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Dallas' Unfair Fight to Crush Uber

UPDATED SEPTEMBER 3 2014:Yellow Cab President's Ideas for Regulating Uber and Lyft: Make Them Just Like Taxis

UPDATED SEPTEMBER 10 2014Vonciel Hill and Michael Morris Join Forces and Seek Delay on Car-Service Regulations




Email the author at brantley.hargrove@dallasobserver.com.

The only thing George was sure of on a hot night in July was that he had absolutely no idea why a Dallas police cruiser was pulling him over. George, whom we agreed not to identify so he'd talk to us, is a driver for a local black-car service. On that night, he had activated a smartphone provided to him by a software company called Uber. With a few swipes of a touchscreen, a ride-seeking Dallasite with the Uber app on his own smartphone had electronically hailed George's Town Car. Once George accepted the Uber referral, the man had a picture of George, his license-plate number, his rating among other Uber users and his exact location, transmitted via smartphone. The rider did not have to worry about having enough cash to pay George, and George did not have to worry about getting stiffed. An Uber ride is cashless, and all users have credit cards on file that are billed automatically.

George had picked him up at a restaurant on Henderson Avenue. "The client was very engaging and showing me directions," George said. "He wasn't serious. I don't think he was a policeman, but you never know."

It was a fare like any other. But when he pulled up to a hotel just south of downtown, he noticed the police cruiser behind him for the first time. He wondered if he'd violated a traffic law. As his client got out of the car, the cruiser pulled around and came to a stop near the exit to the street. Its lights lit up when George approached. An officer stepped out of the vehicle and ordered him to pull over.

The officer asked George for all the usual documentation — license, city permit, and proof of the kind of insurance policy all black car-service drivers and cabbies must hold to operate in the city of Dallas. The officer verified his permits back at the cruiser while George waited, nonplussed and growing indignant. Finally, he asked George if he knew why he'd been pulled over. The officer told him he didn't see George hand his customer a receipt. What's more, he added, George was providing an unauthorized car service.

George pulled out his smartphone and tried to explain to the officer that Uber customers receive an electronic receipt via email. He explained that he did, in fact, possess all the necessary authorizations from the city. "I felt like I was doing something legal because I have the Dallas limo operations permit, a D/FW International Airport permit. I've got insurance. I've got registration. I've got everything he asked me for."

The officer, however, was unsatisfied, and he filled out two citations, both listed in municipal court as "Limo Violation." George refused to sign either. He says the officer called for backup and, for a time, as two other officers stood at the ready, George was certain he was going to jail.

After he argued with the officer for a while about the legality of his business, "he told me to have a good night, and pretty much left me right there," George said. "I think he felt like he wasn't doing something right and that's why I don't think he continued to arrest me. I think he felt sorry for me."

George would later learn that he was by no means the only one. Some 31 other Uber drivers were also cited by Dallas police in stings over the course of several months, conducted with the help of undercover vice officers posing as customers and with the assistance of private investigators hired by the lawyer for the biggest taxi company in North Texas. This went almost entirely unnoticed by the press and the riding public. But months later, when a proposed ordinance was slipped into the City Council's consent agenda that would outlaw Uber's entire business model without so much as a public debate, it wasn't long before everyone caught wind of it.

A popular furor erupted. City Council members' email inboxes and Twitter feeds were flooded with missives (hashtagged #DallasNeedsUber) from incensed, tech-savvy Dallasites who loved the consumer-centric counterpoint Uber provided to traditional cab service. Rather than waving at cabs as they pass, praying one will eventually stop, customers can use the Uber app to summon a sleek Town Car that would arrive within minutes and take users anywhere they wanted to go, requiring about as much effort as "liking" a post on Facebook.

Uber heralded a shift in the way we flag rides, which hasn't ever much changed in the history of cabs. Because taxi service is often a fairly random, one-off transaction, the industry has never felt the free-market pressures that steer consumers to the very best. Until now, that is. The industry is looking over its shoulder at a feisty tech start-up with hundreds of millions of dollars injected into it by Google. So, perhaps it shouldn't be all that surprising that Dallas, one of 23 cities in which Uber operates, isn't the only town attempting to shut the service out with radical changes to its taxi and limo ordinances. Nor should it come as any great shock that these changes share largely the same shape, and almost certainly, as Uber claims, originate from the same place: the taxi industry, which is watching Uber take a big bite out of its market share.

