DoorDash and Grubhub Sue San Francisco Over Fee Cap Ordinance

Two online food ordering and delivery platforms claimed that a recently enacted local regulation, ostensibly passed to protect the city’s declining restaurant industry, constitutes illegal economic protectionism in a lawsuit filed last Friday. The city ordinance preventing restaurants and third-party platforms from “freely negotiating” the prices that the platforms may charge, and instead capping those fees at 15%, harms consumers and violates both the California and the United States Constitution, the complaint said.

The San Francisco, California federal court filing explained that after two unanimous votes the San Francisco Board of Supervisors passed the measure into law on June 29, 2021, making the temporary COVID-19 precautionary measure permanent. The city’s mayor, DoorDash and Grubhub noted, refused to sign the bill. In a statement, the mayor reportedly remarked that the ordinance “is unnecessarily prescriptive in limiting the business models of the third-party organizations, and oversteps what is necessary for the public good.”

The plaintiffs argued that the measure is not only unprecedented, but also unnecessary, harmful to consumers, and legally indefensible. They contended that it is superfluous because restaurants have a range of delivery service provider options, including those priced well below the established limit.

The plaintiffs also asserted that the ordinance’s ultimate effect undercuts its legislative objectives because “it likely will lead to reduced choice for restaurants, higher prices for consumers, and fewer delivery opportunities for couriers.” Finally, they claimed the new law impermissibly interferes with contracts between platforms and restaurants, and “permanently dictates the economic terms on which a dynamic industry operates.” 

The complaint stated seven claims for relief under the constitutions, specifically under their equal protection, due process, and takings clauses. It seeks a court order declaring the law illegal, injunctive relief, and damages.

DoorDash and Grubhub are represented by Gibson Dunn & Crutcher LLP.

The legislation at issue is similar to a law enacted by New York City, likewise capping all fees that online ordering and delivery platforms can charge eateries at 20%, with a specific cap on deliveries at 15%, and marketing, credit card processing, and other fees at 5%. In a class action lawsuit filed last month, restaurants accused the city’s four major third-party delivery platforms, including DoorDash and Grubhub, of violating that fee cap ordinance.