San Francisco Seeks Dismissal of Delivery Platform Operators’ Fee Cap Complaint

The city of San Francisco, through its City Attorney Dennis Herrera, has countered arguments made by plaintiffs DoorDash Inc. and Grubhub Inc. in their pursuit to invalidate an ordinance limiting commissions that third-party delivery service platforms may charge San Francisco restaurants at 15%. Last Friday’s motion asserts that the complaint takes a “smorgaşbord approach” and fails to state any claim for relief based on the seven asserted constitutional causes of action.

The motion contends that the plaintiffs mistakenly believe that law was motivated by retaliation on part of San Francisco’s Board of Supervisors. The governmental body reportedly opposed Proposition 22, a measure DoorDash supported, “on the ground that it would strip gig workers of the panoply of workplace protections afforded employees.” To the contrary, the city argues that it had legitimate reasons for enacting the fee cap ordinance, like aiding its struggling restaurant industry, which was battling with high commissions charged by the largest third-party delivery platforms. 

The city further counters that statements the plaintiffs rely on actually show that officials were addressing concerns about local eateries when enacting and extending the commission cap. As such, four of the plaintiffs’ causes of action fail due to the reasonable relationship between the ordinance and a legitimate governmental purpose, the motion says.

As to the plaintiffs’ assertions that the law impermissibly interferes with economic freedoms, and in particular, contractual rights, the city argues that there is no substantial impairment of a contractual relationship. San Francisco explains that in this case, and “when the contract is in a regulated industry and the challenged law was ‘foreseeable as the type of law that would alter contract obligations,’” there is no illegality. 

In addition, the defendant argues, the fact that restaurants are not required by their agreements with third-party delivery platforms to continue partnering militates against a finding of substantial impairment. Finally, the complaint fails to allege facts demonstrating that the 15% cap is a significant limitation, particularly in view of allegations that the plaintiffs are able to counterbalance lost revenues in other ways.

The city asks the court to dismiss the complaint with prejudice, arguing that plaintiffs will be unlikely to cure defects therein. The dismissal hearing is scheduled for November 4 before Judge Edward M. Chen.

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