Food Delivery Apps Flouting NYC Fee Cap, Suit Claims

By Rachel Scharf
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Law360 (June 7, 2021, 6:24 PM EDT) -- Grubhub, DoorDash, Uber Eats, Postmates and Seamless were hit with a proposed class action on Monday, alleging that they've been "bleeding New York City's restaurants dry" throughout the coronavirus pandemic by imposing delivery service fees that exceed the city's 20% cap.

Manhattan bakery Micheli & Shel LLC filed suit in federal court, alleging that the food delivery apps have flouted emergency legislation passed by the New York City Council last May. The rules limited the fees that third-party delivery services could charge to restaurants that were forced to limit their services to takeout and delivery due to COVID-19 closures. 

According to the complaint, New York City's Local Law No. 52, passed in May 2020 and effective as of June 2020, barred the apps from charging more than 15% for delivery and 5% for all additional fees, including processing and marketing. Micheli & Shel said the law was specifically created to "curb the imbalance of power" that allowed food delivery apps to charge struggling restaurants "exorbitant" commissions.

But while the delivery apps restructured their fees to appear in compliance with this new law, the bakery alleged, the companies have simply found new ways to continue charging restaurants above the fee cap in order to score record-breaking profits.

"Despite the passage of the delivery app legislation, defendants proceeded to continue their prior practices of bleeding New York City's restaurants dry while collecting millions of dollars at their expense in blatant disregard for the laws of the City of New York," Micheli & Shel said.

Micheli & Shel said that after the law's passage, Uber Eats and Postmates LLC, which are both owned by Uber Technologies Inc., and DoorDash Inc. all put in place new 20% "flat fees" that purported to comply with the limitations.

These flat fees, however, didn't specify which services they covered, the bakery said. As a result, they violated both "the spirit and the letter" of the law's requirement that no single fee can exceed either 15% or 5%, according to the suit.

Grubhub Inc. and its subsidiary Seamless North America LLC, meanwhile, were accused of dodging the fee cap by imposing multiple fees in the "other" category that, while each was below 5% individually, totaled as high as 8.7% when combined.

When the City Council amended its law in September to allow the delivery apps to charge restaurants for credit card processing fees outside the 20% caps, the bakery alleged, all the apps seized on the opportunity to charge even higher commissions.

"Defendants wrongfully inflated their credit card processing fees to as high as 4.5% in order to further extort fees from plaintiff and the class members," Micheli & Shel said.

The bakery wants to represent a class of hundreds of thousands of New York City restaurants that contract with the food delivery apps. It's seeking declaratory and injunctive relief, and a monetary award including compensatory and punitive damages, disgorgement of profits and attorney fees.

Lee Jacobs of Helbraun & Levey LLP, one of the attorneys representing the proposed class, told Law360 on Monday that litigation is necessary to stop the delivery apps' alleged violations. 

"These companies continue to either charge more than 20% or are not in compliance with the law in various ways, and they still continue to make money off the backs of our clients," Jacobs said. "The only way to correct this behavior is to band together in a suit like this to demand change from these companies"

A spokesperson for Grubhub denied the allegations.

"The lawsuit is meritless," the spokesperson said. "We look forward to responding to these baseless allegations."

Representatives for Uber and DoorDash did not respond to requests for comment Monday.

The proposed class is represented by Hamutal G. Lieberman, Lee N. Jacobs and Joe D. Taylor of Helbraun & Levey LLP.

Counsel information for the defendants was not immediately available.

The case is Micheli & Shel LLC v. Grubhub Inc. et al., case number 1:21-cv-04995, in the U.S. District Court for the Southern District of New York.

--Editing by Regan Estes.

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