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Uber Hits Possible Roadblock with Lawsuit Over Child's Death

<p>After Sofia Liu, 6, was killed in an accident on New Year's Eve, Uber faces scrutiny over its business model.</p>
An Uber app is seen on an iPhone in Beverly Hills
An Uber app is seen on an iPhone in Beverly Hills, California, December 19, 2013. Uber has entered more than 60 markets, ranging from its hometown of San Francisco to Berlin to Tokyo. LUCY NICHOLSON / Reuters, file

On New Year's Eve, Sofia Liu, 6, was hit by a car while walking across the street in San Francisco with her family. Her mother and brother suffered injuries, but survived. She did not.

On Monday, the family filed a lawsuit against Uber, the company that connects drivers and passengers through a smartphone app. Uber contends that the driver, Syed Muzaffar, was "not providing services on the Uber system during the time of the accident" because he wasn't carrying a passenger, while the lawsuit claims that he because he was logged into Uber's system, he was essentially on the clock.

Further complicating matters is the fact that Uber considers drivers "partners," not employees, which limits the company's liability. Muzaffar was convicted of reckless driving nearly 10 years ago for driving more than 100 m.p.h. in Florida.

"If Uber gets held responsible, this could possibly be the end of their business," Steven Clark, a Bay Area legal expert, told NBC News. "They would have to rework their business model and make sure their drivers know what they're doing."

Both traditional cab companies and Uber competitors will be watching this case closely. The key issue: Whether or not Uber is a company that simply matches drivers and passengers, or a transportation company that has to abide by the same state and local regulations as traditional cab companies.

Cab companies have to meet something called the "common carrier" princple, which holds them to a higher standard for transporting passengers. That means that they have to conduct background checks on their drivers and have a commercial insurance policy covering their cars. It also means that it's "much easier to collect in a lawsuit" if people are injured in a cab instead of a friend's car, Clark said.

Uber doesn't have to meet that standard and requires drivers to buy their own commercial insurance — except in California, where the Public Utilities Commission has said that it's not necessary.

"The company is pretty much set up to try to avoid this lawsuit," Clark said. "They call their drivers independent contractors — basically, you get in an Uber car at your risk — because nobody is responsible for them."

Cab companies have complained for years that Uber isn't forced to play by the same rules as they do, creating an unlevel playing field. That hasn't stopped users, especially the young, social media-savvy crowd, from expressing their love for the company, analyst Jeremiah Owyang's research has shown, while at the same time expressing their distaste for traditional cabs. The company is valued at $3.5 billion.

This lawsuit, however, is only the latest in a long list of public relations speed bumps for the company, including anger over Uber's surge pricing, which can result in fares eight times as high as normal when customers need a ride most, like New Year's Eve or during a snowstorm.

Uber's outspoken CEO, Travis Kalanick, has defended the its business model vehemently. Recently, however, the company was forced to apologize after Valleywag published a story implicating 13 Uber employees who allegedly requested and canceled rides in New York from a rival company, the Israeli-based start-up Gett, and then tried to recruit the drivers afterwards. Josh Mohrer, Uber's New York general manager, reportedly made 20 of the calls himself over the last year. (Gett decried the flood of calls as "denial-of-service attack" and offered customers a temporary $10 discount in response).

Ultimately, the tactic backfired, as Gett — which offers flat pricing instead of surge pricing — suddenly received a flood of publicity. Other companies are also looking to gain ground include Lyft, Hailo and Sidecar.

All of them, however, could have to adjust their business models if Uber gets hit hard in court.