692 F.Supp.3d 268
S.D.N.Y.2023Background
- Plaintiffs are major third-party food-delivery platforms (DoorDash, Grubhub/Caviar/Seamless, Postmates, Uber Eats) that contract with NYC restaurants and charge commission fees to fund platform services.
- New York City enacted a series of laws capping commissions: a 15% cap on delivery fees and a 5% cap on all other fees; the caps were adopted first as temporary COVID-era emergency measures and later made permanent.
- Plaintiffs allege the City adopted the caps without economic study, targeted out-of-state platforms, and chose arbitrary percentages; they claim the law forces them to operate at a loss and impairs existing contracts.
- Plaintiffs assert six constitutional claims: Contracts Clause, Takings (U.S. and N.Y.), excess of municipal police power (state law), substantive due process, equal protection, and dormant Commerce Clause; City moved to dismiss.
- The district court (Judge Gregory H. Woods) denied the motion to dismiss on all counts, finding Plaintiffs plausibly pleaded substantial impairments, improper motives, and severe economic impact requiring further factual development.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Contracts Clause | Law substantially impairs contractual bargains and expectations; caps are arbitrary, not tailored, and imposed without study | Law is a legitimate public-response (pandemic/small-business protection); at-will contracts and legislative deference defeat claim | Denied dismissal: Plaintiffs plausibly pleaded substantial impairment and lack of legitimate, well-supported public purpose; factual development required |
| Takings Clause | Regulatory taking: severe economic impact, investment-backed expectations destroyed, character of action benefits private restaurateurs at Plaintiffs' expense | Mere diminution in value; no compensable taking | Denied dismissal: Penn Central factors plausibly support takings claim pending record development |
| Municipal Police Power / Home-Rule | Caps are not reasonably related to public health or welfare, are not tailored, and target a narrow private class | City acted within police power to protect restaurants and public welfare | Denied dismissal: Plaintiffs plausibly allege the law is unreasonable and not a valid exercise of municipal police power |
| Substantive Due Process | Price controls are arbitrary, deprive Plaintiffs of reasonable income-producing use | Plaintiffs can offset losses via consumer fees; caps are not confiscatory | Denied dismissal: Complaint plausibly alleges deprivation of fair return and irrationality of caps |
| Dormant Commerce Clause | Law was motivated by economic protectionism against out-of-state platforms (sponsor statements, carveouts) | Law regulates local commerce evenhandedly to protect small businesses | Denied dismissal: Plaintiffs plausibly plead discriminatory purpose; claim survives pleading stage |
Key Cases Cited
- Allied Structural Steel Co. v. Spannaus, 438 U.S. 234 (1978) (Contracts Clause limits state impairment of contracts)
- Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398 (1934) (permissible emergency limitations on contracts analyzed under a balancing test)
- Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978) (framework for regulatory takings analysis)
- Lingle v. Chevron U.S.A. Inc., 544 U.S. 528 (2005) (clarified takings analysis and rejected use of Contracts Clause test for takings)
- Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg'l Planning Agency, 535 U.S. 302 (2002) (regulatory takings and ad hoc Penn Central inquiry)
- Melendez v. City of New York, 16 F.4th 992 (2d Cir. 2021) (Second Circuit Contracts Clause application and sliding-scale analysis)
- Buffalo Teachers Fed'n v. Tobe, 464 F.3d 362 (2d Cir. 2006) (Contracts Clause and police-power interplay)
- Connecticut State Police Union v. Rovella, 36 F.4th 54 (2d Cir. 2022) ( Contracts Clause test restated)
- Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155 (1980) (property interests defined by state law)
- United States v. Morrison, 529 U.S. 598 (2000) (federalism and limits of federal power; cited re: police powers)