DoorDash, Inc. v. City of N.Y.

692 F.Supp.3d 268

DOORDASH, INC., et al., Plaintiffs, v. CITY OF NEW YORK, Defendant.

1:21-cv-7564-GHW

United States District Court, S.D. New York

Signed September 19, 2023

Esther Lifshitz, Anne Marie Champion, Gibson, Dunn & Crutcher, LLP, New York, NY, Joshua Seth Lipshutz, Gibson, Dunn & Crutcher LLP, Washington, DC, Michael Holecek, Gibson, Dunn & Crutcher LLP, Los Angeles, CA, for Plaintiffs.

Darren Michael Trotter, Kevin Bernard Collins, Karen Beth Selvin, New York City Law Department, New York, NY, for Defendant.

Donald B. Verrilli, Jr., Brendan B. Gants, Elaine Goldenberg, Munger, Tolles & Olson LLP, Washington, DC, for Amicus The Chamber of Commerce of the United States of America.

MEMORANDUM OPINION & ORDER

GREGORY H. WOODS, United States District Judge:

Plaintiffs operate several popular food delivery platforms: DoorDash, Caviar, Grubhub, Seamless, Postmates, and Uber Eats. As the reader likely knows, the platforms facilitate pick-up and delivery services between customers and restaurants. They also provide other services to restaurants, including marketing and advertising services, payment and order processing, customer support services, and data analysis. Plaintiffs' platforms are popular with consumers and restaurants. Plaintiffs allege that restaurants that use their services see increased demand and revenue.

To pay for the costs of their operations, Plaintiffs charge restaurants a commission that is calculated as a percentage of the orders that they facilitate. The commission rate can range from 5% to 30% depending on the package of services that restaurants want. Those commissions are provided for in contracts that Plaintiffs enter into with restaurants.

Before COVID-19 arrived in New York City, two New York City Council Members sponsored legislation to cap the commissions charged to restaurants by third-party delivery service platforms, such as those operated by Plaintiffs. Their efforts were successful: The City Council passed legislation to cap Plaintiffs' commissions. The caps were first presented as a temporary response to the COVID-19 pandemic, but they have since been made permanent. The legislation caps the amount that Plaintiffs can charge for deliveries at 15% of the order, and caps the amount that Plaintiffs can charge for any other type of service at 5%. As a result of the caps, Plaintiffs are now operating at a loss in New York City.

Plaintiffs allege that the City Council did not engage in any economic study regarding the level or effects of those caps before they were implemented. Instead, Plaintiffs assert, the legislation was designed to protect local industry by unfairly targeting Plaintiffs' companies, which are headquartered outside of New York State. Because the legislation impairs Plaintiffs' rights under their contracts and have reduced their contracts' value, forcing Plaintiffs to operate at a loss in New York City, Plaintiffs have adequately stated a claim that the City's legislation violates the Constitution of the United States and the Constitution of the State of New York. Therefore, Defendant's motion to dismiss the complaint is denied.

I. BACKGROUND

A. Facts¹

1. Plaintiffs' Businesses

Plaintiffs operate several popular on-line food ordering and delivery services: DoorDash, Caviar, Grubhub, Seamless, Postmates, and Uber Eats. Dkt. No. 34 ("FAC") ¶ 1. The platforms "connect restaurants, consumers, and independent delivery couriers." Id. As the reader likely knows, consumers can access the platforms on-line, either through websites or through mobile applications on a smartphone. Id. ¶¶ 25, 26, 27, 32. Plaintiffs operate in New York City and elsewhere. Id. ¶ 33. They are not the only players in the marketplace: "Other platforms operating in New York City and elsewhere in the United States that provide similar services to restaurants include Deliver.com, Slice, Toast, and Ritual, among others." Id.

Of course, delivery service by restaurants is not new. Before the advent of the internet, restaurants offered delivery services. And "internet-based food delivery has been around since the mid-1990s . . . ." Id. Since its inception, Plaintiffs' businesses have operated "largely free of government regulation, and completely free of regulations setting price controls on the fees that restaurants can agree to pay to third-party platforms in exchange for the services provided." Id. ¶¶ 33, 50.

