New York City is a step closer to facing a lawsuit over a cap on how much meal-delivery services can collect from local restaurants.
U.S. District Judge Gregory Woods denied the city’s motion to dismiss the suit, bringing the case closer to a potential trial, Bloomberg reported Tuesday (Sept. 19).
The companies that filed the lawsuit — DoorDash, Grubhub and Uber Eats — argue that the cap, implemented during the pandemic, discriminates against California companies, according to the report. The judge ruled that the companies’ claims are plausible.
The New York City Council introduced a temporary fee limit in May 2020, later making the cap permanent in August 2021, the report said. Supporters said the cap was implemented to protect struggling restaurants during the pandemic from high commissions charged by delivery apps. However, the food delivery companies argue that the law interferes with their right to freely negotiate contracts and will likely lead to higher prices for consumers and lower earnings for restaurants and drivers.
The delivery firms claim that the cap violates the federal Commerce Clause of the U.S. Constitution, which restricts local governments from impeding interstate trade, per the report. They argue that the discrimination against out-of-state companies is a violation of this clause. Woods supported this argument, stating that the clause prohibits state laws driven by economic protectionism.
The companies highlighted a statement made by a council member during a July 2021 hearing, which referred to the cap as a means to support “mom-and-pop shops” against “venture capital-backed Silicon Valley tech behemoths,” according to the report.
The judge’s decision also emphasized the lack of supporting evidence from the city, the report said. The council member’s statement was cited as evidence that the law was enacted without adequate data or analysis. The companies argue that the city failed to present any studies or data to justify the alleged effects of the legislation.
Third-party aggregators’ commissions make it nearly impossible for some independent restaurants to make a profit, PYMNTS reported in September 2021. However, even after many U.S. cities announced limits on the fees that these services could charge restaurants, the model remains broken.