Restaurant’s Predatory Pricing Suit Against Delivery Platforms Largely Redirected to Arbitration

On Tuesday, the Southern District of New York issued a ruling as to whether the New York City bakery who brought a fee overcharge case against four delivery services can proceed with its claims in federal court. Defendants Grubhub Inc., Doordash Inc., Uber Eats, and their corporate relatives succeeded in shifting their claims to arbitration while Uber-owned defendant Postmates LLC failed to show that the plaintiff agreed to arbitrate its claims.

The case dates to last June when the Israeli-style bakery operated by Micheli & Shel L.L.C. sued the platforms for violations of a New York City ordinance capping fees delivery services could charge food establishments. The COVID-19-era law set the fee ceiling at 20% of the order total, with a 15% limit on deliveries and a 5% limit on marketing, credit card processing, and other fees.

According to the class action complaint, filed on behalf of all New York City restaurants overcharged, the defendants gave the illusion of complying with the law by restructuring their fees, but in fact, charged above the maximum percentage. The filing also claimed that the defendants extracted even more from restaurants by taxing them for falsely inflated credit card processing and other fees.

The defendants responded to the suit by  moving to compel arbitration, arguing that the plaintiff agreed to arbitrate such disputes on an individual basis.

In this week’s opinion, Judge Jesse M. Furman reviewed each of the four agreements the plaintiff entered into when it contracted with the ordering and delivery platforms. The court concluded that each contract contained a valid and enforceable arbitration clause, except Postmates’ customer agreement.

The plaintiff attempted to overcome the court’s finding by arguing, among other things, that the dispute fell outside the scope of the three arbitration clauses. “But whether its arguments on that score are valid is not for this Court to say because, in the case of each delivery service, the contract at issue plainly delegates the question of arbitrability to the arbitrator,” the court responded.

As to Postmates, the initial agreement the plaintiff signed in May 2020 did not contain an arbitration provision. In November 2022, Postmates emailed the plaintiff an update regarding its merchant agreement. Therein, the delivery service included an arbitration clause. 

Postmates then argued that it was valid and enforceable as to instant action.

The court found otherwise owing to the fact that Postmates’ original agreement stated that it could be modified “only by a written document executed by both Parties.” As such, its unilateral attempt to change the terms of the agreement was invalid, Judge Furman ruled.

Postmates has three weeks to answer the complaint while the case is stayed with regard to the other three defendants.

The plaintiff is represented by Helbraun & Levey LLP, Doordash by Gibson Dunn & Crutcher LLP, Grubhub by Cozen O’Connor, and UberEats and Postmates by Covington & Burling LLP.