Doordash, Grubhub, Uber Eats and Postmates Take On NYC Over Fee Caps

The popular food ordering and delivery platform operators have sued the City of New York over a law capping the rate third-party platforms may charge restaurants at 15% of an online order for delivery services, and 5% for all other services, including marketing. Plaintiffs Doordash Inc., Grubhub Inc., and Portier LLC, an affiliate of Uber Technologies Inc., which owns platforms Uber Eats and Postmates, allege that the now-permanent law violates both the New York and U.S. Constitution, arguing that it impermissibly restricts contractual freedoms.

The Southern District of New York complaint explains that the city enacted the price controls in May 2020 in response to the COVID-19 pandemic, allegedly to help the struggling restaurant industry. The law was initially temporary, but became permanent after the city removed the law’s sunset date.

The plaintiffs argue that the legislation “bears no relationship to any public-health emergency, and qualifies as nothing more than unconstitutional, harmful, and unnecessary government overreach that should be struck down.” Specifically, they contend that the law was motivated by “naked animosity towards third-party platforms,” particularly the plaintiffs as “large out-of-state businesses.”

They also argue that the ordinance is harmful to consumers who will now shoulder “the cost of facilitating food delivery and marketing.” In turn, this will reduce orders and order volume, decrease earning possibilities for delivery workers, and result in less tax revenue for the city, the plaintiffs assert. In addition, the food delivery platform operators argue that the ordinance is unnecessary because restaurants are not forced to partner with them and have other options.

The complaint argues that the ordinance unconstitutionally interferes with “freely negotiated contracts between platforms and restaurants by changing and dictating the economic terms on which a dynamic industry operates.” The plaintiffs identify six provisions of the two constitutions that they say the city’s legislation contravenes.

The platform operators seek declaratory and injunctive relief as well as damages and other relief under 42 U.S.C. § 1983. They are also entitled to attorneys’ fees and expert fees should they prevail on any of their Section 1983 claims, the filing states.

The plaintiffs are represented by Gibson, Dunn & Crutcher LLP, the same firm representing DoorDash and Grubhub in a strikingly similar action brought against the City of San Francisco over the constitutionality of a comparable fee cap ordinance. In that case, San Francisco moved to dismiss last week.