New York City was ordered to face a lawsuit by DoorDash Inc., Grubhub Inc. and Uber Technologies Inc.’s Uber Eats over a pandemic-era cap on how much the meal-delivery services can collect from local restaurants, moving the case closer to a possible trial.
The companies properly laid out claims that the 15% cap is intended to discriminate against California companies in favor of “mom and pop” New York shops, US District Judge Gregory Woods ruled Tuesday in Manhattan.
“Plaintiffs have plausibly pleaded that the City’s legislation harbored a discriminatory purpose,” Woods wrote, denying the city’s motion to dismiss the suit.
Food delivery companies sued in 2021, arguing that the law interferes with their right to freely negotiate contracts and that the cap will likely result in higher prices for consumers and lower earnings for restaurants and drivers.
Grubhub said in an emailed statement that the judge’s ruling reinforces its position that it’s unconstitutional for the city to limit what restaurants pay to promote their business.
“We continue to urge the City Council to act now and resolve this issue,” Grubhub said in the statement.
The New York City Council instituted the fee limit in May 2020 on a temporary basis before making it permanent in August 2021. Councilors said it was necessary to protect struggling restaurants during the Covid pandemic from high commissions charged by the delivery apps.
When the law was being debated at a July 2021 hearing at the city council’s Committee on Small Businesses, one council member said the cap was needed to help “mom and pop shops” use services from “venture capital-backed Silicon Valley tech behemoths.”
‘Economic Protectionism’
According to the delivery firms, discrimination against out-of-state companies violates the federal Commerce Clause of the US Constitution, which limits the ability of local governments to restrict interstate trade. In allowing the claim to move forward, the judge explained that the clause bars enforcement of state laws “driven by economic protectionism.”
The companies pointed to that language from the hearing as evidence of anti-California discrimination, arguing the city did not cite “any studies, data, or other analyses” to support their allegations.
The judge also cited the council member’s words in his decision, saying the law was enacted “notwithstanding the lack of data supporting the premise and asserted effects of the legislation.”
Read More: DoorDash, Uber Sue New York City Over Cap on Delivery Fees
The case is DoorDash v. City Of New York, 21-cv-07564, US District Court, Southern District of New York (Manhattan).
(Updates Grubhub comment)
