and will allow only the first filed case to proceed," he said. "It is natural and logical for Uber to select the first filed case."

"There's a backstory here that I don't think is hard to fathom," Klein added. "The state and Uber have been at war. There are multiple lawsuits filed all the time. I think the state and municipalities have really drawn a line in the sand regarding what it believes were Labor Code violations, and Uber has been unrelenting in fighting those. So it's not difficult to understand why the state would want to come forward and express their opinion here."

In its opposition brief, the labor commissioner said the settlement amount the attorneys agreed to "is unlikely to deter Uber from committing any future violations."

Schreiber believes the labor commissioner's intervention is useful to all plaintiffs -- largely because since PAGA was passed in 2004, attorneys have received little guidance as to what the state believes an appropriate settlement amount should be.

"The significance of the state intervening is gigantic because it's extremely rare, and the state is the keeper of PAGA," he said. "Its opinion about ... what [these settlements are] worth is hugely important."