U.S. judge faults Uber, bans background check in NY lawsuit

By Jonathan Stempel

NEW YORK (Reuters) - A federal judge on Monday banned Uber Technologies Inc and its Chief Executive Travis Kalanick from using information from a background check on a passenger bringing a price-fixing lawsuit, saying the investigative firm conducting the probe may have engaged in criminal conduct.

U.S. District Judge Jed Rakoff in Manhattan also faulted the popular ride-sharing service for hiring the firm, Ergo, at all.

Rakoff called it a "sad day" that Uber felt compelled to authorize what became an "intrusive and clandestine," and ultimately unsuccessful, probe to unearth damaging information about the plaintiff Spencer Meyer and his lawyer.

"The court finds perfectly appropriate an order enjoining defendants from making use of the fruits of their own troubling conduct," Rakoff wrote. "The court cannot help but be troubled by this whole dismal incident."

Monday's decision may end a battle over how Ergo, a New York-based firm founded by a former director of counterterrorism at the White House National Security Council, tried to help Uber and Kalanick defend against Meyer's civil lawsuit.

Uber declined to comment. The San Francisco-based company and Kalanick have said they would agree not to use information from Ergo's probe, so long as they did not admit wrongdoing.

Ergo and its outside lawyer did not immediately respond to requests for comment. Andrew Schmidt, who is Meyer's lawyer, said he is pleased with the decision.

Meyer accused Kalanick of illegally conspiring with Uber drivers to coordinate high "surge pricing" fares during periods of heavy demand by agreeing to charge prices set by an algorithm in the Uber smartphone app for hailing rides.

Uber takes a cut of revenue that drivers generate. The company is privately held, but in June conducted a funding round valuing it at $62.5 billion.

Rakoff said Ergo crossed a line with lies its unlicensed investigator Miguel Santos-Neves told friends and acquaintances about Meyer and Schmidt in a bid to learn more about them.

The judge faulted the investigator for pretending to seek information about "up-and-coming" environmental conservation researchers and labor lawyers, when the real purpose was more likely to intimidate Meyer or hurt his case.

"Ergo, in investigating plaintiff, was engaged in fraudulent and arguably criminal conduct," Rakoff wrote.

Santos-Neves' misrepresentations, moreover, "were condoned by the highest levels of Ergo leadership," Rakoff added.

Uber has said it hired Ergo over concerns about Meyer's motivations for suing, including "legitimate security risks facing Uber personnel and first-hand experience with malicious lawsuits against executives at high-tech companies."

The case is Meyer v Kalanick, U.S. District Court, Southern District of New York, No. 15-09796.

(Reporting by Jonathan Stempel in New York; Editing by W Simon and Bill Trott)