It's the oldest play in the crony capitalist's book: If you can't beat them, regulate them out of existence.

City Council members like Scott Griggs and Philip Kingston, who discovered the proposed ordinance change on the agenda just days before it was set for a vote, have some tough questions they can't wait to ask: How in the hell did this all happen? Why were undercover vice cops out issuing misdemeanor citations based on an incredibly nuanced city code that it isn't at all clear Uber violated? Was city staff working diligently to regulate an "unauthorized operator" in the interest of public safety? Or were they casting out the future of on-demand transportation for the benefit of an industry that sees Uber as a mortal threat to its existence?

Think of Uber's march through America's major cities as a war. Months before riders use the app to hail their first Town Car, Uber's forward operatives have already engaged in months-long reconnaissance of the city. They know how the taxi-per-capita ratio shakes out. They know all about its public transportation options. They've already dived into municipal ordinances and examined the limo and taxi codes for legal issues.

"We felt good about Dallas," said Leandre Johns, Uber general manager for Dallas and Fort Worth. "And the way the regulations read, it was well within reason. We didn't think we'd have much to worry about."

As it turned out, that assessment was a shade too sunny. Dallas wouldn't be any easier to conquer than, say, California, where state regulators issued a cease-and-desist letter, fining the company $20,000 (they eventually reached an agreement allowing Uber to operate). Or, after that, in Los Angeles, where police arrested Uber's "bandit taxicab" drivers in undercover stings. Or in Washington, D.C., where the public and the Federal Trade Commission chided the district council for proposing laws that seemed aimed less at protecting consumers than erecting arbitrary barriers to Uber's operation (the council later withdrew them).

"This is not something we haven't seen before," says Uber spokeswoman Nairi Hourdajian. "It is a standard play in the taxi industry's playbook in order to shut down consumer choice and competition to which they do not want to rise."

Despite significant financial backing from Goldman Sachs, Jeff Bezos and Google, Uber fits the role of David battling Goliath comfortably, if only because the resistance the company meets in nearly every city is so predictable.

And so, on November 2, Assistant City Attorney Chris Bowers sent Uber a cease-and-desist letter, recapitulating a pattern that had grown all too familiar. Over the next several months, representatives from Uber met with the city to clarify the nature of their business and to assuage the city's concerns. In correspondence dated as late as March 29, Uber stressed that it neither owned nor operated any vehicles and provided only a referral service, connecting riders with drivers; that it partnered only with drivers who held the required city limousine operator's license, which it verified independently; and that on top of the $500,000 insurance policy its drivers already have, Uber carries a $5 million excess liability policy just in case.

"The city knew all this before any of this started," Griggs says. "They had it in writing."

This spring, however, says Joel Reese, an attorney for the drivers, some of his clients reported picking up a woman named Deborah Burns, a former FBI agent listed as a consultant for private investigator Danny Defenbaugh. A few of them say they picked her up at a Walgreens near Lake Cliff Park, which happened to be just a few hundred yards from Defenbaugh's office. And his office, as it turned out, shares a building with attorney John Barr, who represents Yellow Cab. The citations these drivers received invariably dated back to the rides they gave Burns. When reached by phone, Defenbaugh said he would need to consult with Barr before commenting and did not reply by press time. A message left with Barr's office was not returned.

By May, the undercover stings began and tickets were issued to drivers like George. "It was a surprise to us," says Johns, Uber's local manager. "We'd had what I thought were good conversations with [the city]. Anytime they made a request, we sat down and talked. This came out of nowhere. They made no indication this was going to happen and they did say, 'Hey, if we're going to do anything or have any questions, we'll let you know.' But that wasn't the case at all."

Yet even as late as August, Reese says, limo companies who have partnered with Uber report receiving demands from city officials for ride manifests and records.

