Airport Startup Faces Lawsuit

July 5, 2013

A California car rental startup currently faces a lawsuit, and the outcome could have significant implications for business startups across the state. According to a recent article in the San Mateo County Times, FlightCar, a Santa Clara car rental startup, has caused quite a stir at the San Francisco International Airport. And this is just another example in "the latest series of battles within rule testing tech entrepreneurs and officials."

FlightCar refers to itself as "the Airbnb of car rentals at airports." It's the first company to create a marketplace in which vehicle owners who have parked their cars at the airport can rent them out to other airport travelers. In other words, the company hopes to allow frequent flyers to make some money while their cars remain at the airport. The self-proclaimed Harvard, Princeton, and MIT dropouts have deemed their company the "peer-to-peer alternative to the traditional airport car rental." The three founders are young–they were only 18 years old when they created FlightCar.

The company opened its first operation at the San Francisco International Airport earlier this year, and it made plans to expand to other major flight centers. According to a report in Tech Crunch, FlightCar raised a $5.5 million Series A round with "a number of high-profile investors, including General Catalyst, Softbank Capital, Airbnb founder and CEO Brian Chesky," and Seacrest Global Corp.

How does it work? A traveler drops her car off at a FlightCar lot. Then, incoming visitors can rent that car for less than the cost of a car rental at a traditional airport rental chain. If the owner's car is rented while she's traveling, she receives gas cards for $10 per day for each day that the car is rented. If the car geos unrented, the owner still gets free parking. With the high cost of airport parking, a vehicle owner could save up to $18 per day in certain long-term parking lots.

The vehicles also get a free wash when they're listed on the site, and owners can take advantage of a valet service to and from the airport when their cars are picked up or dropped off. And the service is supported by a $1 million insurance policy for owners and renters. There are a few requirements, of course. Vehicles must be 1999 or newer models, and they can't have more than 150,000 miles. The service seems like a great idea. So what's going on with the lawsuit?

According to the San Francisco City Attorney Dennis Herrera, FlightCar dodged fees and undercut its competition at San Francisco International Airport. As a result, the city wants FlightCar to "give a cuts of its profits to SFO and follow a few rules or shut down." In the lawsuit filed in San Francisco Superior Court, Herrera also contends that the startup "has flouted car rental agency rules."

The city wants to shut down the startup until it starts to comply with certain regulations, according to a report in local ABC News. These rules include pick-ups and drop-offs in a specific area, paying 10 percent of gross profits to the airport, and paying $20 for each rental transaction.

FlightCar has since opened for business at Boston's Logan International Airport, and according to the Boston Business Journal, the startup has "grown from 600 drop-off rentals in mid-May to 1,000 a month later, with the number of rentals rising from 1,000 to 1,400 in the same time."

The FlightCar lawsuit raises many questions about the laws surrounding startups in California. If you have questions about startups in our area, an experienced business lawyer can answer your questions today. Don't hesitate to contact us.