Doordash and Grubhub Oppose San Francisco’s Dismissal Bid in Fee Ordinance Row

Last Thursday, online food ordering and third-party delivery platforms DoorDash Inc. and Grubhub Inc. fired back at the city of San Francisco’s motion to dismiss. The opposition argues that the ordinance capping the fees charged to restaurants by the platforms forces the plaintiffs to subsidize the city’s restaurant industry in violation of the U.S. and California constitutions.

In its motion to dismiss, San Francisco alleged that its rule permanently limiting fees to 15% of the delivery charge is legally sound. The law does not impermissibly interfere with contractual relations because it was enacted in an already-regulated industry and was foreseeable, its motion said. Among other arguments, the city contended that the law does not violate the defendants’ due process rights because it serves a legitimate, non-discriminatory purpose.

In response, the platforms begin by pointing to the words of San Francisco Mayor London Breed, expressing her belief that the law was too prescriptive and “oversteps what is necessary for the public good.” The opposition also explains the city’s arguments as contradictory. Initially, the city touted the law as “a first-of-its-kind law expressly intended to shift revenues from third-party platforms to restaurants,” only to recast the law “as run-of-the-mill regulation” once the cap faced a legal challenge, they contend.

Next, and as the platforms did in their complaint, they argue that the ordinance substantially impairs their contracts. At step one of the analysis, the plaintiffs assert that there is substantial impairment because the commission rate is a central term of platforms’ contracts with restaurants. “Artificially reducing Plaintiffs’ compensation fundamentally changes the parties’ bargain and may result in Plaintiffs being unable to continue offering those services,” the opposition says.

At step two, the platforms contend that the law does not advance a significant and legitimate public purpose. Instead, the platforms argue that the city’s intent was to “tilt the competitive landscape between third-party platforms and restaurants in restaurants’ favor simply because the City perceives a decline in restaurants that ‘coincides’ with the rise of platforms.” The complaint points to evidence allegedly showing that the legislature was motivated to “punish” one of the platforms for supporting another law regulating gig worker employment status.

The opposition also takes aim at the city’s other arguments seeking dismissal of the plaintiffs’ Takings Clause, Due Process and Equal Protection Clauses, and First Amendment, as well as California’s police power limitations claims. The motion hearing is currently scheduled for December 16 in San Francisco, California.

DoorDash and Grubhub are represented by Gibson Dunn & Crutcher LLP. The city is represented by the San Francisco City Attorney’s Office.