Uber, invoking its usual narrative, blames the local taxi industry, which it says exerts significant muscle in city halls across America. There might just be something to it. Taxis have always wielded influence in Dallas. Recall Al Lipscomb, the longtime council member who was both a civil rights icon and a symbol of pay-to-play city politics from the mid-'80s to 2000. He was a strident opponent of any regulation beneficial to taxis, and not without reason. They had historically failed to service his South Dallas constituents. That was until 1994, while Lipscomb was off the council, and Floyd Richards, owner of the Yellow Cab and Checker Cab franchises, asked for help with burnishing his company's reputation in minority areas of the city in exchange for $1,000 monthly payments.

When Lipscomb was back on the council in 1995, these payments continued, court records say. Since Richards was limited by law in what he could donate to Lipscomb's campaign, he loaned some $20,000 to Lipscomb's daughter's business. Where the councilman once opposed Yellow Cab's request to increase its fleet, he now vigorously supported it. When other cab companies sought the authority to operate in Dallas, Lipscomb worked to block them. At one point a city staffer discovered Yellow Cab was violating city code by operating a dispatch outside of the city limits. Lipscomb intimidated the staffer and eventually encouraged the City Council to allow dispatch centers headquartered in the suburbs. It was no coincidence that Richards' company was the only one in violation of that rule. Now it was within the letter of the law.

Lipscomb was indicted in 1999 for accepting $94,000 in exchange for casting votes favorable to Yellow Cab. His conviction was tossed in 2002 because the judge had erroneously concluded that Lipscomb couldn't get a fair trial in Dallas, holding it instead before an all-white Lubbock jury. Richards' wife was forced to sell the taxi baron's business to a man named Jack Bewley. Since 2007, Bewley has donated nearly $60,000 to City Council members and candidates.

According to an antitrust lawsuit filed by an organization of independent taxi drivers, Bewley and his partner Jeff Finkel together own or through management contracts control some 75 percent of the taxi industry in North Texas. This has been enabled in part, they say, because the city and DFW International Airport have placed a moratorium on the issuance of permits for new cab companies, and the industry has since consolidated under Finkel and Bewley. "It is not too much to say that when it comes to taxicab policy, the Dallas City Council and the DFW Airport board do what Jack Bewley tells them to, as long as they can find some pretext for doing it," the complaint reads.

"Uber has taken a significant amount of business away from [Bewley] simply because they're providing a better service," said one of the complainants, Muneeb Awan, president of the Association of Taxicab Operators. "[Yellow Cab Co.] has had this relationship with the City Council for so many years. It seems like they can get whatever they want, whenever they want."

The change to the limo codes, he says, is yet another example. A city spokesman told The Dallas Morning News that the changes before the council amount to "minor clarifications" to city code, noting that "the public might have no recourse should the vehicle be involved in an accident; should the consumer experience a pay dispute; or any other consumer-related or safety issue with the [Uber] service."

Bewley, in an emailed statement, says he simply wants "a level playing field" where the law is "equally applied to all participants."

But these "minor clarifications" are nothing of the sort. They would eliminate Uber as a viable business model. They would require, for example, that customers wait at least 30 minutes between the time they hailed a car using the app and pick-up. Any driver providing service through the Uber app must use a vehicle with a sticker price of $45,000 or more. The price of the ride could no longer be calculated based on a smartphone's GPS. A minimum fare of $35 would apply to just about anywhere except for a few select areas in the city. All routes would have to be preapproved through a central dispatch.

This isn't a level playing field. It is, at root, a prohibition against Uber being Uber anywhere in the city of Dallas. And it bears a remarkable semblance to the model ordinance developed by the International Association of Transportation Regulator's Smartphone App Committee, which consists of Houston, Austin, Los Angeles and Washington, D.C., working closely with industry groups to curb the expansion of "rogue apps." They propose things like the 30-minute minimum wait and the prohibition against using smartphone GPS to calculate fares.

President Matthew Daus, a former New York City taxi regulator, told Limousine, Charter & Tour Magazine: "Uber is a direct and immediate threat for the taxi and limo industries. Unless something is done, there is a possibility it could take over all the market."

That something may be his model ordinance. It isn't known to a certainty whether city staff used Daus' template. Council member Griggs says "Yellow Cab lobbyists and/or attorneys" met with interim City Manager A.C. Gonzalez.

