San Francisco, Calif. Judge Issues Mixed Ruling in Suit Over City’s Food Delivery Service Fee Cap

On Wednesday, Judge Edward M. Chen partly granted and partly denied San Francisco’s motion to dismiss a case brought by DoorDash Inc. and Grubhub Inc. challenging a city-wide ceiling on fees online ordering and delivery platforms may charge restaurants for their services. The suit dates to July 2021 when the two platforms cried foul after the law, initially a temporary COVID-19 measure, became permanent.

For its part, San Francisco argued that there was nothing unconstitutional about the ordinance it enacted to protect restaurants struggling due to pandemic-related closures and restrictions. DoorDash and Grubhub countered that the ordinance violates their constitutionally protected right to conduct business free from government interference and constitutes a Takings Clause confiscation to the extent that their contracts with restaurants provide for a commission rate greater than 15%, among other arguments.

Judge Chen’s 47-page opinion found the plaintiffs’ Contract Clause, part of their Due Process, Police Power, Equal Protection, and First Amendment retaliation claims as well as their state analogue claims wanting. A common thread that doomed the causes of actions was the court’s determination that the ordinance was drawn up to serve a legitimate purpose: protecting the restaurant industry.

With regards to the Contract Clause claim, Judge Chen dismissed it as implausible, finding “a legitimate public purpose” behind the ordinance and ruling that it was not the court’s place to second guess the city’s determination that the fee cap was the best way to protect the restaurant industry.

However, the court denied the motion as to the plaintiffs’ Takings Clause claim and Due Process claim based on its purported “confiscatory effect.” As to the former, Judge Chen analyzed a three-factor test, ruling in favor of the delivery platforms owing to the existence of factual questions about the ordinance’s economic impact and whether it interfered with investment-backed expectations. Similarly, the court declined to grant the city’s request to toss the Due Process claim, concluding that “there are questions of fact about whether the Ordinance is ‘confiscatory.’”

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