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A spicy relationship between Uber-like delivery services and the restaurants that feed them

Rick Mueller Heather Counts July 19, 2021

When app-based food delivery services (like DoorDash or Grubhub) compete with restaurants, the competition can get “spicy.” Restaurants want to deliver high quality hot, fresh food that tastes good. Uber-type delivery services want to get as many orders as possible and compete with other app-based services to grow their restaurant portfolio as fast as possible. Conflict occurs when the Uber-type-food-delivery folks (like Grubhub) start placing restaurants on their websites with whom they have no contractual relationship. The relationship worsens when the delivery services then either reject an order, say that they can’t fill it, or otherwise suggest that the restaurant is closed or too busy. The bad taste in the restaurants’ mouths grows when the delivery services use the trademarks, intellectual property, or images of the restaurant to gain customers. This situation, as reported before, is playing out in lawsuits against these food delivery services across America.

As discussed here, app-based food delivery services have faced backlash from restaurants over the delivery services’ use of their names on their platforms without consent.  Grubhub is also a target of these claims in a suit pending in Colorado federal court (C O Craft LLC d/b/a Freshcraft v. Grubhub). Like the other suits, this case is based on allegations of false advertising, contending that the service advertised a relationship with the restaurant where there was none and/or confused the consumer into believing that the restaurant itself was closed when in fact it was not. What makes Grubhub unique is that there are multiple class actions pending with slightly different legal theories, creating conflict over resolution of the claims. However the Grubhub cases play out, they stand as a reminder to restaurants to police their presence on app-based food delivery services just like they would police customer reviews on Yelp and other platforms.

As detailed in our previous posts, app-based food delivery services' practice of identifying non-partner restaurants on their platform has met with some controversy.  While this activity increases the number of perceived options (provided by Grubhub-like services), consumers purportedly become frustrated when the perceived options are revealed to be an illusion. Some customers have even been led to believe that the non-partner restaurant was closed or otherwise unavailable.

Recently, the parties in the Colorado Grubhub case reached a proposed settlement. But a second class action, in Illinois, also concerns Grubhub’s activities (Lynn Scott LLC v. Grubhub, Inc.). The Illinois case also advances an unfair competition claim, but for trademark infringement instead of a false advertising, on the theory that Grubhub was using the trademarks of these restaurants without permission. In summary, these plaintiffs claim that Grubhub is taking a free ride with the restaurant’s goodwill under circumstances where the restaurant is incapable of controlling the quality of the customer experience. Indeed, according to the complaint, some restaurants may not even know that Grubhub is involved with the order if it is a “Place & Pay Order,” where a delivery person acts as a customer on behalf of Grubhub.

The presence of two pending class actions is predictably leading to conflict between the two sets of plaintiffs. With the Illinois case stayed pending resolution of the Colorado matter, the Illinois plaintiffs sought to intervene in the Colorado matter. That motion is still pending. Undaunted and determined to stop settlement in the Colorado matter, the Illinois plaintiffs have taken the procedurally unusual step of opposing the Colorado court’s preliminary approval of the settlement agreement, presumably in the hopes of coloring the decision. The situation places the Illinois plaintiffs in a difficult position. The closer a relationship the Illinois plaintiffs claim to the Colorado subject matter, the more likely a settlement and final judgment in Colorado disposes of both proceedings or makes it subject to a motion based on the first-to-file rule. If the Illinois plaintiffs argue that the claims are separate, they have no basis to intervene and participate in the Colorado case and must watch from the sidelines until final approval of a deal (when it may be too late to stop).  

The chief argument lodged by the Illinois plaintiffs is that the settlement proposed dramatically undercompensates the class members while shutting them out of the settlement process. These types of allegations are not unusual in dueling class action situations, which lead to what some commentators refer to as a “reverse auction.” This race to the cheapest settlement results because a settlement in one case could resolve all such competing claims. The Illinois plaintiffs make exactly this argument, complaining that many class members would not receive any monetary compensation.  

The unusual effort by the Illinois plaintiffs is unlikely to succeed – as the parties in the Colorado case (who have an interest in preserving the settlement) point out, the Illinois plaintiffs are not in the Colorado case and unnamed plaintiffs cannot participate in the settlement process until the court grants preliminary approval to a settlement. Yet the Illinois plaintiffs are not without leverage. To be approved, a class settlement must be determined fair, reasonable, and adequate by the court after providing the class with notice and opportunity to object. Objections at that time can include that the class is not adequate or that the settlement agreement is not fair.  

Regardless of which side of the saga playing itself out in a Colorado courtroom you are on, these claims only confirm our statements from earlier posts about the need for continued vigilance by restaurants of their online presence. Restaurants should police activity from entities like app-based delivery services to ensure that they maintain standards.

Heather F. Counts and Rick Mueller are partners in Thompson Coburn’s Consumer Products department.