Council member Philip Kingston tells the Observer the city manager's office directed Dallas police to carry out the stings "over the objections" of police Chief David Brown. A city spokesman declined to make Gonzalez available for comment, citing an ongoing investigation. But Brown says he received a request from the code compliance department to look into Uber's drivers. It told him, he says, that they weren't regulated, "therefore, they're not following the city of Dallas ordinances, which meant they had no proof they were insured or that they were safe, had their licenses, didn't have any criminal stuff in their background," Brown says. "The code department was limited in being able to stop moving vehicles, to check those potentially unregulated drivers. The request came to us because the police department is the only department that can stop moving vehicles to investigate those claims, for public safety."

Kingston says he doesn't buy city staff's public safety rationale. "That's baloney. That's garbage," he said. "If there's a concern out there, nobody's expressed it."

Brown admitted they'd found no direct threat to public safety posed by the Uber drivers they cited. "In all of the cases where we stopped the cars, they were licensed limo drivers," he says. "That was something revealed through our investigation."

Brown says that while violations of the city ordinance may remain, "the only reason I'd agree to use police resources was for clearly stated public safety reasons."

The city attorney, as Kingston tells it, wasn't confident it could prosecute Uber or its drivers for operating illegally. "When [the police] went to give the citations, they wrote to the city attorney's office. The city attorney felt he would be unable to enforce the citations because the underlying ordinance hadn't been violated."

Indeed, this was borne out when the city brought Uber itself to municipal court earlier this month for illegally advertising a limo service. Uber prevailed. "They tried to twist the language and say if you're going to advertise a limo service, you have to have operating authority, and that's not in the statute at all," local Uber manager Leandre Johns says. "It was unanimously found by the jury to not be the case, and we were found not guilty."

Uber, he adds, uses only drivers who have the necessary city operating authority.

None of this means there aren't a few niggling concerns about Uber. For example, when you install its app on your phone, you indemnify the company from any liability. In the fine print, it instructs users to direct any and all complaints to the car service, not Uber. And if you feel as though you've been wronged somehow and there's no other recourse but litigation, you may have to file your complaint in a court in Amsterdam, where the company is registered.

But if any of this is troubling Dallas devotees to the app, they aren't saying so. When news broke that the Uber ordinance was on the consent agenda, Kingston's office "received more emails and other contacts from constituents on this issue since I've been here, and more than my secretary can remember in her 17 years here," he said.

A pro-Uber petition circulating the Internet received one signature per second for the first three hours it was live, according to an Uber spokeswoman.

Kingston worries that the proposed change to the limo code bears all the hallmarks of what's known as "regulatory capture" — the taxi industry can't compete, so it gets the government to make sure it doesn't have to. Industry chieftains like Yellow Cab's Jack Bewley contend it's all about enforcing the rules uniformly. And Uber's biggest opponent, Matthew Daus of the International Association of Transportation Regulators, says the company price gouges at times of peak demand, while he simultaneously claims Uber has an unfair advantage over taxis. He has a point. Unless you're loaded, don't summon Uber on New Year's Eve. The pricing reflects supply and demand. But if its pricing is outrageous, won't the market chasten Uber? Is its advantage still unfair?

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Say you wave down a cab on the street, and the driver is rude and the service is terrible. If you've ever taken a cab in this or any city, you know that scenario isn't outlandish. Most rides are one-off affairs, and the cabby is on to the next fare, hustling to cover his dispatch fees and the lease he may be paying a major franchise like Yellow Cab on his taxi. Are you going to take the time to complain and hold the driver accountable, or will you simply move on with your life?

And is that even of the same species as Uber, whom you do business with again and again, each time rating the driver's performance on your smartphone? In that way, both Uber and its drivers are sensitive to the demands of the market in a way the taxi industry never has been.

When the ordinance change that would have killed Uber in Dallas came before the City Council last month, the market spoke. More than 100 speakers signed up to address the council. They didn't get the chance. Mayor Mike Rawlings took the council into executive session. When they returned, the ordinance was kicked to the transportation committee. Meanwhile, he vowed to lead an investigation into how the code change ended up on the consent agenda. "Your input is extremely important to us," he told the crowd that had turned out to speak on behalf of Uber. "We will get to the bottom of this. We will do the right things by the city of Dallas to make sure we live in a great city and it's an easy place to get around and a safe place to get around."

Then, he asked them all to please exit council chambers quietly.

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