San Francisco Asks Court to Toss DoorDash and Grubhub Fee Cap Ordinance Case

Last Friday, the city rejected allegations that its cap of fifteen percent on the commissions that third-party food delivery service platforms charge independent restaurants contravenes state and federal law. The 33-page motion to dismiss claims that DoorDash Inc. and Grubhub Inc.’s assertions are merely a collection of related, “legally flawed ideas.” 

The platforms filed suit in July, arguing that the ordinance, once temporary, but eventually made permanent, violates both the California and the United States Constitution by placing impermissible restraints on private commerce. Notably, a lawsuit challenging a similar New York City ordinance brought by the same plaintiffs, plus UberEats, Postmates, and Seamless, is underway in the Southern District of New York.

San Francisco’s motion to dismiss first asserts that the platforms’ amended complaint fails to state a claim for violation of the contract clause of the federal and state constitutions. The city argues that there is no substantial impairment of a contractual relationship because, among other things, the contract is in a regulated industry and the contested law was foreseeable. 

In support of this argument, the defendant contends that delivery platform commissions are, as the plaintiffs acknowledge, a matter of public debate given the nascency of the platforms’ business. In addition, the fact that restaurants are not required by their contracts to continue using the platforms’ services limits the extent to which the city purportedly interferes with the plaintiffs’ businesses.

In rebutting the claim that the ordinance violates due process to the extent it asserts price controls, the city argues that it has met its burden of demonstrating that the law serves a  legitimate, non-discriminatory purpose. “The City took the action because the high commissions that the largest third-party platforms have been able to impose through their market dominance threaten the profitability, and thereby the survival, of businesses that are critical to the economic and social vitality of San Francisco’s commercial corridors,” the motion says.

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