Evercore ISI Senior Managing Director Mark Mahaney on tech stocks like Uber and Spotify.
DoorDash Inc., DASH 3.39% Grubhub Inc. and Uber Technologies Inc.’s UBER 0.70% Eats division are suing New York City over its law permanently capping the amount of commissions the apps can charge restaurants to use their services, the latest move in a growing clash between the platforms and local regulators.
The three largest food-delivery companies filed the suit in federal court in New York late Thursday, contending that the fee cap is harmful and constitutes government overreach. The limit on fees has cost the companies hundreds of millions of dollars combined through July, they said in the suit.
A permanent cap will likely require them to rewrite contracts with restaurants, reduce marketing in the city and raise fees for consumers, the companies said in the complaint.
The companies are seeking an injunction that would prevent New York from enforcing the fee-cap ordinance adopted last month, unspecified monetary damages and a jury trial.
New York City officials didn’t immediately respond to a request for comment.
The companies are suing New York amid heightened scrutiny from local regulators across the U.S. after the Covid-19 pandemic fueled a broad consumer shift to the platforms. Many restaurants adopted app delivery to stay afloat last year, and some cities instituted guidelines around fees to help them survive.
The food-delivery companies say they are seeking to prove the illegitimacy of the caps more broadly, alleging that they are unconstitutional and interfere with negotiated contracts. They also question capping marketing services charged by the apps, when the city doesn’t do so for other online platforms that provide advertising to companies.
GRUBHUB, DOORDASH MISLED RESTAURANTS, CUSTOMERS, ESPECIALLY DURING COVID-19, CHICAGO SAYS IN SUITS
"Left unchecked, the ordinance sets a dangerous precedent," the companies said in the complaint.
Now that restaurants can operate their dining rooms again, the New York City ordinance "bears no relationship to any public-health emergency," the companies said. It also "interferes with freely negotiated contracts between platforms and restaurants by changing and dictating the economic terms on which a dynamic industry operates," they said.
The apps can charge restaurants commissions as high as 30% per order. During the health crisis, New York City temporarily prohibited food-delivery companies from charging restaurants more than 15% per delivery order and more than 5% for marketing and other nondelivery fees. Dozens of other cities also enacted caps as a measure to try to help restaurants that were forced to close their dining rooms during the pandemic.
Many of those caps expired as coronavirus cases lessened earlier this year, but some lawmakers have sought to extend them given complaints about the charges overall.
San Francisco’s board of supervisors enacted a permanent 15% cap per order on food-delivery fees in June, the first city to institute a ceiling with no end date. The apps have also filed suit there.
The apps say they have had to pass costs to consumers when restaurant fees are limited, and the companies say in the suit the trend will likely continue in New York City with a fixed cap.
Cities are scrutinizing the companies for other reasons too. Last month, Chicago filed twin lawsuits in state court against Grubhub and DoorDash, alleging that the companies weren’t transparent with fees charged to customers for delivery, used deceptive advertising and added restaurants to their platforms without consent.
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The city is seeking to ensure the companies abide by its laws, restitution for consumers and restaurants and civil fines within the range of $500 to $10,000 per violation.
Grubhub and DoorDash have said that the allegations are false and that they plan to fight the suits.
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