The largest ride-sharing services are now facing a legal threat from regulators on their home turf, a new setback in their race to upend the multibillion-dollar taxi industry. (See related The district attorneys of San Francisco and Los Angeles on Thursday accused Sidecar Inc. of violating California business law and threatened an injunction on its service following a joint investigation, according to a letter sent to Sidecar and reviewed by The Wall Street Journal.
Similar letters were also hand-delivered to Sidecar's larger rivals in San Francisco, Uber Technologies Inc. and Lyft Inc., according to a spokeswoman for the San Francisco district attorney's office. She declined to comment further.
Uber and Lyft declined to comment.
The startups, already sparring with lawmakers, local taxi commissions and regulators seeking to curb their expansion from Frankfurt to Seoul, are now being challenged in their home state of California, the first place where ride sharing became popular and one of the largest markets for the services.
George Gascon, the district attorney of San Francisco, and Jackie Lacey, his counterpart in Los Angeles, allege that Sidecar is misleading customers about how thoroughly it checks the criminal backgrounds and driving records of its drivers.
The regulators are also asking Sidecar to end its car-pooling feature, launched earlier this year, which allows passengers to share rides with strangers for cheaper rides. That service violates a section of the public-utilities code which prohibits transportation providers charging multiple people for the same ride.
All three ride-sharing companies launched car-pooling features earlier this year with the aim of enticing new users to sign up and commute to work.
Sunil Paul, chief executive of Sidecar, said he has discussed the issue of background checks with local regulators, but the threat of injunction came as a surprise and represented a "significant escalation" of their concerns.
"We're frankly disappointed and a little baffled that there would be all of this pushback," Mr. Paul said.
Sidecar performs regular background checks, but by law cannot exclude people from becoming a driver if they were convicted of a felony more than seven years ago, Mr. Paul said. He said he plans to meet with the district attorneys and is open to changing how the company talks about background checks.
Mr. Gascon spoke out about the need for more restrictions around ride sharing in June, after an Uber driver in San Francisco was charged with two counts of battery for assaulting a passenger.
"We want to make sure that there is sufficient insurance to protect the public," Mr. Gascon told San Francisco television broadcaster KCBS at the time.