Restaurants Fight Grubhub Settlement In False Ad Suit

By Joyce Hanson
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Law360 (May 14, 2021, 7:55 PM EDT) -- Restaurant owners suing Grubhub in Illinois federal court on claims that it uses their trademarks without permission have urged a Colorado federal judge to deny a proposed settlement in a similar suit, saying the deal would effectively legalize Grubhub's practice of listing 150,000 restaurants on its platform without consent.

Lynn Scott LLC and The Farmer's Wife LLC, which are not parties in the Colorado case but are seeking to intervene in the suit, joined with 30 other restaurant owners May 7 to oppose a deal between Grubhub Inc. and Denver bar and restaurant Freshcraft that would end claims accusing the food delivery giant of falsely saying competitor restaurants are closed during the coronavirus pandemic.

The owners in the competing proposed class action in Illinois claim their interests might not be protected in the proposed Colorado settlement.

They allege the deal wouldn't give any notice to affected restaurants or allow them to opt out of the settlement, causing them to lose the right to pursue legal action against Grubhub in the future. Also, they say, it would force eatery owners listed without their permission to post their own Grubhub profile listing before the platform would allow them to request removal or fix errors in menus or hours of operation.

"When Grubhub started listing 150,000 small, local restaurants on its platform without permission, the company's value increased by $4 billion in less than eight months," according to the objectors' brief. "Under the Lanham Act, those restaurant owners are entitled to disgorgement of Grubhub's massive profits. But the proposed settlement now before the [Colorado] court would release those claims for no money — and do so without first notifying restaurants or giving them a fair opportunity to object."

According to the proposed settlement, the parties reached an agreement in principle in January. The two restaurant owners involved in litigation of similar claims in Illinois filed a motion to intervene in the Colorado case on March 18. The court has not yet made a ruling on that motion.

Both sides in the Colorado suit have urged the judge not to let the proposed Illinois intervenors get involved in their deal.

Grubhub said April 7 that the intervention would compromise settlement efforts and disrupt the agreement reached after three full-day mediation sessions and subsequent negotiations. Freshcraft, meanwhile, said April 8 that eateries in the Illinois suit can state their case later if the deal wins approval.

The proposed classwide settlement reached between GrubHub and Freshcraft would provide "significant, sweeping relief" to the class and resolve their claims accusing the online food-ordering company of falsely stating that competitor restaurants are closed during the coronavirus pandemic, according to Freshcraft's brief opposing the Illinois intervention bid.

GrubHub urged the Colorado federal judge April 16 in a settlement notice to approve the class action deal to end false advertising claims that it steered customers to its partner restaurants by telling customers that other establishments were closed or not accepting online orders. Grubhub agreed to alter its platform's wording and not to oppose paying up to $450,000 in attorney fees.

The stipulation and settlement agreement filed by Grubhub and plaintiff CO Craft LLC, which does business as Freshcraft, would certify a settlement class of any restaurant, convenience store, market, grocery store or other food service business that did not have any type of agreement with GrubHub from May 11, 2016, until final approval of the settlement.

The deal also includes a $5,000 service award for Freshcraft, while GrubHub admits no wrongdoing.

Freshcraft said it thinks the delivery app has been using its false advertising tactic since before the pandemic, but it alleges the impact now is especially damaging to restaurants that are "struggling to stay afloat" during the crisis.

The family-owned restaurant filed suit on behalf of all restaurants in the United States, claiming GrubHub created landing pages and falsely advertised that restaurants were closed or not accepting online orders when they were actually accepting orders.

Because the COVID-19 outbreak led most states to issue stay-at-home orders, meal delivery services like GrubHub have seen business skyrocket, according to the suit. And GrubHub has created menu pages for most restaurants in major cities, including those that do not offer delivery through its platform, Freshcraft said.

A lawyer for the Illinois plaintiffs, Steven Tindall of Gibbs Law Group LLP, told Law360 in a statement Friday that the proposed settlement "is nothing less than a sweetheart deal for Grubhub" that would let it pay nothing to the class of restaurant owners.

"If approved, it will effectively legalize Grubhub's practice of listing approximately 150,000 restaurants on its platform without the restaurants' consent, and it will bind affected restaurants to the settlement without giving them any notice, the ability to opt out, nor any compensation for the unauthorized use of their names and logos," Tindall said.

Counsel for Grubhub and Freshcraft did not immediately respond to requests for comment.

The proposed Illinois intervenors are represented by Steven M. Tindall, Geoffrey A. Munroe and Alex J. Bukac of Gibbs Law Group LLP and Paul F. Lewis, Michael D. Kuhn and Andrew E. Swan of Lewis Kuhn Swan PC.

Freshcraft is represented by Ross Ziev of the Law Offices of Ross Ziev PC and Laura L. Sheets of Liddle & Dubin PC.

GrubHub is represented by Jean Marie French, Meredith C. Slawe and Michael W. McTigue Jr. of Cozen O'Connor.

The Colorado case is CO Craft LLC dba Freshcraft v. GrubHub Inc., case number 1:20-cv-01327, in the U.S. District Court for the District of Colorado.

The Illinois case is Lynn Scott LLC et al. v. GrubHub Inc., case number 1:20-cv-06334, in the U.S. District Court for the Northern District of Illinois.

--Additional reporting by Craig Clough. Editing by Rich Mills.

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