SAN FRANCISCO (Legal Newsline) – DoorDash and other food-delivery services will get to continue making their case against a San Francisco ordinance that caps what they can charge restaurants.
U.S. District Judge Edward Chen on March 23 granted the city’s motion to dismiss several claims from the lawsuit but did allow two claims to move forward. The cap at issue prevents DoorDash and GrubHub from charging restaurants more than 15% in commission fees.
New York’s similar ordinance is also under fire, with the city claiming these caps ensure the survival of restaurants.
San Francisco codified a temporary commission cap that was passed in the early months of the COVID-19 pandemic. It found that restaurants “are vital to the character and community fabric of San Francisco.”
DoorDash and GrubHub challenged the ordinance on July 16, 2021, alleging violation of the U.S. and California constitutions. Chen is allowing their claims under the Takings Clause to proceed, saying there remain questions as to the ordinance’s economic impact and whether it interfered with investment-backed expectations.
“Plaintiffs’… arguments asserting that the ordinance causes economic harm create factual issues that are sufficient to state a plausible takings claim,” Chen wrote.
Chen rejected arguments that the companies could charge customers more to make up for lost commission revenue. Raising customer fees would result in fewer orders, he said.
“Second, it is plausible that the ordinance interferes with Plaintiffs’ investment-backed expectations,” he added.
“Plaintiffs allegedly executed their contracts with restaurants before any public debate occurred about commission caps to change those expectations. Contrary to the city’s contentions, the at-will nature of the contracts and the plaintiffs’ disclosures to investors about the possibility of commission caps do not necessarily undermine Plaintiffs’ argument…”
Chen allowed one aspect of the plaintiffs’ due process arguments to continue while writing most of the other related claims fail. It is plausible the ordinance is “confiscatory,” Chen wrote.
“Although the City contends that the commission cap is not confiscatory because Plaintiffs can receive compensation from other sources, e.g., by raising the price for consumers or reducing services, Plaintiffs assert that they are operating at a loss and will not be able to recoup all of their losses from the commission cap because some consumers will not be willing to pay higher fees,” he wrote.
He rejected all other claims, which include First Amendment retaliation, violation of the city’s police power and Equal Protection.