DoorDash, Grubhub, Uber Eats can sue NYC over fee caps

By Jonathan Stempel

NEW YORK (Reuters) -A federal judge on Tuesday said DoorDash, Grubhub and Uber (NYSE:) Eats can sue New York City over a law capping how much they can charge restaurants for delivering meals.

U.S. District Judge Gregory Woods in Manhattan said the plaintiffs adequately alleged that the law violates the U.S. Constitution and New York state constitution by depriving them of their right to contract with restaurants, and forcing them to operate in the city at a loss.

He also said the companies plausibly alleged that the city’s “not-so-veiled” purpose in capping commissions at 15% for food orders and 5% for advertising and other services was “economic protectionism for local ‘mom and pop’ stores and antagonism toward out-of-state, wealthy third-party platforms.”

The city had said the law’s main purpose was to prevent “social and economic devastation” that could result if excessive commissions forced restaurant owners to slash employment.

Nicholas Paolucci, a spokesman for New York City’s law department, said: “The city looks forward to making its case in court.”

Lawyers for the plaintiffs, which also include Caviar, Seamless and Postmates, did not immediately respond to requests for comment.

Grubhub welcomed the decision, and called on the City Council to give restaurant owners more flexibility to choose which services they want and how much to pay.

The city adopted the caps in May 2020 as a temporary response to the COVID-19 pandemic, shoring up a restaurant industry beset by closures and upset with paying fees as high as 30%.

It made the caps permanent in August 2021, and the lawsuit seeking to overturn them was filed the next month. The lawsuit also seeks damages.

Woods said the plaintiffs adequately alleged that the law unconstitutionally interfered with their ability to collect higher commissions under their contracts with restaurants.

He also said they could try to prove that the law amounted to an illegal taking, by depriving them of hundreds of millions of dollars in revenue, and punished them because they were based out of state, violating the “dormant” Commerce Clause.

The plaintiffs have said commission caps would necessitate higher delivery fees, resulting in higher prices for consumers and less revenue for restaurants.

At the time of the lawsuit, San Francisco has also enacted permanent commission caps.

The case is DoorDash Inc et al v City of New York, U.S. District Court, District of New York, No 21-07564.