Yellow Cab in Chapter 11 – Uber or other cause?

Katie Challans 0 Comment 10/01/2016

Yellow Cab Co-op, San Francisco’s largest taxi fleet with more than 500 cabs, is considering filing for Chapter 11 bankruptcy, it said this week. And although many media speculate this is due to the fierce competition from Uber and Lyft in San Francisco, this move comes six months after a Sna Francisco Superior Court jury found Yellow Cab liable for an $ 8 million award to a passenger who suffered brain injury and partial paralysis in a Yellow Cab vehicle.

“We have had an unusual number of accident claims recently that have forced us to consider this as an option,” Jim Gillespie, Yellow Cab general manager, said in a statement to Fortune. “If the filing is necessary, we expect to be in a stronger position than before the filing.” He did not return calls for comment. Organized as an owner co-operative, Yellow Cab told its 300 members in November that the move might be necessary. In this cooperative each member is liable for part of the $ 8 million award.

The magazine also commented that “Yellow Cab, like the taxi industry worldwide, has seen its business ravaged by upstart ride-hailing services Uber and Lyft, which charge lower fares and can flood the streets with cars. Taxi companies say that the newcomers benefit from looser restrictions. But this potential Chapter 11 filing seems related to the case of Ida Fua, a Bay Area lawyer whose Yellow Cab driver allegedly didn’t notice a freeway traffic jam and rammed into a stopped car at 60 to 65 mph in 2011.

Yellow Cab tried to duck liability on the premise that the driver was an independent contractor. The jury rejected that contention and found that the driver was an “ostensible employee,” making Yellow Cab responsible for his actions.”

“The argument echoes those about the status of Uber and Lyft drivers, some of whom are now suing to be reclassified as employees.

Yellow Cab carries $1 million in liability insurance — only a fraction of the $8 million awarded to Fua — leading her lawyer to call it “grossly underinsured.”

“Yellow Cab has been hit with large lawsuits before, but they have never increased their insurance policy limits,” Fua’s lawyer, Todd Emanuel, said in an e-mail. “Instead, they pretend they don’t own or operate many of these cabs, and they hang their drivers out to dry by claiming the drivers are entirely independent of the taxi company.” Emanuel said his client, as a major creditor, would have a voice in Bankruptcy Court.

Yellow Cab’s move seems similar to that of a Midwestern counterpart with the same name. In March, a passenger severely injured in a cab crash was awarded $26 million from Yellow Cab of Chicago. The company filed for bankruptcy protection nine hours after the verdict and told news organizations that it could not pay the damages.

Yellow Cab asserted that its business is still strong, with an average 15,000 fares a day in San Francisco and the recent release of an electronic ride-hailing app, Yo Taxi.

But some San Francisco Yellow Cab drivers told Fortune they have already felt an impact. Normally the company pays about $1,000 a month to rent a medallion — the city-issued right to drive a cab — during times when a medallion owner is not driving. One driver said he and other medallion holders haven’t received payments for a couple of months because the co-op is cash-strapped. That payment used to be about $2,000 a month a few years ago, before the advent of Uber and Lyft, he said.

So with mounting debt and decreasing revenue, it appears Yellow Cab plans to file for Chapter 11 bankruptcy to shed some of its debt and to restructure its business. To survive in the ride sharing and mobile device era, some taxi companies have eagerly adopted Flywheel, an Uber-like app that lets passengers hail old-school cabs from any company and takes a small cut of the fares. Others, like Yellow Cab, have built their own apps in an effort to give their loyal customers a similar experience, although a Flywheel spokesman confirmed that some individual Yellow Cab drivers do use Flywheel’s app as well.

Still, taxi companies are struggling and many drivers are hopping the fence over to the ride-hailing services. Some, like DeSoto Cab in San Francisco went as far as to repaint its cars with Flywheel’s brand in the hopes of having a fighting chance.

But, as other media reported, ride-hailing services like Uber and Lyft aren’t necessarily immune to the sky-high damage judgements for traffic collisions. Just like Yellow Cab, they carry an insurance for up to $1 million per accident, which only kicks in when a driver is on the clock (either on their way to pick up a rider, or transporting one). Like Yellow Cab, and other taxi companies, they currently classify their drivers are independent contractors (though a major lawsuit in California could change that) in an attempt to minimize liability.

But clearly that hasn’t worked in Yellow Cab’s case, or even in Uber’s when it privately settled with the family of six-year-old girl struck and killed by an Uber driver two years ago.