Plaintiffs allege that their platforms have been an economic boon to New York City restaurants for several reasons. Id. ¶ 34. First, Plaintiffs allege, the platforms have "resulted in the expansion of restaurants' consumer bases." Id. "One study reported that delivery sales through third-party platforms are approximately 80% incremental . . . ." Id. In other words, the platforms generate business that the restaurants "would not otherwise secure." Id. Second, the platforms boost restaurants' revenues by growing their delivery and pick-up orders. Id. ¶ 35. The positive economic impact of the platforms on restaurant business was supported by the results of one national survey in which 80-90% of single, independently owned businesses reported that "Uber Eats made them more profitable, increased their revenue, helped expose them to new customers, and has been beneficial to their bottom line." Id. ¶ 36. The restaurant industry has been "growing since Plaintiffs and other third-party platforms have begun offering their services . . . ." Id. ¶ 37.

Plaintiffs allege that their services have helped the restaurant industry weather other economic shocks. They note that the restaurant industry has been under pressure from "large rent hikes, a shortage of workers, and increasing wholesale food prices (all of which persist in New York and are completely unrelated to the third-party platforms)." Id. ¶ 38. "Plaintiffs have helped mitigate these burdens for restaurants by expanding restaurants' customer base and increasing order volume and revenue." Id.

The platforms also helped restaurants survive the COVID-19 pandemic. "For example, the odds of staying in business during the pandemic were eight times better for restaurants on DoorDash compared to all U.S. restaurants." Id. ¶ 39.

It costs Plaintiffs money for them to run their businesses. Their operational costs run the gamut from the cost of developing and operating their on-line platforms, to marketing local restaurants to consumers, to the screening and payment of couriers. Id. ¶ 42.

Plaintiffs generate revenue to pay for the services that they provide "by collecting commissions from restaurants pursuant to agreed-upon contractual terms." Id. ¶ 41. These commission streams "are necessary for Plaintiffs to offer services that drive revenues for restaurants, provide meaningful earning opportunities for couriers, and delight consumers." Id. Plaintiffs offer a number of different types of contracts that have different commission structures. Restaurants have "significant choice" regarding the type of contract they enter into with Plaintiffs. Id. ¶ 44. "A typical contract between Plaintiffs and a restaurant includes a commission where the restaurant agrees to pay Plaintiff a fixed percentage of the price of the consumer's order in exchange for certain services." Id.

Plaintiffs charge restaurants with which they contract a commission for the orders that they facilitate. The pricing of Plaintiffs' contracts depends on the level of service that a restaurant wishes to obtain. For example, DoorDash offers a "Basic Partnership Plan" where DoorDash facilitates delivery of online orders. Id. ¶ 46. The company charges a 15% commission for that plan. "But, overwhelmingly, restaurants do not choose this option." Id. Instead, they choose plans at a higher commission rate—25% or 30%—for which the restaurants are provided more services. The "vast majority" of New York City-based restaurants have elected to enter into contracts at these higher commission—and associated service—levels.

Grubhub also provides its services to restaurants pursuant to a commission-based payment structure. "Restaurants that opt to use the Grubhub Marketplace . . . select a negotiable marketing package that typically ranges from 5%-20% per order, based on the restaurant's desired level of marketing support and visibility." Id. ¶ 48. Uber Eats uses a similar commission-based model. Id. ¶ 49. The pricing packages "agreed to by Uber Eats's restaurant partners vary based on their individual business needs—with some percentages below and others above the current caps set by the City—and can include marketing and advertising services, payment and order processing, customer support services, data and insights to inform their operations, as well as the facilitation of food delivery." Id.

"DoorDash's and Grubhub's contracts with restaurants are terminable at will, and most of Uber Eats's contracts with restaurants are likewise terminable at will . . . ." Id. ¶ 45. Nonetheless, "restaurants choose to maintain these contracts . . . typically for several years because restaurants recognize the value that Plaintiffs provide. Indeed, the vast majority of restaurants in New York City that enter into contracts with Plaintiffs opt not to terminate but remain in multi-year contractual relationships." Id. Notwithstanding the commission caps imposed by the City that are the subject of this litigation, contracts that existed prior to the imposition of the caps remain in effect for a substantial number of restaurants. And a "large number of restaurants voluntarily enter into contracts with Plaintiffs with commissions greater than what the Ordinance allows so as to gain access to a broader suite of services . . . ." Id.

2. The Conception of the Commission Cap and the Subsequent Outbreak of COVID-19

The concept of capping Plaintiffs' commissions emerged before the outbreak of the COVID-19 pandemic. The bill that resulted in the first cap on Plaintiffs' commissions—Int. No. 1908—was first introduced to the City Council by...